Table of Contents
(Mark One)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
☐
☒
☐
☐
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
Date of event requiring this shell company report _______________________
For the transition period from _________________ to _______________________
Commission file number 001-38261
Kaixin Auto Holdings
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
Cayman Islands
(Jurisdiction of incorporation or organization)
9/F, Tower A, Dongjin International Center
Huagong Road,
Chaoyang District, Beijing 100015
People’s Republic of China
(Address of principal executive offices)
Yi Yang
Chief Financial Officer
Kaixin Auto Holdings
9/F, Tower A, Dongjin International Center
Huagong Road,
Chaoyang District, Beijing 100015
People’s Republic of China
Phone: +86 10 6720 4948
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class
Ordinary shares, par value US$0.00005 per
share
Trading Symbol(s)
KXIN
Name of each exchange on which registered
Nasdaq Capital Market
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)
Table of Contents
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, 2022, there were 228,250,210 ordinary shares issued and outstanding, par value of US$0.00005 per share.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ⌧
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934. Yes ☐ No ⌧
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☐ No ⌧
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes ☐ No ⌧
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Non-accelerated filer ⌧
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. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ⌧
International Financial Reporting Standards
as issued by the International Accounting
Standards Board ☐
Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to
follow. ☐ Item 17 ☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
☒
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐
Table of Contents
PART I
TABLE OF CONTENTS
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 3. KEY INFORMATION
ITEM 4. INFORMATION ON THE COMPANY
ITEM 4A. UNRESOLVED STAFF COMMENTS
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECT
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
ITEM 8. FINANCIAL INFORMATION
ITEM 9. THE OFFER AND LISTING.
ITEM 10. ADDITIONAL INFORMATION.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.
ITEM 15. CONTROLS AND PROCEDURES.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT.
ITEM 16B. CODE OF ETHICS.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT.
PART III
ITEM 16G. CORPORATE GOVERNANCE.
ITEM 16H. MINE SAFETY DISCLOSURE
ITEM 17. FINANCIAL STATEMENTS.
ITEM 18. FINANCIAL STATEMENTS.
ITEM 19. EXHIBITS.
i
4
4
4
4
55
88
88
102
111
114
115
116
131
132
133
133
133
133
135
135
135
135
136
136
136
137
138
138
138
139
Table of Contents
Conventions Used in this Annual Report
INTRODUCTION
In this Annual Report, unless otherwise indicated or the context otherwise requires, references to:
● “Business Combination” are the transactions contemplated by the share exchange agreement dated as of November 2, 2018
by and among CM Seven Star Acquisition Corporation, KAG and Renren, pursuant to which we acquired 100% of the
equity interests of KAG from Renren on April 30, 2019;
● “CAGR” are to compound annual growth rate;
● “car parc” are to the total number of light vehicles, including cars, sport utility vehicles and light trucks in a region or
market at a specific point in time;
● “China” or the “PRC” are to the People’s Republic of China, excluding, for the purposes of this Annual Report only, Hong
Kong, Macau and Taiwan;
● “Dealerships” are to our dealership businesses operated by special purpose holding companies in which we possess
majority ownership and voting control;
● “Dealership Outlets” are to retail premises operated by our Dealerships;
● “Haitaoche” are to Haitaoche Limited;
● “Haitaoche Acquisition” are to the transaction closed on June 25, 2021 in which Kaixin issued to shareholders of Haitaoche
an aggregate of 74,035,502 ordinary shares of Kaixin in exchange of 100% share capital of Haitaoche;
● “Haitaoche VIEs” are to Ningbo Jiusheng Automobile Sales and Services Co., Ltd. (“Ningbo Jiusheng”), and Qingdao
Shengmeilianhe Import Automobile Sales Co., Ltd. (“Qingdao Shengmeilianhe”);
● “Jieying Legal Representative” are to the former legal representative of Anhui Xin Jieying Auto Retail Co., Ltd., Mr.
Xiaolei Gu;
● “KAG” are to Kaixin Auto Group, our wholly-owned subsidiary acquired from Renren;
● “Kaixin”, “we”, “us”, “our company” or “our” are to Kaixin Auto Holdings, our Cayman Islands holding company, and its
subsidiaries and consolidated affiliated entities;
● “Kaixin VIEs” are to Shanghai Qianxiang Changda Internet Information Technologies Development Co., Ltd. (“Qianxiang
Changda”) and Anhui Xin Jieying Auto Retail Co., Ltd. (“Anhui Xin Jieying”, former name as Zhejiang Jieying Auto
Retail Co., Ltd. and Shanghai Jieying Auto Retail Co., Ltd.);
● “Zhejiang Taohaoche” are to Zhejiang Taohaoche Technology Co., Ltd., our wholly-owned PRC subsidiary;
● “Renren” are to Renren Inc.;
● “RMB” or “Renminbi” are to the legal currency of China;
● “Shanghai Auto” are to Shanghai Renren Automotive Technology Group Co., Ltd., our wholly-owned PRC subsidiary;
● “SaaS” are to “software-as-a-service”;
1
Table of Contents
● “US$”, “U.S. dollars”, “$” or “dollars” are to the legal currency of the United States;
● “U.S. GAAP” are to accounting principles generally accepted in the United States;
● “variable interest entity”, “VIE” or ”VIEs” are to our historical variable interest entities, Shanghai Qianxiang Changda
Internet Information Technologies Development Co., Ltd. (“Qianxiang Changda”), Anhui Xin Jieying Auto Retail Co., Ltd.
(“Anhui Xin Jieying”, former name as Zhejiang Jieying Auto Retail Co., Ltd. and Shanghai Jieying Auto Retail Co., Ltd.),
Ningbo Jiusheng Automobile Sales and Services Co., Ltd. (“Ningbo Jiusheng”), and Qingdao Shengmeilianhe Import
Automobile Sales Co., Ltd. (“Qingdao Shengmeilianhe”), which were no longer in a contractual arrangement with us since
the completion of the disposal of Renren Finance Inc, on October 27, 2022 by KAG. VIEs were 100% owned by PRC
citizens and a PRC entity owned by PRC citizens, and are consolidated into our consolidated financial statements for the
period till the completion of the disposal of Renren Finance Inc, which was later named as Shanghai Wuxiajindongxue
Technology Co., Ltd, in accordance with U.S. GAAP as if they were our wholly-owned subsidiaries; and
● “Zhejiang Kaixin” are to Zhejiang Kaixin Automobile Co., Ltd., our wholly-owned subsidiary.
Our reporting currency is the U.S. dollar. This Annual Report contains translations of Renminbi amounts into U.S. dollars at
specific rates solely for the convenience of the reader. The conversion of Renminbi into U.S. dollars in this Annual Report is based on the
rate certified for customs purposes by the Federal Reserve Bank of New York. Unless otherwise noted, all translations from Renminbi to
U.S. dollars and from U.S. dollars to Renminbi in this Annual Report were made at a rate of RMB 6.8972 to US$1.00, the noon buying
rate in effect as of December 31, 2022 set forth in the H.10 statistical release of the U.S. Federal Reserve Board. We make no
representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the
case may be, at any particular rate, the rates stated below, or at all.
2
Table of Contents
Special Note Regarding Forward-Looking Statements
FORWARD-LOOKING INFORMATION
This Annual Report contains forward-looking statements that reflect our current expectations and views of future events. These
forward looking statements are made under the “safe-harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995.
Known and unknown risks, uncertainties and other factors, including those listed under “Item 3. Key Information — D. Risk Factors”,
may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-
looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results,
performance or achievements to be materially different from those expressed or implied by the forward-looking statements.
You can identify these forward-looking statements by words or phrases such as “may”, “will”, “expect”, “anticipate”, “aim”,
“estimate”, “intend”, “plan”, “believe”, “likely to”, “potential”, “continue” or other similar expressions. We have based these forward-
looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect
our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, but are
not limited to, statements about:
● our goals and strategies;
● our future business development, financial conditions and results of operations;
● the expected growth of the PRC used car and related industries;
● our expectations regarding the demand for and market acceptance of our products and services;
● our expectations regarding our relationships with distributors, customers, suppliers, strategic partners and other
stakeholders;
● competitions in our industry;
● relevant government policies and regulations relating to our industry; and
● assumptions underlying or related to any of the foregoing.
These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed
in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Our actual results could be
materially different from our expectations. Other sections of this Annual Report include additional factors that 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. You should read thoroughly this Annual Report and the documents that we refer to
with the understanding that our actual future results may be materially different from, or worse than, what we expect. We qualify all of
our forward-looking statements by these cautionary statements.
This Annual Report contains certain data and information that we obtained from various government and private publications.
Statistical data in these publications also include projections based on a number of assumptions. The PRC used car industry may not
grow at the rate projected by market data, or at all. Failure of this market to grow at the projected rate may have a material adverse effect
on our business and the market price of our ordinary shares. Furthermore, if any one or more of the assumptions underlying the market
data are later found to be incorrect, actual results may differ from the projections based on these assumptions. You should not place
undue reliance on these forward-looking statements.
3
Table of Contents
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
Our Holding Company Structure
Kaixin Auto Holdings is not an operating company in China, but a Cayman Islands holding company. We conduct our
operations in China through our PRC subsidiaries. As used in this Annual Report, “we”, “us”, “our Company”, “the Company” or “our”
refers to Kaixin Auto Holdings, a Cayman Islands company, its subsidiaries, and, in the context of describing its operations and
consolidated financial information, its consolidated affiliated entities in China. Investors of our ordinary shares are not purchasing equity
interest in our operating entities in China but instead are purchasing equity interest in a Cayman Islands holding company.
We 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. For instance, we face risks associated with regulatory approvals on
offerings conducted overseas by and foreign investment in China-based issuers, anti-monopoly regulatory actions, and oversight on
cybersecurity and data privacy. These risks could result in a material adverse change in our operations and the value of our ordinary
shares, significantly limit or completely hinder our ability to offer or continue to offer securities to investors, or cause the value of such
securities to significantly decline. For a detailed description of risks related to doing business in China, see “Item 3. Key Information —
D. Risk Factors — Risks Related to Doing Business in China.”
PRC government’s significant authority in regulating our operations and its oversight and control over offerings conducted
overseas by, and foreign investment in, China-based issuers could significantly limit or completely hinder our ability to offer or continue
to offer securities to investors. Implementation of industry-wide regulations in this nature may cause the value of such securities to
significantly decline or be of little or no value. For more details, see “Item 3. Key Information — D. Risk Factors — Risks Related to
Doing Business in China — The Chinese government exerts substantial influence over the manner in which we must conduct our
business activities. We are currently not required to obtain approval from Chinese authorities to issue securities to foreign investors,
however, if our subsidiaries or the holding company were required to obtain approval in the future and were denied permission from
Chinese authorities to list on U.S. exchanges, we will not be able to continue listing on U.S. exchange, which would materially affect the
interest of the investors”.
As of the date of this Annual Report, our Company and the subsidiaries have not been involved in any investigations or review
initiated by any PRC regulatory authority, not has any of them received any inquiry, notice or sanction for the business operation,
accepting foreign investment or listing on the Nasdaq Stock Market. However, since these statements and regulatory actions by China’s
government are newly published, official guidance and related implementation rules have not been issued. It is highly uncertain what
future impact such modified or new laws and regulations will have on our daily business operations, the ability to accept foreign
investments and our continued listing on the Nasdaq Stock Market.
Risks and uncertainties arising from the legal system in China, including risks and uncertainties regarding the enforcement of
laws and quickly evolving rules and regulations in China, could result in a material adverse change in our operations and the value of our
ordinary shares. For more details, see “Item 3. Key Information - D. Risk Factors - Risks Related to Doing Business in China -
Uncertainties with respect to the PRC legal system could adversely affect us”.
A series of contractual agreements had been entered into by and among our wholly-owned PRC subsidiaries Shanghai Auto,
Zhejiang Kaixin, Zhejiang Taohaoche, the VIEs and the shareholders of the VIEs. For more details of these contractual arrangements, see
“Item 4. Information on the Company - C. Organizational Structure - Contractual Agreements with the VIEs and Their Shareholders”.
4
Table of Contents
The contractual arrangements may not be as effective as direct ownership in providing us with control over our consolidated
VIEs 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 VIEs or their respective 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 VIEs may have potential conflicts of interest with us. We do
not have any arrangements in place to address such potential conflicts”.There are also substantial uncertainties regarding the
interpretation and application of current and future PRC laws, regulations and rules regarding the status of the rights of our Cayman
Islands holding company with respect to its assets and business operations in China. If we are found to be in violation of any existing or
future PRC laws or regulations, or fail 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. See “Item 3. Key Information - D. Risk
Factors - Risks Related to Our Corporate Structure - “- Substantial uncertainties exist with respect to the interpretation and
implementation of the PRC Foreign Investment Law, and it may materially and adversely affect the viability of our current corporate
structure, corporate governance and business operations”.
Termination of VIE Agreements and Disposition of VIEs
Historically, as a Cayman Islands holding company, we conduct our operations in China through our PRC subsidiaries and the
VIEs. We had relied on contractual arrangements among our PRC subsidiaries, the VIEs and their shareholders to receive economic
benefits from the business operations of the VIEs in PRC in which we have no equity ownership. Our corporate structure was subject to
risks associated with our contractual arrangements with the VIEs. Investors may never directly hold equity interests in the VIEs. If the
PRC government finds that the agreements that establish the structure for operating our business do not comply with the 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 interests in those operations. Our holding company, our PRC subsidiaries, the VIEs, 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 VIEs and, consequently, significantly affect the financial performance of the VIEs and our Company as a whole. In addition, the
company had a large number of inactive shell companies, which were the result of its historical legacy and no longer relevant for its car
sale businesses. Those inactive entities and the VIEs simply caused extra maintenance costs, regulatory risk, and disclosure burdens. To
streamline its corporate structure, mitigate the uncertainties, and exert full control on our operating entities, we transferred operations in
the VIEs to our wholly-owned entities and disposed of Renren Finance, Inc, which was our wholly-owned subsidiary that contractually
controls the VIEs.
On August 5, 2022, Kaixin Auto Group (“KAG”), our wholly-owned subsidiary, and Stanley Star Group Inc (“Stanley Star”)
entered into a shares transfer agreement (the “August 2022 Agreement”). The Agreement stipulates that KAG agrees to sell all the shares
it held in Renren Finance, Inc. along with its subsidiaries and VIEs and the VIEs’ subsidiaries (collectively referred to as the “Disposal
Group”) at a consideration of $1 to Stanley Star, an independent third party company incorporated in BVI that was interested in
exploring the opportunities in the non-performing assets on the books of the Disposal Group. In addition, the August 2022 Agreement
stipulates that on the date of the closing if the net liability of the Disposal Group is more than RMB20 million, the Company agrees to
make compensation to Stanley Star accordingly.
The sale of Disposal Group and the ownership transfer were completed on October 27, 2022 (the “Disposal Completion Date”),
on which date the net book value of the Disposal Group was net liabilities was approximately $24.6 million. Accordingly, on December
28, 2022, KAG and Stanley Star entered into a supplement agreement pursuant to which the Company agrees to compensate Stanley Star
pursuant to the August 2022 Agreement. On March 24, 2023, KAG and Stanley Star entered into an amendment to the supplement
agreement, the Company entered into a securities purchase agreement (the “Series F Agreement”) with Stanley Star, pursuant to which
the Company agreed to issue to Stanley Star an aggregate of 50,000 Series F Convertible Preferred Shares (the “Series F Preferred
Shares”), each of which is convertible into 1,000 ordinary share of the Company. The issuance of Series F Preferred Shares were closed
in May 2023 upon the relevant approval of the competent authorities of the Cayman Islands.
With the disposition of the Disposal Group, all VIEs were disposed as of October 27, 2022 (“Disposal of Subsidiaries”, see Note
4 to the consolidated financial statement) and“Item 4. Information on the Company - C. Corporate Structure.” As a result, there is no VIE
entity in the corporate structure of the Company and as of the date of this Annual Report, we conduct our operations exclusively through
our wholly-owned subsidiaries.
5
Table of Contents
Permissions Required from the PRC Authorities for Our Operations
We conduct our business through our subsidiaries in China. Our operations in China are governed by PRC laws and regulations.
As of the date of this Annual Report, our Company and our subsidiaries have not been involved in any investigations or review initiated
by any PRC regulatory authority, not has any of them received any inquiry, notice or sanction for our operations or our issuance of
securities to investors. Nevertheless, the Standing Committee of the National people’s Congress (the “SCNPC”) or PRC regulatory
authorities may in the future promulgate laws, regulations or implementing rules that requires us and our subsidiaries to obtain
permissions from PRC regulatory authorities to conduct business operations in China.
In addition, as of the date of this Annual Report, except for business license, foreign investment information report to the
commerce administrative authority and foreign exchange registration or filing, our consolidated affiliated Chinese entities do not have to
obtain any requisite licenses and permits from the PRC government authorities that are material for the business operations of our
holding company and our subsidiaries in China. However, given the uncertainties of interpretation and implementation of relevant laws
and regulations and the enforcement practice by government authorities, we may be required to obtain certain licenses, permits, filings or
approvals for the functions and services that we provided in the future.
Cash and Asset Flows through Our Organization
Kaixin Auto Holdings transfers cash to its wholly-owned Hong Kong subsidiaries, by making capital contributions or providing
loans, and the Hong Kong subsidiaries transfer cash to the subsidiaries in China by making capital contributions or providing loans to
them. Because Kaixin and its subsidiaries control the VIEs through contractual arrangements, they are not able to make direct capital
contribution to the VIEs and their subsidiaries. However, they may transfer cash to the VIEs by loans or by making payment to the VIEs
for inter-group transactions. For the years ended December 31, 2020, 2021 and 2022, the VIEs received financial support for daily
operation of nil, US$3.88 million and US$10.79 million from our non-VIE subsidiaries, and our non-VIE subsidiaries received financial
support of nil , US$3.90 million and US$10.49 million from the VIEs and their subsidiaries, respectively.
In addition, the majority of our subsidiaries and the VIEs and their subsidiaries receive income in RMB. Shortages in foreign
currencies may restrict our ability to pay dividends or other payments, or otherwise satisfy our foreign currency denominated obligations,
if any. In addition, under the PRC laws and regulations, our PRC subsidiaries and VIEs and their subsidiaries are also subject to certain
restrictions with respect to paying dividends or otherwise transferring any of their net assets to us. We have no operations outside of
PRC, and cash generated from operations in the PRC may not be available for other use outside of the PRC due to interventions in or the
imposition of restrictions and limitations on the ability of us, our subsidiaries, or the consolidated VIEs by the PRC government to
transfer cash. In addition, remittance of dividends by a wholly foreign-owned enterprise out of China is also subject to examination by
the banks designated by SAFE. Under existing PRC foreign exchange regulations, payments of current account items, including profit
distributions, interest payments and expenditures from trade-related transactions, can be made in foreign currencies without prior
approval from SAFE as long as certain procedural requirements are met. Approval from appropriate government authorities is required if
RMB is converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in
foreign currencies. The Chinese government may also, at its discretion, impose restrictions on access to foreign currencies for current
account transactions and if this occurs in the future, we may not be able to pay dividends in foreign currencies to our shareholders. See
“Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China — We may rely on dividends and other
distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements that we may have, and any limitation
on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our
business. Moreover, the Chinese government may, at its discretion, impose restrictions on access to foreign currencies for current account
transactions and if this occurs in the future, we may not be able to pay dividends in foreign currencies to our shareholders.” and “Item 3.
Key Information — D. Risk Factors — Risks Related to Our Corporate Structure – Investing in our securities is highly speculative and
involves a significant degree of risk as we are a holding company incorporated in the Cayman Islands and operate our business through
VIE structure. To the extent cash or assets in the business are in the PRC/Hong Kong or a PRC/Hong Kong entity, funds or assets may
not be available to fund operations or for other use outside of the PRC/Hong Kong due to interventions in or the imposition of
restrictions and limitations on the ability of the holding company, its subsidiaries, or the consolidated VIEs by the PRC government to
transfer cash or assets.” and “— Our adjustment of corporate structure and business operations and the termination of contractual
arrangement with the VIEs may not be liability-free.”
6
Table of Contents
For the years ended December 31, 2020, 2021 and 2022, no dividends or distributions were made to Kaixin by our subsidiaries.
Under the PRC laws and regulations, our PRC subsidiaries and VIEs 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 amounts restricted include the paid-up capital and the statutory reserve
funds of our PRC subsidiaries and VIEs, totalling US$7.6 million, US$117.1 million and US$121.7 million as of December 31, 2020,
2021, and 2022, 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 VIEs 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
— D. Risk Factors — Risks Related to Doing Business in China — We may rely on dividends and other distributions on equity paid by
our PRC subsidiaries to fund any cash and financing requirements that we may have, and any limitation on the ability of our PRC
subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business”.
For the years ended December 31, 2020, 2021 and 2022, no assets other than cash were transferred through our organization.
Although we does not have a formal cash management policy in place that dictates how funds shall be transferred between the Company,
our subsidiaries and the VIEs and its subsidiaries or investors, cash transfers are made among the entities based on business needs in
compliance of relevant PRC laws and regulations.
Kaixin 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 ordinary
shares, see “Item 10. Additional Information — E. Taxation”. Kaixin 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 ordinary shares, see “Item 10. Additional Information — E. Taxation”.
The cash flows that have occurred between our Company, its subsidiaries are summarized as follows:
Transfer from
Parent
VIEs and their subsidiaries
Non-VIE subsidiaries
Transfer from
Parent
VIEs and their subsidiaries
Non-VIE subsidiaries
$
$
$
$
$
$
7
Parent
For the year ended December 31,2022
Transfer to
VIEs and their
Subsidiaries
Non-VIE
subsidiaries
Consolidated Consolidated
1,252
— $
10,493
— $
—
$
10,793
— $
— $
— $
For the year ended December 31,2021
Transfer to
VIEs and their
Subsidiaries
Non-VIE
subsidiaries
Consolidated Consolidated
Parent
(in thousands)
— $
— $
— $
— $
— $
$
3,880
—
3,897
—
Table of Contents
Transfer from
Parent
VIEs and their subsidiaries
Non-VIE subsidiaries
Financial Information Related to the VIEs
For the year ended December 31,2020
Transfer to
VIEs and their
Subsidiaries
Consolidated
Parent
$
$
$
— $
— $
— $
— $
— $
— $
Non-VIE
subsidiaries
Consolidated
—
—
—
The following tables present the condensed consolidating schedule of financial information for our Company, our subsidiaries,
the VIEs and the VIEs’ subsidiaries for the periods indicated.
Disaggregated Financial Information relating to the VIEs
Selected Condensed Consolidated Balance Sheet Data
As of December 31, 2022
Parent
VIEs and their
subsidiaries
Company Consolidated Consolidated elimination Consolidation
(in thousands)
Non-VIE
Subsidiaries
Inter-company
Group
Total current assets
Investments in subsidiaries and VIEs
Total non-current assets
Total assets
Total current liabilities
Total non-current liabilities
Total liabilities
Amount due from VIE
Total current assets
Investments in subsidiaries and VIEs
Total non-current assets
Total assets
Amount due to non-VIE
Total current liabilities
Total non-current liabilities
Total liabilities
$ 13,727
$ 27,964
$ 27,964
$ 41,691
$ 10,376
$
$ 10,376
$ 32,301 $
$
— $
$ 13,380 $
$ 45,681 $
$ 13,219 $
311 $
$ 13,529 $
— $
— $
— $
— $
— $
— $
— $
— $
(3,726) $
(27,964) $
(27,964) $
(31,690) $
(3,726) $
— $
(3,726) $
42,302
—
13,380
55,682
19,869
311
20,179
As of December 31, 2021
Parent
Non-VIE
Subsidiaries
Company Consolidated Consolidated
(in thousands)
VIEs and their
subsidiaries
Inter-company
Group
elimination Consolidation
$
$
$ 5,130
$ 5,130
$ 5,130
$
$
$
$
— $ 42,495 $
— $ 49,449 $
$
— $
$ 14,897 $
$ 64,346 $
— $
— $
— $ 52,518 $
— $
6,698 $
— $ 59,216 $
— $
51,983 $
— $
326 $
52,309 $
42,495 $
19,360 $
— $
19,360 $
(42,495) $
(42,495) $
(5,130) $
(5,130) $
(47,625) $
(42,495) $
(42,495) $
— $
(42,495) $
—
58,937
—
15,223
74,160
—
29,383
6,698
36,081
8
Table of Contents
Selected Condensed Consolidated Statement of Operations Data
For the years ended December 31,2022
Parent
Non-VIE
Subsidiaries
Company Consolidated Consolidated
(in thousands)
VIEs and their
subsidiaries
Inter-company
elimination
Group
Consolidation
Revenue
Cost of revenue
Gross profit
Operating expenses
Loss from operations
Share of loss from subsidiaries
Net loss
Less: net loss attributable to non-controlling interests
Net loss attributable to the Company’s shareholders
— $ 52,962 $
$
— $ 52,617 $
$
345 $
— $
$
7,605 $
$
5,897
$
(6,519) $
$ (6,363) $
$ (78,256) $
— $
$ (84,619) $ (61,368) $
$
— $
$ (84,619) $ (61,455) $
— $
29,878 $
29,577 $
301 $
35,083 $
(35,057) $
— $
(16,888) $
— $
(16,888) $
82,840
— $
82,194
— $
646
— $
48,585
— $
— $ (47,939)
$
—
$ (84,619)
—
$ (84,706)
— $
78,256
78,256
78,256
Revenue
Cost of revenue
Gross profit
Operating expenses
(Loss) income from operations
Share of loss from subsidiaries
Net loss
Less: net income attributable to non-controlling interests
Net loss attributable to the Company’s shareholders
Revenue
Cost of revenue
Gross profit
Operating expenses
Loss from operations
Share of loss from subsidiaries
Net loss
Less: net loss attributable to non-controlling interests
Net loss attributable to the Company’s shareholders
For the year ended December 31,2021
Group
Parent
Inter-company
Non-VIE
Subsidiaries
VIEs and their
subsidiaries
Company Consolidated Consolidated elimination Consolidation
(in thousands)
— $
— $ 253,840
$
— $
— $ 248,583
$
5,257
— $
— $
$
1,179
$
— $ 186,691
$
— $ (186,691) $
4,078
$
$ (195,228) $
(68) $
$ (195,228) $ (195,160) $
$
$
$
$ (195,228) $ (195,160) $
— $ 253,840
$ 248,583
5,257
$ 187,870
$ (182,613)
$
—
$ (195,928)
651
$
$ (196,579)
— $ 195,296
(768) $ 195,296
651
$
(1,419) $ 195,296
$
$
$
$
$
— $
For the years ended December 31,2020
Parent
Non-VIE
Subsidiaries
VIEs and their
subsidiaries
Company Consolidated Consolidated
(in thousands)
1,207
1,207
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
$
$
— $
276
$
(276) $
— $
(166) $
— $
(166) $
Inter-company
elimination
Group
Consolidation
— $
— $
— $
— $
— $
— $
— $
— $
— $
1,207
1,207
—
276
(276)
—
(166)
—
(166)
$
$
$
$
$
$
$
$
$
9
Table of Contents
Selected Consolidated Statement of Cash Flows
Parent
For the year ended December 31,2022
VIEs and their
subsidiaries
Non-VIE
Subsidiaries
Inter-company
Group
Company
Consolidated Consolidated
elimination Consolidation
Net cash provided by operating activities
Net cash (used in) provided by investing activities
Net cash used in by financing activities
Effect of exchange rate changes
Net increase (decrease) in cash, cash equivalents and
restricted cash
$
$
$
$
$
(2,410) $
— $
(165) $
— $
(in thousands)
$
404
(156) $
$
5,386
— $
(388) $
— $
185
$
(1,017) $
— $
— $
— $
— $
(2,394)
(156)
5,406
(1,017)
(2,575) $
5,634
$
(1,220) $
— $
1,839
Parent
For the year ended December 31,2021
VIEs and their
subsidiaries
Non-VIE
Subsidiaries
Inter-company
Group
Net cash provided by (used in) operating activities
Net cash (used in) provided by investing activities
Net cash provided by financing activities
Effect of exchange rate changes
Net increase in cash, cash equivalents and restricted cash
$
$
$
$
$
— $
— $
— $
— $
— $
(in thousands)
$
989
(6,332) $
$
9,777
— $
$
(3,092) $
$
2,822
— $
$
$
492
222
4,434
— $
7,777
$
(7,777) $
$
— $
(2,103)
4,267
2,000
492
4,656
Company
Consolidated Consolidated
elimination Consolidation
Parent
For the years ended December 31,2020
VIEs and their
subsidiaries
Non-VIE
Subsidiaries
Inter-company
Group
Net cash used in operating activities
Net cash used in investing activities
Net cash provided by financing activities
Effect of exchange rate changes
Net increase in cash, cash equivalents and restricted cash
$
$
$
$
$
— $
— $
— $
$
— $
(in thousands)
— $
— $
— $
$
— $
(1,135) $
(290) $
2,132
$
(104) $
$
603
— $
— $
— $
$
— $
(1,135)
(290)
2,132
(104)
603
Company
Consolidated Consolidated
elimination Consolidation
A.
B.
[Reserved]
Capitalization and indebtedness.
Not applicable.
C.
Reasons for the offer and use of proceeds.
Not applicable.
10
Table of Contents
D.
Risk factors.
Summary of the Risk Factors
An investment in our capital stock involves a high degree of risk. You should carefully consider the risks described below, together with
all of the other information included in this Annual Report, before making an investment decision. If any of the following risks actually
occurs, our business, prospects, financial condition or results of operations could suffer. In that case, the trading price of our capital
stock could decline, and you may lose all or part of your investment. Below please find a summary of the principal risks we face,
organized under the relevant headings.
Risks Related to Our Business and Industry
Risks and uncertainties related to our business and industry include, but are not limited to, the following:
● We have a history of losses and negative cash flows from operating activities, and we may not achieve or maintain
profitability in the future.
● We have a limited operating history in the automobile sales business. Our historical financial and operating performance
may not be indicative of, or comparable to, its future prospects and results of operations.
● Our subsidiaries and the Dealerships conduct various aspects of their business, and they face risks associated with the
Dealerships, their employees and other personnel.
● Our subsidiaries and may not be able to successfully expand or maintain our network of Dealerships.
● Our Dealerships conduct various aspects of our business, and we face risks associated with our Dealerships, their
employees and other personnel.
● We may not be able to successfully expand or maintain our network of Dealerships.
● Any difficulties in identifying, consummating and integrating acquisitions, investments or alliances may expose us to
potential risks and have an adverse effect on our business, results of operations or financial condition.
● The quality of the premium used automobiles that we offer is critical to the success of our business.
● Our success depends upon the continued contributions of our sales representatives.
● We may need additional capital to pursue our business objectives and respond to business opportunities, challenges or
unforeseen circumstances, and financing may not be available on terms acceptable to us, or at all.
Risks Related to Our Carve-out from Renren and Our Relationship with Renren
Risks and uncertainties related to our carve-out from Renren include, but are not limited to, the following:
● We have limited experiences operating as a stand-alone public company.
● We are not expected to receive the same level of support from Renren, and if our collaboration with Renren is terminated or
curtailed or if we are no longer able to benefit from the synergies of our cooperation with Renren, our business may be
adversely affected.
11
Table of Contents
Risks Related to Our Corporate Structure
Risks and uncertainties related to our corporate structure include, but are not limited to, the following:
o
Investing in our securities is highly speculative and involves a significant degree of risk as we are a holding company
incorporated in the Cayman Islands and operate our business through VIE structure. To the extent cash or assets in the
business are in the PRC/Hong Kong or a PRC/Hong Kong entity, funds or assets may not be available to fund operations or
for other use outside of the PRC/Hong Kong due to interventions in or the imposition of restrictions and limitations on the
ability of the holding company, its subsidiaries, or the consolidated VIEs by the PRC government to transfer cash or assets.
o Our adjustment of corporate structure and business operations and the termination of contractual arrangements with the
VIEs may not be liability-free.
Risks Related to Doing Business in China
Risks and uncertainties related to conducting business in China include, but are not limited to, the following:
o Chinese government exerts substantial influence over the manner in which we must conduct our business activities. We are
required to file with the China Securities Regulatory Commission (“ CSRC”) within 3 working days after the subsequent
securities offering is completed and we might face warnings or fines if we fail to fulfill related filing procedure. We may
become subject to more stringent requirements with respect to matters including cross-border investigation and
enforcement of legal claims.
o Recent regulatory initiatives implemented by the PRC competent government authorities on cyberspace data security may
have introduced uncertainty in our business operations and compliance status, which could result in materially adverse
impact on our business, results of operations and our listing on Nasdaq.
o
It may be difficult for overseas shareholders and/or regulators to conduct investigations or collect evidence within China.
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. Accordingly, without governmental approval in China, no entity or individual in China may provide
documents and information relating to securities business activities to overseas regulators when it is under direct
investigation or evidence discovery conducted by overseas regulators.
o Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on
our business and operations.
o Uncertainties with respect to the PRC legal system could adversely affect us.
o We may be adversely affected by the complexity and uncertainties of and changes in PRC regulation of Internet business
and related companies.
Risks Related to Our Ordinary Shares
Risks and uncertainties related to our corporate structure include, but are not limited to, the following:
● If we fail to regain compliance with Nasdaq’s minimum bid price requirement, our ordinary shares could be subject to
delisting.
● The issuance of additional shares in the future may impact the price of our ordinary shares and our ability to regain
compliance with Nasdaq’s minimum bid price requirement.
12
Table of Contents
The following are detailed descriptions of the risk factors.
Risks Related to Our Business and Industry
We have a history of losses and negative cash flows from operating activities, and we may not achieve or maintain profitability in the
future.
We had not been profitable since 2019. We incurred net losses of US$0.2 million, US$195.9 million,and US$80.5 million in
2020, 2021, and 2022, respectively. The significant decrease in net loss in 2022 in comparion to that in 2021 was primarily due to the
one-time $143.7 million impairment loss of goodwill in 2021. We also had cash outflows from operating activities of US$2.1 million and
US$1.5 million in 2021 and 2022, respectively.
We have experienced recurring losses from operations. As of December 31, 2022, we had an accumulated deficit of US$281.6
million.
We expect that we will continue to incur losses at least in the near term as we invest in and strive to grow our business. We may
also incur significant losses in the future for a number of reasons, including possible changes in general economic conditions and
regulatory environment, slowing demand for used and new cars and related products and services, increasing competitions, weakness in
the automotive retail industry generally, as well as other risks described in this Annual Report, and we may encounter unforeseen
expenses, difficulties, complications and delays in generating revenues or profitability. In addition, if we reduce variable costs to respond
to losses, this may limit our ability to acquire customers and grow our revenues. Accordingly, we may not achieve or maintain
profitability and may continue to incur significant losses in the future.
We have a limited operating history in the automobile sales business. Our historical financial and operating performance may not be
indicative of, or comparable to, its future prospects and results of operations.
Although Kaixin Auto Group (“KAG”) was formed in 2011, it has changed its business model significantly since its initial
launch. KAG began as primarily an internet-based financing business and, by that time it was acquired by us, had developed into a used
car retailer with strong online and offline presence. In addition, in 2021 we started to implement our plan to expand into electronic
vehicle and other business areas.
As a result, our business model has not been fully proven, and we have only a limited operating history with our new business
model against which to evaluate our business and future prospects, which subjects us to a number of uncertainties. Accordingly, our
historical financial results should not be considered indicative of our future performance and may be less comparable to financial results
for future periods.
Additionally, we have encountered and will continue to encounter risks and difficulties frequently experienced by growing
companies in rapidly changing industries, including achieving market acceptance of our brand, attracting and retaining customers,
increasing competitions, and increasing expenses as we continue to grow our business. We cannot assure you that we will be successful
in addressing these and other challenges that we may face in the future, and if we do not manage these risks successfully, our business
may be adversely affected. In addition, we may not achieve sufficient revenues or maintain positive cash flows from operations or
profitability in any given periods. If our assumptions regarding these risks and uncertainties which we use to plan our business are
incorrect, or if we do not address these risks successfully, our operating and financial results could differ materially from our
expectations, and our business could suffer.
As the market, the regulatory environment and other conditions evolve, our existing solutions and services may not continue to
deliver the expected business results. As our business develops and responds to competitions, we may continue to introduce new services
or make adjustments to our existing services, business model or operations in general. Any significant changes to our business model or
failure to achieve the intended business results may have a material and adverse impact on our financial condition and results of
operations. Therefore, it may be difficult to effectively assess our future prospects.
13
Table of Contents
Our subsidiaries and their subsidiaries’ Dealerships conduct various aspects of their business, and they face risks associated with the
Dealerships, their employees and other personnel.
We rely on the Dealerships of our subsidiaries to conduct significant aspects of our business. As of December 31, 2022, we had
3 Dealerships. Our control over our Dealerships may not be as effective as if we fully owned these partners’ businesses, which could
potentially make it difficult for us to manage them.
The Dealerships and their employees directly interact with consumers and other dealerships, and their performance directly
affects our reputation and brand image. If our service personnel or those of the Dealerships fail to satisfy the needs of the consumers,
respond effectively to their complaints, or provide services to their satisfaction, our reputation and the customers’ loyalty could be
negatively affected. As a result, we may lose customers or experience a decline in business volume, which could have a material adverse
effect on our business, financial condition and results of operations. We do not directly supervise the services provided by the
Dealerships and their personnel and may not be able to successfully maintain and improve the quality of their services. Dealerships may
also fail to implement sufficient control over their sales, maintenance and other personnel. As a result of the conduct of our business, we
may suffer financial losses, incur liabilities and suffer reputational damages. In addition, while violation of laws and regulations by
Dealerships has not led to any material claims against us in the past, there can be no assurance that such a claim will not arise in the
future which may harm our brand or reputation or have other adverse impacts.
Further, suspension or termination of a Dealership’s or a Dealership Outlet’s services in a particular geographic area may cause
interruption to or failure in our services in the corresponding geographic area. A Dealership operator may suspend or terminate his or her
services or cooperation with us for various reasons, many of which are outside our control. For example, due to the intense competition
in our industry, existing Dealerships may choose to discontinue their cooperation with us and work with our competitors instead. We may
not be able to promptly replace the Dealerships or find alternative ways to serve their geographic areas in a timely, reliable and cost-
effective manner, or at all. As a result of any service disruptions associated with Dealerships, our customers’ satisfaction, brand,
reputation, operations and financial performance may be materially and adversely affected.
During 2020, due to disagreements with certain non-controlling shareholders on operational matters, some non-controlling
shareholders illegally detained our inventories in the Dealerships and significant uncertainty arose on the realizability and collectability
of the prepayments to purchase used cars for these Dealerships and amounts due from these non-controlling shareholders. As a result, we
wrote down US$17.8 million inventory, and wrote off US$22.3 million prepayments for the year ended December 31, 2019. By early
2021, we have reached agreement to resume used car business operations with a majority of the non-controlling shareholders. We have
reached settlement agreement with most of non-controlling shareholders.
Our subsidiaires may not be able to successfully expand or maintain our network of Dealerships.
As of December 31, 2022, we had a network of 3 Dealerships. We have not expanded our network since May 2018. The
Dealership network is a foundation of our used car sales operations, and we rely on the Dealerships in providing services to car buyers
and financial institutions. As China is a large and diverse market, business practices and demands may vary significantly by regions and
our experience in the markets in which we currently operate may not be applicable in other parts of China. As a result, we may not be
able to leverage our experiences to expand the Dealership network into other parts of China.
Further, we may have difficulties in managing our relationships with the Dealership operators once they have earned the share
payouts to which they are entitled. Pursuant to our equity purchase agreements with the Dealership operators, they are entitled to
payment of consideration in our ordinary shares based on the Dealerships’ performance over five 12-month performance benchmark
periods. Following the completion of these performance benchmark periods, we may need to enter into new arrangements with the
Dealership operators in order to strengthen our relationships with them and incentivize their performance or begin to directly operate our
Dealerships, notwithstanding our ownership and operational control over the Dealerships. For additional information, please see “Item 4.
Information on the Company — B. Business Overview — Certain Legal Arrangements — Legal Arrangements with Dealerships”.
14
Table of Contents
Any difficulties in identifying, consummating and integrating acquisitions, investments or alliances may expose us to potential risks
and have an adverse effect on our business, results of operations or financial condition.
We have in the past made and may in the future seek to make acquisitions and investments and enter into strategic alliances to
further expand our business. If presented with appropriate opportunities, we may acquire additional businesses, services, resources, or
assets, including auto dealerships, that are accretive to our core business. For example, on December 31, 2020 we entered into definitive
agreement to effectuate the Haitaoche Acquisition and issued an aggregate of 74,035,502 ordinary shares on June 25, 2021 through
private placement to several former shareholders of Haitaoche in exchange of 100% of the share capital of Haitaoche.
Moreover, the Company reached a binding term sheet to acquire 100% equity of Henan Yujie Times Automobile Co., Ltd.
(“Yujie”) through new share issuance on August 26, 2021. On November 2, 2022, the Company signed a share purchase agreement with
the shareholders of Morning Star Auto Inc. (“Morning Star”), according to which Kaixin will acquire 100% equity of Morning Star by
issuing 100 million shares of Kaixin ordinary shares. Morning Star owns 100% equity of Yujie. At completion of the pending acquisition,
Kaixin would own all assets and business operations related to the POCCO brand of electric vehicles (POCCO EV), which would
constitute big progress toward Kaixin’s successful transformation into a new energy vehicle manufacturing company. However, at the
moment, certain prerequisite conditions for the acquisition have not been met yet, and the acquisition is still pending. There can be no
assurance that we will always be able to complete such acquisitions successfully or on terms acceptable to us. Integration of acquired
entities or assets into our business may not be successful and may prevent us from expanding into new services, customer segments or
operating locations. This could significantly affect the expected benefits of these acquisitions. Moreover, the integration of any acquired
entities or assets into our operations could require significant attention from our management. The diversion of the attention of our
management and any difficulties encountered in the integration process could have an adverse effect on our ability to manage our
business.
Our possible future acquisitions of auto dealerships, other acquisitions, investments or strategic alliances may also expose us to
other potential risks, including but not limited to:
● risks associated with unforeseen or hidden liabilities which we failed to identify in our pre-acquisition due diligence;
● the diversion of resources from our existing businesses and technologies;
● our inability to generate sufficient revenues to offset the costs, expenses of acquisitions;
● we may not be able to integrate newly-acquired businesses and operations in an efficient and cost-effective manner; and
● potential loss of, or harm to, relationships with Dealerships, employees, customers as a result of our integration of new
businesses.
In addition, we may recognize impairment losses on goodwill arising from our acquisitions. The occurrence of any of these
events could have a material and adverse effect on our ability to manage our business, financial condition and results of operations.
The quality of the premium used automobiles that we offer is critical to the success of our business.
We offer a wide selection of premium used cars for sale at our Dealerships. We have implemented high standards for the used
car inventory that we offer for sale and only the vehicles that pass our thorough inspection process consisting of over 140 steps are offer
for sale. We do not offer for sale the vehicles in poor condition or vehicles with a history of accidents, water or fire damage, extensive
mileage or other unacceptable attributes. However, there can be no assurance that these inspections and other measures will be effective,
and there is a risk that the vehicles offered for sale by our Dealerships could have defects. As a result, we and our Dealerships are
exposed to product liability claims relating to personal injury or property damage and may require product recalls or other actions. Third
parties subject to such injury or damage may bring claims or legal proceedings against us or our Dealerships as a result of the sale of
such products.
15
Table of Contents
Our success depends upon the continued contributions of our sales representatives.
Our sales representatives, who are primarily employed by our Dealerships, are a driving force of our success. We believe that
one factor that distinguishes us from other competitors is our culture centered on valuing all sales representatives. Any failure to maintain
this culture or to continue recruiting, developing and retaining the sales representatives that drive our success could have a material
adverse effect on our business, sales and results of operations. We also face risks related to the loyalty of our sales representatives.
Referrals of leads by sales representatives to friends or others in side deals is a common phenomenon in our industry in China, and if our
sales representatives seek to profit themselves personally at the expenses of us, that could hurt our business and results of operations. Our
ability to recruit sales representatives while controlling related costs is subject to numerous external and internal factors, including but
not limited to, the unemployment levels, prevailing wage rates, growth plans, changes in employment legislation, and competition for
qualified employees in the industry and regions in which we operate. This competition is especially fierce for qualified service
technicians. Our ability to recruit sales representatives while controlling related costs is also subject to our ability to maintain positive
employee relations. If we are unable to do so, or if, despite our efforts, becomes subject to successful unionization efforts, it could
increase costs, limit our ability to respond to competitive threats and have a material adverse effect on our business, sales and results of
operations.
Our success also depends upon the continued contributions of our Dealerships and our regional and corporate management
teams. Consequently, the loss of the services of any key personnel could have a material adverse effect on our business, sales and results
of operations. In addition, an inability to build our management bench strength to support business growth could have a material adverse
effect on our business prospects, sales and results of operations.
We may need additional capital to pursue our business objectives and respond to business opportunities, challenges or unforeseen
circumstances, and financing may not be available on terms acceptable to us, or at all.
KAG has historically relied on Renren, our former controlling shareholder, to support its operations, the expansion of its
Dealerships and the growth of its business. We have also relied on certain third party financing sources, including financial institutions.
As we intend to continue to make investments to support the growth of our business, we may require additional capital to pursue our
business objectives and respond to business opportunities, challenges or unforeseen circumstances, for instance, increasing the number of
cars that we sell, developing new solutions and services, increasing our sales and marketing expenditures to improve brand awareness
and engage car buyers through expanded online channels, enhancing our operating infrastructure and acquiring complementary
businesses and technologies. However, additional funds may not be readily available on terms that are acceptable to us, or at all.
Repayment of debt may divert a substantial portion of cash flow to repay principal and service interest on such debt, which would reduce
the funds available for expenses, capital expenditures, acquisitions and other general corporate purposes; and we may suffer default and
foreclosure on our assets if our operating cash flow is insufficient to service debt obligations, thus result in the acceleration of obligations
to repay the indebtedness and limit our sources of financing.
Volatility in the credit markets may also have an adverse effect on our ability to obtain debt financing. If we raise additional
funds through further issuances of equity or convertible debt securities, our existing shareholders could suffer significant dilution, and
any new equity securities that we issue could have rights, preferences and privileges superior to those holders of our ordinary shares. If
we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to pursue
our business objectives, fund our Dealerships and respond to business opportunities, challenges or unforeseen circumstances could be
significantly limited, and our business, financial condition, results of operations and prospects could be adversely affected.
We operate in a highly competitive industry. Failure to develop and execute strategies to maintain our market position and to adapt to
the increasing use of the internet to market, buy, sell and finance used vehicles could adversely affect our business, sales and results
of operations.
Automotive retailing is a highly competitive and highly fragmented industry in China. Our competitors include publicly and
privately owned used and new car dealers, online and mobile sales platforms, as well as millions of private individuals. Competitors buy
and sell the same or similar makes of vehicles that we offer in the same or similar markets at competitive prices.
Retail Competition. Some of our competitors have announced plans for rapid expansion, including into markets where we
operate, and some of them have begun to execute those plans. If we fail to respond effectively to our retail competitors, it could have a
material adverse effect on our business, sales and results of operations.
16
Table of Contents
Online Sales and Facilitation. Although mobile apps and online marketing are important to our own business model, our
competitors’ increasing use of the internet to market, buy and sell used vehicles and to provide vehicle financing could have a material
adverse effect on our sales and results of operations. Emerging competitors using online focused business models, both for direct sales
and consumer-to-consumer facilitation, could materially impact our current business model. The online availability of used vehicle
information from other sources, including pricing information, could make it more difficult for us to differentiate our offerings from
competitors’ offerings, could result in lower-than-expected retail margins, and could have a material adverse effect on our business, sales
and results of operations. In addition, our competitive standing is affected by companies, including search engines and online classified
sites, that are not direct competitors but that may direct online traffic to the websites of competing automotive retailers. The increasing
activities of these companies could make it more difficult for us to attract users to our mobile app. These companies could also make it
more difficult for us to otherwise market our vehicles online.
The increasing use of the internet to facilitate consumers’ purchases and sales of their current vehicles could have a material
adverse effect on our ability to source vehicles, which in turn could have a material adverse effect on our vehicle acquisition costs and
results of operations. For example, certain websites provide online appraisal tools to consumers that generate offers and facilitate
purchases by dealers other than us.
In addition to the direct competition and increasing use of the internet described above, there are companies that sell software
and data solutions to used and new car dealers to enable those dealers to, among other things, more efficiently source and price inventory.
Although these companies do not compete with us, the increasing use of such products by dealers who compete with us could reduce the
relative competitive advantage of our internally developed proprietary systems.
If we fail to respond effectively to competitive pressures or to changes in the used vehicle marketplace, it could have a material
adverse effect on our business, sales and results of operations.
We operate in an evolving and fast-changing market.
The PRC automotive retail market, including the consumer automotive finance market, is highly dynamic and is at an early
stage of development. While it has undergone significant growth in the past few years, there is no assurance that it can continue to grow
rapidly. As part of our business, we offer retail auto sales of premium used vehicles, financing, including consumer loans provided by our
financing partners, automobile insurance providers and value-added services to various participants in the automotive transaction value
chain, including dealers, financial institutions, car buyers, service providers and other industry participants. Helping more industry
participants to recognize the value of our services in a rapidly-evolving market is critical to increasing the number and amount of used
cars and other transactions that we complete and to the success of our business.
You should consider our business and prospects in light of the risks and challenges we encounter or may encounter given the
rapidly-evolving market in which we operate and our limited operating history. These risks and challenges include our ability to, among
other things:
● source, market and sell used and new automobiles in substantial volumes and on favorable terms;
● effectively manage and expand our network of Dealerships;
● facilitate automotive financing to a growing number of car buyers;
● maintain and enhance our relationships and business collaboration with dealers and financial institutions;
● improve our operational efficiency;
● attract, retain and motivate talented employees, particularly sales and marketing and technology personnel to support our
business growth;
● adapt to technological changes, such as the development of autonomous vehicles, new products and services, new business
models and new methods of travel;
17
Table of Contents
● enhance our technology infrastructure to support the growth of our business and maintain the security of our system and the
confidentiality of the information provided and collected across our system;
● navigate economic conditions and fluctuations in the pandemic environment;
● implement our business strategies, including the offering of new services; and
● defend ourselves against legal and regulatory actions, such as actions involving intellectual property or data privacy claims.
If we are unable to adapt to any of these factors in the rapidly-evolving market, our business, performance and results of
operations could suffer.
Our success depends on our ability to attract prospective car buyers.
The growth of our business depends on our ability to attract prospective car buyers. We primarily purchase car models that we
believe are reliable, reasonably priced and appealing to car buyers in lower-tier cities. We price cars based on insights derived from
automotive transaction data associated with the facilitation of automotive financing solutions as well as data from other automotive
transactions. We have limited experiences in the purchase of cars for sale, and there is no assurance that we will be able to do so
effectively. Demand for the type of cars that we purchase can change significantly between the time the cars are purchased and the time
of sale. In addition, the models offered by our Dealerships may not be popular among prospective car buyers, which could materially and
adversely affect our business, results of operations and financial condition. Demand may be affected by new car launches, changes in the
pricing of such cars, defects, changes in consumer preference and other factors. We may also need to adopt more aggressive pricing
strategies for the cars we purchase than originally anticipated to stoke consumer demand. We face inventory risk in connection with the
cars purchased, including the risk of inventory obsolescence, decline in value, and significant inventory write-downs or write-offs. If we
were to adopt more aggressive pricing strategies, our profit margin may be negatively affected as well. We may also face increasing costs
associated with the storage of inventory. Any of the above may materially and adversely affect our financial condition and results of
operations.
In order to expand our base of car buyers, we must continue to invest significant resources in the development of new solutions
and services and build our relationships with financial institutions and auto dealers. Our ability to successfully launch, operate and
expand our solutions and services and to improve user experience to attract prospective car buyers depends on many factors, including
our ability to anticipate and effectively respond to the changing interests and preferences of car buyers, anticipate and respond to changes
in the competitive landscape, and develop and offer solutions and services that address the needs of car buyers. If our efforts in these
regards are unsuccessful, our base of car buyers may not expand at the rate which we anticipated, and it may even shrink. As a result, our
business, prospects, financial condition and results of operations may be materially and adversely affected.
In the meantime, we also seek to maintain our relationships with existing car buyers and cross-sell new solutions and services,
such as insurance and wealth management products. However, there can be no assurance that we will be able to maintain or deepen such
relationships.
The growth of our business relies on our branding efforts and these efforts may not be successful.
Our Kaixin Auto brand was newly launched in the first half of 2018 and we believe that an important component of our growth
will be the growth of customer traffic to our Dealerships. Because Kaixin Auto is a consumer brand, brand visibility is critical for our
engagement with potential customers. We currently advertise through a blend of brand and direct marketing channels with the goal of
increasing the strength, recognition and trust in the Kaixin Auto brand. We recorded selling and marketing expenses of approximately
US$11 thousand, US$481 thousand and US$2.1 million in 2020, 2021 and 2022, respectively.
Our business model relies on our ability to scale rapidly and to appropriately manage customer acquisition costs as we grow. If
we are unable to establish a strong and trusted brand and recover our marketing costs through the increases in customer traffic and in the
number of sales transactions, or if our broad marketing campaigns are not successful or are terminated, it could have a material adverse
effect on our growth, results of operations and financial condition.
18
Table of Contents
Any harm to our brand or reputation or any damage to the reputation of third parties or failure to enhance our brand recognition
could have a material adverse effect on its results of operations and growth prospects.
Enhancing the recognition and reputation of our brand is critical to our business and competitiveness. Factors that are vital to
this objective include but are not limited to our ability to:
● establish and maintain the awareness of our brand in auto sales and new energy vehicles business;
● maintain and develop relationships with strategic partners, auto dealers and financial institutions;
● provide prospective car buyers and existing car buyers with superior service experiences;
● effectively manage and resolve any complaints of car buyers, strategic partners, auto dealers that we work with or financial
institutions; and
● effectively protect personal information and privacy of car buyers and any sensitive data received from financial
institutions.
Any malicious or inadvertent negative allegations made by the media or other parties about the foregoing or other aspects of us,
including but not limited to our management, business, compliance with laws, financial condition or prospects, whether with or without
merits, could severely hurt our reputation and harm our business and results of operations.
Negative publicity about China’s automotive finance industry in general may also have a negative impact on our reputation,
regardless of whether we have engaged in any inappropriate activities. Furthermore, any negative development in the automotive
retailing industry, such as bankruptcies or failures of platforms providing automotive retailing services, and especially a large number of
such bankruptcies or failures, or negative perception of the industry as a whole, even if factually incorrect or based on isolated incidents,
could compromise our image, undermine the trust and credibility that we have established and impose a negative impact on our ability to
attract new dealers, financial institutions and car buyers. Negative developments in the automotive retailing industry may also lead to
tightened regulatory scrutiny of the sector and limit the scope of permissible business activities that may be conducted by companies like
us. If any of the foregoing takes place, our business and results of operations could be materially and adversely affected.
We collaborate with various automotive transaction industry participants in providing our solutions and services. Such
participants include dealers, financial institutions, sales agents, insurance brokers and companies and other business partners. Negative
publicity about such counterparties, including any failure by them to adequately protect the personal information of car buyers, to comply
with applicable laws and regulations or to otherwise meet required quality and service standards could harm our reputation.
Our ability to grow our complementary product and service offerings may be limited, which could negatively impact our growth rate,
revenues and financial performance.
If we introduce or expand additional offerings, such as services or products involving new cars, financing, leasing or detailing,
we may incur losses or otherwise fail to enter these markets successfully. Our expansion into these markets will place us in competitive
and regulatory environments with which we are unfamiliar and involve various risks, including the need to invest significant resources
and the possibility that returns on such investments will not be achieved within several years, if at all. In attempting to establish new
service or product offerings, we expect to incur significant expenses and face various other challenges, such as expanding our customer
service and management personnel to cover these markets and complying with complicated regulations that apply to these markets. In
addition, we may not successfully demonstrate the value of these complementary products and services to consumers, and failure to do
so would compromise our ability to successfully expand into these additional streams of revenues. Any of these risks, if realized, could
adversely affect our business and results of operations.
19
Table of Contents
The automotive retail industry in general and our business in particular are sensitive to economic conditions. These conditions could
adversely affect our business, sales, results of operations and financial condition.
We are subject to national and regional economic conditions. These conditions include, but are not limited to, recession,
inflation, interest rates, unemployment levels, gasoline prices, consumer credit availability, consumer credit delinquency and loss rates,
personal discretionary spending levels, and consumer sentiment about the economy in general. These conditions and the economy in
general could be affected by significant national or international events such as acts of terrorism. When these economic conditions
worsen or stagnate, it can have a material adverse effect on consumer demand for vehicles generally, on demand from particular
consumer categories or demand for particular vehicle types. It can also negatively impact availability of credit to finance vehicle
purchases for all or certain categories of consumers. This could result in lower sales, decreased margins on units sold, and decreased
profits for our business. Worsening or stagnating economic conditions can also have a material adverse effect on the supply of premium
used vehicles, as automotive manufacturers produce fewer new vehicles and consumers retain their current vehicles for longer periods of
time. This could result in increased costs to acquire used vehicle inventory and decreased margins on units sold.
COVID-19 had a severe and negative impact on the Chinese and the global economy since the first quarter of 2020. Although at
the end of 2022, as China’s official response to managing COVID-19 evolved, public attitudes to the disease shifted, and the enforcement
of quarantine measures was tapered off, the outbreak of COVID-19 in various geographic locations in China did not stop, hence, we
cannot guarantee that Chinese economy will continuously recovery as a result. Whether this will lead to a prolonged downturn in the
Chinese economy is still unknown. Even before the outbreak of COVID-19, the global macroeconomic environment was facing
numerous challenges. The growth rate of the Chinese economy had already been slowing since 2010. There are considerable
uncertainties over the long-term effects of the expansionary monetary and fiscal policies 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 outbreak of wars in the Eastern Europe, 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 adverse economic effects. In particular, there is significant uncertainty about the future relationship between the United
States and China with respect to trade policies, treaties, government regulations and tariffs. Economic conditions in China are sensitive to
global economic conditions, as well as changes in domestic economic and political policies and the expected or perceived overall
economic growth rate in China. Any severe or prolonged slowdown in the global or Chinese economy may materially and adversely
affect our business, results of operations and financial condition.
Our business generates and processes a significant amount of data, and improper handling of or unauthorized access to such data
may adversely affect our business.
We face risks regarding the compliance with the applicable laws, rules and regulations relating to the collection, usage,
disclosure and security of personal information, as well as any requests from regulatory and government authorities relating to such data.
For instance, our Dealerships utilize and generate substantial volumes of data on consumers and dealers, and we and our Dealerships rely
on them for our operations and inventory management. These data include the information customers provide when purchasing a vehicle
and applying for vehicle financing. In the event that we experienced a failure of our information systems, our operations and financial
performance could be materially harmed, and if the information is accessed by third parties or publicized without authorization, our
reputation or competitive position could suffer.
The PRC regulatory and enforcement regime with regard to data security and data protection has continued to evolve. There are
uncertainties on how certain laws and regulations will be implemented in practice. PRC regulators have been increasingly focused on
regulating data security and data protection. We expect that these areas will receive greater attention from regulators, as well as attract
public scrutiny and attention going forward. This greater attention, scrutiny and enforcement, including more frequent inspections, could
increase our compliance costs and subject us to heightened risks and challenges associated with data security and protection. If we are
unable to manage these risks, our reputation and results of operations could be materially and adversely affected. For further details,
please see “Item 4. Information on the Company — B. Business Overview — Regulation —Regulations Relating to Information
Security”.
20
Table of Contents
We also grant limited access to specified data in our information system to certain other parties, such as our Dealerships. Our
Dealerships face the same challenges and risks inherent in handling and protecting large volumes of data. Any system failure or security
breach or lapse on our part or on the part of any of such third parties that results in the leakage of user data, or failure to respond thereto,
could harm our reputation and brand and, consequently, our business, in addition to exposing us to potential legal liabilities.
In addition, we may become subject to additional laws in other jurisdictions. The laws, rules and regulations of other
jurisdictions, such as the U.S. and Europe, may impose more stringent or conflicting requirements and penalties than those in China,
compliance with which could require significant resources and costs. Any failure, or perceived failure, by us to comply 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 could subject us to significant penalties and negative publicity, which
require us to change our business practices, increase our costs and severely disrupt our business.
We rely on information systems to run our business. The failure of these systems, any service disruptions or outages, or the inability
to enhance our capabilities, could have a material adverse effect on our business, sales and results of operations.
Our business and reputation are dependent upon the performance, reliability, availability, integrity and efficient operation of our
information systems. In particular, we rely on our information systems to manage sales, inventory, customer information. There is no
assurance that we will be able to protect our computer systems against, among others, damage or interruptions from natural disasters,
power or telecommunications failures, air quality issues, environmental conditions, software errors, bugs or defects, configuration errors,
computer viruses, denial-of-service attacks, security breaches, hacking attempts or criminal acts at all times. In the event of a service
disruption or outage in our computer systems, our computer systems may not be able to store, retrieve, process and manage data. For
example, we may experience temporary service disruptions or data losses during data migrations between old and new systems or system
upgrades. We may not be able to recover all data and services in the event of a service disruption or outage. Additionally, our insurance
policies may not adequately compensate us for any losses that we may incur during service disruptions or outages.
Any interruptions or delays in our services, whether as a result of third-party error or our own error, natural disasters or security
breaches, whether accidental or willful, could harm our relationships with our customers and damage our reputation, thus subject us to
liabilities and cause customers to abandon our Dealership network, any of which could adversely affect our business, financial condition
and results of operations. A severe or prolonged downturn in the Chinese or global economy could materially and adversely affect our
business and financial condition.
Cyber-attacks, computer viruses, physical or electronic break-ins or other unauthorized access to our or our business partners’
computer systems could result in the misuse of confidential information and misappropriation of funds of our customers, which
subject us to liabilities, cause reputational harm and adversely impact our results of operations and financial condition.
Our Dealerships collect, store and process certain personal information and other sensitive data from our customers. The
massive data that we have processed and stored makes us and our server hosting service providers the targets of, and potentially
vulnerable to, cyber-attacks, computer viruses, hackers, denial-of-service attacks, physical or electronic break-ins or other unauthorized
access. While we have taken steps to protect such confidential information, our security measures may be breached. Because techniques
used to sabotage or obtain unauthorized access into systems change frequently and generally are not recognized until they are launched
against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Any accidental or
willful security breaches or other unauthorized access to our or our server hosting service providers’ systems could cause confidential
customers’ information to be stolen and used for criminal purposes. As personally identifiable and other confidential information is
subject to legislation and regulations in numerous domestic and international jurisdictions, the inability to protect confidential
information of our customers could result in additional cost and liabilities for us, damage our reputation, and harm our business. The
Administrative Measures for the Security of the International Network of Computer Information Network, issued in December 1997 and
amended in January 2011, requires us to report any data or security breaches to the local offices of the PRC Ministry of Public Security
within 24 hours of any such breach. The Cyber Security Law of the PRC, issued in November 2016, requires us to take immediate
remedial measures when we discover that our products or services are subject to risks, such as security defects or bugs. Such remedial
measures include, informing our customers of the specific risks and reporting such risks to the relevant competent departments.
21
Table of Contents
We also face indirect technology and cybersecurity risks relating to our business partners, including our third-party payment
service providers who manage the transfer of customer funds. As a result of increasing consolidation and interdependence of computer
systems, a technology failure, cyber-attack or other information or security breach that significantly compromises the systems of one
entity could have a material impact on its business partners. Although our agreements with third-party payment service providers provide
that each party is responsible for the cybersecurity of its own systems, any cyber-attacks, computer viruses, hackers, denial-of-service
attacks, physical or electronic break-ins or similar disruptions of such third-party payment service providers could, among other things,
adversely affect our ability to serve our customers, and could even result in the misappropriation of funds of our customers. If that were
to occur, we and our third-party payment service providers could be held liable to customers who suffer losses from the
misappropriation.
Our business is sensitive to changes in the prices of used and new vehicles.
Any significant changes in retail prices for used and new vehicles could have a material adverse effect on our sales and results
of operations, including our gross margin. For example, if retail prices for used vehicles rise relative to retail prices for new vehicles, it
could make buying a new vehicle more attractive to our customers than buying a used vehicle, which could have a material adverse
effect on our sales and results of operations and could result in a decrease in our gross margin. Manufacturer incentives could contribute
to narrowing this price gap. Our new car sales would also be affected by changes in the price of new cars, both in terms of consumer
sensitivity to prices as well as our margins on such sales.
Our business is sensitive to conditions affecting automotive manufacturers, including manufacturer recalls.
Adverse conditions affecting one or more automotive manufacturers could have a material adverse effect on our sales and
results of operations and could impact the supply of vehicles, including the supply of new and used vehicles. In addition, manufacturer
recalls are a common occurrence that have accelerated in frequency and scope in recent years. Because we do not have manufacturer
authorization to complete recall-related repairs, some vehicles we sell may have unrepaired safety defects. Such recalls, and our lack of
authorization to make recall-related repairs, could adversely affect the sales or valuations of used vehicles, hence could cause us to
temporarily remove vehicles from inventory, could force us to incur increased costs and could expose us to litigations and adverse
publicity related to the sale of recalled vehicles, which could have a material adverse effect on our business, sales and results of
operations.
Our business is dependent upon access to vehicle inventory. Obstacles to acquiring inventory, whether because of supply, competition,
or other factors, or a failure to expeditiously liquidate that inventory could have a material adverse effect on our business, sales and
results of operations.
Our purchases of used vehicles are based in large part on projected demand. A reduction in the availability of or access to
sources of inventory could have a material adverse effect on our business, sales and results of operations. Although the supply of
premium used vehicles has been increasing, there can be no assurance that this trend will continue or that it will benefit us.
As our business is dependent on our appraisal of the value of inventory that we purchase, if we fail to adjust appraisal offers to
stay in line with broader market trade-in offer trends, or fail to recognize those trends, or if our appraisal process is not accurate, it could
adversely affect our ability to acquire inventory. Our appraisal process could also be affected by competition, both from used and new car
dealers directly and through third-party websites driving appraisal traffic to those dealers. See the risk factor titled “We operate in a
highly competitive industry. Failure to develop and execute strategies to maintain our market position and to adapt to the increasing use
of the internet to market, buy, sell and finance used vehicles could adversely affect our business, sales and results of operations” for
additional discussion of this risk. Our ability to source vehicles from third-party auctions could be affected by an increase in the number
of closed auctions that are open only to new car dealers who have franchise relationships with automotive manufacturers. An over-supply
of used vehicle inventory will generally cause downward pressure on our product sales prices and margins and increase our average days
to sale.
Used vehicle inventory has typically represented a significant portion of our total assets. Having such a large portion of our total
assets in the form of used vehicle inventory for an extended period of time subjects us to depreciation and other risks that affect our
results of operations. Accordingly, if we have excess inventory or our average days to sale increases, we may be unable to liquidate such
inventory at prices that allow us to meet margin targets or to recover our costs, which could have a material adverse effect on our results
of operations.
22
Table of Contents
Our new energy vehicles (“NEV”) business may not achieve expected returns.
We have set up the New Energy Vehicles Department in 2021 and produced a NEV prototype in mid 2022 and delivered it to
customers at the end of 2022. Our NEV business may not achieve expected results. For instance, our vehicles may not have the durability
or longevity of other comparable vehicles in the market, and may not be as easy and convenient to repair. Any product defects or any
other failure of our vehicles to perform as expected could harm our reputation and result in adverse publicity, revenue loss, delivery
delays, product recalls, product liability claims, harm to our brand and reputation, and significant warranty and other expenses, and could
have a material adverse impact on our business, financial condition, operating results and prospects.
In addition, our vehicles may contain defects in design and manufacture that may cause them not to perform as expected or that
may require repair. Our vehicles use a substantial amount of software code to operate and software products are inherently complex and
often contain defects and errors when first introduced. Albeit we will perform extensive internal testings on our vehicles’ software and
hardware systems, we have a limited frame of reference by which to evaluate the long-term performance of our systems and vehicles.
There can be no assurance that we will be able to detect and fix any defects in the vehicles prior to their sale to consumers. If any of our
vehicles fail to perform as expected, we may need to delay deliveries, initiate the NEV business product recalls and provide services or
updates under warranty at our expenses, which could negatively impact our business, prospects and results of operations as a whole.
Any delays in the manufacturing and launch of the commercial production of NEV in our pipeline could have a material adverse
effect on our business operations.
Automobile manufacturers often experience delays in the design, manufacturing and commercial release of new vehicle models.
We plan to target a broader market with our future NEV, and to the extent we need to delay the launch of our vehicles, our growth
prospects could be adversely affected as we may fail to grow our market share. Furthermore, we rely on third-party suppliers for the
design of new vehicle models and the provision and development of various key components and materials used in manufacturing our
vehicles. To the extent our suppliers experience any delays in developing new models or providing us with necessary components, we
could experience delays in delivering on our timelines. Any delay in the manufacturing or launching of the future models could subject
us to customer complaints and materially and adversely affect our reputation, demand for our NEV, results of operations and growth
prospects.
The unavailability, reduction or elimination of government and economic incentives or government policies which are favorable for
NEV could have a material adverse effect on our business, financial condition, operating results and prospects.
Our future sales growth of our NEV depends significantly on the availability and amounts of government subsidies, economic
incentives and government policies that support the growth of NEV. Favourable government incentives and subsidies in China include
one-time government subsidies, exemption from vehicle purchase tax, exemption from license plate restrictions in certain cities,
preferential utility rates for charging facilities and more. Changes in government subsidies, economic incentives and government policies
to support new energy vehicles could adversely affect our results of operations.
Our future NEV sales may be impacted by government policies such as tariffs on imported cars. The tariff in China on imported
passenger vehicles (other than those originating in the United States of America) was reduced to 15% starting from July 1, 2018. As a
result, pricing advantage of domestically manufactured vehicles could be diminished. There used to be certain limit on foreign ownership
of automakers in China, but for automakers of NEV, such limit was lifted in 2018. Further, pursuant to the currently effectively Special
Administrative Measures for Market Access of Foreign Investment (2021 Version) (the “2021 Negative List”), which came into effect on
January 1, 2022, the limit on foreign ownership of automakers has been lifted since 2022. As a result, foreign NEV competitors could
build wholly-owned facilities in China without the need for a domestic joint venture partner. These changes could affect the competitive
landscape of the NEV industry and reduce our pricing advantage.
Furthermore, China’s central government provides certain local governments with funds and subsidies to support the roll-out of
a charging infrastructure. These policies are subject to changes and beyond our control. We cannot assure you that any changes would be
favourable to our business. Furthermore, any reduction, elimination, delayed payment or discriminatory application of government
subsidies and economic incentives because of policy changes, the reduced need for such subsidies and incentives due to the perceived
success of NEV, fiscal tightening or other factors may result in the diminished competitiveness of the alternative fuel vehicle industry
generally or our NEV in particular. Any of the foregoing could materially and adversely affect our business, results of operations,
financial condition and prospects.
23
Table of Contents
Changes in international trade policies and international barriers to trade may have an adverse effect on our business and expansion
plans.
Changes to trade policies, treaties and tariffs in the jurisdictions in which we operate, or the perception that these changes could
occur, could adversely affect the financial and economic conditions in China, our financial condition and results of operations. For
example, the current U.S. administration has advocated greater restrictions on trade generally and significant increases in tariffs on goods
imported into the United States, particularly from China, and has recently taken other steps towards restricting trade in certain goods. The
current U.S. administration has created uncertainties with respect to, among other things, existing and proposed trade agreements, free
trade generally, and potential significant increases on tariffs on goods imported into the U.S., particularly from China.
In addition, China may alter its trade policies, including in response to any new trade policies, treaties and tariffs implemented
by the United States or other jurisdictions, which could include restrictions on the import of used vehicles into China. Such policy
retaliations could also ultimately result in further trade policy responses by the United States and other countries, and result in an
escalation which leading to a trade war, hence would have an adverse effect on manufacturing levels, trade levels and industries,
including automotive sales and other businesses and services that rely on trade, commerce and manufacturing. Any such escalation in
trade tensions or a trade war could affect the cost of our inventory, the sales prices of used and new cars or our overall business
performance and have a material and adverse effect on our business and results of operations. Chinese policies to relax certain import
taxes, such as taxes on used and/or new cars may also impact our business. For instance, if import taxes and similar duties on new cars
are reduced, demand for used cars could be harmed and the margins of our used car sales business could be negatively impacted, which
could adversely affect our results of operations and financial condition. Increased restrictions on trade or certain other changes to trade
policies could have an adverse effect on the PRC economy, the used automobile sales industry and our business and results of operations.
We may from time to time be subject to claims, controversies, lawsuits and legal proceedings, which could have a material adverse
effect on our financial condition, results of operations, cash flows and reputation.
We may from time to time become subject to or involved in various claims, controversies, lawsuits, and legal proceedings. See
“Item 8. Financial Information — A. Consolidated Statements and Other Financial Information — Legal Proceedings” for information
about ongoing legal proceedings in which we are involved. Lawsuits and litigations may cause us to incur additional defense costs,
utilize a significant portion of our resources and divert management’s attention from its day-to-day operations, any of which could harm
our business. Any settlements or judgments against us could have a material adverse impact on our financial condition, results of
operations and cash flows. In addition, negative publicity regarding claims or judgments made against us, no matter with or without
merits, may damage our reputation and may result in a material adverse impact on us.
We may be unable to prevent others from the unauthorized use of our intellectual property, which could harm our business and
competitive position.
We regard our trademarks, patents, copyrights, domain names, know-how, proprietary technologies and similar intellectual
property as critical to our success, and we rely on a combination of intellectual property laws and contractual arrangements, including
confidentiality, invention assignment and non-compete agreements with our employees and others to protect our proprietary rights. See
also “Item 4. Information on the Company — B. Business Overview — Intellectual Property”. Despite these measures, any of our
intellectual property rights could be challenged, invalidated, circumvented, preempted or misappropriated, or such intellectual property
may not be sufficient to provide us with competitive advantages.
24
Table of Contents
In March 2018, Renren transferred to KAG the kaixin.com domain name, and in May 2018, an affiliate of Renren granted KAG
an exclusive license to use the “Kaixin” brand. Further, we have successfully registered our brand name “(cid:0)(cid:0)(cid:0)(cid:0)” (which translates to
“Kaixin Auto”) in class 35 for services, including promotion for others, purchase for others, providing online markets for sellers and
purchasers of goods and services, marketing, etc., which is crucial to our business. However, we have not obtained trademark
registrations in other categories related but less crucial to our business, including automobile maintenance. Therefore, we may be unable
to prevent any third parties from using the Kaixin brand for some businesses that are the same or similar to ours. As China has adopted a
“first-to-file” trademark registration system, if trademarks similar to our brand have been registered in those categories that are related to
our business, we may not be able to successfully register our brand or may even be exposed to risk of infringement with respect to third-
party trademark rights. We believe that our brand is vital to our competitiveness and our ability to attract new customers. Any failure to
protect these rights could adversely affect our business and financial condition.
We cannot assure you that the measures we have taken will be sufficient to prevent any misappropriation or infringement upon
our intellectual properties. In addition, because of the rapid pace of technological changes in our industry, parts of our business rely on
technologies developed or licensed by third parties, and we may not be able to obtain or continue to obtain licenses and technologies
from these third parties on reasonable terms, or at all.
It is often difficult to maintain and enforce the intellectual property rights in China. Statutory laws and regulations are subject to
judicial interpretation and enforcement and may not be applied consistently due to the lack of clear guidance on statutory interpretation.
Confidentiality, invention assignment and non-compete 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 China. Preventing any unauthorized use of our intellectual property is difficult and costly and the steps
we take may be inadequate to prevent the misappropriation of our intellectual property. In the event that we resort to litigations 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 any such litigation. In addition, our trade secrets may be leaked or otherwise become
available to our competitors, or our competitors may independently discover them. To the extent that our employees or consultants use
intellectual property owned by others in their work for us, disputes may arise as to the rights in the related know-how and inventions.
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 subject to intellectual property infringement claims, which may be expensive to defend and may disrupt our business and
operations.
We cannot be certain that our operations or any aspects of our business does not or will not infringe upon or otherwise violate
trademarks, patents, copyrights, know-how or other intellectual property rights held by third parties. We may from time to time, in the
future, become subject to legal proceedings and claims relating to the intellectual property rights of others. In addition, there may be
third-party trademarks, patents, copyrights, know-how or other intellectual property rights that are infringed by our products, services or
other aspects of our business without our awareness. Holders of such intellectual property rights may seek to enforce such intellectual
property rights against us in China, the United States or other jurisdictions. If any third-party infringement claims are brought against us,
we may be forced to divert management’s time and other resources from our business and operations to defend against these claims,
regardless of their merits.
Additionally, the application and interpretation of China’s intellectual property rights laws and the procedures and standards for
granting trademarks, patents, copyrights, know-how or other intellectual property rights in China are still evolving and full of
uncertainties, and we cannot assure you that the PRC courts or regulatory authorities would agree with our analysis or that of our
counsel. If we were found to have violated the intellectual property rights of others, we may be subject to liabilities for our infringement
activities or may be prohibited from using such intellectual property, and we may incur licensing fees or be forced to develop alternatives
of our own. As a result, our business and results of operations may be materially and adversely affected.
25
Table of Contents
If we fail to implement and maintain an effective system of internal controls over financial reporting, we may be unable to accurately
report our results of operations, meet our reporting obligations or prevent fraud.
In 2020, we identified material weaknesses in our internal control over financial reporting relating to (i) inadequate technical
competency of financial staff in charge of significant and complex transactions to ensure that those transactions are properly accounted
for in accordance with U.S. GAAP; (ii) lack of an effective and continuous risk assessment procedure to identify and assess the financial
reporting risks; (iii) lack of evaluations to ascertain whether the components of internal control are present and functioning; and (iv)
inadequate controls over prepayment for vehicle purchase at local dealerships. 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 the
company’s annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness identified
relates to inadequate controls designed over the accounting of significant and complex transactions to ensure that those transactions are
properly accounted for in accordance with U.S. GAAP. We have taken measures and plan to continue to take measures to remedy these
deficiencies. However, the implementation of these measures may not fully address the material weakness and deficiencies in our
internal control over financial reporting, and we cannot conclude that they have been fully remedied.
Since the completion of the Haitaoche Acquisition in June 2021, the management of the combined group has taken measures to
enhance the financial expertise of accounting staff and strengthen internal control over financial reporting and business operations,
including, among others: (i) hiring additional financial professionals and accounting consultants with relevant experiences, skills and
knowledge in accounting and disclosure for complex transactions under the requirements of U.S. GAAP and SEC reporting
requirements, including disclosure requirements for complex transactions under U.S. GAAP, to provide the necessary level of leadership
to our finance and accounting function and increase the number of qualified financial reporting personnel; (ii) improving the capabilities
of the existing financial reporting personnel through trainings and education on the accounting and reporting requirements under U.S.
GAAP, SEC rules and regulations and the Sarbanes-Oxley Act; and (iii) designing and implementing robust financial reporting and
management controls over future significant and complex transactions.
However, we believe material weaknesses persisted in (i) lack of sufficient resources with US GAAP and the SEC reporting
experiences, which could adversely affect the Company’s ability to provide accurate disclosures on a timely matter; (ii) the lack of an
effective and continuous risk assessment procedure to identify and assess the financial reporting risks; (iii) lack of evaluations to
ascertain whether the components of internal control are present and functioning; (iv) inadequate controls over prepayment for vehicle
purchase at local dealerships as of December 31, 2022; and (v) the Company lacked the key monitoring mechanisms to control the
communication and disclosure of material information to the appropriate parties.
Our failure to address such other material weaknesses or control deficiencies could result in the inaccuracies of our financial
statements and could also impair our ability to comply with the applicable financial reporting requirements and related regulatory filings
on a timely basis. Moreover, ineffective internal control over financial reporting significantly hinders our ability to prevent fraud.
We are a public company subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act of 2002 requires
that we include a report of management on our internal control over financial reporting in our annual report on Form 20-F beginning with
our annual report for the fiscal year ended December 31, 2022. In addition, we ceased to be an “emerging growth company” as such term
is defined under the JOBS Act as of December 31, 2022. If our public float is over $75 million, 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
assessment, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are
documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, as a public
company, our reporting obligations may place a significant strain on our management, operational and financial resources and systems in
the foreseeable future. We may be unable to timely complete our evaluation and any required remediations.
26
Table of Contents
During the course of documenting and testing our internal control procedures, in order to satisfy the requirements of Section
404 of the Sarbanes-Oxley Act of 2002, we may identify other weaknesses and deficiencies in our internal control over financial
reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified,
supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control
over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. Generally, if we fail to achieve and maintain
an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our
reporting obligations, which would likely cause the investors to lose confidence in our reported financial information. This could in turn
limit our access to capital markets, harm our results of operations, and lead to a decline in the trading price of our ordinary shares.
Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets
and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions.
Our business depends on the continued efforts of our senior management. If one or more of our key executives were unable or
unwilling to continue in their present positions, our business may be severely disrupted.
Our business operations depend on the continued services of our senior management, particularly the executive officers named
in this Annual Report. While we have provided different incentives to our management, we cannot assure you that we can continue to
retain their services. If one or more of our key executives were unable or unwilling to continue in their present positions, we may not be
able to replace them readily or at all, our future growth may be constrained, our business may be severely disrupted and our financial
condition and results of operations may be materially and adversely affected. We may incur additional expenses to recruit, train and
retain qualified personnel. If any dispute arises between our current or former officers and us, we may have to incur substantial costs and
expenses in order to enforce such agreements in China or we may be unable to enforce them at all.
We may not be able to attract and retain the qualified and skilled employees needed to support our business.
We believe our success depends on the efforts, effectiveness and talent of our employees, including automotive engineers,
technicians, sales representatives, research and development personnel. Our future success depends on our continued ability to attract,
develop, motivate and retain qualified and skilled employees. Competition for highly skilled personnel is extremely intense. We may not
be able to hire and retain such personnel at levels consistent with our existing compensation and salary structure. Some of the companies
with which we compete for experienced employees have greater resources than we do and may be able to offer more attractive terms of
employment.
In addition, we invest significant time and resources in training our employees, which increases their value to competitors who
may seek to recruit them. If we fail to retain our employees, we could incur significant expenses in hiring and training their replacements,
and the quality of our services and our ability to serve our customers could diminish, resulting in a material adverse effect on our
business.
27
Table of Contents
Increases in labor costs in the PRC may adversely affect our business and results of operations.
The economy in China has experienced increases in inflation and labor costs in recent years. As a result, average wages in the
PRC are expected to continue to increase. In addition, we are required by PRC laws and regulations to pay various statutory employee
benefits, including pension, housing fund, medical insurance, work-related injury insurance, unemployment insurance and maternity
insurance to designated government agencies for the benefit of our employees. Unless we are able to control our labor costs or pass on
these increased labor costs to our customers by increasing the fees of our services, our financial condition and results of operations may
be adversely affected.
Our quarterly results may fluctuate significantly partly due to seasonality and may not fully reflect the underlying performance of our
business.
Our quarterly results of operations, including the levels of our revenues, operating cost and expenses, net loss and other key
metrics, may vary significantly in the future due to a variety of factors, some of which are outside of our control, and period-to-period
comparisons of our operating results may not be meaningful, especially given our limited operating history. Accordingly, the results for
any one quarter are not necessarily an indication of future performance. Fluctuations in quarterly results may adversely affect the value
of our ordinary shares. Factors that may cause fluctuations in our quarterly financial results include:
● our ability to attract new car buyers;
● our ability to maintain existing relationships with business partners and establish new relationships with additional business
partners, such as financial institutions;
● our ability to access capital;
● the mix of solutions and services that we offer;
● the amount and timing of our operating cost and expenses and the maintenance and expansion of our business, operations
and infrastructure;
● financial institutions’ willingness and ability to fund financing transactions through our Dealerships on reasonable terms;
● our emphasis on experience of car buyers, instead of near-term growth;
● the timing of expenses related to the development or acquisition of technologies or businesses;
● proper and sufficient accounting policies with respect to our risk reserve liabilities and implementation;
● network outages or security breaches;
● general economic, industry and market conditions; and
● changes in the applicable laws and regulations.
In addition, we have experienced, and expect to continue to experience, seasonal fluctuations in our revenues and results of
operations. Trends of our revenues are a reflection of car purchase patterns by car buyers. Sales of used cars tend to be lower in the first
quarter of each year than in the other three quarters due to the effect of the Chinese New Year holiday. As a result of these factors, our
revenues may vary from quarter to quarter and our quarterly results may not be comparable to the corresponding periods of the prior
years. Our actual results may differ significantly from our targets or estimated quarterly results. Therefore, you may not be able to predict
our annual results of operations based on a quarter-to-quarter comparison of our results of operations. The quarterly fluctuations in our
revenues and results of operations could result in volatility and cause the price of our shares to fall. As our revenues grow, these seasonal
fluctuations may become more pronounced.
28
Table of Contents
The COVID-19 outbreak has significantly disrupted our operations and adversely affected our results of operations and could
continue to do so.
China has recently experienced an outbreak of COVID-19, a disease caused by a novel and highly contagious form of
coronavirus. The severity of the outbreak in certain provinces, such as the Hubei Province, and municipalities, such as Wuhan, resulted in
travel restrictions, delay in resumption of service and mass production and the related quarantine measures imposed by the government
across China and materially affected general commercial activities in China. Because substantially all of our operations are conducted in
China, the outbreak of COVID-19 has caused a disruption to our business, especially one of our Dealerships is located in Wuhan, the
original epicenter of the outbreak. In late January 2020, in response to intensifying efforts to contain the spread of the coronavirus, we
closed all of our Dealership Outlets and corporate offices. In March 2020, we gradually resumed our operations in various cities, but
customer traffic to our Dealership Outlets has remained significantly lower than comparable periods before the COVID-19 outbreak.
Around mid-2020, we decided to put a halt to business operations in our Dealership Outlets due to severe decline in sales volume and
profit margin. With the business disruption and reduced customers’ demand, we experienced a significant decrease in our 2020 sales
revenue. With the improved control over the COVID-19 and recovery of overall economy in 2021, we reached agreements with a
majority of non-controlling shareholders of the Dealerships to resume used car business operations in the second half of 2021. However,
our sales revenue decreased from $253.8 million in 2021 to $82.8 million in 2022.
Any similar future outbreak of a contagious disease, other adverse public health developments in China and around the world,
or the measures taken by the governments of China or other countries in response to a future outbreak of a contagious disease may
restrict economic activities in affected regions, resulting in reduced business volumes, temporary closure of our production facilities and
offices or otherwise disrupt our business operations and adversely affect our results of operations.
We face risks related to natural disasters, which could significantly disrupt our operations.
We are vulnerable to natural disasters and other calamities such as hurricanes, tornadoes, floods, earthquakes and other adverse
weather and climate conditions. Although we have servers that are hosted in an offsite location, our backup system does not capture data
on a real-time basis and we may be unable to recover certain data in the event of a server failure. We cannot assure you that any backup
systems will be adequate to protect us from the effects of fire, floods, typhoons, earthquakes, power loss, telecommunications failures,
break-ins, wars, riots, terrorist attacks or similar events. Any of the foregoing events may give rise to interruptions, breakdowns, system
failures, or internet failures, which could cause the loss or corruption of data or malfunctions of software or hardware as well as
adversely affect our ability to conduct business.
We are subject to local conditions in the geographic areas in which we operate our business.
Our performance is subject to local economic, competitive and other conditions prevailing in the geographic areas where we
operate our business. Since a large portion of our sales are generated in second- and third-tier cities in China, our results of operations
depend substantially on the general economic conditions and consumer spending habits in these markets. In the event that any of these
geographic areas experience a downturn in economic conditions, it could have a material adverse effect on our business, sales and results
of operations.
29
Table of Contents
We may be exposed to greater than anticipated tax liabilities.
We are subject to enterprise income tax, value-added tax, and other taxes in each province and city in China where we have
operations. Our tax structure is subject to review by various local tax authorities. The determination of our provision for income tax and
other tax liabilities requires significant judgment. In the ordinary course of our business, there are many transactions and calculations
where the ultimate tax determination is uncertain. For example, since 2018, we have entered into a series of ancillary agreements to
facilitate our sale of used cars for value-added tax optimization purposes. Under these ancillary agreements, when we source a used car,
the legal title of the car is transferred to the legal representative of Anhui Xin Jieying and the registration is transferred to the name of
one of the Dealership’s employees. When the used car is sold, the relevant legal ownership is transferred from the Jieying Legal
Representative to the purchaser, and the registration is transferred from the Dealership employee’s name to the name of the purchaser.
Under PRC laws and regulations, if the seller is an individual selling a personal automobile, the seller is exempted from value-added tax.
Thus, structuring the purchase and subsequent sale such that the legal title and automobile registration are placed under the names of
Jieying Legal Representative and Dealership employees, respectively, as described above results in our recognizing no value-added tax
on the sales of the used cars. Viewed as a service provider from a value-added tax perspective in the used car transactions structured this
way, we are only subject to value-added tax on the difference between the original purchase price and retail price of the used cars.
Although we believe that the transaction structure created by the ancillary agreements and our estimates of our value-added taxes are
reasonable, the ultimate decisions by the relevant tax authorities may differ from the amounts recorded in our financial statements and if
the conclusion were reached by relevant tax authorities that we were subject to additional value-added taxes as a result of using the
employees as agents in this structure, such a determination would have a material adverse effect on our financial results in the period or
periods for which such determinations are made.
Restoration of limits on cross-regional flows of used cars would adversely affect our sourcing and sales of used cars.
To create a freely circulating market of used cars, the Chinese central government has implemented multiple policies in
recent years aimed at removing restrictions on cross-regional flows of used cars. In March 2016, the State Council issued a guideline to
promote more convenient transactions of used vehicles. This required the removal, in all cities other than key regions for air pollution
prevention and control, such as Beijing and 14 others, of curbs previously implemented to prevent vehicles from one city or province
being sold in another, provided that the subject vehicle meets the emission standards of the destination locality. Further, the Government
Work Report 2018 states that more efforts will be made to scrap any limits on cross-region flows of used cars. We do not expect that any
new restrictions will be imposed to prevent cross-region used car transactions. However, if such restrictions were to be imposed by local
governments, it would adversely affect our sourcing and sales of used cars.
Government policies on automobile purchases and ownership may materially affect our results of operations.
Government policies on automobile purchases and ownership may have a material effect on our business due to their influences
on consumer behaviors. With an effort to alleviate traffic congestion and improve air quality, some local governmental authorities issued
regulations and relevant implementation rules in order to control urban traffic and the number of automobiles within particular urban
areas. For example, local Beijing governmental authorities adopted regulations and relevant implementing rules in December 2010 to
limit the total number of license plates issued to new automobile purchases in Beijing each year. Local Guangzhou governmental
authorities also announced similar regulations, which came into effect in July 2013. There are similar policies that restrict the issuance of
new automobile license plates in Shanghai, Tianjin, Hangzhou and Shenzhen. In September 2013, the State Council released a plan for
the prevention and remediation of air pollution, which requires large cities, such as Beijing, Shanghai and Guangzhou, to further restrict
the number of motor vehicles. On August, 23, 2013, the Notice of The General Office of Beijing Municipal People’s Government on
Printing and Distributing the Key Task Breakdown of Beijing Clean Air Action Plan for 2013-2017 was published to limit the total
number of vehicles in Beijing to no more than six million by the end of 2017. Such regulatory developments, as well as other
uncertainties, may adversely affect the growth prospects of China’s automotive industry, which in turn may have a material adverse
impact on our business.
30
Table of Contents
Negative media coverage could adversely affect our business.
Negative publicity about us or our business, shareholders, affiliates, directors, officers or other employees, as well as the
industry in which we operate, can harm our business prospects and results of operations. Such negative publicity could be related to a
variety of matters, including but not limited to:
● alleged misconduct or other improper activities committed by our shareholders, affiliates, directors, officers and other
employees;
● false or malicious allegations or rumors about us or our shareholders, affiliates, directors, officers and other employees;
● users’ complaints about the quality of our products and services;
● security breaches of confidential user information; and
● governmental and regulatory investigations or penalties resulting from our failure to comply with the applicable laws and
regulations.
In addition to traditional media, there has been an increasing use of social media platforms and similar devices in China,
including instant messaging applications, such as WeChat, social media websites and other forms of internet-based communications that
provide individuals with access to a broad base of users and other interested persons. The availability of information on instant
messaging applications and social media platforms is virtually immediate as is its impact without affording us an opportunity for redress
or correction. The opportunity for dissemination of information, including inaccurate information, is seemingly limitless and readily
available. Information concerning our Company, shareholders, directors, officers and employees may be posted on such platforms at any
time. The risks associated with any such negative publicity or inaccurate information cannot be completely eliminated or mitigated and
may materially harm our reputation, business, financial condition and results of operations.
We have limited insurance coverage which could expose us to significant costs and business disruption.
The insurance industry in China is still at an early stage of development, and insurance companies in China currently offer
limited business-related insurance products. We do not maintain business interruption insurance or general third-party liability insurance,
nor do we maintain property insurance. We consider our insurance coverage to be reasonable in light of the nature of our business and the
insurance products that are available in China and in line with the practices of other companies in the same industry of similar size in
China, but we cannot assure you that our insurance coverage is sufficient to prevent any loss or that we will be able to successfully claim
our losses under our current insurance policies on a timely basis, or at all. If we incur any losses 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.
31
Table of Contents
Risks Related to Our Corporate Structure
Investing in our securities is highly speculative and involves a significant degree of risk as we are a holding company incorporated in
the Cayman Islands and historically operate our business through VIE structure. To the extent cash or assets in the business are in
the PRC/Hong Kong or a PRC/Hong Kong entity, funds or assets may not be available to fund operations or for other use outside of
the PRC/Hong Kong due to interventions in or the imposition of restrictions and limitations on the ability of the holding company, its
subsidiaries, or the consolidated VIEs by the PRC government to transfer cash or assets.
We a holding company with no material operations of our own. Historically, we conducted our operations through our
subsidiaries and the VIEs and their subsidiaries organized under the laws of the PRC, with which our subsidiaries maintain certain
contractual arrangements. These contractual arrangements, which are not equivalent to equity ownership in the business of the VIEs,
enable us to consolidate the financial statements of the VIEs and their subsidiaries under U.S. GAAP and we are regarded as the primary
beneficiary of the VIEs for accounting purposes. The structure involves unique risks to investors. The VIE structure provides contractual
exposure to foreign investment in China-based companies where Chinese law prohibits direct foreign investment in the operating
companies. To mitigate the risks, we transferred operations in the VIEs to our wholly-owned entities and disposed of Renren Finance,
Inc, which was our wholly-owned subsidiary that contractually controls the VIEs. See “Item 3. Key Information — D. Risk Factors —
Risks Related to Our Corporate Structure — Our adjustment of corporate structure and business operations and the termination of
contractual arrangement with the VIEs may not be liability-free.” and “Item 4. Information on the Company — C. Organizational
Structure.” Moreover, we have no operations outside of PRC, and cash generated from operations in the PRC may not be available for
other use outside of the PRC due to interventions in or the imposition of restrictions and limitations on the ability of us, our subsidiaries
by the PRC government to transfer cash.
In addition, any actions by the Chinese government to exert more oversight and control over securities that are listed overseas or
foreign investment in China-based issuers could significantly limit or completely hinder our ability to continue to offer securities to
investors and cause the value of our securities to significantly decline or be worthless.
Moreover, we have no operations outside PRC, and cash generated from operations in the PRC may not be available for other
use outside of the PRC due to interventions in or the imposition of restrictions and limitations on the ability of us, our subsidiaries, or the
consolidated VIEs by the PRC government to transfer cash. The transfer of funds and assets among Kaixin Auto Holdings, its Hong
Kong and PRC subsidiaries, and the VIEs is subject to restrictions. The PRC government imposes controls on the conversion of the RMB
into foreign currencies and the remittance of currencies out of the PRC. In addition, the PRC Enterprise Income Tax Law and its
implementation rules provide that a withholding tax at a rate of 10% will be applicable to dividends payable by Chinese companies to
non-PRC-resident enterprises, unless reduced under treaties or arrangements between the PRC central government and the governments
of other countries or regions where the non-PRC resident enterprises are tax resident. As of the date of this annual report, there are no
restrictions or limitations imposed by the Hong Kong government on the transfer of capital within, into and out of Hong Kong (including
funds from Hong Kong to the PRC), except for the transfer of funds involving money laundering and criminal activities. However, there
is no guarantee that the Hong Kong government will not promulgate new laws or regulations that may impose such restrictions in the
future. As a result of the above, to the extent cash or assets of our business, or of the PRC Operating Entities, is in the PRC or Hong
Kong, such funds or assets may not be available to fund operations or for other use outside of the PRC or Hong Kong, due to
interventions in or the imposition of restrictions and limitations by the PRC government to the transfer of cash or assets.
Our adjustment of corporate structure and business operations and the termination of contractual arrangement with the VIEs may
not be liability-free.
With the disposition of Renren Finance Inc, all VIEs were disposed as of October 27, 2022. We cannot assure you that the
disposal of the affiliated entities and termination of contractual arrangement with the related VIE structures in the PRC will not give rise
to dispute or liability, or that such disposal and discontinuation of operations will not adversely affect our overall results of operations
and financial condition. We cannot guarantee that we will not continue to be subject to PRC regulatory inspection and/or review,
especially when there remains significant uncertainty as to the scope and manner of the regulatory enforcement. If we become subject to
regulatory inspection and/or review by the China Securities Regulatory Commission, or the CSRC, Cyberspace Administration of China,
or the CAC or other PRC authorities, or are required by them to take any specific actions, it could cause suspension or termination of the
future offering of our securities, disruptions to our operations, result in negative publicity regarding our company, and divert our
managerial and financial resources.
32
Table of Contents
If the custodians or authorized users of our controlling non-tangible assets, including chops and seals, fail to fulfill their
responsibilities, or misappropriate or misuse these assets, our business and operations may be materially and adversely affected.
Under the existing PRC laws, legal documents for corporate transactions, including agreements and contracts that our business
relies on, 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 the relevant local branch of the State Administration for Industry and Commerce (“SAIC”). We generally
execute legal documents by affixing chops or seals, rather than having the designated legal representatives sign the documents.
We have three major types of chops: corporate chops, contract chops and finance chops. We use corporate chops generally for
documents to be submitted to government agencies, such as applications for changing business scope, directors or company name, and
for legal letters. We use contract chops for executing leases and commercial contracts. We use finance chops generally for making and
collecting payments, including issuing invoices. The use of corporate chops must be approved by both of our legal department and
administrative department, the use of contract chops must be approved by our legal department, and the use of finance chops must be
approved by our finance department. The chops of our subsidiaries are generally held by the relevant entities so that the documents can
be executed locally.
In order to maintain the physical security of our chops, we generally have them stored in secured locations accessible only to the
designated key employees of our legal, administrative or finance departments. Our designated legal representatives generally do not have
access to the chops. Although we have approval procedures in place and monitor our key employees, including the designated legal
representatives of our subsidiaries, the procedures may not be sufficient to prevent all instances of abuse or negligence. There is a risk
that our key employees or designated legal representatives could abuse their authority, for example, by binding our subsidiaries with
contracts against our interests, as we would be obligated to honor these contracts if the other contracting party acts in good faith in
reliance on the apparent authority of our chops or signatures of our legal representatives. If any designated legal representative obtains
control of a chop with an effort to obtain control over the relevant entity, we would need to have a shareholder or board resolution to
designate a new legal representative and to take legal actions to seek the return of the chop, apply for a new chop with the relevant
authorities, or otherwise seek legal remedies for the legal representative’s misconduct. If any of the designated legal representatives
obtains and misuses or misappropriates our chops and seals or other controlling intangible assets for whatever reason, we could
experience disruption to our normal business operations. We may have to take corporate or legal actions, which could involve significant
time and resources to resolve while distracting management from our operations, and our business prospects and results of operations
may be materially and adversely affected.
Substantial uncertainties exist with respect to the interpretation and implementation of the PRC Foreign Investment Law, and it may
materially and adversely affect the viability of our current corporate structure, corporate governance and business operations.
On March 15, 2019, the Foreign Investment Law was enacted by the National People’s Congress and it became effective on
January 1, 2020. The Foreign Investment Law replaced the Law on Sino-Foreign Equity Joint Ventures, the Law on Sino-Foreign
Contractual Joint Ventures and the Law on Foreign-Capital Enterprises to become the legal foundation for foreign investment in the PRC.
On December 26, 2019, the Implementing Regulations of the Foreign Investment Law of the People’s Republic of China was
promulgated by the State Council and became effective on January 1, 2020. The Foreign Investment Law embodies an expected PRC
regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative
efforts to unify the corporate legal requirements for both foreign and domestic investments.
The “variable interest entity” structure (“VIE structure”), has been adopted by many PRC-based companies, including us, to
conduct business in the industries that are currently subject to foreign investment restrictions in China. Although the Foreign Investment
Law does not explicitly classify the VIE structure as a form of foreign investment, it contains a catch-all provision under the definition of
“foreign investment” 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 reserves certain leeway for future legislation by the State
Council to provide the VIE structure as a form of foreign investment, in which case it will be uncertain as to whether our contractual
arrangements with the VIEs will be deemed to be in violation of the market access requirements for foreign investments under the PRC
laws and regulations, such as the 2021 Edition of the Special Administrative Measures for Foreign Investment Access (“Negative List”),
issued by the MOFCOM on December 27, 2021 and came into effect on January 1, 2022. According to the Guidance Catalog of
Industries for Foreign Investment, which was promulgated and as amended from time to time by the MOFCOM and the NDRC, and the
Negative List, the provision of internet content services, which we historically conduct
33
Table of Contents
through the VIEs, is subject to foreign investment restrictions. Therefore, such foreign investment restrictions will be imposed on the
VIEs if our contractual arrangements with the VIEs are further defined or regarded as a form of foreign investment by any future
provisions stipulated in laws or administrative regulations or other methods prescribed by the State Council. In addition, if future laws,
administrative regulations or provisions prescribed by the State Council mandate require further actions to be taken by companies with
respect to existing contractual arrangements, we may face substantial uncertainties as to whether we could complete such actions in a
timely manner, or at all, and our business and financial condition may be materially and adversely affected. Given the foregoing,
uncertainties still exist in relation to the interpretation and implementation of the Foreign Investment Law, which may result in an
adverse impact on our current corporate structure.
If our contractual arrangements with the VIEs are defined or regarded as a form of foreign investment in the future, our
corporate governance practice may be impacted and our compliance costs may increase. For instance, as stipulated in the Measures on
Reporting of Foreign Investment Information, it requires foreign investors or foreign-funded enterprises to submit the investment
information to competent governmental authorities for review. Although the contents and scope of such information shall be determined
under the principle of necessity and the information that can be obtained through interdepartmental information sharing will not be
required to be resubmitted, foreign investors or foreign-funded enterprises which fail to report their investment information as requested
will be required to take corrective measures or be subject to fines. Moreover, the Foreign Investment Law provides that a security
examination mechanism will be established to examine any foreign investment activity that affects or may affect national security. The
decision made upon the security examination may impact the operations of the foreign-funded enterprises.
Risks Related to Doing Business in China
The Chinese government exerts substantial influence over the manner in which we must conduct our business activities. We are
required to file with the CSRC within 3 working days after the subsequent securities offering is completed and we might face
warnings or fines if we fail to fulfill related filing procedure. We may become subject to more stringent requirements with respect to
matters including cross-border investigation and enforcement of legal claims.
The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese
economy through regulation and state ownership. Under the current government leadership, the government of the PRC has been
pursuing reform policies which have adversely affected China-based operating companies whose securities are listed in the United States,
with significant policies changes being made from time to time without notice. There are substantial uncertainties regarding the
interpretation and application of PRC laws and regulations, including, but not limited to, the laws and regulations governing our
business, or the enforcement and performance of our contractual arrangements with borrowers in the event of the imposition of statutory
liens, death, bankruptcy or criminal proceedings. Our ability to operate in China may be harmed by changes in its laws and regulations,
including those relating to taxation, environmental regulations, land use rights, property and other matters. The central or local
governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require
additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly,
government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more
centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on
economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in
Chinese properties.
Given recent statements by the Chinese government indicating an intent to exert more oversight and control over offerings that
are conducted overseas and/or foreign investment in China-based issuers, any such action could significantly limit or completely hinder
our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or become
worthless.
The General Office of the Central Committee of the Communist Party of China and the General Office of the State Council
jointly issued the Opinions on Severely Cracking Down on Illegal Securities Activities on July 6, 2021. The Opinions emphasized the
need to strengthen the administration over illegal securities activities, and the need to strengthen the supervision over overseas listings by
Chinese companies. Effective measures, such as promoting the construction of relevant regulatory systems, will be taken to deal with the
risks and incidents of China-concept overseas listed companies. As of the date of this Annual Report, we have not received any inquiry,
notice, warning, or sanctions from PRC government authorities in connection with the Opinions.
34
Table of Contents
On June 10, 2021, the Standing Committee of the National People’s Congress of China (the “SCNPC”), promulgated the PRC
Data Security Law, which took effect in September 2021. The PRC Data Security Law imposes data security and privacy obligations on
entities and individuals carrying out data activities, and introduces a data classification and hierarchical protection system based on the
importance of data in economic and social development, and the degree of harm it will cause to national security, public interests, or
legitimate rights and interests of individuals or organizations when such data is tampered with, destroyed, leaked, illegally acquired or
used. The PRC Data Security Law also provides for a national security review procedure for data activities that may affect national
security and imposes export restrictions on certain data an information.
In early July 2021, regulatory authorities in China launched cybersecurity investigations with regard to several China-based
companies that are listed in the United States. The Chinese cybersecurity regulator announced on July 2, 2021 that it had begun an
investigation of Didi Global Inc. (NYSE: DIDI) and two days later ordered that the company’s app be removed from smartphone app
stores. On July 5, 2021, the Chinese cybersecurity regulator launched the same investigation on two other Internet platforms, China’s
Full Truck Alliance of Full Truck Alliance Co. Ltd. (NYSE: YMM) and Boss of KANZHUN LIMITED (Nasdaq: BZ). On July 24, 2021,
the General Office of the Communist Party of China Central Committee and the General Office of the State Council jointly released the
Guidelines for Further Easing the Burden of Excessive Homework and Off-campus Tutoring for Students at the Stage of Compulsory
Education, pursuant to which foreign investment in such firms via mergers and acquisitions, franchise development, and variable interest
entities are banned from this sector.
On August 17, 2021, the State Council promulgated the Regulations on the Protection of the Security of Critical Information
Infrastructure (the “Regulations”), which took effect on September 1, 2021. The Regulations supplemented and specified the provisions
on the security of critical information infrastructure as stated in the Cybersecurity Review Measures, which was issued on April 13, 2020
and was amended on December 28, 2021. The Regulations provide, among others, that protection department of certain industry or
sector shall notify the operator of the critical information infrastructure in time after the identification of certain critical information
infrastructure.
On August 20, 2021, the SCNPC promulgated the Personal Information Protection Law of the PRC (the “Personal Information
Protection Law”), which took effect in November 2021. As the first systematic and comprehensive law specifically for the protection of
personal information in the PRC, the Personal Information Protection Law provides, among others, that (i) an individual’s consent shall
be obtained to use sensitive personal information, such as biometric characteristics and individual location tracking; (ii) personal
information operators using sensitive personal information shall notify individuals of the necessity of such use and impact on the
individual’s rights; and (iii) where personal information operators reject an individual’s request to exercise his or her rights, the
individual may file a lawsuit with a People’s Court.
As such, the Company’s business segments may be subject to various government and regulatory interference in the provinces
in which they operate. The Company could be subject to regulations by various political and regulatory entities, including various local
and municipal agencies and government sub-divisions. The Company may incur increased costs necessary to comply with the existing
and newly adopted laws and regulations or penalties for any failure to comply. Additionally, the governmental and regulatory interference
could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such
securities to significantly decline or be worthless.
Furthermore, we are required to file with the CSRC within 3 working days after the subsequent securities offering is completed
and we might face warnings or fines if we fail to fulfill related filing procedure. Although there are still uncertainties regarding the
interpretation and implementation of relevant regulatory guidance, our operations could be adversely affected, directly or indirectly, by
existing or future laws and regulations relating to its business or industry.
On February 17, 2023, the China Securities Regulatory Commission, or the CSRC, promulgated Trial Administrative Measures
of the Overseas Securities Offering and Listing by Domestic Companies (the “Overseas Listing Trial Measures”) and five relevant
guidelines which became effective on March 31, 2023. The Overseas Listing Trial Measures regulate both direct and indirect overseas
offering and listing by PRC domestic companies by adopting a filing-based regulatory regime.
35
Table of Contents
The Overseas Listing Trial Measures provide that if the issuer both meets the following criteria, the overseas securities offering
and listing conducted by such issuer will be deemed as indirect overseas offering subject to the filing procedure set forth under the
Overseas Listing Trial Measures: (i) 50% or more of the issuer’s operating revenue, total profit, total assets or net assets as documented
in its audited consolidated financial statements for the most recent fiscal year is accounted for by the issuer’s domestic companies; and
(ii) the issuer’s business activities are substantially conducted in mainland China, or its principal place of business are located in
mainland China, or the senior managers in charge of its business operations and management are mostly Chinese citizens or domiciled in
mainland China. The determination as to whether or not an overseas offering and listing by domestic companies is indirect, shall be made
on a substance over form basis.
On the same day, the CSRC also held a press conference for the release of the Trial Measures and issued the Notice on
Administration for the Filing of Overseas Offering and Listing by Domestic Companies, which, among others, clarifies that on or prior to
the effective date of the Overseas Listing Trial Measures, domestic companies that have been completed their overseas offering and
listing, which are called as “the stock enterprises ((cid:0)(cid:0)(cid:0)(cid:0))”. As a stock enterprise ((cid:0)(cid:0)(cid:0)(cid:0)), we shall file with the CSRC within 3
working days after the subsequent securities offering is completed. The CSRC shall order rectification, issue warnings and impose fines
to the company fails to fulfill filing procedure as stipulated in Overseas Listing Trial Measures.
In addition, the CSRC published the Provisions on Strengthening Confidentiality and Archives Administration in Respect of
Overseas Issuance and Listing of Securities by Domestic Enterprises on February 24, 2023, which became effective on March 31, 2023.
The CSRC stipulates domestic enterprises, securities companies and securities service agencies which provide the corresponding services
in the course of overseas issuance and listing of domestic enterprises, shall strengthen legal awareness of confidentiality of State secrets
and archives administration, establish a sound system for confidentiality and archives work, adopt the requisite measures to perform the
responsibilities of confidentiality and archives administration.
As there are still uncertainties regarding the interpretation and implementation of such regulatory guidance, we cannot assure
you that we will always be able to comply with new regulatory requirements relating to our future overseas capital-raising activities. We
may become subject to more stringent requirements with respect to matters including cross-border investigation and enforcement of legal
claims.
36
Table of Contents
In addition, on December 28, 2021, the CAC, the National Development and Reform Commission (“NDRC”), and several other
administrations jointly issued the revised Measures for Cybersecurity Review (the “Revised Review Measures”), which became effective
and replaced the Measures for Cybersecurity Review on February 15, 2022. According to the Revised Review Measures, if an “online
platform operator” that is in possession of personal data of more than one million users intends to list in a foreign country, it must apply
for a cybersecurity review. Based on a set of Q&A published on the official website of the State Cipher Code Administration in
connection with the issuance of the Revised Review Measures, an official of the said administration indicated that an online platform
operator should apply for a cybersecurity review prior to the submission of its listing application with non-PRC securities regulators.
Given the recency of the issuance of the Revised Review Measures, there is a general lack of guidance and substantial uncertainties exist
with respect to their interpretation and implementation. For example, it is unclear whether the requirement of cybersecurity review
applies to follow-on offerings by an “online platform operator” that is in possession of personal data of more than one million users
where the offshore holding company of such operator that is already listed overseas. Furthermore, the CAC released the draft of the
Regulations on Network Data Security Management (the “Draft Regulations”) in November 2021 for public consultation, which among
other things, stipulates that a data processor listed overseas must conduct an annual data security review by itself or by engaging a data
security service provider and submit the annual data security review report for a given year to the municipal cybersecurity department
before January 31 of the following year. On July 7, 2022, CAC promulgated Measures for the Security Assessment of Outbound Data
Transfers, (the “Data Cross Border Measures”), which became effective on September 1, 2022 and provide that a data processor is
required to apply for security assessment for cross-border data transfer in any of the following circumstances: (i) where a data processor
provides critical data to offshore entities and individuals; (ii) where a CIIO or a data processor which processes personal information of
more than one million individuals provides personal information to offshore entities and individuals; (iii) where a data processor has
provided personal information in the aggregate of more than 100,000 individuals or sensitive personal information of more than 10,000
individuals in total to offshore entities and individuals since January 1 of the previous year; or (iv) other circumstances prescribed by the
CAC for which declaration for security assessment for cross-board transfer of data is required. Furthermore, on August 31, 2022, the
CAC promulgated the Guidelines for filing the Outbound Data Transfer Security Assessment (Version 1), which provides that acts of
outbound data transfer include (i) overseas transmission and storage by data processors of data generated during mainland China
domestic operations; (ii) the access to, use, download or export of the data collected and generated by data processors and stored in
mainland China by overseas institutions, organizations or individuals; and (iii) other acts as specified by the CAC. The Revised Review
Measures and the Draft Regulations remain unclear on whether the relevant requirements will be applicable to companies, which have
been listed in the United States, such as us. They also remain uncertain whether the future regulatory changes would impose additional
restrictions on companies like us. We cannot predict the impact of the Revised Review Measures and the Draft Regulations, if any, at this
stage, and we will closely monitor and assess any development in the rule-making process.
We have been closely monitoring the development in the regulatory landscape in China, particularly regarding the requirement
of approvals, including on a retrospective basis, from the CSRC, the CAC or other PRC authorities, as well as regarding any annual data
security review or other procedures that may be imposed on us. If any approval, review or other procedure is in fact required, we are not
able to guarantee that we will obtain such approval or complete such review or other procedure timely or at all. For any approval that we
may be able to obtain, it could nevertheless be revoked and the terms of its issuance may impose restrictions on our operations and
offerings relating to our securities.
Recent regulatory initiatives implemented by the PRC competent government authorities on cyberspace data security may have
introduced uncertainty in our business operations and compliance status, which could result in materially adverse impact on our
business, results of operations and our listing on Nasdaq.
On February 17, 2023, the China Securities Regulatory Commission, or the CSRC, promulgated Trial Administrative Measures
of the Overseas Securities Offering and Listing by Domestic Companies (the “Overseas Listing Trial Measures”) and five relevant
guidelines which became effective on March 31, 2023. The Overseas Listing Trial Measures regulate both direct and indirect overseas
offering and listing by PRC domestic companies by adopting a filing-based regulatory regime.
37
Table of Contents
The Overseas Listing Trial Measures provide that if the issuer both meets the following criteria, the overseas securities offering
and listing conducted by such issuer will be deemed as indirect overseas offering subject to the filing procedure set forth under the
Overseas Listing Trial Measures: (i) 50% or more of the issuer’s operating revenue, total profit, total assets or net assets as documented
in its audited consolidated financial statements for the most recent fiscal year is accounted for by the issuer’s domestic companies; and
(ii) the issuer’s business activities are substantially conducted in mainland China, or its principal place of business are located in
mainland China, or the senior managers in charge of its business operations and management are mostly Chinese citizens or domiciled in
mainland China. The determination as to whether or not an overseas offering and listing by domestic companies is indirect, shall be made
on a substance over form basis.
On the same day, the CSRC also held a press conference for the release of the Trial Measures and issued the Notice on
Administration for the Filing of Overseas Offering and Listing by Domestic Companies, which, among others, clarifies that on or prior to
the effective date of the Overseas Listing Trial Measures, domestic companies that have been completed their overseas offering and
listing, which are called as “the stock enterprises ((cid:0)(cid:0)(cid:0)(cid:0))”. As a stock enterprise ((cid:0)(cid:0)(cid:0)(cid:0)), we shall file with the CSRC within 3
working days after the subsequent securities offering is completed. The CSRC shall order rectification, issue warnings and impose fines
to the company fails to fulfill filing procedure as stipulated in Overseas Listing Trial Measures.
In addition, the CSRC published the Provisions on Strengthening Confidentiality and Archives Administration in Respect of
Overseas Issuance and Listing of Securities by Domestic Enterprises on February 24, 2023, which became effective on March 31, 2023.
The CSRC stipulates domestic enterprises, securities companies and securities service agencies which provide the corresponding services
in the course of overseas issuance and listing of domestic enterprises, shall strengthen legal awareness of confidentiality of State secrets
and archives administration, establish a sound system for confidentiality and archives work, adopt the requisite measures to perform the
responsibilities of confidentiality and archives administration.
As there are still uncertainties regarding the interpretation and implementation of such regulatory guidance, we cannot assure
you that we will always be able to comply with new regulatory requirements relating to our future overseas capital-raising activities. We
may become subject to more stringent requirements with respect to matters including cross-border investigation and enforcement of legal
claims.
In addition, the General Office of the Central Committee of the Communist Party of China and the General Office of the State
Council jointly issued the “Opinions on Severely Cracking Down on Illegal Securities Activities According to Law,” or the Opinions,
which was made available to the public on July 6, 2021. The Opinions emphasized the need to strengthen the administration over illegal
securities activities, and the need to strengthen the supervision over overseas listings by Chinese companies. Effective measures, such as
promoting the construction of relevant regulatory systems will be taken to deal with the risks and incidents of China-concept overseas
listed companies, and cybersecurity and data privacy protection requirements and similar matters.
38
Table of Contents
However, given the recency of the rules, there are uncertainties in the enforcements of the rule and we have been closely
monitoring the development in the regulatory landscape in China, particularly regarding the requirement of approvals, including on a
retrospective basis, from the CSRC or other PRC authorities. It also remains uncertain whether any future regulatory changes would
impose additional restrictions on companies such as ours. Thus, it is still uncertain how PRC governmental authorities will regulate
overseas listing in general and whether we are required to obtain any specific regulatory approvals. Furthermore, if the China Securities
Regulatory Commission, or the CSRC or other regulatory agencies later promulgate new rules or explanations requiring that we obtain
their approvals for this offering and any follow-on offering, we may be unable to obtain such approvals which could significantly limit or
completely hinder our ability to offer or continue to offer securities to our investors.We may not able to guarantee that we will obtain
such approval or complete such review or other procedure timely or at all. For any approval that we may be able to obtain, it could
nevertheless be revoked and the terms of its issuance may impose restrictions on our operations and offerings relating to our securities.
It may be difficult for overseas shareholders and/or regulators to conduct investigations 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. Accordingly, without governmental approval in China, no entity or individual in China may
provide documents and information relating to securities business activities to overseas regulators when it is under direct investigation or
evidence discovery conducted by overseas regulators. 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.
Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our
business and operations.
Substantially all of our assets and operations are located in China. Accordingly, our business, financial condition, results of
operations and prospects may be influenced to a significant degree by political, economic and social conditions in China generally.
The Chinese economy differs from the economies of most developed countries in many respects, including the level of
government involvement, level of development, growth rate, control of foreign exchange and the allocation of resources. Although the
Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state
ownership of productive assets and the establishment of improved corporate governance in business enterprises, a substantial portion of
productive assets in China is still owned by the government. In addition, the Chinese government continues to play a significant role in
regulating industry development by imposing industrial policies. The Chinese government also exercises significant control over China’s
economic growth through allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary
policy and providing preferential treatment to particular industries or companies.
39
Table of Contents
While the Chinese economy has experienced significant growth over the past decades, growth has been uneven, both
geographically and among various sectors of the economy. The Chinese government has implemented various measures to encourage
economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy, but may have
a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control
over capital investments or changes in tax regulations. In addition, the Chinese government has implemented certain measures in the
past, including lifting the interest rate and to control the pace of economic growth. These measures may cause the decline of economic
activities in China, and since 2012, the Chinese economy has slowed down. Any prolonged slowdown in the Chinese economy may
reduce the demand for our products and services, thus materially and adversely affect our business and results of operations.
Uncertainties with respect to the PRC legal system could adversely affect us.
The PRC legal system is based on written statutes. Unlike under common law systems, decided legal cases have little value as
precedents in subsequent legal proceedings. In 1979, the PRC government began to promulgate a comprehensive system of laws and
regulations governing economic matters in general and forms of foreign investment (including in respect of wholly foreign owned
enterprises) in particular. These laws, regulations and legal requirements are relatively new and are often changing, and their
interpretation and enforcement depend to a large extent on relevant government policy and involve significant uncertainties that could
limit the reliability of the legal protections available to us.
The Chinese government may intervene or influence our operations at any time, or may exert more control over offerings
conducted overseas and foreign investment in China-based issuers. In addition, the enforcement of laws and regulations in China can
change quickly with little advance notice. In 2021, the PRC government initiated a series of regulatory actions and statements to regulate
business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing
supervision over China-based companies listed overseas, adopting new measures to extend the scope of cybersecurity reviews, and
expanding the efforts in anti-monopoly enforcement. Since these statements and regulatory actions are new, it is highly uncertain how
soon legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed
implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new laws and
regulations will have on our daily business operation, the ability to accept foreign investments and list on an U.S. or other foreign
exchange.
We cannot predict the effects of future developments in government policy or the PRC legal system in general. We may be
required in the future to procure additional permits, authorizations and approvals for our existing and future operations, which may not
be obtainable in a timely fashion or at all, or may involve substantial costs and unforeseen risks. An inability to obtain, or the incurrence
of substantial costs in obtaining, such permits, authorizations and approvals may have a material adverse effect on our business, financial
condition and results of operations.
You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against
us or our management named in this Annual Report based on foreign laws.
We are a company incorporated under the laws of the Cayman Islands, we conduct all of our operations in China and all of our
assets are located in China. In addition, all of our senior executive officers reside within China for a significant portion of the time and
most of our directors and senior executive officers are PRC nationals. As a result, it may be difficult for you to effect service of process
upon us or those persons inside the mainland China. In addition, China does not have treaties providing for the reciprocal recognition and
enforcement of judgments of courts with the Cayman Islands and many other countries and regions. Therefore, recognition and
enforcement in China regarding the judgments of a court in any of these non-PRC jurisdictions in relation to any matters not subject to a
binding arbitration provision may be difficult or even impossible.
40
Table of Contents
We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing
requirements that we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a
material and adverse effect on our ability to conduct our business.
We are a Cayman Islands holding company, and we rely on dividends and other distributions on equity paid by our PRC
subsidiaries for our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our
shareholders and repay any debt that we may incur. The ability of our PRC subsidiaries to distribute dividends is based upon their
distributable earnings. Current PRC regulations permit our PRC subsidiaries to pay dividends to their respective shareholders only out of
their accumulated profits, if any, which is determined in accordance with the PRC accounting standards and regulations. In addition,
according to the PRC Company Law, each of our PRC subsidiaries, as a wholly foreign-owned enterprise in China, is required to set
aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until the aggregate amount of such reserve reaches
50% of its registered capital. At its discretion, a wholly foreign-owned enterprise may allocate a portion of its after-tax profits based on
PRC accounting standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable
as cash dividends. If our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may also
restrict their ability to pay dividends or make other payments to us. Any limitation on the ability of our PRC subsidiaries to distribute
dividends or other payments to their respective shareholders could materially and adversely limit our ability to grow, make investments
or acquisitions that could be beneficial to our business, pay dividends or otherwise fund and conduct our business.
In addition, the PRC tax authorities may require our PRC subsidiary that entered into contractual arrangement with our PRC
VIEs to adjust its taxable income under the VIE arrangements it currently has in place with the VIEs and their respective shareholders in
a manner that would materially and adversely affect its ability to pay dividends and other distributions to us. See “—Risks Related to Our
Corporate Structure — Contractual arrangements in relation to the VIEs may be subject to scrutiny by the PRC tax authorities and they
may determine that the VIEs owe additional taxes, which could negatively affect our financial condition and the value of our ordinary
shares”.
PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of
currency conversion may cause a delay in or prevent us from using offshore funds to make loans or additional capital contributions
to our PRC subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
We are an offshore holding company which primarily conducts our operations in China. Any funds that we transfer to our PRC
subsidiaries, either as a shareholder loan or as an increase in registered capital, are subject to the registration or filing with relevant
governmental authorities in China.
According to the relevant PRC regulations on FIEs, capital contributions to our PRC subsidiaries are subject to the requirement
of making the investment information report to the competent departments for commerce through the enterprise registration system and
the enterprise credit information publicity system. Any loans to our PRC subsidiaries, which are treated as FIEs under PRC law, are
subject to PRC regulations and foreign exchange loan registrations. For example, any foreign loan procured by our PRC subsidiaries is
required to be registered with the State Administration of Foreign Exchange (“SAFE”), or its local branches; and our PRC subsidiaries
may not procure loans which exceed either the cross-border financing risk weighted balance calculated based on a special formula or the
difference between their respective registered capital and their respective total investment amount as approved by, or filed with, the
MOFCOM or its local branches. Any medium- or long-term loan to be provided by us to our PRC subsidiaries must be filed and
registered with the National Development and Reform Committee (“NDRC”), and the SAFE or their local branches. See “Item 4.
Information on the Company — B. Business Overview — Regulation — Regulations on Offshore Investment by PRC Residents”. We
may not obtain these government approvals or complete such filings or registrations on a timely basis, if at all, with respect to future
capital contributions or foreign loans by us to its PRC subsidiaries. If we fail to receive such approvals or complete such registrations,
our ability to use offshore funds and to capitalize our PRC operations may be negatively affected, which could adversely affect our
liquidity and our ability to fund and expand our business.
41
Table of Contents
On March 30, 2015, the SAFE promulgated the Circular on Reforming the Management Approach Regarding the Foreign
Exchange Capital Settlement of Foreign-Invested Enterprises (“SAFE Circular 19”) and was last amended on March 23, 2023 by
Circular of the State Administration of Foreign Exchange on Repealing and Invalidating Fifteen Normative Documents Concerning
Administration of Foreign Exchange and Some Articles of Fourteen Normative Documents Concerning Administration of Foreign
Exchange. SAFE Circular 19 launched a nationwide reform of the administration of the settlement of the foreign exchange capitals of
FIEs and allows FIEs to settle their foreign exchange capital at their discretion, but continues to prohibit FIEs from using the Renminbi
fund converted from their foreign exchange capital for expenditure beyond their business scopes, providing entrusted loans or repaying
loans between non-financial enterprises. On June 9, 2016, the SAFE promulgated the Circular on Reforming and Standardizing the
Administrative Provisions on Capital Account Foreign Exchange (“SAFE Circular 16”). SAFE Circular 16 reiterates some of the rules
set forth in SAFE Circular 19, but changes the prohibition against using Renminbi capital converted from foreign currency-denominated
registered capital of an FIE to issue Renminbi entrusted loans to a prohibition against using such capital to issue loans to non-associated
enterprises. Violations of these circulars could result in severe monetary or other penalties. SAFE Circular 19 and SAFE Circular 16 may
significantly limit our ability to use Renminbi converted from offshore funds to fund the establishment of new entities in China by the
VIEs, to invest in or acquire any other PRC companies through our PRC subsidiaries or to establish new consolidated variable interest
entities in the PRC, which may adversely affect our business, financial condition and results of operations.
We are required to obtain certain licenses and permits for our business operations, and we may not be able to obtain or maintain such
licenses or permits.
The PRC government regulates the internet and automotive industries extensively, including through licensing and permit
requirements pertaining to companies in these industries. Relevant laws and regulations are relatively new and evolving, and their
interpretations and enforcement involve significant uncertainties. As a result, under certain circumstances, it may be difficult to
determine what actions or omissions may be deemed as violations of the applicable laws and regulations.
To enable our customers to receive vehicles purchased from our Dealerships and other in-network dealers, we rely initially on
the use of our own capital during the waiting period between customers and our financing partners. As our financing partners generally
approve and release funds within a period of up to a few weeks to a Dealership or in-network dealer, we first release the funds in advance
to the relevant Dealership or in-network dealership so that it can in turn release vehicles to its customers earlier than would otherwise be
the case. As the vehicle purchase loan relationship is ultimately between the relevant customers and our financing partners, we do not
consider our service as constituting a financial service requiring us to obtain any approval or license. However, we cannot assure you that
the relevant PRC government agencies would reach the same conclusion. As of the date of this Annual Report, we have not been subject
to any fines or other penalties under any PRC laws or regulations related to the foregoing solutions we provide. However, given the
evolving regulatory environment of the financial industry, we cannot assure you that we will not be required in the future by relevant
governmental authorities to obtain approval or license to continue to provide such interim financing solutions used to speed up the
vehicle purchasing procedure.
In addition, pursuant to the relevant laws and regulations, as Anhui Xin Jieying and our Dealerships are regarded as operators of
used car sales business, these entities are required to complete filing with the MOFCOM at the provincial level. We may fail to complete
such filings in certain locations since the relevant authorities in those areas do not accept such filing application in practice due to the
lack of local implementation rules and policies in such respects. We plan to submit our filing application as soon as the relevant
governmental authorities are ready to accept such application. However, we cannot assure you that we can successfully complete the
filing in a timely manner, or at all. Failure to comply with the filing requirements may subject our business to restrictions. As a result, our
business and results of operations may be materially and adversely affected.
42
Table of Contents
Under the existing PRC laws and regulations, companies responsible for the construction projects are required to prepare
environmental impact reports, environmental impact statements, or environmental impact registration forms based on the level of
potential environmental impact of the projects. Environmental impact reports (required in the case of potentially serious environmental
impact) and environmental impact statements (required in the case of potentially mild environmental impact) are subject to review and
approval by the applicable governmental authorities and the failure to satisfy such requirements may result in the discontinuation of the
construction projects, imposing fines of 1% to 5% of the total investment in the projects or an order of restoration. Environmental impact
registration forms (required in the case of very little environmental impact) are required to be filed with the competent authority and
failure to satisfy such requirement may result in the imposition of fines up to RMB50,000 (US$7,971). We do not regularly conduct
construction projects in the ordinary course of our business. However, some of our projects, including the building and overall decoration
of our after- sales service centers, could be deemed as construction projects where a timely filing or submission for approval is required
and failure to do so may subject us to fines and other enforcement actions as mentioned above.
Considerable uncertainties exist regarding the interpretation and implementation of existing and future laws and regulations
governing our business activities. If we fail to complete, obtain or maintain any of the required licenses or approvals or make necessary
filings, we may be subject to various penalties, such as confiscation of illegal gains, imposition of fines and discontinuation or restriction
of our operations. Any such penalties may disrupt our business operations and adversely affect our business, financial condition and
operations.
Fluctuations in exchange rates could have a material and adverse effect on our results of operations and the value of our ordinary
shares.
The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things,
changes in political and economic conditions in China and by China’s foreign exchange policies. On July 21, 2005, the PRC government
changed its decade-old policy of pegging the value of the Renminbi to the U.S. dollar, and the Renminbi appreciated more than 20%
against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate
between the Renminbi and the U.S. dollar remained within a narrow band. Since June 2010, the Renminbi has fluctuated against the U.S.
dollar, at times significantly and unpredictably. On November 30, 2015, the Executive Board of the International Monetary Fund
completed the regular five-year review of the basket of currencies that make up the Special Drawing Right (“SDR”), and decided that
with effect from October 1, 2016, the Renminbi is determined to be a freely usable currency and will be included in the SDR basket as a
fifth currency, along with the U.S. dollar, the Euro, the Japanese yen and the British pound. In the fourth quarter of 2016, the Renminbi
depreciated significantly in the backdrop of a surging U.S. dollar and persistent capital outflows of China. With the development of the
foreign exchange market and progress towards interest rate liberalization and Renminbi internationalization, the PRC government may in
the future announce further changes to the exchange rate system, and we cannot assure you that the Renminbi will not appreciate or
depreciate significantly in value against the U.S. dollar in the future. It is difficult to predict how market forces, PRC or U.S. government
policy may impact the exchange rate between the Renminbi and the U.S. dollar in the future.
Our revenues and costs are mostly denominated in Renminbi. Significant revaluation of the Renminbi may have a material and
adverse effect on the value of our ordinary shares. For example, 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
from the conversion. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making payments for
dividends on our ordinary shares 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 available to us. In addition, appreciation or depreciation in the value of the Renminbi relative to
U.S. dollars would affect our financial results reported in U.S. dollar terms regardless of any underlying change in its business or results
of operations.
Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not
entered into any hedging transactions with an effort to reduce our exposure to foreign currency exchange risk. While we may decide to
enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited, and we may not be able to
adequately hedge our exposure, or at all. In addition, our currency exchange losses may be magnified by the PRC exchange control
regulations that restrict our ability to convert Renminbi into foreign currency.
43
Table of Contents
Governmental control of currency conversion may limit our ability to utilize our revenues effectively and affect the value of our
ordinary shares.
The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the
remittance of currency out of China. Historically we received all of our revenues in Renminbi. Under our current corporate structure, our
Cayman Islands holding company primarily relies on the dividend payments from our PRC subsidiaries to fund any cash and financing
requirements that we may have. Under the existing PRC foreign exchange regulations, payments of current account items, including
profit distributions, interest payments, trade and service-related foreign exchange transactions, can be all made in foreign currencies
without prior approval of the SAFE by complying with certain procedural requirements. Specifically, under the existing exchange
restrictions, without prior approval of the SAFE, cash generated from the operations of our PRC subsidiaries in China may be used to
pay dividends to us. However, approval from or registration with appropriate governmental authorities is required where Renminbi 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. As a result, we need to obtain SAFE approval to use cash generated from the operations of our PRC subsidiaries to
pay off their respective debt in a currency other than Renminbi owed to entities outside China, or to make other capital expenditure
payments outside China in a currency other than Renminbi.
In light of the substantial capital outflows of China in 2016 due to the weakening Renminbi, the PRC government has imposed
more restrictive foreign exchange policies and stepped up scrutiny of major outbound capital movement. More restrictions and
substantial vetting process are put in place by the SAFE to regulate cross-border transactions falling under the capital account. The PRC
government may at its discretion further restrict access in the future to foreign currencies for current account transactions. If the foreign
exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be
able to pay dividends in foreign currencies to our shareholders.
Certain PRC regulations may make it more difficult for us to pursue growth through acquisitions.
The Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (“M&A Rules”), adopted by six
PRC regulatory agencies in 2006 and amended in 2009, and some other regulations and rules concerning mergers and acquisitions
established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time-
consuming and complex. Such regulations require, among other things, that the MOFCOM be notified in advance of any change-of-
control transaction in which a foreign investor acquires 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 the control of a domestic enterprise which holds a famous trademark or PRC time-honored brand. Moreover, the Anti-Monopoly Law
that became effective in 2008 and amended in 2022 requires that transactions that are deemed concentrations and involve parties with
specified turnover thresholds must be cleared by the MOFCOM before they can be completed. In addition, PRC national security review
rules, consisting of the Provisions of MOFCOM on Implementation of Security Review System for Mergers and Acquisitions of
Domestic Enterprises by Foreign Investors, which became effective in September 2011, and the Notice of the General Office of the State
Council on Establishment of Security Review System pertaining to Mergers and Acquisitions of Domestic Enterprises by Foreign
Investors, which became effective in March 2011, require acquisitions by foreign investors of PRC companies engaged in military-
related or certain other industries that are crucial to national security be subject to security review before consummation of any such
acquisition. In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of these
regulations to complete such transactions could be time-consuming, and any required approval processes, including obtaining approvals
or clearance from the MOFCOM, may delay or inhibit our ability to complete such transactions, which could affect its ability to expand
its business or maintain its market share.
44
Table of Contents
Any failure by us to make full contributions to various employee benefit plans as required by PRC laws may expose us to potential
penalties.
Companies operating in China are required to participate in various government sponsored employee benefit plans, including
certain social insurance schemes and housing funds, and contribute to the plans in amounts equal to certain percentages of salaries,
including bonuses and allowances, of the employees up to a maximum amount specified by the local governments from time to time at
locations where they operate businesses. The requirement of employee benefit plans has not been implemented consistently by the local
governments in China given the different levels of economic development in different locations. We did not pay, or were not able to pay,
certain past social security and housing fund contributions in strict compliance with the relevant PRC regulations for and on behalf of our
employees due to differences in local regulations and inconsistent implementation or interpretation by local authorities in the PRC. For
example, we engage third-party agents to make contributions for our employees in some cities and failure to make such contributions
directly may expose us to penalties by the local authorities. We may also incur additional costs for any alternative arrangement if we
were asked to terminate any existing arrangements with the third-party agents.
PRC regulations relating to offshore investment activities by PRC residents may limit the ability of our PRC subsidiaries to increase
their registered capital or distribute profits to us or otherwise expose us or our PRC resident beneficial owners to liability and
penalties under PRC laws.
In July 2014, the 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 (“SAFE Circular 37”).
SAFE Circular 37 requires PRC residents (including PRC individuals and PRC corporate entities) to register with the SAFE or its local
branches in connection with their direct or indirect offshore investment activities. SAFE Circular 37 further requires amendment to the
SAFE registrations in the event of any changes with respect to the basic information of the offshore special purpose vehicle, such as the
change of a PRC individual shareholder, name and operation term, or any significant changes with respect to the offshore special purpose
vehicle, such as the increase or decrease of capital contributions, share transfer or exchange, or mergers or divisions. SAFE Circular 37 is
applicable to our shareholders who are PRC residents.
If our shareholders who are PRC residents fail to make the required registration or to update the previously filed registration,
our PRC subsidiaries may be prohibited from distributing their profits or the proceeds from any capital reduction, share transfer or
liquidation to us, and we may also be prohibited from making additional capital contributions into our PRC subsidiaries. On February 13,
2015, the SAFE promulgated a Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct
Investment, or SAFE Notice 13, which became effective on June 1, 2015 and was last amended on December 30, 2019 by Circular of the
State Administration of Foreign Exchange on Repealing and Invalidating Five Normative Documents Concerning Administration of
Foreign Exchange and Some Articles of Seven Normative Documents Concerning Administration of Foreign Exchange. Under SAFE
Notice 13, applications for foreign exchange registration of inbound foreign direct investments and outbound overseas direct
investments, including those required under SAFE Circular 37, should be filed with qualified banks instead of the SAFE. The qualified
banks will directly examine the applications and accept registrations under the supervision of the SAFE.
We have urged all of our shareholders who, to our knowledge, are subject to the SAFE regulations to register with the local
SAFE branch. There can be no assurance, however, that all of these shareholders will continue to make required filings or updates on a
timely manner, or at all. Furthermore, there can be no assurance that we are or will in the future continue to be informed of the identities
of all the PRC residents holding direct or indirect interest in us. Any failure or inability by such shareholders to comply with the SAFE
regulations may prevent us from making distributions or paying dividends or subject us to fines or legal sanctions. For example, there
may be restrictions on our ability to engage in cross-border investment activities or the ability of our PRC subsidiaries to distribute
dividends to, or obtain loans denominated in foreign curries from us. As a result, our business operations and our ability to make
distributions to the shareholders could be materially and adversely affected.
Measures for the Administration of Overseas Investment was issued on September 6, 2014 and came into effect on October 6,
2014. In December 2017, the NDRC further promulgated the Administrative Measures of Overseas Investment of Enterprises, which
became effective in March 2018. Pursuant to these regulations, any outbound investment of PRC enterprises in the area and industry that
are not sensitive is required to be filed with the MOFCOM and the NDRC or their local branches.
45
Table of Contents
Any failure or inability by enterprises to comply with SAFE and outbound investment related regulations may subject the
responsible officers of such enterprises to fines or legal sanctions, and may result in an adverse impact on us, such as restrictions on the
ability to contribute capital and receive dividends.
Any failure to comply with the PRC regulations regarding the registration requirements for employee stock incentive plans may
subject the PRC plan participants or us to fines and other legal or administrative sanctions.
In February 2012, the SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic
Individuals Participating in Stock Incentive Plan of Overseas Publicly Listed Company. Pursuant to these rules, PRC citizens and non-
PRC citizens who reside in China for a continuous period of not less than one year who participate in any stock incentive plan of an
overseas publicly listed company, subject to a few exceptions, are required to register with the SAFE through a domestic qualified agent,
which could be the PRC subsidiaries of such overseas-listed company, and complete certain other procedures. In addition, an overseas-
entrusted institution must be retained to handle matters in connection with the exercise or sale of stock options and the purchase or sale
of shares and interests. We and our directors, executive officers and other employees who are PRC citizens or who reside in the PRC for
a continuous period of not less than one year and who have been granted options are subject to these regulations. Failure to complete the
SAFE registrations may subject them to fines and legal sanctions, and may also limit our ability to contribute additional capital into our
PRC subsidiaries and limit our PRC subsidiaries’ ability to distribute dividends to us. We also face regulatory uncertainties that could
restrict our ability to adopt additional incentive plans for our directors, executive officers and employees under the PRC laws. See “Item
4. Information on the Company — B. Business Overview — Regulation — Regulations on Employee Stock Options Plans”.
In addition, the State Administration of Taxation (“SAT”), has issued certain circulars concerning employee share options and
restricted shares. Under these circulars, our employees working in China who exercise share options or are granted restricted shares will
be subject to PRC individual income tax. Our PRC subsidiaries have the 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 who exercise their share
options. If our employees fail to pay or we fail to withhold their income taxes according to the relevant laws and regulations, we may
face sanctions which imposed by the tax authorities or other PRC governmental authorities. See “Item 4. Information on the Company —
B. Business Overview — Regulation — Regulations on Employee Stock Options Plans”.
If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax
consequences to us and our non-PRC shareholders.
Under the Enterprise Income Tax Law and its implementation rules, enterprises that are registered in countries or regions
outside the PRC but have their “de facto management bodies” located within China may be considered as PRC resident enterprises and
are therefore subject to PRC enterprise income tax at the rate of 25% on their worldwide income. For detailed discussions of the
applicable laws, regulations and implementation rules, see “Item 4. Information on the Company — B. Business Overview —Regulation
— Regulations on Taxation — Enterprise Income Tax”.
We believe that none of our entities outside China is a PRC resident enterprise for PRC tax purposes. See “Item 4. Information
on the Company — B. Business Overview — Regulation — Regulations on Taxation — Enterprise Income Tax”. 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 we or any of our subsidiaries outside of
China is a PRC resident enterprise for enterprise income tax purposes, then we or any such subsidiaries could be subject to PRC tax at a
rate of 25% on worldwide income, which could materially reduce our net income. In addition, we would also be subject to PRC
enterprise income tax reporting obligations. Furthermore, if the PRC tax authorities determine that we are a PRC resident enterprise for
enterprise income tax purposes, gains realized on the sale or other disposition of our ordinary shares and dividends distributed to its non-
PRC shareholders may be subject to PRC withholding tax, at a rate of 10% in the case of non-PRC enterprises or 20% in the case of non-
PRC individuals (in each case, subject to the provisions of any applicable tax treaty), if such gains are deemed to be from PRC sources.
Any such tax may reduce the value of our ordinary shares.
46
Table of Contents
We face uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding
companies, and heightened scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential
acquisitions that we may pursue in the future.
The SAT has issued several rules and notices to tighten the scrutiny over acquisition transactions in recent years, including the
Notice on Certain Corporate Income Tax Matters Related to Indirect Transfer of Properties by Non-PRC Resident Enterprises issued in
February 2015 and amended in 2017 (“SAT Circular 7”), and the Announcement on Issues Relating to Withholding at Source of Income
Tax of Non-resident Enterprises (“SAT Circular 37”). Pursuant to these rules and notices, except for a few circumstances falling into the
scope of the safe harbor provided by SAT Circular 7, such as open market trading of stocks in public companies listed overseas, if a non-
PRC resident enterprise indirectly transfers PRC taxable properties (that is, properties of an establishment or a place in the PRC, real
estate properties in the PRC or equity investments in a PRC tax resident enterprise) by disposing of equity interests or other similar rights
in an overseas holding company, without a reasonable commercial purpose and resulting in the avoidance of PRC enterprise income tax,
such indirect transfer should be deemed as a direct transfer of PRC taxable properties and gains derived from such indirect transfer may
be subject to the PRC withholding tax at a rate of up to 10%. SAT Circular 7 sets out several factors to be taken into consideration by tax
authorities in determining whether an indirect transfer has a reasonable commercial purpose, such as whether the main value of equity
interests in an overseas holding company is derived directly or indirectly from PRC taxable properties. An indirect transfer satisfying all
the following criteria will be deemed to lack reasonable commercial purpose and be taxable under PRC laws without considering other
factors set out by SAT Circular 7: (i) 75% or more of the equity value of the intermediary enterprise being transferred is derived directly
or indirectly from the PRC taxable properties; (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 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 that directly or indirectly hold the PRC taxable properties are limited and are insufficient to prove
their economic substance; and (iv) the foreign tax payable on the gains derived from the indirect transfer of the PRC taxable properties is
lower than the potential PRC income tax on the direct transfer of such assets. Each of the foreign transferor and the transferee, and the
PRC tax resident enterprise whose equity interests are being transferred may voluntarily report the transfer by submitting the documents
required in SAT Circular 7.
Although SAT Circular 7 provides clarity in many important areas, such as reasonable commercial purpose, there are still
uncertainties on the tax reporting and payment obligations with respect to future private equity financing transactions, share exchange or
other transactions involving the transfer of shares in non-PRC resident companies. The PRC tax authorities have discretion under SAT
Circular 7 to make adjustments to the taxable capital gains based on the difference between the fair value of the equity interests
transferred and the cost of investments. We may pursue acquisitions in the future that may involve complex corporate structures. If we
are considered a non-PRC resident enterprise under the PRC Enterprise Income Tax Law and if the PRC tax authorities make
adjustments to the taxable income of these transactions under SAT Circular 7, our income tax expenses associated with such potential
acquisitions will increase, which may adversely affect our financial condition and results of operations.
SAT Circular 37 took effect on February 3, 2015 and was last amended on June 15, 2018. SAT Circular 37 purports to clarify
certain issues in the implementation of the above regime, by providing, among other things, the definition of equity transfer income and
tax basis, the foreign exchange rate to be used in the calculation of withholding amount, and the date of occurrence of the withholding
obligation.
We have conducted and may in the future conduct acquisitions or restructuring that may be subject to the aforesaid tax
regulations. There can be no assurance that the PRC tax authorities will not, at their discretion, impose tax return filing obligations on us
or our subsidiaries, require us or our subsidiaries to provide assistance to an investigation conducted by the PRC tax authorities with
respect to these transactions or adjust any capital gains. Any PRC tax imposed on a transfer of our shares or equity interests in our PRC
subsidiaries, or any adjustment of such gains, would cause us to incur additional costs and may have a negative impact on our results of
operations.
47
Table of Contents
We face certain risks related to the real properties that we lease.
We lease offices, showrooms and warehouse spaces from third parties for our operations in China. Any defects in lessors’ title to
the leased properties may disrupt the use of such offices, showrooms or warehouses, which may in turn adversely affect our business
operations. For example, certain buildings and the underlying lands are not allowed to be used for industrial or commercial purposes
without relevant authorities’ approval, and the lease of such buildings to companies like us may subject the lessor to pay premium fees to
the PRC government. There can be no assurance that the lessor has obtained all or any approvals from the relevant governmental
authorities. In addition, some of our lessors have not provided us with documentation evidencing their title to the relevant leased
properties. There can be no assurance that title to these properties which we currently lease will not be challenged. In addition, we have
not registered any of our lease agreements with the relevant PRC governmental authorities as required by the PRC law, and although
failure to do so does not invalidate the leases per se, we may not be able to defend these leases against bona fide third parties.
We are not aware of any actions, claims or investigations being contemplated by the governmental authorities with respect to the
defects in our leased real properties or any challenges by third parties to our use of these properties. However, if third parties who purport
to be property owners or beneficiaries of the mortgaged properties challenge our right to use the leased properties, we may not be able to
protect our leasehold interests and may be ordered to vacate the affected premises, thus materially and adversely affect our business and
operating results.
If the PCAOB is unable to inspect our auditors as required under the Holding Foreign Companies Accountable Act, the SEC will
prohibit the trading of our shares. A trading prohibition for our shares, or the threat of a trading prohibition, may materially and
adversely affect the value of your investment. Additionally, the inability of the PCAOB to conduct inspections of our auditors, if any,
would deprive our investors of the benefits of such inspections.
The Holding Foreign Companies Accountable Act (the “HFCA Act”) was enacted on December 18, 2020. The HFCA Act states
if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to
inspection by the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit our shares from being traded on a
national securities exchange or in the over-the-counter trading market in the U.S.
On March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation
requirements of the HFCA Act. A company will be required to comply with these rules if the SEC identifies it as having a “non-
inspection” year under a process to be subsequently established by the SEC. The SEC is assessing how to implement other requirements
of the HFCA Act, including the listing and trading prohibition requirements described above. Furthermore, on June 22, 2021, the U.S.
Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if enacted, would amend the HFCA Act and require
the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for
two consecutive years instead of three. On September 22, 2021, the PCAOB adopted a final rule implementing the HFCA Act, which
provides a framework for the PCAOB to use when determining, as contemplated under the HFCA Act, whether the PCAOB is unable to
inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or
more authorities in that jurisdiction. On December 2, 2021, the SEC issued amendments to finalize rules implementing the submission
and disclosure requirements in the HFCA Act. The rules apply to registrants that the SEC identifies as having filed an annual report with
an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that PCAOB is unable to inspect
or investigate completely because of a position taken by an authority in foreign jurisdictions. On December 16, 2021, the PCAOB issued
a Determination Report which found that the PCAOB is unable to inspect or investigate completely registered public accounting firms
headquartered in: (i) China, and (ii) Hong Kong.
On August 26, 2022, the PCAOB signed a Statement of Protocol with the CSRC and Ministry of Finance, taking the first step
toward opening access for the PCAOB to inspect and investigate registered public accounting firms headquartered in mainland China
and Hong Kong completely, consistent with U.S. law.
48
Table of Contents
On December 15, 2022, the PCAOB announced that it was able to conduct inspections and investigations completely of
PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong in 2022. The PCAOB vacated its previous
determinations issued in December 2021 accordingly. As a result, we do not expect to be identified as a “Commission-Identified Issuer”
under the HFCA Act for the fiscal year ended December 31, 2022 after we file our annual report on Form 20-F for such fiscal year.
However, whether the PCAOB will continue to conduct inspections and investigations completely to its satisfaction of PCAOB-
registered public accounting firms headquartered in mainland China and Hong Kong is subject to uncertainty and depends on a number
of factors out of our, and our auditor’s, control, including positions taken by authorities of the PRC. The PCAOB is expected to continue
to demand complete access to inspections and investigations against accounting firms headquartered in mainland China and Hong Kong
in the future and states that it has already made plans to resume regular inspections in early 2023 and beyond. The PCAOB is required
under the HFCA Act to make its determination on an annual basis with regards to its ability to inspect and investigate completely
accounting firms based in the mainland China and Hong Kong. The possibility of being a “Commission-Identified Issuer” and risk of
delisting could continue to adversely affect the trading price of our securities. Should the PCAOB again encounter impediments to
inspections and investigations in mainland China or Hong Kong as a result of positions taken by any authority in either jurisdiction, the
PCAOB will make determinations under the HFCA Act as and when appropriate.
Our current auditor, Onestop Assurance PAC (“Onestop”), and our prior auditor for the 2020 and 2021 annual reports, Marcum
Asia CPAs LLP (Formerly Marcum Bernstein & Pinchuk LLP), or Marcum Asia, the independent registered public accounting firm that
issue the audit reports included elsewhere in this annual report, are registered with the PCAOB. The PCAOB conducts regular
inspections to assess their compliance with the applicable professional standards. Onestop Assurance PAC and Marcum Asia CPAs LLP
are headquartered in Singapore and New York, New York, respectively, and, as of the date of this annual report, were not included in the
list of PCAOB Identified Firms in the PCAOB Determination Report issued in December 2021.
Our ability to retain an auditor subject to the PCAOB inspection and investigation, including but not limited to inspection of the
audit working papers related to us, may depend on the relevant positions of U.S. and Chinese regulators. Both Onestop and Marcum
Asians audit working papers related to us are located in China. With respect to audits of companies with operations in China, such as our
Company, there are uncertainties about the ability of the auditor to fully cooperate with a request by the PCAOB for audit working
papers in China without the approval of Chinese authorities.
Whether the PCAOB will be able to conduct inspections of our auditor, including but not limited to inspection of the audit
working papers related to us, in the future is subject to substantial uncertainty and depends on a number of factors out of our, and our
auditor’s, control. If our shares are prohibited from trading in the United States, there is no certainty that we will be able to list on a non-
U.S. exchange or that a market for our shares will develop outside of the United States. Such a prohibition would substantially impair
your ability to sell or purchase our shares when you wish to do so, and the risk and uncertainty associated with delisting would have a
negative impact on the price of our shares. Also, such a prohibition would significantly affect our ability to raise capital on terms
acceptable to us, or at all, which would have a material adverse impact on our business, financial condition, and prospects.
Risks Related to Our Ordinary Shares
The market price movement of our ordinary shares may be volatile.
The trading prices of our ordinary shares are likely to be volatile and could fluctuate widely due to factors beyond our control.
This may happen because of the broad market and industry factors, such as 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 internet
companies, online retail and mobile commerce platforms and consumer finance service providers, may affect the attitudes of investors
towards Chinese companies listed in the United States, which consequently may impact the trading performance of our ordinary shares,
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 as a whole, 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, which may have a material and adverse effect on the trading price of our ordinary shares.
49
Table of Contents
In addition to the above factors, the price and trading volume of our ordinary shares 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 service offerings or those of our competitors;
● changes in the economic performance or market valuations of other automobile retailers;
● 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 automobile retailers;
● announcements by us or our competitors of new product and service offerings, acquisitions, strategic relationships, joint
ventures, capital raisings or capital commitments;
● announcements and implementation of business mergers and acquisitions, including the merger with Haitaoche Limited;
● additions to or departures of our senior management;
● fluctuations of exchange rates between the Renminbi and the U.S. dollar; and
● release or expiry of lock-up or other transfer restrictions on our outstanding shares, and sales or perceived potential sales of
additional ordinary shares.
The sale or availability for sale of substantial amounts of our ordinary shares could adversely affect their market price.
Sales of substantial amounts of our ordinary shares in the public market, or the perception that these sales could occur, may
adversely affect the market price of our ordinary shares. As of December 31, 2022, we had 228,250,210 ordinary shares outstanding,
including 130,815,462 ordinary shares that are freely transferable without restriction or additional registration under the Securities Act.
The remaining ordinary shares outstanding will be available for sale, subject to volumes and other restrictions as applicable under Rules
144 and 701 of the Securities Act. Certain holders of our ordinary shares may cause us to register under the Securities Act of the sale of
their shares. Sales of these registered shares in the public market could adversely affect the market price of our ordinary shares.
If securities or industry analysts do not publish research or reports about our business, or if they adversely change their
recommendations regarding our ordinary shares, the market price for our ordinary shares and trading volume could decline.
The trading market for our ordinary shares will depend in part on the research and reports that securities or industry analysts
publish about us or our business. If research analysts do not establish and maintain adequate research coverage or if one or more of the
analysts who covers us downgrades our ordinary shares or publishes inaccurate or unfavorable research about our business, the market
price for our ordinary shares would likely decline. If analysts 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 ordinary shares to decline.
Because we do not expect to pay dividends in the foreseeable future, you must rely on price appreciation of our ordinary shares for
return on your investment.
We currently intend to retain most, if not all, of our available funds and any future earnings to fund the development and growth
of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an
investment in our ordinary shares as a source for any future dividend income.
50
Table of Contents
Our board of directors (the “Board”) has complete discretion as to whether to distribute dividends, subject to our memorandum
and articles of association and certain restrictions under Cayman Islands law, namely that our company may only pay dividends out of
profits or share premium account, and 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. In addition, our shareholders may by ordinary resolution
declare a dividend, but no dividend may exceed the amount recommended by our Board. Even if our Board decides to declare and pay
dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations
and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our
financial condition, contractual restrictions and other factors deemed relevant by our Board. Accordingly, the return on your investment
in our ordinary shares will likely depend entirely upon any future price appreciation of our ordinary shares. There is no guarantee that our
ordinary shares will appreciate in value or even maintain the price at which you purchased our ordinary shares. You may not realize a
return on your investment in our ordinary shares and you may even lose your entire investment in our ordinary shares.
We may need additional capital, and the sale of additional ordinary shares or other equity securities could result in the additional
dilution to our shareholders, while the incurrence of debt may impose restrictions on our operations.
We may require additional cash resources due to changing business conditions or other future developments, including any
investments or acquisitions that we may decide to pursue. If these resources are insufficient to satisfy our cash requirements, we may
seek to sell equity or debt securities or obtain a credit facility. The sale of equity securities would result in dilution to our shareholders.
The incurrence of indebtedness would result in the increased debt service obligations and could require us to agree to operating and
financing covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms
acceptable to us, if at all.
Our memorandum and articles of association contain anti-takeover provisions that could adversely affect the rights of holders of our
ordinary shares.
Our current memorandum and articles of association contain provisions to limit the ability of others to acquire control of our
Company or cause us to engage in change-of-control transactions, including a provision that grants authority to our Board to establish
and issue from time to time one or more series of preferred shares without action by our shareholders and to determine, with respect to
any series of preferred shares, the terms and rights of that series, any or all which may be greater than the rights associated with our
ordinary shares. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium
over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar
transaction. For example, our Board has the authority, without further action by our shareholders, to issue preferred shares in one or more
series and to fix their designations, powers, preferences, privileges, and relative participating, optional or special rights and the
qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation
preferences, any or all of which may be greater than the rights associated with our ordinary shares. Preferred shares could be issued
quickly with terms calculated to delay or prevent a change in control of our Company or make removal of management more difficult. If
our Board decides to issue preferred shares, the price of our ordinary shares may fall and the voting and other rights of the holders of our
ordinary shares may be materially and adversely affected.
We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain
provisions applicable to United States domestic public companies.
Because we are a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules
and regulations in the United States that are applicable to U.S. domestic issuers, including:
● the rules under the Exchange Act requiring the filing of quarterly reports on Form 10-Q or current reports on Form 8-K
with the SEC;
● the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security
registered under the Exchange Act;
● the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and
liability for insiders who profit from trades made in a short period of time; and
51
Table of Contents
● the selective disclosure rules by issuers of material non-public information under Regulation FD.
We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend
to publish our results on a quarterly basis through press releases, distributed pursuant to the rules and regulations of the Nasdaq Stock
Market. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the
information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed
with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information which would be made
available to you were you investing in a U.S. domestic issuer.
If we are a passive foreign investment company for U.S. federal income tax purposes for any taxable year, U.S. holders of our
ordinary shares could be subject to adverse U.S. federal income tax consequences.
A non-United States corporation will be a passive foreign investment company (“PFIC”), for U.S. federal income tax purposes
for any taxable year if either: (i) at least 75% of its gross income for such year is passive income; or (ii) at least 50% of the value of its
assets (based on an average of the quarterly values of the assets) during such year is attributable to assets that produce or are held for the
production of passive income. A separate determination must be made after the close of each taxable year as to whether a non-United
States corporation is a PFIC for that year. Although the law in this regard is unclear, we intend to treat our VIE (and its subsidiaries) as
being owned by us for U.S. federal income tax purposes, not only because we exercise effective control over the operations 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 our VIE (and its subsidiaries) for U.S. federal
income tax purposes, and based upon our current and expected income and assets, including goodwill and other unbooked intangibles,
and the market value of our ordinary shares, we do not believe that we were a PFIC for U.S. federal income tax purposes for the taxable
year ended December 31, 2022 and we do not expect to be a PFIC for the current taxable year or in the foreseeable future.
While we do not expect to become a PFIC, because the value of our assets for purposes of the asset test may be determined by
reference to the market price of our ordinary shares, fluctuations in the market price of our ordinary shares may cause us to become a
PFIC for the current or subsequent taxable years. Further, if it were determined that we do not own the stock of our VIE for U.S. federal
income tax purposes, our risk of being a PFIC may substantially increase. Because PFIC status is a factual determination made annually
after the close of each taxable year, there can be no assurance that we will not be a PFIC for the current taxable year or any future taxable
year.
If we are a PFIC for any taxable year during which a U.S. Holder (as defined in “Item 10. Additional Information — E. Taxation
— United States Federal Income Tax Considerations”) holds our ordinary shares, certain adverse U.S. federal income tax consequences
could apply to such U.S. Holder. See “Item 10. Additional Information — E. Taxation — United States Federal Income Tax
Considerations — Passive Foreign Investment Company Considerations”.
Since shareholder rights under Cayman Islands law differ from those under U.S. law, you may have difficulty protecting your
shareholder rights.
We are an exempted company limited by shares incorporated under the laws of the Cayman Islands. Our corporate affairs are
governed by our Memorandum and Articles of Association, the Companies Act (As Revised) of the Cayman Islands and the common law
of the Cayman Islands. The rights of shareholders to take action against our directors, actions by our minority shareholders and the
fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the
Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedents in the
Cayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority, but are not
binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under
Cayman Islands law are not as clearly established as they would be under statutes or judicial precedents in some jurisdictions in the
United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. Some U.S. states,
such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition,
Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States.
52
Table of Contents
Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect
corporate records, other than the Memorandum and Articles of Association and any special resolutions passed by such companies, and
the registers of mortgages and charges of such companies, or to obtain copies of lists of shareholders of these companies. Our directors
have discretion under our current Memorandum and Articles of Association to determine whether or not, and under what conditions, our
corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make
it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies
from other shareholders in connection with a proxy contest.
Certain corporate governance practices in the Cayman Islands, which is our home country, differ significantly from
requirements for companies incorporated in other jurisdictions such as the United States. Nasdaq Stock Market rules permit a foreign
private issuer like us to follow the corporate governance practices of its home country. We have elected to following our home country
practice in lieu of certain corporate government requirements of the Nasdaq Stock Market. See “Item 16G. Corporate Governance”. As a
result, our shareholders may be afforded less protections than they otherwise would under rules and regulations applicable to the U.S.
domestic issuers.
As a result of all of the above, public shareholders may have more difficulties in protecting their interests in the face of actions
taken by our management, our Board members or our controlling shareholders than they would as public shareholders of a company
incorporated in the United States.
We will incur increased costs as a result of being a public company, particularly after we ceased to qualify as an “emerging growth
company.”
After the completion of the Business Combination, we have been a stand-alone public company and expect to incur significant
legal, accounting and other expenses that we did not incur as a subsidiary of another public company, including additional costs
associated with our public company reporting obligations. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented
by the SEC and the Nasdaq Stock Market, impose various requirements on the corporate governance practices of public companies. We
qualified as an “emerging growth company” pursuant to the JOBS Act until the end of 2022. An emerging growth company may take
advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These
provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002 in the
assessment of the emerging growth company’s internal control over financial reporting. The JOBS Act also permits an emerging growth
company to delay adopting new or revised accounting standards until such time as those standards apply to private companies. We rely
on such exemption provided by the JOBS Act. As a result, our financial statements may not be comparable to companies that comply
with public company effective dates.
We expect these rules and regulations to increase our legal and financial compliance costs and to make some corporate activities
more time-consuming and costly. Since we are no longer an “emerging growth company” as of date of this 20-F, we expect to incur
significant expenses and devote substantial management efforts towards ensuring the compliance with the requirements of Section 404 of
the Sarbanes-Oxley Act of 2002 and the other rules and regulations of the SEC. For example, operating as a public company makes it
more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced
policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. In addition, we will incur additional
costs associated with our public company reporting requirements. We are currently evaluating and monitoring developments with respect
to these rules and regulations, and we cannot predict or estimate with any degree of certainty the amount of additional costs we may
incur or the timing of such costs.
53
Table of Contents
We may have conflicts of interest with Renren and we may not be able to resolve such conflicts on favorable terms for us.
Conflicts of interest may arise between Renren and us in a number of areas relating to past and ongoing relationships. Potential
conflicts of interest that we have identified include the following:
● Indemnification arrangements with Renren. In connection with the Business Combination, we have agreed to indemnify
Renren with respect to lawsuits and other matters relating to our consumer auto business, including operations of that
business when we were a private company and a subsidiary of Renren. These indemnification arrangements could result in
our or our having interests that are adverse to those of Renren, for example, with respect to the settlement arrangements in
litigations. In addition, under these arrangements, we have agreed to reimburse Renren for liabilities incurred (including
legal defense costs) in connection with any litigations, while Renren will be the party prosecuting or defending the
litigations.
● Non-competition arrangements with Renren. In connection with the Business Combination, we have entered into a non-
competition agreement with Renren under which we agree not to compete with each other’s core business.
● Employee recruiting and retention. We may compete with Renren in the hiring of new employees, particularly with respect
to media and advertising-related matters. In connection with the Business Combination, we have entered into a non-
solicitation arrangement with Renren that restricts us from hiring any of each other’s employees.
● Sale of shares in our company. Renren may decide to sell all or a portion of our shares that it holds to a third party,
including to one of our competitors, thereby giving that third party substantial influences over our business or affairs. Such
a sale could be contrary to the interests of our Company or our other shareholders.
Risks Related to Our Ordinary Shares
If we fail to regain compliance with Nasdaq’s minimum bid price requirement, our shares could be subject to delisting.
Our ordinary shares are listed on the Nasdaq Capital Market. The Nasdaq Listing Rules has minimum requirements that a
company must meet for continued listing on the Nasdaq CapitalGlobal Market. These requirements include maintaining a minimum
closing bid price of US$1.00 per share for a period of 30 consecutive trading days. On September 28, 2022, 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 share 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 27, 2023 to regain compliance with Nasdaq’s minimum bid price requirement.
Nasdaq granted us a second period of 180 calendar days, or until September 25, 2023, to regain compliance with the minimum bid price
requirement for continued listing. To regain compliance, the closing bid price per share must meet or exceed US$1.00 per share for a
minimum of 10 consecutive business days on or prior to September 25, 2023.
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 shares. As required by Nasdaq, we confirmed that we would implement a reverse stock split, 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 25, 2023, 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 shares may
significantly reduce the liquidity of the shares, cause further declines to the market price of the shares, and make it more difficult for us
to obtain adequate financing to support our continued operation.
54
Table of Contents
ITEM 4. INFORMATION ON THE COMPANY
A.
History and Development of the Company
History of CM Seven Star
Our company, formerly known as CM Seven Star Acquisition Corporation (“CM Seven Star”), was incorporated in the Cayman
Islands as an exempted company on November 28, 2016. We were originally a blank check company formed for the purpose of entering
into merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination,
with one or more target businesses.
On October 30, 2017, we consummated an initial public offering, and a total of US$206.4 million of the net proceeds from the
sales described above were placed in a trust account established for the benefit of our public shareholders.
On April 30, 2019, we consummated the Business Combination as contemplated by the share exchange agreement (the “Share
Exchange Agreement”) dated as of November 2, 2018 by and among CM Seven Star, KAG and Renren, pursuant to which we acquired
100% of the equity interests of KAG from Renren. In connection with the Business Combination, KAG had transferred the equity
interest and assets of its Ji’nan Dealership to Renren in December 2018.
Upon the closing of the Business Combination, we acquired 100% of the issued and outstanding securities of KAG, in exchange
for approximately 28.3 million ordinary shares of our company. Out of the 28.3 million shares, there were 3.3 million ordinary shares
(“indemnity shares”) held in escrow as potential indemnity for claims that may be asserted under the Share Exchange Agreement. An
additional 4.7 million ordinary shares of our Company were reserved for issuance under an equity incentive plan in exchange for
outstanding options in KAG, which were cancelled at the closing of the Business Combination. Additionally, 19.5 million earnout shares
were to be issued and held in escrow. Renren may be entitled to receive earnout shares under certain prequalification conditions.
Immediately after the Business Combination, Renren owned approximately 56% of our issued and outstanding ordinary shares without
taking into account the indemnity shares and the earnout shares in escrow account as discussed above. In November 2020, the Board of
the Company resolved to waive the satisfaction of prequalification conditions for the earnout shares discussed above and release and
transfer the 19.5 million earnout shares to Renren. Renren received a total of 22.8 million shares including the 3.3 million indemnity
shares and the 19.5 million earnout shares in November 2021.
History of KAG Before the Business Combination
Before the completion of Business Combination, KAG had been a wholly-owned subsidiary of Renren. KAG’s business was
historically operated by Renren through certain subsidiaries and variable interest entities, including KAG itself.
KAG was formed in March 2011 as Renren-Jingwei Inc., an exempted company under the laws of the Cayman Islands. KAG
initially focused on providing consumer financing solutions through Renren Fenqi, an installment payment business. In 2015, KAG
underwent a strategic realignment and launched Renren Licai, a peer-to-peer financing platform. Following the acquisition of a
government license for leasing and factoring, KAG began to offer floor financing to auto dealerships. In connection with the growth of
this business, KAG was rebranded in the first quarter of 2016 as Renren Financial Holdings.
In 2017, Renren’s finance business, as well as certain shell companies were transferred to KAG, and certain reorganization steps
were undertaken. The main components of the reorganization include:
● Establishment of Anhui Xin Jieying (renamed from Shanghai Jieying). In February 2017, Anhui Xin Jieying was established
in the PRC by Mr. Thomas Jintao Ren. In April 2017, Mr. Ren transferred 1% of the equity interests he held in Anhui Xin
Jieying to Ms. Rui Yi. Both Mr. Ren and Ms. Yi were nominee shareholders designated by Renren. Shortly after that, Anhui
Xin Jieying and its nominee shareholders entered into a series of contractual arrangements with a subsidiary of KAG,
Beijing Jiexun Shiji Technology Development Co., Ltd., or Beijing Jiexun, which enabled Beijing Jiexun to be the primary
beneficiary of Anhui Xin Jieying.
55
Table of Contents
● Transfer of Equity Interests of Renren Finance and its subsidiary. In April 2017, the equity interests of Renren Finance,
Inc., a subsidiary of Renren, were transferred to KAG for nil consideration. Renren Finance Inc. and its subsidiary were
mainly engaged in the provision of internet-based financing to used car dealerships.
● Transfer of Equity Interests and Reorganization of Qianxiang Changda. In May 2017, Qianxiang Changda, which was
formerly a subsidiary of a consolidated variable interest entity of Renren, was transferred to Mr. James Jian Liu and Ms.
Jing Yang for a consideration of RMB50 million, which was equal to the paid-in-capital of Qianxiang Changda. Mr. Liu
and Ms. Yang were nominee shareholders designated by KAG. In June 2017, Qianxiang Changda and its nominee
shareholders entered into a series of contractual arrangements with Beijing Jiexun, which enabled Beijing Jiexun to be
primary beneficiary of Qianxiang Changda. In 2016 and 2017, Qianxiang Changda terminated and/or transferred to Renren
certain parts of its financing services business, including wealth management services, credit financing to college students
and apartment rental financing. After the reorganization of KAG in 2017, Qianxiang Changda was only engaged in the
provision of financing to used car dealerships.
● Establishment of Shanghai Auto and Amendments to the Contractual Arrangements with Qianxiang Changda and Anhui
Xin Jieying. In August 2017, Shanghai Auto was established in the PRC by KAG. At the same time, Anhui Xin Jieying and
Qianxiang Changda terminated their contractual agreements with Beijing Jiexun and entered into the similar contractual
agreements with Shanghai Auto. See “Item 4. Information on the Company — C. Organizational Structure — Contractual
Agreements with the VIEs and Their Shareholders” for additional details on the previous contractual arrangements that we
had with the VIEs.
In the first quarter of 2017, KAG was renamed as Renren Auto Group, and launched its first Dealership later that year. In the
first quarter of 2018, KAG was further renamed as Kaixin Auto Group.
History and Development after the Business Combination
Immediately prior to the completion of the Business Combination, our Company was renamed as Kaixin Auto Holdings
(“KAH”).
On June 28, 2019, we determined that we qualify as a “foreign private issuer” as defined under Rule 3b-4 of the Exchange Act,
and started reporting under the Exchange Act as a foreign private issuer.
Haitaoche Acquisition
On November 3, 2020, we entered into a binding term sheet with Haitaoche pursuant to which Haitaoche will merge with a
newly formed wholly-owned subsidiary of ours, with Haitaoche continuing as the surviving entity and a wholly-owned subsidiary of
ours. On December 31, 2020, a definitive share purchase agreement was entered into between Kaixin and Haitaoche in connection with
the Haitaoche Acquisition pursuant to which Kaixin agrees to issue to shareholders of Haitaoche an aggregate of 74,035,502 ordinary
shares of Kaixin in exchange of 100% share capital of Haitaoche. The closing of the Haitaoche Acquisition was subject to a number of
closing conditions, including the relevant approval by NSDAQ Stock Market pursuant to Rule 5110(a) of the Nasdaq Stock Market. We
received such approval on April 15, 2021. On June 25, 2021, our Company issued an aggregate of 74,035,502 ordinary shares through
private placement to several former shareholders of Haitaoche in exchange of 100% of the share capital of Haitaoche, pursuant to the
share purchase agreement which was entered into on January 4, 2021. Following the issuance, Haitaoche shareholders and former Kaixin
shareholders own 51.61% and 48.39%, respectively, of the post-closing outstanding KAH ordinary shares (on a fully diluted basis).
Following the consummation of Haitaoche Acquisition, Haitaoche became a wholly-owned subsidiary of the Company. The management
of Haitaoche became the management of the combined entity, resulting in the reverse acquisition of KAH whereby Haitaoche is deemed
to be the acquirer for accounting purposes. In June 2022, certain former Haitaoche shareholders signed an act-in-concert agreement that
remained in effect until the end of 2022. They agreed to act in concert in key issues related to the operations and corporate governance of
Kaixin.
56
Table of Contents
Following the completion of the reverse acquisition, KAH is the consolidated parent of Haitaoche and the resulting company
operates under the KAH corporate name. Haitaoche’s historical financial statements became the historical financial statements of the
Company. The acquired assets and liabilities of KAH are included in the Company’s consolidated balance sheet as of June 25, 2021 and
the results of its operations and cash flows are included in the Company’s consolidated statement of operations and comprehensive
income (loss) and cash flows for periods beginning after June 25, 2021.
Haitaoche is a holding company incorporated under the laws of the Cayman Islands on January 13, 2015. Haitaoche conducts
operations through its variable interest entities in the People’s Republic of China. The Company is mainly engaged in sales of imported
automobiles in PRC.
Our principal executive offices are located at 9/F, Black A, Dongjin International Center, Huagong Road, Chaoyang District,
Beijing 100015, People’s Republic of China. Our telephone number at this address is +86 10 67204948. Our registered office is situated
at the office of Harneys Fiduciary (Cayman) Limited, 4th Floor,Harbour Place, 103 South Church Street, P.O. Box 10240, Grand
Cayman KY1-1002, Cayman Islands. Our agent for service of process in the United States is Cogency Global Inc., located at 122 East
42nd Street, 18th Floor, New York, NY 10168.
Disposal of Renren Finance, Inc
The company had a large number of inactive shell companies and VIE structures, which were the result of its historical legacy
and no longer relevant for its car sale businesses. Those inactive entities and the VIEs simply caused extra maintenance costs, regulatory
risk, and disclosure burdens. To streamline its corporate structure, mitigate the uncertainties, and exert full control on our operating
entities, the management explored the options to dispose of the Disposal Group. The Disposal Group had a negative book of around $3
million at that time. On August 5, 2022, KAG, our wholly-owned subsidiary, and Stanley Star entered into the August 2022 Agreement.
The August 2022 Agreement stipulates that KAG agrees to sell all the shares it held in Renren Finance, Inc along with its subsidiaries
and VIEs and the VIEs’ subsidiaries at a consideration of $1, to Stanley Star, an independent third party company incorporated in BVI
that was interested in exploring the opportunities in the non-performing assets on the books of the Disposal Group. The Company
subsequently issued to Stanley Star an aggregate of 50,000 Series F Convertible Preferred Shares, each of which is convertible into 1,000
ordinary share of the Company in connection with the disposal.
With the disposition of Renren Finance Inc, all VIEs were disposed as of October 27, 2022 (see Note 4 to the consolidated
financial statement) and“Item 4. Information on the Company - C. Corporate Structure.” As a result, there is no VIE entity in the
corporate structure of the Company and as of the date of this Annual Report, we conduct our operations exclusively through our wholly-
owned subsidiaries.
B.
Business Overview
The Company is primarily engaged in the sales of domestic and imported automobiles in the PRC. We are committed to
providing a superior car purchase and ownership experiences to our customers. Our passion and professionalism build trust and long-
term customer loyalty.
We are a leading premium used auto dealership group in China. As of December 31, 2022, we had three used car Dealerships
covering three cities in China. On average, our Dealership operators have over ten years of experiences in the used car industry. We
provide used car buyers in China with access to a wide selection of used vehicles across our network of Dealerships, with a focus on
premium brands, such as Audi, BMW, Mercedes-Benz, Land Rover, Bentley, Rolls-Royce, and Porsche.
China is the world’s largest automotive market both in demand and supply in 2022. China’s used car market is characterized by
the lack of brand differentiation and limited industry consolidation.
On June 25, 2021, we closed the Haitaoche Acquisition. Haitaoche is a China-based merchant for domestic and imported
automobiles. The manufacture and distribution of automobiles are undergoing significant changes in China, which are expected to create
new opportunities and business models. Haitaoche strives to become a leading automobile retail platform in China. In addition to
maintaining its domestic and imported new car sales business, it plans to expand into electronic vehicles and other business areas.
Haitaoche aims to enter into strategic cooperation agreements with multiple electronic vehicle manufacturers in China and serve a wider
group of distributors and consumers.
57
Table of Contents
By integrating the operations and resources of Haitaoche with the used car dealership business, we are engaged in the sales of
both new and used, domestic and imported automobiles. We sourced, marketed and sold approximately 697, 1,814, and 879 vehicles to
customers across China in 2020, 2021 and 2022, respectively.
We are actively looking for opportunities to expand into the business area of electronic vehicles. We have set up the New
Energy Vehicles Department in 2021 and delivered the new NEV prototype to our customer at the end of 2022. We released our new
energy vehicle strategic plan on December 1, 2021, and we target to quickly expand our new energy vehicle team and start with
developing commercial new energy vehicles for intra-city and inter-city logistics applications in the initial stage.
In addition, we have reached into a strategic partnership with Beijing Bujia Technology Co., Ltd. (“Bujia”) and obtained a sales
order for 5,000 new energy logistics vehicles with Bujia, a leading automobile logistics service provider in China. It will order a total of
RMB1 billion (equivalent to around US$156 million) worth of new energy vehicles from our Company in the next few years. The first
model vehicle was delivered to Bujia in July 2022. We aim to continuously establish strategic partnerships with platforms that have big
sales potentials and to make customized production according to customer needs.
Value Propositions to Car Buyers
We provide integrated online and offline sales channels to car buyers, aiming to create a superior and convenient vehicle
purchase experience. We provide high-quality photos of the vehicles we sell from multiple angles, allowing consumers to browse our
inventory online and attract them to physically visit our Dealership Outlets. Our offline presence with professional sales staff and a
comprehensive showroom experience provides convenience to the buyers, who typically want to view the car in person, understand its
history, take it for a test drive and establish trust before making a purchase.
Our nationwide inventory, which undergoes our inspection process and reconditioning process for quality assurance, is
optimized based on market insights into popular models and pricing trends through our technology systems. Our customer support
specialists are available to answer customers’ questions that arise throughout the process. At every transaction milestone, we strive to
provide the level of customer service that makes purchasing a car an enjoyable and memorable experience.
Our Businesses
Kaixin have pioneered an innovative business model, under which it had obtained control of Dealerships across China,
providing them with an integrated technology system, centralized operational control and management, a unified brand and capital
support. Kaixin primarily generate revenues from sales of used cars, as well as fees obtained from its role as a channel partner for third-
party auto financing and other value-added service providers. Of the Dealerships’ total revenues in 2020, 2021, and 2022, revenues from
auto sales accounted for 99.5%, 100% and 100%, respectively.
In 2019, due to disagreements with certain non-controlling shareholders on operational matters, some non-controlling
shareholders detained Kaixin’s inventories in the Dealerships and significant uncertainty arose on the realizability and collectability of
the prepayments to purchase used cars for these Dealerships and amounts due from these non-controlling shareholders. Therefore, Kaixin
wrote down a significant amount of inventory prepayments in 2019. By early 2021, we reached agreement with a majority of the non-
controlling shareholders to settle the disputes over the allocation of assets and confirm our mutual commitment to the growth and revamp
of our car sale business. The net impact on the recoverable amounts of the previously detained and impaired assets was US$2.9 million,
which have been recorded as a reduction of general and administrative expense for the year ended December 31, 2020. Following the
consummation of the Haitaoche Acquisition in June 2021, our used car sales business gradually resumed operations in the majority of the
Dealership locations, which complement the new car sales in the Haitaoche business unit. During 2022, the Company terminated
cooperation with several dealerships that underperformed against our expectations and downsized our dealerships network to 3
dealerships.
Our Dealership Network
As of December 31, 2022, we had 3 Dealerships. Our network of Dealerships is focused primarily on tier 2 and below cities,
where we believe the mix of cost structure, consumers’ demand and opportunity for growth is most favorable.
58
Table of Contents
Dealership Evaluation and Selection Process
In expanding our network of Dealerships, we carefully consider potential markets and conduct a systematic evaluation of each
potential new site, using a scoring system that we have developed internally. In our scoring system, we consider a number of factors in
the area served, including:
● location, nature and quality;
● population density;
● age distribution and average disposable income of consumers;
● spending patterns, dining habits and frequency of consumers;
● locations of other car dealerships;
● estimated customer traffic;
● structure of the dealership, including availability of showroom and parking space; and
● rental costs, lease economics and estimated return on investments.
Management of Dealerships
We have adopted an operating model for our auto sales business, which we believe aligns the economic interests of our
Dealerships with our overall business. We provide capital, a unified brand, technology system and operational coordination to our
Dealerships, in which we retain majority control. Under this model, all of the cash flows, operational activities and financial and
accounting recordkeeping across our Dealerships are centrally managed. We believe that our dealership model promotes customer loyalty
and provides significant operational advantages, by introducing standard practices, such as operational rules, legal documentation and
processes. It also creates a common culture to promote bonding and buy-in among our direct employees, dealers and other workers.
Our internal team for Dealership management is responsible for development and expansion of our Dealership network. One of
their responsibilities is to monitor the compliance with the operational obligations for the management of our Dealerships. In the event
that the operating obligations as agreed in the equity purchase agreement are not fulfilled, we are entitled to recourse against the seller of
the Dealership or terminate the equity purchase agreement. We also have the option to terminate the equity purchase agreement in certain
circumstances, including but not limited to, the death or incapacity of the seller, issues of integrity or criminal conviction of the seller,
material default by the seller, or our failure to complete an initial public offering within three years following signing of the relevant
equity purchase agreement due to third-party reasons or force majeure. A seller may suspend or terminate Dealership services voluntarily
or involuntarily due to various reasons, including our failure to complete an initial public offering within three years following entry into
the relevant equity purchase agreement for reasons other than third-party reasons or force majeure. In connection with the Business
Combination, we entered into amendment agreements with Dealership operators in January 2019 pursuant to which it was confirmed that
the Business Combination qualifies as an initial public offering, that shares payable to the Dealership operators as consideration shall be
adjusted to reflect the earnout and indemnification arrangements in the Business Combination, and that Renren will be responsible for
settling contingent obligations to Dealership operators.
Our relationships with our Dealerships are described in further details below under “—Certain Legal Arrangements — Legal
Arrangements with Dealerships”.
59
Table of Contents
Planned Entry into the NEV Market
By integrating the operations and resources of Haitaoche with the used car dealership business, we are currently engaged in the
sales of both new and used, domestic and imported automobiles and will be actively looking for opportunities to expand into the business
area of electronic vehicles. We released our new energy vehicle strategic plan on December 1, 2021, and we target to quickly expand our
new energy vehicle team and start with developing commercial new energy vehicles for intra-city and inter-city logistics applications in
the initial stage. Reference is made to the Form 6-K which the Company filed with SEC on August 26, 2021, the Company has reached a
binding term sheet to acquire 100% equity of Henan Yujie Times Automobile Co., Ltd. (“Yujie”) through new share issuance. Yujie is a
Chinese electronic vehicles (“EV”) manufacturer specialized in small size multi-function EVs. On September 26, 2022, the Company
signed a binding acquisition term sheet with Wuxi Morning Star Technology Co., Ltd. (“Morning Star”), who manufactures and operates
the POCCO EVs. According to the term sheet, the Company intends to acquire 100% equity of Morning Star through new share issuance
and makes it a wholly owned subsidiary (the “Acquisition”). As consideration for the Acquisition, the Company will issue ordinary
shares of Kaixin to the shareholders of Morning Star with market value of 100 million as determined by the average of the closing prices
of last five trading days before the entering date of Share Purchase Agreement, conditional on Morning Star acquiring 100% equity of
Yujie before October 31, 2022. However, given that Morning Star failed to acquire 100% equity of Yujie, the intended acquisition didn’t
go through.
In addition, we have signed a sales order for 5,000 new energy logistics vehicles with Beijing Bujia Technology Co., Ltd.
(“Bujia”), a leading automobile logistics service provider in China. Bujia will order a total of RMB1 billion (equivalent to US$156
million) worth of new energy vehicles from our Company in the coming years. The first model vehicle was delivered to Bujia in mid-
2022. We aim to continuously establish strategic partnerships with platforms that have big sales potentials and to make customized
production according to customer needs.
Certain Legal Arrangements
We have entered into a series of legal arrangements with our Dealerships and other related parties, which are described in
further details below.
Legal Arrangements with Dealerships
Equity Purchase Agreement
One of our variable interest entities, Anhui Xin Jieying, is the contracting party under the equity purchase arrangements relating
to our Dealerships, as supplemented from time to time. In addition to the equity purchase agreements, we also purchased all car
inventories from each dealership for cash at fair value. Pursuant to the relevant equity purchase agreement, Anhui Xin Jieying, as
purchaser, agrees with the shareholder(s) of an existing car dealership, as seller(s), to purchase a majority interest in the business
according to the terms summarized below:
● The shareholder(s) of the dealership agree to set up a new special purpose holding entity to which the shareholder(s)
transfer the eligible assets, employees and business contracts owned and leased by the existing dealership to Anhui Xin
Jieying. In turn, Anhui Xin Jieying agrees to subscribe for a portion of the equity from the seller(s) and contributes cash to
the new entity to ultimately hold 70% of the equity interests in the new entity, consisting of 40% of the equity interests in
the new entity transferred from the seller(s) (“Transferred Equity”), and 30% of the equity interests in the new entity as a
capital increase of the new entity (“New Equity”).
● As consideration for the Transferred Equity, Anhui Xin Jieying agrees to pay to the shareholder(s) shares issued by KAG or
other future overseas holding entity of Anhui Xin Jieying (“Listing Entity”), to the seller(s) or seller’s overseas holding
entity, at the per share valuation in the listing of the Listing Entity (“Listing”), calculated as follows:
o First Payment: The amount of the first payment is calculated as all pre-tax operational profits generated by the special
purpose holding company prior to the Listing multiplied by Anhui Xin Jieying’s ownership percentage in the special
purpose holding entity.
60
Table of Contents
o
Subsequent Payments: The total amount of the subsequent payments is calculated as all pre-tax operational profits
generated by the special purpose holding company during the relevant performance benchmark period, multiplied by
Anhui Xin Jieying’s ownership percentage in the special purpose holding company, multiplied further by a factor of
12, payable in five equal installments.
● The calculation method of the acquisition price involved in the special purpose holding company’s acquisition and opening
of a new Dealership Outlet is the same as the above provisions, but the date of calculation of the specific performance
benchmark period shall be determined by the board of directors of the special purpose holding company.
● Each subsequent payment is subject to adjustment based on a performance target of a compound growth rate of the special
purpose holding company’s profit of 110%, using the initial performance benchmark period as the baseline. In the event
that the special purpose holding company’s performance exceeds the target for the year, the share consideration payable to
it shall be increased proportionally, up to an amount equal to 250% of the number of shares nominally payable for such
performance benchmark period. In the event that the special purpose holding company’s performance is lower than the
target for the relevant year, the value of the share consideration payable to it shall be proportionally reduced, subject to a
bottom limit of 50% of the value of shares nominally payable for the relevant period.
The initial performance benchmark period is defined as the twelve-month period immediately prior to the completion of the
Listing, if the holding company’s performance inclusion date, which is the date of the first month following inclusion of the relevant
holding company’s results in KAG’s financial reporting, is at least 12 months prior to the date of the Listing. In the event that the special
purpose holding company’s performance inclusion date is less than 12 months prior to the completion of the Listing, then each
performance benchmark period is calculated as the twelve-month period following its performance inclusion date.
The agreement further provides that on the date when the special purpose holding company opens a new Dealership Outlet or
acquires other car dealership business, a separate performance metric may be agreed upon by the parties starting from such date, with the
specific performance evaluation method for the new or acquired business is agreed upon by both parties.
In the case of our Dealerships, each city is covered by a single, separate special purpose holding company, which operates one
or more Dealership Outlets in the relevant city.
In connection with the Business Combination, KAG entered into amendment agreements with Dealership operators in January
2019 pursuant to which it was confirmed that the Business Combination qualifies as a Listing, that shares payable to the Dealership
operators as consideration shall be adjusted to reflect earn-out and indemnification arrangements in the Business Combination, and that
Renren will be responsible for settling contingent obligations to Dealership operators.
Ancillary Agreements with Dealerships
In addition to the equity purchase agreements governing the major aspects of the legal and financial relationships between us
and the partners with whom we work to operate our Dealerships starting in 2018, we have also entered into a series of ancillary
agreements, which are generally designed for the compliance with PRC laws and regulations and for value-added tax optimization
purposes. Revenue for 2020, 2021, and 2022 was primarily generated from transactions under these ancillary agreements and we expect
future revenue from automobile sales to be primarily generated from transactions under these ancillary agreements. Prior to 2018, our
used car purchase and sale agreements generally resulted in Anhui Xin Jieying being considered as the legal owner of such vehicles,
including while they were held in inventory.
The following is a summary of the typical key terms of the ancillary agreements which we entered into in connection with our
auto sales operations since mid-2021. We may depart from these terms from time to time based on local conditions, counterparty’s
demands, tax or regulatory considerations or other reasons.
● Used Vehicle Purchase Agreement. Pursuant to the agreement among the owner of a used car as seller, the Jieying Legal
Representative as purchaser, and a Dealership employee, as registered owner:
o The Jieying Legal Representative is to purchase the used car and register it in the name of a designated employee of
the relevant Dealership.
61
Table of Contents
o Anhui Xin Jieying provides technology consulting services and operational management system services to the Jieying
Legal Representative, who in turn pays service fees to Anhui Xin Jieying.
● Used Car Agency Services Agreement. Pursuant to the agreement between the Jieying Legal Representative and the
relevant Dealership:
o The Dealership entrusts Jieying Legal Representative to purchase, sell, manage, repair and show used cars on its
behalf.
o The Jieying Legal Representative is to complete the transfer procedures for the purchase and sale of automobiles.
● Vehicle Consignment Agreement. Pursuant to the agreement between the Jieying Legal Representative, as principal, and a
Dealership employee, as agent:
o The Jieying Legal Representative authorizes the Dealership employee to purchase a vehicle on his or her behalf.
o The Jieying Legal Representative authorizes the Dealership employee to register such Dealership employee as the
named transferee of the vehicle and the owner of the vehicle, while the Jieying Legal Representative retains legal
ownership of the vehicle.
o When the vehicle is sold by the Jieying Legal Representative, the Dealership employee is responsible to handle third-
party transfer procedures in a timely manner.
● Loan and Service Agreement. Pursuant to the agreement between the Jieying Legal Representative, as borrower, and Anhui
Xin Jieying, as lender:
o Anhui Xin Jieying provides loans to the Jieying Legal Representative for purchasing used cars.
o
Proceeds from the used cars sold by the Jieying Legal Representative on behalf of Anhui Xin Jieying are used in their
entirety to repay the loan. Proceeds in excess of the principal are designated as a service fee paid to Anhui Xin Jieying
from the Jieying Legal Representative.
● Used Vehicle Sales Agreement. Pursuant to the agreement among the Jieying Legal Representative, as seller, a customer, as
purchaser, a designated Dealership employee, as the registration transferor, and the Dealership, as service provider:
o When the Jieying Legal Representative sells a used car to the customer, the automobile registration is transferred from
the Dealership employee to the customer. The sale proceeds are transferred to the account designated by the
management of Anhui Xin Jieying.
o Anhui Xin Jieying provides technology consulting services and operational management system services to the Jieying
Legal Representative, who in turn pays service fees to Anhui Xin Jieying, which are deducted from the proceeds of the
car sales.
To illustrate, when we source an automobile pursuant to a Used Vehicle Purchase Agreement, the seller is entitled to payment
for the car, and the legal title is transferred to the Jieying Legal Representative, with the registration in the name of a Dealership
employee. The Jieying Legal Representative is authorized to enter into this purchase agreement pursuant to the Used Car Agency
Services Agreement, and the Dealership employee similarly is authorized to enter into the agreement pursuant to the Vehicle
Consignment Agreement. Funds are paid by Anhui Xin Jieying through the Dealership to the seller of the car.
When a used car is sold, the Jieying Legal Representative transfers the legal ownership to the purchaser, while the Dealership
employee completes the registration transfer from his or her name to the name of the purchaser. The proceeds are remitted to Anhui Xin
Jieying.
62
Table of Contents
Based on the agreements, neither the Jieying Legal Representative nor the Dealership employee bears any risk of loss or has any
future economic benefits. Neither party ever places their own funds at risk and any potential losses resulting from the purchase and sale
of the car are borne by Anhui Xin Jieying. Similarly, neither of these individuals is able to benefit from the expected increase in the price
of the car resulting from completion of sale to a third-party customer; all of the future economic benefit is remitted directly to Anhui Xin
Jieying. Additionally, Anhui Xin Jieying effectively controls the entire process starting from the purchase of the car, including from
whom to purchase a car, the purchase price, and ultimately the sale of the car to a third party. In addition, Anhui Xin Jieying has the sole
discretion as to which Jieying Legal Representative will enter into the Loan and Service Agreement with Anhui Xin Jieying and to which
Dealership employee that it will assign to complete the registration of the car. Furthermore, it is within Anhui Xin Jieying’s sole power to
redirect the Loan and Service Agreement, title and registration of the car.
When the special purpose entity holding one of our Dealerships is formed, the prior owner holds 30% of the equity interests in
the entity, and Anhui Xin Jieying holds 70% of the equity interests. We provide inventory financing to these Dealerships using our own
funds as well funds from third-party financing partners. We also monitor the financial performance of our Dealerships on a real-time
basis through our information system.
Settlement arrangement with noncontrolling shareholders of dealerships over disputes
Starting from 2019, due to disagreements with certain noncontrolling shareholders on operational matters, some noncontrolling
shareholders detained the Company’s inventories in certain dealerships. Due to the uncertainty in realizing inventory held by these
dealerships and prepayments made to these dealerships for future car purchases, Kaixin wrote down a significant amount of inventory
and prepayments in 2019. The Company has had ongoing negotiations with these noncontrolling shareholders and the Company has
reached settlement agreements with some of these noncontrolling shareholders in the second half of 2021.
The following is a summary of the key terms of the settlement agreements which we entered into with certain noncontrolling
shareholders. We may depart from these terms from time to time based on local conditions, counterparty’s demands, or other reasons.
Amendments to Used Car Agency Services Agreement. Pursuant to the agreement among Anhui Xin Jieying, the relevant
Dealership and the noncontrolling shareholders of such Dealership:
○ The noncontrolling shareholders agree to repay a settlement amount in the form of inventory and/or repayment of
prepayment to Anhui Xin Jieying based on a set schedule.
Amendments to Equity Purchase Agreement. Pursuant to the agreement among Anhui Xin Jieying and the noncontrolling
shareholders of relevant Dealership:
○ Anhui Xin Jieying commits to furnish the noncontrolling shareholders a certain number of the Company’s ordinary
shares following a schedule tied to the noncontrolling shareholders’ performance of settlement payment duties as
specified in the Amendments to Used Car Agency Services Agreement.
○ The number of the Company’s ordinary shares include shares in the First Payment and Subsequent Payments as
specified in the Equity Purchase Agreement, plus certain extra bonus shares.
Financial Leasing Settlement Agreement. Pursuant to the agreement among Shanghai Renren Financial Leasing Co, Ltd. and the
noncontrolling shareholders of relevant Dealership:
○ The noncontrolling shareholders agree to repay Shanghai Renren Financial Leasing Co, Ltd. the outstanding balance of
financial leasing payables following a schedule tie to the controlling shareholders’ receipts of settlement shares as
specified in the Amendments to Equity Purchase Agreement.
63
Table of Contents
Sales and Marketing
Automobile Sales
We believe that our customer base is similar to the overall market for premium automobiles. To date, the growth of our
automobile sales business has primarily been through customer referrals. We also believe that our strong customer focus ensures
customer loyalty which will drive both repeat purchases and referrals. Our sales are primarily made in-store, but we have invested
heavily in online sales channels, including through the Kaixin app and web interfaces. We also utilize other online vertical channels such
as Autohome and 58.com. We believe that this is a key advantage over our competitors, whether traditional dealers, who do not have a
strong online presence, or online-only competitors, who lack the offline infrastructure and in-store experiences that we are able to
provide.
Marketing and Brand Promotion
We believe that brand recognition is important to our ability to attract users. We co-brand our Dealerships, many of which have
an established local brand, to associate their existing brands with the Kaixin brand. “Kaixin” means “happiness” in Chinese and has had
strong impact and positive responses in other applications, including a social gaming platform previously operated by Renren. By
empowering our Dealerships with this highly recognizable brand name, we aim to help them gain further credibility and trustworthiness.
To date, user recognition of our Kaixin brand has primarily grown organically and by referrals, and we have built our brand with
modest marketing and brand promotion expenditures. To encourage such organic growth, we focus on continuously improving the
quality of our services, as we believe that satisfied customers and their friends are more likely to recommend our services to others. In
addition, we work with Dealerships on marketing initiatives to further leverage our brand value. Our Dealerships also engage in certain
other promotional activities, including placement of local radio ads.
We anticipate that our future sales and marketing expenses will consist primarily of performance-based advertising, with the
focus of driving traffic that will translate into customer purchases. We believe that this is an appropriate strategy in the premium used car
market, where customers are widely scattered and they engage in used car transactions relatively infrequently. We expect that these
advertisements will generally fall into three areas: vertical automotive media, selected online channels and selected offline channels. In
addition to paid channels, we intend to attract new customers through enhancing our media and public relations efforts, including organic
marketing to enhance its reputation. Although we may have to expand our promotions from time to time, especially when we launch new
services or products, we expect that our marketing expenses for these promotions will be relatively small when compared to those of our
principal competitors.
Customer Services
Each of our Dealerships has a team of customer support specialists who provide assistance to the customers. Our specialists are
available to assist customers with questions that arise throughout the car purchase process. These specialists are available via online chat
or telephone and help our customers to navigate the website, answer specific questions and assist in loan applications. We take a
consultative approach with customers, offering live support and acting as a trusted partner to guide them through each phase of the
purchase lifecycle. We are committed to providing customers with a high-quality transaction experience. The effectiveness of our Kaixin
model is reflected in our strong customer referrals. We focus on developing our customer support specialists and providing them with the
information and resources that they need to offer exceptional customer services.
64
Table of Contents
Customer Lifecycle
Our customers typically experience the following service stages:
● Search and Discovery. We attract customers through a variety of channels, including referrals, walk-ins, especially for
certain of our Dealerships located in prime areas, and online performance-based advertising. We believe that referrals are
key to our customers as they want to purchase used cars from a business which they can trust. Our website and mobile apps
allow prospective car buyers to instantly browse, research, filter and identify vehicles that interested them from an
inventory of hundreds of automobiles that we offer for sale at any given time. We have also developed a series of
innovative features to enhance customer experience and enable better product discovery, such as engaging images and
other content, as well as easy-to-use site navigation tools and personalization features. In addition, we also utilize other
online vertical channels such as Autohome and 58.com. When customers click on the listings, they are able to leave their
contact information, which will be forwarded to our sales team at the relevant Dealership. A member of the Dealership
sales team will make an appointment with the customer to visit the showroom.
● Transaction Execution. A customer may decide to purchase a vehicle on the first visit to a Kaixin showroom, although in
the premium segment, customers often spend some time before making a final purchase decision. Once a purchase decision
has been made, the customer is able to complete the purchase at a Dealership Outlet and if desired, apply for a loan to
purchase the car through one of our partners. They are able to complete purchases rapidly, pending only approval of
financing when it is required. Once a loan is approved by one of our main financing partners, there is typically a waiting
period of up to a few weeks before the bank releases the loans to the customer. We use our own capital during the interim
period between approval and the release of funds by the financing partner. We strive to limit hidden fees, such that a single
price we charge includes transfer of title and registration fees.
● Financing and Payment. Through our financing partners, we offer down-payment and monthly payment combinations that
allow customers to choose their preferred financing. We have integrated our system with that of our financing partner to
allow customers to apply for financing online or on-site at our Dealership Outlets.
● Trade-in. In the event a customer wishes to trade in an existing car, we can quickly provide a price estimation with our
technology system powered by big data analytics. We typically offer favorable trade-in terms in connection with the sales.
● Post-sale customer care. Once customers receive their cars, our customer service representatives manage the post-sale
coordination and service call process. We believe our post-sale services help cement the confidence of our customers in the
quality of our vehicles, which in turn leads to referrals and repeat purchases.
Competition
The PRC automobile marketplace is highly fragmented. There are more than 100,000 used car dealerships in the PRC, but the
top 100 used car auto dealers collectively have less than 10% market share by trading volume, according to iResearch. A number of used
vehicles are also bought and sold through privately negotiated transactions. We primarily compete on the basis of our deep understanding
of consumers’ needs and offering of numerous product choices from our substantial inventory.
Research and Development
Our intellectual property includes trademarks and trademark applications related to our brands and services, copyrights in
software, trade secrets, patent applications and other intellectual property rights and licenses. We seek to protect our intellectual property
assets and brand through a combination of monitoring and enforcement of trademark, patent, copyright and trade secret protection laws
in the PRC and other jurisdictions, as well as through confidentiality agreements and procedures.
65
Table of Contents
In March 2018, Renren transferred to us the kaixin.com domain name and, in May 2018, an affiliate of Renren granted us an
exclusive license to use its “Kaixin” brand. Further, we have successfully registered our brand name “(cid:0)(cid:0)(cid:0)(cid:0)” which translates to
“Kaixin Auto” in class 35 for services including promotion for others, purchase for others, providing online markets for sellers and
purchasers of goods and services, marketing, etc., which is crucial to our business. However, trademark registrations in other categories
related but less crucial to our business, including automobile maintenance, have not been obtained by us or an affiliate of Renren.
Therefore, for such business, we are unable to prevent any third party from using the Kaixin brand for business that is the same or similar
to ours. As China has adopted a “first-to-file” trademark registration system and there are trademarks similar to our brand which have
been registered in those categories that are related to our business, we may not be able to successfully register our brand and may be
exposed to risk of infringement with respect to third party trademark rights. For further details, see “Item 3. Key Information — D. Risk
Factors — Risks Related to Our Business and Industry — We may be unable to prevent others from unauthorized use of its intellectual
property, which could harm its business and competitive position”.
Seasonality
Our automobile sales business is affected by seasonality in automobile sales, which tends to affect dealers’ needs for financing
for new inventory. Automobile sales tend to be lower in the first quarter of each year than in the other three quarters due to the effect of
the Chinese New Year holiday. As our auto sales business is still growing rapidly, seasonality may be less evident than it otherwise would
be, and as the business continues to evolve, the nature of seasonality may change.
Regulation
This section summarizes the current major PRC laws and regulations which are relevant to our business and operations.
Regulations on Used Automobile Trading
On August 29, 2005, SAT, SAIC, the Ministry of Commerce and the Ministry of Public Security jointly promulgated the
Measures for the Administration of the Trading of Used Automobiles, or the Used Automobile Trading Measures, which became
effective on October 1, 2005 and further revised on September 14, 2017. Pursuant to the Used Automobile Trading Measures, only an
enterprise legal person duly registered with the SAIC or its local branches may engage in used automobile trading, as an operator of used
automobiles markets, as a retailer, or as a brokerage entity.
Under the Used Automobile Trading Measures, a seller of used automobiles must verify certain background information
regarding the automobiles for sale, including verification of the identity certificate and driver’s license of the previous owner, the number
plate of the automobile, the motor vehicle registration certificate, proof that the automobile has passed the security technical
examination, automobile insurance, and payment certificates of relevant taxes and fees. Used automobile retailers shall also provide
quality guarantees as well as after-sales services, information about which shall be clearly indicated at its business location. Furthermore,
under certain circumstances, used automobiles are prohibited from being resold, including instances where an automobile has been
discarded as unusable, been required to be discarded, or been obtained by illegal means, such as theft, robbery or fraud.
On March 24, 2006, the Ministry of Commerce promulgated the Specifications for Used Automobile Trade, which provided
detailed requirements as to the responsibilities of used automobiles trading entity regarding the trading of used automobiles, including
confirming the identity of the seller and the legitimacy of the used automobiles, signing contract for used automobile trading,
establishing transaction archives and keeping records for at least three years.
On June 8, 2016, the General Offices of 11 Departments including the Ministry of Commerce promulgated the Circular on
Facilitating the Trading of Used Vehicles and Accelerating the Activation of Used Vehicles Market for the purpose of effectively
implementing the relevant work listed in the Several Opinions of the State Council on Facilitating the Trading of Used Vehicles which
promulgated on March 14, 2016 by the State Council.
On July 5, 2022, seventeen authorities including the Ministry of Commerce promulgated the Circular on Several Measures for
Invigorating Automobile Circulation and Expanding Automobile Consumption. It was stated that from January 1, 2023, if a natural
person sells three or more used cars that have been held for less than one year in a calendar year, auto sales companies, used car trading
markets, auction companies, etc. shall not issue the uniform invoice for sales of used cars for him/her or handle the transaction
registration formalities, and the relevant authorities will handle the matter according to the regulations.
66
Table of Contents
Regulations on Automobile Sales
On April 5, 2017, the Ministry of Commerce promulgated the Measures on the Administrations of Sales of Automobile, or the
Measures on Sales of Automobile, which came into effect on July 1, 2017 and the original Implementation Measures for the
Administration of Sales of Branded Automobile (the “Branded Automobile Sales Measures”) was abolished at the same time. According
to the Measures on Sales of Automobile, the supplier and distributors of automobiles within the territory of the PRC shall build up an
integrated system for automobile sales and after-sales services, guarantee supply of the related auto accessory, provide timely and
effective after-sales services, and strictly follow the regulations concerning, among others, 3R (i.e. “replace, repair and refund”) and
recall of household automobiles to guarantee consumers’ legitimate rights and interests. A dealer who sells an automobile without
authorization from a supplier or an automobile which is not authorized to be sold by an automobile manufacturer outside the country
shall provide a reminder and explanation to the consumer in writing and inform the consumer of the relevant responsibilities in writing.
When the dealer sells the car to the consumer, it shall verify the valid identity of the registered consumers, sign the sales contract, and
issue the sales invoice.
Regulations on Parallel-import Automobile Sales
On February 22, 2016, the Ministry of Commerce, the MIIT, Ministry of Environmental Protection, Ministry of Transport,
General Administration of Customs, General Administration of Quality Supervision and Inspection and Quarantine and Certification and
Accreditation Administration of the People’s Republic of China jointly issued Several Opinions on Promotion of Pilot Program of
Parallel-import Automobile (“the Parallel-import Automobile Opinions”). According to the Parallel-import Automobile Opinions, the
pilot enterprises of Parallel-import Automobile can import automobile and establish a distribution network without authorization from a
supplier, and can apply for an automatic import license for automobile product according to its actual business operation requirements.
Pilot enterprises shall be subject to the relevant regulations on the administration of automatic import license, submit the license for
verification and complete the customs formalities at the import entrance.
On April 27, 2017, Shanghai Municipal Commission of Commerce and China (Shanghai) Pilot Free Trade Zone Administration
jointly issued Notice on Adjustment on the Pilot Enterprises of Parallel-import Automobile in China (Shanghai) Pilot Free Trade Zone,
which requires that the pilot enterprises registered in China (Shanghai) Pilot Free Trade Zone obtain an automatic import license to sell
imported automobile without authorization from the automobile producer, and meet the following requirements to operate parallel-import
Automobile business: (1) it has been operating sales of imported automobile for at least one year and its sales business has reached a
certain scale; (2) the pilot enterprise or any of its wholly owned enterprises/controlling enterprises with automobile sales certificate is
registered in China (Shanghai) Pilot Free Trade Zone; (3) it has branches and facilities for maintenance, service and supply of auto parts
that match its business scale. Any pilot enterprise failed to meet this requirement shall depend on a third party to provide such services to
participate in the pilot program; (4) it has good reputation and has well-established purchasing channels of oversea automobile and
experiences in automobile sales industry; and (5) the enterprises that have participated in the pilot program and had parallel-import
records on Shanghai port shall be prioritized.
On January 30, 2018, the Ministry of Commerce, the MIIT, the Ministry of Public Security, the Ministry of Environmental
Protection, the Ministry of Transport, the General Administration of Customs, the General Administration of Quality Supervision and
Inspection and Quarantine, and the Certification and Accreditation Administration of the People’s Republic of China jointly issued a
Reply on Issues for Conducting Pilot Programs for the Parallel-import of Automobiles in Inner Mongolia and the Other Areas (“the
Parallel-import Automobile Reply”), approving automobile parallel import pilot programs in the Manchuria Port of Inner Mongolia,
Zhangjiagang Free Trade Zone in Jiangsu Province, Zhengzhou Railway Port in Henan Province, Yueyang Lingji Port in Hunan
Province, Qinzhou Free Trade Zone in Guangxi Zhuang Autonomous Region, Haikou Port in Hainan Province, Railway Port in
Chongqing, and Qingdao Qianwan Free Trade Zone.
On February 13, 2018, the General Administration of Customs issued a Notice on Further Completing the Pilot Programs for the
Parallel-import of Automobiles, which requires that pilot enterprises shall submit (1) a certificate on conducting parallel-import
automobile business; (2) a parallel-import automobile warehousing agreement executed between the pilot enterprise and a warehousing
enterprise; and (3) other related documents as required to the Customs Administration before engaging in the automobile parallel-import
business. Such filing forms must be filed at the time the parallel-import automobiles enter the border, and such forms shall be marked
“parallel-import automobiles”.
67
Table of Contents
On August 19, 2019, the Ministry of Commerce, the MIIT, the Ministry of Public Security, the Ministry of Ecology and
Environment, the Ministry of Transport, the General Administration of Customs and the State Administration for Market Regulation
jointly issued the Opinions of Seven Authorities Including the Ministry of Commerce on Further Boosting the Development of the
Parallel Import of Automobiles: (1) allowing the exploration of ways to set up the standard compliance rectification venues for the
parallel import of automobiles; (2) further improving the trade facilitation level of the parallel import of automobiles; (3) strengthening
the quality control of automobiles under parallel import; (4) standardizing the registration management of automobiles under parallel
import; (5) promoting the normalization and institutionalization of the parallel import of automobiles; (6) strengthening the supervision
and management of pilot enterprises; and (7) strengthening the practical organizational implementation.
Regulations on the Car Rental Industry
On April 2, 2011, the Ministry of Transport, or MOT, promulgated the Circular on Promoting the Healthy Development of the
Car Rental Industry (the “MOT Circular”), which sets forth guidelines for the car rental industry, including, among others, encouraging
large car rental enterprises to establish a national or regional car rental network.
According to the MOT Circular, local government authorities are required by the MOT to: (i) promulgate local rules and
regulations to improve and develop the regulatory environment of the car rental industry; (ii) promptly bring forth local development
plans for the car rental industry; (iii) encourage large and reputable car rental companies with sound management to set up branches and
establish national or regional networks, and provide simplified branch office registration process and better service for companies with a
fleet of more than 1,000 cars; (iv) enhance the administration and management of the car rental industry, including requirements to obtain
and carry a valid permit or license for each rental car, and prohibitions of car rental companies from engaging in road passenger
transportation services without having the requisite business license for these services; (v) encourage car rental companies to develop
various types of services through advanced technologies; (vi) create a favorable development environment for car rental companies; and
(vii) enhance the administration of the car rental industry.
Regulations on Maintenance of Motor Vehicles
The Regulations on Road Transport, issued by the State Council on April 30, 2004 and amended on November 9, 2012,
February 6, 2016, March 2, 2019 and March 29, 2022, stipulate that any individuals or institutions engaging in business related to road
transportation, including maintenance of motor vehicles, must meet requirements including: (i) appropriate locations for motor vehicle
maintenance; (ii) necessary equipment, facilities and technicians; (iii) appropriate management systems for motor vehicle maintenance;
and (iv) necessary environmental protection measures. A company engaging in motor vehicle maintenance must apply to the local road
transportation authority to obtain a road transportation operation license after it has become duly registered. Operators engaging in motor
vehicle maintenance must maintain or repair all motor vehicles in accordance with the relevant technical specifications of the State to
ensure maintenance quality and must not use any counterfeit or low-quality parts to maintain or repair any motor vehicle. Violation of
these regulations may result in an order ceasing operation and imposing a fine of up to RMB50,000 by the local road transportation
authority.
The Regulations on Administration of Maintenance of Motor Vehicle, issued by the Department of Transportation on June 24,
2005 and amended on August 8, 2015, April 19, 2016, June 21, 2019 and August 11,2021, defines motor vehicle maintenance business to
include maintenance of automobiles, vehicles for transportation of dangerous cargo, motorcycles, and other vehicles. The maintenance of
automobiles is further classified into three categories depending on the specific business scope. The regulation further clarifies the
requirements and reference standards for locations, equipment, technicians, management systems and environmental protection
measures, as well as the procedure of application for the road transportation license. Moreover, operators of motor vehicle maintenance
services are subject to several requirements during operation, including having its operation permit visible on a signboard at its service
operation location.
68
Table of Contents
Regulations on Financing Leasing
In September 2013, MOFCOM issued the Administration Measures of Supervision on Financing Lease Enterprises (the
“Leasing Measures”), to regulate and administer the business operations of financing lease enterprises. According to the Leasing
Measures, financing lease enterprises are allowed to carry out financing lease business in such forms as direct lease, sublease, sale-and-
lease-back, leveraged lease, entrusted lease and joint lease in accordance with the provisions of relevant laws, regulations and rules.
However, the Leasing Measures prohibit financing lease enterprises from engaging in financial businesses such as accepting deposits,
and providing loans or entrusted loans. Without the approval from the relevant authorities, financing lease enterprises shall not engage in
inter-bank borrowing and other businesses. In addition, financing lease enterprises are prohibited from carrying out illegal fund-raising
activities in the name of financing lease. The Leasing Measures require financing lease enterprises to establish and improve their
financing and internal risk control system, and a financing lease enterprise’s risk assets shall not exceed ten times of its total net assets.
Regulations on Vehicle Leasing Programs Operating on a Sale-and-Leaseback Basis
On September 18, 2013, the MOFCOM issued the Leasing Measures which require, in part, that financial leasing enterprises
have assets and risk management abilities sufficient for their proposed business activities. These measures also require that foreign
investors applying for the establishment of a financial leasing enterprise must comply with the relevant provisions on foreign investment.
The Guidance of the General Office of the State Council on Accelerating the Development of Financing Leasing Industry issued by the
General Office of the State Council in 2015 requires to establish a unified administrative and regulatory system for domestic as well as
foreign investment in the leasing industry, domestic and foreign investment, so as to realize the unification of the business scope, trading
rules, regulatory indicators, information submission as well as the inspection.
The Stipulation on Motor Vehicle Registration issued on April 30, 2004, amended on May 27, 2008, September 12, 2012 and
December 17,2021 and became effective on May 1, 2022 by the Ministry of Public Security states that where the ownership of a
registered motor vehicle is transferred, the current motor vehicle owner shall apply for transfer registration with the vehicle
administration office at the place of registration within 30 days from the date of delivery of the motor vehicle. Also, under the PRC Civil
Code effective as of January 1, 2021, the transfer of movable property is effective upon delivery, but if the transfer of the property right
of a vehicle has not been officially registered, it will not be valid against a good faith third-party transferee.
Our loans to dealerships are structured on a finance lease basis, whereby the entity lessor sells us the vehicle before leasing it
back from us, making payments over time. However, for accounting purposes the transaction is not treated as a sale due to the economic
substance of the transaction. Notwithstanding this arrangement, we do not update the vehicle registrations to reflect our purchase of
leased vehicles nor file mortgage registrations for the leased vehicles. Consequently, we lack unambiguous legal basis to prevent a good-
faith third-party buyer from taking legal title to a vehicle if the lessor attempts to sell the vehicle without our knowledge. See “Item 3.
Key Information — D. Risk Factors — Risks Related to Doing Business in China — We rely on contractual obligations rather than
government filings to ensure its continued title to vehicles managed under its vehicle leasing program”.
Anti-money Laundering Regulations
The PRC Anti-money Laundering Law, which became effective in January 2007, sets forth the principal anti-money laundering
requirements applicable to financial institutions as well as non-financial institutions with anti-money laundering obligations, including
the adoption of precautionary and supervisory measures, establishment of various systems for client identification, retention of clients’
identification information and transactions records, and reports on large transactions and suspicious transactions. According to the PRC
Anti-money Laundering Law, financial institutions subject to the PRC Anti-money Laundering Law include banks, credit unions, trust
investment companies, stock brokerage companies, futures brokerage companies, insurance companies and other financial institutions as
listed and published by the State Council, while the list of the non-financial institutions with anti-money laundering obligations will be
published by the State Council. The PBOC and other governmental authorities issued a series of administrative rules and regulations to
specify the anti-money laundering obligations of financial institutions and certain non-financial institutions, such as payment institutions.
69
Table of Contents
The General Office of the State Council promulgated the Opinions on Improving Anti-Money Laundering, Anti-Terrorism
Financing and Anti-Tax Evasion Regulatory Systems and Mechanisms on August 29, 2017. According to the Opinions, the establishment
of anti-money laundering financial regulatory systems for particular non-financial institutions is required to meet the international anti-
money laundering standards that certain industries prone to high risks of money laundering, such as real estate agents, precious metal and
jewelry sales, corporate services and other specific non-financial industries shall be strictly regulated.
Regulations on Illegal Fund-Raising
Raising funds by entities or individuals from the general public must be conducted in strict compliance with the applicable PRC
laws and regulations to avoid administrative and criminal liabilities. The Measures for the Banning of Illegal Financial Institutions and
Illegal Financial Business Operations promulgated by the State Council in July 1998 and revised in January 2011 (abolished on May 1,
2021), and the Notice on Relevant Issues Concerning the Penalty on Illegal Fund-Raising issued by the General Office of the State
Council in July 2007, explicitly prohibit illegal public fund-raising. According to the Regulation on the Prevention and Disposition of
Illegal Fund-raising Practices issued on January 26, 2021 and became effective on May 1,2021, illegal fund-raising shall mean the
pooling of funds from unspecified objects by promise to repay principal and interest or provide other investment returns without the
permit of the financial administrative department under the State Council in accordance with law or in violation of financial regulations
of the State. The State prohibits illegal fund-raising practices in any form. To prevent and disposal of illegal fund-raising practices, it is
imperative to follow the principles of putting prevention first, cracking down on small ones at an early stage, tackling problems in a
comprehensive manner and proper disposal.
To further clarify the criminal charges and punishments relating to illegal public fund-raising, the Supreme People’s Court
promulgated the Judicial Interpretations to Issues Concerning Applications of Laws for Trial of Criminal Cases on Illegal Fund-Raising,
or the Illegal Fund-Raising Judicial Interpretations, which was issued on December 13, 2010,amended on February 23, 2022, and came
into force on March 1, 2022. The Illegal Fund-Raising Judicial Interpretations provide that a public fund-raising will constitute a criminal
offense related to “illegally soliciting deposits from the public” under the PRC Criminal Law, if it meets all the following four criteria: (i)
accepting funds without the legal permit of relevant authorities or accepting funds by way of lawful business operation; (ii) carrying out
public promotional activities via such channels as the Internet, media, promotional fairs, leaflets and mobile phone messages; (iii)
promising to repay the principal with interest accrued thereon or pay returns in such forms as cash, in-kind and equity within a given
time limit; and (iv) taking in funds from the general public, i.e. unspecified objects of the society. Whoever illegally accepts or accepts in
a disguised manner deposits from the general public that falls under any of the following circumstances will be investigated for criminal
liability in accordance with the law: (i) illegally accepting or accepting in a disguised manner deposits from the general public in an
amount of more than CNY1 million; (ii) illegally accepting or accepting in a disguised manner deposits from more than 150 persons of
the general public; and (iii) depositing from the general public illegally or in a disguised manner, which leads to direct economic loss of
more than CNY500,000 to the depositors. Whoever accepts illegally or in a disguised manner deposits from the general public in an
amount of more than CNY500,000 or causes direct economic losses of more than CNY250,000 to the depositors and falls under any of
the following circumstances concurrently will be investigated for criminal liability in accordance with the law: (i) where it/he has been
criminally prosecuted due to illegal fundraising practices; (ii) where it/he has been subject to any administrative penalty due to any
illegal fundraising practice within two years; and (iii) where there is adverse social influence or other serious consequences. Any entity
committing the crime of illegally accepting deposits from the general public or committing a fundraising fraud will be fined and the
person directly in charge of the entity and other persons directly liable will be convicted and punished under the criteria for conviction
and sentencing of corresponding natural persons prescribed herein. In accordance with the Opinions of the Supreme People’s Court, the
Supreme People’s Procurator and the Ministry of Public Security on Several Issues concerning the Application of Law in the Illegal
Fund-Raising Criminal Cases promulgated on March 25, 2014, the administrative proceeding for determining the nature of illegal fund-
raising activities is not a prerequisite procedure for the initiation of criminal proceeding concerning the crime of illegal fund-raising, and
the administrative departments’ failure in determining the nature of illegal fund-raising activities does not affect the investigation,
prosecution and trial of cases concerning the crime of illegal fundraising.
70
Table of Contents
Regulations on Foreign Investment
Investment activities in the PRC by foreign investors are principally governed by the Guidance Catalog of Industries for Foreign
Investment promulgated and as amended from time to time by the MOFCOM and the NDRC (the “Catalog”). In June 2017, the
MOFCOM and the NDRC promulgated the Catalog (“2017 Revision”), which became effective in July 2017. Industries listed in the
Catalog are divided into two parts: encouraged category, and the special management measures for the entry of foreign investment,
which is further divided into the restricted category and prohibited category. The negative list of the 2017 Revision was replaced by the
Special Administrative Measures for Access to Foreign Investment (the “Negative List”), which was issued in June 2018 and was
subsequently revised in 2019,2020 and 2021,and became effective in January 2022. Industries not listed in the Catalog are generally
deemed to be in a fourth “permitted” category and are generally open to foreign investment unless specifically restricted by other PRC
regulations. The Negative List, in a unified manner, lists the restrictive measures for the entry of foreign investment. Furthermore,
foreign investors are not allowed to invest in companies and industries under the prohibited category. For the industries not listed on the
Negative List, the restrictive measures for the entry of foreign investment shall not apply in principle, and the establishment of wholly
foreign-owned enterprises in such industries is generally allowed.
In March 2019, the Foreign Investment Law was enacted by the NPC, which became effective in January 1, 2020. The Foreign
Investment Law replaced the Law on Sino-Foreign Equity Joint Ventures, the Law on Sino-Foreign Contractual Joint Ventures and the
Law on Foreign-Capital Enterprises to become the legal foundation for foreign investment in the PRC. The Foreign Investment Law
embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international
practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments.
Unlike its first draft which was published in 2015, the Foreign Investment Law does not specifically expand the definition of
“foreign investment” to include entities established through a VIE structure but contains a catch-all provision under the definition of
“foreign investment” which includes investments made by foreign investors through means stipulated in laws or administrative
regulations or other methods prescribed by the State Council.
Moreover, the Measures for Reporting of Information on Foreign Investment promulgated by the MOFCOM in December 2019
established a foreign investment information reporting system. Foreign investors or foreign-funded enterprises shall submit the
investment information to competent governmental departments for commerce through the enterprise registration system and the
enterprise credit information publicity system. The contents and scope of foreign investment information to be reported shall be
determined under the principle of necessity. Where foreign-investors or foreign-invested enterprises are found to be non-compliant with
these information reporting obligations, competent department for commerce shall order corrections within a specified period; if such
corrections are not made in time, a penalty of not less than RMB100,000 and not more than RMB500,000 shall be imposed. Aside from
the reporting system for foreign investment information, the Foreign Investment Law also establishes a security examination mechanism
for foreign investment to conduct security review of foreign investment that affects or may affect national security. The decision made
upon the security examination in accordance with the law shall be final.
We will be subject to the Foreign Investment Law if our contractual arrangements with the VIEs are defined or regarded as a
form of foreign investment in the future.
Regulations on Value-Added Telecommunications Services
In 2000, the State Council promulgated the Telecommunications Regulations which draw a distinction between “basic
telecommunication services” and “value-added telecommunication services.” The Telecommunications Regulations were subsequently
revised in 2014 and again in 2016. In December 2015, the MIIT published the Classification Catalogue of Telecommunications Services
(the “2015 Catalogue”), which took effect on March 1, 2016 and amended on June 6, 2019. The first catalogue was published in
September 2000 and was subsequently amended in 2001 and 2003, respectively. Under the 2015 Catalogue, “value-added
telecommunication services” was further classified into two sub-categories and 10 items. Internet content provision services (“ICP
services”), is under the second subcategory of value- added telecommunications businesses. Under the Telecommunications Regulations,
commercial operators of value-added telecommunications services must first obtain an operating license from the MIIT or its provincial
level counterparts.
71
Table of Contents
In 2000, the State Council issued the Administrative Measures on Internet Information Services (the “Internet Measures”),
which were subsequently revised in 2011. According to the Internet Measures, commercial ICP service operators must obtain an ICP
license from the relevant government authorities before engaging in any commercial ICP operations within the PRC.
In 2009, the MIIT promulgated the Administrative Measures on Telecommunications Business Operating License, (the
“Telecom License Measures”). On July 3, 2017, Telecom License Measures was further revised and it became effective on September 1,
2017. The Telecom License Measures set forth the types of licenses required to operate value-added telecommunications services and the
qualifications and procedures for obtaining such licenses. For example, an ICP operator providing value-added services in multiple
provinces is required to obtain an interregional license, whereas an ICP operator providing the same services in one province is required
to obtain a local license.
Restrictions on Foreign Ownership in Value-Added Telecommunications Services
According to the Provisions on Administration of Foreign Invested Telecommunications Enterprises, (the “FITE Provisions”),
promulgated by the State Council in December 2001 and amended in September 2008 and February 2016, the ultimate foreign equity
ownership in a value-added telecommunications service provider must not exceed 50%. Moreover, for a foreign investor to acquire any
equity interest in a value-added telecommunication business in China, it must demonstrate a good track record and experiences in
operating value-added telecommunications services. Foreign investors that meet these requirements must obtain approvals from the MIIT
or its authorized local branches.
In 2006, the Ministry of Information Industry issued the Notice of the Ministry of Information Industry on Intensifying the
Administration of Foreign Investment in Value-added Telecommunications Services. This notice prohibits domestic telecommunication
services providers from leasing, transferring or selling telecommunications business operating licenses to any foreign investor in any
form, or providing any resources, sites or facilities to any foreign investor for their illegal operation of a telecommunications business in
China. According to this notice, either the holder of a value-added telecommunication business operating license or its shareholders must
legally own the domain names and trademarks used by such license holders in their provision of value-added telecommunication
services. The notice further requires each license holder to have the necessary facilities, including servers, for its approved business
operations and to maintain such facilities in the regions covered by its license. In addition, all value-added telecommunications service
providers are required to maintain network and internet security in accordance with the standards set forth in the Basic Requirements for
Safeguarding the Network Information of Value- added Telecommunication Business (YDN126-2005) issued by the MIIT. If a license
holder fails to comply with the requirements in the notice and cure such non-compliance, the MIIT or its local counterparts may have the
discretion to take measures against such license holders, including revoking their value-added telecommunications business operating
licenses.
Regulations on Internet Publishing
The Administrative Provisions on Online Publishing Services (the “Online Publishing Provisions”), was jointly issued by the
MIIT and the State General Administration of Press, Publication, Radio, Film and Television in 2016, and came into effect on March 10,
2016. The Online Publishing Provisions define “online publishing services” as providing online publications to the public through
information networks. Any online publishing services provided in the territory of the PRC are subject to these provisions. The Online
Publishing Provisions requires any internet publishing services provider to obtain an online publishing service license to engage in online
publishing services. Under the Online Publishing Provisions, online publications refer to digital works which have publishing features
such as digital work that have been edited, produced or processed and which are made available to the public through information
networks, including written works, pictures, maps, games, cartoons, audio/video reading materials and other methods. Any online game
must obtain approval from the State Administration of Radio and Television before it is launched online. Furthermore, Sino-foreign
equity joint ventures, Sino-foreign cooperative joint ventures and wholly foreign-owned enterprises cannot engage in the providing of
web publishing services.
72
Table of Contents
Regulations on Mobile Internet Applications
On June 28, 2016, the Cyberspace Administration of China promulgated the Administrative Provisions on Mobile Internet
Applications Information Services (the “Mobile Application Administrative Provisions”), which took effect on August 1, 2016.
According to the Mobile Application Administrative Provisions, “mobile internet application” refers to application software that runs on
mobile smart devices providing information services after being pre-installed, downloaded or embedded through other means. “Mobile
internet application provider” refers to the owners or operators of mobile internet applications. Internet application stores refer to
platforms which provide services related to online browsing, searching and downloading of application software and releasing of
development tools and products through the internet. On December 16, 2016, the MIIT promulgated the Interim Administrative
Provisions on the Pre-installation and Distribution of the Mobile Smart Terminal Application Software, which took effect on July 1,
2017. These provisions require, among others, that internet information service providers must ensure that a mobile application, as well
as its ancillary resource files, configuration files and user data can be uninstalled by a user easily, unless the mobile application is a basic
function software, which refers to a software that supports the normal functioning of the hardware and operating system of a mobile
smart device. In addition, mobile smart terminal application software involving charges should strictly comply with the relevant
regulations such as explicitly marking the price, charge standard and charge method. The content expressed should be true, accurate, eye-
catching and normative, and users should be charged only after their confirmation.
Pursuant to the Mobile Application Administrative Provisions, an internet application program provider must verify a user’s
mobile phone number and other identity information under the principle of mandatory real name registration at the back-office end and
voluntary real name display at the front-office end. An internet application provider must not enable functions that can collect a user’s
geographical location information, access the user’s contact list, activate the camera or recorder of the user’s mobile smart device or
other functions irrelevant to its services, nor is it allowed to conduct bundle installations of irrelevant application programs, unless it has
clearly indicated to the user and obtained the user’s consent on such functions and application programs. In respect of an online App
store service provider, the Mobile Application Administrative Provisions require that, among others, must file a record with the
Cyberspace Administration located at the province, autonomous region or municipality concerned within 30 days of the online business
operation. It must also examine the authenticity, security and legality of internet application providers on its platform, establish a system
to monitor application providers’ credit and file a record of such information with the relevant governmental authorities. If an application
provider violates the regulations, the internet application store service provider must take measures to stop the violations, including
warning, suspension of release, withdrawal of the application from the platform, keeping a record and reporting the incident to the
relevant governmental authorities.
Regulations on Information Security
The Ministry of Public Security promulgated the Administrative Measures on Security Protection for International Connections
to Computer Information Networks in 1997 and further revised in 2011 by State Council that prohibit the use of the internet in ways
which, among other things, result in a leakage of state secrets or the distribution of socially destabilizing content. Socially destabilizing
content includes any content that incites defiance or violations of the PRC laws or regulations or subversion of the PRC government or
its political system, spreads socially disruptive rumors or involves cult activities, superstition, obscenities, pornography, gambling or
violence. In addition, the National Administration for the Protection of State Secrets has issued The Confidentiality Administrative
Provisions of the International Networking of Computer Information Systems, which put forward the principle of “whoever places
materials on the Internet takes the responsibility”. Any information to be provided to, or published on, an internationally networked Web
sites must be subjected to a secrecy maintenance examination and approval.
In 2005, the Ministry of Public Security promulgated Provisions on Technological Measures for Internet Security Protection,
which require all ICP operators to keep records of certain information about their users (including user registration information, log-in
and log-out time, IP address) for at least 60 days and submit the above information as required by laws and regulations. If an ICP
operator violates these measures, the PRC government may revoke its ICP license and shut down its websites.
73
Table of Contents
In November 2016, the Standing Committee of the National People’s Congress issued the Cyber Security Law, which came into
effect on June 1, 2017. This is the first Chinese law that focuses exclusively on cyber security. The Cyber Security Law provides that
network operators must set up internal security management systems that meet the requirements of a classified protection system for
cybersecurity, includes the appointing of dedicated cybersecurity personnel, implementing technical measures to prevent computer
viruses, network attacks and intrusions, adopting technical measures to monitor and record network operation status and cybersecurity
incidents, and implementing data security measures such as data classification, backup and encryption. The Cyber Security Law also
imposes a relatively vague but broad obligation to provide technical support and assistance to the public and state security authorities in
connection with criminal investigations or for reasons of national security. The Cyber Security Law also requires network operators that
provide network access or domain name registration services, landline or mobile phone network access, or that provide users with
information publication or instant messaging services, to require users to provide a real identity when they sign up. The Cyber Security
Law sets high requirements for the operational security of facilities deemed to be part of the PRC’s “critical information infrastructure”.
These requirements include data localization, i.e., storing personal information and important business data in China, and national
security review requirements for any network products or services that may have an impact on national security. Among other factors,
“critical information infrastructure” is defined as critical information infrastructure that will, in the event of destruction, loss of function
or data leak, result in serious damage to national security, the national economy and people’s livelihood, or the public interest. Specific
reference is made to key sectors such as public communication and information services, energy, transportation, water-resources, finance,
public service and e-government. In July 2021, State Council issued Security Protection Regulations for Critical Information
Infrastructure, which provides that the State gives priority to the protection of critical information infrastructure, takes measures to
monitor, defends against and deal with cyber security risks and threats from both within and outside the territory of the PRC, protects
critical information infrastructure from attacks, intrusions, interference and damage, and punishes illegal and criminal activities
endangering the security of critical information infrastructure in accordance with the law.
Regulations on Internet Privacy
In recent years, the PRC governmental authorities have enacted legislations on internet use to protect personal information from
any unauthorized disclosure. The PRC law does not prohibit ICP operators from collecting and analyzing personal information of their
users. However, the Administrative Measures on Internet Information Services prohibit an ICP operator from insulting or slandering a
third party or infringing the lawful rights and interests of a third party. In December 2011, the MIIT promulgated the Several Provisions
on Regulating the Market Order of Internet Information Services, which became effective in March 2012. Without the consent of users,
internet information service providers shall not collect the information that is related to the users that can be used independently or
jointly with other information to identify the users (hereinafter referred to as the “personal information of users”), nor shall provide
personal information of users to others, unless otherwise provided by laws and administrative regulations. Where internet information
service providers collect the personal information of users upon the consent of users, they shall explicitly inform the users of the
methods, contents and purposes of collection and processing of the personal information of users and shall not collect the information
other than those necessary for the provision of services or use the personal information of users for purposes other than the provision of
services.
Pursuant to the Decision on Strengthening Network Information Protection promulgated by the Standing Committee of the
National People’s Congress in 2012, Network service providers that collect or use citizens’ personal electronic information in the their
business activities shall follow the principles of lawfulness, properness and necessity, explicitly disclose the purpose, methods and scopes
of collection and use of the information, obtain the consent of the one whose information is collected, and shall not collect or use
information in a manner that violates the provisions of laws and regulations, or the agreement of both parties. Network service providers
and other enterprises and public institutions shall adopt technical and other necessary measures to ensure information security and
prevent the disclosure, damage or loss of any personal electronic information collected during their business activities. When information
is or may be disclosed, damaged or lost, remedial measures shall be immediately adopted. To further implement this decision and the
relevant rules, MIIT issued the Regulation of Protection of Telecommunication and Internet User Information in 2013.
74
Table of Contents
In November 2016, the Standing Committee of the National People’s Congress issued the Cyber Security Law, which came into
effect on June 1, 2017. The Cyber Security Law imposes certain data protection obligations on network operators, including that network
operators may not disclose, tamper with, or damage users’ personal information that they have collected, and that they are obligated to
delete unlawfully collected information and to amend incorrect information. Moreover, internet operators may not provide users’
personal information to others without consent. Exempted from these rules is information irreversibly processed to preclude
identification of specific individuals. Also, the Cyber Security Law imposes breach notification requirements that will apply to breaches
involving personal information.
On April 10, 2019, the Cyber Security and Protection Bureau of the Ministry of Public Security, the Beijing Internet Industry
Association and the Third Research Institute of the Ministry of Public Security jointly issued the Internet Personal Information Security
Protection Guide (the “Guide”). The Guide is applicable to enterprises that provide services through the internet, as well as organizations
or individuals who use a private or non-networked environment to control and process personal information. This indicates that in
addition to the traditional internet companies, companies or individuals in other fields, as long as they involve the control and processing
of personal information, are all within the scope of the Guide. The Guide imposes higher requirements on the collection of personal
information by personal information holders. For example, the Guide states that personal information that is not related to the services
provided by personal information holders should not be collected, and personal information should not be forced to be collected by
bundling products or various business functions of the service.
In November 2019, the Secretary Bureau of the Cyberspace Administration of China, the General Office of the MIIT, the
General Office of the Ministry of Public Security and the General Office of the State Administration for Market Regulation issued the
Notice on the Measures for the Determination of the Collection and Use of Personal Information by Apps in Violation of Laws and
Regulations (the “Notice”), which came into effect on November 28, 2019. According to the Notice, if the personal information solicited
by an app for a new service function is beyond the scope of a user’s original consent, it is a violation of law for the app to refuse to
provide the original service function if the user disagrees with the new scope, unless the new service function is a replacement of the
original service function.
In August 2021, the Standing Committee of the National People’s Congress issued the Personal Information Protection Law of
the PRC, which provide that personal information processors shall be responsible for their processing of personal information and take
necessary measures to ensure the security of the personal information processed. Personal information processor in the Personal
Information Protection Law of the PRC refers to any organization or individual that independently determines the purpose and method of
the processing in the processing of personal information.
Regulations on Advertisements
Advertisers, advertising operators and advertising distributors are required by PRC advertising laws and regulations to ensure
that the contents of the advertisements which they prepare or distribute are true and in full compliance with the applicable laws and
regulations. In addition, where a special government review is required for certain categories of advertisements before publishing, the
advertisers, advertising operators and advertising distributors are obligated to confirm that such review has been performed and the
relevant approval has been obtained. Violation of these regulations may result in penalties, including fines, confiscation of advertising
income, orders to cease dissemination of the advertisements and orders to publish an advertisement correcting the misleading
information. In the case of serious violations, the State Administration for Industry and Commerce or its local branches may force the
violator to terminate its advertising operation or even revoke its business license. Furthermore, advertisers, advertising operators or
advertising distributors may be subject to civil liabilities if they infringe on the legal rights and interests of the third parties.
In October 1994, the Standing Committee of the National People’s Congress issued the PRC Advertising Law (the “Advertising
Law”), which was amended in April 2015,October 2018 and April 2021 and came into effect on April 29, 2021. The Advertising Law
applies to all the advertising activities conducted via the internet. The Advertising Law requires that users must be able to close online
pop-up ads with one click. Moreover, internet service providers are obligated to cease publishing any advertisements that they know or
should know are illegal. Violation of these regulations may result in penalties, including fines, confiscation of the advertising incomes,
termination of advertising operations and even suspension of the provider’s business license.
75
Table of Contents
In July 2016, the SAIC issued the Interim Measures for the Administration of Internet Advertising, which became effective on
September 1, 2016. These interim measures clarify that “internet advertisements” means commercial advertisements that promote
commodities or services directly or indirectly via internet media such as websites, webpages and internet applications in the form of
texts, pictures, audio, video or other forms. These interim measures also create a number of new requirements for internet advertisers.
For example, these interim measures state that paid search advertisements should be clearly distinguished from ordinary search results. In
addition, in consistency with the Advertising Law, these interim measures require that advertisements published on internet pages in the
form of pop-ups or other similar forms shall be clearly marked with a “close” button to ensure “one click to close”. The measures also
prohibit unfair competition in internet advertisement publishing, including: (1) providing or using any programs or hardware to intercept
or filter any legally operated advertisements of other persons; (2) using network pathways, network equipment or applications to disrupt
the normal data transmission of advertisements, alter or block legally operated advertisements of other persons or load advertisements
without authorization; and (3) inducing false quotes, seek illegitimate interests or harm the interests of others, by using false statistical
data, communication effects or Internet value.
In February 2018, the SAIC promulgated the Notice on Launching Special Overhaul of Internet Advertising (the “Internet
Advertising Notice”). The Internet Advertising Notice specifies that the illegal Internet advertisements having an adverse social impact,
generating enormous publicity, or detrimental to the personal and property safety of the public via Internet media, shall be strictly
regulated.
Regulations on Intellectual Property Rights
China has implemented legislations governing intellectual property rights, including trademarks, patents and copyrights. China
is a signatory to the major international conventions on intellectual property rights and became a member of the Agreement on Trade
Related Aspects of Intellectual Property Rights upon its accession to the World Trade Organization in December 2001.
Patent
The standing committee of the National People’s Congress adopted the Patent Law in 1984 and was subsequently amended in
1992, 2000, 2008 and 2020. The State Council promulgated Implementation Regulation for the Paten Law in 2001, which was amended
in 2010. To be patentable, invention or utility models must meet three conditions: novelty, inventiveness and practical applicability. A
patent is valid for a term of 20 years in the case of an invention and a term of 10 years in the case of utility models and designs. A third-
party user must obtain consent or a proper license from the patent owner to use the patent. Otherwise, such use constitutes an
infringement of patent rights.
Copyright
The National People’s Congress adopted the Copyright Law in 1990 and amended in 2001, 2010 and 2020. The State Council
promulgated Implementing Regulations of the Copyright Law in 2002, which was amended in 2002, 2011 and 2013. The 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 China Copyright Protection Center. The amended Copyright Law also requires the
registration of a copyright pledge.
76
Table of Contents
Software products
In China, holders of computer software copyrights enjoy protections under the Copyright Law. Various regulations relating to
the protection of software copyrights in China have promulgated, including Copyright Law of the PRC which was promulgated in 1990
and amended in 2001, 2010 and 2020, and the Regulation for the Implementation of the Copyright Law of the PRC which came into
effect in September 2002 and was amended in January 2011 and further amended in January 2013. Additionally, the Computer Software
Protection Regulations which was issued by State Council on June 4, 1991 and amended in 2001, 2011 and 2013. Under these
regulations, computer software that is independently developed and exists in a physical form is protected, and software copyright owners
may license or transfer their software copyrights to others. Registration of software copyrights, exclusive licensing and transfer contracts
with the Copyright Protection Center of China or its local branches is encouraged. Such registration is not mandatory under the PRC
laws, but can enhance the protections available to the registered copyrights holders. In 2002, in order to further implement the Computer
Software Protection Regulations, the National Copyright Administration of the PRC issued the Computer Software Copyright
Registration Procedures, which apply to software copyright registration, license contract registration and transfer contract registration. In
compliance with, and in order to take advantage of, the above rules, we had registered 14 computer software copyrights as of December
31, 2021.
Trademark
The PRC Trademark Law was adopted in 1982 and was amended in 1993, 2001, 2013 and 2019. The State Council promulgated
the Implementing Regulations of the Trademark Law in 2002, which was amended in 2014. The Trademark Office under the SAIC
handles trademark registrations and grants a term of 10 years for registered trademarks and another 10 years if requested upon expiry of
the first or any renewed ten-year term. Trademark license agreements must be filed with the Trademark Office for record. We registered
our trademark “(cid:0)(cid:0)(cid:0)(cid:0)” in class 35, which is crucial to our business.
Domain Names
In 2002, the CNNIC issued the Implementing Rules for Domain Name Registration and revised it in 2009 and 2012 (abolished
on June 18, 2019), setting forth detailed rules for the registration of domain names. On August 24, 2017, the MIIT, promulgated the
Administrative Measures for Internet Domain Names (“Internet Domain Name Measures”). The Internet Domain Name Measures
regulate the registration of domain names, such as the first-tier domain name “.cn”. In June 2019, the CNNIC issued the new version of
Rules of First-tier Domain Name Dispute Resolution and the former version issued in 2014 was abolished, pursuant to which the CNNIC
can authorize a domain name dispute resolution institution to resolve disputes. We have registered domain names including
www.kaixin.com, www.htche.com and www.htche.net.
Regulations on Anti-unfair Competition
Under the Anti-unfair Competition Law, effective in 1993 and revised in 2017 and 2019, a business operator is prohibited from
carrying out acts intending to cause confusion, which would mislead others into thinking that its products belong to another party or that
there is an association with another party, by:
● using without permission, a mark that is identical with or similar to product names, packaging or decoration of others with
a certain degree of influence;
● using without permission, the name of an enterprise, a social organization or an individual with a certain degree of
influence;
● using without permission, the main element of a domain name, website name or webpage with a certain degree of
influence; or
● carrying out confusing acts that are sufficient to mislead others into thinking that a product belongs to another party or
there is an affiliation with another party.
77
Table of Contents
Regulations on Foreign Exchange
Under the Foreign Currency Administration Rules, which were revised in 2008, if documents certifying the purposes of the
conversion of RMB into foreign currency are submitted to the relevant foreign exchange conversion bank, the RMB will be convertible
for current account items, including the distribution of dividends, interest, royalty payments, trade and service-related foreign exchange
transactions. Conversion of RMB for capital account items, such as direct investment, loans, securities investment and repatriation of
investment, however, is subject to the approval of SAFE or its local counterpart.
Under the Administration Rules for the Settlement, Sale and Payment of Foreign Exchange, which were promulgated in 1996,
foreign-invested enterprises may only buy, sell and/or remit foreign currencies at banks authorized to conduct foreign exchange business
after providing valid commercial documents and, in the case of capital account item transactions, obtaining approval from SAFE or its
local counterpart. Capital investments by PRC entities outside of China, after obtaining the required approvals of the relevant approval
authorities, such as the Ministry of Commerce and the National Development and Reform Commission or their local counterparts, are
also required to register with SAFE or its local counterpart.
In February 2015, SAFE promulgated the Notice on Further Simplifying and Improving the Foreign Exchange Management
Policies for Direct Investment (the “SAFE Circular 13”), which took effect on June 1, 2015 and was last amended on December 30,
2019. SAFE Circular 13 delegates the power to enforce the foreign exchange registration in connection with inbound and outbound
direct investments under relevant SAFE rules from local branches of SAFE to banks, thereby further simplifying the foreign exchange
registration procedures for inbound and outbound direct investments.
In March 2015, SAFE issued the Circular on Reform of the Administrative Rules of the Payment and Settlement of Foreign
Exchange Capital of Foreign-Invested Enterprises (“SAFE Circular 19”), which became effective on June 1, 2015 and was last amended
on March 23, 2023. In June 2016, the SAFE issued the Circular of the State Administration of Foreign Exchange on Reforming and
Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts (“SAFE Circular 16”), which revised some
provisions of SAFE Circular 19. According to SAFE Circular 19 and SAFE Circular 16, the flow and use of the Renminbi capital
converted from registered capital denominated in foreign currency of a foreign-invested company is regulated such that Renminbi capital
may not be used for business beyond its business scope or to provide loans to persons other than the foreign-invested company’s
affiliates unless otherwise permitted under its business scope. Violations of SAFE Circular 19 or SAFE Circular 16 could result in
administrative penalties. Pursuant to SAFE Circular 19 and SAFE Circular 16, foreign-invested enterprises may either continue to follow
the current payment-based foreign currency settlement system or choose to follow the “conversion-at-will” system for foreign currency
settlement. Where a foreign-invested enterprise follows the conversion-at-will system for foreign currency settlement, it may convert part
or all of the amount of the foreign currency in its capital account into Renminbi at any time. The converted Renminbi will be kept in a
designated account labeled as settled but pending payment, and if the foreign-invested enterprise needs to make payment from such
designated account, it still needs to go through the review process with its bank and provide necessary supporting documents. SAFE
Circular 19 and SAFE Circular 16, therefore, has substantially lifted the restrictions on the usage by a foreign-invested enterprise of its
Renminbi registered capital converted from foreign currencies. According to SAFE Circular 19 and SAFE Circular 16, such Renminbi
capital may be used at the discretion of the foreign-invested enterprise and SAFE will eliminate the prior approval requirement and only
examine the authenticity of the declared usage afterwards. There remain substantial uncertainties with respect to the interpretation and
implementation of this circular by relevant authorities.
Moreover, on January 26, 2017, the SAFE promulgated the Circular of the State Administration of Foreign Exchange on Further
Advancing the Reform of Foreign Exchange Administration and Improving Examination of Authenticity and Compliance (“SAFE
Circular 3”). SAFE Circular 3 stipulates several control measures with respect to the outbound remittance of any profit from domestic
entities to offshore entities, including provisions that (i) under the principle of genuine transaction, banks should review board
resolutions, the original version of tax filing records and audited financial statements before wiring the foreign exchange profit
distribution of a foreign-invested enterprise exceeding US$50,000; and (ii) domestic entities should hold income to make up previous
years’ losses before remitting the profits to offshore entities. Moreover, pursuant to SAFE Circular 3, verification on the genuineness and
compliance of the foreign direct investments in domestic entities has also been tightened.
78
Table of Contents
In utilizing funds that we hold offshore, as an offshore holding company with PRC subsidiaries, we may (i) make additional
capital contributions to our PRC subsidiaries; (ii) establish new PRC subsidiaries and make capital contributions to these new PRC
subsidiaries; (iii) make loans to our PRC subsidiaries or consolidated affiliated entities; or (iv) acquire offshore entities with business
operations in China during offshore transactions. However, most of these acts are subject to the PRC regulations and approvals. For
example:
● capital contributions to our PRC subsidiaries, whether existing or newly established ones, must be approved by the
Ministry of Commerce or its local counterparts;
● loans by us to our PRC subsidiaries, each of which is a foreign-invested enterprise, to finance their activities cannot exceed
the statutory limits and must be registered with SAFE or its local branches; and
● loans by us to our consolidated affiliated entities, which are domestic PRC entities, must be approved by the National
Development and Reform Commission and must also be registered with SAFE or its local branches.
Regulations on Dividend Distribution
Wholly foreign-owned enterprises in the PRC may pay dividends only out of their accumulated profits as determined in
accordance with the PRC accounting standards and regulations. The principal regulations governing dividend distributions of wholly
foreign-owned enterprises include the PRC Company Law promulgated in 1993, as amended in 1999, 2004, 2005, 2013 and 2018, and
the Foreign Investment Law and the Implementation of the Foreign Investment Law promulgated in 2019. Under these regulations,
foreign investors can freely remit into or out of PRC, in Renminbi or any other foreign currency, their capital contributions, profits,
capital gains, income from asset disposal, intellectual property royalties, lawfully acquired compensation, indemnity or liquidation
income and so on generated within the territory of PRC.
In addition, according to the PRC Company Law, these wholly foreign-owned enterprises are required to set aside at least 10%
of their respective accumulated profits each year, if any, to fund certain reserve funds, until the aggregate amount of such fund reaches
50% of its registered capital.
Regulations on Offshore Investment by PRC Residents
In July 2014, SAFE promulgated the Notice on Relevant Issues Concerning Foreign Exchange Control of Domestic Residents’
Overseas Investment and Financing and Roundtrip Investment through Offshore Special Purpose Vehicles (“SAFE Circular 37”), which
replaced the former Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents to Engage in Financing
and Inbound Investment via Overseas Special Purpose Vehicles (“SAFE Circular 75”), promulgated by SAFE in 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, which is referred to in SAFE Circular 37 as a “special
purpose vehicle”. SAFE Circular 37 further requires amendment to the registration in the event of any significant changes with respect to
the special purpose vehicle, such as an increase or decrease of capital contributed by PRC residents, share transfer or exchange, merger,
division or other material events. In the event that a PRC resident holding interests in a special purpose vehicle fails to complete the
required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to
the offshore parent company and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle
may be restricted in its ability to contribute additional capital into its PRC subsidiaries. Furthermore, failure to comply with the various
SAFE registration requirements described above could result in liabilities under the PRC law for evasion of foreign exchange controls.
79
Table of Contents
Regulations on Employee Stock Options Plans
In 2007, SAFE issued implementing rules for the Administrative Measures of Foreign Exchange Matters for Individuals, which,
among other things, specified approval requirements for certain capital account transactions, such as a PRC citizen’s participation in
employee stock ownership plans or share option plans of an overseas publicly listed company, and it was further amended on May 29,
2016. In 2012, SAFE promulgated the Notice on the Administration of Foreign Exchange Matters for Domestic Individuals Participating
in the Stock Incentive Plans of Overseas Listed Companies (the “Stock Option Notice”), which simplifies the requirements and
procedures for the registration of stock incentive plan participants, especially in respect of the required application documents and the
absence of strict requirements on offshore and onshore custodian banks.
Under these rules, for PRC resident individuals who participate in stock incentive plans of overseas publicly listed companies,
which includes employee stock ownership plans, stock option plans and other incentive plans permitted by the relevant laws and
regulations, a PRC domestic qualified agent or the PRC subsidiary of such overseas listed company must, among other things, file on
behalf of such resident an application with SAFE or its local counterpart to obtain approval for an annual allowance with respect to the
purchase of foreign exchange in connection with the stock holding or share option exercises, as PRC residents may not directly use
overseas funds to purchase shares or exercise share options. In addition, within three months after any substantial changes to any such
stock incentive plan, including any changes due to a merger, acquisition or changes to the domestic or overseas custodian agent, the
domestic agent must update the registration with SAFE.
Under the Foreign Currency Administration Rules, as amended in 2008, the foreign exchange proceeds of domestic entities and
individuals can be remitted into China or deposited abroad, subject to the terms and conditions to be issued by SAFE. The foreign
exchange proceeds from the sales of shares can be converted into RMB or transferred to such individuals’ foreign exchange savings
account after the proceeds have been remitted to the special foreign exchange account which opened at the PRC domestic bank. If share
options are exercised in a cashless exercise, the PRC domestic individuals are required to remit the proceeds to special foreign exchange
accounts.
In addition, the State Administration of Taxation (“SAT”), has issued circulars concerning employee share options such as the
Notice on Issues Concerning the Individual Income Tax on Equity Incentives issued in 2009 and Notice on Issue of Levying Individual
Income Taxes on Incomes from Individual Stock Options promulgated in 2005. Under these circulars, our employees working in China
who exercise share options will be subject to PRC individual income tax. Our PRC subsidiaries have obligations to file documents
related to employee share options with the relevant tax authorities and withhold the individual income taxes of employees who exercise
their share options.
Regulations on Taxation
Enterprise Income Tax
The PRC Enterprise Income Tax Law, which was promulgated on March 16, 2007 and took effect on January 1, 2008, and
further amended on February 24, 2017 and December 29, 2018, imposes a uniform enterprise income tax rate of 25% on all the PRC
resident enterprises, including foreign-invested enterprises, unless they qualify for certain exceptions. The enterprise income tax is
calculated based on the PRC resident enterprise’s global income as determined under PRC tax laws and accounting standards. If a non-
resident enterprise sets up an organization or establishment in the PRC, it will be subject to enterprise income tax for the income derived
from such organization or establishment in the PRC and for our ordinary shares the income derived from outside the PRC but with an
actual connection with such organization or establishment in the PRC.
The PRC Enterprise Income Tax Law and its implementation rules, which were promulgated on December 6, 2007 and took
effect on January 1, 2008 and was revised on April 23, 2019, permit certain “high and new technology enterprises strongly supported by
the state” that independently own core intellectual property and meet statutory criteria, to enjoy a reduced 15% enterprise income tax
rate. On January 29, 2016, the SAT, the Ministry of Science and Technology and the Ministry of Finance jointly issued the
Administrative Rules for the Certification of High and New Technology Enterprises specifying the criteria and procedures for the
certification of High and New Technology Enterprises.
80
Table of Contents
Value-added Tax
The Provisional Regulations of the PRC on Value-added Tax, which were promulgated by the State Council on December 13,
1993 and came into effect on January 1, 1994, were most recently amended on November 19, 2017. According to the Value-added Tax
Law (the “VAT Law”), all enterprises and individuals engaged in the sale of goods, the provision of processing, repair and replacement
services, sales of services, intangible assets, real property and the importation of goods within the territory of the PRC are the taxpayers
of value-added tax (“VAT”). The VAT tax rates generally applicable are simplified as 17%, 11%, 6% and 0%, and the VAT tax rate
applicable to the small-scale taxpayers is 3%. According to the Notice on Adjusting Value-added Tax Rate jointly issued by the Finance
Department and SAT, starting from May 1, 2018, the VAT tax rates had been reduced to 16%, 10%, 6% and 0%. According to the
Announcement on Policies Related to Deepening the Reform of Value-added Tax jointly issued by the Finance Department, SAT and the
General Administration of Customs, starting from April 1, 2019, the VAT tax rates have been further reduced to 13%, 9%, 6% and 0%.
As of the date of this Annual Report, our PRC subsidiaries and consolidated affiliated entities are generally subject to 0%, 3%,
or 6% VAT rate.
Dividend Withholding Tax
Pursuant to the EIT Law and its implementation rules, dividends generated after January 1, 2008 and payable by a foreign-
invested enterprise in China to its foreign enterprise investors are subject to a 10% withholding tax, unless any such foreign investor’s
jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. Under the Arrangement
Between the Mainland of China and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention
of Fiscal Evasion with Respect to Taxes on Income and Capital (the “China-HK Taxation Arrangement”), which became effective on
August 21, 2006, income tax on dividends payable to a company resident in Hong Kong that holds more than a 25% equity interest in a
PRC resident enterprise may be reduced to a rate of 5%. According to the Announcement of the State Administration of Taxation on
Issues Relating to “Beneficial Owner” in Tax Treaties, which were promulgated by the SAT on February 3, 2018 and came into effect on
April 1, 2018, the 5% tax rate does not automatically apply as approvals from competent local tax authorities are required before an
enterprise can enjoy the relevant tax treatments relating to dividends under the relevant taxation treaties. In addition, according to a tax
circular issued by SAT in February 2009, if the main purpose of an offshore arrangement is to obtain a preferential tax treatment, the
PRC tax authorities have the discretion to adjust the preferential tax rate enjoyed by the relevant offshore entity. Although Shanghai Auto
is currently wholly owned by Jet Sound Hong Kong Company Limited, there can be no assurance that we will be able to enjoy the
preferential withholding tax rate of 5% under the China-HK Taxation Arrangement.
Labor Laws and Social Insurance
Pursuant to the PRC Labor Law and the PRC Labor Contract Law, employers must execute written labor contracts with full-
time employees. All employers must compensate their employees with wages equal to at least the local minimum wage standards. All
employers are required to establish a system for labor safety and sanitation, strictly abide by state rules and standards and provide
employees with workplace safety trainings. In addition, employers in China are obliged to provide employees with welfare schemes
covering pension insurance, unemployment insurance, maternity insurance, work-related injury insurance, medical insurance and
housing funds. Violations of the PRC Labor Contract Law and the PRC Labor Law may result in the imposition of fines and other
administrative liabilities. Criminal liabilities may arise for serious violations. To comply with these laws and regulations, we have
entered into labor contracts with all of our full-time employees and provide them with the proper welfare and employment benefits as
required by the PRC laws and regulations.
81
Table of Contents
Regulations on Concentration in Merger and Acquisition Transactions
In August 2006, six PRC regulatory agencies jointly adopted the Regulations on Mergers and Acquisitions of Domestic
Enterprises by Foreign Investors (the “M&A Rules”), which was amended in 2009. The M&A Rule established additional procedures and
requirements that could make merger and acquisition activities by foreign investors more time-consuming and complex. These rules
require, among other things, that the Ministry of Commerce be notified in advance of any change-of-control transaction in which a
foreign investor will take control of a PRC domestic enterprise or a foreign company with substantial PRC operations, if certain
thresholds under the Provisions on Thresholds for Prior Notification of Concentrations of Undertakings issued by the State Council in
2008 and amended on September 18, 2018 are triggered.
Regulations on Overseas Direct Investment
In September 2014, MOFCOM promulgated the Measures for the Administration of Overseas Investment (the “Overseas
Investment Measures”). The Overseas Investment Measures define “overseas investment” as activities that an PRC enterprise obtains any
ownership, right of control, right of business management, or other relevant rights and interests by formation, merger or any other means.
Pursuant to the Overseas Investment Measures, the overseas investment shall make record-filing with the local branch of MOFCOM via
the online filing system if it is not involved any sensitive country or region, or any industry.
In December 2017, the NDRC adopted the Administrative Measures for Enterprises’ Overseas Investment (the “Overseas
Investment Rules”) which became effective in March 2018. The Overseas Investment Rules provide that, for local enterprises
(enterprises that are not managed by the state government), if the amount of investment made by the Chinese investors is less than
US$300 million, and the target project is non-sensitive, then the overseas investment project will require online filing with the local
branch of the NDRC where the enterprise itself is registered. And overseas investment as stipulated in the Overseas Investment Rules
shall mean activities where an PRC enterprise, directly or through an overseas enterprise controlled by it, acquires any ownership, right
of control, right of business management, or other relevant rights and interests overseas, by contributing assets or rights and interests,
providing financing and/or guarantees, or any other means.
82
Table of Contents
C.
Organizational Structure.
The following diagram illustrates our corporate structure as of the date of this Annual Report.
As of the date of this Annual Report, we have no VIEs in the PRC. Historically, as a Cayman Islands holding company, we
conduct our operations in China through our PRC subsidiaries and the VIEs. To mitigate the uncertainties in our corporate structure and
exert full control on our operating entities, we transferred operations in the VIEs to our wholly-owned entities and disposed of Renren
Finance, Inc, which was our wholly-owned subsidiary that contractually controls the VIEs. As such, revenues contributed by the VIEs
and their subsidiaries accounted for 100% of our total revenues in each year from 2020 to the Disposal Completion Date (as defined
below).
83
Table of Contents
On August 5, 2022, KAG, our wholly-owned subsidiary, and Stanley Star entered into the August 2022 Agreement, pursuant to
which KAG agrees to sell all the shares it held in Renren Finance, Inc. along with its subsidiaries and VIEs and the VIEs’ subsidiaries c
to Stanley Star, an independent third party company incorporated in BVI, at a consideration of $1. In addition, the August 2022
Agreement stipulates that on the date of the closing if the net liability of the Disposal Group is more than RMB20 million, the Company
agrees to make compensation to Stanley Star accordingly.
The sale of Disposal Group and the ownership transfer were completed on October 27, 2022, on which date the net book value
of the Disposal Group was net liabilities was approximately $24.6 million. Accordingly, on December 28, 2022, KAG and Stanley Star
entered into a supplement agreement pursuant to which the Company agrees to compensate Stanley Star pursuant to the August 2022
Agreement. On March 24, 2023, KAG and Stanley Star entered into an amendment to the supplement agreement, the Company entered
into a the Series F Agreement with Stanley Star, pursuant to which the Company agreed to issue to Stanley Star an aggregate of 50,000
Series F Convertible Preferred Shares, each of which is convertible into 1,000 ordinary share of the Company. The issuance of Series F
Preferred Shares were closed in May 2023 upon the relevant approval of the competent authorities of the Cayman Islands.
With the disposition of Renren Finance Inc., all VIEs were disposed of as of October 27, 2022 (“Disposal of Subsidiaries”, see
Note [4] to the consolidated financial statement). As a result, the contractual arrangements between our wholly-owned entities and the
relevant VIEs were terminated, which includes Loan Agreements, Equity Option Agreement, Power of Attorney, Business Operation
Agreement, Equity Pledge Agreement, Exclusive Technology Support and Technology Services Agreement, Intellectual Property Right
License Agreement, Agreement on Disposal of Equity and Assets etc. For a description of the relevant VIE Agreements, see “Item 4.
Information on the Company – C. Organizational Structure – Contractual Agreements with the VIEs and Their Shareholder.” As of the
date of this Annual Report, we conduct our operations exclusively through our wholly-owned subsidiaries.
Contractual Agreements with the VIEs and Their Shareholders
Current PRC laws and regulations impose certain restrictions or prohibitions on foreign ownership of companies that engage in
value-added telecommunication services, and certain other businesses. We are a company registered in the Cayman Islands, and our PRC
subsidiaries are considered foreign-invested enterprises. Prior to the completion of the Disposal of Subsidiaries in October 2022, we used
to conduct our business in China through the VIEs, i.e. Anhui Xin Jieying, Qianxiang Changda, Ningbo Jiusheng and Qingdao Shengmei
and their subsidiaries, based on a series of contractual arrangements by and among Shanghai Auto, Zhejiang Kaixin, Zhejiang
Taohaoche, the VIEs and their shareholders. Through these contractual arrangements, we became the primary beneficiary of the VIEs
and consolidate their operating results in our financial statements under U.S. GAAP. The following is a summary of the contractual
arrangements that make us the primary beneficiary of the VIEs and enable us to receive substantially all of the economic benefits from
their operations.
Agreements that Make Us the Primary Beneficiary of Kaixin VIEs
Loan Agreements
Shanghai Auto entered into loan agreements with each shareholder of Qianxiang Changda in 2017, and Zhejiang Kaixin has
entered into loan agreements with each shareholder of Anhui Xin Jieying in 2021. Pursuant to these loan agreements, Shanghai Auto and
Zhejiang Kaixin has granted an interest-free loan to each Kaixin VIE shareholder, which may only be used for the purpose of a capital
contribution to the Kaixin VIEs. The loans can only be repaid with the proceeds derived from the sale of all of the equity interests in the
Kaixin VIEs to Shanghai Auto/Zhejiang Kaixin or its designated representatives. The term of each loan is 10 years from the actual
drawing down of the loan by the relevant Kaixin VIE shareholders, and will be automatically extended for another 10 years unless a
written notice to the contrary is given by Shanghai Auto/Zhejiang Kaixin to the Kaixin VIE shareholders three months prior to the
expiration of the loan. The Kaixin VIE shareholders undertake, among other things, not to transfer any of their respective equity interests
in the Kaixin VIEs to any third party.
84
Table of Contents
Equity Option Agreement
Shanghai Auto entered into equity option agreements with each shareholder of Qianxiang Changda in 2017, and Zhejiang
Kaixin has entered into equity option agreements with each shareholder of Anhui Xin Jieying in 2021. Pursuant to these equity option
agreements, each Kaixin VIE shareholder has granted Shanghai Auto/Zhejiang Kaixin an option to acquire all of his or her equity
interests in the Kaixin VIEs at the price equivalent to the lowest price then permitted under the PRC law, with Shanghai Auto/Zhejiang
Kaixin making payment of such price by cancelling all or an equivalent portion of the loan under the applicable loan agreement with
such Kaixin VIE shareholder. Shanghai Auto/Zhejiang Kaixin may, at its sole discretion, at any time exercise the option granted by the
Kaixin VIE shareholder. Moreover, Shanghai Auto/Zhejiang Kaixin may transfer such option to any third party. The Kaixin VIE
shareholders may not, among other obligations, transfer, donate, pledge or otherwise dispose of their equity interests in any way, increase
or decrease the registered capital of the Kaixin VIEs, or enter into any material contracts except in the ordinary course of business unless
otherwise expressly agreed to by Shanghai Auto/Zhejiang Kaixin. The equity option agreements will remain in effect until all equity
interests have been acquired by Shanghai Auto directly or through its designated representative or Shanghai Auto/Zhejiang Kaixin
terminates the agreements unilaterally with 30 days prior written notice.
Power of Attorney
Each shareholder of Anhui Xin Jieying signed a power of attorney in 2021 pursuant to which he or she irrevocably authorizes
Zhejiang Kaixin or any person designated by Zhejiang Kaixin to vote on Anhui Xin Jieying shareholder’s behalf at the shareholders’
meetings of Anhui Xin Jieying and exercise full voting rights as a Anhui Xin Jieying shareholder, including but not limited to, the right to
propose a shareholders’ meeting, to accept any notification about the holding of such meeting, to attend the shareholders’ meeting and
exercise full voting rights, and to sell or transfer any portion of Anhui Xin Jieying shareholder’s equity interests in Anhui Xin Jieying.
Business Operation Agreement
Shanghai Auto entered into business operation agreement with Qianxiang Changda and its shareholders in 2017, and Anhui Xin
Jieying entered into business operation agreement with Anhui Xin Jieying and its shareholders in 2021 pursuant to which (1) each Kaixin
VIE shall not enter into any transactions which may materially affect such Kaixin VIEs’ assets, obligations, rights and operations; (2)
each Kaixin VIE and its shareholders shall accept and strictly execute the proposals provided by Shanghai Auto/Zhejiang Kaixin in
respect of the employment and dismissal of such Kaixin VIEs’ employees and the daily business management and financial management
of such Kaixin VIE; and (3) each Kaixin VIE and its shareholders shall only appoint individuals designated by Shanghai Auto/Zhejiang
Kaixin as the executive director or director of the board of directors. Each of the Kaixin VIE shareholders must sign powers of attorney
assigning their powers and rights to Shanghai Auto/Zhejiang Kaixin. The term of each business operation agreement is 10 years and will
be extended automatically for another 10 years except where Shanghai Auto/Zhejiang Kaixin provides prior written notice otherwise.
Equity Pledge Agreement
Shanghai Auto entered into equity pledge agreements with each shareholder of Qianxiang Changda in 2017, and Zhejiang
Kaixin entered into equity pledge agreements with each shareholder of Anhui Xin Jieying in 2022. Pursuant to these equity pledge
agreements, the Kaixin VIE shareholders have pledged all of their equity interests in the Kaixin VIEs as priority security interest in favor
of Shanghai Auto/Zhejiang Kaixin to guarantee Kaixin VIEs and their shareholders’ performance of their obligations under, where
applicable, (i) the loan agreements; (ii) the exclusive technology support and technology services agreements; (iii) the intellectual
property right license agreements; and (iv) the equity option agreements. Shanghai Auto/Zhejiang Kaixin is entitled to exercise its right
to dispose of the Kaixin VIE shareholders’ pledged interests in the equity of the Kaixin VIEs and has priority in receiving payment by the
application of proceeds from the auction or sale of such pledged interests, in the event that any breach or default event under the equity
pledge agreements occurs. Each equity pledge agreement will remain in full force and remain effective until the earlier of (1) the date on
which all debts secured have been fully paid; (2) the date on which Shanghai Auto/Zhejiang Kaixin exercises their right under the equity
pledge agreements; or (3) the relevant Kaixin VIE shareholders transfer all of his or her equity interests in the applicable Kaixin VIE to a
third party according to the equity option agreement.
85
Table of Contents
Agreements that Enable Us to Receive Substantially All of the Economic Benefits from the Kaixin VIEs
Exclusive Technology Support and Technology Services Agreement
Shanghai Auto entered into exclusive technology support and technology services agreement with Qianxiang Changda in 2017,
and Zhejiang Kaixin entered into exclusive technology support and technology services agreement with Anhui Xin Jieying in 2021,
pursuant to which Shanghai Auto/Zhejiang Kaixin provides exclusive technology support and technology services to the Kaixin VIEs. In
exchange, the Kaixin VIEs pay service fees to Shanghai Auto/Zhejiang Kaixin based on the specific fee rate stipulated by Shanghai
Auto/Zhejiang Kaixin, and Shanghai Auto/Zhejiang Kaixin has the right to adjust the specific fee rate based on the quantity, scope and
nature, among other factors, of the services provided by it to the Kaixin VIEs at any time. During the term of these agreements, Shanghai
Auto/Zhejiang Kaixin has the right to waive the fee under any bill at its sole discretion. Shanghai Auto/Zhejiang Kaixin will exclusively
own any intellectual property arising from the performance of these agreements. The term of each exclusive technology support and
technology services agreement is 10 years.
Intellectual Property Right License Agreement
Shanghai Auto entered into intellectual property license agreements with Qianxiang Changda in 2017, and Zhejiang Kaixin
entered into intellectual property license agreements with Anhui Xin Jieying in 2021, pursuant to which Shanghai Auto/Zhejiang Kaixin
grants to the Kaixin VIEs non-exclusive licenses to use certain intellectual property rights as listed in these agreements during the Kaixin
VIEs’ normal business operations in the PRC. The Kaixin VIEs pay Shanghai Auto/Zhejiang Kaixin license fees on a monthly basis. The
parties have made record filings of copies of these agreements to the relevant authorities subject to the requirements of the PRC law. The
term of each intellectual property license agreement is five years and will be automatically extended for an additional one year unless
either party provides the other party with prior written notice of termination.
Contractual Arrangements among Zhejiang Taohaoche, the Haitaoche VIEs and their shareholders
Current PRC laws and regulations impose certain restrictions or prohibitions on foreign ownership of companies that engage in
value-added telecommunication services, and certain other businesses. We are a company registered in the Cayman Islands, and our PRC
subsidiaries, are considered foreign-invested enterprises. To comply with the PRC laws and regulations, we conduct a substantial portion
of our business in China through the Haitaoche VIEs, Ningbo Jiusheng and Qingdao Shengmei, and their subsidiaries, based on a series
of contractual arrangements by and among Zhejiang Taohaoche, the Haitaoche VIEs and their shareholders. Through these contractual
arrangements, we exert control over the Haitaoche VIEs and consolidate their operating results in our financial statements under U.S.
GAAP. The following is a summary of the contractual arrangements that make us the primariy beneficiary of the Haitaoche VIEs and
enable us to receive substantially all of the economic benefits from their operations.
Agreements that Make Us the Primariy Beneficiary of the Haitaoche VIEs
Agreement on Disposal of Equity and Assets
Zhejiang Taohaoche entered into equity option agreements with each shareholder of Ningbo Jiusheng on October 23, 2020 and
with each shareholder of Qingdao Shengmei on November 11, 2020. Pursuant to these exclusive option agreements, each Haitaoche VIE
shareholder has granted Zhejiang Taohaoche an exclusive option to acquire all of his or her equity interests in the Haitaoche VIEs at the
price equivalent to the lowest price then permitted under the PRC law. Zhejiang Taohaoche may, at its sole discretion, at any time
exercise the option granted by the Haitaoche VIE shareholder. Moreover, Zhejiang Taohaoche may transfer such option to any third
party. The Haitaoche VIE shareholders may not, among other obligations, transfer, donate, pledge or otherwise dispose of their equity
interests in any way, increase or decrease the registered capital of the Haitaoche VIEs, or enter into any material contracts except in the
ordinary course of business unless otherwise expressly agreed to by Zhejiang Taohaoche. The term of each equity option agreement is 10
years and can be unilaterally renewed by Zhejiang Taohaoche upon the expiration of the initial term of each such agreement.
86
Table of Contents
Business Operation Agreements
Zhejiang Taohaoche entered into a business operation agreement with each shareholder of Ningbo Jiusheng on October 23,
2020, and with each shareholder of Qingdao Shengmei on November 11, 2020. Pursuant to these business operation agreements, (1) each
Haitaoche VIE shall not enter into any transactions which may materially affect such Haitaoche VIE’s assets, obligations, rights and
operations; (2) each Haitaoche VIE and its shareholders shall accept and strictly execute the proposals provided by Zhejiang Taohaoche
in respect of the employment and dismissal of such Haitaoche VIE’s employees and the daily business management and financial
management of such Haitaoche VIE; and (3) each Haitaoche VIE and its respective shareholders shall only appoint individuals
designated by Zhejiang Taohaoche as the executive director or director of the board of directors. Each of the Haitaoche VIE shareholders
must sign powers of attorney assigning their powers and rights to Zhejiang Taohaoche. The term of each business operation agreement is
10 years and can be unilaterally renewed by Zhejiang Taohaoche upon the expiration of the initial term of each such agreement.
Powers of Attorney (Annex I of Business Operation Agreement)
Each shareholder of Ningbo Jiusheng signed a power of attorney on October 23, 2020 and each shareholder of Qingdao
Shengmei signed a power of attorney on November 11, 2020, pursuant to which he or she irrevocably authorizes Zhejiang Taohaoche or
any person designated by Zhejiang Taohaoche to vote on such Zhejiang Taohaoche VIE shareholder’s behalf at the shareholders’
meetings of the Zhejiang Taohaoche VIEs and exercise full voting rights as a Zhejiang Taohaoche VIE shareholder, including but not
limited to, the right to propose a shareholders’ meeting, to accept any notification about the holding of such meeting, to attend the
shareholders’ meetings and exercise full voting rights, and to sell or transfer any portion of the Zhejiang Taohaoche VIE shareholder’s
equity interests in the Zhejiang Taohaoche VIEs.
Equity Pledge Agreements
Zhejiang Taohaoche entered into equity pledge agreements with each shareholder of Ningbo Jiusheng on October 23, 2020 and
with each shareholder of Qingdao Shengmei on November 11, 2020. Pursuant to these equity pledge agreements, the Haitaoche VIE
shareholders have pledged all of their equity interests in the Haitaoche VIEs as priority security interest in favor of Zhejiang Taohaoche
to guarantee Haitaoche VIEs and their shareholders’ performance of their obligations under, where applicable, (i) the exclusive
consultancy and service agreements; (ii) the agreement on disposal of equity and assets; and (iii) business operation agreements.
Zhejiang Taohaoche is entitled to exercise its right to dispose of the Haitaoche VIE shareholders’ pledged interests in the equity of the
Haitaoche VIEs and has priority in receiving payment by the application of proceeds from the auction or sale of such pledged interests, in
the event that any breach or default event under the equity pledge agreements occurs.
Agreements that Enable Us to Receive Substantially All of the Economic Benefits from the Haitaoche VIEs
Exclusive Consultancy and Service Agreements
Zhejiang Taohaoche entered into exclusive consulting and service agreements with Ningbo Jiusheng on October 23, 2020 and
with Qingdao Shengmei on November 11, 2020, pursuant to which Zhejiang Taohaoche provides exclusive consulting services to the
Haitaoche VIEs. In exchange, the Haitaoche VIEs pay service fees to Zhejiang Taohaoche based on the specific fee rate stipulated by
Zhejiang Taohaoche, and Zhejiang Taohaoche has the right to propose adjusting the amount of technical consulting and service fees in
view of the income and profit of the Haitaoche VIEs during the quarter as determined pursuant to generally accepted accounting
principles at the end of each quarter, and accordingly deliver a notice to the Haitaoche VIEs to adjust the amount of technical consulting
and service fees. The Haitaoche VIEs shall settle the technical consulting and service fee to Zhejiang Taohaoche in full and in time
according to the requirements of the notice. Zhejiang Taohaoche will exclusively own any intellectual property arising from the
performance of these agreements. The term of each exclusive consulting and service agreement is 10 years and can be unilaterally
renewed by Zhejiang Taohaoche upon the expiration of the initial term of each such agreement.
D.
Property, plants and equipment.
Our principal executive offices are located in Beijing China, where we lease approximately 541 square meters of office space as
of the date of the Annual Report. Our Dealership Outlets lease operating spaces in various Chinese cities. We lease our premises under
non-cancelable operating lease agreements.
87
Table of Contents
Some of the lessors of our leased premises in China do not have valid title to such premises or proper authorization from the
title owner to sublease such premises. For further details, see “Item 3. Key Information — D. Risk Factors — Risks Related to Our
Business and Industry — We face certain risks relating to the real properties that we lease”.
Our servers are primarily hosted at internet data centers owned by a major domestic internet data center provider. The hosting
services agreements typically have terms of six months to one year.
We believe that we will be able to obtain adequate facilities, principally through leasing, to accommodate our future expansion
plans.
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
A.
Operating results.
Overview
By integrating the operations and resources of Haitaoche with the used car dealership business, we are currently engaged in the
sales of both new and used, domestic and imported automobiles. We are a leading premium used auto dealership group in China. As of
December 31, 2022, we had three used car Dealerships covering three cities in China. On average, our Dealership operators have over
ten years of experiences in the used car industry. We provide used car buyers in China with access to a wide selection of used vehicles
across our network of Dealerships, with a focus on premium brands, such as Audi, BMW, Mercedes-Benz, Land Rover and Porsche.
We sourced, marketed and sold approximately 1,814 and 879 used and new vehicles to customers across China in 2021 and
2022, respectively. Specifically, we sold 1,582 used vehicles in the second half of 2021 after the completion of the Haitaoche
Acquisition, which are included in the sales revenue of the Company’s statement of operating results for the year ended December 31,
2021.
Key Factors Affecting Our Results of Operations
We believe that our results of operations are significantly affected by the following key factors.
Demand for Premium Passenger Vehicles in China
We generate a substantial majority of our revenues from the sales of premium passenger vehicles and the market demand for
such passenger vehicles in China directly affects our revenues. Demand for premium passenger vehicles is affected by a variety of
factors, including:
● macro-economic conditions in China, level of urbanization and household income;
● continued increase in the number of affluent individuals and consumer sentiment towards premium automobiles;
● continued improvement of road networks and infrastructure; and
● PRC laws and regulations with regard to passenger vehicles.
88
Table of Contents
Integration of Our Dealerships
We began to acquire majority control of used car dealers across China in the second half of 2017. We rely on our Dealerships to
conduct significant aspects of our business. As of December 31, 2022, we had 3 Dealerships. Our Dealerships and their employees
directly interact with the consumers and other dealerships, and their performance directly impact our results of operations and financial
condition. In addition, expansion of our network of Dealerships may affect our results of operations in the form of startup costs,
acquisitions of new Dealership assets or capital injections.
Customer Engagement and Branding
We engage car buyers primarily through our network of Dealerships, our website and mobile apps, and advertising on third-
party platforms. Our ability to expand our customer base depends on the scale and performance of the Dealerships as well as our ability
to expand the Dealership network. We also collaborate with the leading online automotive advertising platforms to tap into their large
user bases. Our success in such collaboration will affect our ability to broaden our prospective car buyer base through online channels in
a cost-efficient manner.
Our growth depends on our ability to strengthen our brand through word of mouth and advertisements. The goal of these
endeavors is to increase the number of visitors to our website, mobile apps and Dealership Outlets and increase the likelihood that
visitors will purchase vehicles from us. In addition, our performance will be enhanced by providing a superior customer experience,
which drives our ability to generate customer referrals and repeat sales.
Competitive Landscape
We believe that our operational model, which combines both online and offline channels, is superior to either online-only or
offline-only models and differentiates us from our competitors. Our ability to strengthen our market position as a leading premium used
auto dealership group and continue to meet the needs of our customers will continue to affect our results of operations.
Our business is also subject to trends specific to our industry, including customer demand and the competitive landscape. The
used car industry in China is highly fragmented, and we see a trend towards consolidation that will take hold in the future. In addition,
we believe that there are trends towards the growth of online technologies and consumer auto financing in China. Competition affects not
only our day-to-day performance in terms of our ability to acquire customers and automobile inventory, but also our ability to adapt to
these trends.
Strategic Expansion and Acquisitions
In the second half of 2017, we started to acquire used car dealers and had acquired 14 used car Dealerships across China as of
December 31, 2020. We may selectively pursue acquisitions, investments, joint ventures and partnerships that we believe are strategic
and complementary to our operations and technology. These acquisitions, investments, joint ventures and partnerships may affect our
results of operations.
On June 25, 2021, we closed the Haitaoche Acquisition. Haitaoche is a China-based merchant for domestic and imported
automobiles. The manufacture and distribution of automobiles are undergoing significant changes in China, which are expected to create
new opportunities and business models. Haitaoche strives to become a leading automobile retail platform in China. In addition to
strengthening its imported automobile sales business, it plans to expand into electronic vehicles and other business areas. Haitaoche aims
to enter into strategic cooperation agreements with multiple electronic vehicle manufacturers in China and serve a wider group of
distributors and consumers. Haitaoche sourced, marketed and sold 431, 33 and 184 vehicles to customers across China in 2019, 2020 and
2021, respectively.
By integrating the operations and resources of Haitaoche with the used car dealership business, we are engaged in the sales of
both new and used, domestic and imported automobiles and will be actively looking for opportunities to expand into the business area of
electronic vehicles. We released our new energy vehicle strategic plan on December 1, 2021, and we target to quickly expand our new
energy vehicle team and start with developing commercial new energy vehicles for intra-city and inter-city logistics applications in the
initial stage.
89
Table of Contents
In addition, we have signed a sales order for 5,000 new energy logistics vehicles with Bujia, a leading automobile logistics
service provider in China. It will order a total of RMB1 billion (equivalent to US$156 million) worth of new energy vehicles from our
Company in the upcoming years. The first model vehicle was delivered to Bujia in July 2022. We aim to continuously establish strategic
partnerships with platforms that have big sales potentials and to make customized production according to customer needs.
Financing and Access to Capital
We have historically funded our operations and expansion with support from Renren, the issuance of ABSs and term loans, and
we believe that the future growth and expansion of our business will involve additional debt and/or equity financing from both Chinese
and international external investors. The availability of financing, and the terms on which it is available, are expected to affect our future
results of operations.
Key Components of Results of Operations
Revenues
Our revenues are derived from car sales. Our sales revenue are $1.2 million, $253.8 million, and $82.8 million in 2020, 2021,
and 2022, respectively.
Revenues:
Car sales revenue
Total revenues
2020
For the Years Ended December 31,
2021
2022
US$
%
US$
%
US$
%
(in thousands, except for percentages)
1,207
1,207
100.0
100.0
253,840
253,840
100.0
100.0
82,840
82,840
100.0
100.0
On June 25, 2021, Kaixin Auto Holdings (KAH) completed the Haitaoche Acquisition, which is considered a reverse acquisition
(or reverse takeover, or “Acquisition”) of KAH by Haitaoche Limited (Haitaoche) as the acquirer under the applicable accounting
treatment. Following the completion of the Acquisition, KAH is the consolidated parent of Haitaoche and the resulting company operates
under the KAH corporate name. Haitaoche’s historical financial statements became the historical financial statements of the Company.
The acquired assets and liabilities of KAH are included in the Company’s consolidated balance sheet as of June 25, 2021 and the results
of its operations and cash flows are included in the Company’s consolidated statement of operations and comprehensive income (loss)
and cash flows for periods beginning after June 25, 2021. Therefore, the results of operations of KAH in 2020 is not included in the
consolidated financial statement.
Our car sales revenues are primarily driven by the number of customer traffic to the Dealerships, our inventory selection, the
effectiveness of our branding and marketing efforts, the quality of our customer services, our pricing and competition in our industry. The
Company invested significant resources in revamping the used car business after the completion of the reverse merger, which contributed
the growt of the car sales.
Cost of Revenues
Cost of revenues consists of costs directly related to used-car sales and new-car wholesales. The following table sets forth the
breakdown of our cost of revenues, both in absolute amounts and as percentages of our total cost of revenues, for the periods presented:
Cost of revenues:
Car sales
Total cost of revenues
2020
%
US$
For the Years Ended December 31,
2021
%
US$
(in thousands, except for percentages)
2022
%
US$
1,207
1,207
100.0
100.0
248,583
248,583
100.0
100.0
82,194
82,194
100.0
100.0
90
Table of Contents
Cost of Used-car sales
Cost of revenues consists of costs directly related to used-car sales and new car wholesales, including inventory acquisition
costs and write-down of inventory. We expect our cost of revenues to increase in line with the growth of our used-car sales and new car
wholesales business.
Operating Expenses
Our operating expenses consist of general and administrative expenses, selling and marketing expenses, and loss from
impairment of goodwill. The following table sets forth our operating expenses for continuing operations, both in absolute amounts and as
percentages of our total operating expenses for the periods indicated:
Operating expenses:
Selling and marketing
General and administrative
Impairment of goodwill
Total operating expenses
Selling and Marketing Expenses
2020
%
US$
For the Years Ended December 31,
2021
US$
%
(in thousands, except for percentages)
2022
%
US$
11
265
—
276
4.0
96.0
—
100.0
481
43,734
143,655
187,870
0.3
23.2
76.5
100.0
2,097
46,488
—
48,585
4.3
95.7
—
100
Selling and marketing expenses consist primarily of salaries, benefits and commissions for our selling and marketing personnel
and advertising, promotion expenses, and provision for dealership incentive. Our selling and marketing expenses may increase in the
near term if we increase our promotion expenses for the Kaixin Auto brand or the new energy vehicles business.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and benefits for our general and administrative personnel and
fees, write-offs of prepayment for vehicle purchase and other current assets, share-based compensation expenses, and expenses for third-
party professional services. Our general and administrative expenses may increase in the future on an absolute basis as our business
grows.
Loss from Impairment of Goodwill
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business
combinations. For the goodwill recognized as a result of the reverse acquisition, the management performed qualitative assessment and
impairment test. Based on the results of the quantitative goodwill impairment test, a full impairment loss in goodwill of US$143.7
million was recorded in the consolidated statements of operations for the year ended December 31, 2021.
Taxation
Cayman Islands
We are an exempted company incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, we are not
subject to tax based upon profits, income, gains or appreciations and there is no taxation in the nature of inheritance tax or estate duty. In
addition, upon payment of dividends by us to our shareholders, no Cayman Islands withholding tax will be imposed.
91
Table of Contents
Hong Kong
Our subsidiary incorporated in Hong Kong is subject to Hong Kong two-tiered profit tax at a rate of 8.25% for the first 2 million
Hong Kong dollars (“HKD”) of profits and at a rate of 16.5% for profits above 2 million HKD. No Hong Kong profit tax has been levied
as we did not have assessable profit that was earned in or derived from the Hong Kong subsidiary during the periods presented. Hong
Kong does not impose a withholding tax on dividends.
China
Generally, our subsidiaries in China are subject to enterprise income tax on their taxable income in China at a rate of 25%. The
enterprise income tax is calculated based on the entity’s global income as determined under PRC tax laws and accounting standards.
We are subject to VAT at a rate of 1% on the difference between the original purchase price and the retail price for the used car
sales. We are subject to VAT at a rate of 13 % on the sales of new automobiles. We are also subject to surcharges on VAT payments in
accordance with the PRC law.
Dividends paid by our wholly foreign-owned subsidiary in China to its intermediary holding company in Hong Kong will be
subject to a withholding tax rate of 10%, unless the relevant Hong Kong entity satisfies all the requirements under the Arrangement
between the PRC and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal
Evasion with respect to Taxes on Income and Capital, in which case the dividends paid to the Hong Kong subsidiary would be subject to
withholding tax at the standard rate of 5%.
If our holding company in the Cayman Islands or any of our subsidiaries outside of China were deemed to be a “resident
enterprise” under the PRC Enterprise Income Tax Law, it would be subject to enterprise income tax on its worldwide income at a rate of
25%.
92
Table of Contents
Results of Operations
The following tables set forth a summary of our consolidated results of operations for the periods presented. This information
should be read together with our consolidated financial statements and related notes included elsewhere in this annual report. The
operating results in any periods are not necessarily indicative of the results that may be expected for any future period.
Total revenues
Total cost of revenues
Gross profit
Operating expenses:
Selling and marketing expenses
General and administrative expenses
Impairment of goodwill
Total operating expenses
Loss from operations
Other income (expenses), net
Foreign currency exchange gain (loss)
Interest expense, net
Change in fair value of warrants
Impairment of other non-current assets
Provision for dealership settlement
Gain on disposal of subsidiaries
Loss before income tax provision
Income tax benefit (expense)
Net loss
For the Years Ended December 31,
2020
2021
(in thousands, exepct for percentage)
2022
%
%
1,207
1,207
—
100.0
100.0
0.0
253,840
248,583
5,257
100.0
97.9
2.1
%
100.0
99.2
0.8
82,840
82,194
646
11
265
—
276
(276)
25
86
(1)
—
—
—
—
(166)
—
(166)
481
0.9
43,734
22.0
143,655
—
187,870
22.9
(182,613)
(22.9)
(4)
2.1
(432)
7.1
(245)
(0.1)
1,995
—
—
(4,216)
— (11,142)
—
—
(13.8)
(196,657)
729
(13.8)
(195,928)
0.2
17.2
56.6
74.0
(71.9)
(0.0)
(0.2)
(0.1)
0.8
(1.7)
(4.4)
—
(77.5)
0.3
(77.2)
2,097
46,488
—
48,585
(47,939)
728
(139)
(1,034)
316
(22,921)
(15,134)
1,578
(84,545)
(74)
(84,619)
2.5
56.1
—
58.6
(57.9)
0.9
(0.2)
(1.2)
0.4
(25.9)
(18.3)
1.9
(100.3)
(0.1)
(100.4)
Year ended December 31, 2022 compared with year ended December 31, 2021
Revenues
Our total revenues decreased from US$253.8 million in 2021 to US$82.8 million in 2022, primarily due to closure of several
dealerships.
Cost of Revenues
Our cost of revenues for the new car wholesales decreased from US$248.6 million in 2021 to US$82.2 million in 2022. The
decrease was consistent with the decrease in sales revenue.
Gross Profit
As a result of the foregoing, we recorded gross profit of US$5,257 thousand in 2021 and gross profit of $646 thousand in 2022.
93
Table of Contents
Operating Expenses
Our total operating expenses decreased from US$187.9 million in 2021 to US$48.6 million in 2022. The difference is mainly
resulted from the one-time loss from goodwill impairment of $143.7 million.
● Selling and marketing expenses. Our selling and marketing expenses increased from US$481 thousand in 2021 to
US$2,097 thousand in 2022. The increase resulted from the provision for sales incentives of $1,638 thousand.
● General and administrative expenses. Our general and administrative expenses increased from US$43,734 thousand in
2021 to US$46,488 thousand in 2022. The increase was primarily due to amortization of trademark of $1,681 thousand.
Other Income (Expenses)
Other expense was US$4 thousand in 2021, as compared to other income of US$728 thousand in 2022. The other income in
2022 is mainly due to subsidies received from the Taishun County local government.
Interest Expenses, Net
Our interest expenses, net were US$245 thousand in 2021 and US$1,034 thousand in 2022.
Change in fair value of warrants
Gain from change in fair value of warrants was US$1,995 thousand and US$316 thousand in 2021 and 2022, respectively.
Impairment of other non-current assets
Loss from impairment of other non-current assets was US $4.2 million and US $22.9 million in 2021 and 2022, respectively.
Provision for dealership settlement
Loss from provision for dealership settlement was US $11.1 million and US $15.1 million in 2021 and 2022, respectively.
Gain on disposal of subsidiaries
There is a gain on disposal of subsidiaries of US $1.6 million in 2022.
Income Tax Benefit (Expense)
Our income tax benefit was US$0.7 million in 2021, and our income tax expense was US$74 thousand in 2022.
Net Loss
As a result of the foregoing, we recorded net losses of US$195.9 million and US$84.6 million in 2021 and 2022, respectively.
94
Table of Contents
Year ended December 31, 2021 compared with year ended December 31, 2020
Revenues
Our total revenues increased from US$1.2 million in 2020 to US$253.8 million in 2021, primarily due to the revamping of our
used car sales business following the completion of the reverse acquisition.
● Used-car sales. Our revenues from used-car sales are US$251.1 million in 2021. The number of cars sold in 2021 was
1582 units. The COVID-19 pandemic had a material adverse impact on the Company’s used-car dealership business.
Moreover, disputes arising between the Company and the noncontrolling shareholders of the dealerships occupied
significant amount of our management’s time. In the summer of 2020, the Company decided to put a halt to its used-car
dealership business operations amid the sharp decline in gross sales volume and profit margins and disputes with
noncontrolling shareholders of the dealerships. However, the Company has reached settlement with a majority of the
noncontrolling shareholders of the dealerships and car sale operations in those locations are resumed in 2021.
● New-car wholesales. Our revenues from new-car wholesales increased from US$1.2 million in 2020 to US$2.8 million in
2021 together with the increased in new-car sales volume. The number of cars sold in 2021 was 184 units, compared with
33 units sold in 2020.
Cost of Revenues
Our cost of revenues increased from US$1.2 million in 2020 to US$248.6 million in 2021. The increase was in line with the
increase in revenues.
● Cost of Used-car sales. Our cost of revenues for used-car sales is US$245.8 million in 2021. The amount was in line with
the used-car sales volume.
● Cost of New-car wholesales. Our cost of revenues for new-car wholesales increased from US$1.2 million in 2020 to
US$2.8 million in 2021. The increase was in line with the increase in new-car wholesales volume.
Gross Profit
As a result of the foregoing, we recorded gross profit of nil in 2020 and gross profit of US$5.3 million in 2021.
Operating Expenses
Our total operating expenses increased from US$0.3 million in 2020 to US$187.8 million in 2021. The increase is mainly
resulted from the full impairment of goodwill of US$143.7 million in 2021.
● Selling and marketing expenses. Our selling and marketing expenses increased from US$11 thousand in 2020 to US$481
thousand in 2021. The increase resulted from the increase in our car sales volume.
● General and administrative expenses. Our general and administrative expenses increased from US$0.3 million in 2020 to
US$43.7 million in 2021. The increase was primarily due to the increase in our daily operations following the completion
of the reverse merger in June 2021 and share based compensation expenses from new awards of equity incentives in 2021.
● Impairment of Goodwill. Loss from impairment of goodwill was nil in 2020 and US$143.7 million in 2021, respectively. A
full impairment loss of US$143.7 million was recorded for goodwill recognized in the reverse acquisition in the
consolidated statements of operations for the year ended December 31, 2021.
95
Table of Contents
Other (Expenses) Income
Other income was US$25 thousand in 2020, as compared to other expenses of US$4 thousand in 2021.
Interest Expenses
Our interest expenses increased from US$1 thousand in 2020 to US$245 thousand in 2021, which is mainly interest for the bank
loan carried by Kaixin Auto Holdings in the second half of 2021 following the reverse acquisition.
Change in fair value of warrants
In 2021, there is US$2.0 million gain from change in fair value of the warrants from a financing transaction that occurred at end
of 2020. There is no gain or loss from change in fair value of the warrants in 2020.
Impairment of other non-current assets
In 2021, there is US$4.2 million loss from impairment of other non-current assets related to the impairment of a long-term trade
receivable from a foreign supplier, which has been in litigation since 2018 and the foreign supplier refuses to pay back. There was no loss
from such impairment of other non-current assets in 2020.
Provision for dealership settlement
In 2021, there is US$11.1 million provision for dealership settlement related to ordinary shares of the Company to the dealership
operators as incentives to revitalize the operations of the dealerships in 2021. There is no provision for dealership settlement in 2020.
Income Tax Benefit
Our income tax benefit was nil in 2020, compared with income tax benefit of US$0.7 million in 2021 in relation to income taxes
payments under the Chinese tax authority.
Net Loss
As a result of the foregoing, we recorded net losses of US$166 thousand and US$195.9 million in 2020 and 2021, respectively.
Recent Accounting Pronouncements
See Part III, “Financial Statements — Note 2 — Summary of significant accounting policies — Recent accounting
pronouncements not yet adopted”.
B.
Liquidity and Capital Resources.
Cash flows and working capital
The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern,
which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. For the year ended
December 31, 2022, we generated negative cash flows from operating activities that amounted to US$2.4 million and has working capital
of US$22.4 million as of December 31, 2022. KX Venturas 4 LLC invested US$3.0 million in convertible preferred shares of the
Company on December 28, 2020, which were all converted to ordinary shares during 2021. Renren Inc. purchased US$6.0 million
convertible preferred shares of the Company on March 31, 2021. Derong Group Limited invested $4.6 million in the Company in
February 2022 and received ordinary shares in March 2022.
96
Table of Contents
We intend to obtain additional equity or debt financing arrangements to support the growth of our business. The incurrence of
indebtedness would result in the increased of fixed obligations and could result in operating covenants that would restrict our operations.
There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. See “Item 3. Key Information
— D. Risk Factors —Risks Related to Our Business and Industry — We may need additional capital to pursue our business objectives
and respond to business opportunities, challenges or unforeseen circumstances, and financing may not be available on terms acceptable
to us, or at all”.
Although we consolidate the results of the VIEs, our access to cash balances or future earnings of these entities is only through
our contractual arrangements with them and their respective shareholders. See “Item 4. Information on the Company — C.
Organizational Structure — Contractual Agreements with The VIEs and Their Shareholders”. For restrictions and limitations on liquidity
and capital resources as a result of our corporate structure, see “—Holding Company Structure”.
Net cash used in operating activities was US$1.1 million, US$2.1 million and US$2.4 million in 2020, 2021 and 2022,
respectively. As of December 31, 2022, we had cash of approximately US$7.1 million.
The following table sets forth a summary of our cash flows for the periods presented:
2020
For the years ended December 31,
2021
(in thousands of US$)
2022
Net cash used in operating activities
Net cash (used in) provided by investing activities
Net cash provided by financing activities
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Operating Activities
(1,135)
(290)
2,132
4
607
(2,103)
4,267
2,000
607
5,263
(2,394)
(156)
5,406
5,263
7,102
Net cash used in operating activities was US$2.4 million in 2022. The principal item accounting for the difference between our
net loss and the net cash used in operating activities in 2022 were a loss from impairment of other non-current assets of US$22.9 million,
provision for dealership settlement of $15.1 million, and share-based compensation expense of US$39.3 million.
Net cash used in operating activities was US$2.1 million in 2021. The principal items accounting for the difference between our
net loss and the net cash used in operating activities in 2021 were a loss from impairment of goodwill of US$143.7 million and share-
based compensation expense of US$41.5 million. There were partially offset by an increase in prepayment for vehicle purchase and other
current assets of US$6.1 million.
Net cash used in operating activities was US$1.1 million in 2020. The principal items accounting for the difference between our
net loss and the net cash used in operating activities in 2020 were an increase in amount due from related parties of US$0.5 million, an
increase in prepayment for vehicle purchase and other current assets of USD$0.4 million and an increase in other non-current assets of
US$0.4 million. There were partially offset by an increase in advances from customers of US$0.3 million.
Investing Activities
Net cash used in investing activities was US$0.2 million in 2022, which was mostly attributable to cash disposed on disposal of
subsidiaries.
Net cash provided by investing activities was US$4.3 million in 2021, which was mostly attributable to Cash acquired on
reverse acquisition of US$4.3 million.
Net cash used in investing activities was US$0.3 million in 2020, which was mostly attributable to purchase of intangible assets
of US$0.3 million.
97
Table of Contents
Financing Activities
Net cash used in financing activities was US$5.4 million in 2022, which was primarily attributable to proceeds from issuance of
ordinary shares of $4.7 million and a convertible note of $2.0 million, partially offset by cash paid for offering cost of $2.0 million.
Net cash provided by financing activities was US$2.0 million in 2021, which was primarily attributable to proceeds from a
convertible note of US$2.0 million.
Net cash provided by financing activities was US$2.1 million in 2020, which was primarily attributable to capital contribution
of US$8.1 million, partially offset by capital divestment of US$6 million.
Off-Balance Sheet Arrangements.
We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third
parties. In addition, we have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity
or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets
transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable
interests in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging
or product development services with us.
Tabular Disclosure of Contractual Obligations.
The following table sets forth our contractual obligations as of December 31, 2022:
Total
Operating Lease Obligations(1)
Loans and Convertible Note obligations(2)
Total
Less than 1
year
1–3 years
(in thousands of US$)
3–5 years
More than
5 years
521
6,305
6,826
159
6,305
6,464
262
—
262
100
—
100
—
—
—
(1) Representing contractual undiscounted operating lease obligations relating to our non-cancelable lease of offices and facilitates.
(2) We have long-term borrowings for a total of US$2.0 million, maturing in August 2023. We also entered into two US$2.0 million
convertible notes that matures in May 2023 and October 2023, respectively.
Other than as shown above, we did not have any significant capital and other commitments, long-term obligations or guarantees as of
December 31, 2022.
Capital Expenditures
Our capital expenditures were US$290 thousand, US$32 thousand and US$156 thousand in 2020, 2021 and 2022, respectively.
In these periods, our capital expenditures were mainly used to purchase intangible assets for our business. We will continue to make
capital expenditures to meet the expected growth of our business.
98
Table of Contents
Holding Company Structure
Our Company, Kaixin Auto Holdings, is a holding company with no operations of its own. We own and conduct operations
primarily through operating subsidiaries in China. As a result, we rely on dividends and other distributions paid by our operating
subsidiaries to pay dividends to our shareholders or to service our outstanding debts. As a result, our ability to pay dividends depends
upon dividends paid by our subsidiaries. If our subsidiaries or any newly formed subsidiaries incur debt on their own behalf in the future,
the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our wholly-owned PRC subsidiaries are
permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance with the PRC accounting
standards and regulations. Under the PRC laws, each of our PRC subsidiaries is required to set aside at least 10% of its after-tax profits
each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Although the statutory reserves can
be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective
companies, the reserve funds are not distributable as cash dividends except in the event of liquidation. Remittance of dividends by a
wholly foreign-owned company out of China is subject to examination by the banks designated by the SAFE. We currently plan to
reinvest all earnings from our PRC subsidiaries to their business developments and do not plan to request dividend distributions from
them.
Internal Control over Financial Reporting
Prior to the completion of the Business Combination, we had been a subsidiary of a listed company with limited accounting
personnel and other resources with which to address our internal control and procedures over financial reporting. In the course of
preparing our consolidated financial statements for the year ended December 31, 2019, we identified four material weaknesses in our
internal control over financial reporting relating to (i) inadequate technical competency of financial staff in charge of significant and
complex transactions to ensure that those transactions are properly accounted for in accordance with U.S. GAAP; (ii) lack of an effective
and continuous risk assessment process to identify and assess the financial reporting risks; (iii) lack of evaluations to ascertain whether
the components of internal control are present and functioning; and (iv) inadequate controls over prepayment for vehicle purchase at
local dealerships. 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 annual or interim consolidated financial statements will not
be prevented or detected on a timely basis.
To remedy our identified material weakness, we have taken measures to improve our internal control over financial reporting,
including, among others: (i) hiring additional financial professionals and accounting consultants with relevant experiences, skills and
knowledge in accounting and disclosure for complex transactions under the requirements of U.S. GAAP and SEC reporting
requirements, including disclosure requirements for complex transactions under U.S. GAAP, to provide the necessary level of leadership
to our finance and accounting function and increase the number of qualified financial reporting personnel; (ii) improving the capabilities
of the existing financial reporting personnel through trainings and education on the accounting and reporting requirements under U.S.
GAAP, SEC rules and regulations and the Sarbanes-Oxley Act; and (iii) designing and implementing robust financial reporting and
management controls over future significant and complex transactions.
However, we believe material weaknesses persist in (i) lack of sufficient resources with US GAAP and the SEC reporting
experiences, which could adversely affect the Company’s ability to provide accurate disclosures on a timely matter; (ii) the lack of an
effective and continuous risk assessment procedure to identify and assess the financial reporting risks; (iii) lack of evaluations to
ascertain whether the components of internal control are present and functioning; (iv) inadequate controls over prepayment for vehicle
purchase at local dealerships; and (v) lack of key monitoring mechanisms to control the communication and disclosure of material
information to the appropriate parties as of December 31, 2022.
We ceased to qualify as an “emerging growth company” pursuant to the JOBS Act on December 31, 2022. However, since our
public float was not over $75 million on June 30, 2022, we are exempted from the auditor attestation requirement under Section 404 of
the Sarbanes-Oxley Act of 2002 for the assessment of our internal control over financial reporting for the year ended December 31, 2022.
C.
Research and Development, Patents and Licenses, etc.
See “Item 4. Information on the Company — B. Business Overview — Our Technology” and “Item 4. Information on the
Company — B. Business Overview — Regulation”.
99
Table of Contents
D.
Trend Information.
Other than as described elsewhere in this Annual Report, we are not aware of any trends, uncertainties, demands, commitments
or events that are reasonably likely to have a material adverse effect on our revenue, income from continuing operations, profitability,
liquidity or capital resources, or that would cause our reported financial information not necessarily to be indicative of future operating
results or financial condition.
E.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United
States of America, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the
date of the financial statements, the reported amounts of revenues and expenses during the reporting periods and the related disclosures
in the consolidated financial statements and accompanying footnotes. Out of our significant accounting policies, which are described in
Note 2—Summary of Significant Accounting Policies of our consolidated financial statements included elsewhere in this Form 20F,
certain accounting policies are deemed “critical”, including (i) revenue recognition; (ii) business combinations, (iii) goodwill, and (iv)
fair value measurements, since they require management’s highest degree of judgment, estimates and assumptions. While management
believes its judgments, estimates and assumptions are reasonable, they are based on information presently available and actual results
may differ significantly from those estimates under different assumptions and conditions. We believe that the following critical
accounting estimates involve the most significant judgments used in the preparation of our financial statements.
Prepayment for vehicle purchase, other current and non-current assets
Prepayment for vehicle purchase, other current assets and other non-current assets consist of advances to suppliers, deductible
input VAT, long-term receivables from suppliers and others. Advances to suppliers and long-term receivables from suppliers refer to
advances for purchase of automobiles. The Company reviews a supplier’s credit history and background information before advancing a
payment.
In 2019 and 2020, due to disagreements with certain non-controlling shareholders on operational matters, some non-controlling
shareholders detained our inventories in the dealerships and significant uncertainty arose on the realizability of the inventories held by
these non-controlling shareholders. Significant uncertainty also arose on the realizability and collectability of the prepayments to
purchase used cars for these dealerships and amounts due from these noncontrolling shareholders. Considering the facts and
circumstances, the Company recognized a write down of prepayment for vehicle purchase and other current assets for the year ended
December 31, 2019.
The Company has been negotiating with these noncontrolling shareholders in early 2021. The Company reached settlement
agreements with the majority of the noncontrolling shareholders, with each of the respective noncontrolling shareholders agreeing to
repay a settlement amount to the Company. The Company recognized the settlement amount as the new basis of net assets held by these
dealerships as of December 31, 2020, since each of the settlement amount was the net realizable amount or recoverable amount of total
assets in the respective dealership or after-sales center. The total assets of each dealership or after-sales center primarily consist of
inventories, prepayment or other current assets due from noncontrolling shareholders. After appropriate adjustments, the Company
reclassified all the asset accounts of these dealerships to prepayment for vehicle purchase and other current assets. Items with a collection
period greater than 12 months from December 31, 2020 and 2021 have been classified as other non-current assets. Other non-current
assets also include the receivable from two foreign suppliers for payment of automobiles purchase early in 2016, which the Company has
sought to recover through litigation and collection effort.
Certain noncontrolling shareholders has not reached settlement agreements with the Company yet, but still keep a good business
partnership with the Company. These noncontrolling shareholders has signed and issued ownership statements certifying the Company is
the owner of certain inventories which also stated a guaranteed amount of the inventories that the noncontrolling shareholders agreed to
acknowledge for the purpose of settlement. The Company believes the guaranteed amount is the minimum net recoverable amount of the
various assets detained by these noncontrolling shareholders, which had been reclassified as prepayment for vehicle purchase and other
current assets as of December 31, 2020, 2021, and 2022.
100
Table of Contents
The Company maintains an allowance for doubtful accounts for the prepayments based on a variety of factors, including but not
limited to the aging of prepayments, concentrations, credit-worthiness, historical and current economic trends and changes in delivery
patterns. As prepayment for vehicle purchase mainly was paid to noncontrolling shareholders for purchasing cars as of December 31,
2021, if the relationship with noncontrolling shareholders and the financial condition of suppliers were to deteriorate, resulting in an
impairment of their ability to deliver goods or provide services, the Company would provide allowance for such amount in the period
when it is considered impaired. The Company recorded impairment loss of $4.2 million and $22.9 million for prepaid expenses and other
current assets for the years ended December 31, 2021 and 2022, respectively.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business
combinations.
The Company assessed goodwill for impairment on annual basis till 2021 in accordance with ASC 350-20, Intangibles –
Goodwill and Other: Goodwill, which permits the Company to first assess qualitative factors to determine whether it is “more likely than
not” that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the
quantitative impairment test. If this is the case, the quantitative goodwill impairment test is required. If it is more likely-than-not that the
fair value of a reporting unit is greater than its carrying amount, the quantitative goodwill impairment test is not required.
Quantitative goodwill impairment test was used to identify both the existence of impairment and the amount of impairment loss,
compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit is greater
than its carrying amount, goodwill is not considered impaired. If the fair value of the reporting unit is less than its carrying amount, an
impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting
unit.
For the goodwill recognized as a result of the reverse acquisition, the management performed qualitative assessment and noted
certain facts and circumstances indicated that goodwill may be impaired, such as that the acquisition date fair value of the consideration
transferred may be higher from the fair value of the consideration as of the date the acquisition was agreed to, as well as the declining
operating cash flows and recurring net losses resulting from the temporary halt of Kaixin’s used-car dealerships business operation
(“KAH Group”) in the years of 2020 and 2021. It was considered more likely than not that the fair value of the reporting unit was less
than its carrying value, which required the KAH Group to perform a quantitative test afterwards, with valuation technique of the income
approach using discounted cash flow (“DCF”), to determine the fair value of goodwill for the KAH Group reporting unit to its individual
assets and liabilities, including any unrecognized intangible assets. Based on the results of the quantitative goodwill impairment test, the
KAH Group recorded full impairment loss in goodwill of US$143.7 million, which was included in impairment of goodwill in the
consolidated statements of operations for the year ended December 31, 2021.
Intangible assets
Intangible asset is stated at cost less accumulated amortization and amortized in a method which reflects the pattern in which the
economic benefits of the intangible asset are expected to be consumed or otherwise used up. The Company had intangible assets of
US$0.3 million as of end of 2020, mainly comprised of software and domain name. The intangible assets increased to US$14.6 million
as of end of 2021, due to recognition of trademark associated with the Acquisition on June 25, 2021. The Company had intangible assets
of US12.9 million as of end of 2022, mainly comprised of recognition of trademark associated with the Acquisition on June 25, 2021.
Estimated useful life of software, domain name and trademark is 10 years.
In accordance with ASC Topic 360, the Company reviews intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset group may not be fully recoverable. Software and domain name are used for
the business of Haitaoche and no impairment factors was noted. The trademark recognized from the Acquisition were tested for
impairment due to identification of impairment indicators, including low gross margin and unstable sales revenues.
101
Table of Contents
The test is a two-step quantitative test. The first step in the impairment test is to determine whether the tangible and finite-lived
intangible assets are recoverable, determined by comparing the net carrying value of the assets to the undiscounted net cash flows to be
generated from the use and eventual disposition of that asset group. An impairment shall be recognized if the assets are found to be
recoverable. The second step in the impairment test is to measure and recognize the impairment loss as the difference between the asset’s
estimated fair value and its carrying amount, if the assets are not recoverable. The Company did not record any impairment charge for the
years ended 2020, 2021 and 2022.
Provision of income tax and valuation allowance for deferred tax asset
Current income taxes are provided for in accordance to the laws of relevant local tax authorities. Significant judgment is
required in determining income tax expense based on tax laws in the various jurisdictions in which we operate. Through our
interpretation of local tax regulations, adjustments to pretax income for income earned in various tax jurisdictions are reflected within
various tax filings. Although we believe that our estimates and judgments discussed herein are reasonable, actual results may be
materially different than the estimated amounts.
We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized.
Significant judgment is required in determining the valuation allowance. In assessing the need for a valuation allowance, we consider all
sources of taxable income, including projected future taxable income, reversing taxable temporary differences and ongoing tax planning
strategies. If it is determined that we would realize the deferred tax assets in excess of, or below, the current net carrying amount, we
would adjust the valuation allowance in the period in which such a determination is made, with a corresponding increase or decrease in
earnings. The amount of valuation allowances was US$0.4 million, US$24.2 million, and US$0.7 million as of December 31, 2020,
2021, and 2022, respectively.
The impact of an uncertain income tax position on the income tax return is recognized at the largest amount that is more-likely-
than-not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has less
than a 50% likelihood of being sustained. Interest and penalties on income taxes will be classified as a component of the provisions for
income taxes. The Company did not recognize any income tax due to uncertain tax position or incur any interest and penalties related to
potential underpaid income tax expenses for the years ended December 31, 2020, 2021 and 2022, respectively.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.
Directors and senior management.
The following table sets forth certain information relating to our directors and executive officers as of the date of this Annual
Report.
Directors and Executive Officers
Mingjun Lin
Yi Yang
Xiaolei Gu
Lin Cong
Deqiang Chen
Age
48
51
36
43
56
Position/Title
Director and Chief Executive Officer
Director and Chief Financial Officer
Director
Independent Director
Independent Director
Mingjun Lin served as our chairman of the Board since May 2021 and our chief executive officer since May 2021. He has
substantial experience in automotive internet media. He is the founder of Haitaoche, a China-based merchant for domestic and imported
automobiles. Prior to founding Haitaoche in 2015, Mr. Lin held senior management positions with TOM Online and Tencent, and he was
the founder of SUV.cn, a vertical online media that focused on SUV customer communities.
102
Table of Contents
Yi Yang has served as our director since August 2022 and chief financial officer since August 2019. Prior to joining us, Ms. Yang
served as strategic investment director and financial controller for Jomoo, a leading manufacturer and supplier of home products, such as
kitchen and bathroom units, in China. Prior to that, she was a chief financial officer at Wellong Etown, an internet-based logistics
company. Ms. Yang has also worked at the Bank of New York Mellon as vice president and controller, where she formulated strategic
financial plans, participated in asset restructurings, and worked on numerous large domestic and cross-border M&A transactions. Ms.
Yang received a master’s degree in Computer Science from Saint Joseph’s University in the U.S. She is a certified public accountant, and
a member of the American Institute of Certified Public Accountants (AICPA).
Xiaolei Gu has served as our director since May 2021. He is the director of Strategic Development Department with the
Company since November 2020. He served as the chief media content officer of Haitaoche Limited during 2015-2020 and chief media
content officer of Beijing Yunfeiyang Technology Company during 2009 to 2014.
Lin Cong has served as our director since April 2019. He is also a director of Uxin Limited (NASDAQ: UXIN). He has served
as the vice president of 58.com Group since March 2017. Before joining 58.com, he was the co-founder and chief financial officer of
Youche.com, a used car dealer chain in China. Mr. Cong took the vice president positions of Finance and IT with 58.com before
establishing Youche.com, where he served as a chief executive officer from February 2014 to March 2017. Mr. Cong also served as a
management consultant with Boston Consulting Group from August 2008
to August 2009 and as an auditor with
PriceWaterhouseCoopers in China from August 2002 to May 2005. Mr. Cong holds a bachelor’s degree in Accounting from Tsinghua
University and an M.B.A. degree from Stanford University.
Deqiang Chen has served as our director since May 2021. He is the general manager of Wenzhou Fude Property Co., Ltd. since
2013 and consultant to Wenzhou Zhongxiao Culture Co., Ltd. since 2016. He served as the chairman of the board of directors of Fude
Feida Petrochemical Whole Set Equipment Limited Company during 2003 to 2013. Mr. Chen holds an MBA degree from Guanghua
School of Management of the Beijing University.
B.
Compensation.
Compensation of Directors and Executive Officers
For the fiscal year ended December 31, 2022, we paid an aggregate of approximately US$396 thousand in cash to our directors
and executive officers. We are not required under Cayman Islands law to disclose, and we have not otherwise disclosed, the
compensation of our directors and executive officers on an individual basis. We have not set aside or accrued any amounts to provide
pension, retirement or other similar benefits to our directors and executive officers. Our PRC subsidiaries and VIE are required by law to
make contributions equal to certain percentages of each employee’s salary for his or her pension insurance, medical insurance,
unemployment insurance and other statutory benefits and a housing provident fund.
Employment Agreements and Indemnification Agreements
We have entered into employment agreements with each of our executive officers.
We may terminate employment for cause, at any time, without advance notice or remuneration, for certain acts of the executive
officer, such as violation of our internal rules, failure to perform agreed duties or dishonest acts that resulted in material harm to our
interests, disclosure of confidential information or trade secrets that resulted in material harm to our interests, and being subject to
criminal liabilities. The executive officer may resign at any time with a 30 days’ advance written notice.
Each executive officer has agreed to hold, both during and after the termination of his or her employment, our trade secrets in
confidence. Each executive officer has also agreed that we shall be entitled to all inventions, innovations and other intellectual property
rights, titles and patent application rights that are created by such officer while performing assigned work for us or mainly utilizing our
resources and premises. In addition, each executive officer has agreed to be bound by the non-competition and non-
solicitation restrictions during the term of his or her employment.
We have also entered into indemnification agreements with each of our directors and executive officers. Under these
agreements, we agree to indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons
in connection with claims made by reason of their being a director or officer of our Company.
103
Table of Contents
2020 Equity Incentive Plan
Our 2020 equity incentive plan, or the 2020 Plan, was adopted by our board of directors on November 17, 2020. The 2020 Plan
provides for the grant of options, restricted shares and restricted share units, which are referred to collectively as awards. Up to 5,000,000
ordinary shares may be granted as awards under the 2020 Plan.
The following paragraphs describe the principal terms of the 2020 Plan.
Administration
The 2020 Plan is administered by our directors, the compensation committee, or any subcommittee thereof to whom such
directors or the compensation committee shall delegate the power to administer the plan. The plan administrator is authorized to interpret
the plan and to determine the provisions of each award.
Change in Control
In the event of a change in control or another transaction having a similar effect, then any incentives granted under the 2020
Plan shall be deemed vested immediately. The plan administrator may, in its sole discretion, adjust the number of ordinary shares subject
to the awards then held by a participant in the 2020 Plan as needed to prevent dilution or enlargement of the participant’s rights that
otherwise would result from such event. A “change of control” under the 2020 Plan is defined as: means any of the following: (i)
Continuing Directors cease to constitute at least fifty percent (50%) of the members of the Board; (ii) the shareholders of the Company
approve any plan or proposal for the liquidation or dissolution of the Company; (iii) any consolidation, merger or share exchange of the
Company in which the Company is not the continuing or surviving corporation or pursuant to which the Company’s Ordinary Shares
would be converted into cash, securities or other property; or (iv) any sale, lease, exchange or other transfer (excluding transfer by way
of pledge or hypothecation) in one transaction or a series of related transactions, of all or substantially all of the assets of the Company;
provided, however, that a transaction described in clauses (iii) or (iv) shall not constitute a Change of Control hereunder if after such
transaction (I) Continuing Directors constitute at least fifty percent (50%) of the members of the board of directors of the continuing,
surviving or acquiring entity, as the case may be or, if such entity has a parent entity directly or indirectly holding at least a majority of
the voting power of the voting securities of the continuing, surviving or acquiring entity, Continuing Directors constitute at least fifty
percent (50%) of the members of the board of directors of the entity that is the ultimate parent of the continuing, surviving or acquiring
entity, and (II) the continuing, surviving or acquiring entity (or the ultimate parent of such continuing, surviving or acquiring entity)
assumes all outstanding Awards granted under the 2020 Plan.
Term
Unless terminated earlier, the 2020 Plan will terminate on November 16, 2030. Awards made under the plan on or prior to the
date of its termination will continue in effect subject to the terms of the plan and the award.
2021 Equity Incentive Plan
Our 2021 equity incentive plan (the “2021 Plan”), was adopted by our Board on July 12, 2021. The 2021 Plan provides for the
grant of options, restricted shares and restricted share units, which are referred to collectively as awards. Up to 26,596,000 ordinary
shares may be granted as awards under the 2021 Plan.
The following paragraphs describe the principal terms of the 2021 Plan.
Administration
The 2021 Plan is administered by our directors, the compensation committee, or any subcommittee thereof to whom such
directors or the compensation committee shall delegate the power to administer the plan. The plan administrator is authorized to interpret
the plan and to determine the provisions of each award.
104
Table of Contents
Change in Control
In the event of a change in control or another transaction having a similar effect, then the plan administrator may, in its sole
discretion, adjust the number of ordinary shares subject to the awards then held by a participant in the 2021 Plan as needed to prevent
dilution or enlargement of the participant’s rights that otherwise would result from such event. The plan administrator may also, in its
sole direction, provide in substitution for the participant’s awards such alternative consideration as it may determine to be equitable in the
circumstances. A “change of control” under the 2021 Plan is defined as: (i) Continuing Directors cease to constitute at least fifty percent
(50%) of the members of the Board; (ii) the shareholders of the Company approve any plan or proposal for the liquidation or dissolution
of the Company; (iii) any consolidation, merger or share exchange of the Company in which the Company is not the continuing or
surviving corporation or pursuant to which the Company’s Ordinary Shares would be converted into cash, securities or other property; or
(iv) any sale, lease, exchange or other transfer (excluding transfer by way of pledge or hypothecation) in one transaction or a series of
related transactions, of all or substantially all of the assets of the Company; provided, however, that a transaction described in clauses
(iii) or (iv) shall not constitute a Change of Control hereunder if after such transaction (I) Continuing Directors constitute at least fifty
percent (50%) of the members of the board of directors of the continuing, surviving or acquiring entity, as the case may be or, if such
entity has a parent entity directly or indirectly holding at least a majority of the voting power of the voting securities of the continuing,
surviving or acquiring entity, Continuing Directors constitute at least fifty percent (50%) of the members of the board of directors of the
entity that is the ultimate parent of the continuing, surviving or acquiring entity, and (II) the continuing, surviving or acquiring entity (or
the ultimate parent of such continuing, surviving or acquiring entity) assumes all outstanding Awards granted under the 2021 Plan.
Term
Unless terminated earlier, the 2021 Plan will terminate on July 12, 2031. Awards made under the plan on or prior to the date of
its termination will continue in effect subject to the terms of the plan and the award.
Vesting Schedule
In general, the plan administrator determines, the vesting schedule, which vesting schedule will be set forth in the award
agreement.
Amendment and Termination of Plan
Our Board may at any time amend, alter or discontinue the 2021 Plan, subject to certain exceptions.
2022 Equity Incentive Plan
Our 2022 equity incentive plan (the “2022 Plan”), was adopted by our Board on May 17, 2022, which replaced an earlier equity
incentive plan. The 2022 Plan provides for the grant of options, restricted shares and restricted share units, which are referred to
collectively as awards. Up to 39,500,000 ordinary shares may be granted as awards under the 2022 Plan.
The following paragraphs describe the principal terms of the 2022 Plan.
Administration
The 2022 Plan is administered by sole director, the compensation committee, or any subcommittee thereof to whom such
directors or the compensation committee shall delegate the power to administer the plan. The plan administrator is authorized to interpret
the plan and to determine the provisions of each award.
105
Table of Contents
Change in Control
In the event of a change in control or another transaction having a similar effect, then the plan administrator may, in its sole
discretion, adjust the number of ordinary shares subject to the awards then held by a participant in the 2022 Plan as needed to prevent
dilution or enlargement of the participant’s rights that otherwise would result from such event. The plan administrator may also, in its
sole direction, provide in substitution for the participant’s awards such alternative consideration as it may determine to be equitable in the
circumstances. A “change of control” under the 2022 Plan is defined as: (i) the board of directors changes such that there is turnover of at
least 50% of the members of the board; (ii) the shareholders approve any plan or proposal for the liquidation or dissolution of the
company; (iii) the shareholders approve any consolidation, merger or share exchange of the company in which the company ceases to
exist as a corporation, or as a result of which, the ordinary shares would be converted into cash, securities or other properties; or (iv) any
sale, lease, exchange or other transfer of all or substantially all of the company’s assets. There will be an exception to the definition of
“change of control” as follows: a transaction described in (iii) or (iv) shall not be a “change of control” if (A) after such transaction the
board of directors did not undergo a turnover of at least 50% of the members of the board of directors, and/or such unchanged board of
directors controls an entity which directly or indirectly holds a majority of the ordinary shares of the continuing, surviving or acquiring
entity referenced in (iii) or (iv); and (B) such successor entity assumes all outstanding share awards under the 2022 Plan.
Term
Unless terminated earlier, the 2022 Plan will terminate on July 12, 2031. Awards made under the plan on or prior to the date of
its termination will continue in effect subject to the terms of the plan and the award.
Granted Awards
The table below summarizes, as of March 31, 2023, the outstanding options and restricted shares that have been granted to our
directors and executive officers.
Name
Number of
shares
underlying
awards
granted(1)
Exercise
price (US$
per share)
Deqiang Chen
112,500
N/A
Lin Cong
Xiaolei Gu
Total
Notes:
(1) In the form of restricted shares.
42,889
N/A
225,000
380,389
N/A
106
Grant date
October 21, 2021, and
December 28, 2022
May 3, 2019, January 1
and October 21, 2021,
and December 28, 2022
October 21, 2021, and
December 28, 2022
Expiration date
October 21, 2031, and
December 28, 2032,
respectively, respectively
May 3, 2029, January 1
and October 21, 2031,
December 28, 2032,
respectively
October 21, 2031, and
December 28, 2032,
respectively, respectively
Table of Contents
C.
Board Practices.
Board of Directors
Under our memorandum and articles of association, our company shall have not less than three (3) and not more than nine (9)
directors, unless such number is changed by special resolution of our shareholders. Mr. Mingjun Lin (“Mr. Lin”) shall have the right to
appoint or remove three (3) directors, including one (1) independent director (as that term is defined under the Nasdaq Stock Market
Rules), by delivering a written notice to our Company. Renren shall have the right to appoint or remove two (2) directors, including one
(1) independent director, by delivering a written notice to our Company. Mr. Lin shall have the right to designate the chief executive
officer of our Company to be appointed by the directors.
Our Board currently consists of five directors. A director is not required to hold any shares in our company by way of
qualification. A director may vote with respect to any contract or transaction, or proposed contract or transaction in which he or she is,
whether directly or indirectly interested, provided that (a) such director has declared the nature of his or her interest at the earliest
meeting of the board at which it is practicable for him or her to do so, either specifically or by way of a general notice; and (b) if such
contract or arrangement is a transaction with a related party, such transaction has been approved by the audit committee in accordance
with the Nasdaq Rules. Our directors may exercise all the powers of the company to borrow money, mortgage or charge its undertaking,
property and assets (present or future) and uncalled capital or any part thereof, and issue debentures, debenture stock, bonds or other
securities, whether outright or as collateral security for any debt, liability or obligation of the company or of any third party. None of our
non-executive directors has a service contract with us that provides for benefits upon termination of service.
Committees of the Board of Directors
We have established three committees under the Board: an audit committee, a compensation committee and a nominating and
governance committee. Each committee’s members and functions are described as below.
Audit Committee
Our audit committee consists of Lin Cong. Lin Cong is the chairman of our audit committee. We have determined that Lin Cong
satisfies the “independence” requirements of Rule 5605(c)(2) of the Listing Rules of the Nasdaq Stock Market and Rule 10A-3 under the
Exchange Act, as amended. We have determined that Lin Cong qualifies as an “audit committee financial expert”. The audit committee
oversees our accounting and financial reporting processes and the audits of the financial statements of our Company. The audit
committee is responsible for, among other things:
● appointing the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by
the independent auditors;
● reviewing with the independent auditors regarding any audit problems or difficulties and management’s response;
● discussing the annual audited financial statements with management and the independent auditors;
● reviewing the adequacy and effectiveness of our accounting and internal control policies, procedures and any steps taken to
monitor and control major financial risk exposures;
● reviewing and approving all proposed related party transactions;
● meeting separately and periodically with management and the independent auditors; and
● monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness
of our procedures to ensure proper compliance.
107
Table of Contents
Compensation Committee
Our compensation committee consists of Lin Cong. Lin Cong is the chairman of our compensation committee. We have
determined that Lin Cong satisfies the “independence” requirements of Rule 5605(c)(2) of the Listing Rules of the Nasdaq Stock Market.
The compensation committee assists the Board in reviewing and approving the compensation structure, including all forms of
compensation, relating to our directors and executive officers. 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, or recommending to the Board for its approval, the compensation for our chief executive officer
and other executive officers;
● reviewing and recommending to the Board for determination with respect to the compensation of our non-employee
directors;
● reviewing periodically and approving any incentive compensation or equity plans, programs or similar arrangements; and
● selecting compensation consultant, legal counsel or other advisers only after taking into consideration all factors relevant to
that person’s independence from management.
Nominating and Governance Committee
Our nominating and governance committee consists of Lin Cong. We have determined that Lin Cong satisfies the
“independence” requirements of Rule 5605(c)(2) of the Listing Rules of the Nasdaq Stock Market. The nominating and governance
committee assists the Board in selecting individuals qualified to become our directors and in determining the composition of the Board
and its committees. The nominating and governance committee is responsible for, among other things:
● selecting and recommending to the Board regarding the nominees for election by the shareholders or appointment by the
Board;
● reviewing annually with the Board regarding the current composition of the Board with regards to characteristics such as
independence, knowledge, skills, experiences 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 the applicable laws and regulations, and making recommendations to the Board on all matters
of corporate governance and on any remedial actions to be taken.
Duties of Directors
Under Cayman Islands law, our directors owe fiduciary duties to our Company, including a duty of loyalty, a duty to act
honestly, and a duty to act in what they consider in good faith to be in our best interests. Our directors must also exercise their powers
only for a proper purpose. Our directors also owe to our Company a duty to exercise skills which they actually possess and such care and
diligence that a reasonably prudent person would exercise in comparable circumstances. It was previously considered that a director need
not exhibit in the performance of his duties a greater degree of skills 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 regards to the required
skill and care and these authorities are likely to be followed in the Cayman Islands. In fulfilling their duty of care to us, our directors
must ensure the compliance with our memorandum and articles of association, as amended and restated from time to time. Our Company
has the right to seek damages if a duty owed by our directors is breached. In certain limited exceptional circumstances, a shareholder
may have the right to seek damages in our name if a duty owed by our directors is breached.
108
Table of Contents
Our Board has all the powers necessary for managing, and for directing and supervising, our business affairs. The functions and
powers of our Board include, among others:
● convening shareholders’ annual and extraordinary general meetings and reporting its work to shareholders at such
meetings;
● declaring dividends and distributions;
● appointing officers and determining the term of office of the officers;
● exercising the borrowing powers of our Company and mortgaging the property of our Company; and
● approving the transfer of shares in our Company, including the registration of such shares in our share register.
Terms of Directors and Officers
Other than the directors that may be appointed by Mr. Lin and Renren in accordance with our memorandum and articles of
association, our directors may be elected by ordinary resolution by our shareholders. Our directors may by the affirmative vote of a
simple majority of the remaining directors present and voting at a Board meeting, have the power from time to time and at any time to
appoint any person as a director to fill a casual vacancy on the Board or as an addition to the existing Board, subject to our Company’s
compliance with the director nomination procedures required under the applicable corporate governance rules of the Nasdaq as long as
our ordinary shares are trading on the Nasdaq. Our directors are not subject to a term of office and each director shall hold office until his
or her successor shall have been elected and qualified. A director may be removed from office by special resolution of our shareholders at
any time before the expiration of his or her term, except that Mr. Lin and Renren shall have the exclusive right to remove any director
appointed by them.
Our officers are elected by and serve at the discretion of the Board. Subject to our memorandum and articles of association, the
Chief Executive Officer may from time to time appoint any person, whether or not a director of the company, to hold such office in the
company as the Chief Executive Officer may think necessary for the administration of the company, including the office of Chief
Operating Officer, Chief Financial Officer or Chief Technology Officer, and for such term and at such remuneration, and with such
powers and duties as the Chief Executive Officer may think fit.
D.
Employees.
We had 27 employees as of December 31, 2022, respectively. The following table sets forth the number of our employees
categorized by function as of December 31, 2022:
Functional Area
Management and administration
Sales and marketing
Research and development
Total
Number of
Employees
% of Total
Employees
21
1
5
27
78 %
4 %
18 %
100.0 %
We believe that we offer our employees competitive compensation packages and a dynamic work environment that encourages
initiative and is based on merits. As a result, we have generally been able to attract and retain qualified personnel and maintain a stable
core management team. We plan to hire additional experienced and talented employees in areas such as new energy vehicles design and
manufacturing, big data analytics, marketing and operations, risk management and sales as we expand our business.
109
Table of Contents
As required by the PRC regulations, we participate in various government statutory employee benefit plans, including social
insurance, namely pension insurance, medical insurance, an unemployment insurance plan, a work-related injury insurance plan and a
maternity insurance plan, and a housing provident fund. We are required under the PRC laws 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
local government regulations from time to time. We enter into employment agreements with our employees. Our senior management
enters into employment agreements with confidentiality and non-competition terms. The non-competition restricted period typically
expires one year after the termination of employment, and we agree to compensate the employee with a certain percentage of his or her
pre-departure salary during the restricted period.
We believe that we maintain a good working relationship with our employees, and we have not experienced any major labor
disputes.
E.
Share Ownership.
Except as specifically noted, the following table sets forth information with respect to the beneficial ownership of our ordinary
shares as of March 31, 2023 by:
● each of our directors and executive officers; and
● each person known to us to beneficially own more than 5% of our ordinary shares on an as-converted basis.
The calculations in the table below are based on 228,382,750 ordinary shares outstanding as of March 31, 2023.
Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to
acquire within 60 days, including through the exercise of any restricted share unit, option, warrant or other right or the conversion of any
other security. These shares, however, are not included in the computation of the percentage ownership of any other person.
Beneficial Owners(1)
Directors and Executive Officers:
Mingjun Lin
Yi Yang
Lin Cong
Deqian Chen
Xiaolei Gu
All Directors and Executive Officers as a Group
Principal Shareholders:
Renren, Inc.(2)
Autod2d, Ltd(3)
Autoa2a, Ltd(4)
Notes:
*
Less than 1% of our total outstanding ordinary shares.
Number of
Ordinary
Shares
% of
Outstanding
Shares
3,373,974
*
*
*
*
4,813,843
32,865,687
13,422,613
21,802,722
1.5 %
*
*
*
*
2.1 %
14.4 %
5.9 %
9.5 %
(1) Unless otherwise indicated, the business address of each of the beneficial owners is c/o Kaixin Auto Holdings, 9/F, Block A, Dongjin
International Center, Huagong Road, Beijing, 100015, People’s Republic of China.
(2) Consists of 32,865,687 ordinary shares held by Renren, and 2,000,000 ordinary shares issuable upon the conversion of the US$6
million preferred stock held by Renren. The address of Renren is45 West Buchanan Street, Phoenix, Arizona, 85003, USA. Renren is
a reporting company under the Exchange Act which is listed on the New York Stock Exchange.
110
Table of Contents
(3) Autod2d, Ltd is a company incorporated under the laws of the British Virgin Islands with limited liabilities with the registered
address of Craigmuir Chambers, Road Town, Tortola, VG 1110, British Virgin Islands. Autod2d, Ltd is wholly owned by Lu Lin.
(4) Autoa2a, Ltd is a company incorporated under the laws of the British Virgin Islands with limited liabilities with the registered
address of 2/F, Palm Grove House, P.O. Box 3340, Road Town, Tortola, VG 1110, British Virgin Islands. Autod2d, Ltd is wholly
owned by Ping Wang.
In addition, Kaixin Auto Holdings entered into a definitive securities purchase agreement with KX Venturas 4 LLC as the
investor on December 28, 2020 pursuant to which the investor has the right to invest US$6.0 million in newly designated convertible
preferred shares of Kaixin and US$4.0 million in ordinary shares of Kaixin. The preferred shares are convertible into the Kaixin’s
ordinary shares at a conversion price of US$3.00, subject to customary anti-dilution adjustments. The preferred shares have no voting
rights. The first tranche of US$3.0 million of the investment closed on December 29, 2020. Pursuant to the purchase agreement, the
investor will also receive warrants to subscribe for Kaixin’s ordinary shares at an exercise price of US$3.00 per share.
In May 2023, the Company issued 50,000 convertible preferred shares of the Company to Stanley Star in connection of the
disposal of the Disposal Group. The preferred shares are convertible, at any time and from time to time from at the option of the holder,
into 50,000,000 ordinary shares of the Company.
As of March 31, 2023, 32,866,092 of our shares were held by record holders in the United States. We are not aware of any
arrangement that may, at a subsequent date, result in a change of control of our company.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A.
Major Shareholders.
Please refer to “Item 6. Directors, Senior Management and Employees — E. Directors, Senior Management and Employees —
Share Ownership”.
B.
Related Party Transactions
Transactions with Renren
See “Item 4. Information on the Company — History and Corporate Structure of the Company — History of KAG Before the
Business Combination” for information on KAG’s reorganization transactions.
Prior to the Business Combination, KAG had been a majority-owned subsidiary of Renren. Historically, Renren has provided us
with financial, accounting, administrative, sales and marketing, legal and human resources services, as well as the services of a number
of our executive officers and other employees, the costs of which were allocated to us based on factors including proportion of revenues,
infrastructure usage and labor usage attributable to us, among other things. We have begun to invest in our own financial, accounting,
administrative, sales and marketing, human resources and legal services functions separate from Renren’s, and we will further establish
other support systems of our own or contract with third parties to provide them. In connection with the Business Combination, we have
entered into agreements with Renren with respect to various ongoing relationships between us and Renren. These agreements include a
master transaction agreement, a transitional service agreement, and a non-competition agreement. The following are summaries of these
agreements:
111
Table of Contents
Master Transaction Agreement
The master transaction agreement contains provisions relating to our carve-out from Renren. Pursuant to this agreement, we are
responsible for all the financial liabilities associated with our business that had been conducted by or transferred to us before the
completion of the Business Combination, and Renren is responsible for the financial liabilities associated with all of its other current and
historical businesses and operations, in each case regardless of the time those liabilities arise. The master transaction agreement also
contains indemnification provisions under which we and Renren indemnify each other with respect to breaches of the master transaction
agreement or any related inter-company agreement.
In addition, we have agreed to indemnify Renren against liabilities arising from misstatements or omissions in the proxy
statement in connection with the Business Combination, except for misstatements or omissions relating to information that Renren
provided to Kaixin specifically for inclusion therein. We have also agreed to indemnify Renren against liabilities arising from any
misstatements or omissions in our subsequent SEC filings and from information Kaixin provides to Renren specifically for inclusion in
Renren’s annual reports or other SEC filings following the completion of the Business Combination, but only to the extent that the
information pertains to us or our business or to the extent Renren provides us with prior written notice that the information will be
included in its annual reports or other subsequent SEC filings and the liability does not result from the action or inaction of Renren.
Similarly, Renren will indemnify us against liabilities arising from misstatements or omissions in its subsequent SEC filings or with
respect to information that Renren provided to us specifically for inclusion in the proxy statement in connection with the Business
Combination, or our annual reports or other SEC filings following the completion of the Business Combination.
The master transaction agreement also contains a general release, under which the parties will release each other from any
liabilities arising from events occurring on or before closing date of the Business Combination, including in connection with the
activities to implement the Share Exchange Agreement. The general release does not apply to the liabilities allocated between the parties
under the master transaction agreement or the other inter-company agreements.
Furthermore, under the master transaction agreement, we have agreed to use our reasonable best efforts to use the same
independent certified public accounting firm selected by Renren and to maintain the same fiscal year as Renren until the first Renren
fiscal year-end following the earlier of the first date when Renren no longer owns a specified percentage of the voting power of our then
outstanding securities. This earlier date is referred to as the control ending date. We have also agreed to use our reasonable best efforts to
complete our audit and provide Renren with all financial and other information on a timely basis so that Renren may meet its deadlines
for its filing of annual and quarterly financial statements.
Under the master transaction agreement, the parties have also agreed to cooperate in sharing information and data collected
from each party’s business operations, including without limitation user information and data relating to user activities. The parties will
agree not to charge any fees for their cooperation provided under the agreement unless they separately and explicitly agree otherwise.
The parties have also agreed on certain other matters related to the relationship between us and Renren, including employees,
premises and treatment of loans currently outstanding between us and Renren.
The master transaction agreement will automatically terminate after a certain period following the first date on which upon
which Renren ceases to own in aggregate at least a specified percentage of the voting power of our then outstanding securities, provided
that the agreement on sharing information and data will terminate on the earlier of (i) a number of years following the commencement of
the cooperation period; or (ii) a number of years after the first date upon which Renren ceases to own in aggregate at least a
specified percentage of the voting power of our then outstanding securities. This agreement will be terminated earlier or extended by
mutual written consent of the parties. The termination of this agreement will not affect the validity and effectiveness of the transitional
services agreement, the non-competition agreement and the sales and marketing services agreement.
Transitional Services Agreement
Under the transitional services agreement, we and Renren have agreed that, during the service period as described below,
Renren will provide us with various corporate support services, including but not limited to administrative support, operational
management support, legal support, technology support and office facilities. Renren also may provide us with additional services that we
and Renren may identify from time to time in the future.
112
Table of Contents
The price to be paid for the services provided under the transitional service agreement will be the actual direct and indirect costs
of providing such services. Direct costs include labor-related compensation, travel expenses, materials and supplies consumed in
performing the services. Indirect costs include office occupancy, information technology supervision and other overhead costs of the
department incurring the direct costs of providing the services.
The transitional service agreement provides that the performance of a service according to the agreement will not subject the
provider of such service to any liabilities whatsoever except as directly caused by the gross negligence or willful misconduct of the
service provider. Liability for gross negligence or willful misconduct is limited to the lower of the price paid for the particular service or
the cost of the service’s recipient performing the service itself or hiring a third party to perform the service. Under the transitional
services agreement, the service provider of each service is indemnified by the recipient against all third-party claims relating to the
provision of services or the recipient’s material breach of a third-party agreement, except where the claim is directly caused by the
service provider’s gross negligence or willful misconduct.
The service period under the transitional services agreement commences on the completion of the Business Combination and
will end on the expiration of five years thereafter. We may terminate the transitional services agreement with respect to either all or part
of the services by giving prior written notice to Renren and paying a termination fee equal to the direct costs incurred by Renren in
connection with its provision of services at the time of the early termination. Renren may terminate this agreement with respect to either
all or part of the services by giving us prior written notice if Renren ceases to own in aggregate at least a specified percentage of the
voting power of our then outstanding securities or ceases to be the largest beneficial owner of our then outstanding voting securities,
without considering holdings of institutional investors that have acquired our securities in the ordinary course of their business and not
with the purpose or the effect of changing or influencing control over us.
There was no transaction between Renren and us pursuant to the transitional services agreement for the year ended December
31, 2022.
Non-Competition Agreement
Our non-competition agreement with Renren provides for a non-competition period beginning upon the completion of the
Business Combination and ending on the later of a certain number of years after the first date when Renren ceases to own in aggregate at
least a certain percentage of the voting power of our then outstanding securities and a number of years following the completion of the
Business Combination. This agreement can be terminated earlier by mutual written consent of the parties.
Renren has agreed not to compete with us during the non-competition period in the business that is of the same nature as the
business operated by us before the completion of the Business Combination, except for owning non-controlling equity interest in any
company competing with us. We have agreed not to compete with Renren during the non-competition period in the businesses currently
conducted by Renren, as described in its periodic filings with the SEC, other than with respect to the business operated by us before the
completion of the Business Combination, except for owning non-controlling equity interest in any company competing with Renren.
The non-competition agreement also provides for a mutual non-solicitation obligation that neither Renren nor we may, during
the non-competition period, hire, or solicit for hire, any active employees of or individuals providing consulting services to the other
party, or any former employees of or individuals providing consulting services to the other party within a period of time from the
termination of their employment or consulting services, without the other party’s consent, except for solicitation activities through
generalized non-targeted advertisement not directed to such employees or individuals.
Other Related Party Transactions with Renren
Renren and its subsidiaries provided us with advanced funds to finance our daily operations, which are interest-free and
repayable on demand. On April 30, 2019, US$76.0 million was waived by Renren. We received US$113.4 million from Renren and
repaid US$115.5 million to Renren in 2019, including the repayment for the loan of US$1.1 million due to Renren, which was assumed
by KAG in the Business Combination from CM Seven Star. There was US$1.4 million payables outstanding due to Renren as of
December 31, 2022.
Renren has pledged restricted cash as security for US$2 million, and a subsidiary of Renren provided guarantee for US$7.2
million short term debts obtained by our company in 2019 from East West Bank. See Note 10 of our consolidated financial statements for
details of the short-term debt.
113
Table of Contents
On March 31, 2021, Kaixin entered into a definitive securities purchase agreement with Renren pursuant to which Renren
invested US$6,000,000 in newly designated convertible preferred shares of Kaixin. The preferred shares are convertible into Kaixin’s
ordinary shares at the conversion price of US$3.00, subject to customary anti-dilution adjustments. The preferred shares have no voting
right. The investment closed on April 8, 2021.
Employment Agreements and Indemnification Agreements
Please refer to “Item 6. Directors, Senior Management and Employees — B. Compensation — Employment Agreements and
Indemnification Agreements”.
Share Incentives
Please refer to “Item 6. Directors, Senior Management and Employees — B. Compensation — 2018 Equity Incentive Plan” and
“Item 6. Directors, Senior Management and Employees — B. Compensation — 2019 Equity Incentive Plan”.
C.
Interests of Experts and Counsel.
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A.
Consolidated Statements and Other Financial Information.
Please refer to Item 18 “Financial Statements” for our audited consolidated financial statements filed as part of this Annual
Report.
Legal Proceedings
From time to time, we may be involved in disputes and legal or administrative proceedings in the ordinary course of our
business, including actions with respect to the breach of contract, labor and employment claims, copyright, trademark, patent
infringement, bankruptcy and other matters. Other than the disputes with certain non-controlling shareholders and the litigation discussed
below, to the best knowledge of management, there are no material legal proceedings pending against us and there are no proceedings in
which any of our directors, officers, or any beneficial shareholders of more than five percent (5%) of our voting securities is an adverse
party or has a material interest adverse to us as of the date of this Annual Report.
In 2019, due to disagreements with certain non-controlling shareholders on operational matters, some non-controlling
shareholders detained our inventories in our Dealerships and significant uncertainty arose on the realizability and collectability of the
prepayments to purchase used cars for these Dealerships and amounts due from these non-controlling shareholders. Therefore, we wrote
down US$17.8 million of inventory, and wrote off US$22.3 million of prepayments for the year ended December 31, 2019. By early
2021, we reached agreement with a majority of the non-controlling shareholders to settle the disputes over the allocation of assets and
confirm our mutual commitment to the growth and revamp of our car sale business. The net impact on the recoverable amounts of the
previously detained and impaired assets was US$2.9 million, which have been recorded as a reduction of general and administrative
expense for the year ended December 31, 2020. There was a reversal of UD$3.3 million of prior impairment, which is recognized as a
US$0.6 milion reduction of general and administrative expense and a US$2.7 reduction of cost of goods sold for the year ended
December 31, 2021.
In early 2016, a subsidiary of Haitaoche signed a vehicle purchase agreement and made a deposit of €3.46 million euro for
automobiles purchase paid to a foreign supplier named Brueggmann Group Nlunter Den Linden (“BG Group”). BG Group terminated
the agreement and withheld the deposit without delivering the vehicles. In August 2018, the Haitaoche entity filed a litigation against BG
Group for a full refund of the deposit plus interest. After a number of hearings which held in 2020 and 2021, the court decided the case in
our favor on December 6, 2021. However, since we have not been able to recover any of the fund, the €3.46 million euro was written off.
114
Table of Contents
On March 21, 2022, a former customer filed a suit against Anhui Xin Jieying in connection with dispute over a car purchase
transaction in the amount of RMB 2.95 million (equivalent to US$0.46 million). The case is in early trial stage. The Company is
presently unable to determine whether the likelihood of an unfavorable outcome of the dispute is probable or remote, nor can it
reasonably estimate a range of potential loss, should the outcome be unfavorable.
Dividend Policy
Our Board has the discretion on whether to distribute dividends, subject to certain requirements of Cayman Islands law. In
addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our
Board. In either case, all dividends are subject to certain restrictions under Cayman Islands law, namely that our Company may only pay
dividends out of profits or share premium account, and 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 we decide 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 may deem relevant.
We do not have any present plan to pay any cash dividends on our ordinary shares in the foreseeable future. We currently intend
to retain most, if not all, of our available funds and any future earnings to operate and expand our business.
We are a holding company incorporated in the Cayman Islands. We may rely on dividends from our subsidiaries in China for
our cash requirements, including any payment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC
subsidiaries to pay dividends to us. See “Item 4. Information on the Company — B. Business Overview — Regulation — Regulations on
Dividend Distribution”.
B.
Significant Changes.
Except as disclosed elsewhere in this Annual Report, we have not experienced any significant changes since the date of our
audited consolidated financial statements included in this Annual Report.
ITEM 9. THE OFFER AND LISTING.
A.
Offer and Listing Details.
See “—C. Markets”.
B.
Plan of Distribution.
Not applicable.
C.
Markets.
Our ordinary shares are listed on the Nasdaq Capital Market under the symbol “KXIN”.
D.
Selling Shareholders.
Not applicable.
E.
Dilution.
Not applicable.
F.
Expenses of the Issue.
Not applicable.
115
Table of Contents
ITEM 10. ADDITIONAL INFORMATION.
A.
Share Capital.
Not applicable.
B.
Memorandum and Articles of Association.
The following are the summaries of material provisions of our currently effective third amended and restated memorandum and
articles of association, and of the Companies Act, insofar as they relate to the material terms of our ordinary shares.
Objects of Our Company. Under our memorandum and articles of association, the objects of our Company are unrestricted and
we have the full power and authority to carry out any objects that are not prohibited by the law of the Cayman Islands.
Ordinary Shares. Our ordinary shares are issued in registered form and are issued when registered in our register of members.
Dividends. The holders of our ordinary shares are entitled to such dividends as may be declared by our Board. In addition, our
shareholders may declare dividends by ordinary resolution, but no dividend shall exceed the amount recommended by our directors. Our
memorandum and articles of association provide that the directors may, before recommending or declaring any dividends, set aside out of
the funds legally available for distribution such sums as they think proper as a reserve or reserves which shall, in the absolute discretion
of the directors, be applicable for meeting contingencies or for equalizing dividends or for any other purpose to which those funds may
be properly applied. Under the laws of the Cayman Islands, our Company may pay a dividend out of either 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. Each ordinary share shall be entitled to one vote on all matters subject to a vote at general meetings of our
Company. Voting at any shareholders’ meeting is by show of hands unless a poll is demanded (before or on the declaration of the result
of the show of hands). A poll may be demanded by the chairman of such meeting or any one or more shareholders who together hold not
less than one-tenth of the paid up voting share capital.
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, while a special resolution requires the affirmative vote of no less than two-thirds
of the votes cast attaching to the outstanding ordinary shares at a meeting. A special resolution will be required for important matters
such as a change of name or making changes to our memorandum and articles of association. Holders of the ordinary shares may, among
other things, divide or combine their shares by ordinary resolution.
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 memorandum and articles of association provide that we may (but are not obliged to) in each
year hold a general meeting as our annual general meeting in which case we shall specify the meeting as such in the notices calling it,
and the annual general meeting shall be held at such time and place as may be determined by our directors.
Shareholders’ general meetings may be convened by any director. Advance notice of at least seven 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 at least one shareholder present or by proxy, representing not less than one-third of all
votes attaching to all of our shares in issue and entitled to vote.
116
Table of Contents
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 memorandum and articles of association provide that upon the requisition of shareholders representing in aggregate
not less than one-fifth of the votes attaching to the issued and 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. Any
resolutions proposed at an extraordinary general meeting convened pursuant to the requisition of shareholders should be passed by
special resolutions. However, our memorandum and articles of association do not provide our shareholders with any right to put any
proposals before annual general meetings or extraordinary general meetings not called by such shareholders.
Transfer of Ordinary Shares. Subject to the restrictions set out below, any of our shareholders may transfer all or any of his or
her ordinary shares by an instrument of transfer in the usual or common form or any other form approved by our Board.
Our Board may, in its absolute discretion, decline to register any transfer of any ordinary share which is not fully paid up or on
which we have a lien. Our Board may also decline to register any transfer of any ordinary share unless:
● the instrument of transfer is lodged with our Company, accompanied by the certificate for the shares to which it relates and
such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer;
● the shares to be transferred are free of any lien in favor of our Company;
● the instrument of transfer is in respect of only one class of shares;
● the instrument of transfer is properly stamped, if required; and
● in the case of a transfer to joint holders, the number of joint holders to whom the Share is to be transferred does not exceed
four; a fee of such maximum sum as the Nasdaq Capital Market may determine to be payable, or such lesser sum as our
Board may from time to time require, is paid to our Company in respect thereof.
If our directors refuse to register a transfer they shall, within two months after the date on which the instrument of transfer was
lodged, send to each of the transferor and the transferee notice of such refusal.
The registration of transfers may, on 14 days’ notice being given by advertisement in one or more newspapers or by electronic
means, be suspended and the register closed at such times and for such periods as our Board 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
insufficient to repay the whole of the share capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne
by our shareholders in proportion to the par value of the shares held by them. If in a winding up the assets available for distribution
amongst our shareholders shall be more than sufficient to repay the whole of the share capital at the commencement of the winding up,
the surplus shall be distributed amongst our shareholders in proportion to the par value of the shares held by them at the commencement
of the winding up subject to a deduction from those Shares in respect of which there are monies due, of all monies payable to our
Company for unpaid calls or otherwise.
Calls on Shares and Forfeiture of Shares. Our Board 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 and place of payment. The shares
that have been called upon and remain unpaid are subject to forfeiture.
117
Table of Contents
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. Our
Company may also repurchase any of our shares on such terms and in such manner as have been approved by our Board or by an
ordinary resolution of our shareholders (provided that no such purchase may be made contrary to the terms or manner recommended by
the Board). Under the Companies Act, the redemption or repurchase of any shares may be paid out of our company’s profits or out of the
proceeds of a new issuance 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 shares may be redeemed or repurchased (a) unless it is fully
paid up; (b) if such redemption or repurchase would result in there being no shares outstanding; or (c) if the company has commenced
liquidation. In addition, our Company may accept the surrender of any fully paid shares for no consideration.
Variations of Rights of Shares. If at any time our share capital is divided into different classes or series of shares, the rights
attaching to any class or series (unless otherwise provided by the terms of issue of the shares of that class or series) may, subject to our
articles of association, be varied or abrogated with the consent in writing of the holders of a majority of the issued shares of that class or
series or with the sanction of a special resolution passed at a general meeting of the holders of the shares of that class or series. The rights
conferred upon the holders of the shares of any class or series issued with the preferred or other rights shall not, unless otherwise
expressly provided by the terms of issue of the shares of that class or series, be deemed to be varied by the creation or issue of further
shares ranking in priority thereto or pari passu therewith.
Issuance of Additional Shares. Our memorandum and articles of association authorizes our Board to issue additional ordinary
shares from time to time as our Board shall determine, to the extent of available authorized but unissued shares.
Our memorandum and articles may of association also authorizes our Board 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, including:
● the designation of the series;
● the number of shares of the series;
● the dividend rights, dividend rates, conversion rights, voting rights; and
● the rights and terms of redemption and liquidation preferences.
Our Board may issue preferred shares without action by our shareholders to the extent authorized but unissued. Issuance of
these shares may dilute the voting power of holders of the ordinary shares.
Inspection of Books and Records. Holders of our ordinary shares will have no general rights under the Cayman Islands law to
inspect or obtain copies of our list of shareholders or our corporate records (except for the memorandum and articles of association, any
special resolutions passed by our shareholders and the register of mortgages and charges). However, we will provide our shareholders
with annual audited financial statements.
Anti-Takeover Provisions. Some provisions of our 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 to issue preferred shares in one or more series and to designate the price, rights, preferences, privileges
and restrictions of such preference shares without any further votes or actions by our shareholders; and
● limit the ability of shareholders to requisition and convene general meetings of shareholders.
However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our
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.
118
Table of Contents
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 a limited duration company; and
● may register as a segregated portfolio company.
“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares
of the company (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or
improper purpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil).
Differences in Corporate Law
The Companies Act is derived, to a large extent, from the older Companies Acts of England but does not follow recent English
statutory enactments and accordingly there are significant differences between the Companies Act and the current Companies Act of
England. In addition, the Companies Act differs from laws applicable to U.S. corporations and their shareholders. Set forth below is a
summary of certain significant differences between the provisions of the Companies Act applicable to us and the 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, (i) “merger” means the
merging of two or more constituent companies and the vesting of their undertakings, properties and liabilities in one of such companies
as the surviving company; and (ii) 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 written plan of merger or consolidation 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 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 ninety percent (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.
119
Table of Contents
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) 75% in value of the shareholders or class of shareholders, as the case may be, or (b) a majority in number
representing 75% in value of the creditors or each class of creditors, as the case may be, with whom the arrangement is to be made that
are in each case 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 provisions of the Companies Act.
The Companies Act also contains a statutory power of compulsory acquisition which may facilitate the “squeeze out” of
dissentient minority shareholder upon a tender offer. When a tender offer is made and accepted by holders of 90.0% 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 by way of scheme of arrangement is thus approved and sanctioned, or if a tender offer is
made and accepted, a dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily be
available to dissenting shareholders of Delaware corporations, providing rights to receive payment in cash for the judicially determined
value of the shares.
Shareholders’ Suits. In principle, we will normally be the proper plaintiff to sue for a wrong done to us as a company, and as a
general rule a derivative action may not be brought by a minority shareholder. However, based on English authorities, which would in all
likelihood be of persuasive authority in the Cayman Islands, the Cayman Islands court can be expected to follow and apply the common
law principles (namely the rule in Foss v. Harbottle and the exceptions thereto) so that a non-controlling shareholder may be permitted to
commence a class action against or derivative actions in the name of the company to challenge actions where:
● 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
● those who control the company are perpetrating a “fraud on the minority”.
120
Table of Contents
Indemnification of Directors and Executive Officers and Limitation of Liabilities. 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 memorandum and articles of association provide that we shall
indemnify our officers and directors against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or
sustained by such directors or officer, other than by reason of such person’s dishonesty, willful default or fraud, in or about the conduct of
our Company’s business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his duties,
powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities
incurred by such director or officer in defending (whether successfully or otherwise) any civil proceedings concerning our Company or
its affairs in any court whether in the Cayman Islands or elsewhere. This standard of conduct is generally the same as permitted under the
Delaware General Corporation Law for a Delaware corporation.
In addition, we have entered into indemnification agreements with our directors and executive officers that provide such persons
with additional indemnification beyond that provided in our 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 General Corporation 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/herself 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/she reasonably believes to be in the
best interests of the corporation. He/she must not use his/her corporate position for any personal gains or advantages. 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/she 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/her position as director (unless the company permits him/her to do so), a duty
not to put himself/herself in a position where the interests of the company conflict with his/her personal interest or his/her duty to a third
party, and a duty to exercise powers for the purpose for which such powers were intended. A director of a Cayman Islands company owes
to the company a duty to act with skill and care. It was previously considered that a director need not exhibit in the performance of
his/her duties a greater degree of skills than may reasonably be expected from a person of his/her knowledge and experience. However,
English and Commonwealth courts have moved towards an objective standard with regards to the required skill and care and these
authorities are likely to be followed in the Cayman Islands.
Shareholder Action by Written Resolution. Under the Delaware General Corporation Law, a corporation may eliminate the right
of shareholders to act by written consent and by amendment to its certificate of incorporation. Cayman Islands law and our articles of
association provide that our shareholders may approve corporate matters by way of a unanimous written resolution signed by or on
behalf of each shareholder who would have been entitled to vote on such matter at a general meeting without a meeting being held.
Shareholder Proposals. Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the
annual meeting of shareholders, provided that 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 such special meetings.
121
Table of Contents
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 articles of association allow our shareholders holding in aggregate as at the date of the requisition not less than one-
fifth of all votes attaching to the issued and outstanding shares of our Company entitled to vote at general meetings to requisition an
extraordinary general meeting of our shareholders, in which case our Board is obliged to convene an extraordinary general meeting and
to put the resolutions so requisitioned to a vote at such meeting. Other than this right to requisition a shareholders’ meeting, our 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 may but are not obliged by the 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 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 articles of association, directors may be removed with or without cause, by a special resolution of our
shareholders. In addition, a director’s office shall be vacated if the director (i) becomes bankrupt or makes any arrangement or
composition with his creditors; (ii) is found to be or becomes of unsound mind or dies; (iii) resigns his office by notice in writing to the
company; (iv) without special leave of absence from our Board, is absent from three consecutive meetings of the Board and the Board
resolves that his office be vacated; or (v) is removed from office pursuant to any other provisions of our memorandum and articles of
association.
Transactions with Interested Shareholders. The Delaware General Corporation Law contains a business combination statute
applicable to Delaware corporations whereby, unless the corporation has specifically elected not to be governed by such statute by
amendment to its certificate of incorporation, it is prohibited from engaging in certain business combinations with an “interested
shareholder” for three years following the date that such person becomes an interested shareholder. An interested shareholder generally is
a person or a group who or which owns or owned 15% or more of the target’s outstanding voting share within the past three years. This
has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be
treated equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an interested
shareholder, the board of directors approves either the business combination or the transaction which resulted in the person becoming an
interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition
transaction with the target’s board of directors.
Cayman Islands law has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the
Delaware business combination statute. However, although Cayman Islands law does not regulate transactions between a company and
its significant shareholders, 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.
Restructuring. A company may present a petition to the Grand Court of the Cayman Islands for the appointment of a
restructuring officer on the grounds that the company:
(a)
is or is likely to become unable to pay its debts; and
(b) intends to present a compromise or arrangement to its creditors (or classes thereof) either pursuant to the Companies Act,
the law of a foreign country or by way of a consensual restructuring.
122
Table of Contents
The Grand Court may, among other things, make an order appointing a restructuring officer upon hearing of such petition, with
such powers and to carry out such functions as the court may order. At any time (i) after the presentation of a petition for the appointment
of a restructuring officer but before an order for the appointment of a restructuring officer has been made, and (ii) when an order for the
appointment of a restructuring officer is made, until such order has been discharged, no suit, action or other proceedings (other than
criminal proceedings) shall be proceeded with or commenced against the company, no resolution to wind up the company shall be
passed, and no winding up petition may be presented against the company, except with the leave of the court. However, notwithstanding
the presentation of a petition for the appointment of a restructuring officer or the appointment of a restructuring officer, a creditor who
has security over the whole or part of the assets of the company is entitled to enforce the security without the leave of the court and
without reference to the restructuring officer appointed.
Dissolution and 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 the dissolutions initiated by the board of directors.
Under Cayman Islands law, a company may be wound up by either an order of the courts of the Cayman Islands or by a special
resolution of its members or, if the company is unable to pay its debts as they fall due, by an ordinary resolution of its members. The
court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court, just and
equitable to do so. Under the Companies Act and our articles of association, our Company may be dissolved, liquidated or wound up by a
special resolution of our shareholders.
Variation of Rights of Shares. Under the Delaware General Corporation Law, a corporation may vary the rights of a class of
shares with the approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise.
Under Cayman Islands law and our 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 a majority of the issued shares of that class or with the sanction
of a special resolution passed at a general meeting of the holders of the shares of that class.
Amendment of Governing Documents. Under the Delaware General Corporation Law, a corporation’s governing documents may
be amended with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides
otherwise. Under the Companies Act and our memorandum and articles of association, our memorandum and articles of association may
only be amended by a special resolution of our shareholders.
Rights of Non-resident or Foreign Shareholders. There are no limitations imposed by our 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 memorandum and articles of association governing the ownership threshold above which shareholder ownership must
be disclosed.
C.
Material Contracts.
We have not entered into any material contracts other than in the ordinary course of business and other than those described in
“Item 4. Information on the Company”, “Item 7. Major Shareholders and Related Party Transactions — B. Related Party Transactions”,
“Item 10. Additional Information — C. Material Contracts” or elsewhere in this Annual Report on Form 20-F.
D.
Exchange Controls.
See “Item 4. Information on the Company — B. Business Overview — PRC Regulation—Foreign Exchange”.
123
Table of Contents
E.
Taxation.
The following summary of the material Cayman Islands, PRC and U.S. federal income tax consequences of an investment in
our ordinary shares is based upon laws and relevant interpretations thereof in effect as of the date of this registration statement, all of
which are subject to changes. This summary does not deal with all possible tax consequences relating to an investment in our 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.
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation
and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the
government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or, after execution,
brought within the jurisdiction of the Cayman Islands. The Cayman Islands is not a party to any double tax treaties that are applicable to
any payments made to or by our Company. There are no exchange control regulations or currency restrictions in the Cayman Islands.
Payments of dividends and capital in respect of our ordinary shares will not be subject to taxation in the Cayman Islands and no
withholdings will be required on the payment of a dividend or capital to any holders of our ordinary shares, nor will gains derived from
the disposal of our ordinary shares be subject to Cayman Islands income or corporation tax.
People’s Republic of China Taxation
Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with a
“de facto management body” within the PRC is considered a resident enterprise and will be subject to the enterprise income tax at the
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 over and overall management of 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, was last amended in December 29, 2017, 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” test should be applied in determining the tax
resident status of all offshore enterprises. According to Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or
a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China only if all of
the following conditions are met: (i) the primary location of the day-to-day operational management is in the PRC; (ii) decisions relating
to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC;
(iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder resolutions, are located or
maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually reside in the PRC.
We believe that our Company is not a PRC resident enterprise for PRC tax purposes. Our Company is not controlled by a PRC
enterprise or PRC enterprise group and we do not believe that our company meets all of the conditions above. Our Company is a
Company incorporated outside the PRC. As a holding company, its key assets are its ownership interests in its subsidiaries, and its key
assets are located, and its records (including the resolutions of its board of directors and the resolutions of its shareholders) are
maintained, outside the PRC. For the same reasons, we believe our other entities outside of China are not PRC resident enterprises either.
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”. There can be no assurance that the PRC government will ultimately
take a view that is consistent with us.
124
Table of Contents
If the PRC tax authorities determine that our Company is a PRC resident enterprise for enterprise income tax purposes, we may
be required to withhold a 10% withholding tax from dividends that we pay to our shareholders that are non-resident enterprises. In
addition, non-resident enterprise shareholders may be subject to a 10% PRC tax on gains realized on the sale or other disposition of
ordinary shares, if such income is treated as sourced from within the PRC. It is unclear whether our non-PRC individual shareholders
would be subject to any PRC tax on dividends or gains obtained by such non-PRC individual shareholders in the event that 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. It is also unclear whether non-PRC shareholders of our Company
would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that our company
is treated as a PRC resident enterprise. Pursuant to the EIT Law and its implementation rules, if a non-resident enterprise has not set up
an organization or establishment in China, or has set up an organization or establishment but the income derived has no actual connection
with such organization or establishment, it will be subject to a withholding tax on its PRC-sourced income at a rate of 10%. Pursuant to
the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and
Tax Evasion on Income, the tax rate in respect to dividends paid by a PRC enterprise to a Hong Kong enterprise is reduced to 5% from a
standard rate of 10% if the Hong Kong enterprise directly holds at least 25% of the PRC enterprise. Pursuant to the Notice of the State
Administration of Taxation on the Issues concerning the Application of the Dividend Clauses of Tax Agreements (“SAT Circular 81”), a
Hong Kong resident enterprise must meet the following conditions, among others, in order to enjoy the reduced tax rate: (i) such a fiscal
resident who obtains dividends should be a company as provided in the tax agreement; and (ii) owner’s equity and voting shares of the
Chinese resident company directly owned by such a fiscal resident reaches a specified percentage; and (iii) the capital of the Chinese
resident company directly owned by such a fiscal resident, at any time during the twelve months prior to the acquisition of the dividends,
reaches a percentage specified in the tax agreement. Furthermore, the Administrative Measures for Non-Resident Enterprises to Enjoy
Treatments under Tax Treaties (For Trial Implementation), which became effective in October 2009, require that non-resident enterprises
must obtain approval from the relevant tax authority in order to enjoy the reduced tax rate. There are also other conditions for enjoying
the reduced tax rate according to other relevant tax rules and regulations. Accordingly, our subsidiary may be able to enjoy the 5% tax
rate for the dividends it receives from its PRC incorporated subsidiaries if they satisfy the conditions prescribed under SAT Circular 81
and other relevant tax rules and regulations and obtain the approvals as required. However, according to SAT Circular 81, if the relevant
tax authorities determine our transactions or arrangements are for the primary purpose of enjoying a favorable tax treatment, the relevant
tax authorities may adjust the favorable tax rate on dividends in the future.
Provided that our Cayman Islands holding company is not deemed to be a PRC resident enterprise, holders of our ordinary
shares who are not PRC residents will not be subject to PRC income tax on dividends distributed by us or gains realized from the sale or
other disposition of our ordinary shares. SAT Circular 7 further clarifies that, if a non-resident enterprise derives income by acquiring and
selling shares in an offshore listed enterprise in the public market, such income will not be subject to PRC tax. However, there is
uncertainty as to the application of SAT Circular 37 and SAT Circular 7, we and our non-PRC resident investors may be at risk of being
required to file a return and being taxed under SAT Circular 37 and SAT Circular 7, thus we may be required to expend valuable
resources to comply with SAT Circular 37 and SAT Circular 7 or to establish that we should not be taxed under SAT Circular 37 and SAT
Circular 7. See “Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China — We face uncertainty with
respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies, and heightened scrutiny
over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions that we may pursue in the
future”.
125
Table of Contents
United States Federal Income Tax Considerations
The following discussion is a summary of certain material U.S. federal income tax considerations generally applicable to the
ownership and disposition of our ordinary shares by a U.S. Holder (as defined below) that acquires our ordinary shares as “capital assets”
(generally, property held for investment) under the U.S. Internal Revenue Code of 1986, as amended (the “Code”). This discussion is
based upon existing U.S. federal tax law, which is subject to differing interpretations or change, possibly with retroactive effect. No
ruling has been sought from the Internal Revenue Service (the “IRS”), with respect to any U.S. federal income tax consequences
described below, and there can be no assurance that the IRS or a court will not take a contrary position. This discussion, moreover, does
not address any U.S. federal estate, gift, Medicare tax on net investment income or alternative minimum tax considerations, any election
to apply Section 1400Z-2 of the Code to gains recognized with respect to sales or other dispositions of our ordinary shares, or any state,
local or non-U.S. tax considerations relating to the ownership or disposition of our ordinary shares. The following summary also does not
address all aspects of U.S. federal income taxation that may be important to particular investors in light of their individual circumstances
or to persons in special tax situations, all of whom may be subject to tax rules that differ significantly from those discussed below, such
as:
● banks and other financial institutions;
● insurance companies;
● pension plans;
● cooperatives;
● regulated investment companies;
● real estate investment trusts;
● broker-dealers;
● traders that elect to use a mark-to-market method of accounting;
● certain former U.S. citizens or long-term residents;
● tax-exempt entities (including private foundations) and governmental entities;
● holders who acquire our ordinary shares pursuant to any employee share option or otherwise as compensation;
● investors that will hold our ordinary shares as part of a straddle, hedge, conversion, constructive sale or other integrated
transaction for U.S. federal income tax purposes;
● investors that have a functional currency other than the U.S. dollar;
● persons subject to special tax accounting rules as a result of any item of gross income with respect to our ordinary shares
being taken into account in an applicable financial statement;
● persons that actually or constructively own 10% or more of the total combined voting power of all classes of our voting
stock; or
● partnerships or other entities taxable as partnerships for U.S. federal income tax purposes, or persons holding common
stock through such entities.
Each U.S. Holder is urged to consult its tax advisor regarding the application of U.S. federal taxation to its particular
circumstances, and the state, local, non-U.S. and other tax considerations of the ownership and disposition of our ordinary shares.
126
Table of Contents
General
For purposes of this discussion, a “U.S. Holder” is a beneficial owner of our ordinary shares that is, for U.S. federal income tax
purposes:
● an individual who is a citizen or resident of the United States;
● a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created in, or organized under
the law of the United States or any state thereof or the District of Columbia;
● an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or
● a trust (A) the administration of which is subject to the primary supervision of a U.S. court and which has one or more U.S.
persons who have the authority to control all substantial decisions of the trust or (B) that has otherwise validly elected to be
treated as a U.S. person under the Code.
If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of our
ordinary shares, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of
the partnership. Partnerships holding our ordinary shares and their partners are urged to consult their tax advisors regarding an
investment in our ordinary shares.
Passive Foreign Investment Company Considerations
A non-U.S. corporation, such as our Company, will be classified as a passive foreign investment company (“PFIC”), for U.S.
federal income tax purposes for any taxable year, if either (i) 75% or more of its gross income for such year consists of certain types of
“passive” income; or (ii) 50% or more of the value of its assets (determined on the basis of a quarterly average) during such year is
attributable to assets that produce or are held for the production of passive income. For this purpose, cash and assets readily convertible
into cash are categorized as a passive asset and the company’s goodwill and other unbooked intangibles associated with active business
activities may generally be classified as active assets. Passive income generally includes, among other things, dividends, interest, rents,
royalties, and gains from the disposition of passive assets. We will be treated as owning a proportionate share of the assets and earning a
proportionate share of the income of any other corporation in which we own, directly or indirectly, more than 25% (by value) of the
stock. If a corporation is treated as a PFIC with respect to a U.S. Holder for any taxable year, the corporation will continue to be treated
as a PFIC with respect to that U.S. Holder in all succeeding taxable years, regardless of whether the corporation continues to meet the
PFIC requirements in such years, unless certain elections are made.
Although the law in this regard is not entirely clear, we treat our consolidated VIEs and their subsidiaries as being owned by us
for U.S. federal income tax purposes because we control its management decisions and are entitled to substantially all of the economic
benefits associated with this entity. As a result, we consolidate their results of operations in our consolidated U.S. GAAP financial
statements. If it were determined, however, that we are not the owner of the consolidated VIE for U.S. federal income tax purposes, we
may be treated as a PFIC for the current taxable year and any subsequent taxable year.
127
Table of Contents
The determination as to whether a foreign corporation is a PFIC is based on the application of complex U.S. federal income tax
rules, which are subject to differing interpretations, and the determination will depend on the composition of the income, expenses and
assets of the foreign corporation from time to time and the nature of the activities performed by its officers and employees. Assuming
that we are the owner of the VIEs and their subsidiaries for U.S. federal income tax purposes, and based upon our current and projected
income and assets, we do not believe we were a PFIC for U.S. federal income tax purposes for the taxable year ended December 31,
2022 and we do not expect to be a PFIC for the current taxable year or the foreseeable future. While we do not anticipate being or
becoming a PFIC in the current taxable year or foreseeable future, no assurance can be given in this regard because the determination of
whether we will be or become a PFIC is a factual determination made annually that will depend, in part, upon the composition of our
income and assets. Fluctuations in the market price of our ordinary shares may cause us to be classified as a PFIC for the current or
future taxable years because the value of our assets for purposes of the asset test, including the value of our goodwill and unbooked
intangibles, may be determined by reference to the market price of our ordinary shares from time to time (which may be volatile). If our
market capitalization subsequently declines, we may be or become classified as a PFIC for the current taxable year or future taxable
years. Furthermore, under circumstances where our revenue from activities that produce passive income significantly increases relative
to our revenue from activities that produce non-passive income, or where we determine not to deploy significant amounts of cash for
active purposes, our risk of becoming classified as a PFIC may substantially increase. Our U.S. counsel expresses no opinion with
respect to our PFIC status for our current taxable year, and also expresses no opinion with regard to our expectations regarding our PFIC
status in the future.
If we are classified as a PFIC for any year during which a U.S. Holder holds our ordinary shares, the PFIC rules discussed
below under “—Passive Foreign Investment Company Rules” generally will apply to such U.S. Holder for such taxable year, and unless
the U.S. Holder makes certain elections, will apply in future years even if we cease to be a PFIC.
The discussion below under “—Dividends” and “—Sale or Other Disposition” is written on the basis that we will not be or
become classified as a PFIC for U.S. federal income tax purposes. The U.S. federal income tax rules that apply generally if we are treated
as a PFIC are discussed below under “—Passive Foreign Investment Company Rules”.
Dividends
Subject to the discussion below under “—Passive Foreign Investment Company Rules”, the gross amount of any distributions
paid on our ordinary shares out of our current or accumulated earnings and profits, as determined under U.S. federal income tax
principles, will generally be includible in the gross income of a U.S. Holder as dividend income on the day actually or constructively
received by the U.S. Holder. Because we do not intend to determine our earnings and profits on the basis of U.S. federal income tax
principles, it is expected that any distributions that we pay will generally be treated as a “dividend” for U.S. federal income tax purposes.
Dividends received on our ordinary shares will not be eligible for the dividends received deduction allowed to corporations in respect of
dividends received from U.S. corporations.
Individuals and other non-corporate U.S. Holders will be subject to tax on dividend income from a “qualified foreign
corporation” at a lower capital gains rate rather than the marginal tax rates generally applicable to ordinary income, provided that certain
holding period requirements are met. A non-U.S. corporation (other than a corporation that is classified as a PFIC for the taxable year in
which the dividend is paid or the preceding taxable year) will generally be considered to be a qualified foreign corporation (i) if it is
eligible for the benefits of a comprehensive tax treaty with the U.S. which the Secretary of the Treasury of the U.S. determines is
satisfactory for the purposes of this provision and which includes an exchange of information program; or (ii) with respect to any
dividends it pays on stock which is readily tradable on an established securities market in the U.S. We expect our ordinary shares will be
readily tradeable on an established securities market in the United States, but there can be no assurance that our ordinary shares will
continue to be considered readily tradeable on an established securities market in later years.
In the event that we are deemed to be a PRC resident enterprise under the PRC Enterprise Income Tax Law (see “—People’s
Republic of China Taxation”), a U.S. Holder may be subject to PRC withholding taxes on dividends paid on our ordinary shares. We
may, however, be eligible for the benefits of the United States-PRC income tax treaty (which the Secretary of the Treasury of the United
States has determined is satisfactory for the purpose of being a “qualified foreign corporation”). If we are eligible for such benefits, the
dividends that we pay on our ordinary shares would be eligible for the reduced rates of taxation described in the preceding paragraph.
128
Table of Contents
Dividends will generally be treated as income from foreign sources for U.S. foreign tax credit purposes and will generally
constitute passive category income. Depending on the U.S. Holder’s individual facts and circumstances, a U.S. Holder may be eligible,
subject to a number of complex limitations, to claim a foreign tax credit in respect of any foreign withholding taxes imposed on
dividends received on our ordinary shares. A U.S. Holder who does not elect to claim a foreign tax credit for foreign tax withheld may
instead claim a deduction, for U.S. federal income tax purposes, in respect of such withholding, but only for a year in which such holder
elects to do so for all creditable foreign income taxes. The rules governing the foreign tax credit are complex and their outcome depends
in large part on the U.S. Holder’s individual facts and circumstances. Accordingly, U.S. Holders are urged to consult their tax advisors
regarding the availability of the foreign tax credit under their particular circumstances.
Sale or Other Disposition
Subject to the discussion below under “—Passive Foreign Investment Company Rules”, a U.S. Holder will generally recognize
capital gain or loss upon the sale or other disposition of our ordinary shares in an amount equal to the difference between the amount
realized upon the disposition and the holder’s adjusted tax basis in such ordinary shares. Any capital gain or loss will be long-term if our
ordinary shares have been held for more than one year. The deductibility of a capital loss may be subject to some limitations. Any such
gain or loss that the U.S. Holder recognizes will generally be U.S.-source gain or loss for U.S. foreign tax credit purposes, which will
generally limit the availability of foreign tax credits. However, in the event that we are deemed to be a PRC resident enterprise under the
PRC Enterprise Income Tax Law, we may be eligible for the benefits of the United States-PRC income tax treaty. In such event, if PRC
tax were to be imposed on any gain from the disposition of the ordinary shares, a U.S. Holder that is eligible for the benefits of the
United States-PRC income tax treaty may elect to treat such gain as PRC source income. If a U.S. Holder is not eligible for the benefits
of the United States-PRC income tax treaty or fails to make the election to treat any gains as foreign source, then such U.S. Holder may
not be able to use the foreign tax credit arising from any PRC tax imposed on the disposition of the ordinary shares unless such credit can
be applied (subject to applicable limitations) against U.S. federal income tax due on other income derived from foreign sources in the
same income category (generally, the passive category). U.S. Holders are urged to consult their tax advisors regarding the tax
consequences if a foreign tax is imposed on a disposition of the ordinary shares, including the availability of the foreign tax credit under
their specific circumstances.
Passive Foreign Investment Company Rules
If we are classified as a PFIC for any taxable year during which a U.S. Holder holds our ordinary shares, and unless the U.S.
Holder makes a mark-to-market election (as described below), the U.S. Holder will generally be subject to special tax rules that have a
penalizing effect, regardless of whether we remain a PFIC, on (i) any excess distributions that we make to the U.S. Holder (which
generally means any distributions paid during a taxable year to a U.S. Holder that is greater than 125 percent of the average annual
distributions paid in the three preceding taxable years or, if shorter, the U.S. Holder’s holding period for our ordinary shares); and (ii) any
gains realized on the sale or other disposition of our ordinary shares. Under the PFIC rules:
● the excess distributions or gains will be allocated ratably over the U.S. Holder’s holding period for the ordinary shares;
● the amount allocated to the current taxable year and any taxable years in the U.S. Holder’s holding period prior to the first
taxable year in which we are classified as a PFIC (each, a “pre-PFIC year”), will be taxable as ordinary income;
● the amount allocated to each prior taxable year, other than a pre-PFIC year, will be subject to tax at the highest tax rate in
effect for individuals or corporations, as appropriate, for that year; and
● the interest charge generally applicable to underpayments of tax will be imposed on the tax attributable to each prior
taxable year, other than a pre-PFIC year.
If we are a PFIC for any taxable year during which a U.S. Holder holds our ordinary shares and any of our subsidiaries, our VIE
or any of the subsidiaries of our VIE is also a PFIC, such U.S. Holder would be treated as owning a proportionate amount (by value) of
the shares of the lower-tier PFIC for purposes of the application of these rules. U.S. Holders are urged to consult their tax advisors
regarding the application of the PFIC rules to any of our subsidiary, our VIE or any of the subsidiaries of our VIE.
129
Table of Contents
As an alternative to the foregoing rules, a U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-
market election with respect to such stock. If a U.S. Holder makes this election, the holder will generally (i) include as ordinary income
for each taxable year that we are a PFIC the excess, if any, of the fair market value of ordinary shares held at the end of the taxable year
over the adjusted tax basis of such ordinary shares; and (ii) deduct as an ordinary loss the excess, if any, of the adjusted tax basis of the
ordinary shares over the fair market value of such ordinary shares held at the end of the taxable year, but such deduction will only be
allowed to the extent of the amount previously included in income as a result of the mark-to-market election. The U.S. Holder’s adjusted
tax basis in the ordinary shares would be adjusted to reflect any income or loss resulting from the mark-to-market election. If a U.S.
Holder makes a mark-to-market election in respect of a corporation classified as a PFIC and such corporation ceases to be classified as a
PFIC, the holder will not be required to take into account the gain or loss described above during any period that such corporation is not
classified as a PFIC. If a U.S. Holder makes a mark-to-market election, any gain such U.S. Holder recognizes upon the sale or other
disposition of the ordinary shares in a year when we are a PFIC will be treated as ordinary income and any loss will be treated as
ordinary loss, but such loss will only be treated as ordinary loss to the extent of the net amount previously included in income as a result
of the mark-to-market election.
The mark-to-market election is available only for “marketable stock”, which is the stock that is regularly traded on a qualified
exchange or other market as defined in applicable U.S. Treasury regulations. We anticipate that our ordinary shares should qualify as
being regularly traded, but no assurances may be given in this regard.
Because a mark-to-market election cannot be made for any lower-tier PFICs that we may own, a U.S. Holder may continue to
be subject to the PFIC rules with respect to such U.S. Holder’s indirect interest in any investments held by us that are treated as an equity
interest in a PFIC for U.S. federal income tax purposes.
We do not intend to provide information necessary for U.S. Holders to make qualified electing fund elections which, if
available, would result in tax treatment different from (and generally less adverse than) the general tax treatment for PFICs described
above.
If a U.S. Holder owns our ordinary shares during any taxable year that we are a PFIC, the holder must generally file an annual
IRS Form 8621 or such other form as is required by the U.S. Treasury Department. Each U.S. Holder is advised to consult its tax
advisors regarding the potential U.S. federal income tax consequences of owning and disposing of the ordinary shares if we are or
become a PFIC, including the possibility of making a mark-to-market election.
Information Reporting and Backup Withholding
U.S. Holders may be subject to information reporting to the IRS and U.S. backup withholding with respect to dividends on and
proceeds from the sale or other disposition of our ordinary shares. Backup withholding will not apply, however, to a U.S. Holder who
furnishes a correct taxpayer identification number and makes any other required certification, or who is otherwise exempt from backup
withholding.
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a U.S. Holder’s
U.S. federal income tax liability, and a U.S. Holder generally may obtain a refund of any excess amounts withheld under the backup
withholding rules by filing the appropriate claim for refund with the IRS and furnishing any required information. U.S. Holders should
consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.
Certain U.S. Holders who are individuals (or certain specified entities) may be required to report information relating to their
ownership of our ordinary shares. U.S. Holders should consult their tax advisers regarding their reporting obligations with respect to our
ordinary shares.
F.
Dividends and Paying Agents.
Not applicable.
G.
Statement by Experts.
Not applicable.
130
Table of Contents
H.
Documents on Display.
We are subject to periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private
issuers. Accordingly, we are required to file reports, including annual reports on Form 20-F, and other information with the SEC. As a
foreign private issuer, we are exempt from the rules of the Exchange Act prescribing the furnishing and content of proxy statements to
shareholders, and our executive officers, directors and principal shareholders are not subject to the insider short-swing profit disclosure
and recovery provisions of Section 16 of the Exchange Act.
All information that we have filed with the SEC can be accessed through the SEC’s website at www.sec.gov. This information
can also be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549.
You can request copies of these documents, upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-
0330 for further information on the operation of the public reference rooms.
In accordance with Nasdaq Stock Market Rule 5250(d), we will post this Annual Report on Form 20-F on our website at
ir.kaixin.com. In addition, we will provide hard copies of our annual report free of charge to shareholders upon request.
I.
Subsidiary Information.
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Foreign Currency Exchange Rate Risk
Substantially all of our revenues and expenses are denominated in Renminbi. The functional currency of our company is the
U.S. dollar. The functional currency of our PRC subsidiaries, the VIEs and their subsidiaries is the Renminbi, and the functional currency
of our Hong Kong subsidiaries is the Hong Kong Dollar. We use the U.S. dollar as our reporting currency. Monetary assets and liabilities
denominated in currencies other than the functional currency are translated into the functional currency at the rates of exchange ruling at
the balance sheet date. Transactions in currencies other than the functional currency during the year are converted into functional
currency at the applicable rates of exchange prevailing when the transactions occurred. Transaction gains and losses are recognized in the
statements of operations. Due to foreign currency translation adjustments, we had a net foreign exchange gain of US$0.1 million in
2020,a net foreign exchange loss of US$0.4 million in 2021, and a net foreign exchange gain of US$0.1 million in 2022.
To date, we have not entered into any hedging transactions in an effort to reduce its exposure to foreign currency exchange risk.
Although our exposure to foreign exchange risks is generally limited, the value of our ordinary shares will be affected by the exchange
rate between the U.S. dollar and the Renminbi because the value of our business is effectively denominated in Renminbi, while our
ordinary shares will be traded in U.S. dollars.
131
Table of Contents
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, PRC or U.S. government policies may impact the exchange rate between Renminbi and the U.S. dollar in the future.
To the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of the Renminbi against the
U.S. dollar would have an adverse effect on the Renminbi amount that we receive from the conversion. Conversely, if we decide to
convert Renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or for other business
purposes, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amounts available to us.
Interest Rate Risk
To date, we have not been exposed to material risks due to changes in market interest rates, and we have not used any derivative
financial instruments to manage our interest risk exposure. However, Kaixin cannot provide assurance that it will not be exposed to
material risks due to changes in market interest rate in the future.
Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate
securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce
less income than expected if interest rates fall.
Inflation
Since our inception, inflation in China has not materially affected our results of operations. According to the National Bureau of
Statistics of China, the year-over-year percent changes in the consumer price index for December 2020, 2021 and 2022 increased 2.6%,
1.5%, and 2.0%, respectively. Although we have not been materially affected by inflation in the past, we may be affected if China
experiences higher rates of inflation in the future.
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.
Not applicable.
132
Table of Contents
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.
PART II
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.
See “Item 10. Additional Information — B. Memorandum and Articles of Association — Common Shares” for a description of
the rights of securities holders, which remain unchanged.
Use of Proceeds
The following “Use of Proceeds” information relates to the registration statement on Form S-1, as amended (File Number 333-
220510) in relation to our initial public offering of units of CM Seven Star. The registration statement was declared effective by the SEC
on October 25, 2017. EarlyBirdCapital, Inc. was the representative of the underwriters for our initial public offering.
See “Item 4. Information on the Company — A. History and Development of the Company — History of CM Seven Star” for a
description of the use of proceeds from the initial public offering in connection with the Business Combination.
ITEM 15. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, has performed an evaluation of
the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the
period covered by this Annual Report.
Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and
procedures were ineffective as of December 31, 2022 and as of the date that the evaluation of the effectiveness of our disclosure controls
and procedures was completed, because of the material weaknesses in our internal control over financial reporting described below. Our
disclosure controls and procedures were not effective to satisfy the objectives for which they are intended.
Notwithstanding the material weaknesses identified, we believe that the consolidated financial statements included in this
Annual Report correctly present our financial position, results of operations and cash flows for the fiscal years covered thereby in all
material respects.
133
Table of Contents
Management’s Annual Report on Internal Control over Financial Reporting
Management’s assessment of the effectiveness of our Company’s internal control over financial reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term
is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, for our company. Internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated
financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of a company’s assets, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that a company’s receipts and expenditures are
being made only in accordance with authorizations of a company’s management and directors, and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or disposition of a company’s assets that could have a material
effect on the consolidated financial statements. Due to its inherent limitations, a system of internal control over financial reporting can
provide only reasonable assurance with respect to consolidated financial statement preparation and presentation, and 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.
As required by Section 404 of the Sarbanes-Oxley Act and related rules as promulgated by the Commission, our management
assessed the effectiveness of our company’s internal control over financial reporting as of December 31, 2022, using criteria established
in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Our management identified the following material weaknesses in our internal control over financial reporting:
(i)
lack of sufficient resources with US GAAP and the SEC reporting experiences, which could adversely affect the
Company’s ability to provide accurate disclosures on a timely matter;
(ii)
lack of an effective and continuous risk assessment procedure to identify and assess the financial reporting risks;
(iii)
lack of evaluations to ascertain whether the components of internal control are present and functioning;
(iv)
inadequate controls over prepayment for vehicle purchase at local dealerships; and.
(v)
lack of the key monitoring mechanisms to control the communication and disclosure of material information to the
appropriate parties.
As a result of these material weaknesses and based on the evaluation described above, management concluded that our internal
control over financial reporting was not effective as of December 31, 2022. Notwithstanding these material weaknesses, however,
management has concluded that the consolidated financial statements included in this Annual Report present fairly, in all material
respects, our financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.
Management’s Remediation Plans and Actions
To remediate the material weaknesses described above in “Management’s Report on Internal Control over Financial Reporting,”
we are implementing the plan and measures described below, and we will continue to evaluate and may in the future implement
additional measures.
We will carry out the following remediation measures:
(i) hiring additional financial professionals and accounting consultants with relevant experiences, skills and knowledge in
accounting and disclosure for complex transactions under the requirements of U.S. GAAP and SEC reporting requirements,
including disclosure requirements for complex transactions under U.S. GAAP, to provide the necessary level of leadership to
our finance and accounting function and increase the number of qualified financial reporting personnel;
134
Table of Contents
(ii) improving the capabilities of the existing financial reporting personnel through trainings and education on the accounting
and reporting requirements under U.S. GAAP, SEC rules and regulations and the Sarbanes-Oxley Act;
(iii) designing and implementing robust financial reporting and management controls over future significant and complex
transactions; and
(iv) implementing procedures to enhance the design and effectiveness of internal control both at the entity and transaction levels
in regard to inventory custody, including maintaining timely and accurate inventory records, segregation of employee duties,
legal and physical protection of ownership rights.
Changes in Internal Control over Financial Reporting
Other than as described above, there were no other changes in our internal controls over financial reporting that occurred during
the year ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT.
Our Board has determined that each of Tianruo Pu and Lin Cong, independent directors (under the standards set forth in Nasdaq
Stock Market Rule 5605(a)(2) and Rule 10A-3 under the Exchange Act) and members of our audit committee, is an audit committee
financial expert.
ITEM 16B. CODE OF ETHICS.
Our Board has adopted a code of ethics that applies to all of the directors, officers and employees of us and our subsidiaries,
whether they work for us on a full-time, part-time, consultative, or temporary basis. Certain provisions of the code apply specifically to
our chief executive officer, chief financial officer, senior finance officer, controller, senior vice presidents, vice presidents and any other
persons who perform similar functions for us. We have posted a copy of our code of business conduct and ethics on our website at
http://ir.kaixin.com.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The following table sets forth the aggregate fees by categories specified below in connection with certain professional services
rendered by Marcum Asia CPAs LLP (Formerly Marcum Bernstein & Pinchuk LLP) and Onestop Assurance PAC.
Audit fees(1)
Total
For the Years Ended December 31,
2021
2022
(in thousands of US$)
330
330
618
618
(1) “Audit fees” means the aggregate fees billed in relation to professional services rendered by our principal external auditors for the
audit of the specific year’s annual consolidated financial statements and assistance with review of documents filed with the SEC and
other statutory and regulatory filings.
The policy of our audit committee is to pre-approve all auditing and non-auditing services permitted to be performed by our
independent registered public accounting firm.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.
Not applicable.
135
Table of Contents
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.
None.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT.
Effective on April 25, 2023, we engaged Onestop Assurance PAC ("Onestop"), as our independent registered public accounting
firm. We also dismissed Marcum Asia CPAs LLP ("Marcum Asia") on the same date. The change of our independent registered public
accounting firm was approved by the audit committee of our board.
The audit report of Marcum Asia on our consolidated financial statements as of and for the years ended December 31, 2020 and
2021, did not contain any adverse opinion or disclaimer of opinion, nor was the report qualified or modified as to uncertainty, audit
scope, or accounting principles.
During the years ended December 31, 2020 and 2021 and the subsequent period prior to our engagement of Onestop, there were
no: (1) disagreements with Marcum Asia on any matter of accounting principles or practices, financial statement disclosure, or auditing
scope or procedures, which disagreements if not resolved to their satisfaction would have caused them to make reference in connection
with their opinion to the subject matter of the disagreement, or (2) “reportable events” requiring disclosure pursuant to Item 16F(a)(1)(v)
of the instructions to Form 20-F in connection with our annual report on Form 20-F, except that Marcum Asia advised us of the following
material weaknesses: (i) lack of resources with US GAAP and the SEC reporting experiences, which could adversely affect the
Company’s ability to provide accurate disclosures on a timely matter; (ii) lack of an effective and continuous risk assessment procedure
to identify and assess the financial reporting risks; (iii) lack of evaluations to ascertain whether the components of internal control are
present and functioning; and (iv) inadequate controls over prepayment for vehicle purchases at local dealerships; and (v) lack of the key
monitoring mechanisms to control the communication and disclosure of material information to the appropriate parties.
We provided Marcum Asia with a copy of the above disclosure and requested that Marcum Asia furnish us with a letter
addressed to the U.S. Securities and Exchange Commission stating whether or not it agrees with the above statement. A copy of Marcum
Asia’s letter is attached as Exhibit 16.1.
During the Company’s two most recent fiscal years ended December 31, 2021 and 2020 and any subsequent interim period prior
to the engagement of Onestop on April 25, 2023, neither the Company nor anyone on its behalf has consulted with Onestop on either (a)
the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might
be rendered on the Company’s consolidated financial statements, and neither a written report nor oral advice was provided to the
Company by Onestop that Onestop concluded was an important factor considered by the Company in reaching a decision as to any
accounting, auditing or financial reporting issue, or (b) any matter that was the subject of a disagreement, as that term is defined in Item
16F(a)(1)(iv) of Form 20-F (and the related instructions thereto) or a reportable event as set forth in Item 16F(a)(1)(v) of Form 20-F.
ITEM 16G. CORPORATE GOVERNANCE.
As a Cayman Islands company listed on the Nasdaq Capital Market, we are subject to the Nasdaq Stock Market Rules corporate
governance listing standards. However, Nasdaq Stock Market Rules permit a foreign private issuer like us to follow the corporate
governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may
differ significantly from the Nasdaq Stock Market Rules. While we voluntarily follow most Nasdaq corporate governance rules, we may
choose to take advantage of the following exemptions afforded to foreign private issuers:
● exemption from the requirement that a majority of our Board consists of independent directors;
● exemption from the requirement that the audit committee is composed of at least three members set forth in Nasdaq
Rule 5605(c)(2)(A);
● exemption from the requirement that the compensation committee is composed of at least two independent directors as set
forth in Nasdaq Rule 5605(d)(2)(A);
136
Table of Contents
● exemption from the requirement to obtain shareholders’ approval for certain issuances of securities, including shareholders’
approval of stock option plans; and
● exemption from the requirement that our Board shall have regularly scheduled meetings at which only independent
directors are present as set forth in Nasdaq Rule 5605(b)(2).
We intend to follow our home country practices in lieu of the foregoing requirements. Although we may rely on home country
corporate governance practices in lieu of certain of the rules in the Nasdaq Rule 5600 Series and Rule 5250(d), we must comply with
Nasdaq’s Notification of Non-compliance requirement (Rule 5625), the Voting Rights requirement (Rule 5640) and have an audit
committee that satisfies Rule 5605(c)(3), consisting of committee members that meet the independence requirements of Rule 5605(c)(2)
(A)(ii). Although we currently intend to comply with the Nasdaq corporate governance rules applicable other than as noted above, we
may in the future decide to use the foreign private issuer exemption with respect to some or all the other Nasdaq corporate governance
rules. As a result, our shareholders may be afforded less protection than they otherwise would under the Nasdaq corporate governance
listing standards applicable to U.S. domestic issuers. We may utilize these exemptions for as long as we continue to qualify as a foreign
private issuer.
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
137
Table of Contents
PART III
ITEM 17. FINANCIAL STATEMENTS.
We have elected to provide financial statements pursuant to Item 18.
ITEM 18. FINANCIAL STATEMENTS.
Our consolidated financial statements are included at the end of this Annual Report.
138
Table of Contents
ITEM 19. EXHIBITS.
Exhibit No.
1.1
2.1
2.2
2.3
2.4
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
Description of Exhibit
Third Amended and Restated Memorandum and Articles of Association of Kaixin Auto Holdings, as adopted by a
special resolution on May 7, 2021 (incorporated by reference to Exhibit 4.1 to our current report on Form 8-K (File
No. 001-38261), as amended, initially filed with the SEC on May 6, 2019)
Promissory Note in the principal amount of US$1,100,000 dated January 24, 2019 (incorporated by reference to
Exhibit 10.6 to our annual report on Form 10-K (File No. 001-38261) filed with the SEC on March 25, 2019)
Promissory Note in the principal amount of US$1,013,629.30 dated January 24, 2019 (incorporated by reference to
Exhibit 10.7 to our annual report on Form 10-K (File No. 001-38261) filed with the SEC on March 25, 2019)
Promissory Note dated April 9, 2018 (incorporated by reference to Exhibit 10.1 to our current report on Form 8-K
(File No. 001-38261) filed with the SEC on April 13, 2018)
Description of Securities (incorporated by reference to Exhibit 2.4 to our annual report on Form 20-F (File No. 001-
38261) filed with the SEC on July 10, 2020)
Form of Indemnification Agreement between Kaixin Auto Holdings and its directors and executive officers
(incorporated by reference to Exhibit 10.1 to our current report on Form 8-K (File No. 001-38261), as amended,
initially filed with the SEC on May 6, 2019)
Loan Agreement between Shanghai Renren Automobile Technology Company Limited, James Jian Liu and Yang Jing
(English Translation) (incorporated by reference to Exhibit 10.2 to our current report on Form 8-K (File No. 001-
38261), as amended, initially filed with the SEC on May 6, 2019)
Loan Agreement between Shanghai Renren Automobile Technology Company Limited, Yi Rui and Thomas Jintao
Ren, dated August 18, 2017 (English Translation) (incorporated by reference to Exhibit 10.3 to our current report on
Form 8-K (File No. 001-38261), as amended, initially filed with the SEC on May 6, 2019)
Exclusive Technology Support and Technology Services Agreement between Shanghai Renren Automobile
Technology Company Limited and Shanghai Qianxiang Changda Internet Information Technology Development
Co., Ltd., dated August 18, 2017 (English Translation) (incorporated by reference to Exhibit 10.4 to our current report
on Form 8-K (File No. 001-38261), as amended, initially filed with the SEC on May 6, 2019)
Exclusive Technology Support and Technology Services Agreement between Shanghai Renren Automobile
Technology Company Limited and Shanghai Jieying Automobile Sales Co., Ltd., dated August 18, 2017 (English
Translation) (incorporated by reference to Exhibit 10.5 to our current report on Form 8-K (File No. 001-38261), as
amended, initially filed with the SEC on May 6, 2019)
Equity Pledge Agreement concerning Shanghai Qianxiang Changda Internet Information Technology Development
Co., Ltd among Shanghai Renren Automobile Technology Company Limited, James Jian Liu and Yang Jing, dated
August 18, 2017 (English Translation) (incorporated by reference to Exhibit 10.6 to our current report on Form 8-K
(File No. 001-38261), as amended, initially filed with the SEC on May 6, 2019)
Equity Interest Pledge Agreement concerning Shanghai Jieying Automobile Sales Co., Ltd. among Shanghai Renren
Automobile Technology Company Limited, Yi Rui and Thomas Jintao Ren, dated August 18, 2017 (English
Translation) (incorporated by reference to Exhibit 10.7 to our current report on Form 8-K (File No. 001-38261), as
amended, initially filed with the SEC on May 6, 2019)
Intellectual Property Right License Agreement between Shanghai Renren Automobile Technology Company Limited
and Shanghai Qianxiang Changda Internet Information (English Translation) Technology Development Co., Ltd.,
dated August 18, 2017 (English Translation) (incorporated by reference to Exhibit 10.8 to our current report on
Form 8-K (File No. 001-38261), as amended, initially filed with the SEC on May 6, 2019)
Intellectual Property Right License Agreement between Shanghai Renren Automobile Technology Company Limited
and Shanghai Jieying Automobile Sales Co., Ltd., dated August 18, 2017 (English Translation) (incorporated by
reference to Exhibit 10.9 to our current report on Form 8-K (File No. 001-38261), as amended, initially filed with the
SEC on May 6, 2019)
Business Operations Agreement among Shanghai Renren Automobile Technology Company Limited, Yi Rui, Thomas
Jintao Ren and Shanghai Jieying Automobile Sales Co., Ltd., dated August 18, 2017 (English Translation)
(incorporated by reference to Exhibit 10.10 to our current report on Form 8-K (File No. 001-38261), as amended,
initially filed with the SEC on May 6, 2019)
139
Table of Contents
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20
4.21
4.22
4.23
4.24
4.25
4.26
4.27
4.28
Business Operations Agreement among Shanghai Renren Automobile Technology Company Limited, James Jian Liu,
Yang Jing and Shanghai Qianxiang Changda Internet Information Technology Development Co., Ltd., dated
August 18, 2017 (English Translation) (incorporated by reference to Exhibit 10.11 to our current report on Form 8-K
(File No. 001-38261), as amended, initially filed with the SEC on May 6, 2019)
Equity Option Agreement concerning Shanghai Qianxiang Changda Internet Information Technology Development
Co., Ltd among Shanghai Renren Automobile Technology Company Limited, James Jian Liu and Yang Jing, dated
August 18, 2017 (English Translation) (incorporated by reference to Exhibit 10.12 to our current report on Form 8-K
(File No. 001-38261), as amended, initially filed with the SEC on May 6, 2019)
Equity Option Agreement concerning Shanghai Jieying Automobile Sales Co., Ltd. among Shanghai Renren
Automobile Technology Company Limited, Yi Rui and Thomas Jintao Ren, dated August 18, 2017 (English
Translation) (incorporated by reference to Exhibit 10.13 to our current report on Form 8-K (File No. 001-38261), as
amended, initially filed with the SEC on May 6, 2019)
Form of Equity Purchase Agreement (English Translation) (incorporated by reference to Exhibit 10.16 to our current
report on Form 8-K (File No. 001-38261), as amended, initially filed with the SEC on May 6, 2019)
Form of Supplement to Equity Purchase Agreement (English Translation) (incorporated by reference to Exhibit 10.17
to our current report on Form 8-K (File No. 001-38261), as amended, initially filed with the SEC on May 6, 2019)
Form of Used Vehicle Purchase Agreement (English Translation) (incorporated by reference to Exhibit 10.18 to our
current report on Form 8-K (File No. 001-38261), as amended, initially filed with the SEC on May 6, 2019)
Form of Used Vehicle Agency Services Agreement (English Translation) (incorporated by reference to Exhibit 10.19
to our current report on Form 8-K (File No. 001-38261), as amended, initially filed with the SEC on May 6, 2019)
Form of Vehicle Consignment Agreement (English Translation) (incorporated by reference to Exhibit 10.20 to our
current report on Form 8-K (File No. 001-38261), as amended, initially filed with the SEC on May 6, 2019)
Form of Loan and Service Agreement (English Translation) (incorporated by reference to Exhibit 10.21 to our current
report on Form 8-K (File No. 001-38261), as amended, initially filed with the SEC on May 6, 2019)
Form of Used Vehicle Sales Agreement (English Translation) (incorporated by reference to Exhibit 10.22 to our
current report on Form 8-K (File No. 001-38261), as amended, initially filed with the SEC on May 6, 2019)
Share Exchange Agreement among CM Seven Star Acquisition Corporation , Kaixin Auto Group and Renren Inc.,
dated November 2, 2018 (incorporated by reference to Exhibit 10.23 to our current report on Form 8-K (File No. 001-
38261), as amended, initially filed with the SEC on May 6, 2019)
Master Transaction Agreement among Renren Inc. CM Seven Star Acquisition Corporation and Kaixin Auto Group,
dated April 30, 2018 (incorporated by reference to Exhibit 10.24 to our current report on Form 8-K (File No. 001-
38261), as amended, initially filed with the SEC on May 6, 2019)
Non-Competition Agreement between Renren Inc. and Kaixin Auto Group, dated April 30, 2018 (incorporated by
reference to Exhibit 10.25 to our current report on Form 8-K (File No. 001-38261), as amended, initially filed with the
SEC on May 6, 2019)
Transitional Services Agreement between Renren Inc. and Kaixin Auto Group, dated April 30, 2018 (incorporated by
reference to Exhibit 10.26 to our current report on Form 8-K (File No. 001-38261), as amended, initially filed with the
SEC on May 6, 2019)
Investor Rights Agreement among CM Seven Star Acquisition Corporation, Shareholder Value Fund and Renren Inc.,
dated April 30, 2018 (incorporated by reference to Exhibit 10.27 to our current report on Form 8-K (File No. 001-
38261), as amended, initially filed with the SEC on May 6, 2019)
Escrow Agreement concerning earnout shares among Renren Inc., CM Seven Star Acquisition Corporation and Vistra
Corporate Services (HK) Limited, an escrow agent, dated April 30, 2018 (incorporated by reference to Exhibit 10.28
to our current report on Form 8-K (File No. 001-38261), as amended, initially filed with the SEC on May 6, 2019)
2019 Kaixin Auto Holdings Equity Incentive Plan (incorporated by reference to Exhibit 10.30 to our current report on
Form 8-K (File No. 001-38261), as amended, initially filed with the SEC on May 6, 2019)
Waiver Letter in connection with the Share Exchange Agreement among CM Seven Star Acquisition Corporation,
Kaixin Auto Group, Renren Inc. and Shareholder Value Fund, dated April 30, 2019 (incorporated by reference to
Exhibit 2.2 to our quarterly report on Form 10-Q (File No. 001-38261) filed with the SEC on May 15, 2019)
140
Table of Contents
4.29
4.30
4.31
4.32
4.33
4.34
4.35
4.36
4.37
4.38
4.39
4.40
4.41*
4.42*
4.43
4.44*
4.45*
4.46*
4.47*
8.1*
11.1
12.1*
12.2*
13.1*
13.2*
15.1*
15.2*
16.1*
101.INS*
101.SCH*
Subscription Agreement between Kaixin Auto Holdings and Shareholder Value fund, dated June 10, 2020
(incorporated by reference to Exhibit 4.29 to our annual report on Form 20-F (File No. 001-38261) filed with the SEC
on July 10, 2020)
Share Purchase Agreement, dated December 31, 2020, among the Company and shareholders of Haitaoche Limited
(incorporated by reference to Exhibit 99.2 to our current report on Form 6-K (File No. 001-38261), initially filed with
the SEC on January 06, 2021)
Securities Purchase Agreement, dated December 28, 2020, between the Company and KX Venturas 4 LLC
(incorporated by reference to Exhibit 99.1 to our current report on Form 6-K (File No. 001-38261), initially filed with
the SEC on December 30, 2020)
Kaixin Auto Holding Certificate of Designation of Series A Convertible Preferred Shares, dated December 29, 2020
(incorporated by reference to Exhibit 99.2 to our current report on Form 6-K (File No. 001-38261), initially filed with
the SEC on December 30, 2020)
Registration Rights Agreement, dated December 29, 2020, between the Company and KX Venturas 4
LLC(incorporated by reference to Exhibit 99.3 to our current report on Form 6-K (File No. 001-38261), initially filed
with the SEC on December 30, 2020)
Form of Warrants issued or to be issued by the Company to KX Venturas 4 LLC(incorporated by reference to Exhibit
99.4 to our current report on Form 6-K (File No. 001-38261), initially filed with the SEC on December 30, 2020)
Securities Purchase Agreement, dated March 31, 2021, between Kaixin Auto Holdings and Renren Inc. (incorporated
by reference to Exhibit 99.1 to our current report on Form 6-K (File No. 001-38261), initially filed with the SEC on
April 06, 2021)
Kaixin Auto Holding Certificate of Designation of Series D Convertible Preferred Shares, dated March 31 , 2021
(incorporated by reference to Exhibit 99.2 to our current report on Form 6-K (File No. 001-38261), initially filed with
the SEC on April 06, 2021)
2020 Kaixin Auto Holdings Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to our current report on
Form S-8 (File No. 001-38261), initially filed with the SEC on May 26, 2021)
2021 Kaixin Auto Holdings Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to our current report on
Form S-8 (File No. 001-38261), initially filed with the SEC on September 1, 2021)
Securities Purchase Agreement between Kaixin and Streeterville Capital, LLC dated November 19, 2021
Convertible Promissory Note in the principle amount of $2,180,000 between Kaixin and Streeterville Capital, LLC
dated November 19, 2021
Securities Purchase Agreement between Kaixin and Streeterville Capital, LLC dated April 8, 2022
Convertible Promissory Note in the principle amount of $2,180,000 between Kaixin and Streeterville Capital, LLC
dated April 8, 2022
2022 Kaixin Auto Holdings Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to our current report on
Form S-8 (File No. 001-38261), initially filed with the SEC on May 27, 2022)
Equity Transfer Agreement, dated August 5, 2022, between Kaixin Auto Group and Stanley Start Group Inc
The Supplemental Agreement to the Equity Transfer Agreement, dated December 28, 2022, between Kaixin Auto
Group, Kaixin Auto Holdings and Stanley Start Group Inc
Kaixin Auto Holdings Certificate of Designation of Series F Convertible Preferred Shares, dated March 24, 2023
Securities Purchase Agreement, dated March 24, 2023, by and between Kaixin Auto Holdings and Stanley Star Group
Inc
Principal subsidiaries of the Registrant
Code of Business Conduct and Ethics of the Registrant (incorporated by reference to Exhibit 11.1 to our annual report
on Form 20-F (File No. 001-38261) filed with the SEC on July 10, 2020)
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes - Oxley Act of 2002
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes - Oxley Act of 2002
Consent of Onestop Assurance PAC, Independent Registered Public Accounting Firm
Consent of Marcum Asia CPAs LLP, Independent Registered Public Accounting Firm
Letter dated May 16, 2023 of Marcum Asia CPAs LLP, as required by Item 16F of Form 20-F
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
141
Table of Contents
101.CAL*
101.DEF*
101.LAB*
101.PRE*
104*
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
*
Filed herewith
142
Table of Contents
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and
authorized the undersigned to sign this annual report on its behalf.
SIGNATURES
Date: May 16, 2023
Kaixin Auto Holdings
/s/ Mingjun Lin
By:
Name:Mingjun Lin
Title: Chief Executive Officer
143
Table of Contents
KAIXIN AUTO HOLDINGS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022, 2021, AND 2020
CONTENTS
PAGE(S)
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS (PCAOB ID: 6732)
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS (PCAOB ID: 5395)
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2021 AND 2022
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) FOR THE YEARS
ENDED DECEMBER 31, 2020, 2021 AND 2022
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2020,
2021 AND 2022
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND
2022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-2
F-3
F-4
F-5
F-6
F-7
F-8
F-1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Kaixin Auto Holdings:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Kaixin Auto Holdings: and subsidiaries (the “Company”) as of
December 31, 2022, and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity,
and cash flows for the year then ended, and the related notes and Schedule I (collectively referred to as the “financial statements”). In our
opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022,
and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in
the United States of America.
Convenience Translation
Our audit also comprehended the translation of Renminbi amounts into United States dollar amounts and, in our opinion, such translation
has been made in conformity with the basis stated in Note 2 to the financial statements. Such United States dollar amounts are presented
solely for the convenience of readers outside the People’s Republic of China.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our
audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit
provides a reasonable basis for our opinion.
Critical Audit Matter
Critical audit matters are matters arising from the current-period audit of the financial statements that were communicated or required to
be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Onestop Assurance PAC
Flushing, Singapore
May 16, 2023
We have served as the Company’s auditors since 2023.
F-2
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Kaixin Auto Holdings:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Kaixin Auto Holdings (the “Company”) as of December 31, 2021, the
related consolidated statements of operations and comprehensive income (loss), changes in equity and cash flows for each of the two
years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our
opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021,
and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with
accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 2 to the financial statements, the Company has changed its method of accounting for lease in year ended December
31, 2021 due to the adoption of Accounting Standards Codification Topic 842, Leases, as amended, effective January 1, 2021, using the
modified retrospective approach.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our
audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our
audits provide a reasonable basis for our opinion.
/s/ Marcum Asia CPAs LLP
Marcum Asia CPAs LLP
(formerly Marcum Bernstein & Pinchuk LLP)
We have served as the Company’s auditor from 2020 to 2023.
New York, NY
April 27, 2022
F-3
Table of Contents
KAIXIN AUTO HOLDINGS
CONSOLIDATED BALANCE SHEETS
(In thousands of US dollars, except share, per share data, or otherwise noted)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Inventories
Other receivables
Prepayment for vehicle purchase and other current assets, net
TOTAL CURRENT ASSETS
Property and equipment, net
Intangible assets, net
Operating lease right-of-use assets
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable
Advances from customers
Short-term borrowings
Short-term operating lease liabilities
Convertible notes
Income tax payable
Amounts due to related parties
Warrant liability
Payable for sales incentive
Accrued expenses and other current liabilities
TOTAL CURRENT LIABILITIES
Long-term bank loan
Long-term operating lease liabilities
Convertible notes
Payable for dealership settlement
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
COMMITMENT AND CONTIGENCIES
SHAREHOLDERS’ EQUITY
Ordinary Shares (par value of $0.00005 per shares; 1,000,000,000 shares authorized, 163,129,655 and 238,368,861
shares issued as of December 31, 2021 and 2022, respectively. 163,129,655 and 228,250,210 shares issued and
outstanding as of December 31, 2021 and 2022, respectively)
Series D convertible preferred shares (par value of $0.0001, 6,000 and 6,000 shares authorized as of December 31, 2021
and 2022, respectively. 6,000 shares and 6,000 issued and outstanding as of December 31, 2021 and 2022 respectively.)
Series F convertible preferred shares (par value of 0.00005, nil and 50,000 shares authorized as of December 31, 2021
and 2022, respectively. Nil and 50,000 issued and outstanding as of December 31, 2021 and 2022 respectively.)
Additional paid-in capital
Statutory reserve
Accumulated deficit
Accumulated other comprehensive income
TOTAL KAIXIN AUTO HOLDINGS’ SHAREHOLDERS’ EQUITY
Non-controlling interests
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
As of December 31,
2021
2022
5,263
404
—
53,270
58,937
22
14,640
561
15,223
74,160
295
553
6,277
85
—
3,399
3,943
340
—
14,491
29,383
2,000
431
2,022
2,245
6,698
36,081
—
8
1
227,310
8
(198,302)
637
29,662
8,417
38,079
74,160
$
$
$
$
$
7,102
31
8,848
26,321
42,302
49
12,903
428
13,380
55,682
—
—
2,000
119
4,305
776
1,627
24
1,638
9,379
19,868
—
311
—
—
311
20,179
—
11
3
312,831
8
(283,008)
1,470
31,315
4,188
35,503
55,682
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Table of Contents
KAIXIN AUTO HOLDINGS
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In thousands of US dollars, except share, per share data, or otherwise noted)
REVENUE, NET
Cost of revenues
GROSS PROFIT
Selling and marketing expenses
General and administrative expenses
Impairment of goodwill
Total operating expenses
LOSS FROM OPERATIONS
Other income (expenses), net
Foreign currency exchange gain (loss)
Interest expense, net
Gain on disposal of subsidiaries
Change in fair value of warrants
Impairment of prepaid expenses and other current assets
Provision for dealership settlement
LOSS BEFORE INCOME TAX PROVISION
Income tax benefit (expenses)
NET LOSS
Less: net income attributable to non-controlling interests
NET LOSS ATTRIBUTABLE TO KAIXIN’S SHAREHOLDERS
Other comprehensive income
Foreign currency translation adjustment
COMPREHENSIVE INCOME (LOSS)
Less: comprehensive income attributable to non-controlling interest
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO KAIXIN’S SHAREHOLDERS
Net loss per share
Basic and diluted
Weighted average shares used in calculating net loss per share
Basic and diluted
$
$
For the years ended December 31,
2021
2022
2020
1,207
1,207
—
11
265
—
276
(276)
25
86
(1)
—
—
—
—
(166)
—
(166)
—
(166)
181
15
—
15
—
(0.0022)
—
74,035,502
$
$
253,840
248,583
5,257
481
43,734
143,655
187,870
(182,613)
(4)
(432)
(245)
—
1,995
(4,216)
(11,142)
(196,657)
729
(195,928)
651
(196,579)
512
(195,416)
768
(196,184)
—
(1.7181)
—
114,416,353
$
$
82,840
82,194
646
2,097
46,488
—
48,585
(47,939)
728
(139)
(1,034)
1,578
316
(22,921)
(15,134)
(84,545)
(74)
(84,619)
87
(84,706)
1,866
(82,753)
(940)
(81,813)
—
(0.0004)
—
200,167,152
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Table of Contents
KAIXIN AUTO HOLDINGS
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022
(In thousands of US dollars, except share and per share data, or otherwise noted)
Balance as of December 31, 2019
Shareholder investment
Capital divestments
Net loss
Foreign currency translation
adjustment, net of nil income taxes
Balance as of December 31, 2020
Net loss
Reverse acquisition
Vesting of restricted shares award
Share-based compensation-option
Series A preferred shares conversion
Contingent liabilities assumed by
Renren Inc.
Foreign currency translation
adjustment, net of nil income taxes
Balance as of December 31, 2021
Net loss
Issuance of ordinary shares and warrant
for private placement
Shareholder investment
Dispose subsidiaries
Issuance of preferred shares
Foreign currency translation
adjustment
Vesting of restricted shares award
Issuance of ordinary shares held in
escrow
Balance as of December 31, 2022
— $
—
—
—
—
— $
—
6,000
—
—
—
—
—
6,000
$
—
—
—
—
50,000
—
—
—
56,000
$
Preferred shares
Shares Amount
Ordinary shares
Shares
Additional
paid-in
Amount capital
5,499
4 $
8,096
—
(5,963)
—
—
—
$
— $ 74,035,502
—
—
—
—
—
—
$
$
—
—
—
1
—
—
—
—
—
1
—
—
—
—
2
—
—
—
3
—
74,035,502
$
—
4 $
—
7,632
—
69,424,993
18,580,015
—
1,089,145
—
—
163,129,655
$
—
4,406,542
—
—
—
—
38,911,291
21,802,722
228,250,210
$
—
3
1
—
—
—
—
8
—
1
—
—
—
—
1
1
11
—
167,756
40,335
1,254
1,436
8,897
—
$ 227,310
$
—
4,243
—
—
24,591
—
39,309
8
—
—
—
—
8
—
—
—
—
—
—
—
8
—
—
—
—
—
—
—
Statutory
reserve
Accumulated
deficit
Accumulated
Other
Comprehensive
(loss) income
Total
shareholders’
equity
Non-
controlling
interest
Total
shareholders’
equity
$
$
$
(1,557)
—
—
(166)
—
(1,723)
$
(196,579)
—
—
—
—
—
—
(198,302)
$
$
(84,706)
$
$
$
61
—
—
—
181
242
—
—
—
—
—
—
395
637
—
4,015
8,096
(5,963)
(166)
181
6,163
$
$
— $
—
—
—
—
— $
(196,579)
167,760
40,336
1,254
1,436
8,897
651
7,649
—
—
—
—
395
29,662
$
117
8,417
$
4,015
8,096
(5,963)
(166)
181
6,163
(195,928)
175,409
40,336
1,254
1,436
8,897
512
38,079
(84,706)
87
(84,619)
—
—
—
—
—
—
—
—
(2,060)
—
2,893
—
4,244
-
(2,060)
24,593
2,893
39,310
—
665
(3,954)
—
(1,027)
—
4,244
665
(6,014)
24,593
1,866
39,310
17,379
35,503
17,378
$ 312,831
$
—
8
$
—
(283,008)
$
—
1,470
$
17,379
31,315
$
—
4,188
$
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Table of Contents
KAIXIN AUTO HOLDINGS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of US dollars, except share and per share data, or otherwise noted)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities of continuing operations:
For the years ended December 31,
2021
2022
2020
$
(166)
$
(195,928)
$
(84,619)
Depreciation and amortization
Impairment of goodwill
Loss from the disposal of property and equipment
Fair value change of warrants
Share-based compensation
Foreign currency exchange (gain) loss
Impairment of prepaid expenses and other current assets
Provision for dealership settlement
Provision for sales incentive
Gain on disposal of subsidiaries
Financial expenses
Interest expenses of convertible note in interest method
Changes in operating assets and liabilities:
Inventories
Prepayment for vehicle purchase and other current assets
Amount due from related parties
Accounts payable
Advances from customers
Accrued expenses and other current liabilities
Short-term lease liabilities
Amount due to related parties
Income tax payable
Net cash used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net
Purchase of intangible assets
Cash disposed on disposal of subsidiaries
Cash acquired on reverse acquisition
Net cash (used in) provided by investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of ordinary shares and warrant
Proceeds from convertible note
Cash paid for offering cost
Capital contribution
Capital divestment
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net changes in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest expense paid
Income tax paid
NON-CASH ACTIVITIES:
Net assets acquired on reverse acquisition (See Note 3)
Issuance of Series F preferred shares in connection a disposal of subsidiaries
Vesting of restricted shares award
Obtaining right-of-use assets in exchange for operating lease liabilities
F-7
5
—
—
—
—
(86)
—
—
—
—
—
—
—
(437)
(509)
—
326
1
—
(269)
—
(1,135)
—
(290)
—
—
(290)
—
—
—
8,095
(5,963)
2,132
(104)
603
4
607
$
$
—
—
—
—
—
—
787
143,655
8
(1,995)
41,589
432
4,216
11,142
—
—
—
22
(404)
(6,121)
326
(111)
(318)
1,287
(31)
25
(684)
(2,103)
—
(32)
—
4,299
4,267
—
2,000
—
—
—
2,000
492
4,656
607
5,263
23
—
161,760
—
1
515
$
1,681
—
—
(316)
39,310
(139)
22,921
15,134
1,638
(1,578)
1,103
683
373
355
—
(38)
(390)
1,984
(98)
—
(398)
(2,394)
(59)
—
(97)
—
(156)
4,717
2,000
(1,976)
665
—
5,406
(1,017)
1,839
5,263
7,102
(362)
26
—
(24,593)
—
—
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
Kaixin Auto Holdings (“the Company” or “KAH”), was incorporated in the Cayman Islands in 2016.
On June 25, 2021, KAH completed a business combination with Haitaoche Limited (“Haitaoche”, or “HTC”), resulting in KAH
acquiring 100% of the share capital of Haitaoche in exchange for an aggregate of 74,035,502 ordinary shares, which was issued to
several former shareholders of Haitaoche. The business combination was treated as a reverse acquisition of KAH under ASC 805, using
the acquisition method of accounting, and Haitaoche was deemed to be the accounting acquirer. (See Note 3).
Following the completion of the reverse acquisition, KAH is the consolidated parent of Haitaoche and the resulting company
operates under the KAH corporate name. Haitaoche’s historical financial statements became the historical financial statements of the
Company. The acquired assets and liabilities of KAH are included in the Company’s consolidated balance sheet since June 25, 2021 and
the results of its operations and cash flows are included in the Company’s consolidated statement of operations and comprehensive
income (loss) and cash flows for periods beginning after June 25, 2021.
The Company and its consolidated subsidiaries, are collectively referred to as the “Group”. The Group is primarily engaged in
sales of domestic automobiles and the used car sales business in the People’s Republic of China (“PRC”).
The major subsidiaries of the Company as of December 31, 2022 are summarized as below:
Name of Subsidiaries
Major subsidiaries:
Later of date of
incorporation or
acquisition
Place of
Incorporation
% of
Ownership
Kaixin Auto Group (“KAG”)
January 25, 2018 Cayman Islands
Jet Sound Hong Kong Company Limited
May 7, 2011
Hong Kong
Zhejiang Taohaoche Technology Co., Ltd.
July 11, 2019
Zhejiang Kaixin Auto Co., Ltd
Chongqing Jieying Shangyue Automobile Sales Co.,
Ltd.
April 4, 2021
July 3, 2017
Wuhan Jieying Chimei Automobile Sales Co., Ltd.
November 20, 2017
PRC
PRC
PRC
PRC
100
100
100
100
100
100
%
%
%
%
%
%
Anhui Kaixin New Energy Vehicle Co., Ltd.
January 25, 2022
PRC
100
%
Principal activities
Investment
holding
Investment
holding
New car trading
business
Used car trading
business
Used car trading
business
Used car trading
business
New energy
vehicle trading
business
Effectively completed on October 27, 2022, the Group disposed all the shares it held in Renren Finance Inc, which holds all the
Group’s VIEs and VIEs’ subsidiaries in China (collectively referred to as the “Disposal group”), to Stanley Star Group Inc. (“Stanley
Star” or “the Buyer”), a third-party company incorporated in BVI. (See Note 4)
F-8
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
1. ORGANIZATION AND PRINCIPAL ACTIVITIES-CONTINUED
PRC regulations currently limit direct foreign ownership of business entities providing value-added telecommunications
services and internet services in the PRC where certain licenses are required for the provision of such services. To comply with the PRC
laws and regulations, the Company used to primarily conduct such kind of business in China through the Company’s VIEs, i.e. Anhui
Xin Jieying Automobile Sales Co., Ltd (“Anhui Xin Jieying”, formerly known as Zhejiang Jieying Automobile Sales Co., Ltd and
Shanghai Jieying Automobile Sales Co., Ltd), Shanghai Qianxiang Changda Internet Information Technology Development Co.,Ltd.
(“Shanghai Changda”), Ningbo Jiusheng Automobile Sales and Services Co., Ltd. (“Ningbo Jiusheng”) and Qingdao Shengmei lianhe
Import Automobile Sales Co., Ltd. (“Qingdao Shengmei”) and their subsidiaries, based on a series of contractual arrangements by and
among Zhejiang Kaixin Auto. Co., Ltd. (“Zhejiang Kaixin”), Shanghai Renren Automotive Technology Group Co., Ltd. (“Shanghai
Auto”), Zhejiang Taohaoche Technology Co., Ltd. (“Zhejiang Taohaoche”, formerly known as Ningbo Taohaoche Technology Co., Ltd.),
the Company’s VIEs and their nominee shareholders. The contractual arrangements include Shareholders’ Voting Rights Proxy
Agreements, Executive Call Option Agreements, Equity Pledge Agreements and Exclusive Business Cooperation Agreements.
With the disposition of Renren Finance Inc, all VIEs were disposed as of October 27, 2022 (“closing date”) (see Note 4).
COVID -19 Risks and Uncertainties
With the China’s nationwide loosening of COVID-19 policy since December 2022, management is currently evaluating the
impact of the COVID-19 pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on
the Company’s financial position and results of its operations, the specific impact is not readily determinable as of the date of these
financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of presentation
The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally
accepted in the United States of America (“US GAAP”).
(b) Principles of consolidation
The consolidated financial statements include the financial statements of the Group, its subsidiaries, its VIEs, and subsidiaries of
its VIE.s All inter-company transactions and balances have been eliminated upon consolidation.
(c) Non-controlling interests
Non-controlling interests in the subsidiaries of VIEs of the Group represent the portion of the equity (net assets) in the
subsidiaries of VIEs that has not been pledged to the subsidiary of the Group, consequently not directly or indirectly attributable to the
Group. Non-controlling interests are presented as a separate component of equity on the consolidated balance sheet and net income (loss)
and other comprehensive income (loss) are attributed to controlling and non-controlling interests respectively.
(d) Business combinations
Business combinations are recorded using the acquisition method of accounting. The Group uses a screen to evaluate whether a
transaction should be accounted for as an acquisition and/or disposal of a business versus assets. In order for a purchase to be considered
an acquisition of a business, and receive business combination accounting treatment, the set of transferred assets and activities must
include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. If
substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable
assets, then the set of transferred assets and activities is not a business.
F-9
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED
The purchase price of business acquisition is allocated to the tangible assets, liabilities, identifiable intangible assets acquired
and noncontrolling interest, if any, based on their estimated fair values as of the acquisition date. The excess of the purchase price over
those fair values is recorded as goodwill. Acquisition-related expenses and restructuring costs are expensed as incurred.
Where the consideration in an acquisition includes contingent consideration and the payment of which depends on the
achievement of certain specified conditions post-acquisition, the contingent consideration is recognized and measured at its fair value at
the acquisition date and if recorded as a liability, it is subsequently carried at fair value with changes in fair value reflected in earnings.
(e) Use of estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, and the reported amounts of revenues and expenses in the financial statements
and accompanying notes. Significant accounting estimates reflected in the Group’s consolidated financial statements include, but are not
limited to, warrant liabilities, the valuation of prepaid expenses and other current assets, deferred tax valuation allowance, impairment
assessment on goodwill and intangible assets, the valuation of preferred shares, the purchase price allocation associated with business
combinations.
(f) Fair value measurement
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or
permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and it
considers assumptions that market participants would use when pricing the asset or liability.
Authoritative literature provides a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair
value into three broad levels. The level in the hierarchy within which the fair value measurement in its entirety falls is based upon the
lowest level of input that is significant to the fair value measurement as follows:
● Level 1 — inputs are based upon unadjusted quoted prices for identical assets or liabilities traded in active markets.
● Level 2 — inputs are based upon quoted prices for similar assets and liabilities in active markets, quoted prices for
identical or similar assets and liabilities in markets that are not active and model-based valuation techniques for which all
significant assumptions are observable in the market or can be corroborated by observable market data for substantially the
full term of the assets or liabilities.
● Level 3 — inputs are generally unobservable and typically reflect management’s estimates of assumptions that market
participants would use in pricing the asset or liability. The fair values are therefore determined using model-based
techniques that include option pricing models, discounted cash flow models, and similar techniques.
(g) Warrants
The Group accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the
warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”).
The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a
liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including
whether the warrants are indexed to the Group’s own ordinary shares, among other conditions for equity classification. This assessment,
which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period
end date while the warrants are outstanding.
F-10
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as
a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for
equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date
thereafter with changes in fair value recognized in the statements of operations in the period of change.
(h) Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and cash in banks. The Group considers all short-term investments with an
original maturity of three months or less when purchased to be cash equivalents.
(i) Prepayment for vehicle purchase and other assets
Prepayment for vehicle purchase, other current assets and other non-current assets consist of prepayment for vehicle purchase to
the dealership operators, advances to suppliers, deductible input VAT, other receivables and others. The Group reviews suppliers credit
history and background information before advancing a payment. The Group maintains an allowance for doubtful accounts based on a
variety of factors, including but not limited to the aging of prepayments, concentrations, credit-worthiness, historical and current
economic trends and changes in delivery patterns. If the financial condition of its suppliers were to deteriorate, resulting in an
impairment of their ability to deliver goods or provide services, the Group would provide allowance for such amount in the period when
it is considered impaired. There was no allowance recognized for the prepayment for vehicle purchase, other current assets and other
non-current assets for the years ended December 31, 2020. The Company recorded impairment loss of nil and $22,921 for prepayment
for vehicle purchase and other current assets for the years ended December 31, 2021 and 2022, and recorded impairment loss of $4,216
and nil for other non-current assets for the years ended December 31, 2021 and 2022.
(j)
Inventory
Inventory includes only the purchased new automobiles. Inventory is stated at the lower of cost or net realizable value.
Inventory cost is determined by specific identification. Net realizable value is the estimated selling price less costs to complete, dispose
and transport the vehicles. Selling prices are derived from historical data and trends, such as sales price and inventories turnover times of
similar vehicles, as well as independent, market resources. Each reporting period the Group recognizes any necessary adjustments to
reduce the cost of vehicle inventories to its net realizable value through cost of sales in the accompanying consolidated statements of
operations.
Vehicle inventories are considered slow moving if they have not been sold within a 90 days period since procurement. In
estimating the level of inventories write-downs for slow moving vehicles, the Group considers historical data and forecasted customer
demand, such as sales price and inventories turnover of similar vehicles with similar mileage and condition, as well as independent,
market information. This valuation process requires management to make judgments, based on currently available information, and
assumptions about future demand and market conditions, which are inherently uncertain. To the extent that there are significant changes
to estimated vehicle selling prices or decreases in demand for used vehicles, there could be significant adjustments to reflect inventories
at net realizable value. There were no write-downs of inventories recorded for the years ended December 31,2020, 2021 and 2022.
(k) Convertible notes
The Group accounts for its convertible notes under ASC 470 Debt, using the effective interest method, as a single debt
instrument, from the issuance date to the maturity date. Interest expenses are recognized in the consolidated statement of operation in the
period in which they are incurred. If the convertible notes are converted into equity, the company must extinguish the related debt
liability. The Group should recognize any difference between the carrying amount of the liability and the fair value of the equity
instruments issued as a gain or loss in the income statement.
F-11
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED
(l) Property and equipment, net
Property and equipment are stated at cost less accumulated depreciation and impairment if any. The depreciation is recognized
on a straight-line basis over the estimated useful lives of the assets. Cost represents the purchase price of the asset and other costs
incurred to bring the asset into its intended use. The cost of repairs and maintenance is expensed as incurred; major replacements and
improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the
accounts, and any resulting gains or losses are included in income/loss in the year of disposition. Estimated useful lives are as follows:
Computer equipment and application software
Furniture and vehicles
(m) Intangible assets, net
Estimated Useful Life
2 - 3 Years
5 Years
Intangible asset is stated at cost less accumulated amortization and impairment if any. Intangible asset is amortized in a method
which reflects the pattern in which the economic benefits of the intangible asset are expected to be consumed or otherwise used up.
When assets are retired or disposed of, the cost and accumulated amortization are removed from the accounts, and any resulting gains or
losses are included in income/loss in the year of disposition. Estimated useful lives are as follows:
Software
Domain name
Trademark
Estimated Useful Life
10 Years
10 Years
10 Years
In accordance with ASC Topic 360, the Company reviews intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be fully recoverable. Software and domain name are used for the
business of Haitaoche and no impairment indicators was noted. The trademark recognized from the Reverse Acquisition were initial
recognized using Relief-From-Royalty (“RFR”) method. The trademark was tested for impairment due to identification of impairment
indicator.
The amount of impairment is measured as the difference between the asset’s estimated fair value and its carrying amount. The
Company did not record any impairment charge for the years ended December 31, 2020, 2021and 2022.
(n) Goodwill
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business
combinations.
The Group assesses goodwill for impairment on annual basis as of December 31 or if indicator noted for goodwill impairment.
In accordance with ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU
2017-04”) issued by the Financial Accounting Standards Board (“FASB”) guidance on testing of goodwill for impairment, the Group will
first assess qualitative factors to determine whether it is “more likely than not” that the fair value of a reporting unit is less than its
carrying amount as a basis for determining whether it is necessary to perform the quantitative impairment test. If this is the case, the
quantitative goodwill impairment test is required. If it is more likely-than-not that the fair value of a reporting unit is greater than its
carrying amount, the quantitative goodwill impairment test is not required.
F-12
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED
Quantitative goodwill impairment test is used to identify both the existence of impairment and the amount of impairment loss,
compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit is greater
than its carrying amount, goodwill is not considered impaired. If the fair value of the reporting unit is less than its carrying amount, an
impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting
unit.
For the goodwill recognized subsequent to the reverse acquisition on June 25, 2021, the management performed qualitative
assessment and noted certain facts and circumstances indicated that it was more likely than not that the fair value of the reporting unit
was less than its carrying value, which required the Group to perform a quantitative test, with the income approach using discounted cash
flow (“DCF”), to determine the fair value of the KAH Group reporting unit. Based on the results of the quantitative goodwill impairment
test, the Group fully impaired the goodwill generated through the reversed acquisition of $143,655 in 2021.
(o) Impairment of long-lived assets
In accordance with ASC Topic 360, the Group reviews long-lived assets or asset group for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets or asset group may not be fully recoverable. If circumstances
require a long-lived asset or asset group be tested for possible impairment, the Group first compares undiscounted cash flows expected to
be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not
recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value.
Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-
party independent appraisals, as considered necessary. Any impairment write-downs would be treated as permanent reductions in the
carrying amounts of the assets and a charge to operations would be recognized. Management has performed a review of all long-lived
assets and has determined that no impairment loss for long-lived assets has occurred for the year ended December 31, 2020 and recorded
impairment loss of $4,216 and nil for other long-lived assets for the years ended December 31, 2021 and 2022.
(p) Operating lease right-of -use assets
The Group leases premises for offices under non-cancellable operating leases.
Prior to the adoption of Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) and subsequent amendments
to the initial guidance including ASU No. 2017-13, ASU No. 2018-10, ASU No. 2018-11, ASU No. 2018-20, and ASU No. 2019-01
(collectively, “Topic 842”), operating leases were not recognized on the consolidated balance sheets, instead, rental expenses with fixed
payments were recognized on a straight-line basis over the lease term.
Effective January 1, 2021, the Group adopted Topic 842 using a modified retrospective transition approach for leases that exist
at, or are entered into after January 1, 2021, and has not recast the comparative periods presented in the consolidated financial statements.
Upon adoption of Topic 842 and the reverse acquisition, the lease liabilities are recognized upon lease commencement for operating
leases based on the present value of lease payments over the lease term. The right-of-use assets are initially measured at cost, which
comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any
initial direct costs incurred less any lease incentives received. As the rate implicit in the lease cannot be readily determined, the Group’s
incremental borrowing rate at the lease commencement date is used in determining the imputed interest and present value of lease
payments. The incremental borrowing rate was determined using a portfolio approach based on the rate of interest that the Group would
have to borrow an amount equal to the lease payments on a collateralized basis over a similar term. The Group recognizes the single
lease cost on a straight-line basis over the remaining lease term for operating leases.
The Group has elected not to recognize right-of-use assets or lease liabilities for leases with an initial term of 12 months or less;
expenses for these leases are recognized on a straight-line basis over the lease term.
F-13
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED
(q) Value added tax
Value-added tax (“VAT”) is reported as a deduction to revenue when incurred. Entities that are VAT general taxpayers are
allowed to offset qualified input VAT paid to suppliers against their output VAT liabilities. Net VAT balance between input VAT and
output VAT is recorded in accrued expense and other current liabilities on the consolidated balance sheets.
In 2018, the Group entered into a series of ancillary agreements to facilitate its sale of used cars for value-added tax
optimization purposes, which was still applicable in 2022. Under these ancillary agreements, when the Group sources a used car, the
legal ownership of the car is transferred toZhejiang Kaixin Auto Co., Ltd’s executives, and the registration is normally under the name of
one of the dealership’s employees. The Group viewed itself as a service provider for VAT purpose, and therefore is only subject to value-
added tax on the difference between the original purchase price and the retail price of the used cars. The Group’s other affiliated entities
in the PRC, including Zhejiang Taohaoche are subject to VAT for sales of automobiles at applicable tax rates, and subsequently paid to
PRC tax authorities after netting input VAT on purchases.
The Group reports revenue net of PRC’s VAT for all the periods presented in the consolidated statements of operations.
(r) Revenue recognition
The Group accounts for revenue using Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with
Customers. The following five steps are applied to achieve core principle of ASC 606:
Step 1: Identify the contract with the customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when the Group satisfies a performance obligation
The Group primarily sells automobiles to car dealers and individual customers through signing written sales contracts. The
Group presents the revenue generated from its sales of automobiles on a gross basis as the Group is a principal based on the fact that the
Group is primarily responsible for fulling the promise to deliver the specified used cars or new cars to the customers, the Group also has
pricing discretion and obtains substantially all of the remaining benefits from the sale goods. Revenue is recognized at a point in time
upon delivery, which usually coincide with the timing of the customer acceptance.
The following table identifies the disaggregation of the revenue for the years ended December 31, 2020, 2021 and 2022,
respectively:
Used-car sales
New-car wholesales
Total revenues
Advances from customers
$
$
2020
— $
For the year ended December 31,
2021
251,054
2,786
253,840
$
$
$
1,207
1,207
2022
80,034
2,806
82,840
Advances from customers for sales of goods are payment from customers for purchase, and are deferred when corresponding
performance obligation has not been satisfied. They are recognized as revenue upon the Group transfers the control of products to the
customers.
F-14
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED
(s) Cost of revenue
Cost of revenue consists primarily of cost of goods purchased from domestic and overseas regions.
(t)
Income taxes
The Group accounts for income taxes using the asset/liability method prescribed by ASC 740 Income Taxes. Under this method,
deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and
liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Group records a
valuation allowance to offset deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some
portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income
or loss in the period that includes the enactment date.
The provisions of ASC 740-10-25, “Accounting for Uncertainty in Income Taxes,” prescribe a more-likely-than-not threshold
for consolidated financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return. This
interpretation also provides guidance on the recognition of income tax assets and liabilities, classification of current and deferred tax
assets and liabilities, accounting for interest and penalties associated with tax positions, and related disclosures. The Group’s operating
subsidiaries in PRC are subject to examination by the relevant tax authorities. According to the PRC Tax Administration and Collection
Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or the
withholding agent. The statute of limitations is extended to five years under special circumstances, where the underpayment of taxes is
more than RMB 100,000 ($15,500). In the case of transfer pricing issues, the statute of limitation is ten years. There is no statute of
limitation in the case of tax evasion. Penalties and interest incurred related to underpayment of income tax are classified as income tax
expense in the period incurred.
As of December 31, 2021 and 2022, the Group did not have any significant unrecognized uncertain tax positions and the Group
does not believe that its unrecognized tax benefits will change over the next twelve months. In addition, the Group did not have any
interest or penalties associated with uncertain tax position for the years ended December 31, 2020, 2021 and 2022.
(u) Foreign currency translation
The reporting currency of the Group is the U.S. dollar (“USD” or “$”). The functional currency of subsidiaries, VIEs located in
China is the Chinese Renminbi (“RMB”), the functional currency of subsidiaries located in Hong Kong is the Hong Kong dollars (“HK
dollar” or “HK$”). For the entities whose functional currency is the RMB and HK$, result of operations and cash flows are translated at
average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and
equity is translated at historical exchange rates. As a result, amounts relating to assets and liabilities reported on the statements of cash
flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments are
reported as foreign currency translation adjustment and are shown as a separate component of other comprehensive income (loss) in the
consolidated statements of comprehensive income (loss).
Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on
the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange
rates prevailing at the balance sheet date. Both exchanges rates were published by the Federal Reserve Board. Any transaction gains and
losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are shown
as foreign currency exchange (loss) gains in the consolidated statements of operations and comprehensive income (loss) as incurred.
The consolidated balance sheets amount, with the exception of equity, on December 31, 2021 and December 31, 2022 were
translated at RMB6.3726 to $1.00 and at RMB6.8972 to $1.00, respectively. Equity accounts were stated at their historical rates. The
average translation rates applied to consolidated statements of operations and cash flows for the years ended December 31, 2020, 2021
and 2022 were RMB6.7434 to $1.00, RMB6.3914 to $1.00 and RMB6.7290 to $1.00, respectively.
F-15
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED
(v) Share-based compensation
Share-based payment transactions with employees, such as share options are measured based on the grant date fair value of the
equity instrument. The Company recognizes the compensation costs net of estimated forfeitures using the straight-line method, over the
applicable vesting period. The estimate of forfeitures will be adjusted over the requisite service period to the extent that actual forfeitures
differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up
adjustment in the period of change and will also impact the amount of stock compensation expense to be recognized in future periods.
Share options granted to employees with market conditions attached are measured at fair value on the grant date and are recognized as
the compensation costs over the estimated requisite service period, regardless of whether the market condition has been met.
A change in any of the terms or conditions of share options is accounted for as a modification of stock options. The Company
calculates the incremental compensation cost of a modification as the excess of the fair value of the modified option over the fair value of
the original option immediately before its terms are modified, measured based on the share price and other pertinent factors at the
modification date. For vested options, the Company recognizes incremental compensation cost in the period the modification occurred.
For unvested options, the Company recognizes, over the remaining requisite service period, the sum of the incremental compensation
cost and the remaining unrecognized compensation cost for the original award on the modification date.
(w) Loss per share
Basic loss per share is computed by dividing net loss attributable to ordinary shareholders by the weighted average number of
ordinary shares outstanding for the period. Diluted loss per share is calculated by dividing net 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
equivalent shares outstanding during the period. Potentially dilutive shares are excluded from the computation if their effect is anti-
dilutive.
(x) Comprehensive income (loss)
Comprehensive income (loss) is comprised of the Group’s net income (loss) and other comprehensive income (loss). The
components of other comprehensive income (loss) consist solely of foreign currency translation adjustments.
(y) Commitments and contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded
when it is probable that a liability has been incurred and the amount can be reasonably estimated. If a potential material loss contingency
is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with
an estimate of the range of possible loss if determinable and material, is disclosed. Legal costs incurred in connection with loss
contingencies are expensed as incurred.
F-16
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED
(z) Concentration of credit risk
Financial instruments that potentially expose the Group to concentrations of credit risk consist primarily of cash and cash
equivalent, prepayment for vehicle purchase and other receivable due from noncontrolling shareholders. The Group places its cash and
cash equivalent with financial institutions with high-credit ratings and quality.
Prepayment for vehicle purchase and other current assets are concentrated with noncontrolling shareholders (Note 6) as of
December 31, 2022. With regard to the prepayment for used car purchase, the Group regularly monitor and performs inspection and
counting on these noncontrolling shareholders’ cars inventory to ensure the prepayments are recoverable. Regarding the other receivable
due from these noncontrolling shareholders, the Group has arrangement to hold the Company’s ordinary shares issued to these parties to
ensure the repayment of majority of the balances.
There were no customers that accounted for 10% or more of total revenues for the years ended December 31, 2020, 2021 and
2022. No supplier that accounted for 10% or more of total purchase for the years ended December 31, 2020, 2021 and 2022 or 10% or
more of prepaid expenses and other current assets balance as December 31, 2020, 2021 and 2022.
(aa) Segment reporting
The Group uses the management approach to determine operating segments. The management approach considers the internal
organization and reporting used by the Group’s chief operating decision maker (“CODM”) for making decisions, allocating resources,
and assessing performance. The Group’s CODM has been identified as the chief executive officer, who reviews consolidated results
when making decisions about allocating resources and assessing performance of the Group.
The Group’s CODM reviews the consolidated financial results when making decisions about allocating resources and assessing
the performance of the Group as a whole and hence, the Group has only one reportable segment. The Group operates and manages its
business as a single segment. As the Group’s long-lived assets are substantially all located in the PRC and substantially all of the Group’s
revenue is derived from within the PRC, no geographical segments are presented.
(bb) Recently Adopted Accounting Standards
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses”, which will require the measurement
of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and
reasonable and supportable forecasts. Subsequently, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, to
clarify that receivables arising from operating leases are within the scope of lease accounting standards. Further, the FASB issued ASU
No. 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11 and ASU 2020-02 to provide additional guidance on the credit losses standard,
which defers the effective date of ASU No. 2016-13 for smaller reporting companies to fiscal years beginning after December 15, 2022,
including interim periods within those fiscal years. Since as of December 31, 2022 the Company no longer qualifies as an EGC, it no
longer qualifies for the deferral of the effective date available for EGCs. As such the Company adopted the standard by using the
modified retrospective method, effective as of January 1, 2022, and reflected the impact in its financial statements for the year ended
December 31, 2022. The impact of the adoption on the consolidated balance sheets, statements of operations, and statements of cash
flows was immaterial.
F-17
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED
In August 2020, the FASB amended guidance related to accounting for convertible instruments as part of ASU 2020-06, Debt—
Debt with Conversion and Other Options (Subtopic 470-20): Debts with Conversion and Other Options. The guidance amended the
guidance on convertible debt instruments by removing accounting models for the instruments with beneficial conversion features and
cash conversion features and amended the disclosure guidance on convertible debt instruments The ASU is effective for public Group for
fiscal years, and interim periods within those fiscal years beginning after December 15, 2021. For all other entities including emerging
growth companies, the ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years
beginning after December 15, 2023. Since as of December 31, 2022 the Company no longer qualifies as an EGC, it no longer qualifies
for the deferral of the effective date available for EGCs. As such the Company adopted the standard by using the modified retrospective
method, effective as of January 1, 2022, and reflected the impact in its financial statements for the year ended December 31, 2022. The
impact of the adoption on the consolidated balance sheets, statements of operations, and statements of cash flows was immaterial.
(dd) Recent Accounting Standards
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and
Contract Liabilities from Contracts with Customers. This ASU requires acquiring entities to apply Topic 606 to recognize and measure
contract assets and contract liabilities in a business combination. This guidance is effective for public entities for fiscal years beginning
after December 15, 2022, including interim periods within those fiscal years. For all other entities, the amendments are effective for
fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The impact of adopting this guidance
on the Company’s consolidated financial statements will depend on business combinations occurring on or after the effective date.
Recently issued ASUs by the FASB, except for the ones mentioned above, are not expected to have a significant impact on the
Group’s consolidated results of operations or financial position. Other accounting standards that have been issued by FASB that do not
require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.
The Group does not discuss recent standards that are not anticipated to have an impact on or are unrelated to its consolidated financial
condition, results of operations, cash flows or disclosures.
F-18
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
3. REVERSE ACQUISITION
On June 25, 2021, KAH issued (the “Issuance”) an aggregate of 74,035,502 ordinary shares through private placement to
several former shareholders of Haitaoche in exchange of 100% of the share capital of Haitaoche, pursuant to the share purchase
agreement (the “SPA”) entered into on December 31, 2020. Following the Issuance, Haitaoche became a wholly-owned subsidiary of
KAH. Upon the consummation of the Issuance, KAH had a total of 143,460,495 outstanding ordinary shares, and former shareholders of
Haitaoche accounted for 51.61%, became the controlling shareholders of KAH. Therefore, the shareholders of Haitaoche controlled the
largest portion of the voting rights in the consolidated entity, and the management of Haitaoche became the management of the
consolidated entity after the reverse acquisition. The transaction is a business combination under ASC 805, using acquisition method of
accounting.
The fair value of the consideration paid as part of the transaction as well as the fair value of identifiable assets and liabilities
acquired are presented below.
Fair value of consideration transferred (1)
Fair value of the assets acquired and the liabilities assumed
Cash and cash equivalents
Prepaid expense
Property plant and equipment
Trademark (Intangible Assets)
Right-of-use assets
Goodwill
Subtotal of total assets
Short-term bank loan
Accounts payable
Advance from customers
Short-term lease liabilities
Other payables
Amounts due to RPT
Income tax payable
Warrants
Mezzanine equity-Preferred shares
Subtotal of total liabilities
Less: Non-controlling interest
Less: Preferred shares (2)
Total net assets
Amount
$
161,760
4,299
46,708
31
15,100
47
143,655
209,840
(8,195)
(406)
(461)
(32)
(13,198)
(4,288)
(4,079)
(2,335)
(1,437)
(34,431)
(7,649)
(6,000)
161,760
(1) The fair value of 69,424,993 ordinary shares issued to pre-reverse acquisition KAH shareholders is $161,760 based on the
quoted fair market value of $2.33 per ordinary share on June 25, 2021.
(2) It represented Series D convertible preferred shares of KAH issued to Renren Inc. on April 8, 2021 (see Note 15)
F-19
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
3. REVERSE ACQUISITION-CONTINUED
The unaudited pro forma information for the periods set forth below gives effect to the reverse acquisition as if the reverse
acquisition had occurred as of January 1, 2020. This pro forma information is presented for informational purposes only and is not
necessarily indicative of the results of operations that actually would have been achieved had the transactions been consummated as of
that time.
Revenue
Net loss
4. DISPOSAL OF SUBSIDIARIES
For the years ended December 31,
2020
Unaudited
2021
Unaudited
$
$
34,367
(5,486)
$
$
257,631
(191,468)
On August 5, 2022, KAG and Stanley Star entered into a shares transfer agreement (the “Agreement”). Pursuant to the
Agreement, the Group sell all the shares it held in Renren Finance Inc and its subsidiaries and VIEs and VIEs’ subsidiaries to Stanley
Star at a consideration of $1 and additional compensation shall be made if the net liabilities of the Disposal Group were different as of
the closing date.
On December 28, 2022, KAG and Stanley Star entered into a supplement agreement to issue $50,000 convertible preferred
shares of the Company to Stanley Star as part of consideration to compensate the difference of net asset between the closing date and the
agreement date. On March 24, 2023, KAG and Stanley Star entered into an amendment to the supplement agreement that modified
specific terms of the $50 million preferred stock issued by the Company to Stanley Star.
On October 27, 2022 the Company calculated a gain regarding the divestiture of Disposal group as follows:
Fair value of preferred shares issued to Stanley Star
The carrying amount of any noncontrolling interest
Net liabilities
Gain on disposal of subsidiaries
As of October 27, 2022
$
$
(24,592)
(3,954)
(24,276)
3,638
Consideration received presents the fair value of the preferred shares issued to the Buyer as of the closing date and the fair value
is approximately $24.6 million. When the Company deconsolidated subsidiaries, the amount of accumulated other comprehensive loss
$2,060 is reclassified and partially offset the gain.
F-20
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
4. DISPOSAL OF SUBSIDIARIES-CONTINUED
The divestiture of the Disposal Group did not constitute a strategic shift of the Company’s operations and did not have major
effects on the Company’s operations and financial results; therefore, the transactions do not meet the discontinued operations criteria.
The following table summarizes the carrying amounts of the major classes of assets and liabilities of the Disposal Group as of
October 27, 2022:
Cash and cash equivalents
Prepaid expenses and other current assets
Property and equipment, net
Intangible assets, net
TOTAL ASSETS
Accounts payable
Advance from customers
Long-term bank loan
Income tax payable
Amount due to Kaixin
VAT payable
Accrual expenses and other current liabilities
Total Liabilities
Net liabilities
5. OTHER RECEIVABLES
As of October 27, 2022
97
1,983
4
20
2,104
$
$
(257)
(163)
(5,476)
(2,225)
(8,848)
(3,340)
(6,071)
(26,380)
(24,276)
$
$
Borrower
Shanghai Changda
Anhui Xin Jieying
Total
Interest rate
Amount
0 % $
0 % $
$
6,858
1,990
8,848
Other receivables comprised two interest-free borrowings to the former subsidiaries Shanghai Changda and Anhui Xin Jieying,
which were disposed of in the disposal of subsidiaries during 2022, with a total balance of $8,848 as of the end of 2022. The Company
expects that the Buyer is willing and able to repay the receivables within 1 year. The Company did not recognize any valuation allowance
for the receivables.
F-21
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
6. PREPAID EXPENSES AND OTHER CURRENT ASSETS
As of December 31, 2021 and 2022, prepaid expenses and other current assets consisted of the following:
Prepayment for vehicle purchase (1)
Other receivables from dealerships (2)
Deductible input VAT
Advance to suppliers
Others (3)
Total
Less: valuation allowance
Prepaid expenses and other current assets
As of December 31,
2021
2022
32,091
19,249
545
23
1,362
53,270
—
53,270
$
$
18,252
9,546
7
—
191
27,996
(1,675)
26,321
$
$
(1) The balance mainly represents pre-payments to the dealership operators who are operators of the used car dealership with
whom the Company set up special purpose holding companies to operate the used car business, mainly to purchase used
vehicles from the market.
(2) The balance represents cash advances paid to the dealership operators for purchasing used vehicles historically and shall be
repaid in cash, and the balance is secured using ordinary shares of the Company issued to them as agreed with the dealership
operator (Note 10).
(3) Others mainly included prepaid rent, staff advances, prepaid marketing fee, advertising fee, professional fee, and other
receivables incurred for daily operations.
(4) The Company recorded impairment loss of nil and $22,921 for prepayment for vehicle purchase and other current assets for the
years ended December 31, 2021 and 2022.
7.
INTANGIBLE ASSETS, NET
Trademark (1)
Software
Total
Less: Accumulated amortization
Intangible assets, net
As of December 31,
2021
2022
14,983
445
15,428
(788)
14,640
$
$
15,100
72
15,172
(2,269)
12,903
$
$
(1) The trademark was identified due to the reverse acquisition of KAH with Haitaoche on June 25, 2021. It has remaining useful
life of 8.5 years as of December 31, 2022.
Amortization expense was $2, $785 and $1,531 for the years ended December 31, 2020, 2021 and 2022, respectively.
F-22
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
8. OTHER NON-CURRENT ASSETS, NET
As of December 31, 2021 and 2022, other non-current assets consisted of the following:
Long-term receivables from suppliers (1)
Legal deposit
Other non-current assets, gross
Less: impairment for uncollectible receivables (2)
Other non-current assets, net
As of December 31,
2021
2022
$
$
$
$
4,112
104
4,216
(4,216)
—
—
—
—
—
—
(1) Other non-current assets mainly represented the receivable from a foreign supplier, Brueggmann Group (“BG”) in Germany for
payment of automobiles purchase early in 2016. BG has never delivered the automobiles. The Gross prepayment amounts were
$3,916 as of December 31, 2021, which were stripped off in conjunction with the disposal of the subsidiaries (Note 4).
(2) As the Defendants have appealed against the judgement in January, 2022, the Company expects that Defendants are not willing
to repay the receivables even if Defendants lose the lawsuit. The Company recognized impairment of $4,216 for the receivables
from BG and the legal deposit as well as the other suppliers as of December 31, 2021.
9. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Loan payable (1)
Accrued professional fee
Individual income tax payable
Used car services payables
Other taxes payable
Others
Total
(1) Loan payable consisted of the following:
Lender
Scytech Limited
CPL Yellow stones Limited
Yunfeiyang Limited
As of December 31,
2021
2022
$
$
— $
2,698
2,207
3,333
5,120
1,133
14,491
$
3,000
2,215
2,207
419
181
1,357
9,379
Interest rate
Issuance Date
Maturity Date
5% per annum On December 21, 2022
5% per annum On December 21, 2022
0 % On September 21, 2022 December 31, 2023 $
$
$
March 31, 2023
March 31, 2023
December 31, 2022
2,700
200
100
The interest-free loan from Scytech Limited was as working capital for Zhejiang Taohaoche and collateralized by the net assets
of Zhejiang Taohaoche. CPL Yellow stones Limited and Yunfeiyang Limited are the shareholders of the Company.
F-23
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
10. DEALERSHIP SETTLEMENT
During 2017 and 2018, the Company entered into several equity purchase agreements (the “Equity Purchase Agreements”) with
the Dealership Operators, to acquire 70% equity interest of the dealerships. According to the Equity Purchase Agreements, the Company
agreed to provide certain payments of its ordinary shares to the Dealership Operators as part of the equity acquisition considerations,
subject to certain payment triggers including the operating performance of the dealerships and service centers and KAH’s ordinary share
price (“Contingent Consideration”). The Company recognized the Contingent Consideration as liability at fair value as of the acquisition
date and the subsequent changes in fair value as gain/loss into earnings/(loss). In connection with the Company’s IPO on April 30, 2019,
Renren Inc. (“Renren”) agreed to assume the Contingent Consideration from the Company, and the Company reclassified the Contingent
Consideration from a liability to additional paid-in capital.
Since 2019, due to disagreements with certain Dealership Operators on operational matters, the Company had disruptions in
operations of several dealerships. After continuous negotiations with the Dealership Operators, the Company signed the amendments to
Equity Purchase Agreement (the “Amendments”) with seven Dealership Operators in August 2021, to 1) confirm a total of 4,513,761
ordinary shares as the first batch and the first two tranches of second batch of the Contingent Consideration issuable to the Dealership
Operators in accordance with the Equity Purchase Agreements subject to the operating performance of the dealerships and service
centers before 2021; 2) provide a total of 7,172,529 ordinary shares (“Compensation Shares”) to the Dealership Operators, in the purpose
of alleviation of losses and distress that occurred during the temporary halt of business in the Dealerships after the breakout of the
pandemic and the historical dispute between the Company and the Dealership Operators. The number of Compensation Shares was
determined through negotiation of the Company with each of the Dealership Operators while taking into consideration the hardships they
experienced over the prior years and the need to make prompt resolution of the historical dispute with the Dealership Operators. The
Company recognized the Compensation Shares as loss related to provision for dealership settlement based on fair value of the
Compensation Shares by reference to share-based payment transactions pursuant to ASC 718.
F-24
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
10. DEALERSHIP SETTLEMENT-CONTINUED
On November 30, 2021, Renren transferred 13,422,613 ordinary shares of the Company it held, to an escrow company to fully
settle the Contingent Consideration shares of 8,219,510. In addition to the Contingent Consideration shares, there were 5,203,103
ordinary shares transferred toward settlement of the Compensation Shares, which are recognized by the Company as additional paid-in
capital with a fair value of $8,897 based on the quoted price of Company’s ordinary share on the date of Renren’s transfer were treated
by reference to a liability paid by the principal shareholder and thus recorded as the loss related to provision for dealership settlement in
the Company’s financial statements with a corresponding credit to additional paid-in capital. The Company shall issue additional
1,969,425 shares to the Dealership Operators to fully satisfy the Compensation Shares, which was recognized as payables loss related to
provision for dealership settlement with a corresponding accrual of for dealership settlement at the fair value by reference to the quoted
price of Company’s ordinary share at the commitment date with subsequent changes in fair value reflected in provision for dealership
settlement. The Company, Renren and Dealership Operators agreed that the transfer of shares by Renren to the escrow company shall be
deemed as fulfilment of Renren’s obligations related to the Contingent Consideration. According to the Amendments, the Dealership
Operators should honor their commitments, including paying off their outstanding payables and debts to the Company, in order to obtain
the shares. Consequently, the 13,422,613 shares have been held by the escrow company since transferred from Renren, and were
disclosed as issued and outstanding shares in the vesting of restricted shares award reverse acquisition item during 2021 in the
Company’s Consolidated Statements of Changes in Equity. The escrow companies provide a pledge guarantee to fulfill dealership
operators’ repayment obligations with shares it held. Proceeds from the sale of shares will be preferentially used to repay the outstanding
payables and debts to Kaixin. The payables accrued for dealership settlement were $2,245 as of December 31, 2021. The total loss
related to provision of the 7,172,529 Compensation Shares to the Dealership Operators for the dealership settlement was $11,142 for the
year 2021.
In May 2022, the Company signed supplemental agreements to Equity Purchase Agreement (the “Supplemental Agreements”)
with seven Dealership Operators, to confirm a total of 21,566,328 ordinary shares as the remaining three tranches of the second batch of
the Contingent Consideration will be issued to the Dealership Operators. Since then, the total of Consideration Shares and Compensation
Shares were confirmed to be 33,748,772 ordinary shares. On May 26, 2022, the Company issued 20,326,159 ordinary shares to the
Dealership Operators and then put the shares into an escrow account. The 20,326,159 shares are recognized by the Company as ordinary
shares and additional paid-in capital with a total fair value of $17,379 based on the quoted price of Company’s ordinary share on the date
of transfer. The payable for dealership settlement recognized as of December 31, 2021 amounting to $2,245 was also fully settled by the
shares issued. As agreed with the Dealership Operators, the ordinary shares in the escrow companies were used to secure the repayment
of the Dealership Operators’ outstanding payables to the Company.
F-25
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
11. PAYABLE FOR SALES INCENTIVE
In 2022, the Company entered into a share grant agreement with dealership operators. In order to encourage the dealership
operators to improve their sales performance, the Company agreed to provide sales incentives to the dealership operators based on their
sales performance. As sales incentive, the Company will issue a total of 5,585,645 shares to dealership operators according to the sales
performance for February 2022 to December 2022. The Company recognized these shares as selling expenses of $1,638 based on fair
value of the Shares as of December 31, 2022 by reference to share-based payment transactions and the payable for sales incentive of
$1,638 recognized as of December 31, 2022.
12. LEASE
The weighted average remaining lease terms and discount rates for the operating lease as of December 31, 2022 were as
follows:
Remaining lease term and discount rate:
Weighted average remaining lease term (years)
Weighted average discount rate
4
11.5 %
For the years ended December 31, 2021 and 2022, $515 and nil newly operating lease asset was obtained in exchange for
operating lease liabilities, cash prepaid for amounts included in the measurement of lease liabilities were nil, $31 and nil for the years
ended December 31, 2020, 2021 and 2022.
During the years ended December 31, 2020, 2021 and 2022, the Company incurred total operating lease expenses of $2, $29
and $133 respectively.
As of December 31, 2022, the future minimum rent payable under non-cancelable operating leases were:
2023
2024
2025
2026
2027
Total lease payments
Less: imputed interest
Present value of lease liabilities
Lease liabilities - current
Lease liabilities – non-current
F-26
$
$
159
129
133
100
—
521
(91)
430
119
311
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
13. RELATED PARTY TRANSACTIONS AND BALANCES
The table below sets forth the major related parties and their relationships with the Group:
Name
Relationship
(a)
(b)
Mr. Lin Mingjun (“Mr. Lin”)
Renren Inc.
A controlling shareholder and chief executive officer of the Group
A non-controlling shareholder of the Company
Amounts due to related parties
As of December 31, 2021 and 2022, significant amounts due to related parties consisted of the following:
Renren and its subsidiaries(1)
Mr. Lin
Amounts due to related parties
As of December 31,
2021
2022
$
$
3,943
—
3,943
$
$
1,427
200
1,627
(1) The balance mainly represented the advance fund provided by Renren and its subsidiaries to finance the Group’s daily
operations. The amount due to Renren and its subsidiaries of $2,516 were stripped off in conjunction with the disposal of the
subsidiaries (Note 4).
F-27
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
14. BANK BORROWING
Short-term debt:
East West Bank (1)
Long-term debt:
East West Bank (2)
As of December 31,
2021
2022
$
$
6,277
2,000
$
$
2,000
—
(1) The annum interest rate of borrowings from East West Bank was 6%. As of December 31, 2021, the Group’s short-term debt
was with one-year maturity date.
The loan with amount of $6,277 was guaranteed by a wholly-owned subsidiary of Renren Inc, Qianxiang Shiji Technology
Development (Beijing) Co., Ltd., a related party of the Group, covered by irrevocable standby letter of credit issued by East
West Bank to Renren with Renren’s restricted cash pledged as security.
During the transaction of disposal of subsidiaries, the principal of the bank loan has been transferred to and assumed by the
Buyer, and the interest will be paid by the Company on a monthly basis.
(2) The annum interest rate of borrowings from East West Bank was 2.8%. The Group’s long-term debt matures on August 31, 2023
and was reclassed to current liability as of December 31, 2022. The loan was under an irrevocable standby letter of credit issued
by East West Bank to Renren in April 2019 with Renren’s restricted cash pledged as security.
Interest expenses were $1, $223 and $1,034 recorded for bank loans in the consolidated statements of operations and
comprehensive income (loss) for the years ended December 31, 2020, 2021 and 2022.
15. INCOME TAXES
Cayman Islands
The Group is incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, the Group is not subject to
income or capital gains taxes. In addition, dividend payments are not subject to withholdings tax in the Cayman Islands.
Hong Kong
On March 21, 2018, the Hong Kong Legislative Council passed The Inland Revenue (Amendment) (No. 7) Bill 2017 (the
“Bill”) which introduces the two-tiered profits tax rates regime. The Bill was signed into law on March 28, 2018 and was announced on
the following day. Under the two-tiered profits tax rates regime, the first 2 million Hong Kong Dollar (“HKD”) of profits of the
qualifying group entity will be taxed at 8.25%, and profits above HKD 2 million will be taxed at 16.5%. The Group’s Hong Kong
subsidiaries did not have assessable profits that were derived in Hong Kong for the years ended December 31, 2021 and 2022. Therefore,
no Hong Kong profit tax has been provided for the years ended December 31, 2020, 2021 and 2022.
PRC
The Group’s PRC subsidiaries, VIEs and their subsidiaries are subject to the PRC Enterprise Income Tax Law (“EIT Law”) and
are taxed at the statutory income tax rate of 25%, unless otherwise specified.
F-28
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
15. INCOME TAXES-CONTINUED
PRC-Continued
The components of the income tax expense are as follows:
Current income tax benefit (expense)
Deferred income tax expense
Total income tax benefit (expense)
$
$
— $
—
— $
729
—
729
$
$
(74)
—
(74)
The reconciliations of the statutory income tax rate and the Group’s effective income tax rate are as follows:
For the years ended December 31,
2021
2020
2022
Net loss before provision for income taxes
PRC statutory tax rate
Income tax at statutory tax rate
Impairment of goodwill
Reversal of taxable deemed interest income from inter-company interest-free loans
Fair value change on warrants
Non-deductible loss and SBC expenses not deductible for tax purposes
Effect of income tax rate differences in jurisdictions other than the PRC
NOL not applicable for carryforward
Change in valuation allowance
Income tax benefit
Effective tax rates
$
$
2020
For the years ended December 31,
2021
196,657
166
$
$
2022
84,545
25 %
42
—
—
—
—
—
(56)
14
— $
— %
25 %
49,164
(35,914)
1,354
500
(13,262)
(437)
(193)
(483)
729
0.38 %
$
25 %
21,136
—
—
(79)
(13,427)
(1,721)
(288)
(5,339)
(74)
(0.00)%
The tax effect of temporary difference under ASC Topic 740 “Accounting for Income Taxes” that gives rise to deferred tax asset
as of December 31, 2021 and 2022 is as follows:
F-29
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
15. INCOME TAXES-CONTINUED
PRC-Continued
The tax effect of temporary difference balance as of December 31, 2021 were mainly from KAH Group as a result of the reverse
acquisition.
Deferred tax assets:
Write-down of Prepaid expenses and other current assets
Write-down of inventory
Provision for doubtful accounts
Write down of other non-current assets
Accrued expense
Accrued payroll and welfare
Advertising expense
Net operating loss carry forwards
Subtotal
Valuation allowance
Deferred tax assets, net
2020
As of December 31,
2021
2022
$
$
— $
—
—
—
—
—
—
388
388
(388)
4,249
3,874
2,315
1,054
207
61
6
13,474
25,240
(25,240)
$
— $
— $
477
—
—
—
—
—
—
584
1,061
(1,061)
—
The Company had total deferred tax assets related to net operating loss carry forwards at $13,474 and $584 as of December 31,
2021 and 2022, respectively. The Company assessed the available evidence to estimate if sufficient future taxable income would be
generated to use the existing deferred tax assets. As of December 31, 2021 and 2022, full valuation allowances were established because
the Company believes that it is more likely than not that its deferred tax assets will not be utilized as it does not expect to generate
sufficient taxable income in the near future. As of December 31, 2022, the Company had net operating losses from several of its PRC
entities of $3,702, which can be carried forward to offset future taxable profit. The net operating loss of $72, $2,508, $933, $110 and $76
will expire by 2023, 2024, 2025, 2026 and 2027, respectively, if not utilized. As of December 31, 2022, the Company had net operating
loss of $3 from Hong Kong subsidiaries which do not have an expiring date.
F-30
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
15. INCOME TAXES-CONTINUED
PRC-Continued
The movements of the valuation allowance are as follows:
Balance at the beginning of the year
Current year addition
Current year reversal
Reduction due to usage of NOL
Reduction due to statute expiration
Decrease in disposal of subsidiaries
Reverse acquisition
Exchange rate effect
Balance at the end of the year
2020
As of December 31,
2021
402
63
—
(21)
(56)
—
—
—
388
$
$
388
1,454
(753)
(25)
(193)
—
23,843
526
25,240
$
$
$
$
2022
25,240
5,267
(7,039)
(42)
(288)
(22,077)
—
—
1,061
Since January 1, 2008, the relevant tax authorities have not conducted a tax examination on the Company’s PRC entities. In
accordance with relevant PRC tax administration laws, tax years from 2018 to present of the Company’s PRC subsidiaries and VIEs and
VIEs’ subsidiaries remain subject to tax audits as of December 31, 2022 at the tax authority’s discretion.
16. CONVERTIBLE NOTES
The Group issued and sold two Convertible Promissory Notes (“Note A” and “Note B”, or collectively as “Notes”) to
streererville CAPITAL, LLC (the “Lender”) on November 19, 2021 and April 8, 2022, respectively. The principal amount of two Notes is
both $2,180 and substantial contract terms of two Notes are the same.
The purchase price of each Notes were $2,000, computed as follows: $2,180 principal, less discount at issuance of $160, less the
transaction expense amount of $20 incurred in connection with the purchase and sale of the Securities. The Notes bears an interest at 8%
per annum and is repayable in full in 18 months from issuance.
According to the Securities Purchase Agreements of the Notes, the Group has right to repay the Notes until it received the
conversion notice from Lender or repayment date. The Lender also has right to conversion the Notes into ordinary shares at any time
following the 6-month anniversary of the issuance date until the outstanding balance has been paid in full, at election, to convert all or
any portion of no less than $200,000 of the outstanding balance into ordinary shares of the Company. The conversion price is $3.00 per
ordinary share.
The Company has not elected the fair value option for the convertible note. And the Note does not have any embedded
conversion option and redemption feature which shall be bifurcated and separately accounted for as a derivative under ASC 815, nor
does it contain a cash conversion feature or beneficial conversion feature. The Company accounts for two Notes as liabilities in its
entirety following ASC 470 Debt and recorded interest expenses of $22 and $683 for the year ended December 31, 2021 and 2022. The
balances of Note A are $2,022 and $2,244 as of December 31, 2021 and 2022, respectively. The balances of Note B are nil and $2,061 as
of December 31, 2021 and 2022, respectively.
F-31
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
17. MEZZANINE EQUITY AND WARRANT LIABILITIES
Insurance of convertible preferred shares and warrants
On December 28, 2020, KAH entered into a definitive securities purchase agreement with U.S. based KX Ventures 4 LLC (the
“Investor”) and completed the initial closing on December 29, 2020.
Pursuant to the agreement, the Investor will invest $6,000 in newly designated Series A convertible preferred shares (the “Series
A Preferred Shares”) of KAH. The first $3,000 of the investment closed on December 29, 2020 (the “First Closing”). The Series A
Preferred Shares are convertible into 1,000,000 ordinary shares of KAH’s at a conversion price of $3.00, subject to customary
adjustments. Pursuant to the Purchase Agreement, the Investor will also receive warrants to subscribe for KAH’s ordinary shares at an
exercise price of $3.00 per share.
In connection with the issuance of 3,000 convertible preferred shares at the First Closing, 1,500,000 Series A Warrants,
1,333,333, Series B Warrants and 2,000,000 Series C Warrants (collectively the “Warrants”) were issued to the Investor, with each
warrant provided the holder the right to subscribe for KAH’s ordinary shares at an exercise price of $3.00 per share. Series A and Series
B Warrants are immediately exercisable, and Series C Warrants are exercisable upon exercise and in proportion to the number of Series B
Warrants exercised. Series A, B and C warrants expire on December 29, 2027, August 29, 2024 and June 29, 2028, respectively.
The Series A Preferred Shares and Warrants are bundled transactions, which were considered as equity-linked instruments. The
management has determined that there was beneficial conversion feature attributable to the preferred shares because the initial effective
conversion prices of these preferred shares were lower than the fair value of KAH’s ordinary shares at the relevant commitment dates,
and the effect of beneficial conversion feature was recognized in additional paid-in capital.
The Group classified the Series A Preferred Shares as mezzanine equity instead of permanent equity on the consolidated balance
sheets since they were contingently redeemable upon the occurrence of the redemption event, that is if the Volume-weighted average
price is less than $3.00 on the 54-month anniversary of the applicable Original Issue Date (December 29, 2020) and expired in 2025,
which is outside the Group’s control. The fair value allocated to the Series A Preferred Shares was $1,310 at the date of the First Closing.
The Warrants are classified as a liability and the fair value allocated to warrants was $1,690 as of the date of the First Closing.
The Group accrete changes in the redemption value over the period from the date of issuance to the earliest redemption date
(June 1, 2025) of the instrument using the interest method. In August 2021, total Series A preferred Shares of $3,000 were converted at
conversion price of $3.00 into 1,089,145 ordinary shares of the Company.
The Warrants were classified as the warrant liability on the issuance date and as of December 31, 2020, 2021 and 2022, which
was re-measured at fair value of $24 as of December 31, 2022, and will be re-measured at each reporting period until the warrants are
exercised or expire and any changes will be recognized in the statement of operations. No warrants were exercised as of December 31,
2022.
F-32
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
17.
MEZZANINE EQUITY AND WARRANT LIABILITIES-CONTINUED
Risk-free rate of return
Estimated volatility rate
Dividend yield
Spot price of underling ordinary share
Exercise price
Fair value of warrant
Risk-free rate of return
Estimated volatility rate
Dividend yield
Spot price of underling ordinary share
Exercise price
Fair value of warrant
18. EQUITY
Ordinary shares
Series A Warrant Series B Warrant Series C Warrant
As of December 31, 2021
1.41 %
45.82 %
— %
1.14
3 $
335 $
0.24 %
50.55 %
— %
1.14
3 $
3 $
As of December 31, 2022
1.46 %
46.99 %
— %
1.14
3
2
$
$
Series A Warrant
Series B Warrant Series C Warrant
4.53 %
54.43 %
0 %
4.12 %
54.38 %
0 %
4.12 %
55.29 %
0 %
$
$
0.29
3
24
$
$
0.29
3
$
— $
0.29
3
—
KAH issued 74,035,502 ordinary shares to the former shareholders of Haitaoche in the Reverse Acquisition. The shareholders’
structure as of December 31, 2021 reflects the equity structure of the KAH, including the equity interests KAH issued to effect the
reverse acquisition. The shareholders’ equity structures as of December 31, 2020 were presented after giving retroactive effect to the
reverse acquisition of the Group that was completed on June 25, 2021. The comparative share capital amounts as of December 31, 2020
have been retroactively adjusted to reflect the legal capital of KAH.
Preferred shares
1) Series D Preferred Shares
On March 31, 2021, KAH entered into a definitive securities purchase agreement with Renren Inc. (the “Holder”) and
completed the closing on the same date.
Pursuant to the agreement, the Holder will invest $6,000 in newly designated Series D convertible preferred shares (the “Series
D Preferred Shares”) of KAH. Major terms of the Series D Preferred Shares are as follows:
Conversion Rights: Series D preferred shares are convertible into 2,000,000 ordinary shares of KAH’s at a conversion price of
$3.00, subject to customary adjustments. Each Preferred Share shall be convertible, at any time and from time to time from and after the
applicable Issuance Date (April 8, 2021) at the option of the Holder into that number of ordinary shares.
Redemption Rights: the redemption included optional redemption and redemption on triggering events. With respect to optional
redemption, KAH may deliver a notice to the Holders of its irrevocable election to redeem some or all of the then outstanding Series D
Preferred Shares at any time after March 30, 2022. With respect to redemption on several triggering events, upon the occurrence of a
Triggering Event, each Holder shall have the right, exercisable at the sole option of such Holder, to require the Company to redeem all of
the Series D Preferred Shares.
The Series D Preferred Shares were considered as permanent equity since they were redeemable upon the occurrence of events
that are within the Group’s control. The Group has issued 6,000 convertible preferred shares and received $6,000 as of April 8, 2021.
F-33
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
18. EQUITY-CONTINUED
2) Series F Preferred Shares
On December 28, 2022, KAG entered into a definitive securities purchase agreement with Stanley Star Group Inc. (the
“Holder”) and completed the closing on the same date. On March 24, 2023, KAG and Stanley Star entered into an amendment to the
supplement agreement that modified specific terms of the $50 million preferred stock issued by the Company to Stanley Star. The
Company issued $50,000,000 convertible preferred shares of the Company to Stanley Star as part of consideration of the divestment of
the Disposal group (Note 4). Major terms of the Series F Preferred Shares are as follows:
Conversion Rights: Series F preferred shares are convertible into 50,000,000 ordinary shares of the Company at a conversion
price of $1.00, subject to customary adjustments. Each Preferred Share shall be convertible, at any time and from time to time from and
after the applicable Issuance Date at the option of the Holder into that number of ordinary shares.
Redemption Rights: the redemption included optional redemption and redemption on triggering events. With respect to optional
redemption, the Company may deliver a notice to the Holders of its irrevocable election to redeem some or all of the then outstanding
Series F Preferred Shares at any time after January 1, 2023. With respect to redemption on several triggering events, upon the occurrence
of a Triggering Event, each Holder shall have the right, exercisable at the sole option of such Holder, to require the Company to redeem
all of the Series F Preferred Shares.
The Series F Preferred Shares were considered as permanent equity since they were redeemable upon the occurrence of events
that are within the Group’s control.
Warrants
1)
Issuance of ordinary shares and 2022 warrants
In January 2022, Suzhou government and its partners determined to invest RMB100 million (approximately $15.4 million) to
subscribe for ordinary shares of the Company to support the electronic vehicles business and the first payment of RMB 30 million
(approximately $4.6 million) of investment had been received in February 2022. In connection, on March 14, 2022, the Company issued
4,406,542 ordinary shares to Derong Group Limited (“Derong”), the entity designed by Suzhou government. The Company also
committed and issued 6,500,000 warrant shares (“2022 Warrant) to Discover Flux Ltd, a warrant holder designated by Derong on July 3,
2022. Discover Flux Ltd has right to subscribe for the Company’s ordinary shares at an exercise price of $1.00 per share. The warrant
shares were classified as equity and measured at relative fair value of $1,417 calculated using the Black-Scholes pricing model, which
was recorded as warrant equity started from July 3, 2022. The portion of the proceeds of $3,298 was allocated to the issued ordinary
shares.
The Company paid issuance cost of amount $1,575 associated with the RMB 100 million investment after the first payment of
RMB 30 million was received. $472 of the issuance cost was allocated to the warrant shares and ordinary shares based on assessed fair
value of warrant shares and residual proceeds allocated to the ordinary shares, compared to total proceeds received. Issuance costs
associated with warrant and ordinary shares were an offset to additional paid-in capital. The $1,103 of the issuance cost was presented as
general and administrative expenses in the balance sheet statement as of December 31, 2022 due to the uncertainty of the remaining
investment of RMB 70 million.
F-34
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
18. EQUITY-CONTINUED
The fair value of the warrants as of July 3, 2022 were calculated using the Black-Scholes pricing model with the following
assumptions:
Risk-free rate of return
Estimated volatility rate
Dividend yield
Spot price of underling ordinary share
Exercise price
Fair value of warrant
2) 2019 warrants
As of July 3, 2022
2022 Warrant
2.60 %
57.21 %
0 %
1.035
1
2,027
$
$
As of December 31, 2022, there were 11,957,008 warrants outstanding, which was issued by KAH and consist of 10,318,145
warrants which were issued with units in the initial public offering (“IPO”) of KAH in 2017, 1,000,000 warrants issued with units upon
the conversion of convertible loan of Kunlun Tech Limited, 263,863 warrants issued to Shareholder Value Fund and 375,000 warrants
issued with units for share subscription of E&A Callet Investment Limited (collective the “2019 Warrants”).
Each whole warrant that was issued with units in the IPO and issued with units to the 2019 Warrants is exercisable for one
ordinary share at a price of $11.50 per full share. The warrants may only be exercised for whole numbers of shares. The 2019 Warrants
became exercisable on April 30, 2019 and have a term of five years from April 30, 2019.
The Group may redeem the outstanding 2019 Warrants, in whole and not in part, at a price of $0.01 per warrant:
● at any time while the 2019 Warrants are exercisable,
● upon a minimum of 30 days’ prior written notice of redemption,
● if, and only if, the last sales price of the ordinary shares equals or exceeds $18.00 per share for any 20 trading days within a
30- trading day period ending three business days before the Group sends the notice of redemption, and
● if, and only if, there is a current registration statement in effect with respect to the ordinary shares underlying such 2019
Warrants at the time of redemption and for the entire 30-day trading period referred to above and continuing each day
thereafter until the date of redemption.
If the Group calls the 2019 Warrants for redemption as described above, the management will have the option to require all
holders that wish to exercise warrants to do so on a “cashless basis.”
The 2019 Warrants were recognized as an equity instrument as it meets all of the criteria for equity classification and is
classified within equity as additional paid-in capital.
F-35
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
18. EQUITY-CONTINUED
Options
There was a call option purchased by the IPO underwriter of KAH in 2017, which is exercisable at $10.00 per Unit to purchase
up to 900,000 Units (or an aggregate exercise price of $9,000,000). The option may be exercised for cash or on a cashless basis, at the
holder’s option, and expires five years from the effective date of the registration statement related to the initial public offering of KAH
(i.e., expires by October 2022).
Statutory reserve and restricted net assets
In accordance with the Regulations on Enterprises with Foreign Investment of China and their articles of association, the
Group’s subsidiaries and VIE entities located in the PRC, are required to provide for certain statutory reserves. The statutory reserve fund
required to reserve 10% of their net profit after income tax, as determined in accordance with the PRC accounting rules and regulations.
Appropriation to the statutory reserve by the Group is based on profit arrived at under PRC accounting standards for business enterprises
for each year. The profit arrived at must be set off against any accumulated losses sustained by the Group in prior years, before allocation
is made to the statutory reserve. Appropriation to the statutory reserve must be made before distribution of dividends to shareholders. The
appropriation is required until the statutory reserve reaches 50% of the registered capital. This statutory reserve is not distributable in the
form of cash dividends.
Relevant PRC statutory laws and regulations permit the payment of dividends by the Group’s PRC subsidiary only out of their
retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Furthermore, registered share
capital and capital reserve accounts are also restricted from distribution. As a result of these PRC laws and regulations, the Group’s PRC
subsidiary is restricted in their ability to transfer a portion of their net assets to the Group either in the form of dividends, loans or
advances. The Group’s restricted net assets, comprising of paid-in-capital and statutory reserve of Group’s PRC subsidiary, were
$117,085 and $121,656 as of December 31, 2021 and December 31, 2022, respectively.
F-36
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
19.
FAIR VALUE MEASUREMENTS
Assets and liabilities measured or disclosed at fair value
The Group measures its financial assets and liabilities, including warrant liability at fair value on a recurring basis as of
December 31, 2021 and 2022. The Group measured its prepayment for vehicle purchase and other current assets, accounts payable,
short-term debt, amounts due from and due to related parties at amortized cost. The carrying value of the short-term debt obligations
approximate fair value, considering the borrowing rates are at the same level of the current market yield for the comparable debts. The
carrying value of cash and cash equivalent, prepayment for vehicle purchase and other current assets, accounts payable, and amounts due
from and due to related parties’ approximate fair value due to the relatively short maturity.
The following table presents the fair value hierarchy for assets and liabilities measured at fair value on a recurring basis:
As of December 31, 2021
Fair Value Measurement at the Reporting Date using
As of December 31, 2022
Fair Value Measurement at the Reporting Date using
Quoted
price in
active
markets
for
identical
assets
Level 1
—
Significant
other
observable
inputs
—
Significant
unobservable
inputs
Level 3
(340)
Total
(340)
Quoted
price in
active
markets
for
identical
assets
Level 1
—
Significant
other
observable
inputs
—
Significant
unobservable
inputs
Level 3
(24)
Total
(24)
Warrant liabilities
There have been no transfers between Level 1, Level 2, or Level 3 categories during the years ended December 31, 2021 and
December 31, 2022.
Assets measured at fair value on a nonrecurring basis
The Group measures its property, equipment, and intangible assets at fair value on a nonrecurring basis whenever events or
changes in circumstances indicate that the carrying value may no longer be recoverable. The Group measures the purchase price
allocation at fair value on a nonrecurring basis as of the acquisition dates.
Goodwill is evaluated for impairment annually or more frequently if events or conditions indicate the carrying value of a
reporting unit may be greater than its fair value. Impairment testing compares the carrying amount of the reporting unit with its fair
value. In 2021, the Group performed impairment tests for goodwill caused by the reverse acquisition using the discounted cash flow
method. The fair value of goodwill is a Level 3 valuation based on certain unobservable inputs including projected cash flows, terminal
growth rate of 2.5%, forecasted inflation rate of 2.5%, discount rate of 12% that would be utilized by market participants in valuing these
assets or prices of similar assets.
F-37
Table of Contents
20. LOSS PER SHARE
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
The following table sets forth the computation of basic and diluted net loss per ordinary share for the years ended:
Net loss attributable to Kaixin Auto Holdings’ shareholders
$
2020
For the years ended December 31,
2021
(196,579) $
(166) $
2022
(84,706)
Weighted average number of ordinary shares outstanding used in computing net loss
per ordinary share - basic and diluted, shares retroactively adjusted for the reverse
acquisition on June 25, 2021)
74,035,502
114,416,353
200,167,152
Loss per share attributable to Kaixin Auto Holdings’ shareholders - basic and diluted
$
(0.0022) $
(1.7181) $
(0.0004)
Since the Group is in a net loss for the years ended December 31, 2020, 2021 and 2022 presented in these financial statements,
the potential dilutive securities were not included in the calculation of dilutive net loss per share where their inclusion would be anti-
dilutive. And no dilutive security was issued for the years ended December 31, 2020, 2021 and 2022, there was no difference between the
Group’s basic and diluted net loss per share for the periods presented. The potential dilutive securities that were not included in the
calculation of dilutive loss per share in those periods are nil, 167,151 and 167,151 respectively, for the years ended December 31, 2020,
2021 and 2022 , as inclusion would have been anti-dilutive.
21. SHARE-BASED COMPENSATION
Kaixin incentive plans
(a) Kaixin Auto Holdings Incentive Plan (the “Kaixin 2019 Plan”)
On April 30, 2019, KAH adopted Kaixin 2019 Plan, whereby 4,715,700 ordinary shares of KAH are made available for future
grant for employees of KAH share options or restricted shares.
On May 3, 2019 (the “Replacement Date”), the Company’s board of directors approved a directive to replace all the outstanding
share options granted during the year ended December 31, 2018 under the 2018 Plan to 144 employees with 2,186,364 options and
2,183,828 restricted shares. The exercise price of the options was reduced from $1.70 per share to $0.01 per share. The replacement
options were subject to graded vesting over three years from the Replacement Date, in which 25% ~ 62.5% of the options granted to
each individual vest on the grant date immediately and 1/36 of their remaining options vests monthly subsequent to the Replacement
Date. For the restricted shares, there were 205,215 replacement restricted shares granted to certain employees vested immediately and
917,738 replacement restricted shares were subject to graded vesting, which were vested 1/4 annually starting from January 1, 2020. The
remaining replacement restricted shares were subject to graded vesting over three years from the Replacement Date, in which 62.5% of
the total restricted shares vest on the grant date immediately and 1/36 of the remaining restricted shares vests monthly subsequent to the
Replacement Date.
F-38
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
21. SHARE-BASED COMPENSATION CONTINUED
(b) Kaixin Auto Holdings Incentive Plan (the “Kaixin 2020 Plan”)
On November 17, 2020, the board of directors of KAH approved the Kaixin 2020 Plan, under which, up to 5,000,000 ordinary
shares may be granted as awards in form of share options, restricted shares or restricted shares units. In the event of a change in control
or another transaction having a similar effect, then any incentives granted under the 2020 Incentive Plan shall be deemed vested
immediately. No such award has been granted during the year ended December 31, 2020. The Company has granted 5,181,778 restricted
shares under the Kaixin 2020 Plan in 2021.
(c) Kaixin Auto Holdings Incentive Plan (the “Kaixin 2021 Plan”)
On July 12, 2021, the board of directors of KAH approved the Kaixin 2021 Plan. The maximum number of ordinary shares that
may be delivered pursuant to awards granted under the Kaixin 2021 Plan is 26,596,000. As of December 31, 2021, the Company has
granted 20,535,000 restricted shares under the Kaixin 2021 Plan.
(d) Kaixin Auto Holdings Incentive Plan (the “Kaixin 2022 Plan”)
On May 16, 2022, the board of directors of KAH approved the Kaixin 2022 Plan. The maximum number of ordinary shares that
may be delivered pursuant to awards granted under the Kaixin 2022 Plan is 39,500,000. As of December 31, 2022, the Company has
granted 38,500,000 restricted shares under the Kaixin 2022 Plan.
In determining the fair value of share options in 2019, a binomial option pricing model is applied. Assumptions used to estimate
the fair values of the share options granted or modified on grant date were as follows:
Risk-free interest rate (1)
Volatility (2)
Expected term (in years) (3)
Exercise price (4)
Dividend yield (5)
Fair value of underlying ordinary share (6)
(1) Risk-free interest rate
Grant date
2.50-3.00 %
45%-46 %
10
0.01
—
2.12-$3.36
$
$
Risk-free interest rate was estimated based on the yield to maturity of treasury bonds of the United States with a maturity period
close to the expected life of the options, and the country risk spread between China and United States was considered.
(2) Volatility
The volatility of the underlying ordinary shares during the life of the options was estimated based on the historical stock price
volatility of listed comparable companies over a period comparable to the expected term of the options.
(3) Expected term
For the options granted to employees, the Company estimated the expected term based on the vesting and contractual terms and
employee demographics. For the options granted to non-employees, the Company estimated the expected term as the original
contractual term.
(4) Exercise price
The exercise price of the options was determined by the Company’s board of directors.
(5) Dividend yield
The dividend yield was estimated by the Company based on its expected dividend policy over the expected term of the options.
F-39
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
21. SHARE-BASED COMPENSATION-CONTINUED
(6) Fair value of underlying ordinary shares
Prior to the consummation of the listing, the estimated fair value of the ordinary shares underlying the options as of the
valuation date was determined based on a contemporaneous valuation. When estimating the fair value of the ordinary shares on
the valuation dates, management has considered a number of factors, including the result of a third-party appraisal of the
Company, while taking into account standard valuation methods and the achievement of certain events. The fair value of the
ordinary shares in connection with the option grants on the valuation date was determined with the assistance of an independent
third-party appraiser. The fair values of the underlying ordinary shares on each date of the grant after April 30, 2019, were the
closing prices of the Company’s ordinary shares traded in the Stock Exchange.
The estimated fair value of restricted shares granted on each date of the grant under Kaixin 2020 Plan and Kaixin 2021 plan
were the closing prices on the relevant grant date of the Company’s ordinary shares traded in the Stock Exchange.
A summary of the Company’s share options activities held by the Company’s employees for the year ended December 31, 2022
was as follows:
Options Granted to Employees
and Directors
Outstanding as of December 31, 2021
Forfeited
Granted
Exercised
Outstanding as of December 31, 2022
Expected to vest as of December 31, 2022
Exercisable as of December 31, 2022
Weighted
average
grant day
fair
Value per
shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Years
Aggregate
Intrinsic
value
0.02
0.02
—
—
0.02
—
0.02
3.17
3.17
—
—
3.17
—
3.17
0.99
—
—
—
6.34
—
6.34
1.12
—
—
—
0.27
—
0.27
Number of
Shares
167,151
(145,478)
—
—
21,673
—
21,673
The aggregate intrinsic value was calculated as the difference between the exercise price of the underlying awards and the
closing stock price of $0.29 of the Company’s ordinary share on December 31,2022.
As of December 31, 2022, there was approximately $462 of total unrecognized compensation cost related to unvested share
options. The unrecognized compensation costs are expected to be recognized over a weighted average period of 2.66 years.
A summary of the nonvested restricted shares activity as of December 31, 2022 is as follows:
Outstanding as of December 31, 2021
Forfeited
Granted
Vested
Unvested as of December 31, 2022
Number of nonvested
restricted shares
Weighted average fair value
per ordinary share
at the grant dates
5,441,630
(5,000,000)
43,500,000
38,911,292
5,030,339
2.55
0.94
0.87
1.03
1.34
As of December 31, 2022, there was approximately $7,308 of total unrecognized compensation cost related to unvested
restricted shares. The unrecognized compensation costs are expected to be recognized over a weighted average period of 5.10 years.
The total fair value of shares vested during the years ended December 31, 2020, 2021 and 2022 was nil, 38,669 and $40,078.
F-40
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
21. SHARE-BASED COMPENSATION-CONTINUED
Total share-based compensation expense of share-based awards granted to employees and directors for the years ended
December 31, 2020, 2021 and 2022 were as follows:
For the Years ended December 31,
2021
2020
2022
Selling and marketing
Research and development
General and administrative
Total share-based compensation expense
22. SUBSEQUENT EVENTS
$
$
— $
—
—
— $
264
55
41,270
41,589
$
$
239
44
39,027
39,310
The Group has performed an evaluation of subsequent events up to the date of the consolidated financial statements were issued,
and determined that no events that would have required adjustment or disclosure in the consolidated financial statements other than those
discussed in above.
23. CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
The Group performed a test on the restricted net assets of consolidated subsidiaries and VIEs in accordance with Securities and
Exchange Commission Regulation S-X Rule 4-08 (e) (3), “General Notes to Financial Statements” and concluded that the Group is
required to disclose the financial statements for the parent Company.
F-41
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
CONDENSED PARENT COMPANY BALANCE SHEETS
ASSETS
Cash and cash equivalents
Other receivables, net
Amounts due from related parties
Investment in subsidiaries and consolidated VIEs
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accrued expenses and other current liabilities
Amounts due to related parties
Convertible note
Other liability
Total liabilities
Shareholders’ equity
Ordinary Shares (par value of $0.00005 per shares; 1,000,000,000 shares authorized, 163,129,655
and 238,368,861 shares issued as of December 31, 2021 and 2022, respectively. 163,129,655 and
228,250,210 shares issued and outstanding as of December 31, 2021 and 2022, respectively)
Series D convertible preferred shares (par value of $0.0001, 6,000 shares authorized as of December
31, 2021 and 2022, respectively. 6,000 shares issued and outstanding as of December 31, 2021 and
2022 respectively)
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income (loss)
Total shareholders’ equity
Total liabilities and shareholders’ equity
F-42
As of December 31,
2021
2022
—
—
—
29,662
29,662
$
—
—
—
—
—
171
9,830
3,726
27,964
41,691
4,257
200
4,305
1,614
10,376
8
11
1
227,310
(198,294)
637
29,662
29,662
$
3
312,831
(283,000)
1,470
31,315
41,691
$
$
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
CONDENSED PARENT COMPANY STATEMENTS OF OPERATIONS
For the years ended December 31,
2021
2020
2022
Operating income:
Share of loss of subsidiaries and VIEs
General and administrative expenses
Other income
Income before income tax expense
Income tax expense
Net income
$
(166)
—
—
(166)
—
(166)
$
$ (196,579)
—
—
(196,579)
—
(196,579)
(78,256)
(5,897)
(465)
(84,619)
—
(84,619)
F-43
Table of Contents
KAIXIN AUTO HOLDINGS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
CONDENSED PARENT COMPANY STATEMENTS OF CASH FLOW
For the years ended December 31,
2021
2020
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Net increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, at beginning of year
Cash, cash equivalents and restricted cash, at end of year
$
$
— $
—
—
—
—
— $
— $
—
—
—
—
— $
F-44
2022
(2,410)
—
(165)
(2,575)
2,746
171
Exhibit 4.41
SE C U R IT IE S PU R C H A S E AG R E E M E N T
THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of April 8, 2022, is entered into by and
between KAIXIN AUTO HOLDINGS, a Cayman Islands corporation (“Company”), and STREETERVILLE CAPITAL, LLC, a
Utah limited liability company, its successors and/or assigns (“Investor”).
A.
Company and Investor are executing and delivering this Agreement in reliance upon an exemption from
securities registration afforded by the Securities Act of 1933, as amended (the “1933 Act”), and the rules and regulations
promulgated thereunder by the United States Securities and Exchange Commission (the “SEC”).
B.
Investor desires to purchase and Company desires to issue and sell, upon the terms and conditions set forth
in this Agreement a Convertible Promissory Note, in the form attached hereto as Exhibit A, in the original principal amount
of $2,180,000.00 (the “Note”), convertible into ordinary shares of Company, par value $0.00005 per share (the “Ordinary
Shares”), upon the terms and subject to the limitations and conditions set forth in the Note.
C.
This Agreement, the Note, and all other certificates, documents, agreements, resolutions and instruments
delivered to any party under or in connection with this Agreement, as the same may be amended from time to time, are
collectively referred to herein as the “Transaction Documents”.
D.
For purposes of this Agreement: “Conversion Shares” means all Ordinary Shares issuable upon
conversion of all or any portion of the Note; and “Securities” means the Note and the Conversion Shares.
NOW, THEREFORE, in consideration of the above recitals and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Company and Investor hereby agree as follows:
1. Purchase and Sale of Securities.
1.1. Purchase of Securities. Company shall issue and sell to Investor and Investor shall purchase from
Company the Note. In consideration thereof, Investor shall pay the Purchase Price (as defined below) to Company.
1.2. Form of Payment. On the Closing Date (as defined below), Investor shall pay the Purchase Price to
Company via wire transfer of immediately available funds against delivery of the Note.
1.3. Closing Date. Subject to the satisfaction (or written waiver) of the conditions set forth in Section 5 and
Section 6 below, the date of the issuance and sale of the Note pursuant to this Agreement (the “Closing Date”) shall be
April 8, 2022, or another mutually agreed upon date. The closing of the transactions contemplated by this Agreement (the
“Closing”) shall occur on the Closing Date by means of the exchange by email of signed .pdf documents, but shall be
deemed for all purposes to have occurred at the offices of Hansen Black Anderson Ashcraft PLLC in Lehi, Utah.
1.4. Original Issue Discount; Transaction Expense Amount. The Note carries an original issue discount
(“OID”) of $160,000.00, all of which amount is included in the initial principal balance of the Note. Company agrees to
pay $20,000.00 to Investor to cover Investor’s legal fees, accounting costs, due diligence, monitoring and other transaction
costs incurred in connection with the purchase and sale of the Securities (the “Transaction Expense Amount”), all of
which amount is included
1
in the initial principal balance of the Note. The “Purchase Price”, therefore, shall be $2,000,000.00, computed as follows:
$2,180,000.00 initial principal balance, less the OID, less the Transaction Expense Amount.
2.
Investor’s Representations and Warranties. Investor represents and warrants to Company that as of the
Closing Date: (i) Investor is a limited liability company duly established, validly existing and in good standing under the
laws of the State of Utah and has the requisite power to carry on its business as now being conducted; (ii) this Agreement
has been duly and validly authorized; (iii) this Agreement constitutes a valid and binding agreement of Investor enforceable
in accordance with its terms; and (iv) Investor is an “accredited investor” as that term is defined in Rule 501(a) of
Regulation D of the 1933 Act.
3. Company’s Representations and Warranties. Company represents and warrants to Investor that as of
the Closing Date: (i) Company is a corporation duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has the requisite corporate power to own its properties and to carry on its business as now
being conducted; (ii) Company is duly qualified as a foreign corporation to do business and is in good standing in each
jurisdiction where the nature of the business conducted or property owned by it makes such qualification necessary; (iii)
Company has registered its Ordinary Shares under Section 12(b) of the Securities Exchange Act of 1934, as amended (the
“1934 Act”), and is obligated to file reports pursuant to Section 13 or Section 15(d) of the 1934 Act; (iv) each of the
Transaction Documents and the transactions contemplated hereby and thereby, have been duly and validly authorized by
Company and all necessary actions have been taken; (v) the Transaction Documents have been duly executed and delivered
by Company and constitute the valid and binding obligations of Company enforceable in accordance with their terms; (vi)
the execution and delivery of the Transaction Documents by Company, the issuance of Securities in accordance with the
terms hereof, and the consummation by Company of the other transactions contemplated by the Transaction Documents do
not and will not conflict with or result in a breach by Company of any of the terms or provisions of, or constitute a default
under (a) Company’s formation documents or bylaws, each as currently in effect, (b) any indenture, mortgage, deed of
trust, or other material agreement or instrument to which Company is a party or by which it or any of its properties or assets
are bound, including, without limitation, any listing agreement for the Ordinary Shares, or (c) any existing applicable law,
rule, or regulation or any applicable decree, judgment, or order of any court, United States federal, state or foreign
regulatory body, administrative agency, or other governmental body having jurisdiction over Company or any of
Company’s properties or assets; (vii) no further authorization, approval or consent of any court, governmental body,
regulatory agency, self-regulatory organization, or stock exchange or market or the stockholders or any lender of Company
is required to be obtained by Company for the issuance of the Securities to Investor or the entering into of the Transaction
Documents; (viii) none of Company’s filings with the SEC contained, at the time they were filed, any untrue statement of a
material fact or omitted to state any material fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they were made, not misleading; (ix) Company has filed all reports,
schedules, forms, statements and other documents required to be filed by Company with the SEC under the 1934 Act on a
timely basis or has received a valid extension of such time of filing and has filed any such report, schedule, form, statement
or other document prior to the expiration of any such extension; (x) there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board or body pending or, to the knowledge of Company, threatened against or
affecting Company before or by any governmental authority or non-governmental department, commission, board, bureau,
agency or instrumentality or any other person, wherein an unfavorable decision, ruling or finding would have a material
adverse effect on Company or which would adversely affect the validity or enforceability of, or the authority or ability of
Company to perform its obligations under, any of the Transaction Documents; (xi) Company has not consummated any
financing transaction that has not been disclosed in a periodic filing or current report with the SEC under the 1934 Act;
(xii) Company is not, nor has it been at any time in the previous twelve (12) months, a “Shell Company,” as such type of
“issuer” is described in Rule 144(i)(1) under the 1933 Act; (xiii) with respect to any commissions, placement agent or
2
finder’s fees or similar payments that will or would become due and owing by Company to any person or entity as a result
of this Agreement or the transactions contemplated hereby (“Broker Fees”), any such Broker Fees will be made in full
compliance with all applicable laws and regulations and only to a person or entity that is a registered investment adviser or
registered broker-dealer; (xiv) Investor shall have no obligation with respect to any Broker Fees or with respect to any
claims made by or on behalf of other persons for fees of a type contemplated in this subsection that may be due in
connection with the transactions contemplated hereby and Company shall indemnify and hold harmless each of Investor,
Investor’s employees, officers, directors, stockholders, members, managers, agents, and partners, and their respective
affiliates, from and against all claims, losses, damages, costs (including the costs of preparation and attorneys’ fees) and
expenses suffered in respect of any such claimed Broker Fees; (xv) when issued pursuant to the terms of the Note, the
Conversion Shares will be duly authorized, validly issued, fully paid for and non-assessable, free and clear of all liens,
claims, charges and encumbrances; (xvi) neither Investor nor any of its officers, directors, stockholders, members,
managers, employees, agents or representatives has made any representations or warranties to Company or any of its
officers, directors, employees, agents or representatives except as expressly set forth in the Transaction Documents and, in
making its decision to enter into the transactions contemplated by the Transaction Documents, Company is not relying on
any representation, warranty, covenant or promise of Investor or its officers, directors, members, managers, employees,
agents or representatives other than as set forth in the Transaction Documents; (xvii) Company acknowledges that the State
of Utah has a reasonable relationship and sufficient contacts to the transactions contemplated by the Transaction
Documents and any dispute that may arise related thereto such that the laws and venue of the State of Utah, as set forth
more specifically in Section 8.2 below, shall be applicable to the Transaction Documents and the transactions contemplated
therein; (xviii) Company has consulted with counsel and conducted its own due diligence, and understands that Investor is
not registered as a ‘dealer’ under the 1934 Act, and agrees that the parties’ performance of the obligations under the
Transaction Documents and the transactions contemplated by the Transaction Documents do not violate Section 15 of the
1934 Act or any other applicable securities laws; and (xiv) Company has performed due diligence and background research
on Investor and its affiliates and has received and reviewed the due diligence packet provided by Investor. Company, being
aware of the matters described in subsections (xviii) and (xiv) above, acknowledges and agrees that such matters, or any
similar matters, have no bearing on the transactions contemplated by the Transaction Documents and covenants and agrees
it will not use any such information or legal theory as a defense to performance of its obligations under the Transaction
Documents or in any attempt to avoid, modify, offset, reduce, rescind or void such obligations.
4. Company Covenants. Until all of Company’s obligations under all of the Transaction Documents are paid and
performed in full, or within the timeframes otherwise specifically set forth below, Company will at all times comply with
the following covenants: (i) so long as Investor beneficially owns any of the Securities and for at least twenty (20) Trading
Days (as defined in the Note) thereafter, Company will timely file on the applicable deadline all reports required to be filed
with the SEC pursuant to Sections 13 or 15(d) of the 1934 Act, and will take all reasonable action under its control to
ensure that adequate current public information with respect to Company, as required in accordance with Rule 144 of the
1933 Act, is publicly available, and will not terminate its status as an issuer required to file reports under the 1934 Act even
if the 1934 Act or the rules and regulations thereunder would permit such termination; (ii) when issued pursuant to the
terms of the Note, the Conversion Shares will be duly authorized, validly issued, fully paid for and non-assessable, free and
clear of all liens, claims, charges and encumbrances; (iii) the Ordinary Shares shall be listed or quoted for trading on NYSE
or NASDAQ; (iv) trading in the Ordinary Shares will not be suspended, halted, chilled, frozen, reach zero bid or otherwise
cease trading on Company’s principal trading market; and (v) Company will not issue or incur any debt that is secured with
any of Company’s assets or that would in any way be senior to the Note without Investor’s prior written consent, which
consent may be granted or withheld in Investor’s sole and absolute discretion. For the avoidance of doubt, the covenant in
Section 4(v) above shall not apply to trade payables entered into in the ordinary course of business or any debt incurred by
any subsidiaries of Company that is not guaranteed by
3
Company. For the avoidance of doubt, the parties acknowledge and agree that Company may negotiate and incur any debt
that is not senior to the Note and that would not be a variable rate transaction without the consent of the Investor.
5. Conditions to Company’s Obligation to Sell. The obligation of Company hereunder to issue
and sell the Securities to Investor at the Closing is subject to the satisfaction, on or before the Closing Date, of each of the
following conditions:
5.1. Investor shall have executed this Agreement and delivered the same to Company.
5.2. Investor shall have delivered the Purchase Price to Company in accordance with Section 1.2 above.
6. Conditions to Investor’s Obligation to Purchase. The obligation of Investor hereunder to purchase the Securities
at the Closing is subject to the satisfaction, on or before the Closing Date, of each of the following conditions, provided that
these conditions are for Investor’s sole benefit and may be waived by Investor at any time in its sole discretion:
6.1. Company shall have executed this Agreement and the Note and delivered the same to Investor.
6.2. Company shall have delivered to Investor a fully executed Officer’s Certificate substantially in the
form attached hereto as Exhibit B evidencing Company’s approval of the Transaction Documents.
6.3. Company shall have delivered to Investor fully executed copies of all other Transaction Documents
required to be executed by Company herein or therein.
7. OFAC; Patriot Act.
7.1. OFAC Certification. Company certifies that (i) it is not acting on behalf of any person, group, entity, or
nation named by any Executive Order or the United States Treasury Department, through its Office of Foreign Assets
Control (“OFAC”) or otherwise, as a terrorist, “Specially Designated Nation”, “Blocked Person”, or other banned or
blocked person, entity, nation, or transaction pursuant to any law, order, rule or regulation that is enforced or administered
by OFAC or another department of the United States government, and (ii) Company is not engaged in this transaction on
behalf of, or instigating or facilitating this transaction on behalf of, any such person, group, entity or nation.
7.2. Foreign Corrupt Practices. Neither Company, nor any of its subsidiaries, nor any director, officer,
agent, employee or other person acting on behalf of Company or any subsidiary has, in the course of his actions for, or on
behalf of, Company, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses
relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official
or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of
1977, as amended, or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any
foreign or domestic government official or employee.
7.3. Patriot Act. Company shall not (i) be or become subject at any time to any law, regulation, or list of
any government agency (including, without limitation, the OFAC) that prohibits or limits Investor from making any
advance or extension of credit to Company or from otherwise conducting business with Company, or (ii) fail to provide
documentary and other evidence of Company’s identity as
4
may be requested by Investor at any time to enable Investor to verify Company’s identity or to comply with any applicable
law or regulation, including, without limitation, Section 326 of the USA Patriot Act of 2001, 31 U.S.C. Section 5318.
Company shall comply with all requirements of law relating to money laundering, anti-terrorism, trade embargos and
economic sanctions, now or hereafter in effect. Upon Investor’s request from time to time, Company shall certify in writing
to Investor that Company’s representations, warranties and obligations under this Section 7.3 remain true and correct and
have not been breached. Company shall immediately notify Investor in writing if any of such representations, warranties or
covenants are no longer true or have been breached or if Company has a reasonable basis to believe that they may no
longer be true or have been breached. In connection with such an event, Company shall comply with all requirements of
law and directives of governmental authorities and, at Investor’s request, provide to Investor copies of all notices, reports
and other communications exchanged with, or received from, governmental authorities relating to such an event. Company
shall also reimburse Investor any expense incurred by Investor in evaluating the effect of such an event on the loan secured
hereby, in obtaining any necessary license from governmental authorities as may be necessary for Investor to enforce its
rights under the Transaction Documents, and in complying with all requirements of law applicable to Investor as the result
of the existence of such an event and for any penalties or fines imposed upon Investor as a result thereof.
8. Miscellaneous. The provisions set forth in this Section 8 shall apply to this Agreement, as well as all
other Transaction Documents as if these terms were fully set forth therein; provided, however, that in the event there is a
conflict between any provision set forth in this Section 8 and any provision in any other Transaction Document, the
provision in such other Transaction Document shall govern.
8.1. Arbitration of Claims. The parties shall submit all Claims (as defined in Exhibit C)
arising under this
Agreement or any other Transaction Document or any other agreement between the parties and their affiliates or any Claim
relating to the relationship of the parties to binding arbitration pursuant to the arbitration provisions set forth in Exhibit C
attached hereto (the “Arbitration Provisions”). For the avoidance of doubt, the parties agree that the injunction described
in Section 8.3 below may be pursued in an arbitration that is separate and apart from any other arbitration regarding all
other Claims arising under the Transaction Documents. The parties hereby acknowledge and agree that the Arbitration
Provisions are unconditionally binding on the parties hereto and are severable from all other provisions of this Agreement.
By executing this Agreement, Company represents, warrants and covenants that Company has reviewed the Arbitration
Provisions carefully, consulted with legal counsel about such provisions (or waived its right to do so), understands that the
Arbitration Provisions are intended to allow for the expeditious and efficient resolution of any dispute hereunder, agrees to
the terms and limitations set forth in the Arbitration Provisions, and that Company will not take a position contrary to the
foregoing representations. Company acknowledges and agrees that Investor may rely upon the foregoing representations
and covenants of Company regarding the Arbitration Provisions.
8.2. Governing Law; Venue. This Agreement shall be construed and enforced in accordance with, and all
questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by, the
internal laws of the State of Utah, without giving effect to any choice of law or conflict of law provision or rule (whether of
the State of Utah or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the
State of Utah. Each party consents to and expressly agrees that the exclusive venue for arbitration of any dispute arising out
of or relating to any Transaction Document or the relationship of the parties or their affiliates shall be in Salt Lake County,
Utah. Without modifying the parties’ obligations to resolve disputes hereunder pursuant to the Arbitration Provisions, for
any litigation arising in connection with any of the Transaction Documents (and notwithstanding the terms (specifically
including any governing law and venue terms) of any transfer agent services agreement or other agreement between the
Company’s transfer agent (the “Transfer Agent”) and Company, such litigation specifically includes, without limitation
any action between or involving Company and the Transfer Agent under the TA Letter or otherwise related to Investor in
any way
5
(specifically including, without limitation, any action where Company seeks to obtain an injunction, temporary restraining
order, or otherwise prohibit the Transfer Agent from issuing Ordinary Shares to Investor for any reason)), each party hereto
hereby (i) consents to and expressly submits to the exclusive personal jurisdiction of any state or federal court sitting in Salt
Lake County, Utah, (ii) expressly submits to the exclusive venue of any such court for the purposes hereof, (iii) agrees to
not bring any such action (specifically including, without limitation, any action where Company seeks to obtain an
injunction, temporary restraining order, or otherwise prohibit Company’s Transfer Agent from issuing Ordinary Shares to
Investor for any reason) outside of any state or federal court sitting in Salt Lake County, Utah, and (iv) waives any claim of
improper venue and any claim or objection that such courts are an inconvenient forum or any other claim, defense or
objection to the bringing of any such proceeding in such jurisdiction or to any claim that such venue of the suit, action or
proceeding is improper. Finally, Company covenants and agrees to name Investor as a party in interest in, and provide
written notice to Investor in accordance with Section 8.9 below prior to bringing or filing, any action (including without
limitation any filing or action against any person or entity that is not a party to this Agreement, including without
limitation, the Transfer Agent) that is related in any way to the Transaction Documents or any transaction contemplated
herein or therein, including without limitation any action brought by Company to enjoin or prevent the issuance of any
Ordinary Shares to Investor by the Company’s Transfer Agent, and further agrees to timely name Investor as a party to any
such action. Company acknowledges that the governing law and venue provisions set forth in this Section 8.2 are material
terms to induce Investor to enter into the Transaction Documents and that but for Company’s agreements set forth in this
Section 8.2 Investor would not have entered into the Transaction Documents.
8.3. Specific Performance. Company acknowledges and agrees that Investor may suffer irreparable harm in
the event that Company fails to perform any material provision of this Agreement or any of the other Transaction
Documents in accordance with its specific terms. It is accordingly agreed that Investor shall be entitled to one or more
injunctions to prevent or cure breaches of the provisions of this Agreement or such other Transaction Document and to
enforce specifically the terms and provisions hereof or thereof, this being in addition to any other remedy to which Investor
may be entitled under the Transaction Documents, at law or in equity. Company specifically agrees that following an Event
of Default (as defined in the Note) under the Note, Investor shall have the right to seek and receive injunctive relief from a
court or an arbitrator prohibiting Company from issuing, converting or exchanging any of its Ordinary Shares, or other
equity to any party unless the Note is being paid in full simultaneously with such issuance. Company specifically
acknowledges that Investor’s right to obtain specific performance constitutes bargained for leverage and that the loss of
such leverage would result in irreparable harm to Investor. For the avoidance of doubt, in the event Investor seeks to obtain
an injunction from a court or an arbitrator against Company or specific performance of any provision of any Transaction
Document, such action shall not be a waiver of any right of Investor under any Transaction Document, at law, or in equity,
including without limitation its rights to arbitrate any Claim pursuant to the terms of the Transaction Documents, nor shall
Investor’s pursuit of an injunction prevent Investor, under the doctrines of claim preclusion, issues preclusion, res judicata
or other similar legal doctrines, from pursuing other Claims in the future in a separate arbitration.
8.4. Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be
delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN
Act of 2000, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to
have been duly and validly delivered and be valid and effective for all purposes.
8.5. Hea dings. The headings of this Agreement are for convenience of reference only and shall not form
part of, or affect the interpretation of, this Agreement.
6
8.6. Severability. In the event that any provision of this Agreement is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith
and shall be deemed modified to conform to such statute or rule of law. Any provision hereof which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of any other provision hereof.
8.7. Entire Agreement. This Agreement, together with the other Transaction Documents, contains the entire
understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither Company nor Investor makes any representation, warranty, covenant or undertaking with respect
to such matters. For the avoidance of doubt, all prior term sheets or other documents between Company and Investor, or
any affiliate thereof, related to the transactions contemplated by the Transaction Documents (collectively, “Prior
Agreements”), that may have been entered into between Company and Investor, or any affiliate thereof, are hereby null
and void and deemed to be replaced in their entirety by the Transaction Documents. To the extent there is a conflict
between any term set forth in any Prior Agreement and the term(s) of the Transaction Documents, the Transaction
Documents shall govern.
8.8. Amendments. No provision of this Agreement may be waived or amended other than by an instrument
in writing signed by both parties hereto.
8.9. Notices. Any notice required or permitted hereunder shall be given in writing (unless otherwise
specified herein) and shall be deemed effectively given on the earliest of: (i) the date delivered, if delivered by personal
delivery as against written receipt therefor or by email to an executive officer named below or such officer’s successor, (ii)
the date delivered in the United States Postal Service by certified mail, or (iii) the date delivered by express courier to each
of the other parties thereunto entitled at the following addresses (or at such other addresses as such party may designate by
five (5) calendar days’ advance written notice similarly given to each of the other parties hereto):
If to Company:
Kaixin Auto Holdings Attn: Mingjun Lin
9/F, Tower A, Dongjin International Center Huagong Road
Chaoyang District, Beijing 100023 People’s Republic of China
Email: lucy.yang@kaixin.com and randall.xu@kaixin.com
If to Investor:
Streeterville Capital, LLC Attn: John Fife
303 East Wacker Drive, Suite 1040
Chicago, Illinois 60601
Email: jfife@chicagoventure.com
With a copy to (which copy shall not constitute notice): Hansen Black Anderson Ashcraft PLLC
Attn: Jonathan Hansen
3051 West Maple Loop Drive, Suite 325
7
Lehi, Utah 84043
Email: jhansen@hbaa.law
8.10. Successors and Assigns. This Agreement or any of the severable rights and obligations inuring to the
benefit of or to be performed by Investor hereunder may be assigned by Investor to a third party, including its affiliates, in
whole or in part, without the need to obtain Company’s consent thereto. Company may not assign its rights or obligations
under this Agreement or delegate its duties hereunder without the prior written consent of Investor.
8.11. Survival. The representations and warranties of Company and the agreements and covenants set forth
in this Agreement shall survive the Closing hereunder notwithstanding any due diligence investigation conducted by or on
behalf of Investor. Company agrees to indemnify and hold harmless Investor and all its officers, directors, employees,
attorneys, and agents for loss or damage arising as a result of or related to any breach or alleged breach by Company of any
of its representations, warranties and covenants set forth in this Agreement or any of its covenants and obligations under
this Agreement, including advancement of expenses as they are incurred.
8.12. Further Assurances. Each party shall do and perform, or cause to be done and performed, all such
further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and
the consummation of the transactions contemplated hereby.
8.13. Investor’s Rights and Remedies Cumulative. All rights, remedies, and powers conferred in this
Agreement and the Transaction Documents are cumulative and not exclusive of any other rights or remedies, and shall be
in addition to every other right, power, and remedy that Investor may have, whether specifically granted in this Agreement
or any other Transaction Document, or existing at law, in equity, or by statute, and any and all such rights and remedies
may be exercised from time to time and as often and in such order as Investor may deem expedient.
8.14. Attorneys’ Fees and Cost of Collection. In the event of any arbitration or action at law or in equity to
enforce or interpret the terms of this Agreement or any of the other Transaction Documents, the parties agree that the party
who is awarded the most money (which, for the avoidance of doubt, shall be determined without regard to any statutory
fines, penalties, fees, or other charges awarded to any party) shall be deemed the prevailing party for all purposes and shall
therefore be entitled to an additional award of the full amount of the attorneys’ fees, deposition costs, and expenses paid by
such prevailing party in connection with arbitration or litigation without reduction or apportionment based upon the
individual claims or defenses giving rise to the fees and expenses. Nothing herein shall restrict or impair an arbitrator’s or a
court’s power to award fees and expenses for frivolous or bad faith pleading. If (i) the Note is placed in the hands of an
attorney for collection or enforcement prior to commencing arbitration or legal proceedings, or is collected or enforced
through any arbitration or legal proceeding, or Investor otherwise takes action to collect amounts due under the Note or to
enforce the provisions of the Note, or (ii) there occurs any bankruptcy, reorganization, receivership of Company or other
proceedings affecting Company’s creditors’ rights and involving a claim under the Note; then Company shall pay the costs
incurred by Investor for such collection, enforcement or action or in connection with such bankruptcy, reorganization,
receivership or other proceeding, including, without limitation, attorneys’ fees, expenses, deposition costs, and
disbursements.
8.15. Waiver. No waiver of any provision of this Agreement shall be effective unless it is in the form of a
writing signed by the party granting the waiver. No waiver of any provision or consent to any prohibited action shall
constitute a waiver of any other provision or consent to any other prohibited
8
action, whether or not similar. No waiver or consent shall constitute a continuing waiver or consent or commit a party to
provide a waiver or consent in the future except to the extent specifically set forth in writing.
8.16. Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT IRREVOCABLY WAIVES
ANY AND ALL RIGHTS SUCH PARTY MAY HAVE TO DEMAND THAT ANY ACTION, PROCEEDING
OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT, ANY
OTHER TRANSACTION DOCUMENT, OR THE RELATIONSHIPS OF THE PARTIES HERETO BE TRIED
BY JURY. THIS WAIVER EXTENDS TO ANY AND ALL RIGHTS TO DEMAND A TRIAL BY JURY
ARISING UNDER COMMON LAW OR ANY APPLICABLE STATUTE, LAW, RULE OR REGULATION.
FURTHER, EACH PARTY HERETO ACKNOWLEDGES THAT SUCH PARTY IS KNOWINGLY AND
VOLUNTARILY WAIVING SUCH PARTY’S RIGHT TO DEMAND TRIAL BY JURY.
8.17. Time is of the Essence. Time is expressly made of the essence with respect to each and every
provision of this Agreement and the other Transaction Documents.
8.18. Voluntary Agreement. Company has carefully read this Agreement and each of the other Transaction
Documents and has asked any questions needed for Company to understand the terms, consequences and binding effect of
this Agreement and each of the other Transaction Documents and fully understand them. Company has had the opportunity
to seek the advice of an attorney of Company’s choosing, or has waived the right to do so, and is executing this Agreement
and each of the other Transaction Documents voluntarily and without any duress or undue influence by Investor or anyone
else.
[Remainder of page intentionally left blank; signature page follows]
9
IN WITNESS WHEREOF, the undersigned Investor and Company have caused this Agreement to be duly
executed as of the date first above written.
INVESTOR:
STREETERVILLE CAPITAL, LLC
By:
John M. Fife, President
COMPANY:
KAIXIN AUTO HOLDINGS
By:
Mingjun Lin, CEO
[Signature Page to Securities Purchase Agreement]
EXHIBIT C
ARBITRATION PROVISIONS
1. Dispute Resolution. For purposes of this Exhibit C, the term “Claims” means any disputes, claims, demands, causes of action,
requests for injunctive relief, requests for specific performance, liabilities, damages, losses, or controversies whatsoever arising from,
related to, or connected with the transactions contemplated in the Transaction Documents and any communications between the parties
related thereto, including without limitation any claims of mutual mistake, mistake, fraud, misrepresentation, failure of formation,
failure of consideration, promissory estoppel, unconscionability, failure of condition precedent, rescission, and any statutory claims, tort
claims, contract claims, or claims to void, invalidate or terminate the Agreement (or these Arbitration Provisions (defined below)) or
any of the other Transaction Documents. For the avoidance of doubt, Investor’s pursuit of an injunction or other Claim pursuant to these
Arbitration Provisions or with a court will not later prevent Investor under the doctrines of claim preclusion, issue preclusion, res
judicata or other similar legal doctrines from pursuing other Claims in a separate arbitration in the future. The parties to this Agreement
(the “parties”) hereby agree that the Claims may be arbitrated in one or more Arbitrations pursuant to these Arbitration Provisions (one
for an injunction or injunctions and a separate one for all other Claims). The term “Claims” specifically excludes a dispute over
Calculations. The parties to the Agreement hereby agree that the arbitration provisions set forth in this Exhibit C (“Arbitration
Provisions”) are binding on each of them. As a result, any attempt to rescind the Agreement (or these Arbitration Provisions or any
other Transaction Documents) or declare the Agreement (or these Arbitration Provisions) or any other Transaction Document invalid or
unenforceable pursuant to Section 29 of the 1934 Act or for any other reason is subject to these Arbitration Provisions. These
Arbitration Provisions shall also survive any termination or expiration of the Agreement. Any capitalized term not defined in these
Arbitration Provisions shall have the meaning set forth in the Agreement.
2. Arbitration. Except as otherwise provided herein, all Claims must be submitted to arbitration (“Arbitration”) to be conducted
exclusively in Salt Lake County, Utah and pursuant to the terms set forth in these Arbitration Provisions. Subject to the arbitration
appeal right provided for in Paragraph 5 below (the “Appeal Right”), the parties agree that the award of the arbitrator rendered
pursuant to Paragraph 4 below (the “Arbitration Award”) shall be (a) final and binding upon the parties, (b) the sole and exclusive
remedy between them regarding any Claims, counterclaims, issues, or accountings presented or pleaded to the arbitrator, and (c)
promptly payable in United States dollars free of any tax, deduction or offset (with respect to monetary awards). Subject to the Appeal
Right, any costs or fees, including without limitation attorneys’ fees, incurred in connection with or incident to enforcing the Arbitration
Award shall, to the maximum extent permitted by law, be charged against the party resisting such enforcement. The Arbitration Award
shall include default interest (as defined or otherwise provided for in the Note, “Default Interest”) (with respect to monetary awards) at
the rate specified in the Note for Default Interest both before and after the Arbitration Award. Judgment upon the Arbitration Award will
be entered and enforced by any state or federal court sitting in Salt Lake County, Utah.
3. The Arbitration Act. The parties hereby incorporate herein the provisions and procedures set forth in the Utah Uniform Arbitration
Act, U.C.A. § 78B-11-101 et seq. (as amended or superseded from time to time, the “Arbitration Act”). Notwithstanding the foregoing,
pursuant to, and to the maximum extent permitted by, Section 105 of the Arbitration Act, in the event of conflict or variation between
the terms of these Arbitration Provisions and the provisions of the Arbitration Act, the terms of these Arbitration Provisions shall
control and the parties hereby waive or otherwise agree to vary the effect of all requirements of the Arbitration Act that may conflict
with or vary from these Arbitration Provisions.
4. Arbitration Proceedings. Arbitration between the parties will be subject to the following:
4.1 Initiation of Arbitration. Pursuant to Section 110 of the Arbitration Act, the parties agree that a party may initiate Arbitration by
giving written notice to the other party (“Arbitration Notice”) in the same manner that notice is permitted under Section 8.9 of the
Agreement; provided, however, that the Arbitration Notice may not be given by email or fax. Arbitration will be deemed initiated as of
the date that the Arbitration Notice is deemed delivered to such other party under Section 8.9 of the Agreement (the “Service Date”).
After the Service Date, information may be delivered, and notices may be given, by email or fax pursuant to Section 8.9 of the
Agreement or any other method permitted thereunder. The Arbitration Notice must describe the nature
of the controversy, the remedies sought, and the election to commence Arbitration proceedings. All Claims in the Arbitration Notice
must be pleaded consistent with the Utah Rules of Civil Procedure.
4.2 Selection and Payment of Arbitrator.
(a) Within ten (10) calendar days after the Service Date, Investor shall select and submit to Company the names of three (3)
arbitrators that are designated as “neutrals” or qualified arbitrators by Utah ADR Services (http://www.utahadrservices.com) (such three
(3) designated persons hereunder are referred to herein as the “Proposed Arbitrators”). For the avoidance of doubt, each Proposed
Arbitrator must be qualified as a “neutral” with Utah ADR Services. Within five (5) calendar days after Investor has submitted to
Company the names of the Proposed Arbitrators, Company must select, by written notice to Investor, one (1) of the Proposed
Arbitrators to act as the arbitrator for the parties under these Arbitration Provisions. If Company fails to select one of the Proposed
Arbitrators in writing within such 5-day period, then Investor may select the arbitrator from the Proposed Arbitrators by providing
written notice of such selection to Company.
(b) If Investor fails to submit to Company the Proposed Arbitrators within ten (10) calendar days after the Service Date
pursuant to subparagraph (a) above, then Company may at any time prior to Investor so designating the Proposed Arbitrators, identify
the names of three (3) arbitrators that are designated as “neutrals” or qualified arbitrators by Utah ADR Service by written notice to
Investor. Investor may then, within five (5) calendar days after Company has submitted notice of its Proposed Arbitrators to Investor,
select, by written notice to Company, one (1) of the Proposed Arbitrators to act as the arbitrator for the parties under these Arbitration
Provisions. If Investor fails to select in writing and within such 5-day period one (1) of the three (3) Proposed Arbitrators selected by
Company, then Company may select the arbitrator from its three
(3) previously selected Proposed Arbitrators by providing written notice of such selection to Investor.
(c) If a Proposed Arbitrator chosen to serve as arbitrator declines or is otherwise unable to serve as arbitrator, then the party
that selected such Proposed Arbitrator may select one (1) of the other three (3) Proposed Arbitrators within three (3) calendar days of
the date the chosen Proposed Arbitrator declines or notifies the parties he or she is unable to serve as arbitrator. If all three (3) Proposed
Arbitrators decline or are otherwise unable to serve as arbitrator, then the arbitrator selection process shall begin again in accordance
with this Paragraph 4.2.
(d) The date that the Proposed Arbitrator selected pursuant to this Paragraph 4.2 agrees in writing (including via email)
delivered to both parties to serve as the arbitrator hereunder is referred to herein as the “Arbitration Commencement Date”. If an
arbitrator resigns or is unable to act during the Arbitration, a replacement arbitrator shall be chosen in accordance with this Paragraph
4.2 to continue the Arbitration. If Utah ADR Services ceases to exist or to provide a list of neutrals and there is no successor thereto,
then the arbitrator shall be selected under the then prevailing rules of the American Arbitration Association.
(e) Subject to Paragraph 4.10 below, the cost of the arbitrator must be paid equally by both parties. Subject to Paragraph
4.10 below, if one party refuses or fails to pay its portion of the arbitrator fee, then the other party can advance such unpaid amount
(subject to the accrual of Default Interest thereupon), with such amount being added to or subtracted from, as applicable, the Arbitration
Award.
4.3 Applicability of Certain Utah Rules. The parties agree that the Arbitration shall be conducted generally in accordance with the
Utah Rules of Civil Procedure and the Utah Rules of Evidence. More specifically, the Utah Rules of Civil Procedure shall apply,
without limitation, to the filing of any pleadings, motions or memoranda, the conducting of discovery, and the taking of any
depositions. The Utah Rules of Evidence shall apply to any hearings, whether telephonic or in person, held by the arbitrator.
Notwithstanding the foregoing, it is the parties’ intent that the incorporation of such rules will in no event supersede these Arbitration
Provisions. In the event of any conflict between the Utah Rules of Civil Procedure or the Utah Rules of Evidence and these Arbitration
Provisions, these Arbitration Provisions shall control.
4.4Answer and Default. An answer and any counterclaims to the Arbitration Notice shall be required to
be delivered to the party initiating the Arbitration within twenty (20) calendar days after the Arbitration Commencement Date. If an
answer is not delivered by the required deadline, the arbitrator must provide written notice to the defaulting party stating that the
arbitrator will enter a default award against such party if such party does not file an answer within five (5) calendar days of receipt of
such notice. If an answer is not filed within the five (5) day extension period, the arbitrator must render a default award, consistent with
the relief requested in the Arbitration Notice, against a party that fails to submit an answer within such time period.
4.5 Related Litigation. The party that delivers the Arbitration Notice to the other party shall have the option to also commence
concurrent legal proceedings with any state or federal court sitting in Salt Lake County, Utah (“Litigation Proceedings”), subject to the
following: (a) the complaint in the Litigation Proceedings is to be substantially similar to the claims set forth in the Arbitration Notice,
provided that an additional cause of action to compel arbitration will also be included therein, (b) so long as the other party files an
answer to the complaint in the Litigation Proceedings and an answer to the Arbitration Notice, the Litigation Proceedings will be stayed
pending an Arbitration Award (or Appeal Panel Award (defined below), as applicable) hereunder, (c) if the other party fails to file an
answer in the Litigation Proceedings or an answer in the Arbitration proceedings, then the party initiating Arbitration shall be entitled to
a default judgment consistent with the relief requested, to be entered in the Litigation Proceedings, and (d) any legal or procedural issue
arising under the Arbitration Act that requires a decision of a court of competent jurisdiction may be determined in the Litigation
Proceedings. Any award of the arbitrator (or of the Appeal Panel (defined below)) may be entered in such Litigation Proceedings
pursuant to the Arbitration Act.
4.6 Discovery. Pursuant to Section 118(8) of the Arbitration Act, the parties agree that discovery shall be conducted as follows:
(a) Written discovery will only be allowed if the likely benefits of the proposed written discovery outweigh the burden or
expense thereof, and the written discovery sought is likely to reveal information that will satisfy a specific element of a claim or
defense already pleaded in the Arbitration. The party seeking written discovery shall always have the burden of showing that all of the
standards and limitations set forth in these Arbitration Provisions are satisfied. The scope of discovery in the Arbitration proceedings
shall also be limited as follows:
(i)
To facts directly connected with the transactions contemplated by the Agreement.
(ii)
To facts and information that cannot be obtained from another source or in another manner that is more convenient,
less burdensome or less expensive than in the manner requested.
(b) No party shall be allowed (i) more than fifteen (15) interrogatories (including discrete subparts),
(ii) more than fifteen (15) requests for admission (including discrete subparts), (iii) more than ten (10) document requests (including
discrete subparts), or (iv) more than three (3) depositions (excluding expert depositions) for a maximum of seven (7) hours per
deposition. The costs associated with depositions will be borne by the party taking the deposition. The party defending the deposition
will submit a notice to the party taking the deposition of the estimated attorneys’ fees that such party expects to incur in connection with
defending the deposition. If the party defending the deposition fails to submit an estimate of attorneys’ fees within five (5) calendar
days of its receipt of a deposition notice, then such party shall be deemed to have waived its right to the estimated attorneys’ fees. The
party taking the deposition must pay the party defending the deposition the estimated attorneys’ fees prior to taking the deposition,
unless such obligation is deemed to be waived as set forth in the immediately preceding sentence. If the party taking the deposition
believes that the estimated attorneys’ fees are unreasonable, such party may submit the issue to the arbitrator for a decision. All
depositions will be taken in Utah.
(c) All discovery requests (including document production requests included in deposition notices) must be submitted in
writing to the arbitrator and the other party. The party submitting the written discovery requests must include with such discovery
requests a detailed explanation of how the proposed discovery requests satisfy the requirements of these Arbitration Provisions and the
Utah Rules of Civil Procedure. The receiving party will then be allowed, within five (5) calendar days of receiving the proposed
discovery requests, to submit to the arbitrator an estimate of the attorneys’ fees and costs associated with responding to such written
discovery requests and a written challenge to each applicable discovery request. After receipt of an estimate of attorneys’ fees and costs
and/or challenge(s) to one or more discovery requests, consistent with subparagraph (c) above, the arbitrator will within three (3)
calendar days make a finding as to the likely attorneys’ fees and costs associated with responding to the discovery requests and issue an
order that (i) requires the requesting party to prepay the attorneys’ fees and costs associated with responding to the discovery requests,
and (ii) requires the responding party to respond to the discovery requests as limited by the arbitrator within twenty-five (25) calendar
days of the arbitrator’s finding with respect to such discovery requests. If a party entitled to submit an estimate of attorneys’ fees and
costs and/or a challenge to discovery requests fails to do so within such 5-day period, the arbitrator will make a finding that (A) there
are no attorneys’ fees or costs associated with responding to such discovery requests, and (B) the responding party
must respond to such discovery requests (as may be limited by the arbitrator) within twenty-five (25) calendar days of the arbitrator’s
finding with respect to such discovery requests. Any party submitting any written discovery requests, including without limitation
interrogatories, requests for production subpoenas to a party or a third party, or requests for admissions, must prepay the estimated
attorneys’ fees and costs, before the responding party has any obligation to produce or respond to the same, unless such obligation is
deemed waived as set forth above.
(d) In order to allow a written discovery request, the arbitrator must find that the discovery request satisfies the standards set
forth in these Arbitration Provisions and the Utah Rules of Civil Procedure. The arbitrator must strictly enforce these standards. If a
discovery request does not satisfy any of the standards set forth in these Arbitration Provisions or the Utah Rules of Civil Procedure, the
arbitrator may modify such discovery request to satisfy the applicable standards, or strike such discovery request in whole or in part.
(e) Each party may submit expert reports (and rebuttals thereto), provided that such reports must be submitted within sixty
(60) days of the Arbitration Commencement Date. Each party will be allowed a maximum of two (2) experts. Expert reports must
contain the following: (i) a complete statement of all opinions the expert will offer at trial and the basis and reasons for them; (ii) the
expert’s name and qualifications, including a list of all the expert’s publications within the preceding ten (10) years, and a list of any
other cases in which the expert has testified at trial or in a deposition or prepared a report within the preceding ten (10) years; and (iii)
the compensation to be paid for the expert’s report and testimony. The parties are entitled to depose any other party’s expert witness one
(1) time for no more than four (4) hours. An expert may not testify in a party’s case-in-chief concerning any matter not fairly disclosed
in the expert report.
4.6 Dispositive Motions. Each party shall have the right to submit dispositive motions pursuant Rule 12
or Rule 56 of the Utah Rules of Civil Procedure (a “Dispositive Motion”). The party submitting the Dispositive Motion may, but is not
required to, deliver to the arbitrator and to the other party a memorandum in support (the “Memorandum in Support”) of the
Dispositive Motion. Within seven (7) calendar days of delivery of the Memorandum in Support, the other party shall deliver to the
arbitrator and to the other party a memorandum in opposition to the Memorandum in Support (the “Memorandum in Opposition”).
Within seven (7) calendar days of delivery of the Memorandum in Opposition, as applicable, the party that submitted the Memorandum
in Support shall deliver to the arbitrator and to the other party a reply memorandum to the Memorandum in Opposition (“Reply
Memorandum”). If the applicable party shall fail to deliver the Memorandum in Opposition as required above, or if the other party
fails to deliver the Reply Memorandum as required above, then the applicable party shall lose its right to so deliver the same, and the
Dispositive Motion shall proceed regardless.
4.7 Confidentiality. All information disclosed by either party (or such party’s agents) during the Arbitration process (including
without limitation information disclosed during the discovery process or any Appeal (defined below)) shall be considered confidential
in nature. Each party agrees not to disclose any confidential information received from the other party (or its agents) during the
Arbitration process (including without limitation during the discovery process or any Appeal) unless (a) prior to or after the time of
disclosure such information becomes public knowledge or part of the public domain, not as a result of any inaction or action of the
receiving party or its agents, (b) such information is required by a court order, subpoena or similar legal duress to be disclosed if such
receiving party has notified the other party thereof in writing and given it a reasonable opportunity to obtain a protective order from a
court of competent jurisdiction prior to disclosure, or (c) such information is disclosed to the receiving party’s agents, representatives
and legal counsel on a need to know basis who each agree in writing not to disclose such information to any third party. Pursuant to
Section 118(5) of the Arbitration Act, the arbitrator is hereby authorized and directed to issue a protective order to prevent the
disclosure of privileged information and confidential information upon the written request of either party.
4.8Authorization; Timing; Scheduling Order. Subject to all other portions of these Arbitration Provisions, the parties hereby
authorize and direct the arbitrator to take such actions and make such rulings as may be necessary to carry out the parties’ intent for the
Arbitration proceedings to be efficient and expeditious. Pursuant to Section 120 of the Arbitration Act, the parties hereby agree that an
Arbitration Award must be made within one hundred twenty (120) calendar days after the Arbitration Commencement Date. The
arbitrator is hereby authorized and directed to hold a scheduling conference within ten (10) calendar days after the Arbitration
Commencement Date in order to establish a scheduling order with various binding deadlines for discovery, expert testimony, and the
submission of documents by the parties to enable the arbitrator to render a decision prior to the end of such 120-day period.
4.9 Relief. The arbitrator shall have the right to award or include in the Arbitration Award (or in a preliminary ruling) any relief
which the arbitrator deems proper under the circumstances, including, without limitation, specific performance and injunctive relief,
provided that the arbitrator may not award exemplary or punitive damages.
4.10 Fees and Costs. As part of the Arbitration Award, the arbitrator is hereby directed to require the losing party (the party being
awarded the least amount of money by the arbitrator, which, for the avoidance of doubt, shall be determined without regard to any
statutory fines, penalties, fees, or other charges awarded to any party) to (a) pay the full amount of any unpaid costs and fees of the
Arbitration, and (b) reimburse the prevailing party for all reasonable attorneys’ fees, arbitrator costs and fees, deposition costs, other
discovery costs, and other expenses, costs or fees paid or otherwise incurred by the prevailing party in connection with the Arbitration.
5. Arbitration Appeal.
5.1 Initiation of Appeal. Following the entry of the Arbitration Award, either party (the “Appellant”) shall have a period of thirty
(30) calendar days in which to notify the other party (the “Appellee”), in writing, that the Appellant elects to appeal (the “Appeal”) the
Arbitration Award (such notice, an “Appeal Notice”) to a panel of arbitrators as provided in Paragraph 5.2 below. The date the
Appellant delivers an Appeal Notice to the Appellee is referred to herein as the “Appeal Date”. The Appeal Notice must be delivered to
the Appellee in accordance with the provisions of Paragraph 4.1 above with respect to delivery of an Arbitration Notice. In addition,
together with delivery of the Appeal Notice to the Appellee, the Appellant must also pay for (and provide proof of such payment to the
Appellee together with delivery of the Appeal Notice) a bond in the amount of 110% of the sum the Appellant owes to the Appellee as a
result of the Arbitration Award the Appellant is appealing. In the event an Appellant delivers an Appeal Notice to the Appellee (together
with proof of payment of the applicable bond) in compliance with the provisions of this Paragraph 5.1, the Appeal will occur as a
matter of right and, except as specifically set forth herein, will not be further conditioned. In the event a party does not deliver an
Appeal Notice (along with proof of payment of the applicable bond) to the other party within the deadline prescribed in this Paragraph
5.1, such party shall lose its right to appeal the Arbitration Award. If no party delivers an Appeal Notice (along with proof of payment of
the applicable bond) to the other party within the deadline described in this Paragraph 5.1, the Arbitration Award shall be final. The
parties acknowledge and agree that any Appeal shall be deemed part of the parties’ agreement to arbitrate for purposes of these
Arbitration Provisions and the Arbitration Act.
5.2 Selection and Payment of Appeal Panel. In the event an Appellant delivers an Appeal Notice to the Appellee (together with
proof of payment of the applicable bond) in compliance with the provisions of Paragraph 5.1 above, the Appeal will be heard by a three
(3) person arbitration panel (the “Appeal Panel”).
(a) Within ten (10) calendar days after the Appeal Date, the Appellee shall select and submit to the Appellant the names
of five (5) arbitrators that are designated as “neutrals” or qualified arbitrators by Utah ADR Services (http://www.utahadrservices.com)
(such five (5) designated persons hereunder are referred to herein as the “Proposed Appeal Arbitrators”). For the avoidance of doubt,
each Proposed Appeal Arbitrator must be qualified as a “neutral” with Utah ADR Services, and shall not be the arbitrator who rendered
the Arbitration Award being appealed (the “Original Arbitrator”). Within five (5) calendar days after the Appellee has submitted to the
Appellant the names of the Proposed Appeal Arbitrators, the Appellant must select, by written notice to the Appellee, three (3) of the
Proposed Appeal Arbitrators to act as the members of the Appeal Panel. If the Appellant fails to select three (3) of the Proposed Appeal
Arbitrators in writing within such 5-day period, then the Appellee may select such three (3) arbitrators from the Proposed Appeal
Arbitrators by providing written notice of such selection to the Appellant.
(b)
If the Appellee fails to submit to the Appellant the names of the Proposed Appeal Arbitrators within ten (10) calendar
days after the Appeal Date pursuant to subparagraph (a) above, then the Appellant may at any time prior to the Appellee so designating
the Proposed Appeal Arbitrators, identify the names of five (5) arbitrators that are designated as “neutrals” or qualified arbitrators by
Utah ADR Service (none of whom may be the Original Arbitrator) by written notice to the Appellee. The Appellee may then, within
five (5) calendar days after the Appellant has submitted notice of its selected arbitrators to the Appellee, select, by written notice to the
Appellant, three (3) of such selected arbitrators to serve on the Appeal Panel. If the Appellee fails to select in writing within such 5-day
period three (3) of the arbitrators selected by the Appellant to serve as the members of the Appeal Panel, then the Appellant may select
the three (3) members of the Appeal
Panel from the Appellant’s list of five (5) arbitrators by providing written notice of such selection to the Appellee.
(c)
If a selected Proposed Appeal Arbitrator declines or is otherwise unable to serve, then the party that selected such
Proposed Appeal Arbitrator may select one (1) of the other five (5) designated Proposed Appeal Arbitrators within three (3) calendar
days of the date a chosen Proposed Appeal Arbitrator declines or notifies the parties he or she is unable to serve as an arbitrator. If at
least three (3) of the five (5) designated Proposed Appeal Arbitrators decline or are otherwise unable to serve, then the Proposed Appeal
Arbitrator selection process shall begin again in accordance with this Paragraph 5.2; provided, however, that any Proposed Appeal
Arbitrators who have already agreed to serve shall remain on the Appeal Panel.
(d)
The date that all three (3) Proposed Appeal Arbitrators selected pursuant to this Paragraph 5.2 agree in writing
(including via email) delivered to both the Appellant and the Appellee to serve as members of the Appeal Panel hereunder is referred to
herein as the “Appeal Commencement Date”. No later than five
(5) calendar days after the Appeal Commencement Date, the Appellee shall designate in writing (including via email) to the Appellant
and the Appeal Panel the name of one (1) of the three (3) members of the Appeal Panel to serve as the lead arbitrator in the Appeal
proceedings. Each member of the Appeal Panel shall be deemed an arbitrator for purposes of these Arbitration Provisions and the
Arbitration Act, provided that, in conducting the Appeal, the Appeal Panel may only act or make determinations upon the approval or
vote of no less than the majority vote of its members, as announced or communicated by the lead arbitrator on the Appeal Panel. If an
arbitrator on the Appeal Panel ceases or is unable to act during the Appeal proceedings, a replacement arbitrator shall be chosen in
accordance with Paragraph 5.2 above to continue the Appeal as a member of the Appeal Panel. If Utah ADR Services ceases to exist or
to provide a list of neutrals, then the arbitrators for the Appeal Panel shall be selected under the then prevailing rules of the American
Arbitration Association.
(d) Subject to Paragraph 5.7 below, the cost of the Appeal Panel must be paid entirely by the Appellant.
5.3 Appeal Procedure. The Appeal will be deemed an appeal of the entire Arbitration Award. In conducting the Appeal, the Appeal
Panel shall conduct a de novo review of all Claims described or otherwise set forth in the Arbitration Notice. Subject to the foregoing
and all other provisions of this Paragraph 5, the Appeal Panel shall conduct the Appeal in a manner the Appeal Panel considers
appropriate for a fair and expeditious disposition of the Appeal, may hold one or more hearings and permit oral argument, and may
review all previous evidence and discovery, together with all briefs, pleadings and other documents filed with the Original Arbitrator
(as well as any documents filed with the Appeal Panel pursuant to Paragraph 5.4(a) below). Notwithstanding the foregoing, in
connection with the Appeal, the Appeal Panel shall not permit the parties to conduct any additional discovery or raise any new Claims
to be arbitrated, shall not permit new witnesses or affidavits, and shall not base any of its findings or determinations on the Original
Arbitrator’s findings or the Arbitration Award.
5.4 Timing.
(a) Within seven (7) calendar days of the Appeal Commencement Date, the Appellant (i) shall deliver or cause to be
delivered to the Appeal Panel copies of the Appeal Notice, all discovery conducted in connection with the Arbitration, and all briefs,
pleadings and other documents filed with the Original Arbitrator (which material Appellee shall have the right to review and
supplement if necessary), and (ii) may, but is not required to, deliver to the Appeal Panel and to the Appellee a Memorandum in Support
of the Appellant’s arguments concerning or position with respect to all Claims, counterclaims, issues, or accountings presented or
pleaded in the Arbitration. Within seven (7) calendar days of the Appellant’s delivery of the Memorandum in Support, as applicable, the
Appellee shall deliver to the Appeal Panel and to the Appellant a Memorandum in Opposition to the Memorandum in Support. Within
seven (7) calendar days of the Appellee’s delivery of the Memorandum in Opposition, as applicable, the Appellant shall deliver to the
Appeal Panel and to the Appellee a Reply Memorandum to the Memorandum in Opposition. If the Appellant shall fail to substantially
comply with the requirements of clause (i) of this subparagraph (a), the Appellant shall lose its right to appeal the Arbitration Award,
and the Arbitration Award shall be final. If the Appellee shall fail to deliver the Memorandum in Opposition as required above, or if the
Appellant shall fail to deliver the Reply Memorandum as required above, then the Appellee or the Appellant, as the case may be, shall
lose its right to so deliver the same, and the Appeal shall proceed regardless.
(b)
Subject to subparagraph (a) above, the parties hereby agree that the Appeal must be heard by the Appeal Panel within
thirty (30) calendar days of the Appeal Commencement Date, and that the Appeal Panel must render its decision within thirty (30)
calendar days after the Appeal is heard (and in no event later than sixty (60) calendar days after the Appeal Commencement Date).
5.5 Appeal Panel Award. The Appeal Panel shall issue its decision (the “Appeal Panel Award”) through the lead arbitrator on the
Appeal Panel. Notwithstanding any other provision contained herein, the Appeal Panel Award shall (a) supersede in its entirety and
make of no further force or effect the Arbitration Award (provided that any protective orders issued by the Original Arbitrator shall
remain in full force and effect), (b) be final and binding upon the parties, with no further rights of appeal, (c) be the sole and exclusive
remedy between the parties regarding any Claims, counterclaims, issues, or accountings presented or pleaded in the Arbitration, and (d)
be promptly payable in United States dollars free of any tax, deduction or offset (with respect to monetary awards). Any costs or fees,
including without limitation attorneys’ fees, incurred in connection with or incident to enforcing the Appeal Panel Award shall, to the
maximum extent permitted by law, be charged against the party resisting such enforcement. The Appeal Panel Award shall include
Default Interest (with respect to monetary awards) at the rate specified in the Note for Default Interest both before and after the
Arbitration Award. Judgment upon the Appeal Panel Award will be entered and enforced by a state or federal court sitting in Salt Lake
County, Utah.
5.6 Relief. The Appeal Panel shall have the right to award or include in the Appeal Panel Award any relief which the Appeal Panel
deems proper under the circumstances, including, without limitation, specific performance and injunctive relief, provided that the
Appeal Panel may not award exemplary or punitive damages.
5.7 Fees and Costs. As part of the Appeal Panel Award, the Appeal Panel is hereby directed to require the losing party (the party
being awarded the least amount of money by the arbitrator, which, for the avoidance of doubt, shall be determined without regard to
any statutory fines, penalties, fees, or other charges awarded to any party) to (a) pay the full amount of any unpaid costs and fees of the
Arbitration and the Appeal Panel, and (b) reimburse the prevailing party (the party being awarded the most amount of money by the
Appeal Panel, which, for the avoidance of doubt, shall be determined without regard to any statutory fines, penalties, fees, or other
charges awarded to any part) the reasonable attorneys’ fees, arbitrator and Appeal Panel costs and fees, deposition costs, other discovery
costs, and other expenses, costs or fees paid or otherwise incurred by the prevailing party in connection with the Arbitration (including
without limitation in connection with the Appeal).
6. Miscellaneous.
6.1 Severability. If any part of these Arbitration Provisions is found to violate or be illegal under applicable law, then such
provision shall be modified to the minimum extent necessary to make such provision enforceable under applicable law, and the
remainder of the Arbitration Provisions shall remain unaffected and in full force and effect.
6.2 Governing Law. These Arbitration Provisions shall be governed by the laws of the State of Utah without regard to the conflict
of laws principles therein.
6.3 Interpretation. The headings of these Arbitration Provisions are for convenience of reference only and shall not form part of, or
affect the interpretation of, these Arbitration Provisions.
6.4 Waiver. No waiver of any provision of these Arbitration Provisions shall be effective unless it is in the form of a writing signed
by the party granting the waiver.
6.5 Time is of the Essence. Time is expressly made of the essence with respect to each and every provision of these Arbitration
Provisions.
[Remainder of page intentionally left blank]
Effective Date: April 8, 2022
C O NV ER TIB L E PR O MIS S O RY N OT E
Exhibit 4.42
U.S. $2,180,000.00
FOR VALUE RECEIVED, KAIXIN AUTO HOLDINGS, a Cayman Islands corporation (“Borrower”), promises to pay to
STREETERVILLE CAPITAL, LLC, a Utah limited liability company, or its successors or assigns (“Lender”), $2,180,000.00 and any
interest, fees, charges, and late fees accrued hereunder on the date that is eighteen (18) months after the Purchase Price Date (the
“Maturity Date”) in accordance with the terms set forth herein and to pay interest on the Outstanding Balance at the rate of eight
percent (8%) per annum from the Purchase Price Date until the same is paid in full. All interest calculations hereunder shall be
computed on the basis of a 360-day year comprised of twelve (12) thirty (30) day months and shall be payable in accordance with the
terms of this Note. This Convertible Promissory Note (this “Note”) is issued and made effective as of April 8, 2022 (the “Effective
Date”). This Note is issued pursuant to that certain Securities Purchase Agreement dated April 8, 2022, as the same may be amended
from time to time, by and between Borrower and Lender (the “Purchase Agreement”). Certain capitalized terms used herein are
defined in Attachment 1 attached hereto and incorporated herein by this reference.
This Note carries an OID of $160,000.00. Borrower agrees to pay $20,000.00 to Lender to cover Lender’s legal fees,
accounting costs, due diligence, monitoring and other transaction costs incurred in connection with the purchase and sale of this Note
(the “Transaction Expense Amount”), all of the OID and the Transaction Expense Amount are fully earned and included in the initial
principal balance of this Note. The purchase price for this Note shall be $2,000,000.00 (the “Purchase Price”), computed as follows:
$2,180,000.00 original principal balance, less the OID, less the Transaction Expense Amount. The Purchase Price shall be payable by
Lender by wire transfer of immediately available funds.
1. Payment; Prepayment.
1.1. Payment. All payments owing hereunder shall be in lawful money of the United States of America or
Conversion Shares (as defined below), as provided for herein, and delivered to Lender at the address or bank account furnished to
Borrower for that purpose. All payments shall be applied first to (a) costs of collection, if any, then to (b) fees and charges, if any, then
to (c) accrued and unpaid interest, and thereafter, to (d) principal.
1.2. Prepayment. Notwithstanding the foregoing, so long as Borrower has not received a Conversion Notice (as
defined below) from Lender where the applicable Conversion Shares have not yet been delivered and so long as no Event of Default
(as defined below) has occurred and is continuing, then Borrower shall have the right, exercisable on not less than five (5) Trading
Days prior written notice to Lender to prepay the Outstanding Balance of this Note, in part or in full, in accordance with this Section
1.2. Any notice of prepayment hereunder (an “Optional Prepayment Notice”) shall be delivered to Lender at its registered address or
through email and shall state: (i) that Borrower is exercising its right to prepay this Note, and (ii) the date of prepayment, which shall
be not less than five (5) Trading Days from the date of the Optional Prepayment Notice. On the date fixed for prepayment (the
“Optional Prepayment Date”), Borrower shall make payment of the Optional Prepayment Amount (as defined below) to or upon the
order of Lender as may be specified by Lender in writing to Borrower. For the avoidance of doubt, Lender shall be entitled to exercise
its conversion rights until the Optional Prepayment Date. If Borrower exercises its right to prepay this Note, Borrower shall make
payment to Lender of an amount in cash equal to 115% multiplied by the then Outstanding Balance of this Note being repaid (the
“Optional Prepayment Amount”). In the event Borrower delivers the Optional Prepayment Amount to Lender prior to the Optional
Prepayment Date or without delivering an Optional Prepayment Notice to Lender as set forth herein without Lender’s prior written
consent, the Optional Prepayment Amount shall not be deemed to have been paid to Lender until the Optional Prepayment Date. In the
event Borrower delivers the Optional Prepayment
Amount without an Optional Prepayment Notice, then the Optional Prepayment Date will be deemed to be the date that is five (5)
Trading Days from the date that the Optional Prepayment Amount was delivered to Lender and Lender shall be entitled to exercise its
conversion rights set forth herein during such five (5) day period. In addition, if Borrower delivers an Optional Prepayment Notice and
fails to pay the Optional Prepayment Amount due to Lender within two (2) Trading Days following the Optional Prepayment Date,
Borrower shall forever forfeit its right to prepay this Note.
2. Security. This Note is unsecured.
3. Lender Optional Conversion.
3.1. Conversions. Lender has the right at any time following the 6-month anniversary of the Purchase Price Date
until the Outstanding Balance has been paid in full, at its election, to convert (each instance of conversion is referred to herein as a
“Conversion”) all or any portion of no less than $200,000 of the Outstanding Balance into fully paid and non-assessable ordinary
shares, par value $0.00005 per share (the “Ordinary Shares”), of Borrower (“Conversion Shares”) as per the following conversion
formula: the number of Conversion Shares equals the amount being converted (the “Conversion Amount”) divided by the Conversion
Price (as defined below). Conversion notices in the form attached hereto as Exhibit A (each, a “Conversion Notice”) may be
effectively delivered to Borrower by any method set forth in the “Notices” Section of the Purchase Agreement, and all Conversions
shall be cashless and not require further payment from Lender. Borrower shall deliver the Conversion Shares from any Conversion to
Lender in accordance with Section 9 below. Lender shall also deliver a legal opinion (or legal opinions for each conversion or sale, as
the case may be) with respect to compliance with applicable securities laws with each Conversion Notice. Borrower shall be wholly
responsible to pay any and all fees related to issuance of Ordinary Shares in order to satisfy any Conversion hereunder.
3.2. Conversion Price. Subject to adjustment as set forth in this Note, the price at which Lender has the right to
convert all or any portion of the Outstanding Balance into Ordinary Shares is $3.00 per Ordinary Share (the “Conversion Price”).
4. Trigger Events; Defaults; and Remedies.
4.1. Trigger Events. The following are trigger events under this Note (each, a “Trigger Event”): (a) Borrower fails
to pay any principal, interest, fees, charges, or any other amount when due and payable hereunder; (b) Borrower fails to deliver any
Conversion Shares in accordance with the terms hereof; (c) a receiver, trustee or other similar official shall be appointed over Borrower
or a material part of its assets and such appointment shall remain uncontested for twenty (20) days or shall not be dismissed or
discharged within sixty (60) days; (d) Borrower becomes insolvent or generally fails to pay, or admits in writing its inability to pay, its
debts as they become due; (e) Borrower makes a general assignment for the benefit of creditors; (f) Borrower files a petition for relief
under any bankruptcy, insolvency or similar law (domestic or foreign); (g) an involuntary bankruptcy proceeding is commenced or
filed against Borrower that is not discharged within forty-five (45) days; (h) the occurrence of a Fundamental Transaction without
Lender’s prior written consent, which shall not be unreasonably withheld; (i) Borrower or any pledgor, trustor, or guarantor of this
Note defaults or otherwise fails to observe or perform any covenant, obligation, condition or agreement of Borrower or such pledgor,
trustor, or guarantor contained herein or in any other Transaction Document (as defined in the Purchase Agreement), other than those
specifically set forth in this Section 4.1 and Section 4 of the Purchase Agreement; (j) any representation, warranty or other statement
made or furnished by or on behalf of Borrower or any pledgor, trustor, or guarantor of this Note to Lender herein, in any Transaction
Document, or otherwise in connection with the issuance of this Note is false, incorrect, incomplete or misleading in any material
respect when made or furnished; (k) any money judgment, writ or similar process is entered against Borrower or any subsidiary of
Borrower or any of its
2
property or other assets for more than $2,000,000.00, and shall remain unvacated, unbonded or unstayed for a period of twenty (20)
calendar days unless otherwise consented to by Lender; (l) Borrower fails to be DWAC Eligible; (m) Borrower fails to observe or
perform any covenant set forth in Section 4 of the Purchase Agreement; or (n) Borrower, any affiliate of Borrower, or any pledgor,
trustor, or guarantor of this Note breaches any covenant or other term or condition contained in any Other Agreements.
4.2. Trigger Event Remedies. At any time following the occurrence of any Trigger Event, Lender may, at its option,
increase the Outstanding Balance by applying the Trigger Effect (subject to the limitation set forth below).
4.3. Defaults. At any time following the occurrence of a Trigger Event, Lender may, at its option, send written notice
to Borrower demanding that Borrower cure the Trigger Event within ten (10) Trading Days. If Borrower fails to cure the Trigger Event
within the required ten (10) Trading Day cure period, the Trigger Event will automatically become an event of default hereunder (each,
an “Event of Default”).
4.4. Default Remedies. At any time and from time to time following the occurrence of any Event of Default, Lender
may accelerate this Note by written notice to Borrower, with the Outstanding Balance becoming immediately due and payable in cash
at the Mandatory Default Amount. Notwithstanding the foregoing, upon the occurrence of any Trigger Event described in clauses (c),
(d), (e), (f) or (g) of Section 4.1, an Event of Default will be deemed to have occurred and the Outstanding Balance as of the date of the
occurrence of such Trigger Event shall become immediately and automatically due and payable in cash at the Mandatory Default
Amount, without any written notice required by Lender for the Trigger Event to become an Event of Default. At any time following the
occurrence of any Event of Default resulting from a Major Trigger Event, upon written notice given by Lender to Borrower, interest
shall accrue on the Outstanding Balance beginning on the date the applicable Event of Default occurred at an interest rate equal to the
lesser of twenty-two percent (22%) per annum or the maximum rate permitted under applicable law (“Default Interest”). For the
avoidance of doubt, Lender may continue making Conversions at any time following a Trigger Event or Event of Default until such
time as the Outstanding Balance is paid in full. In connection with acceleration described herein, Lender need not provide, and
Borrower hereby waives, any presentment, demand, protest or other notice of any kind, and Lender may immediately and without
expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under
applicable law. Such acceleration may be rescinded and annulled by Lender at any time prior to payment hereunder and Lender shall
have all rights as a holder of the Note until such time, if any, as Lender receives full payment pursuant to this Section 4.4. No such
rescission or annulment shall affect any subsequent Trigger Event or Event of Default or impair any right consequent thereon. Nothing
herein shall limit Lender’s right to pursue any other remedies available to it at law or in equity including, without limitation, a decree
of specific performance and/or injunctive relief with respect to Borrower’s failure to timely deliver Conversion Shares upon
Conversion of the Note as required pursuant to the terms hereof.
5. Unconditional Obligation; No Offset. Borrower acknowledges that this Note is an unconditional, valid, binding and
enforceable obligation of Borrower not subject to offset, deduction or counterclaim of any kind. Borrower hereby waives any rights of
offset it now has or may have hereafter against Lender, its successors and assigns, and agrees to make the payments or Conversions
called for herein in accordance with the terms of this Note.
6. Waiver. No waiver of any provision of this Note shall be effective unless it is in the form of a writing signed by the party
granting the waiver. No waiver of any provision or consent to any prohibited action shall constitute a waiver of any other provision or
consent to any other prohibited action, whether or
3
not similar. No waiver or consent shall constitute a continuing waiver or consent or commit a party to provide a waiver or consent in
the future except to the extent specifically set forth in writing.
7. Adjustment of Conversion Price upon Subdivision or Combination of Ordinary Shares. Without limiting any provision
hereof, if Borrower at any time on or after the Effective Date subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding Ordinary Shares into a greater number of Ordinary Shares, the Conversion Price in
effect immediately prior to such subdivision will be proportionately reduced. Without limiting any provision hereof, if Borrower at any
time on or after the Effective Date combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding
Ordinary Shares into a smaller number of Ordinary Shares, the Conversion Price in effect immediately prior to such combination will
be proportionately increased. Any adjustment pursuant to this Section 7 shall become effective immediately after the effective date of
such subdivision or combination. If any event requiring an adjustment under this Section 7 occurs during the period that a Conversion
Price is calculated hereunder, then the calculation of such Conversion Price shall be adjusted appropriately to reflect such event.
8. Borrower Redemptions. Beginning on the date that is six (6) months from the Purchase Price Date and at any time
thereafter until this Note is paid in full, Lender shall have the right to redeem any portion of the Outstanding Balance (the amount of
each exercise, the “Redemption Amount”) up to the Maximum Monthly Redemption Amount by providing written notice (each, a
“Redemption Notice”) in substantially the form attached hereto as Exhibit B delivered to Borrower by facsimile, email, mail,
overnight courier, or personal delivery. Borrower shall satisfy each such redemption request by paying to Lender in cash an amount
equal to the applicable Redemption Amount within three (3) Trading Days of Borrower’s receipt of such Redemption Notice.
9. Method of Conversion Share Delivery. On or before the close of business on the fifth (5 th) (third (3rd)) Trading Day
following the date of delivery of the first (subsequent) Conversion Notice (the “Delivery Date”), Borrower shall, provided it is DWAC
Eligible at such time and such Conversion Shares are eligible for delivery via DWAC, deliver or cause its transfer agent to deliver the
applicable Conversion Shares electronically via DWAC to the account designated by Lender in the applicable Conversion Notice.
Moreover, and notwithstanding anything to the contrary herein or in any other Transaction Document, in the event Borrower or its
transfer agent refuses to deliver any Conversion Shares without a restrictive securities legend to Lender on grounds that such issuance
is in violation of Rule 144 under the Securities Act of 1933, as amended (“Rule 144”), Borrower shall deliver or cause its transfer
agent to deliver the applicable Conversion Shares to Lender with a restricted securities legend, but otherwise in accordance with the
provisions of this Section 9. In conjunction therewith, Borrower will also deliver to Lender a written explanation from its counsel or its
transfer agent’s counsel opining as to why the issuance of the applicable Conversion Shares violates Rule 144.
10. Conversion Delays. If Borrower fails to deliver Conversion Shares in accordance with the timeframe stated in Section 9,
Lender may at any time prior to receiving the applicable Conversion Shares rescind in whole or in part such Conversion, with a
corresponding increase to the Outstanding Balance (any returned amount will tack back to the Purchase Price Date for purposes of
determining the holding period under Rule 144). In addition, for the first (subsequent) Conversion, in the event that Conversion Shares
are not delivered by the fifth (5th) (third (3rd)) Trading Day (inclusive of the day of the Conversion), a late fee equal to 1% of the
applicable Conversion Share Value rounded to the nearest multiple of $100.00 but with a floor of $500.00 per day (but in any event the
cumulative amount of such late fees for each Conversion shall not exceed the applicable Conversion Share Value) will be assessed for
each day after the fifth (5th) Trading Day (inclusive of the day of the Conversion) until Conversion Share delivery is made; and such
late fee will be added to the Outstanding Balance (such fees, the “Conversion Delay Late Fees”). Notwithstanding the foregoing, in
event the accrual of Conversion Delay Late Fees is the result of a force
4
majeure event, the cumulative amount of Conversion Delay Late Fees for the applicable Conversion shall not exceed 20% of the
applicable Conversion Share Value.
11. Issuance Fees. Borrower shall be solely responsible for any fees that must be paid in order to issue any Conversion Shares
to Lender.
12. Ownership Limitation. Notwithstanding anything to the contrary contained in this Note or the other Transaction
Documents, Borrower shall not effect any conversion of this Note to the extent that after giving effect to such conversion would cause
Lender (together with its affiliates) to beneficially own a number of Ordinary Shares exceeding 4.99% of the number of Ordinary
Shares outstanding on such date (including for such purpose the Ordinary Shares issuable upon such issuance) (the “Maximum
Percentage”). For purposes of this section, beneficial ownership of Ordinary Shares will be determined pursuant to Section 13(d) of
the 1934 Act. Notwithstanding the forgoing, the term “4.99%” above shall be replaced with “9.99%” at such time as the Market
Capitalization is less than $10,000,000.00. Notwithstanding any other provision contained herein, if the term “4.99%” is replaced with
“9.99%” pursuant to the preceding sentence, such increase to “9.99%” shall remain at 9.99% until increased, decreased or waived by
Lender as set forth below. By written notice to Borrower, Lender may increase, decrease or waive the Maximum Percentage as to itself
but any such waiver will not be effective until the 61st day after delivery thereof. The foregoing 61-day notice requirement is
enforceable, unconditional and non-waivable and shall apply to all affiliates and assigns of Lender.
13. Opinion of Counsel. In the event that an opinion of counsel is needed by either party for any matter related to this Note,
both Borrower and Lender have the right to have any such opinion provided by their counsel. Each shall be responsible to cover its
own costs of all legal opinions and representation letters from its brokers, as may be required to do Ordinary Share conversions and
sales.
14. Governing Law; Venue. This Note shall be construed and enforced in accordance with, and all questions concerning the
construction, validity, interpretation and performance of this Note shall be governed by, the internal laws of the State of Utah, without
giving effect to any choice of law or conflict of law provision or rule (whether of the State of Utah or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State of Utah. The provisions set forth in the Purchase Agreement to
determine the proper venue for any disputes are incorporated herein by this reference.
15. Arbitration of Disputes. By its issuance or acceptance of this Note, each party agrees to be bound by the Arbitration
Provisions (as defined in the Purchase Agreement) set forth as an exhibit to the Purchase Agreement.
16. Cancellation. After repayment or conversion of the entire Outstanding Balance, this Note shall be deemed paid in full,
shall automatically be deemed canceled, and shall not be reissued.
17. Amendments. The prior written consent of both parties hereto shall be required for any change or amendment to this Note.
18. Assignments. Borrower may not assign this Note without the prior written consent of Lender. Any Ordinary Shares issued
upon conversion of this Note may be offered, sold, assigned or transferred by Lender without the consent of Borrower. This Note may
be offered, sold, assigned or transferred by Lender to any of its affiliates without the consent of Borrower. This Note may not be
offered, sold, assigned or transferred by Lender to an unaffiliated third party without the consent of Borrower, which consent will not
be unreasonably withheld.
5
19. Notices. Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be
given in accordance with the subsection of the Purchase Agreement titled “Notices.”
20. Liquidated Damages. Lender and Borrower agree that in the event Borrower fails to comply with any of the terms or
provisions of this Note, Lender’s damages would be uncertain and difficult (if not impossible) to accurately estimate because of the
parties’ inability to predict future interest rates, future share prices, future trading volumes and other relevant factors. Accordingly,
Lender and Borrower agree that any fees, balance adjustments, Default Interest or other charges assessed under this Note are not
penalties but instead are intended by the parties to be, and shall be deemed, liquidated damages (under Lender’s and Borrower’s
expectations that any such liquidated damages will tack back to the Purchase Price Date for purposes of determining the holding period
under Rule 144). Therefore, no additional penalty claims, lost profits or liquidated damages shall be claimed in excess of agreed
liquidated damage amounts under this Note.
21. Severability. If any part of this Note is construed to be in violation of any law, such part shall be modified to achieve the
objective of Borrower and Lender to the fullest extent permitted by law and the balance of this Note shall remain in full force and
effect.
[Remainder of page intentionally left blank; signature page follows]
6
IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed as of the Effective
Date.
BORROWER:
KAIXIN AUTO HOLDINGS
By:
Mingjun Lin, CEO
ACKNOWLEDGED, ACCEPTED AND AGREED:
LENDER:
STREETERVILLE CAPITAL, LLC
By:
John M. Fife, President
[Signature Page to Convertible Promissory Note]
ATTACHMENT 1
DEFINITIONS
For purposes of this Note, the following terms shall have the following meanings:
A1. “Closing Bid Price” and “Closing Trade Price” means the last closing bid price and last closing trade price, respectively,
for the Ordinary Shares on their principal market, as reported by Bloomberg, or, if its principal market begins to operate on an extended
hours basis and does not designate the closing bid price or the closing trade price (as the case may be) then the last bid price or last
trade price, respectively, of the Ordinary Shares prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if its principal
market is not the principal securities exchange or trading market for the Ordinary Shares, the last closing bid price or last trade price,
respectively, of the Ordinary Shares on the principal securities exchange or trading market where the Ordinary Shares are listed or
traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of the
Ordinary Shares in the over-the-counter market on the electronic bulletin board for the Ordinary Shares as reported by Bloomberg, or,
if no closing bid price or last trade price, respectively, is reported for the Ordinary Shares by Bloomberg, the average of the bid prices,
or the ask prices, respectively, of any market makers for the Ordinary Shares as reported by OTC Markets Group, Inc., and any
successor thereto. If the Closing Bid Price or the Closing Trade Price cannot be calculated for the Ordinary Shares on a particular date
on any of the foregoing bases, the Closing Bid Price or the Closing Trade Price (as the case may be) of the Ordinary Shares on such
date shall be the fair market value as mutually determined by Lender and Borrower. All such determinations shall be appropriately
adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period.
A2. “Conversion Share Value” means the product of the number of Conversion Shares deliverable pursuant to any
Conversion Notice multiplied by the Closing Trade Price of the Ordinary Shares on the Delivery Date for such Conversion.
A3. “DTC” means the Depository Trust Company or any successor thereto.
A4. “DTC/FAST Program” means the DTC’s Fast Automated Securities Transfer program. A5. “DWAC” means the DTC’s
Deposit/Withdrawal at Custodian system.
A6. “DWAC Eligible” means that (a) Borrower’s Ordinary Shares are eligible at DTC for full services pursuant to DTC’s
operational arrangements, including without limitation transfer through DTC’s DWAC system; (b) Borrower has been approved
(without revocation) by DTC’s underwriting department; (c) Borrower’s transfer agent is approved as an agent in the DTC/FAST
Program; (d) the Conversion Shares are otherwise eligible for delivery via DWAC; and (e) Borrower’s transfer agent does not have a
policy prohibiting or limiting delivery of the Conversion Shares via DWAC.
A7. “Fundamental Transaction” means that (a) (i) Borrower or any of its subsidiaries shall, directly or indirectly, in one or
more related transactions, consolidate or merge with or into any other person or entity where Borrower is not the surviving entity, or
(ii) Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, sell, lease, license, assign,
transfer, convey or otherwise dispose of all or substantially all of its respective properties or assets to any other person or entity, or (iii)
Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, allow any other person or entity to
make a purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of voting stock of
Borrower (not including any shares of voting stock of Borrower held by the person or persons making or party to, or associated or
affiliated with the persons or entities making or party to, such purchase, tender or exchange offer), or (iv) other than in connection with
a merger, Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, consummate a stock or
share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with any other person or entity whereby such other person or entity acquires more than 50% of the outstanding
shares of voting stock of Borrower (not including any shares of voting stock of Borrower held by the other persons or entities making
or party to, or associated or affiliated with the other persons or entities making or party to, such stock or share purchase agreement or
other business combination), or (v) Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions,
reorganize, recapitalize or reclassify the Ordinary Shares, other than an increase in the number of authorized shares of Borrower’s
Ordinary Shares, or (b) other than in connection with a merger, any “person” or “group” (as these terms are used for purposes of
Sections 13(d) and 14(d) of the 1934 Act and the rules
Attachment 1 to Convertible Promissory Note, Page1
and regulations promulgated thereunder shall, after the Purchase Price Date, become the “beneficial owner” (as defined in Rule 13d-3
under the 1934 Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding voting
stock of Borrower.
A8. “Major Trigger Event” means any Trigger Event occurring under Sections 4.1(a), 4.1(c) – 4.1(h), or 4.1(m).
A9. “Mandatory Default Amount” means the Outstanding Balance following the application of the Trigger Effect.
A10. “Market Capitalization” means a number equal to (a) the average VWAP of the Ordinary Shares for the immediately
preceding fifteen (15) Trading Days, multiplied by (b) the aggregate number of outstanding Ordinary Shares as reported on Borrower’s
most recent annual or quarterly filing with the SEC.
A11. “Maximum Monthly Redemption Amount” means $300,000.00 per month unless otherwise agreed to by Borrower
and Lender.
A12.
issue discount.
“Minor Trigger Event” means any Trigger Event that is not a Major Trigger Event. A13. “OID” means an original
A14. “Other Agreements” means, collectively, (a) all existing and future agreements and instruments between, among or by
Borrower (or an affiliate), on the one hand, and Lender (or an affiliate), on the other hand, and (b) any financing agreement.
A15. “Outstanding Balance” means as of any date of determination, the Purchase Price, as reduced or increased, as the case
may be, pursuant to the terms hereof for payment, Conversion, offset, or otherwise, plus the Transaction Expense Amount, plus the
OID, plus accrued but unpaid interest, collection and enforcements costs (including attorneys’ fees) incurred by Lender, transfer, stamp,
issuance and similar taxes and fees related to Conversions, and any other fees or charges (including without limitation Conversion
Delay Late Fees) incurred under this Note.
A16. “Purchase Price Date” means the date the Purchase Price is delivered by Lender to Borrower.
A17.
“Trading Day” means any day on which the New York Stock Exchange (or such other principal market for the
Ordinary Shares) is open for trading.
A18. “Trigger Effect” means multiplying the Outstanding Balance as of the date the applicable Event of Default occurred
(after giving effect to any opportunity to cure) by (a) fifteen percent (15%) for each occurrence of any Major Trigger Event, or (b) five
percent (5%) for each occurrence of any Minor Trigger Event, and then adding the resulting product to the Outstanding Balance as of
the date the applicable Event of Default occurred, with the sum of the foregoing then becoming the Outstanding Balance under this
Note as of the date the applicable Event of Default occurred; provided, however, the cumulative application of the Trigger Effect will
be capped at a maximum of twenty percent (20%). The Trigger Effect may not be applied for a Trigger Event occurring pursuant to
Section 4.1(b).
A19. “VWAP” means the volume weighted average price of the Ordinary Shares on the principal market for a particular
Trading Day or set of Trading Days, as the case may be, as reported by Bloomberg.
[Remainder of page intentionally left blank]
Attachment 1 to Convertible Promissory Note, Page2
EXHIBIT A
Streeterville Capital, LLC
303 East Wacker Drive, Suite 1040
Chicago, Illinois 60601
Kaixin Auto Holdings
Attn: Mingjun Lin
9/F, Tower A, Dongjin International Center Huagong Road
Chaoyang District, Beijing 100023 People’s Republic of China
CONVERSION NOTICE
Date:
The above-captioned Lender hereby gives notice to Kaixin Auto Holdings, a Cayman Islands corporation (the “Borrower”), pursuant
to that certain Convertible Promissory Note made by Borrower in favor of Lender on April 8, 2022 (the “Note”), that Lender elects to
convert the portion of the Note balance set forth below into fully paid and non-assessable Ordinary Shares of Borrower as of the date of
conversion specified below. Said conversion shall be based on the Conversion Price set forth below. In the event of a conflict between
this Conversion Notice and the Note, the Note shall govern, or, in the alternative, at the election of Lender in its sole discretion, Lender
may provide a new form of Conversion Notice to conform to the Note. Capitalized terms used in this notice without definition shall
have the meanings given to them in the Note.
A.
B.
C.
D.
E.
F.
Date of Conversion:
Conversion #:
Conversion Amount:
Conversion Price:
Conversion Shares:
Remaining Outstanding Balance of Note:
(C divided by D)
*
* Subject to adjustments for corrections, defaults, interest and other adjustments permitted by the Transaction Documents (as defined in
the Purchase Agreement), the terms of which shall control in the event of any dispute between the terms of this Conversion Notice and
such Transaction Documents.
Please transfer the Conversion Shares electronically (via DWAC) to the following account:
Broker:
DTC#:
Account #:
Account Name:
Address:
To the extent the Conversion Shares are not able to be delivered to Lender electronically via the DWAC system, deliver all such
certificated shares to Lender via reputable overnight courier after receipt of this Conversion Notice (by facsimile transmission or
otherwise) to:
[Signature Page Follows]
Exhibit A to Convertible Promissory Note, Page 1
Sincerely,
Lender:
STREETERVILLE CAPITAL, LLC
By:
John M. Fife, President
Exhibit A to Convertible Promissory Note, Page 2
Exhibit 4.44
Signed by
Kaixin Auto Group
and
Stanley Star Group Inc.
Equity transfer agreement of
Renren Finance,Inc.
August 5, 2022
Equity Transfer Agreement of Renren Finance, Inc.
The equity transfer agreement of Renren Finance, Inc. (“the Agreement”) is signed by the following parties on
August 5, 2022 in the in the City of Beijing, People’s Republic of China (for the purpose of the Agreement,
excluding: The Hong Kong Special Administrative Region, the Macao Special Administrative Region and the
Taiwan Region, hereinafter referred to as “China”) .
1. Kaixin Auto Group (the “Transferor”), a company incorporated and valiantly existing under the laws of
Cayman, registration number 252985.
2. Stanley Star Group (the “Transferee”) is a company incorporated and valiantly existing under the laws of
the British Virgin Islands, registration number 2101685.
The Transferor and the Transferee are hereinafter collectively referred to as “both Parties” and individually as
a “Party”.
Whereas:
1) Renren Finance, Inc. (“the Company”) is a limited liability company incorporated and valiantly existing
under the laws of Cayman, registration number 294737.
2) As of the signing date of the Agreement, the registered capital of the Company is US $100,000, the paid-up
capital is US $0, and the equity status of the Company is as follows:
Shareholder
The amount of capital
contribution
(US dollar)
Paid-in capital
contribution amount
(US dollar)
Kaixin Auto Group
Total
$100,000
$100,000
$0
$0
Proportion
of
investment
100%
100%
3) Subject to the terms and conditions of the Agreement, the Transferor intends to transfer 100% of the equity
of the Company (corresponding to the subscribed capital amount of US $100,000, hereinafter referred to as the
“Target Equity”) held by it to the Transferee, and the Transferee is willing to accept the Target Equity.
Hereby, through friendly consultation, both Parties agree as follows:
Article 1 Transfer of equity
1.1 The Transferor agrees to transfer the Target Equity of the Company held by it to the Transferee, and the
Transferee agrees to accept the target equity of the Company held by the Transferor.
1.2 The Transferor and the Transferee confirm that the equity transfer price of the Target Equity is USD $1.
1.3 The Transferor shall bear the interest expense of the existing principal of the bank loan of Zhejiang Jieying
Automobile Sales Co., LTD., which is RMB 40 million. Such interest expense shall be paid to Zhejiang Jieying
Automobile Sales Co., Ltd. by the Transferor before repayment of the interest on each loan installment.
1.4 The Transferor shall cooperate to facilitate the completion of the registration procedures for the change of
the Company’s shareholder list, the amendment of the Company’s articles of association, and the change of
market entities. The completion of the registration of the change of market entities shall be regarded as the closing
of the equity transfer transaction. In case of any discrepancy between the documents signed by both Parties during
the registration of the change of market entities and the Agreement, the Agreement shall prevail.
1.5 Upon closing of the equity transfer transaction, the Transferee shall assume limited liability to the
Company within the limit of the registered capital subscribed to the Company, and shall enjoy the rights and
obligations of shareholders in accordance with the articles of association of the Company.
Article 2 Assignment Conditions and Compensation for Breach of Contract
If either Party fails to perform any of its obligations hereunder, or if any warranty hereunder is inaccurate,
untrue or misleading, it shall constitute a breach, and the breaching Party shall fully indemnify the non-breaching
Party for all losses suffered by the non-breaching Party as a result of such breach, and the non-breaching Party
shall have the right to require the breaching Party to continue to perform the Agreement and take remedial
measures.
2.1 The Transferor undertakes that the total net assets of Renren Finance, Inc. and its subsidiaries on the equity
transfer transaction closing date shall not be less
than -20 million RMB. If the net assets are less than -20 million RMB, the Transferor shall compensate the
Transferee for the corresponding amount.
Article 3 Confidentiality Clause
3.1 In order to complete the matters related to the Agreement, both Parties shall be obliged to keep
confidential the information and relevant trade secrets obtained from the other Party and shall take all reasonable
measures to protect the information from irrelevant personnel.
3.2 Both Parties shall inform and require their employees participating in the work hereunder to comply with
this Article in an appropriate manner.
3.3 When disclosing or publicizing matters related to the equity transfer transaction, both Parties shall
maintain a unified position through negotiation to ensure that the goodwill of both Parties is not infringed.
Without the consent of the other Party, neither Party shall send statements or words related to the equity transfer
transaction to the public without authorization.
3.4 The Party receiving the information and materials may disclose such information and materials it has
learned during the performance of the Agreement under the following circumstances:
1) such information is already known to the public;
2) Information required to be disclosed in any litigation, arbitration, or other legal proceedings;
3) information required to be disclosed by law;
4) Information required to be disclosed by any competent government department;
5) Information that needs to be disclosed to its directors, officers, employees (including external personnel),
agents or professional consultants, provided that the disclosing Party has undertaken to comply with the
confidentiality obligations set forth in this Article;
6) The information that the disclosing Party agrees to disclose in writing.
3.5 This Confidentiality clause shall not be rescinded upon termination of the Agreement and shall remain
binding upon both Parties after the completion of the Agreement.
Article 4 Force Majeure
4.1 In case of earthquake, typhoon, flood, fire, military action, strike, riot, war, or any other unforeseeable
force majeure event beyond the reasonable control of either Party (each of which is referred to as “Force Majeure
event”) which prevents the performance of the Agreement by such Party, such Party shall immediately inform the
other parties without delay, And within fifteen (15) days after the notice is given, provide detailed information and
supporting documentation of such event, explaining the reason for the failure or delay in performing all or part of
its obligations under the Agreement. The parties shall seek to find and implement a settlement acceptable to both
Parties through negotiation.
4.2 In case of a Force Majeure event, the affected Party shall not be liable for any damage, cost increase or
loss suffered by any other Party due to failure or delay in performance of its obligations hereunder, and such
failure or delay in performance of the Agreement shall not be deemed as a breach of the Agreement. The Party
claiming the event of force majeure shall take appropriate measures to reduce or eliminate the impact of the event
and try to resume the performance of the obligations delayed or hindered by the event within the shortest time
possible.
Article 5 Application of Law and Dispute Settlement
5.1 The formation, validity, interpretation, performance and dispute settlement of the Agreement shall be
governed by and construed in accordance with the laws of the People’s Republic of China. However, if the
published laws of China do not provide for specific matters relating to the Agreement, reference shall be made to
the general international business practice to the extent permitted by the laws of China.
5.2 All disputes arising out of or in connection with the Agreement shall be settled through friendly
negotiation between both Parties. If no agreement can be reached through negotiation, either Party shall have the
right to submit to Beijing Arbitration Commission for arbitration, which shall be conducted in accordance with
the Commission’s arbitration rules in effect at the time of submission. The arbitral award shall be final and
binding upon both Parties to the assignment.
5.3 During the dispute settlement period, the parties shall continue to have their other rights under the
Agreement and shall continue to perform their corresponding obligations under the Agreement.
Article 6 Notice and Service
6.1 All notices, claims, claims, demands or other communications under the Agreement (referred to as
“Notices” in this section) shall be made in writing and delivered by (i) in person, (ii) registered mail, (iii) express
mail, (iv) email or other means agreed upon by the Parties.
6.2 Notice shall be deemed to have been delivered to the notified Party on the following dates:
6.2.1 The notice delivered in person shall be deemed to have been effectively delivered on the date of the
notice being delivered in person;
6.2.2 A notice sent by registered mail (postage paid) shall be deemed to have been duly delivered after it has
been signed by the addressee;
6.2.3 A notice sent by express mail (postage paid) shall be deemed to have been duly delivered after it has
been signed by the addressee;
6.2.4 A notice sent by E-mail shall be deemed delivered when the E-mail is sent to the recipient’s E-mail
server;
6.2.5 If the notice is sent in two or more ways, the fastest delivery date shall prevail.
6.3 If any Party (hereinafter referred to as the “Changing Party”) changes the above mailing address, the
changing Party shall notify the other Party within five (5) working days after such change occurs. If the changing
Party fails to timely notify as agreed, the changing Party shall bear any loss or legal liability caused thereby.
Article 7 Effect and Other
7.1 The Agreement shall come into force and take effect from the date set forth in the first paragraph of the
Agreement after it is executed by both Parties.
7.2 Neither Party shall assign its rights, interests and obligations hereunder in whole or in part without the
prior written consent of the other Party.
7.3 The invalidity of any provision hereof shall not affect the validity of any other provision hereof.
7.4 The Agreement is executed in four (4) Chinese originals, with each signatory holding one (1) original and
the rest submitted to the competent market supervision authority.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
Signature page to the Equity transfer agreement of Renren Finance, Inc. signed by Kaixin Auto Group and
Stanley Star Group on the first date of this article
Transferor: Kaixin Auto Group (Seal)
Legal representative or authorized representative
(Signature):
Transferee: Stanley Star Group (Seal)
Legal representative or authorized representative
(Signature):
Signature page
Exhibit 4.45
Signed by
Kaixin Auto Group,
Kaixin Auto Holdings
and
Stanley Star Group Inc.
The Supplemental Agreement to
the Equity transfer agreement of
Renren Finance, Inc.
December 28, 2022
Supplemental Agreement to the Equity transfer agreement of
Renren Finance, Inc.
The Supplemental Agreement to the Equity Transfer Agreement of Renren Finance,Inc. (“the Agreement”) is
signed by the following parties on December 28, 2022 in Chaoyang District, Beijing, People’s Republic of China
(for the purpose of the Agreement, excluding: The Hong Kong Special Administrative Region, the Macao Special
Administrative Region and the Taiwan Region, hereinafter referred to as “China”).
1. Kaixin Auto Group (the “Transferor”), a company incorporated and valiantly existing under the laws of
Cayman, registration number 252985.
2. Stanley Star Group (the “Transferee”) is a company incorporated and valiantly existing under the laws of
the British Virgin Islands, registration number 2101685.
3. Kaixin Auto Holdings (hereinafter referred to as “KAH”), listed on NASDAQ in the United States, is a
company incorporated and valiably existing under the laws of Cayman, registration number 317655.
Transferor, Transferee and KAH are hereinafter collectively referred to as “the Parties” and singly referred to
as a “Party”.
Whereas:
1) The Equity transfer agreement of Renren Finance, Inc. (the “Master Agreement”) was signed by the
Transferor and the Transferee on August 5, 2022. The Master Agreement states that the Transferor transfers 100%
equity (the “Target Equity”) of Renren Finance, Inc. (the “Target Company”) to the Transferee for the price of $1.
2) After the signing of the Master Agreement, the parties have reached a supplementary agreement on the
terms of the Master Agreement, and the supplementary agreement is as follows:
1. The Parties supplement Article 2.1 of Article 2 - Assignment Conditions and Compensation for Breach of
Contract of the Master Agreement:
Original Clause: The Transferor undertakes that the total net assets of Renren Finance, Inc. and its subsidiaries
on the equity delivery transaction closing date shall
not be less than -20 million RMB. If the net assets are less than -20 million RMB, the Transferor shall compensate
the Transferee for the corresponding amount.
The terms shall be changed to: Given that the overall net assets of Renren Finance, Inc. and its subsidiaries at
the closing date are approximately negative, the Transferor shall make appropriate compensation to the Transferee
in order to facilitate the transaction. All parties have agreed through consultation that KAH will compensate the
Transferee by issuing additional convertible preferred stock of $50 million dollars in nominal amount. KAH shall
issue additional preferred shares to the Transferee within three days after the execution of the Agreement. The
preferred stock holder has the right at any time to request the conversion of all or part of his preferred stock into
the common stock of KAH at a price of $1 per share. The preferred stock has no repurchase clause and carries an
annualized dividend of 5%, payable in cash or common stock at KAH’s option.
2. In view of the above supplementary provisions for the Transferee, the Parties shall make the following
supplementary provisions in accordance with Article 1.3 - Transfer of Equity of the Master Agreement:
Original terms: The Transferor shall bear the interest expense of the existing principal of the bank loan of
Zhejiang Jieying Automobile Sales Co., LTD., which is RMB 40 million. Such interest expense shall be paid to
Zhejiang Jieying Automobile Sales Co., Ltd. by the Transferor before repayment of the interest on each loan
installment.
The terms shall be changed to: The Transferor shall bear the interest expense of the principal of the existing
bank loan of Zhejiang Jieying Automobile Sales Co., Ltd. which is 40 million RMB until the end of January 2023.
Such interest expense shall be paid by the Transferor to Zhejiang Jieying Automobile Sales Co., LTD before the
end of January 2023.
3. The Agreement is a supplement to the Master Agreement. In the absence of any agreement in the Master
Agreement, the Supplementary Agreement shall prevail. In the event of any discrepancy between the Agreement
and the Master Agreement, the Agreement shall prevail.
4. The Agreement shall be governed by the same laws and disputes as the Master Agreement.
5. The Agreement shall come into force and take effect as of the date set forth at the beginning of the
Agreement upon execution by the Parties hereto.
6. The Agreement is executed in triplicate, with each Party holding one copy.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK. ]
Signature page to the Supplemental Agreement to the Equity Transfer Agreement of Renren Finance, Inc.
signed by Kaixin Auto Group, Stanley Star Group and Kaixin Auto Holdings on the first date of this article.
Transferor: Kaixin Auto Group
Legal representative or authorized representative
(Signature):
Transferee: Stanley Star Group
Legal representative or authorized representative
(Signature):
Kaixin Auto Holdings
Legal representative or authorized representative
(Signature):
Signature page
KAIXIN AUTO HOLDINGS
CERTIFICATE OF DESIGNATION
OF
SERIES F CONVERTIBLE PREFERRED SHARES
Exhibit 4.46
The undersigned, the chairman of the board of directors (the “Board of Directors”) of Kaixin Auto Holdings,
incorporated under the laws of the Cayman Islands (the “Company”), does hereby certify that:
FIRST, according to the Third Amended and Restated Memorandum of Association of the Company (the
“Memorandum and Articles”), the authorized share capital of the Company is US$50,000 divided into
1,000,000,000 ordinary shares of a par value of US$0.00005 each (“Ordinary Shares”).
SECOND, according to the Memorandum and Articles, the Board of Directors may provide, out of the
unissued shares, for series of preferred shares, and before any preferred shares of any such series are issued, the
Board of Directors shall fix, among other things, the designation of such series, the number of preferred shares to
constitute such series, the subscription price thereof, the dividends, if any, payable on such series, voting rights,
redemption rights, conversion rights, liquidation preferences and other rights of the holders of such series.
THIRD, the Board of Directors, pursuant to the authority designated to it under the Memorandum and
Articles, has authorized, by unanimous written resolutions of the Board of Directors dated December 28, 2022, to
create and issue a new series of convertible preferred shares of the Company with preference, priority, special
privilege and other rights provided herein and that 50,000 of the authorized but unissued Ordinary Shares in the
authorized share capital of the Company be re-designated as Series F Convertible Preferred Shares.
NOW, THEREFORE, a new series of preferred shares of the Company shall be created and issued with the
rights, preferences and restrictions as follows:
1
TERMS OF PREFERRED SHARES
Section 1. Definitions. For the purposes hereof, the following terms shall have the following
meanings:
“Affiliate” means any Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a Person, as such terms are used in and
construed under Rule 405 of the Securities Act.
“Alternate Consideration” shall have the meaning set forth in Section 7(d).
“Bankruptcy Event” means any of the following events: (a) the Company or any Significant
Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other
proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any
Significant Subsidiary thereof, or (b) the Company or any Significant Subsidiary thereof calls a meeting of
its creditors with a view to arranging a composition, adjustment or restructuring of its debts.
“Base Conversion Price” shall have the meaning set forth in Section 7(b).
“Business Day” means any day other than Saturday, Sunday or other day on which commercial
banks in The City of New York are authorized or required by law to remain closed; provided, however, for
clarification, commercial banks shall not be deemed to be authorized or required by law to remain closed
due to “stay at home”, “shelter-in-place”, “non-essential employee” or any other similar orders or
restrictions or the closure of any physical branch locations at the direction of any governmental authority
so long as the electronic funds transfer systems (including for wire transfers) of commercial banks in The
City of New York generally are open for use by customers on such day.
“Change of Control Transaction” means the occurrence after the date hereof of any of (a) an
acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)
(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial
ownership of capital stock of the Company, by contract or otherwise) of in excess of 50% of the voting
securities of the Company (other than by means of conversion or exercise of Preferred Shares and the
Securities issued together with the Preferred Shares), (b) the Company merges into or consolidates with
any other Person, or any Person merges into or consolidates with the Company and, after giving effect to
such transaction, the shareholders of the Company immediately prior to such transaction own less than
50% of the aggregate voting power of the Company or the successor entity of such transaction, (c) the
Company sells or transfers all or substantially all of its (and all of its Subsidiaries, taken as a whole) assets
to another Person and the shareholders of the Company immediately prior to such transaction own less
than 50% of the aggregate
2
voting power of the acquiring entity immediately after the transaction, or (d) the execution by the
Company of an agreement to which the Company is a party or by which it is bound, providing for any of
the events set forth in clauses (a) through (c) above.
“Closing” means the closing of the purchase and sale of the Securities pursuant to Section 2.1 of the
Purchase Agreement.
“Commission” means the United States Securities and Exchange Commission.
“Conversion Amount” means the sum of the Stated Value at issue.
“Conversion Date” shall have the meaning set forth in Section 6(a).
“Conversion Price” shall have the meaning set forth in Section 6(b).
“Conversion Shares” means the Ordinary Shares issuable upon conversion of the Preferred Shares in
accordance with the terms hereof.
“Dilutive Issuance” shall have the meaning set forth in Section 7(b).
“Dilutive Issuance Notice” shall have the meaning set forth in Section 7(b).
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“Fundamental Transaction” shall have the meaning set forth in Section 7(d).
“GAAP” means United States generally accepted accounting principles.
“Holder” shall have the meaning given such term in Section 2.
“Junior Securities” means the Ordinary Shares and all other Ordinary Shares Equivalents of the
Company other than those securities which are explicitly senior or pari passu to the Preferred Shares in
dividend rights or liquidation preference.
“Liquidation” shall have the meaning set forth in Section 5.
“New York Courts” shall have the meaning set forth in Section 11(d).
“Notice of Conversion” shall have the meaning set forth in Section 6(a).
“Optional Redemption” shall have the meaning set forth in Section 8(b).
“Optional Redemption Amount” means, in relation to each outstanding Preferred Share, the sum of (a)
105% of the Stated Value, and (b) all liquidated damages and other amounts due in respect of the Preferred
Shares.
3
“Optional Redemption Date” shall have the meaning set forth in Section 8(a).
“Optional Redemption Notice” shall have the meaning set forth in Section 8(a).
“Optional Redemption Notice Date” shall have the meaning set forth in Section 8(a).
“Ordinary Shares Equivalents” means any securities of the Company or the Subsidiaries which would
entitle the holder thereof to acquire at any time Ordinary Shares, including, without limitation, any debt,
preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable
or exchangeable for, or otherwise entitles the holder thereof to receive, Ordinary Shares.
“Original Issue Date” means, with respect to each Preferred Share, the date of the first issuance of such
Preferred Share regardless of the number of transfers of such Preferred Share and regardless of the number of
certificates which may be issued to evidence such Preferred Share.
“Outstanding Preferred Shares” means Series A Convertible Preferred Shares, Series D Convertible
Preferred Shares, and Series E Convertible Preferred Shares issued by the Company, which are outstanding
and superior to the Preferred Shares in dividend rights or liquidation preference.
“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
“Preferred Shares” shall have the meaning set forth in Section 2.
“Purchase Agreement” means the Securities Purchase Agreement, dated as of March 24, 2023, among
the Company and the original Holder, as amended, modified or supplemented from time to time in accordance
with its terms.
“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such
Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same effect as such Rule.
“Securities” means the Preferred Shares and the Underlying Shares.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“Share Delivery Date” shall have the meaning set forth in Section 6(c).
4
“Stated Value” shall have the meaning set forth in Section 2.
“Subsidiary” means any direct or indirect subsidiary of the Company and shall, where applicable, also
include any direct or indirect subsidiary of the Company formed or acquired after the date of the Purchase
Agreement.
“Successor Entity” shall have the meaning set forth in Section 7(d).
“Trading Day” means a day on which the principal Trading Market is open for business.
“Trading Market” means any of the following markets or exchanges on which the Ordinary Shares is
listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the
Nasdaq Global Market, the Nasdaq Global Select Market or the New York Stock Exchange (or any successors
to any of the foregoing).
“Transaction Documents” means this Certificate of Designation, the Purchase Agreement, and any
other documents or agreements executed in connection with the transactions contemplated pursuant to the
Purchase Agreement.
“Triggering Event” shall have the meaning set forth in Section 10(a).
“Triggering Redemption Amount” means, for each share of Preferred Shares, the sum of (a) 105% of
the Stated Value (b) all liquidated damages and other costs, expenses or amounts due in respect of the
Preferred Shares.
“Triggering Redemption Payment Date” shall have the meaning set forth in Section 10(b).
“Underlying Shares” means the Ordinary Shares issued and issuable upon conversion or redemption of
the Preferred Shares on the Preferred Shares in accordance with the terms of this Certificate of Designation.
Section 2. Designation, Amount and Par Value. The series of preferred shares shall be designated
as the Company’s Series F Convertible Preferred Shares (the “Preferred Shares”) and the number of shares so
designated shall be up to 50,000 (which shall not be subject to increase without the written consent of the holders
of a majority of the then outstanding Preferred Shares (each, a “Holder” and collectively, the “Holders”)). Each
Preferred Share shall have a par value of $0.00005 per share and a stated value equal to $1,000 (the “Stated
Value”).
Section 3. The Preferred Shares carry no dividend.
Section 4. Voting Rights. Except as otherwise provided herein or as otherwise required by law,
the Preferred Shares shall have no voting rights. However, as
5
long as any Preferred Shares are outstanding, the Company shall not, without the affirmative vote of the Holders
of a majority of the then outstanding Preferred Shares, (a) alter or change adversely the powers, preferences or
rights given to the Preferred Shares or alter or amend this Certificate of Designation, (b) authorize or create any
class of shares ranking as to dividends, redemption or distribution of assets upon a Liquidation (as defined in
Section 5) senior to, or otherwise pari passu with, the Preferred Shares, (c) amend its memorandum and articles of
association or other charter documents in any manner that adversely affects any rights of the Holders, (d) increase
the number of shares that are designated as the Preferred Shares, or (e) enter into any agreement with respect to
any of the foregoing.
Section 5. Liquidation. Upon any liquidation, dissolution or winding-up of the Company,
whether voluntary or involuntary (a “Liquidation”), the Holders shall be entitled to receive out of the assets,
whether capital or surplus, of the Company an amount equal to the Stated Value, plus any accrued and unpaid
dividends thereon and any other fees or liquidated damages then due and owing thereon under this Certificate of
Designation, for each Preferred Shares before any distribution or payment shall be made to the holders of any
Junior Securities, and if the assets of the Company shall be insufficient to pay in full such amounts, then the entire
assets to be distributed to the Holders shall be ratably distributed among the Holders in accordance with the
respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. A
Fundamental Transaction shall not be deemed a Liquidation. The Company shall mail written notice of any such
Liquidation, not less than 45 days prior to the payment date stated therein, to each Holder.
Section 6. Conversion.
a) Conversions at Option of Holder. Subject to this Section 6(a), each Preferred Share shall be
convertible, at any time and from time to time from and after the Original Issue Date at the option of the Holder
thereof, into that number of Ordinary Shares determined by dividing the Stated Value of such Preferred Share by
the Conversion Price. Holders shall effect conversions by providing the Company with the form of conversion
notice attached hereto as Annex A (a “Notice of Conversion”). Each Notice of Conversion shall specify the
number of Preferred Shares to be converted (provided that the number of Ordinary Shares issuable upon the
conversion of such Preferred Shares shall be no less than 50,000, unless all Preferred Shares held by such Holder
are to be converted), the number of Preferred Shares owned prior to the conversion at issue, the number of
Preferred Shares owned subsequent to the conversion at issue and the date on which such conversion is to be
effected, which date may not be prior to the date the applicable Holder delivers by facsimile such Notice of
Conversion to the Company (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of
Conversion, the Conversion Date shall be the date that such Notice of Conversion to the Company is deemed
delivered hereunder. No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or
other type of guarantee or notarization) of any Notice of Conversion form be required. The calculations and
entries set forth in the Notice of Conversion shall control in the absence of manifest or mathematical error. To
effect conversions of Preferred Shares, a Holder shall not be required to surrender the certificate(s) representing
the Preferred Shares
6
to the Company unless all of the Preferred Shares represented thereby are so converted, in which case such
Holder shall deliver the certificate representing such Preferred Shares promptly following the Conversion
Date at issue. Preferred Shares converted into Ordinary Shares or redeemed in accordance with the terms
hereof shall be canceled and shall not be reissued.
b) Conversion Price. The conversion price for the Preferred Shares shall equal $1.00, subject to
adjustment herein (the “Conversion Price”).
c) Mechanics of Conversion.
i.
Delivery of Conversion Shares Upon Conversion. Not later than two (2) Trading Days after
each Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause to be
delivered, to the converting Holder the number of Conversion Shares being acquired upon the
conversion of the Preferred Shares.
ii.
Failure to Deliver Conversion Shares. If, in the case of any Notice of Conversion, such
Conversion Shares are not delivered to or as directed by the applicable Holder by the Share Delivery
Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its
receipt of such Conversion Shares, to rescind such Conversion, in which event the Company shall
promptly return to the Holder any original Preferred Share certificate delivered to the Company and
the Holder shall promptly return to the Company the Conversion Shares issued to such Holder
pursuant to the rescinded Notice of Conversion.
iii.
Obligation Absolute; Partial Liquidated Damages. The Company’s obligation to issue and
deliver the Conversion Shares upon conversion of Preferred Shares in accordance with the terms
hereof are absolute and unconditional, irrespective of any action or inaction by a Holder to enforce the
same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against
any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or
termination, or any breach or alleged breach by such Holder or any other Person of any obligation to
the Company or any violation or alleged violation of law by such Holder or any other person, and
irrespective of any other circumstance which might otherwise limit such obligation of the Company to
such Holder in connection with the issuance of such Conversion Shares; provided, however, that such
delivery shall not operate as a waiver by the Company of any such action that the Company may have
against such Holder. In the event a Holder shall elect to convert any or all of the Stated Value of its
Preferred Shares, the Company may not refuse conversion based on any claim that such Holder or
anyone associated or affiliated with such Holder has been engaged in any violation of law, agreement
or for any other reason, unless an injunction from a court, on notice to Holder, restraining and/or
enjoining conversion of all or part of the Preferred Shares of such Holder shall have been sought and
obtained. In the absence of such injunction, the Company shall
7
issue Conversion Shares and, if applicable, cash, upon a properly noticed conversion. If the Company
fails to deliver to a Holder such Conversion Shares pursuant to Section 6(c)(i) by the Share Delivery
Date applicable to such conversion, the Company shall pay to such Holder, in cash, as liquidated
damages and not as a penalty, for each $5,000 of Stated Value of Preferred Shares being converted, $50
per Trading Day for each Trading Day after the 2nd Trading Day following the Share Delivery Date
until such Conversion Shares are delivered or Holder rescinds such conversion. Nothing herein shall
limit a Holder’s right to pursue actual damages or declare a Triggering Event pursuant to Section 10
hereof for the Company’s failure to deliver Conversion Shares within the period specified herein and
such Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of
any such rights shall not prohibit a Holder from seeking to enforce damages pursuant to any other
Section hereof or under applicable law.
iv.
Reservation of Shares Issuable Upon Conversion. The Company covenants that it will at all
times reserve and keep available out of its authorized and unissued Ordinary Shares for the sole
purpose of issuance upon conversion of the Preferred Shares, each as herein provided, free from
preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and
the other holders of the Preferred Shares), not less than such aggregate number of Ordinary Shares as
shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into
account the adjustments and restrictions of Section 7) upon the conversion of the then outstanding
Preferred Shares hereunder. The Company covenants that all Ordinary Shares that shall be so issuable
shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable.
v.
Fractional Shares. No fractional shares or scrip representing fractional shares shall be
issued upon the conversion of the Preferred Shares. As to any fraction of a share which the Holder
would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either
pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied
by the Conversion Price or round up to the next whole share. Notwithstanding anything to the contrary
contained herein, but consistent with the provisions of this subsection with respect to fractional
Conversion Shares, nothing shall prevent any Holder from converting fractional Preferred Shares.
vi.
Transfer Taxes and Expenses. The issuance of Conversion Shares on conversion of the
Preferred Shares shall be made without charge to any Holder for any documentary stamp or similar
taxes that may be payable in respect of the issue or delivery of such Conversion Shares, provided that
the Company shall not be required to pay any tax that may be payable in respect of any transfer
involved in the issuance and delivery of any such Conversion Shares upon conversion in a name other
than that of the Holders of such Preferred Shares and the Company shall not be required to issue or
deliver such Conversion Shares unless or until the Person
8
or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or
shall have established to the satisfaction of the Company that such tax has been paid. The Company
shall pay all transfer agent fees required for same-day processing of any Notice of Conversion and all
fees to the Depository Trust Company (or another established clearing corporation performing similar
functions) required for same-day electronic delivery of the Conversion Shares.
Section 7. Certain Adjustments.
a) Stock Splits. If the Company, at any time while any Preferred Shares are outstanding: (i) pays a
stock dividend or otherwise makes a distribution or distributions payable in Ordinary Shares on Ordinary
Shares or any other Ordinary Shares Equivalents (which, for avoidance of doubt, shall not include any
Ordinary Shares issued by the Company upon conversion of, or payment of a dividend on, the Preferred
Shares), (ii) subdivides outstanding Ordinary Shares into a larger number of shares, (iii) combines (including
by way of a reverse stock split) outstanding Ordinary Shares into a smaller number of shares, or (iv) issues, in
the event of a reclassification of the Ordinary Shares, any shares of capital stock of the Company, then the
Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of Ordinary
Shares (excluding any treasury shares of the Company) outstanding immediately before such event, and of
which the denominator shall be the number of Ordinary Shares outstanding immediately after such event. Any
adjustment made pursuant to this Section 7(a) shall become effective immediately after the record date for the
determination of shareholders entitled to receive such dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision, combination or re-classification.
b) Pro Rata Distributions. During such time as any Preferred Shares are outstanding, if the Company
declares or makes any dividend or other distribution of its assets (or rights to acquire its assets) to holders of
Ordinary Shares, by way of return of capital or otherwise (including, without limitation, any distribution of
cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate
rearrangement, scheme of arrangement or other similar transaction) (a "Distribution"), at any time after the
issuance of the Preferred Shares, then, in each such case, the Holder shall be entitled to participate in such
Distribution to the same extent that the Holder would have participated therein if the Holder had held the
number of Ordinary Shares acquirable upon complete conversion of the Preferred Shares (without regard to
any limitations on conversion hereof, including without limitation, the Beneficial Ownership Limitation)
immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the
date as of which the record holders of Ordinary Shares are to be determined for the participation in such
Distribution.
c) Fundamental Transaction. If, at any time while any Preferred Shares are outstanding, (i) the
Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the
Company into another Person, (ii) the Company (and all of its Subsidiaries, taken as a whole), directly or
indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or
substantially all of
9
its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or
exchange offer (whether by the Company or another Person) is completed pursuant to which holders of
Ordinary Shares are permitted to sell, tender or exchange their shares for other securities, cash or property and
has been accepted by the holders of 50% or more of the outstanding Ordinary Shares, (iv) the Company,
directly or indirectly, in one or more related transactions effects any reclassification, reorganization or
recapitalization of the Ordinary Shares or any compulsory share exchange pursuant to which the Ordinary
Shares is effectively converted into or exchanged for other securities, cash or property, or (v) the Company,
directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or
other business combination (including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the
outstanding Ordinary Shares (not including any Ordinary Shares held by the other Person or other Persons
making or party to, or associated or affiliated with the other Persons making or party to, such stock or share
purchase agreement or other business combination), in each case of (i)-(v) above, (each a “Fundamental
Transaction”), then, upon any subsequent conversion of the Preferred Shares, the Holder shall have the right to
receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to
the occurrence of such Fundamental Transaction, the number of Ordinary Shares of the successor or acquiring
Company or of the Company, if it is the surviving Company, and any additional consideration (the “Alternate
Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of Ordinary
Shares for which the Preferred Shares are convertible immediately prior to such Fundamental Transaction. For
purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to
apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of
one share of Ordinary Shares in such Fundamental Transaction, and the Company shall apportion the
Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of
any different components of the Alternate Consideration. If holders of Ordinary Shares are given any choice as
to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given
the same choice as to the Alternate Consideration it receives upon any conversion of the Preferred Shares
following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any
successor to the Company or surviving entity in such Fundamental Transaction shall file a new Certificate of
Designation with the same terms and conditions and issue to the Holders new preferred shares consistent with
the foregoing provisions and evidencing the Holders’ right to convert such preferred shares into Alternate
Consideration. The Company shall cause any successor entity in a Fundamental Transaction in which the
Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the
Company under this Certificate of Designation and the other Transaction Documents (as defined in the
Purchase Agreement) in accordance with the provisions of this Section 7(d) pursuant to written agreements in
form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable
delay) prior to such Fundamental Transaction and shall, at the option of the holder of the Preferred Shares,
deliver to the Holder in exchange for the Preferred Shares a security of the Successor Entity evidenced by a
written instrument substantially similar in form and substance to the Preferred Shares which are convertible
for a corresponding
10
number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the Ordinary
Shares acquirable and receivable upon conversion of the Preferred Shares (without regard to any limitations
on the conversion of the Preferred Shares) prior to such Fundamental Transaction, and with a conversion price
which applies the conversion price hereunder to such shares of capital stock (but taking into account the
relative value of the Ordinary Shares pursuant to such Fundamental Transaction and the value of such shares
of capital stock, such number of shares of capital stock and such conversion price being for the purpose of
protecting the economic value of the Preferred Shares immediately prior to the consummation of such
Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the
occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for
(so that from and after the date of such Fundamental Transaction, the provisions of this Certificate of
Designation and the other Transaction Documents referring to the “Company” shall refer instead to the
Successor Entity), and may exercise every right and power of the Company and shall assume all of the
obligations of the Company under this Certificate of Designation and the other Transaction Documents with
the same effect as if such Successor Entity had been named as the Company herein.
d) Calculations. All calculations under this Section 7 shall be made to the nearest cent or the nearest
1/100th of a share, as the case may be. For purposes of this Section 7, the number of Ordinary Shares deemed
to be issued and outstanding as of a given date shall be the sum of the number of Ordinary Shares (excluding
any treasury shares of the Company) issued and outstanding.
e) Notice to the Holders.
i.
Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to
any provision of this Section 7, the Company shall promptly deliver to each Holder by facsimile or
email a notice setting forth the Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
ii.
Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any
other distribution in whatever form) on the Ordinary Shares, (B) the Company shall declare a special
nonrecurring cash dividend on or a redemption of the Ordinary Shares, (C) the Company shall
authorize the granting to all holders of the Ordinary Shares of rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any rights, (D) the approval of any shareholders
of the Company shall be required in connection with any reclassification of the Ordinary Shares, any
consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all
of the assets of the Company (and all of its Subsidiaries, taken as a whole), or any compulsory share
exchange whereby the Ordinary Shares is converted into other securities, cash or property or (E) the
Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the
affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of the Preferred Shares, and shall cause to be delivered
11
by facsimile or email to each Holder at its last facsimile number or email address as it shall appear
upon the stock books of the Company, at least twenty (20) calendar days prior to the applicable record
or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be
taken, the date as of which the holders of the Ordinary Shares of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective
or close, and the date as of which it is expected that holders of the Ordinary Shares of record shall be
entitled to exchange their Ordinary Shares for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to
deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the
corporate action required to be specified in such notice. To the extent that any notice provided
hereunder constitutes, or contains, material, non-public information regarding the Company or any of
the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a
Current Report on Form 6-K. The Holder shall remain entitled to convert the Conversion Amount of
the Preferred Shares (or any part hereof) during the 20-day period commencing on the date of such
notice through the effective date of the event triggering such notice except as may otherwise be
expressly set forth herein.
Section 8. Optional Redemption.
a)
Optional Redemption at Election of Company. Subject to the provisions of this Section 8, at
any time after January 1, 2023, the Company may deliver a notice to the Holders (an “Optional
Redemption Notice” and the date such notice is deemed delivered hereunder, the “Optional Redemption
Notice Date”) of its irrevocable election to redeem some or all of the then outstanding Preferred Shares,
for cash in an amount equal to the Optional Redemption Amount on the 20th Trading Day following the
Optional Redemption Notice Date (such date, the “Optional Redemption Date” and such redemption, the
“Optional Redemption”). The Optional Redemption Amount is payable in full on the Optional Redemption
Date. The Company covenants and agrees that it will honor all Notices of Conversion tendered from the
time of delivery of the Optional Redemption Notice through the date the Optional Redemption Amount is
paid in full.
b)
Redemption Procedure. If any portion of the payment pursuant to an Optional Redemption
shall not be paid by the Company by the applicable due date, interest shall accrue thereon at an interest
rate equal to the lesser of 10% per annum or the maximum rate permitted by applicable law until such
amount is paid in full. Notwithstanding anything herein contained to the contrary, if any portion of the
Optional Redemption Amount remains unpaid after such date, the Holder may elect, by written notice to
the Company given at any time thereafter, to invalidate such Optional Redemption, ab initio, and the
Company shall have no further right to exercise such Optional Redemption.
12
Section 9. [Reserved]
Section 10. Redemption Upon Triggering Events.
a) “Triggering Event” means, wherever used herein any of the following events:
i.
the Company shall fail to have available a sufficient number of authorized and unreserved
Ordinary Shares to issue to such Holder upon a conversion hereunder;
ii.
the Company shall fail to observe or perform any other covenant, agreement or warranty
contained in, or otherwise commit any breach of the Transaction Documents, and such failure or
breach shall not, if subject to the possibility of a cure by the Company, have been cured within 10
calendar days after the date on which written notice of such failure or breach shall have been delivered;
iii.
the Company shall redeem more than a de minimis number of Junior Securities other than
as to repurchases of Ordinary Shares or Ordinary Shares Equivalents from departing officers and
directors, provided that, while any of the Preferred Shares remains outstanding, such repurchases shall
not exceed an aggregate of $100,000 from all officers and directors; or
iv.
there shall have occurred a Bankruptcy Event.
b) Upon the occurrence of a Triggering Event, each Holder shall (in addition to all other rights it may
have hereunder or under applicable law) have the right, exercisable at the sole option of such Holder, to
require the Company to redeem all of the Preferred Shares then held by such Holder for a redemption price, in
cash, equal to the Triggering Redemption Amount. The Triggering Redemption Amount shall be due and
payable within five Trading Days of the date on which the notice for the payment therefor is provided by a
Holder (the “Triggering Redemption Payment Date”). If the Company fails to pay in full the Triggering
Redemption Amount hereunder on the date such amount is due in accordance with this Section, the Company
will pay interest thereon at a rate equal to the lesser of 10% per annum or the maximum rate permitted by
applicable law, accruing daily from such date until the Triggering Redemption Amount, plus all such interest
thereon, is paid in full.
Section 11. Miscellaneous
a) Notices. Any and all notices or other communications or deliveries to be provided by the Holders
hereunder including, without limitation, any Notice of Conversion, shall be in writing and delivered
personally, by facsimile or e-mail attachment, or sent by a nationally recognized overnight courier service,
addressed to the Company, at the address set forth above Attention: Investor Relations, e-mail address
ir@kaixin.com, or such other facsimile number, e-mail address or address as the Company may specify for
such
13
purposes by notice to the Holders delivered in accordance with this Section 9. Any and all notices or other
communications or deliveries to be provided by the Company hereunder shall be in writing and delivered
personally, by facsimile or e-mail attachment, or sent by a nationally recognized overnight courier service
addressed to each Holder at the facsimile number, e-mail address or address of such Holder appearing on the
books of the Company, or if no such facsimile number, e- mail address or address appears on the books of the
Company, at the principal place of business of such Holder, as set forth in the Purchase Agreement. Any notice
or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the
time of transmission, if such notice or communication is delivered via facsimile at the facsimile number or e-
mail attachment at the e-mail address set forth in this Section prior to 5:30 p.m. (New York City time) on any
date, (ii) the next Trading Day after the time of transmission, if such notice or communication is delivered via
facsimile at the facsimile number or e-mail attachment at the e-mail address set forth in this Section on a day
that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second
Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or
(iv) upon actual receipt by the party to whom such notice is required to be given.
b) Absolute Obligation. Except as expressly provided herein, no provision of this Certificate of
Designation shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay
liquidated damages on the Preferred Shares at the time, place, and rate, and in the coin or currency, herein
prescribed.
c) Lost or Mutilated Preferred Share Certificate. If a Holder’s Preferred Share certificate shall be
mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for
and upon cancellation of a mutilated certificate, or in lieu of or in substitution for a lost, stolen or destroyed
certificate, a new certificate for the Preferred Shares so mutilated, lost, stolen or destroyed, but only upon
receipt of evidence of such loss, theft or destruction of such certificate, and of the ownership hereof
reasonably satisfactory to the Company (which shall not include the posting of any bond).
d) Governing Law. All questions concerning the construction, validity, enforcement and interpretation
of this Certificate of Designation shall be governed by and construed and enforced in accordance with the
internal laws of the State of New York, without regard to the principles of conflict of laws thereof. All legal
proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of
the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors,
officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the
City of New York, Borough of Manhattan (the “New York Courts”). The Company and each Holder hereby
irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of such New
14
York Courts, or such New York Courts are improper or inconvenient venue for such proceeding.
e) Waiver. Any waiver by the Company or a Holder of a breach of any provision of this Certificate of
Designation shall not operate as or be construed to be a waiver of any other breach of such provision or of any
breach of any other provision of this Certificate of Designation or a waiver by any other Holders. The failure
of the Company or a Holder to insist upon strict adherence to any term of this Certificate of Designation on
one or more occasions shall not be considered a waiver or deprive that party (or any other Holder) of the right
thereafter to insist upon strict adherence to that term or any other term of this Certificate of Designation on
any other occasion. Any waiver by the Company or a Holder must be in writing.
f) Severability. If any provision of this Certificate of Designation is invalid, illegal or unenforceable,
the balance of this Certificate of Designation shall remain in effect, and if any provision is inapplicable to any
Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it
shall be found that any interest or other amount deemed interest due hereunder violates the applicable law
governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the
maximum rate of interest permitted under applicable law.
g) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day
other than a Business Day, such payment shall be made on the next succeeding Business Day.
h) Headings. The headings contained herein are for convenience only, do not constitute a part of this
Certificate of Designation and shall not be deemed to limit or affect any of the provisions hereof.
i) Status of Converted or Redeemed Preferred Shares. Preferred Shares may only be issued pursuant
to the Purchase Agreement. If any Preferred Shares shall be converted, redeemed or reacquired by the
Company, such shares shall resume the status of authorized but unissued Ordinary Shares and shall no longer
be designated as its Series E Convertible Preferred Shares.
*********************
15
IN WITNESS WHEREOF, the undersigned have executed this Certificate on March 24, 2023.
Name: Mingjun Lin
Title: Chairman of the Board of Directors
[Signature page to Certificate of Designation]
ANNEX A
NOTICE OF CONVERSION
(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT PREFERRED SHARES)
The undersigned hereby elects to convert the number of Series F Convertible Preferred Shares indicated below
into Ordinary Shares, par value $0.00005 per share (the “Ordinary Shares”), of Kaixin Auto Holdings, a Cayman
Islands Company (the “Company”), according to the conditions hereof, as of the date written below. If Ordinary
Shares are to be issued in the name of a Person other than the undersigned, the undersigned will pay all transfer
taxes payable with respect thereto and is delivering herewith such certificates and opinions as may be required by
the Company in accordance with the Purchase Agreement. No fee will be charged to the Holders for any
conversion, except for any such transfer taxes.
Conversion calculations:
Date to Effect Conversion:
Number of Preferred Shares owned prior to
Conversion:
Number of Preferred Shares to be Converted:
Stated Value of Preferred Shares to be
Converted:
Number of Ordinary Shares to be Issued:
Applicable Conversion Price:
Number of Preferred Shares subsequent to
Conversion:
Address for
Delivery:
or
DWAC
Instructions:
Broker no:
Account no:
[HOLDER]
By:
Name:
Title:
17
Exhibit 4.47
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this “Agreement”) is dated as of March 24, 2023, between Kaixin
Auto Holdings, an exempted company incorporated under the laws of the Cayman Islands (the “Company”), and
Stanley Star Group Inc., an exempted company incorporated under the laws of the British Virgin Islands (the
“Purchaser”).
WHEREAS, Kaixin Auto Group, a wholly owned subsidiary of the Company, and the Purchaser entered
into an equity transfer agreement on August 5, 2022 pursuant to which Kaixin Auto Group transfers the 100%
equity of Renren Finance Inc. under its name to the Purchaser for a consideration of $1 (the “Equity Transfer
Transaction”). The equity transfer agreement was subsequently amended on December 28, 2022 among Kaixin
Auto Group, the Company, and the Purchaser pursuant to which the Company agrees to issue $50,000,000
convertible preferred shares to the Purchaser as part of the Equity Transfer Transaction.
WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(a)(2)
of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 promulgated thereunder, the
Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to
purchase from the Company, securities of the Company as more fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and
for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the
Company and each Purchaser agree as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that
are not otherwise defined herein have the meanings given to such terms in the Certificate of Designation (as
defined herein), and (b) the following terms have the meanings set forth in this Section 1.1:
“Affiliate” means any Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a Person, as such terms are used in and
construed under Rule 405 under the Securities Act.
“Board of Directors” means the board of directors of the Company.
“Business Day” means any day other than Saturday, Sunday or other day on which commercial
banks in The City of New York are authorized or required by law to remain closed; provided, however, for
clarification, commercial banks shall not be deemed to be authorized or required by law to remain closed
due to “stay at home”, “shelter-in-place”, “non-essential employee” or any other similar orders or
restrictions or the closure of any physical branch locations at the direction of any governmental authority
so long as the electronic funds transfer systems (including for wire transfers) of commercial banks in The
City of New York generally are open for use by customers on such day.
“Certificate of Designation” means the Certificate of Designation in the form of Exhibit A attached
hereto.
“Closing” means the closing of the purchase and sale of the Preferred Shares pursuant to Section
2.1.
“Commission” means the United States Securities and Exchange Commission. “Conversion Price”
shall have the meaning ascribed to such term in the Certificate
of Designation.
“Conversion Shares” shall have the meaning ascribed to such term in the Certificate of
Designation.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.
“Liens” means a lien, charge, pledge, security interest, encumbrance, right of first refusal,
preemptive right or other restriction.
“Ordinary Shares” means the ordinary shares of the Company, par value $0.0001 per share, and
any other class of securities into which such securities may hereafter be reclassified or changed.
“Ordinary Shares Equivalents” means any securities of the Company or the Subsidiaries which
would entitle the holder thereof to acquire at any time Ordinary Shares, including, without limitation, any
debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or
exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Ordinary Shares.
“Outstanding Preferred Shares” means Series A Convertible Preferred Shares, Series D Convertible
Preferred Shares and Series E Convertible Preferred Shares issued by the Company that are outstanding as
of the date of this Agreement.
“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
“Preferred Shares” means the up to 50,000 shares of the Company’s Series F Convertible Preferred
Shares issued hereunder having the rights, preferences and privileges set forth in the Certificate of
Designation.
“Proceeding” means an action, claim, suit, investigation or proceeding (including, without
limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or
threatened.
“Required Approvals” shall have the meaning ascribed to such term in Section3.1(e).
“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as
such Rule may be amended or interpreted from time to time, or any similar rule or
2
regulation hereafter adopted by the Commission having substantially the same purpose and effect
as such Rule.
“Securities” means the Preferred Shares and the Underlying Shares.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“Stated Value” means $1,000 per Preferred Share.
“Subsidiary” means any direct or indirect subsidiary of the Company and shall, where applicable,
also include any direct or indirect subsidiary of the Company formed or acquired after the date hereof.
“Trading Day” means a day on which the principal Trading Market is open for trading.
“Trading Market” means any of the following markets or exchanges on which the Ordinary Shares
are listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market,
the Nasdaq Global Market, the Nasdaq Global Select Market or the New York Stock Exchange (or any
successors to any of the foregoing).
“Transaction Documents” means this Agreement, the Certificate of Designation, and any other
documents or agreements executed in connection with the transactions contemplated hereunder.
“Underlying Shares” means the Ordinary Shares issued and issuable upon conversion of the
Preferred Shares, and issued and issuable in lieu of the cash payment of dividends on the Preferred Shares
in accordance with the terms of the Certificate of Designation.
ARTICLE II.
PURCHASE AND SALE
2.1 Closings.
On the Closing Date, upon the terms and subject to the conditions set forth herein, the
Company agrees to issue to the Purchaser an aggregate of 50,000 Series F Convertible Preferred
Shares for the aggregate consideration of US$50,000,000. The Company and the Purchaser shall
deliver the other items set forth in Section 2.2 deliverable at the Closing.
2.2 Deliveries.
(a) On or prior to the Closing Date, the Company shall deliver or cause to be delivered to the
Purchaser the following:
(i) this Agreement duly executed by the Company;
3
(ii) the the Certificate of Designation executed by the Company; and
(iii) a certificate evidencing an aggregate of 50,000 Series F Convertible Preferred
Shares.
(b) The Purchaser shall deliver or cause to be delivered to the Company the following:
(i) this Agreement duly executed by the Purchaser on or prior to the Closing Date.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. The Company hereby makes the following
representations and warranties to the Purchaser:
(a) Organization and Qualification. The Company and each of the Subsidiaries is an entity duly
incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of
its incorporation or organization, with the requisite power and authority to own and use its properties and
assets and to carry on its business as currently conducted.
(b) Authorization; Enforcement. The Company has the requisite corporate power and authority to
enter into and to consummate the transactions contemplated by this Agreement and each of the other
Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and
delivery of this Agreement and each of the other Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company and no further action is required by the Company, the Board of
Directors or the Company’s stockholders in connection herewith or therewith other than in connection with the
Required Approvals. This Agreement and each other Transaction Document to which it is a party has been (or
upon delivery will have been) duly executed by the Company and, when delivered in accordance with the
terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution
provisions may be limited by applicable law.
(c) No Conflicts. The execution, delivery and performance by the Company of this Agreement and
the other Transaction Documents to which it is a party, the issuance and sale of the Securities and the
consummation by it of the transactions contemplated hereby and thereby do not and will not (i) conflict with
or violate any provision of the
4
Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or
charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or
both would become a default) under, result in the creation of any Lien upon any of the properties or assets of
the Company or any Subsidiary, or give to others any rights of termination, amendment, anti- dilution or
similar adjustments, acceleration or cancellation (with or without notice, lapse of time or both) of, any
agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or
other understanding to which the Company or any Subsidiary is a party or by which any property or asset of
the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with
or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of
any court or governmental authority to which the Company or a Subsidiary is subject (including federal and
state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is
bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be
expected to result in a material adverse effect.
(d) Filings, Consents and Approvals. The Company is not required to obtain any consent, waiver,
authorization or order of, give any notice to, or make any filing or registration with, any court or other federal,
state, local or other governmental authority or other Person in connection with the execution, delivery and
performance by the Company of the Transaction Documents, other than: (i) the notice and/or application(s) to
each applicable Trading Market for the issuance and sale of the Securities and the listing of the Underlying
Shares for trading thereon in the time and manner required thereby, and (ii) the filing of Form D with the
Commission and such filings as are required to be made under applicable state securities laws (collectively,
the “Required Approvals”).
(e) Approvals by other Rights Holders. The Company has obtained the requisite approvals, or
waivers, as the case may be, from holders of Preferred Shares, as set forth in the respective transactional
documents.
(f) Issuance of the Securities. The Securities are duly authorized and, when issued and paid for in
accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided
for in the Transaction Documents. The Underlying Shares, when issued in accordance with the terms of the
Transaction Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens
imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. The
Company has reserved from its duly authorized capital stock a number of Ordinary Shares for issuance of the
Underlying Shares at least equal to the Required Minimum on the date hereof.
(g) Private Placement. Assuming the accuracy of the Purchaser’s representations and warranties
set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the
Securities by the Company to the Purchaser as contemplated hereby. The issuance and sale of the Securities
hereunder does not contravene the rules and regulations of the Trading Market.
5
(h) Investment Company. The Company is not, and immediately after receipt of payment for the
Securities, will not be, an “investment company” within the meaning of the Investment Company Act of 1940,
as amended. The Company shall conduct its business in a manner so that it will not become an “investment
company” subject to registration under the Investment Company Act of 1940, as amended.
(i) No Integrated Offering. Assuming the accuracy of the Purchaser’s representations and
warranties set forth in Section 3.2, neither the Company, nor any of its Affiliates, nor any Person acting on its
or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy
any security, under circumstances that would cause this offering of the Securities to be integrated with prior
offerings by the Company for purposes of (i) the Securities Act which would require the registration of any
such securities under the Securities Act, or (ii) any applicable shareholder approval provisions of any Trading
Market on which any of the securities of the Company are listed or designated.
(j) No General Solicitation. Neither the Company nor any Person acting on behalf of the Company
has offered or sold any of the Securities by any form of general solicitation or general advertising. The
Company has offered the Securities for sale only to the Purchaser and certain other “accredited investors”
within the meaning of Rule 501 under the Securities Act.
(k) Regulation M Compliance. The Company has not, and to its knowledge no one acting on its
behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or
manipulation of the price of any security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the
Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any
other securities of the Company, other than, in the case of clauses (ii) and (iii), compensation paid to the
Company’s placement agent in connection with the placement of the Securities.
(l) No Disqualification Events. With respect to the Securities to be offered and sold hereunder in
reliance on Rule 506 under the Securities Act, other than the Purchaser, none of the Company, any of its
predecessors, any affiliated issuer, any director, executive officer, other officer of the Company participating in
the offering hereunder, any beneficial owner of 20% or more of the Company’s outstanding voting equity
securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under
the Securities Act) connected with the Company in any capacity at the time of sale (each, an “Issuer Covered
Person” and, together, “Issuer Covered Persons”) is subject to any of the “Bad Actor” disqualifications
described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a “Disqualification Event”), except for a
Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to
determine whether any Issuer Covered Person is subject to a Disqualification Event. The Company has
complied, to the extent applicable, with its disclosure obligations under Rule 506(e).
(m) Other Covered Persons. The Company is not aware of any person (other than any Issuer
Covered Person) that has been or will be paid (directly or indirectly) remuneration for solicitation of
purchasers in connection with the sale of any Securities.
6
(n) Notice of Disqualification Events. The Company will notify the Purchaser in writing, prior to
each Closing Date of (i) any Disqualification Event relating to any Issuer Covered Person and (ii) any event
that would, with the passage of time, become a Disqualification Event relating to any Issuer Covered Person.
3.2 Representations and Warranties of the Purchaser. The Purchaser hereby represents and warrants as
of the date hereof and as of the Closing Date to the Company as follows (unless as of a specific date therein, in
which case they shall be accurate as of such date):
(a) Organization; Authority. Such Purchaser is either an individual or an entity duly incorporated
or formed, validly existing and in good standing under the laws of the jurisdiction of its incorporation or
formation with full right, corporate, partnership, limited liability company or similar power and authority to enter
into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out
its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and
performance by such Purchaser of the transactions contemplated by the Transaction Documents have been duly
authorized by all necessary corporate, partnership, limited liability company or similar action, as applicable, on
the part of such Purchaser. Each Transaction Document to which it is a party has been duly executed by such
Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid
and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except (i) as
limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable law.
(b) Own Account. The Purchaser understands that the Securities are “restricted securities” and
have not been registered under the Securities Act or any applicable state securities law and is acquiring the
Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or
any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of
distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has
no direct or indirect arrangement or understandings with any other persons to distribute or regarding the
distribution of such Securities in violation of the Securities Act or any applicable state securities law (this
representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to a registration
statement or otherwise in compliance with applicable federal and state securities laws). Such Purchaser is
acquiring the Securities hereunder in the ordinary course of its business.
(c) Purchaser Status. At the time such Purchaser was offered the Securities, it was, and as of the
date hereof it is, and on each date on which it converts any Preferred Shares, it will be an “accredited investor” as
defined in Rule 501(a) under the Securities Act.
(d) Experience of Such Purchaser. The Purchaser, either alone or together with its representatives,
has such knowledge, sophistication and experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and
risks of such investment. The
7
Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.
(e) General Solicitation. The Purchaser is not, to such Purchaser’s knowledge, purchasing the
Securities as a result of any advertisement, article, notice or other communication regarding the Securities
published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any
seminar or, to the knowledge of such Purchaser, any other general solicitation or general advertisement.
(f) Disqualification Event. The Purchaser is not subject to any Disqualification Event.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of in compliance with state and federal securities laws. In
connection with any transfer of Securities other than pursuant to an effective registration statement or Rule 144, to
the Company or to an Affiliate of a Purchaser or in connection with a pledge as contemplated in Section 4.1(b),
the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the
transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such
transferred Securities under the Securities Act. As a condition of transfer, any such transferee shall agree in
writing to be bound by the terms of this Agreement and shall have the rights and obligations of a Purchaser under
this Agreement.
(b) The Purchaser agree to the imprinting, so long as is required by this Section 4.1, of a legend on
any of the Securities in the following form:
[NOR THE SECURITIES
INTO WHICH THIS SECURITY
[NEITHER] THIS SECURITY
IS
[EXERCISABLE] [CONVERTIBLE]] HAS [NOT] BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”) OR THE SECURITIES COMMISSION OF ANY STATE, AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY [AND THE
SECURITIES ISSUABLE UPON [EXERCISE]/[CONVERSION] OF THIS SECURITY] MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER- DEALER
OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS
DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH
SECURITIES.
8
4.2 Acknowledgment of Dilution. The Company acknowledges that the issuance of the Securities may
result in dilution of the outstanding Ordinary Shares, which dilution may be substantial under certain market
conditions. The Company further acknowledges that its obligations under the Transaction Documents, including,
without limitation, its obligation to issue the Underlying Shares pursuant to the Transaction Documents, are
unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of
the effect of any such dilution or any claim the Company may have against any Purchaser and regardless of the
dilutive effect that such issuance may have on the ownership of the other stockholders of the Company.
4.3 Integration. The Company shall not sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of
the Securities or that would be integrated with the offer or sale of the Securities for purposes of the rules and
regulations of any Trading Market such that it would require shareholder approval prior to the closing of such
other transaction unless shareholder approval is obtained before the closing of such subsequent transaction.
4.4 Indemnification of Purchaser. Subject to the provisions of this Section 4.4, the Company will
indemnify and hold the Purchaser and its directors, officers, shareholders, members, partners, employees and
agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title), each Person who controls such Purchaser (within the meaning of Section 15 of
the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members,
partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title) of such controlling persons (each, a “Purchaser Party”)
harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of
the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other
Transaction Documents or (b) any action instituted against the Purchaser Parties in any capacity, or any of them or
their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser Party,
with respect to any of the transactions contemplated by the Transaction Documents (unless such action is solely
based upon a material breach of such Purchaser Party’s representations, warranties or covenants under the
Transaction Documents or any agreements or understandings such Purchaser Party may have with any such
stockholder or any violations by such Purchaser Party of state or federal securities laws or any conduct by such
Purchaser Party which is finally judicially determined to constitute fraud, gross negligence or willful misconduct).
If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant
to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall
have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the
Purchaser Party.
4.5 Conversion Procedures. The form of Notice of Conversion included in the Certificate of
Designation set forth the totality of the procedures required of the Purchasers in order to convert the Preferred
Shares. Without limiting the preceding sentences, no ink-original Notice of Conversion
9
shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of
Conversion form be required in order to convert the Preferred Shares. No additional legal opinion, other
information or instructions shall be required of the Purchaser to convert its Preferred Shares. The Company shall
honor conversions of the Preferred Shares and shall deliver Underlying Shares in accordance with the terms,
conditions and time periods set forth in the Transaction Documents.
ARTICLE V.
MISCELLANEOUS
5.1 Termination. This Agreement may be terminated by the Purchaser by written notice to the
Company, if the Closing has not been consummated on or before the Closing Date.
5.2 Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto,
contain the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede
all prior agreements and understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.3 Notices. Any and all notices or other communications or deliveries required or permitted to be
provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the time of
transmission, if such notice or communication is delivered via facsimile at the facsimile number or email
attachment at the e-mail address as set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New
York City time) on a Trading Day, (b) the next Trading Day after the time of transmission, if such notice or
communication is delivered via facsimile or email attachment at the facsimile number or e-mail address as set
forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York
City time) on any Trading Day, or (c) upon actual receipt by the party to whom such notice is required to be
given. The address for such notices and communications shall be as set forth on the signature pages attached
hereto.
5.4 Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented
or amended except in a written instrument signed, in the case of an amendment, by the Company and the
Purchaser or, in the case of a waiver, by the party against whom enforcement of any such waived provision is
sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right
hereunder in any manner impair the exercise of any such right. Any amendment effected in accordance with this
Section 5.4 shall be binding upon each Purchaser and holder of Securities and the Company.
5.5 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the
parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Purchaser (other than by merger). The Purchaser
may assign any or all of its rights under this Agreement to any Person to whom the Purchaser assigns or transfers
any Securities, provided that
10
such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the
Transaction Documents that apply to the “Purchaser.”
5.6 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and
their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other Person, except as otherwise set forth in Section 4.4 and this Section 5.6.
5.7 Governing Law. All questions concerning the construction, validity, enforcement and
interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with
the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party
agrees that all legal Proceedings concerning the interpretations, enforcement and defense of the transactions
contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or
its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in the City of New York.
5.8 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ
an alternative means to achieve the same or substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they
would have executed the remaining terms, provisions, covenants and restrictions without including any of such
that may be hereafter declared invalid, illegal, void or unenforceable.
5.9 WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY
JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH
INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY
KNOWINGLY AND
IRREVOCABLY AND
APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY,
EXPRESSLY WAIVES FOREVER TRIAL BY JURY.
(Signature Pages Follow)
11
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly
executed by their respective authorized signatories as of the date first indicated above.
KAIXIN AUTO HOLDINGS
By:
Name:
Title:
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly
executed by their respective authorized signatories as of the date first indicated above.
STANLEY STAR GROUP INC.
By:
Name:
Title:
EXHIBIT A
FORM OF CERTIFICATE OF DESIGNATION
1
Principal Subsidiaries, Consolidated Affiliated Entity and Subsidiary of Consolidated
Affiliated Entity of the Registrant
Exhibit 8.1
Principal Subsidiaries
Kaixin Auto Group
Jet Sound Hong Kong Company Ltd.
Anhui Kaixin New Energy Vehicles Co., Ltd.
Beijing Kaixin Xiaoman Auto Retail Co., Ltd.
Chongqing Jieying Shangyue Auto Brokerage Co., Ltd.
Wuhan Jieying Chimei Auto Service Co., Ltd.
Zhejiang Kaixin Auto Co., Ltd. Beijing Branch
Zhejiang Kaixin Daman Auto Retail Co., Ltd.
Zhejiang Kaixin Xiaoman Auto Retail Co., Ltd.
Zhejiang Kaixin Jingtao Auto Retail Co., Ltd.
Zhejiang Kaixin Manman Travel Technology Co., Ltd.
Zhejiang Kaixin Auto Co., Ltd.
Zhejiang Jet Sound Shiji Technology Development Co., Ltd.
Place of Incorporation
Cayman Islands
Hong Kong
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
Exhibit 12.1
Certification by the Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Mingjun Lin, certify that:
1.
I have reviewed this annual report on Form 20-F of Kaixin Auto Holdings;
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 officers 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)) 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) [intentionally omitted]
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period
covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal
control over financial reporting; and
5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information;
and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s
internal control over financial reporting.
Date: May 16, 2023
/s/ Mingjun Lin
By:
Name: Mingjun Lin
Title: Chief Executive Officer
Exhibit 12.2
Certification by the Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Yi Yang, certify that:
1.
I have reviewed this annual report on Form 20-F of Kaixin Auto Holdings;
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 officers 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)) 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) [intentionally omitted]
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period
covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal
control over financial reporting; and
5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information;
and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s
internal control over financial reporting.
Date: May 16, 2023
/s/ Yi Yang
By:
Name: Yi Yang
Title: Chief Financial Officer
Certification by the Chief Executive Officer
Pursuant to Section 906 of the Saranes-Oxley Act of 2002
Exhibit 13.1
In connection with the Annual Report of Kaixin Auto Holdings (the “Company”) on Form 20-F for the year ended December
31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mingjun Lin, Chief Executive
Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: May 16, 2023
/s/ Mingjun Lin
By:
Name: Mingjun Lin
Title: Chief Executive Officer
Certification by the Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 13.2
In connection with the Annual Report of Kaixin Auto Holdings (the “Company”) on Form 20-F for the year ended December
31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Yi Yang, Chief Financial Officer of
the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to
my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: May 16, 2023
/s/ Yi Yang
By:
Name: Yi Yang
Title: Chief Financial Officer
Exhibit 15.1
Onestop Assurance PAC
10 Anson Road
#13-09 International Plaza
Singapore 079903
Email:audit@onestop-ca.com
Website: www.onestop-ca.com
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S CONSENT
We consent to the incorporation by reference in the Registration Statements on Form S-8 (File No.333-233442, File No.333-256490 and
File No.333-259239 ) and Form F-3 (File No.333-258450) of Kaixin Auto Holdings of our report dated May 16, 2023, with respect to
our audit of the consolidated financial statements of Kaixin Auto Holdings, which is included in this Annual Report on Form 20-F for the
year ended December 31, 2022.
/s/OneStop Assurance PAC
OneStop Assurance PAC
Singapore
May 16, 2023
Exhibit 15.2
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S CONSENT
We consent to the incorporation by reference in the Registration Statement of Kaixin Auto Holdings on Form S-8 (File No.333-233442,
File No.333-256490, File No.333-259239 and File No. 333-270487) and Form F-3 (File No.333-258450) of our report dated April 28
2022, with respect to our audits of the consolidated financial statements of Kaixin Auto Holdings as of December 31, 2021 and for each
of the two years in the period ended December 31, 2021, which report is included in this Annual Report on Form 20-F of Kaixin Auto
Holdings for the year ended December 31, 2022. Our report on the consolidated financial statements refers to a change in the
method of accounting for lease effective January 1, 2021 due to the adoption of Accounting Standards Codification (“ASC”) Topic 842,
Lease (“Topic 842”). We were dismissed as auditors on April 25, 2023, and, accordingly, we have not performed any audit or review
procedures with respect to any financial statements appearing in such annual report for the periods after the date of our dismissal.
Marcum Asia CPAs LLP
(Formerly Marcum Bernstein & Pinchuk LLP)
New York, NY
May 16, 2023
NEW YORK OFFICE • 7 Penn Plaza • Suite 830 • New York, New York • 10001
Phone 646.442.4845 • Fax 646.349.5200 • www.marcumasia.com
Exhibit 16.1
May 16, 2023
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Commissioners:
We have read Item 16F of the Form 20-F for the year ended December 31, 2022 dated May 16, 2023 of Kaixin Auto Holdings and are in
agreement with the statements contained therein concerning Marcum Asia CPAs LLP. We have no basis to agree or disagree with other
statements of the registrant contained therein.
Very truly yours,
/s/ Marcum Asia CPAs LLP
Marcum Asia CPAs LLP
(Formerly Marcum Bernstein & Pinchuk LLP)
NEW YORK OFFICE • 7 Penn Plaza • Suite 830 • New York, New York • 10001
Phone 646.442.4845 • Fax 646.349.5200 • www.marcumasia.com