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(Mark One)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
☐
☒
☐
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
For the fiscal year ended December 31, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report _______________________
For the transition period from _________________ to _______________________
Commission file number 001-38261
Kaixin 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)
Unit B2-303-137,198 Qidi Road
Beigan Community, Xiaoshan District
Hangzhou, Zhejiang Province
People’s Republic of China
(Address of principal executive offices)
Yi Yang
Chief Financial Officer
Kaixin Holdings
9/F, Tower A, Dongjin International Center
Huagong Road,
Chaoyang District, Beijing 100015
People’s Republic of China
Phone: +86 10 6720 4948
Email: lucy.yang@kaixin.com
(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
Class A ordinay shares, par value US$0.00075
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)
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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, 2023, there were 49,806,556 Class A ordinary shares issued and outstanding, par value of US$0.00075 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 ☐
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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.
ITEM 16G. CORPORATE GOVERNANCE.
ITEM 16H. MINE SAFETY DISCLOSURE.
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
PART III
ITEM 16J. INSIDER TRADING POLICIES.
ITEM 16K. CYBERSECURITY.
ITEM 17. FINANCIAL STATEMENTS.
ITEM 18. FINANCIAL STATEMENTS.
ITEM 19. EXHIBITS.
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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 Moatable, pursuant to which we acquired 100% of the
equity interests of KAG from Moatable on April 30, 2019;
● “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;
● “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 Moatable;
● “Kaixin”, “we”, “us”, “our company” or “our” are to Kaixin Holdings (formerly known as Kaixin Auto Holdings), our
Cayman Islands holding company and its subsidiaries;
● “ordinary shares” are to our Class A and Class B ordinary shares, par value US$0.00075 per share;
● “Moatable” are to Moatable, Inc. (formerly known as Renren Inc.);
● “RMB” or “Renminbi” are to the legal currency of China;
● “Shanghai Auto” are to Shanghai Renren Automotive Technology Group Co., Ltd., our wholly-owned PRC subsidiary;
● “US$”, “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; and
● “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.
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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 7.0999 to US$1.00, the
noon buying rate in effect as of December 29, 2023 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.
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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 new and 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 automobile 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.
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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 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 Holdings (formerly known as Kaixin Auto Holdings), a Cayman Islands company and its subsidiaries. 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. The chart below sets forth our corporate structure and identifies our subsidiaries and their subsidiaries, as of the date of
this Annual Report:
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Permissions Required from the PRC Authorities for Our Operations
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 may exert 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”.
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 are newly
published, it is 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 interpretation and enforcement of PRC laws, rules and regulations could adversely affect us”.
Cash and Asset Flows through Our Organization
Kaixin 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.
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In addition, the majority of our subsidiaries 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 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, or our subsidiaries 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.” 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. 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 or its subsidiaries by the PRC government to transfer cash or assets.”
For the years ended December 31, 2021, 2022 and 2023, 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. 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 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, 2021, 2022 and 2023, 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 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”.
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A.
B.
[Reserved]
Capitalization and Indebtedness.
Not applicable.
C.
Reasons for the Offer and Use of Proceeds.
Not applicable.
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.
● 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.
● 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.
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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. 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 or its subsidiaries 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 The Chinese government may exert 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.
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.
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 interpretation and enforcement of PRC laws, rules and regulations could adversely affect
us.
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.
The following are detailed descriptions of the risk factors.
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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$195.9 million, US$84.6 million and US$53.6 in 2021,
2022 and 2023, respectively. We also had cash outflows from operating activities of US$2.1 million, US$2.4 million and US$2.1 million
in 2021, 2022 and 2023, respectively.
We have experienced recurring losses from operations. As of December 31, 2023, we had an accumulated deficit of US$336.6
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 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.
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, 2023, we had
three 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.
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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.
Our subsidiaires may not be able to successfully expand or maintain our network of Dealerships.
As of December 31, 2023, we had a network of three Dealerships. We have not expanded our network since May 2018. The
Dealership network is a foundation of our 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”.
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. On November 2, 2022, the Company signed a share purchase agreement with the
shareholders of Morning Star Auto Inc. (“Morning Star”) to acquire 100% equity of Morning Star by issuing 100 million ordinay shares
of Kaixin. Morning Star owns 100% equity interest of Wuxi Morning Star Technology Co., Ltd. and 40% equity interest of Henan Yujie
Times Automobile Co., Ltd. (“Yujie”). On August 22, 2023, the acquisition of Morning Star completed, after which Kaixin owns all
assets and business operations related to the POCCO brand of electric vehicles (POCCO EV), which constitutes big progress toward
Kaixin’s successful transformation into a new energy vehicle manufacturing company. However, 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.
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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.
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 historically relied on Moatable, 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 an evolving and fast-changing market.
The PRC automotive retail market, including the consumer automotive finance market, is highly dynamic. 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 new and used vehicles
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;
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● 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;
● 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. 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.
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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$481 thousand, US$2.1 million and US$3.3 million in 2021, 2022 and 2023, 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.
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.
The global macroeconomic environment is facing numerous challenges. 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. 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.
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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”.
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.
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.
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In general, we expect that data security and data protection compliance will receive greater attention and focus from regulators,
both domestically and globally, as well as attract continued or greater public scrutiny and attention going forward, which 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, we could become subject to penalties, including fines, suspension of business and revocation of required licenses,
and our reputation and results of operations could be materially and adversely affected.
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.
In June 2021, the SCNPC promulgated the PRC Data Security Law, which took effect in September 2021. The PRC Data
Security Law, among other things, provides for security review procedure for data-related activities that may affect national security. In
July 2021, the state council promulgated the Regulations on Protection of Critical Information Infrastructure, which became effective on
September 1, 2021. Pursuant to this regulation, critical information infrastructure means key network facilities or information systems of
critical industries or sectors, such as public communication and information service, energy, transportation, water conservation, finance,
public services, e-government affairs and national defense science, the damage, malfunction or data leakage of which may endanger
national security, people’s livelihoods and the public interest. In December 2021, the CAC, together with other authorities, jointly
promulgated the Cybersecurity Review Measures, which became effective on February 15, 2022 and replaces its predecessor regulation.
Pursuant to the Cybersecurity Review Measures, critical information infrastructure operators that procure internet products and services
and the network platform operators that conduct data processing activities must be subject to the cybersecurity review if their activities
affect or may affect national security. The Cybersecurity Review Measures further stipulates that network platform operators that hold
personal information of over one million users shall apply with the Cybersecurity Review Office for a cybersecurity review before any
public listing in a foreign country. As of the date of this Annual Report, no detailed rules or implementation rules have been issued by
any authority and we have not been informed that we are a critical information infrastructure operator by any government authorities.
Furthermore, the exact scope of “critical information infrastructure operators” under the current regulatory regime remains unclear, and
the PRC government authorities may have wide discretion in the interpretation and enforcement of the applicable laws. Therefore, it is
uncertain whether we would be deemed to be a critical information infrastructure operator under PRC law. If we are deemed to be a
critical information infrastructure operator under the PRC cybersecurity laws and regulations, we may be subject to obligations in
addition to what we have fulfilled under the PRC cybersecurity laws and regulations.
In November 2021, the CAC released the Regulations of Internet Data Security Management (Draft for Comments), or the Draft
Regulations. The Draft Regulations provide that data processors refer to individuals or organizations that, during their data processing
activities such as data collection, storage, utilization, processing, transmission, provision, publication and deletion, have autonomy over
the purpose and the manner of data processing. In accordance with the Draft Regulations, data processors shall apply for a cybersecurity
review for certain activities, including, among other things, (i) the listing in a foreign country of data processors that process the personal
information of more than one million users and (ii) any data processing activity that affects or may affect national security. However,
there have been no clarifications from the relevant authorities as of the date of this Annual Report as to the standards for determining
whether an activity is one that “affects or may affect national security.” In addition, the Draft Regulations requires that data processors
that process “important data” or are listed overseas must conduct an annual data security assessment by itself or commission a data
security service provider to do so, and submit the assessment report of the preceding year to the municipal cybersecurity department by
the end of January each year. As of the date of this Annual Report, the Draft Regulations was released for public comment only, and their
respective provisions and anticipated adoption or effective date may be subject to change with substantial uncertainty.
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In July 2022, the CAC promulgated the Measures for the Security Assessment of Outbound Data, which became effective on
September 1, 2022. These measures outline the requirements and procedures for security assessments on export of important data or
personal information collected or generated within the territory of mainland China. Furthermore, these measures provide that the security
assessment shall combine pre-assessment and continuous supervision, and risk self-assessment and security assessment to prevent data
export security risks. Specifically, security assessment is required before any cross-border data can be transferred out of mainland China
if: (i) the data transferred out of mainland China is important data; (ii) the data processor is a critical information infrastructure operator
or data processor that processes personal information of more than one million individuals; (iii) cross-border data transfer of personal
information by a data processor who has made cross-border transfer of aggregately more than 100,000 individuals’ personal information
or more than 10,000 individuals’ sensitive personal information since January 1st of the previous year; or (iv) otherwise required by the
CAC.
In September 2022, the CAC promulgated the Decision to Amend the Cybersecurity Law of the People’s Republic of China
(Draft for Comments), which mainly involves amendments in the following aspects: (i) improving the legal liability system for violating
the general provisions of network operation security, (ii) modifying the legal liability system for security protection of critical
information infrastructure, (iii) adjusting the legal liability system for network information security, and (iv) revising the legal liability
system for personal information protection. As of the date of this Annual Report, the aforementioned draft amendments have not been
adopted and there still exists substantial uncertainties regarding to anticipated adoption or effective date at this stage.
In August 2021, the SCNPC promulgated the Personal Information Protection Law, which integrates the scattered rules with
respect to personal information rights and privacy protection and took effect on November 1, 2021. We update our privacy policies from
time to time to meet the latest regulatory requirements of PRC government authorities and adopt technical measures to protect data and
ensure cybersecurity in a systematic way. Nonetheless, the Personal Information Protection Law elevates the protection requirements for
personal information processing, and many specific requirements of this law remain to be clarified by the regulatory authorities, and
courts in practice. We may be required to make further adjustments to our business practices to comply with the personal information
protection laws and regulations.
In June 2022, the CAC issued the Provisions on the Administration of Internet Users’ Account Information, which became
effective on August 1, 2022 and stipulated that internet information service providers must, among other things, equip themselves with
professional and technical capabilities appropriate to the scale of their services, and establish, improve and strictly implement systems for
identity authentication, account verification, information safekeeping, ecological governance, emergency response, personal information
protection, among others. The provisions also require that the internet information service providers should handle and protect internet
users’ account information in accordance with law, and take measures to prevent unauthorized access, as well as leakage, tampering, or
loss of personal information. The internet information service providers must set up convenient portals for complaints and
whistleblowing at an easily seen location, provide channels for complaints and whistleblowing, improve the acceptance, screening,
disposal and feedback mechanisms, specify the handling process and feedback time limit and timely handle the complaints and
whistleblowing of users and the public.
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.
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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 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. In August, 2023, the Company closed the acquisition of Morning Star, which mainly produces miniature
electric vehicles under the POCCO brand. Following the closing, Morning Star has become a wholly-owned subsidiary of Kaixin, which
represents the Company’s official entry into the field of new energy vehicle manufacturing. 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.
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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.
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.
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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 — Research and Development”. 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.
In March 2018, Moatable transferred to KAG the kaixin.com domain name, and in May 2018, an affiliate of Moatable granted
KAG an exclusive license to use the “Kaixin” brand. Further, we have successfully registered our brand name “开心汽车” (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.
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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.
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; and (iii) lack of evaluations to
ascertain whether the components of internal control are present and functioning.
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.
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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. 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 US$75 million, under which condition we will become an “accelerated filer,” 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.
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.
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.
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.
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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.
We have limited insurance coverage which could expose us to significant costs and business disruption.
The insurance industry in China is still evolving, 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.
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. 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 or its subsidiaries by the PRC government to transfer
cash or assets.
We a holding company with no material operations of our own. We conduct our operations in China through our PRC
subsidiaries. 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 or our subsidiaries, by
the PRC government to transfer cash. The transfer of funds and assets among Kaixin Holdings, its Hong Kong and PRC subsidiaries 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 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.
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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.
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.
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Risks Related to Doing Business in China
The Chinese government may exert 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 may exercise substantial control over the Chinese economy through regulation and state ownership.
There are 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.
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.
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.
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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.
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 (存量企业)”. As a stock enterprise (存量企业), 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.
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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.
We are subject to complex and evolving statutory and regulatory requirements relating to cybersecurity, information security,
privacy and data protection. Regulatory authorities in mainland China have enhanced data protection and cybersecurity regulatory
requirements. These laws continue to develop, and the PRC government may adopt other rules and restrictions in the future. Non-
compliance could result in penalties or other significant legal liabilities.
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The PRC Cybersecurity Law, which took effect in June 2017, created China’s first national-level data protection framework for
“network operators.” It is relatively new and subject to interpretations by the regulator. It requires, among other things, that network
operators take security measures to protect the network from unauthorized interference, damage and unauthorized access and prevent
data from being divulged, stolen or tampered with. Network operators are also required to collect and use personal information in
compliance with the principles of legitimacy, properness and necessity, and strictly within the scope of authorization by the subject of
personal information unless otherwise prescribed by laws or regulations. Significant capital, managerial and human resources are
required to comply with legal requirements, enhance information security and address any issues caused by security failures.
The Measures for Cybersecurity Review promulgated in April 2020 provides that critical information infrastructure operators
must pass a cybersecurity review when purchasing network products and services which do or may affect national security. Pursuant to
the Revised Cybersecurity Review Measures that took effect on February 15, 2022, operators of critical information infrastructure that
intend to purchase network products and services that affect or may affect national security must apply for a cybersecurity review.
However, as advised by our PRC counsel, as such new laws, regulations and rules were only recently promulgated, their interpretation
and implementation shall be determined in accordance with the laws and regulations in force at the time. As of the date of this Annual
Report, we have not been involved in any investigations or become subject to a cybersecurity review initiated by the CAC, and we have
not received any inquiry, notice, warning, sanctions in such respect or any regulatory objections to our listing status from the CAC.
The Regulations on Security Protection of Critical Information Infrastructure that took effect on September 1, 2021 defines
critical information infrastructure and its operators, who must adhere to specific security requirements. As this regulation is newly issued,
the governmental authorities, including the administration departments for each critical industry and sector, may further formulate
detailed rules or explanations with respect to the interpretation and implementation of this regulation.
The PRC Personal Information Protection Law, effective since November 2021, sets stringent rules for processing personal and
sensitive information, which significantly affects our data handling practices. Some information we collect, such as location and mobile
numbers, may be deemed to be sensitive personal information under the Personal Information Protection Law. As the interpretation and
implementation of the Personal Information Protection Law shall be determined in accordance with the laws and regulations in force at
the time, we cannot assure you that we will be able to comply with the Personal Information Protection Law in all respects, or that
regulatory authorities will not order us to rectify or terminate our current practice of collecting and processing sensitive personal
information. We may also become subject to fines and other penalties under the Personal Information Protection Law, which may have
material adverse effect on our business, operations and financial condition.
On November 14, 2021, the CAC published a discussion draft of Regulations on the Administration of Cyber Data Security for
public comments. These measures, if and when formalized, could impose additional cybersecurity review requirements for data
processors, especially those involving national security concerns. Based on the facts that, (i) the Revised Cybersecurity Review Measures
were newly adopted and the discussion draft of Regulations on the Administration of Cyber Data Security have not been formally
adopted, and the implementation and interpretation of both are subject to uncertainties, and (ii) we have not been involved in any
investigations on cyber security review made by the CAC on such basis, nor have we received any inquiries, notices, warnings, or
sanctions from any competent PRC regulatory authorities related to cybersecurity, data security and personal data protection, we believe,
as of the date of this annual report, we are in compliance with the existing PRC laws and regulations on cybersecurity, data security and
personal data protection issued by the CAC.The PRC government authorities also further enhanced the supervision and regulation of
cross-border data transmission. On July 7, 2022, the CAC promulgated the Measures for the Security Assessment of Cross-border Data
Transfer, which took effect on September 1, 2022. In accordance with such measures, data processors will be subject to security
assessment conducted by the CAC prior to any cross-border transfer of data if the transfer involves (i) important data; (ii) personal
information transferred overseas by operators of critical information infrastructure or a data processor that has processed personal data of
more than one million persons; (iii) personal information transferred overseas by a data processor which has already provided personal
data of 100,000 persons or sensitive personal data of 10,000 persons overseas since January 1 of the preceding year; or (iv) other
circumstances as required by the CAC. In addition, any cross-border data transfer activities conducted in violation of the Measures for
the Security Assessment of Cross-border Data Transfer before the effectiveness of such measures are required to be rectified within six
months of the effectiveness date thereof. Since these measures are relatively new, there are still substantial uncertainties with respect to
the interpretation and implementation of these measures in practice and how they will affect our business operation.
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In addition, internet information in mainland China is regulated from a national security standpoint. According to the PRC
National Security Law, institutions and mechanisms for national security review and administration will be established to conduct
national security review on key technologies and IT products and services that affect or may affect national security. The PRC Data
Security Law took effect in September 2021 and provides for a security review procedure for the data activities that may affect national
security. It also introduces a data classification and hierarchical protection system based on the importance of data in economic and social
development, as well as 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, or illegally acquired or used. The appropriate level of
protection measures is required to be taken for each respective category of data.
While we take measures to comply with applicable data privacy and protection laws and regulations, we cannot guarantee the
effectiveness of the measures undertaken and those implemented by us. In addition, we could be subject to new laws or regulations or the
interpretation and application of existing consumer and data protection laws or regulations. These new laws, regulations and
interpretations are often uncertain and in flux and may be inconsistent with our practices. We cannot guarantee that we will be able to
maintain compliance at all times, especially in light of the fact that laws and regulations on cybersecurity and data protection are
evolving. Complying with these new or additional laws, regulations and requirements could cause us to incur substantial costs or require
us to change our business practices in a manner materially adverse to our business.
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.
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. 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 interpretation and enforcement of PRC laws, rules and regulations could adversely affect us.
We conduct our business primarily through our subsidiaries in China. Our operations in China are governed by the laws and
regulations of China. Our subsidiaries are generally subject to laws and regulations applicable to foreign investments in China. As a civil
law jurisdiction, the legal system of China is based on written statutes. Prior court decisions may be cited for reference but have limited
precedential value.
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The laws and regulations of China have significantly enhanced the protections afforded to various forms of foreign investments
in China for the past decades. However, because certain laws and regulations are relatively new, and because of the limited volume of
published decisions and their nonbinding nature, the interpretation and enforcement of these laws and regulations involve uncertainties.
Furthermore, the legal system of China is based in part on government policies and China is geographically large and divided
into various provinces and municipalities. As such, different regulations and policies may have different and varying applications and
interpretations in different parts of China, and it is possible that we may not be aware in a timely manner that we have been identified to
be in violation of these policies and rules until sometime after the occurrence of the violation. In addition, certain administrative and
court proceedings in China may result in substantial costs and diversion of resources and management attention.
PRC government has complex regulatory requirements on the conduct of our business and it has recently promulgated certain
regulations and rules to exert more oversight over offerings that are conducted overseas and/ or foreign investment in China-based
issuers. Such action could significantly limit or hinder our ability to offer or continue to offer securities to investors and cause the value
of such securities to significantly decline.
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.
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.
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.
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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.
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.
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In addition, pursuant to the relevant laws and regulations, as our Dealerships are regarded as operators of new and 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.
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$7,042). 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.
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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.
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.
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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.
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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.
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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.
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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.
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.
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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.
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;
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● 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, 2023, we had 50,676,013 ordinary shares outstanding,
including 38,824,705 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.
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.
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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
● 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.
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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, 2023 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”.
Our dual-class voting structure will limit your ability to influence corporate matters and could discourage others from pursuing any
change of control transactions that holders of our Class A ordinary shares may view as beneficial.
Our company is controlled through a dual class voting structure. Our ordinary shares are divided into Class A ordinary shares
and Class B ordinary shares. Holders of Class A ordinary shares are entitled to one vote per share in respect of matters requiring the
votes of shareholders, while holders of Class B ordinary shares are entitled to twenty votes per share, subject to certain exceptions. Each
Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof, while Class A ordinary shares are
not convertible into Class B ordinary shares under any circumstances. Upon any direct or indirect transfer of Class B ordinary shares or
associated voting power by a holder thereof to any person or entity which is not an affiliate of such holder, such Class B ordinary shares
will be automatically and immediately converted into the equal number of Class A ordinary shares. Due to the disparate voting powers
associated with our two classes of ordinary shares, as of March 31, 2024, Mr. Mingjun Lin, our chief executive officer, beneficially
owned 44% of the aggregate voting power of our company, and Ms. Yi Yang, our chief financial officer, beneficially owned 36% of the
aggregate voting power of our company. See “Item 6.E. Directors, Senior Management and Employees—Share Ownership.” As a result,
Mr. Mingjun Lin and Ms. Yi Yang have considerable influence over matters such as approving material mergers, acquisitions or other
business combination transactions. This concentrated control will limit your ability to influence corporate matters and could also
discourage others from pursuing any potential merger, takeover or other change of control transactions, which could have the effect of
depriving the holders of our Class A ordinary shares of the opportunity to sell their shares at a premium over the prevailing market price.
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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.
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, 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 incurred increased costs as a result of being a public 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 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 the date of this Annual Report, 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.
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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 February 1, 2024, we received a notice from
Nasdaq that we failed to comply with the minimum closing bid price requirement set forth in 5550(a)(2) 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 July 30, 2024, 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 July 30, 2024.
We have not regained compliance with the minimum bid price requirement as of the date of this Annual Report. We are closely
monitoring the bid price of our shares. We may 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 July 30, 2024, 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.
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 Moatable, pursuant to which we
acquired 100% of the equity interests of KAG from Moatable. In connection with the Business Combination, KAG had transferred the
equity interest and assets of its Ji’nan Dealership to Moatable 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. Moatable may be entitled to receive earnout shares under certain prequalification conditions.
Immediately after the Business Combination, Moatable 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 Moatable. Moatable 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.
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History of KAG Before the Business Combination
Before the completion of Business Combination, KAG had been a wholly-owned subsidiary of Moatable. KAG’s business was
historically operated by Moatable 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, Moatable’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 Moatable. 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.
● Transfer of Equity Interests of Renren Finance and its subsidiary. In April 2017, the equity interests of Renren Finance,
Inc., a subsidiary of Moatable, 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 Moatable, 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
Moatable 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.
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.
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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.
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.
The Company was renamed Kaixin Holdings, effective on April 10, 2024. Our principal executive office is located at Unit B2-
303-137, 198 Qidi Road, Beigan Community, Xiaoshan District, Hangzhou, Zhejiang Province, People’s Republic of China. 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.
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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 Renren Finance, Inc. along with its subsidiaries and VIEs and the VIEs’
subsidiaries (collectively referred to as the “Disposal Group”). The Disposal Group had a negative book of around US$3 million at that
time. On August 5, 2022, KAG, our wholly-owned subsidiary, and Stanley Star entered into a shares transfer agreement (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 US$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 the 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 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. In November 2023, the Company issued 7,000,000 ordinary shares to Stanley Star for
settlement of partial conversion of the Series F Convertible Shares.
With the disposition of Renren Finance Inc, all VIEs were disposed as of October 27, 2022. 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 auto dealership group in China. As of December 31, 2023, we had three Dealerships covering three
cities in China. On average, our Dealership operators have over ten years of experiences in the car sales industry. We provide 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 2023. 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.
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 1,814, 879 and 525 vehicles to
customers across China in 2021, 2022 and 2023, 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.
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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. In April, 2023, the Company reached reached a
strategic business partnership with China Automobile Import and Export Co., Ltd., which aims to build up a joint export trading platform
for new energy vehicles with a target total transaction volume of USD$10.8 billion in the coming five years.
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 new and used cars. Of the Dealerships’ total revenues in 2021, 2022 and 2023,
revenues from auto sales accounted for 100%, 100% and 100% respectively. Following the consummation of the Haitaoche Acquisition
in June 2021, our 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 three dealerships.
Our Dealership Network
As of December 31, 2023, we had three 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.
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;
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● 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 Moatable 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”.
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 interest of 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. (“Wuxi Morning Star”), who manufactures and operates the POCCO EVs. According to
the term sheet, the Company intends to acquire 100% equity interest of Wuxi Morning Star through new share issuance and makes it a
wholly owned subsidiary (the “Wuxi Morning Star Acquisition”). As consideration for the Wuxi Morning Star Acquisition, the Company
will issue ordinary shares of Kaixin to the shareholders of Wuxi Morning Star 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. On
November 2, 2022, the Company signed a share purchase agreement with the shareholders of Morning Star Auto Inc. (“Morning Star”),
to acquire 100% equity interest of Morning Star by issuing 100 million ordinay shares of Kaixin. Morning Star owns 100% equity
interest of Wuxi Morning Star and 40% equity interest of Yujie. On August 22, 2023, the acquisition of Morning Star completed, after
which Kaixin owns all assets and business operations related to POCCO EVs, which constitutes big progress toward Kaixin’s successful
transformation into a new energy vehicle manufacturing company.
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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. 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. In April, 2023, the Company reached
reached a strategic business partnership with China Automobile Import and Export Co., Ltd., which aims to build up a joint export
trading platform for new energy vehicles with a target total transaction volume of USD$10.8 billion in the coming five years.We aim to
continuously establish strategic partnerships with platforms that have big sales potentials and to make customized production according
to customer needs.
Legal Agreements with Dealerships
We have entered into a series of legal arrangements with our Dealerships and other related parties since 2021, which are
generally designed for the compliance with PRC laws and regulations and for value-added tax optimization purposes. Revenue for 2021,
2022 and 2023 was primarily generated from transactions under these agreements and we expect future revenue from automobile sales to
be primarily generated from transactions under these ancillary agreements.
The following is a summary of the typical key terms of the agreements which we entered into in connection with our auto sales
operations since 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.
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.
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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.
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.
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:
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● 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.
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 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. 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 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.
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Competition
The PRC automobile marketplace is highly fragmented. 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.
In March 2018, Moatable transferred to us the kaixin.com domain name and, in May 2018, an affiliate of Moatable granted us
an exclusive license to use its “Kaixin” brand. Further, we have successfully registered our brand name “开心汽车” 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 Moatable.
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.
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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.
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.
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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”.
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.
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.
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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.
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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.
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.
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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.
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.
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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.
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.
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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.
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.
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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.
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 “开心汽车” 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.
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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.
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.
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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.
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.
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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.
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.
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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.
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.
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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.
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.
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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.
C.
Organizational Structure.
The following diagram illustrates our corporate structure and identifies our subsidiaries and their subsidiaries, as of the date of
this Annual Report.
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As of the date of this Annual Report, we have no VIEs in the PRC and we conduct our operations exclusively through our
wholly-owned subsidiaries. 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 a result, all VIEs were disposed as of October 27, 2022.
D.
Property, Plants and Equipment.
We lease approximately 541 square meters of office space in Beijing, China 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.
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 new and used auto dealership group in
China. As of December 31, 2023, we had three Dealerships covering three cities in China. On average, our Dealership operators have
over ten years of experiences in the car sales industry. We provide new and 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, 879, and 525 new and used vehicles to customers across China in 2021,
2022 and 2023, respectively. Specifically, we sold 1,582 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.
Recent Developments
In September 2023, the Group, through one of its subsidiaries in the PRC, set up one subsidiary, namely, Zhejiang Kaixin
Yuanman Automobile Trading Co. Ltd.. The Group owned 100% equity interest in the subsidiary.
In February through March 2023, the Group, through one of its subsidiaries in the PRC, set up three subsidiaries. Namely,
Zhejiang Kaixin Xiaoman Automobile Trading Co. Ltd., Zhejiang Kaixin Jingtao Automobile Trading Co. Ltd., and Zhejiang Kaixin
Manman Commuting Technology Co. Ltd. The Group owned 70% equity interest in these three subsidiaries.
Key Factors Affecting Our Results of Operations
We believe that our results of operations are significantly affected by the following key factors.
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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.
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, 2023, we had three 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
car retail 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.
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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.
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. In April, 2023, the Company reached a
strategic business partnership with China Automobile Import and Export Co., Ltd., which aims to build up a joint export trading platform
for new energy vehicles with a target total transaction volume of USD$10.8 billion in the coming five years. 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 Moatable, 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 US$253.8 million, US$82.8 million and US$31.5 million in
2021, 2022 and 2023, respectively.
Revenues:
Car sales revenue
Total revenues
2021
US$
For the Years Ended December 31,
2022
%
US$
%
US$
(in thousands, except for percentages)
2023
%
253,840
253,840
100.0
100.0
82,840
82,840
100.0
100.0
31,535
31,535
100 %
100 %
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On June 25, 2021, Kaixin 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 car sales 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
Cost of Used-car sales
2021
%
US$
For the Years Ended December 31,
2022
%
US$
(in thousands, except for percentages)
2023
%
US$
248,583
248,583
100.0
100.0
82,194
82,194
100.0
100.0
31,193
31,193
100 %
100 %
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
2021
US$
%
For the Years Ended December 31,
2022
%
US$
2023
%
US$
(in thousands, except for percentages)
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
—
100.0
3,313
18,013
—
21,326
15.5 %
84.5 %
—
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.
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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.
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%.
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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.
For the Years Ended December 31,
2021
2022
(in thousands, except for percentage)
2023
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 receivables
Impairment of prepaid expenses and other current assets
Provision for dealership settlement
Gain on disposal of subsidiaries
Loss before income tax provision
Income tax benefit (expense)
Net loss
253,840
248,583
5,257
%
100.0
97.9
2.1
82,840
82,194
646
%
100.0
99.2
0.8
%
100.0
98.9
1.1
31,535
31,193
342
481
43,734
143,655
187,870
(182,613)
(4)
(432)
(245)
1,995
—
(4,216)
(11,142)
—
(196,657)
729
(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)
3,313
2.5
18,013
56.1
—
—
21,326
58.6
(20,984)
(57.9)
(10)
0.9
(10)
(0.2)
(525)
(1.2)
0.4
(207)
— (8,848)
(23,262)
—
64
(53,782)
228
(53,554)
(25.9)
(18.3)
1.9
(100.3)
(0.1)
(100.4)
10.5
57.1
—
67.6
(66.5)
(0.0)
(0.0)
(1.7)
(0.7)
(28.1)
(73.8)
—
(0.2)
(170.5)
(0.7)
(169.8)
Year ended December 31, 2023 compared with year ended December 31, 2022
Revenues
Our total revenues decreased from US$82.8 million in 2022 to US$31.5 million in 2023, primarily due to the decline in auto
sales volume.
Cost of Revenues
Our cost of revenues for the new car wholesales decreased from US$82.2 million in 2022 to US$31.2 million in 2023,
corresponding to the decline in sales revenues.
Gross Profit
As a result of the foregoing, we recorded gross profit of US$646 thousand in 2022 and gross profit of US$342 thousand in
2023.
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Operating Expenses
Our total operating expenses decreased from US$48.6 million in 2022 to US$24.2 million in 2023. The difference is mainly
resulted from a decrease in general and administrative expenses.
● Selling and marketing expenses. Our selling and marketing expenses increase from US$2,097 thousand in 2022 to
US$3313 thousand in 2023. The increase resulted from higher sales incentives expenses to the Dealerships.
● General and administrative expenses. Our general and administrative expenses decreased from US$46,488 thousand in
2022 to US$18,013 thousand in 2023. The decrease was primarily due to lower share-based compensation expense in 2023.
Other Income (Expenses)
Other expense was US$728 thousand in 2022, as compared to other income of US$10 thousand in 2023.
Interest Expenses, Net
Our interest expenses, net were US$1,034 thousand in 2022 and US$525 thousand in 2023.
Change in fair value of warrants
Gain from change in fair value of warrants was US$316 thousand in 2022, as compared to loss from change in fair value of
warrants of US$207 in 2023.
Impairment of other receivables
There is a loss on impairment of other receivables of US$8.8 million in 2023.
Impairment of prepaid expenses and other current assets
Loss from impairment of other non-current assets was US$22.9 million and US$23.3 million in 2022 and 2023, respectively.
Provision for dealership settlement
Loss from provision for dealership settlement was US$15.1 million and nil in 2022 and 2023, respectively.
Gain on disposal of subsidiaries
There is a gain on disposal of subsidiaries of US$64 thousand in 2023.
Income Tax Benefit (Expense)
Our income tax expense was US$74 thousand in 2022, and our income tax benefit was US$228 thousand in 2023.
Net Loss
As a result of the foregoing, we recorded net losses of US$84.6 million and US$53.6 million in 2022 and 2023, respectively.
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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 US$646 thousand in
2022.
Operating Expenses
Our total operating expenses decreased from US$187.8 million in 2021 to US$48.6 million in 2022. The difference is mainly
resulted from the one-time loss from goodwill impairment of US$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 US$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 US$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.
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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.
Recent Accounting Pronouncements
See Part III, “Financial Statements — Note 2 — Summary of significant accounting policies — Recent accounting
pronouncements”.
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, 2023, we generated negative cash flows from operating activities that amounted to US$2.1 million and has working capital
of negative US$10.9 million as of December 31, 2023. 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. Moatable purchased US$6.0 million
convertible preferred shares of the Company on March 31, 2021. Derong Group Limited invested US$4.6 million in the Company in
February 2022 and received ordinary shares in March 2022. A group of investors, namely Mr. Long Li, Hermann Limited and Aslan
Family Limited, invested in $1.0 million in ordinary shares in November 2023.
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”.
Net cash used in operating activities was US$2.1 million, US$2.4 million and US$2.1 million in 2021, 2022 and 2023,
respectively. As of December 31, 2023, we had cash of approximately US$2.1 million.
The following table sets forth a summary of our cash flows for the periods presented:
2021
For the years ended December 31,
2022
(in thousands of US$)
2023
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
(2,103)
4,267
2,000
607
5,263
(2,394)
(156)
5,406
5,263
7,102
(2,108)
(3,134)
1,015
7,102
2,085
Net cash used in operating activities was US$2.1 million in 2023. The principal item accounting for the difference between our
net loss and the net cash used in operating activities in 2023 were a loss from impairment of other non-current assets of US$23.3 million,
loss from impairment of other receivables of US$8.8 million, share-based compensation expense of US$12.0 million, and depreciaton
and amortization expenses of $2.3 million.
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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 US$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.
Investing Activities
Net cash used in investing activities was US$3.1 million in 2023, which was mostly attributable to cash disposed on disposal of
subsidiaries.
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.
Financing Activities
Net cash provided by financing activities was US$1.0 million in 2023, which was primarily attributable to proceeds from
issuance of ordinary shares and warrants.
Net cash provided by financing activities was US$5.4 million in 2022, which was primarily attributable to proceeds from
issuance of ordinary shares of US$4.7 million and a convertible note of US$2.0 million, partially offset by cash paid for offering cost of
US$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$2.0 million.
Off-Balance Sheet Arrangements.
We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third
parties. In addition, we have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity
or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets
transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable
interests in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging
or product development services with us.
Tabular Disclosure of Contractual Obligations.
The following table sets forth our contractual obligations as of December 31, 2023:
Operating Lease Obligations(1)
Loans and Convertible Note obligations
Total
Total
Less than 1
year
1–3 years
(in thousands of US$)
3–5 years
More than
5 years
364
2,392
2,756
126
2,392
2,518
238
—
238
—
—
—
—
—
—
(1) Representing contractual undiscounted operating lease obligations relating to our non-cancelable lease of offices and facilitates.
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Other than as shown above, we did not have any significant capital and other commitments, long-term obligations or guarantees
as of December 31, 2023.
Capital Expenditures
Our capital expenditures were US$32 thousand, US$59 thousand and US$396 thousand in 2021, 2022 and 2023, respectively. In
2023, our capital expenditures were mainly used to purchase of vehicles used in our business. We will continue to make capital
expenditures to meet the expected growth of our business.
Holding Company Structure
Our Company, Kaixin 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. 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; and (iii) lack of evaluations to
ascertain whether the components of internal control are present and functioning as of December 31, 2023.
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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 US$75 million on June 30, 2023, 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,
2023.
C.
Research and Development, Patents and Licenses, etc.
See “Item 4. Information on the Company — B. Business Overview — Research and Development”.
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 20 - F,
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.
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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 guaranteed amount was deemed as 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, 2021, 2022 and 2023.
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 US$22.9 million and US$23.3 million for prepaid expenses
and other current assets for the years ended December 31, 2022 and 2023, 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 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$12.9 million as of end of 2022, mainly comprised of recognition of trademark associated with the Acquisition on June 25, 2021. The
Company had intangible assets of US$24.4 million as of end of 2023, mainly from technology identified in the acquisition of Morning
Star in August 2023. Estimated useful life of software, domain name and trademark is 10 years.
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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.
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 2021, 2022 and 2023.
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$24.2 million, US$1.1 million and nil as of December 31, 2021, 2022 and 2023,
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, 2021, 2022 and 2023, 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
Deqiang Chen
Xiaoning Wu
Age
49
52
37
57
60
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.
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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.
Xiaoning Wu has served as our director since January 2024. He has been serving as the chairman of Shangdong Zibo Fengdu
Jiantao Company since 2003 and possesses rich experience in corporate financial management, capital investments, and sales areas. He
also served as an accountant and the corporate controller of Taishun Zhanzhou Construction Company from 1986 to 1993 and as the
CEO of Nantong Yongxing from 1994 to 2003.
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, 2023, we paid an aggregate of approximately US$0.56 million 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 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.
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Equity Incentive Plans
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.
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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. 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.
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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 May 17, 2032. 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.
2023 Equity Incentive Plan
Our 2023 equity incentive plan (the “2023 Plan”), was adopted by our Board on January 17, 2023. The 2023 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 2023 Plan.
The following paragraphs describe the principal terms of the 2023 Plan.
Administration
The 2023 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.
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 2023 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 2023 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 2023 Plan.
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Term
Unless terminated earlier, the 2023 Plan will terminate on January 17, 2033. 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, 2024, 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)
14,998
133,333
49,999
198,330
N/A
N/A
N/A
Deqiang Chen
Mingjun Lin
Xiaolei Gu
Total
Notes:
(1) In the form of restricted shares.
C.
Board Practices.
Board of Directors
Grant date
October 21, 2021,
December 28, 2022
and September 11,
2023
October 21, 2021
October 21, 2021,
December 28, 2022
and September 11,
2023
Expiration date
October 21, 2031,
December 28, 2032
and and September 11,
2023, respectively
October 21, 2031
October 21, 2031,
December 28, 2032
and September 2033,
respectively
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 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. Moatable 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. Mingjun 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.
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Audit Committee
Our audit committee consists of Xiaoning Wu. Xiaoning Wu is the chairman of our audit committee. We have determined that
Xiaoning Wu 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 Xiaoning Wu 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.
Compensation Committee
Our compensation committee consists of Xiaoning Wu. Xiaoning Wu is the chairman of our compensation committee. We have
determined that Xiaoning Wu 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.
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Nominating and Governance Committee
Our nominating and governance committee consists of Xiaoning Wu. We have determined that Xiaoning Wu 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/or restated from time to time. Our
Company has the right to seek damages if a duty owed by any of 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.
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.
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Terms of Directors and Officers
Other than the directors that may be appointed by Mr. Mingjun Lin and Ms. Lucy Yi Yangin 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. Mingjun Lin and Ms. Lucy Yi Yangshall 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 23 employees as of December 31, 2023. The following table sets forth the number of our employees categorized by
function as of December 31, 2023:
Functional Area
Management and administration
Sales and marketing
Research and development
Total
Number of
Employees
% of Total
Employees
16
6
1
23
70 %
26 %
4 %
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.
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, 2024 by:
● each of our directors and executive officers; and
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● 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 59,645,217 Class A ordinary shares and 1,000,000 Class B ordinay shares
outstanding as of March 31, 2024.
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
Deqiang Chen
Xiaolei Gu
All Directors and Executive Officers as a Group
Principal Shareholders:
Morning Star EV Inc.(2)
Notes:
*
Less than 1% of our total outstanding ordinary shares.
% of
Ownership
of total Class A
ordinary shares
and Class B
% of
aggregate
voting
ordinary shares power**
Number of
Class B
ordinary
shares
Number of
Class A
ordinary
shares
133,333
—
*
*
198,330
550,000
450,000
—
—
1,000,000
4,000,000
—
1.1
0.7
*
*
2.0
6.6
44.4
36.3
*
*
80.8
1.3
** For each person and group included in this column, percentage voting power is calculated by dividing voting power beneficially
owned by such person or group by voting power of all of our Class A ordinary shares and Class B ordinary shares as a single class.
Each holder of Class A ordinary shares is entitled to one vote per share and each holder of Class B ordinary shares is entitled to
twenty votes per share on all matters subject to vote at our general meeting. Our Class A ordinary shares and Class B ordinary shares
vote together as a single class on all matters submitted to a vote of our shareholders, except as may otherwise be required by law or
provided for in our memorandum and articles of association. Each Class B ordinary share is convertible into one Class A ordinary
share at the option of the holder thereof, while Class A ordinary shares cannot be converted into Class B ordinary shares under any
circumstances.
(1) Unless otherwise indicated, the business address of each of the beneficial owners is c/o Kaixin Holdings, Unit B2-303-137, 198 Qidi
Road, Beigan Community, Xiaoshan District, Hangzhou, Zhejiang Province, People’s Republic of China.
(2) Morning Star EV Inc. 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. Morning Star EV Inc. is wholly
owned by Lei Gu.
In addition, Kaixin 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.
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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, 2024, our shares were held by ten 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.
F.
Disclosure of A Registrant's Action to Recover Erroneously Awarded Compensation
Not applicable.
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.
Related Party Transactions with Moatable
On March 31, 2021, Kaixin entered into a definitive securities purchase agreement with Moatable pursuant to which Moatable
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 — Equity Incentive Plans.”
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.
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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.
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”.
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D.
Selling Shareholders.
Not applicable.
E.
Dilution.
Not applicable.
F.
Expenses of the Issue.
Not applicable.
ITEM 10. ADDITIONAL INFORMATION.
A.
Share Capital.
Not applicable.
B.
Memorandum and Articles of Association.
The following are the summaries of material provisions of our fourth amended and restated memorandum and articles of
association then effective during the financial year ended 31 December 2023, 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 divided into Class A ordinary shares and Class B ordinary shares. Holders of our
Class A ordinary shares and Class B ordinary shares have the same rights except for voting and conversion rights. Our ordinary shares
are issued in registered form and are issued when registered in our register of members.
Conversion. Each Class B ordinary share is convertible into one Class A ordinary share at any time at the option of the holder
thereof. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances.
Dividends. The holders of our ordinary shares are entitled to such dividends as may be declared by our Board. 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. Holders of ordinary shares have the right to receive notice of, attend, speak and vote at general meetings of our
Company. Holders of ordinary shares shall at all times vote together as one class on all matters submitted to a vote by shareholders. In
respect of matters requiring shareholders’ vote, on a poll, each Class A ordinary share is entitled to one vote, and each Class B ordinary
share is entitled to twenty votes. 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.
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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 in person or by proxy, representing not less
than one-third of all votes attaching to all of our shares in issue and entitled to vote.
The Companies Act provides shareholders with only limited rights to requisition a general meeting, and does not provide
shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles
of association. Our 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.
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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.
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 of association may 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.
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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.
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 30 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 of the Cayman Islands 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 of the Cayman
Islands 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.
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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 in 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.
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.
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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 and is therefore incapable of ratification by the shareholders;
● 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”.
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.
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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.
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 not called by such shareholders. 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.
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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.
The Grand Court may, among other things, make an order appointing a restructuring officer upon hearing of such petition, and
any restructuring officer so appointed shall have such powers and carry out only 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 and subject to such terms as the court may impose. 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.
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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 our articles of association, whenever our share capital is divided into different classes, 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— Regulations on Foreign Exchange”.
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.
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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.
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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”.
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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.
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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.
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. 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, 2023 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.
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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.
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.
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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 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.
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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.
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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.
J.
Annual Report to Security Holders.
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 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$0.4 million in 2021, and a net foreign exchange
gain of US$1.9 million in 2022, and a net foreign exchange loss of US$1.3 million in 2023.
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.
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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 2021, 2022 and 2023 increased 1.5%,
2.0% and 0.2%, 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.
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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.” for a description of the rights of
securities holders.
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, 2023 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. As defined in the standards
established by the PCAOB, a “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be
prevented or detected on a timely basis.
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.
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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, 2023, 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; and
(iii)
lack of evaluations to ascertain whether the components of internal control are present and functioning.
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, 2023. 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;
(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
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(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.
Attestation Report of the Independent Registered Public Accounting Firm
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 US$75 million on June 30, 2023, we are exempted from the auditor attestation requirement under Section 404
of the Sarbanes-Oxley Act of 2002 for the assessment of our internal control over financial reporting for the year ended December 31,
2023.
Changes in Internal Control over Financial Reporting
Other than as described above, there were no other changes in our internal controls over financial reporting that occurred during
the year ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
ITEM 16. [RESERVED]
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT.
Our Board has determined that Xiaoning Wu, the chairman of our audit committee, qualifies as an “audit committee financial
expert” as defined in Item 16A of Form 20-F and satifies the “independence” requirements of of Rule 5605(a)(2) of the Listing Rules of
the Nasdaq Stock Market and Rule 10A-3 under the Exchange Act.
ITEM 16B. CODE OF ETHICS.
Our Board has adopted a code of ethics that applies to all of the directors, officers and employees of us and our subsidiaries,
whether they work for us on a full-time, part-time, consultative, or temporary basis. Certain provisions of the code apply specifically to
our chief executive officer, chief financial officer, senior finance officer, controller, senior vice presidents, vice presidents and any other
persons who perform similar functions for us. We have posted a copy of our code of business conduct and ethics on our website at
http://ir.kaixin.com.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The following table sets forth the aggregate fees by categories specified below in connection with certain professional services
rendered by Marcum Asia CPAs LLP (Formerly Marcum Bernstein & Pinchuk LLP) and Onestop Assurance PAC.
Audit fees(1)
Total
For the Years Ended December 31,
2022
2023
(in thousands of US$)
618
618
328
328
(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.
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ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.
None.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT.
Not applicable.
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);
● 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.
ITEM 16J. INSIDER TRADING POLICIES.
Not applicable.
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ITEM 16K. CYBERSECURITY.
Cybersecurity Risk Management and Strategy
We have developed and implemented a cybersecurity risk management program intended to protect the confidentiality, integrity,
and availability of our critical systems and information.
Our cybersecurity risk management aligns with and shares common methodologies and reporting channels with our broader risk
management.
Key features of our cybersecurity risk management program include, but are not limited to, the following:
● risk assessments designed to help identify material cybersecurity risks to our critical systems, information, products,
services, and our broader enterprise IT Systems environment;
● a security team principally responsible for managing (1) our cybersecurity risk assessment processes, (2) our security
controls, and (3) our response to cybersecurity incidents;
● processes for monitoring for vulnerabilities of our technology which includes code review (as necessary), testing and
analysis of software across the software lifecycle;
● the use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our security
controls;
● physical and technical security measures, including encryption, authentication, and access controls;
● cybersecurity awareness training and internal cybersecurity resources for our employees;
● a cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents; and
● a third-party risk management process for service providers, suppliers, and vendors who access our system and
information.
We have not identified risks from known cybersecurity threats, including as a result of any prior cybersecurity incidents, that
have materially affected us, including our operations, business strategy, results of operations, or financial condition. We face risks from
cybersecurity threats that, if realized, are reasonably likely to materially affect us, including our operations, business strategy, results of
operations, or financial condition. See “Item 3. Key Information—D. Risk Factors — Risks Relating to Our Business — Cybersecurity
incidents, including data security breaches or computer viruses, could harm our business by disrupting our delivery of services, damaging
our reputation or exposing us to liability.”
Cybersecurity Governance
Our board of directors considers cybersecurity risk as part of its risk oversight function and undertakes overall risk management,
including oversight of cybersecurity and other information technology risks.
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Our board of directors receives quarterly reports from management on our cybersecurity risks. In addition, management updates
our board of directors, as necessary, regarding any significant cybersecurity incidents. Our board of directors also receives briefings from
management on our cyber risk management program.
Our management has primary responsibility for our overall cybersecurity risk management program and supervises both our
internal cybersecurity personnel and our retained external cybersecurity consultants. Our management and the security team, including
our chief financial officer and information technology director, is responsible for assessing and managing our material risks from
cybersecurity threats. Our team’s experience includes over twenty years of expertise in the IT and cybrersecurity fields and extensive
connections with IT professionals and service providers.
Our management oversees efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents through various
means, which may include briefings from internal security personnel; information obtained from governmental, public or private sources,
including external consultants engaged by us; and alerts and reports produced by security tools deployed in our IT Systems environment.
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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.
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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
Description of Exhibit
Fifth Amended and Restated Memorandum and Articles of Association of Kaixin Holdings, as adopted by a
special resolution on March 4, 2024.
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)
116
Table of Contents
4.10
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
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)
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)
117
Table of Contents
4.26
4.27
4.28
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
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)
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
(incorporated by reference to Exhibit 4.39 to our annual report on Form 20-F (File No. 001-38261) filed
with the SEC on April 29, 2022)
Convertible Promissory Note in the principle amount of $2,180,000 between Kaixin and Streeterville
Capital, LLC dated November 19, 2021 (incorporated by reference to Exhibit 4.40 to our annual report on
Form 20-F (File No. 001-38261) filed with the SEC on April 29, 2022)
Securities Purchase Agreement between Kaixin and Streeterville Capital, LLC dated April 8, 2022
(incorporated by reference to Exhibit 4.41 to our annual report on Form 20-F (File No. 001-38261) filed
with the SEC on May 16, 2023)
Convertible Promissory Note in the principle amount of $2,180,000 between Kaixin and Streeterville
Capital, LLC dated April 8, 2022 (incorporated by reference to Exhibit 4.42 to our annual report on Form
20-F (File No. 001-38261) filed with the SEC on May 16, 2023)
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)
118
Table of Contents
4.44
4.45
4.46
4.47
4.48
4.49
8.1*
11.1
12.1*
12.2*
13.1*
13.2*
15.1*
15.2*
97.1*
101.INS*
101.SCH*
101.CAL*
101.DEF*
101.LAB*
101.PRE*
104*
*
Filed herewith
Equity Transfer Agreement, dated August 5, 2022, between Kaixin Auto Group and Stanley Start Group
Inc. (incorporated by reference to Exhibit 4.44 to our annual report on Form 20-F (File No. 001-38261)
filed with the SEC on May 16, 2023)
The Supplemental Agreement to the Equity Transfer Agreement, dated December 28, 2022, between Kaixin
Auto Group, Kaixin Auto Holdings and Stanley Start Group Inc. (incorporated by reference to Exhibit 4.45
to our annual report on Form 20-F (File No. 001-38261) filed with the SEC on May 16, 2023)
Kaixin Auto Holdings Certificate of Designation of Series F Convertible Preferred Shares, dated March 24,
2023 (incorporated by reference to Exhibit 4.46 to our annual report on Form 20-F (File No. 001-38261)
filed with the SEC on May 16, 2023)
Securities Purchase Agreement, dated March 24, 2023, by and between Kaixin Auto Holdings and Stanley
Star Group Inc. (incorporated by reference to Exhibit 4.47 to our annual report on Form 20-F (File No. 001-
38261) filed with the SEC on May 16, 2023)
2023 Kaixin Auto Holdings Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to our current
report on Form S-8 (File No. 333-270487), initially filed with the SEC on March 13, 2023)
Securities Purchase Agreement, dated March 24, 2023, by and between Kaixin Auto Holdings and Mr.
Long Li, Hermann Limited and Aslan Family Limited (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 November 7, 2023)
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 Asian CPAs LLP, Independent Registered Public Accounting Firm
Clawback Policy
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
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)
119
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: April 29, 2024
Kaixin Holdings
/s/ Mingjun Lin
By:
Name:Mingjun Lin
Title: Chief Executive Officer
120
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS KAIXIN AUTO HOLDINGS)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022, AND 2021
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, 2023 AND 2022
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS FOR THE YEARS ENDED
DECEMBER 31, 2021, 2022 AND 2023
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2021,
2022 AND 2023
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 AND
2023
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-2
F-4
F-5
F-6
F-7
F-8
F-9
F-1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Kaixin Holdings (formerly known as “Kaixin Auto Holdings”)
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Kaixin Holdings and subsidiaries (the “Company”) as of December
31, 2022 and 2023, and the related consolidated statements of operations and comprehensive loss, changes in shareholders’ equity, and
cash flows for each of the two years period ended December 31, 2022 and 2023, and the related notes (collectively referred to as the
financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial positions
of the Company as of December 31, 2022 and 2023, and the results of its operations and its cash flows for each of the two years in period
ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our 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 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.
Critical Audit Matter
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements
that were communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are
material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole,
and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matter or on the
accounts or disclosures to which they relate.
Going Concern
As disclosed in Note 2 to the consolidated financial statements, the Company has incurred a loss of $53.6 million and negative cash
flows from operating activities of $2.1 million. As at December 31, 2023, the Company had net current liabilities of $10.9 million.
Management addresses its ability to continue as a going concern by seeking to obtain the financial support from two major shareholders
of the Company, and other financing to satisfy the Company’s obligations as and when they become due for at least one year from the
financial statements issuance date.
We determined that Company’s ability to continue as a going concern is a critical matter due to the estimation and uncertainty regarding
the risk of bias in management’s judgement and assumptions in their determination.
F-2
Table of Contents
Our principal audit procedures relating to the going concern:
● Obtaining an understanding, and evaluating management’s assessment on whether there are conditions or events that raise substantial
doubt about the entity’s ability to continue as a going concern for a reasonable period of time;
● Assessing the management’s plans and obtaining sufficient appropriate audit evidence to determine whether or not substantial doubt
can be alleviated or still exists;
● Review the relevant disclosures to the consolidated financial statements.
Impairment of Intangible Assets (Including goodwill)
As noted in Note 8 of the financial statements, the Company has recorded trademarks, technology and software as intangible assets, with
a carrying amount of $24.4 million. During 2023, the Company has recorded $38.2 million of goodwill arising from the acquisition of
Morning Star.
The principal consideration for our determination that auditing impairment of intangible assets (including goodwill) is a critical audit
matter is due to the degree of complexity and judgment used by management in developing the fair value measurement, which led to a
high degree of audit judgment and subjectivity and significant effort in performing procedures relating to fair value measurement.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on
the consolidated financial statements. These procedures included:
● Reviewing procedures of management’s impairment assessment;
● Evaluating the reasonableness of the valuation methodology used by management; and
● Testing the completeness and accuracy of the underlying data used by the management.
/s/ Onestop Assurance PAC
We have served as the Company’s auditor since 2023.
Singapore
April 29, 2024
F-3
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Kaixin Holdings (formerly known as “Kaixin Auto Holdings”)
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of operations and comprehensive loss, change in equity and cash flows of
Kaixin Holdings (“the Company”) for the year 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 results of its operations and its cash flow
for the year 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 audit. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our
audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit
provides a reasonable basis for our opinion.
/s/ Marcum Asia CPAs LLP
Marcum Asia CPAs LLP
We have served as the Company’s auditor from 2020 to 2023.
New York, NY
April 28, 2022
F-4
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS 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
Due from related parties
Prepayment for vehicle purchase and other current assets, net
TOTAL CURRENT ASSETS
Property and equipment, net
Goodwill
Intangible assets, net
Operating lease right-of-use assets
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Short-term borrowings
Accounts payable
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 operating lease liabilities
Deferred tax liabilities
TOTAL LIABILITIES
COMMITMENT AND CONTINGENCIES
EQUITY
Ordinary Shares (par value of $0.00075 per shares; 66,666,667 shares authorized, 49,806,556 and 15,891,257 shares
issued as of December 31, 2023 and 2022, respectively. 49,806,556 and 15,216,681 shares outstanding as of December
31, 2023 and 2022, respectively)*
Series D convertible preferred shares (par value of $0.0001, 6,000 shares and 6,000 shares authorized, issued and
outstanding as of December 31, 2023 and 2022, respectively.)
Series F convertible preferred shares (par value of 0.00005, 43,000 shares and 50,000 shares authorized, issued and
outstanding as of December 31, 2023 and 2022, respectively)
Additional paid-in capital
Subscription receivable
Statutory reserve
Accumulated deficit
Accumulated other comprehensive income
TOTAL KAIXIN HOLDINGS’ SHAREHOLDERS’ EQUITY
Non-controlling interests
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
As of December 31,
2023
2022
$
$
$
$
$
2,085
65
—
1,455
597
4,202
403
38,201
24,438
389
63,431
67,633
—
94
126
2,392
764
2,187
232
417
8,903
15,115
238
3,263
18,616
37
1
1
399,117
(17,900)
8
(336,571)
890
45,583
3,434
49,017
67,633
$
$
$
$
$
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
—
20,179
11
1
2
312,831
—
8
(283,008)
1,470
31,315
4,188
35,503
55,682
* Retroactively restated to give effect to a share consolidation at a ratio of one-for-fifteenth ordinary shares effective on September 14, 2023.
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS KAIXIN AUTO HOLDINGS)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands of US dollars, except share, per share data, or otherwise noted)
Revenue, net
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):
Other (expenses) income, net
Foreign currency exchange loss
Interest expense, net
Gain on disposal of subsidiaries
Change in fair value of warrants
Impairment of other receivables
Impairment of prepaid expenses and other current assets
Provision for dealership settlement
Other expenses, net
Loss Before Income Tax
Income tax benefit (expenses)
Net Loss
Less: net income attributable to non-controlling interests
Net Loss Attributable to Kaixin’s Shareholders
Net Loss
Other Comprehensive (Loss) Income
Foreign currency translation adjustment
Comprehensive Loss
Less: comprehensive income (loss) attributable to non-controlling interest
Comprehensive Loss Attributable to Kaixin’s Shareholders
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,
2022
2021
2023
$
31,535
31,193
342
3,313
18,013
—
21,326
$
82,840
82,194
646
2,097
46,488
—
48,585
253,840
248,583
5,257
481
43,734
143,655
187,870
(20,984)
(47,939)
(182,613)
(9)
(10)
(525)
64
(208)
(8,848)
(23,262)
—
(32,798)
(53,782)
228
(53,554)
9
(53,563)
(53,554)
(1,343)
(54,897)
754
(54,143)
(2.34)
$
$
$
728
(139)
(1,034)
1,578
316
—
(22,921)
(15,134)
(36,606)
(84,545)
(74)
(84,619)
87
(84,706)
(84,619)
1,866
(82,753)
940
(81,813)
(6.35)
$
$
$
(4)
(432)
(245)
—
1,995
—
(4,216)
(11,142)
(14,044)
(196,657)
729
(195,928)
651
(196,579)
(195,928)
512
(195,416)
(768)
(196,184)
(25.77)
22,883,555
13,344,477
7,627,757
* Retroactively restated to give effect to a share consolidation at a ratio of one-for-fifteenth ordinary shares effective on September 14, 2023.
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS KAIXIN AUTO HOLDINGS)
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands of US dollars, except share and per share data, or otherwise noted)
Preferred shares
Shares Amount
Ordinary shares
Shares
Amount
paid-in Subscription Statutory Accumulated Comprehensive
capital
receivable reserve
(loss) income
deficit
Additional
Accumulated
Other
Total
shareholders’
equity
Non-
controlling
interest
Total
shareholders’
Equity
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 Moatable,
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
Net (loss) income
Issuance of ordinary shares
and warrant for private
placement
Issuance of ordinary shares
for conversion of
convertible preferred
shares
Issuance of ordinary shares
for acquisition of a
subsidiary
Issuance of ordinary shares
for redemption of
warrants
Vesting of restricted shares
award
Issuance of shares to settle
payables for sales
incentive
Issuance of ordinary shares
for conversion of
convertible notes
Issuance of ordinary shares
for payments of dividends
Foreign currency translation
adjustment
Balance as of December 31,
— $
—
6,000
—
—
—
—
—
6,000
—
$
—
—
—
50,000
—
—
—
56,000
—
$
—
—
1
—
—
—
—
—
1
—
—
—
—
2
—
—
—
3
—
293,769
—
—
—
—
2,594,086
1,453,515
15,216,681
—
$
—
— 10,500,000
(7,000)
(1)
7,000,000
—
—
—
—
—
—
—
—
6,666,667
—
—
—
—
—
—
2
6,536,000
2,777,393
661,537
441,612
6,666
—
49,806,556
$
$
4,935,700
—
4,628,333
4 $
—
3
7,632
—
167,756
$
— $
—
—
1,238,668
1
40,335
—
72,610
—
—
1,254
1,436
—
—
—
8,897
—
—
—
—
—
—
—
10,875,311
—
$
8
—
$ 227,310
—
$
— $
—
4,243
—
—
24,591
—
39,309
17,378
—
—
—
—
—
—
—
$ 312,831
—
$
— $
—
18,892
(17,900)
310
49,095
60
11,966
3,914
2,049
**
—
—
—
—
—
—
—
—
—
1
—
—
—
—
1
1
11
—
8
5
5
5
2
—
1
**
—
37
8
—
—
—
—
—
—
—
8
—
—
—
—
—
—
—
—
8
—
—
—
—
—
—
—
—
—
—
$
$
(1,723)
(196,579)
—
$
242
—
—
$
6,163
(196,579)
167,760
— $
651
7,649
6,163
(195,928)
175,409
—
—
—
—
—
$
(198,302)
(84,706)
$
—
—
—
—
—
—
—
—
—
—
—
395
637
—
—
—
(2,060)
—
2,893
—
—
40,336
1,254
1,436
8,897
—
—
—
—
40,336
1,254
1,436
8,897
395
117
512
$
29,662
(84,706)
$
8,417
87
$
38,079
(84,619)
4,244
-
(2,060)
24,593
—
665
(3,954)
—
2,893
(1,027)
39,310
17,379
—
—
4,244
665
(6,014)
24,593
1,866
39,310
17,379
$
(283,008)
(53,563)
$
1,470
—
$
31,315
(53,563)
$
4,188
9
$
35,503
(53,554)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,000
397
49,100
65
11,968
3,914
2,050
—
—
—
—
—
—
—
—
—
1,000
314
49,100
65
11,968
3,914
2,050
—
(580)
(580)
(763)
(1,343)
2023
49,000
$
$ 399,117
$
(17,900)
$
8
$
(336,571)
$
890
$
45,583
$
3,434
$
49,017
* Retroactively restated to give effect to a share consolidation at a ratio of one-for-fifteenth ordinary shares effective on September 14, 2023.
** Less than $1,000
The accompanying notes are an integral part of these consolidated financial statements.
F-7
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS 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:
2023
For the years ended December 31,
2022
2021
$
(53,554)
$
(84,619)
$
(195,928)
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 other receivables
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
Deferred tax liabilities
Changes in operating assets and liabilities:
Inventories
Prepayment for vehicle purchase and other current assets
Amount due from related parties
Other non-current assets
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 disposed on acquisition of a subsidiary
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
Repayment of convertible note
Cash paid for offering cost
Capital contribution
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
Issuance of ordinary shares for conversion of convertible notes
Issuance of ordinary shares for acquisition of a subsidiary
Recognition of intangible assets from acquisition of a subsidiary
Receivable due from issuance of ordinary shares and warrants in private placements
Issuance of shares to settle payables for sales incentive
2,482
—
—
208
11,968
(10)
8,848
23,262
—
2,701
(64)
32
493
(229)
(35)
1,653
(1,458)
(6)
106
—
2,790
(28)
(1,237)
(30)
(2,108)
(396)
—
(2,740)
2
—
(3,134)
1,065
—
(50)
—
—
1,015
(790)
(5,017)
7,102
2,085
—
—
—
—
—
328
2,050
49,100
13,972
17,900
3,914
$
$
$
$
$
$
$
$
$
$
$
$
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)
—
—
—
—
—
—
—
$
$
$
$
$
$
$
$
$
$
$
$
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
—
—
—
—
—
$
$
$
$
$
$
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-8
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS 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 Holdings (formerly known as 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 4,935,700 ordinary shares (after giving effects of the
Share Consolidation as mentioned below), 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 Group. The
acquired assets and liabilities of KAH are included in the Group’s consolidated balance sheets since June 25, 2021 and the results of its
operations and cash flows are included in the Group’s consolidated statement of operations and comprehensive loss and cash flows for
periods beginning after June 25, 2021.
On September 14, 2023, the Group effected a share consolidation at a ratio of one-for-fifteenth (15) ordinary shares with a par value of
US$0.00005 each in the Group’s issued and unissued share capital into one ordinary share with a par value of US$0.00075 (“the Share
Consolidation”). Immediately following the Share Consolidation, the authorized share capital of the Group to be US$50,000 divided into
1,000,000,000 ordinary shares of a par value of US$0.00005 per share and 66,666,667 preferred shares of a par value of US$0.00075 per
share.
Acquisition of a subsidiary
On August 22, 2023, the Group closed the acquisition of 100% equity interest in Morning Star Auto Inc. (“Morning Star”) at share
consideration of $20,250. The Group issued 6,666,667 ordinary shares (after giving effects of the Share Consolidation as mentioned
above) in the acquisition.
Setup new subsidiaries
In September 2023, the Group, through one of its subsidiaries in the PRC, set up one subsidiary, namely, Zhejiang Kaixin Yuanman
Business Management Co. Ltd.. The Group owned 100% equity interest in the subsidiary.
In February through March 2023, the Group, through one of its subsidiaries in the PRC, set up three subsidiaries. Namely, Zhejiang
Kaixin Daman Automobile Trading Co. Ltd., Zhejiang Kaixin Jingtao Automobile Trading Co. Ltd., and Zhejiang Kaixin Manman
Commuting Technology Co. Ltd. The Group owned 70% equity interest in these three subsidiaries.
Disposition of subsidiaries
On February 2, 2023, the Company entered into a share transfer agreement with Kairui Consulting Hong Kong Limited (“Karui”),
pursuant to which the Company transferred 100% equity interest in Zhejiang Taohaoche Technology Co., Ltd. (“Zhejiang Taohaoche”), a
subsidiary engaged in new car trading business, at consideration of $2,700,000. In addition, the Company, Karui and Scytech Limited
(“Sytech”) entered into a settlement agreement, pursuant to which Kairui would pay $2,700,000 to Scytech Limited to settled the
Company’s liabilities due to Scytech. The management believed the transfer of share interest in Zhejiang Taohaoche does not represent a
strategic shift that has (or will have) a major effect on the Company’s operations and financial results. The termination is not accounted
as discontinued operations in accordance with ASC 205-20.
F-9
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS 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)
In June 2023, the Group disposed of KAG, a Cayman holding company, to a third party. Upon disposal, KAG was a holding company
and had net asset deficit of $4,158. Pursuant to the disposal agreement with third party, the Company would make payments, in the
amount of net asset deficit of KAG, to the third party in the event that the net assets of KAG was below zero. Accordingly, The Group
did not recognize disposal gain or loss from disposal of KAG. As of December 31, 2023, the Company did not make payments of $4,158
to the third party, and recorded the balance in accrued expenses and other current liabilities.
On August 5, 2022, the Company, through Kaixin Auto Group (“KAG”), its former subsidiary in Cayman Island, entered into a shares
transfer agreement (the “Agreement”) with Stanley Star. Pursuant to the Agreement, the Group sold all the shares it held in Renren
Finance Inc and its subsidiaries and VIEs and VIEs’ subsidiaries (collectively “Disposal Group”) 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.
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)
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).
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”).
F-10
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS 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)
The major subsidiaries of the Company as of December 31, 2023 are summarized as below:
Name of Subsidiaries
Major subsidiaries:
Later of date of
incorporation or
acquisition
Place of
Incorporation
% of
Ownership
Jet Sound Hong Kong Company Limited
May 7, 2011
Hong Kong
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
100
100
70
70
%
%
%
%
Anhui Kaixin New Energy Vehicle Co., Ltd.
January 25, 2022
PRC
100
%
Morning Star
August 22, 2023
PRC
100
%
Principal Activities
Investment
holding
Used car trading
business
Used car trading
business
Used car trading
business
New energy
vehicle trading
business
New energy
vehicle trading
business
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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”).
Principles of consolidation
The consolidated financial statements include the financial statements of the Group and its subsidiaries. All inter-company transactions
and balances have been eliminated upon consolidation.
Non-controlling interests
Non-controlling interests are presented as a separate component of equity on the consolidated balance sheet. Net income (loss) and other
comprehensive income (loss) are attributed to controlling and non-controlling interests, respectively.
Going concern and liquidity
For the years ended December 31, 2023, 2022 and 2021, the Company reported a net loss of approximately $53.6 million, $84.6 million
and $195.9 million, respectively, and operating cash outflows approximately $2.1 million, $2.4 million and $2.1 million. In assessing the
Company’s ability to continue as a going concern, the Company monitors and analyzes its cash and its ability to generate sufficient cash
flows in the future to support its operating and capital expenditure commitments.
F-11
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS 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)
As of December 31, 2023, the Company had cash of approximately $2.1 million and due from related parties of approximately $1.5
million, which were highly liquid. On the other hand, the Company had current liabilities of approximately $15.1 million. Among the
balance of current liabilities, convertible notes of $2.4 million, warrant liabilities of $0.2 million and payables for sales incentives of $0.4
million would be settled by ordinary shares, and the balance due to related parties of $2.2 million and other payables of $8.9 million are
payable on demand and may be extended. In addition, two major shareholders of the Company have agreed to consider to provide
necessary financial support in the form of debt and/or equity to the Company to enable the Company to meet its other liabilities and
commitments as they become due for at least twelve months from the issuance date of this consolidated financial statements.
The management believes that the Company will continue as a going concern in the following 12 months from the date the Company’s
2023 consolidated financial statements are issued. The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial
statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might result from the outcome of the uncertainties described above.
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.
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.
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.
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.
F-12
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS 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)
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.
Assets measured at fair value on a recurring basis
Management of the Group considers the carrying amount of cash and cash equivalents, accounts receivable, other receivables, short-term
bank loans, accounts payable, amounts due to related parties, other payables and income tax payable based on the short-term maturity of
these instruments to approximate their fair values because of their short-term nature. Warrants were measured at fair value using
unobservable inputs and categorized in Level 3 of the fair value hierarchy (Note 18). There have been no transfers between Level 1,
Level 2, or Level 3 categories during the years ended December 31, 2023, 2022 and 2021.
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. For the years ended December 31, 2022 and 2021, the Company provided impairment of $nil and $143,655 against
goodwill.
In 2023, the Group performed impairment tests for goodwill caused by the acquisition of a subsidiary 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 2.9%, and discount rate of 23% that would be utilized by market participants in valuing these assets or prices of similar
assets. For the year ended December 31, 2023, no impairment was provided against goodwill.
F-13
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS 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)
Warrant
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.
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.
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.
Prepayment for vehicle purchase and other assets
Prepayment for vehicle purchase, other current assets and other non-current assets consist of prepayment to the dealership operators for
purchase of vehicles, advances to suppliers, deductible input VAT, and other receivables. 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.
For the years ended December 31, 2023, 2022 and 2021, the Group recorded impairment loss of $23,262, $22,921 and $nil against
prepayment for vehicle purchase and other current assets.
Inventory
Inventory was comprised of 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 - day 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 31,2023, 2022 and 2021.
F-14
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KAIXIN HOLDINGS
(FORMERLY KNOWN AS 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)
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 consolidated statements of operations and comprehensive loss in the year of disposition.
Estimated useful lives are as follows:
Computer equipment and application software
Furniture and vehicles
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
Trademark
Technology
Estimated Useful Life
10 Years
10 Years
4.3 Years - 6.3 Years
In accordance with ASC Topic 360, the Group 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.
Technology is recognized on acquisition of Morning Star in August 2023.
The amount of impairment is measured as the difference between the asset’s estimated fair value and its carrying amount. The Group did
not record any impairment charge for the years ended December 31, 2023, 2022 and 2021.
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-15
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS 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 reverse acquisition of $143,655 in the year ended December 31, 2021.
During the year ended December 31, 2023, the Company recognized goodwill of $38,201 arising from business combination of Morning
Star (Note 5). As of December 31, 2023, no impairment was provided against the goodwill.
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 recorded impairment loss of $nil, $nil and $4,216 for other non-current assets for the years ended December 31, 2023, 2022
and 2021.
Operating lease right-of -use assets
The Group leases premises for offices under non-cancellable operating leases.
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-16
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS 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)
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 Group 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.
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.
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.
F-17
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS 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 following table identifies the disaggregation of the revenue for the years ended December 31, 2023, 2022 and 2021, respectively:
Used-car sales
New-car wholesales
Technical services
Total revenues
Income taxes
For the years ended December 31,
2022
2023
$
$
1,420
30,048
67
31,535
$
$
80,034
2,806
$
—
$
82,840
2021
251,054
2,786
—
253,840
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 ($14,100). In the case of transfer pricing issues, the statute of limitation is ten years. There is no statute of
limitation in the case of tax evasion. Penalties and interest incurred related to underpayment of income tax are classified as income tax
expense in the period incurred.
As of December 31, 2023 and 2022, the Group did not have any significant unrecognized uncertain tax positions and the Group does not
believe that its unrecognized tax benefits will change over the next twelve months. In addition, the Group did not have any interest or
penalties associated with uncertain tax position for the years ended December 31, 2023, 2022 and 2021.
Foreign currency translation
The reporting currency of the Group is the U.S. dollar (“USD” or “$”). 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 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.
F-18
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS 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 consolidated balance sheets amount, with the exception of equity, on December 31, 2023 and December 31, 2022 were translated at
RMB7.0999 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, 2023, 2022 and 2021
were RMB7.0802 to $1.00, RMB6.7290 to $1.00, and RMB6.3914 to $1.00, respectively.
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 Group 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 Group 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 Group recognizes incremental compensation cost in the period the modification occurred. For unvested options,
the Group 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.
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.
Comprehensive loss
Comprehensive loss is comprised of the Group’s net loss and other comprehensive income (loss). The components of other
comprehensive income (loss) consist solely of foreign currency translation adjustments.
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.
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.
F-19
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS 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 Group’s operations are carried out in the PRC. Accordingly, our business, financial condition, and results of operations may be
influenced by the political, economic, and legal environment in the PRC, and by the general state of the economy of the PRC. Our
operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North
America. The Group’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-
inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things. Financial
instruments which potentially subject us to concentrations of credit risk consist principally of cash and cash equivalent. All of our cash is
maintained with state-owned banks, commercial banks or third-party service provider certified by the People’s bank of China, such as
Alipay, within the PRC. Per PRC regulations, the maximum insured bank deposit amount is RMB500 (approximately $70) for each
financial institution. The Group’s total unprotected cash held in bank amounted to approximately $1,468 as of December 31, 2023. The
Group has not experienced any losses in such accounts and believes the Group is not exposed to any risks on our cash held in bank
accounts.
With regard to the prepayment for purchase of used car, 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 Group’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, 2023, 2022 and 2021. No
supplier that accounted for 10% or more of total purchase for the years ended December 31, 2023, 2022 and 2021 or 10% or more of
prepaid expenses and other current assets balance as of December 31, 2023 and 2022.
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.
Recent Adopted 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. The Group adopted ASU No. 2021-08 since January 1, 2023,
and the impact of adopting this guidance on the Group’s consolidated financial statements was minimal.
F-20
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS 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 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.
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.
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.
Recent Accounting Pronouncements
On October 28, 2021, the FASB issued ASU 2021-08, which amends ASC 805 to require acquiring entities to apply Topic 606
to recognize and measure contract assets and contract liabilities in a business combination. Under current GAAP, an acquirer generally
recognizes such items at fair value on the acquisition date. According to the FASB, this Update is intended to improve the accounting for
acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the
following: (1) recognition of an acquired contract liability, and (2) payment terms and their effect on subsequent revenue recognized by
the acquirer. The ASU’s amendments are effective in fiscal years beginning after December 15, 2022, including interim periods within
those fiscal years for public business entities, and are effective in fiscal years beginning after December 15, 2023, including interim
periods within those fiscal years for all other entities. The Company does not expect that the adoption of this guidance will have a
material impact on the financial position, results of operations and cash flows.
F-21
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS 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 June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities
Subject to Contractual Sale Restrictions”, which clarifies that a contractual restriction on the sale of an equity security is not considered
part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also clarify
that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. This guidance also requires
certain disclosures for equity securities subject to contractual sale restrictions. The new guidance is required to be applied prospectively
with any adjustments from the adoption of the amendments recognized in earnings and disclosed on the date of adoption. This guidance
is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is
permitted. The Company does not expect that the adoption of this guidance will have a material impact on the financial position, results
of operations and cash flows.
In November 2023, the FASB issued ASU 2023-07. The amendments improve reportable segment disclosure requirements, primarily
through enhanced disclosures about significant segment expenses. In addition, the amendments enhance interim disclosure requirements,
clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure
requirements for entities with a single reportable segment, and contain other disclosure requirements. The purpose of the amendments is
to enable investors to better understand an entity’s overall performance and assess potential future cash flows. The ASU applies to all
public entities that are required to report segment information in accordance with ASC 280. The Company does not expect that the
adoption of this guidance will have a material impact on the financial position, results of operations and cash flows.
Other accounting standards that have been issued or proposed 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 pronouncements
that are not anticipated to have an impact on or are unrelated to its consolidated financial condition, results of operations, cash flows or
disclosures.
3. REVERSE ACQUISITION
On June 25, 2021, KAH issued (the “Issuance”) an aggregate of 4,935,700 ordinary shares (after giving effects of the Share
Consolidation as mentioned above) 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 9,564,033
outstanding ordinary shares (after giving effects of the Share Consolidation as mentioned above), 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.
F-22
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS 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 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 4,628,333 ordinary shares (after giving effects of the Share Consolidation as mentioned above) issued to pre-
reverse acquisition KAH shareholders is $161,760 based on the quoted fair market value of $34.95 per ordinary share (after giving
effects of the Share Consolidation as mentioned above) on June 25, 2021.
(2) It represented Series D convertible preferred shares of KAH issued to Moatable, Inc. on April 8, 2021 (see Note 18)
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, 2021. 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
2021
Unaudited
$
$
257,631
(191,468)
F-23
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS 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
Disposal of Renren Finance Inc and its subsidiaries and VIEs and VIEs’ subsidiaries
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 Group calculated a gain regarding the divestiture of Disposal group as follows:
The carrying amount of any noncontrolling interest
Net liabilities
Less: fair value of preferred shares issued to Stanley Star
Gain on disposal of subsidiaries
$
As of October 27, 2022
3,954
24,276
28,230
24,592
3,638
$
The fair value of the preferred shares issued to the Buyer as of the closing date and the fair value was approximately $24.6 million. When
the Group deconsolidated subsidiaries, the amount of accumulated other comprehensive loss $2,060 is reclassified and partially offset the
gain.
F-24
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS 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 Group’s operations and did not have major effects on the
Group’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
Disposal of Zhejiang Taohaoche
$
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)
On February 2, 2023, the Group entered into a share transfer agreement with Kairui Consulting Hong Kong Limited (“Karui”), pursuant
to which the Group transferred 100% equity interest in Zhejiang Taohaoche at consideration of $2,700,000. In addition, the Group, Karui
and Scytech Limited (“Sytech”) entered into a settlement agreement, pursuant to which Kairui would pay $2,700,000 to Scytech Limited
to settle the Group’s liabilities due to Scytech. For the year ended December 31, 2023, Kairui made cash consideration to Scytech and the
Group settled its liabilities to Scytech. Upon disposal, Zhejiang Taohaoche’s net assets and gain on disposal of Zhejiang Taohaoche was
comprised of the following:
Consideration
Cash
Accrued expenses and other current liabilities
Foreign exchange adjustment
Net assets
Gain on disposal of Zhejiang Taohaoche
As of February 2, 2023
2,700
2,662
(61)
34
2,635
65
$
$
$
$
The transfer of share equity interest in Zhejiang Taohaoche did not constitute a strategic shift of the Group’s operations and did not have
major effects on the Group’s operations and financial results; therefore, the transactions do not meet the discontinued operations criteria.
F-25
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS 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)
Disposal of KAG
In June 2023, the Group disposed of KAG, a Cayman holding company, to a third party. Upon disposal, KAG was a holding company
and had net asset deficit of $4,158. Pursuant to the disposal agreement with third party, the Company would make payments, in the
amount of net asset deficit of KAG, to the third party in the event that the net assets of KAG was below zero. Accordingly, The Group
did not recognize disposal gain or loss from disposal of KAG. As of December 31, 2023, the Company did not make payments of $4,158
to the third party, and recorded the balance in accrued expenses and other current liabilities.
5.
ACQUISITION OF MORNING STAR
On August 22, 2023, the Company closed acquisition 100% equity interest of Morning Star at the cost of issuance of 6,666,667 ordinary
shares (after giving effect to share consolidation effected in September 2023). The fair value of the share consideration was $49,100 by
reference to the closing price on August 22, 2023.
The Company has allocated the purchase price of Morning Star based upon the fair value of the identifiable assets acquired and liabilities
assumed on the acquisition date. The Company estimated the fair values of the assets acquired and liabilities assumed at the acquisition
date in accordance with the business combination standard issued by FASB. The Company used carrying amount of assets and liabilities
as fair value, which approximate the fair value, and used income approach to estimate the fair value of intangible assets which was
primarily comprised technologies. Management of the Company is responsible for determining the fair value of assets acquired,
liabilities assumed and intangible assets identified as of the acquisition date and considered a number of factors including valuations
from an independent appraiser firm. Acquisition-related costs incurred for the acquisitions are not material and have been expensed as
incurred in other operating expenses.
The following table summarizes the estimated fair values of the identifiable assets acquired at the acquisition date, which represents the
net purchase price allocation at the date of the acquisition of Morining Star based on a valuation performed by an independent valuation
firm engaged by the Company and translated the fair value from RMB to USD using the exchange rate on August 22, 2023 at the rate of
USD 1.00 to RMB 7.2930. The following is a reconciliation of the fair value of major classes of assets acquired and liabilities assumed
which comprised of net tangible assets on August 22, 2023.
Net tangible assets
Technologies (1)
Goodwill
Deferred tax liabilities
Total purchase consideration
August 22,
2023
420
13,972
38,201
(3,493)
49,100
$
$
(1) The following is a reconciliation of the fair value of major classes of assets acquired and liabilities assumed which comprised of net
tangible assets on August 22, 2023.
(2) The technologies are primarily related to design and manufacture of electric vehicles. The useful lives of these technologies of 6.3
years.
The accounting literature establishes guidelines regarding the presentation of this unaudited pro forma information. Therefore, this
unaudited pro forma information is not intended to represent, nor does the Company believe it is indicative of, the consolidated results of
operations of the Company that would have been reported had the acquisition been completed as of January 1, 2023. Furthermore, this
unaudited pro forma information does not give effect to the anticipated business and tax synergies of the acquisition and is not
representative or indicative of the anticipated future consolidated results of operations of the Company.
F-26
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS KAIXIN AUTO HOLDINGS)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
5.
ACQUISITION OF MORNING STAR (CONTINUED)
The unaudited pro forma consolidated financial information reflects the historical results of the Morning Star and its subsidiaries,
adjusted to reflect the acquisition had it been completed as of January 1, 2023. The most significant pro forma adjustments to the
historical results of operations relate to the application of purchase accounting for the acquisition. The unaudited pro forma financial
information includes various assumptions, including those related to the finalization of the purchase price allocation.
Kaxin
Morning Star Pro Forma Adjustment Pro Forma Financial Data
For the years ended December 31, 2023
Account Name
Revenues, net
Cost of revenues
Gross profit
Operating expenses
Selling and marketing expenses
General and administrative expenses
Total operating expenses
Loss from operations
Other Income (expenses)
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
Total other income (expenses), net
$
$ 31,535
31,193
342
— $
—
—
3,313
17,944
21,257
(20,915)
(9)
(10)
(525)
64
(208)
(32,110)
(32,798)
—
69
69
(69)
—
—
—
—
—
—
—
— $
—
—
—
536 (a)
536
(536)
—
—
—
—
—
—
—
Loss Before Income Taxes
(53,713)
(69)
(536)
Income tax benefit (expenses)
228
—
134 (b)
Net Loss
$ (53,485) $
(69) $
(402)
$
(53,956)
The consolidated statement of operations of Morning Star was for the period from January 1, 2023 to August 21, 2023.
(a) Reflects amortization of technologies of $536 arising from the acquisition.
(b) Reflects amortization of deferred tax liabilities of $134 in relation to amortization of intangible assets arising from the acquisition.
F-27
31,535
31,193
342
3,313
18,549
21,862
(21,520)
(9)
(10)
(525)
64
(208)
(32,110)
(32,798)
(54,318)
362
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS KAIXIN AUTO HOLDINGS)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
6. OTHER RECEIVABLES
As of December 31, 2023 and 2022, other receivables were comprised two interest-free loans to Shanghai Changda and Anhui Xin
Jieying, both of which were former subsidiaries of the Group. Shanghai Changda and Anhui Xin Jieying were disposed of in the disposal
of Renren Finance Inc and its subsidiaries and VIEs and VIEs’ subsidiaries (Note 4).
As of December 31, 2023 and 2022, the breakdown of the loans was as follows:
Shanghai Changda
Anhui Xin Jieying
Total
As of December 31,
2023
2022
— $
—
— $
6,858
1,990
8,848
$
$
As of December 31, 2023, the management expected that the collection of outstanding balance was remote and fully impaired the
receivables of $8,848.
7. PREPAID EXPENSES AND OTHER CURRENT ASSETS
As of December 31, 2023 and 2022, prepaid expenses and other current assets consisted of the following:
Prepayment for purchase of used vehicles (1)
Other receivables from dealerships (2)
Deductible input VAT
Others
Less: valuation allowance
As of December 31,
2023
2022
— $
—
—
597
597
—
597
$
18,252
9,546
7
191
27,996
(1,675)
26,321
$
$
For the years ended December 31, 2023, 2022 and 2021, the Group provided impairment of $23,262, $22,921 and $nil against
prepayments for vehicle purchase and other receivables from dealerships.
(1) The balance mainly represents prepayments made to the used-car dealership operators, with whom the Group set up special purpose
holding companies to operate the used car business. The used car business primarily focused on purchase of used vehicles from the
market.
(2) The balance represents cash advances paid to the dealership operators for operating purposes. The balance is secured using ordinary
shares of the Group issued to them as agreed with the dealership operator (Note 10).
F-28
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS KAIXIN AUTO HOLDINGS)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
8.
INTANGIBLE ASSETS, NET
As of December 31, 2023 and 2022, intangible assets, net consisted of the following:
Trademark identified in reverse acquisition (Note 3) (1)
Technology identified in acquisition of Morning Star (Note 5) (2)
Software
Total
Less: Accumulated amortization
Intangible assets, net
As of December 31,
2023
2022
$
$
15,100
13,972
70
29,142
(4,704)
24,438
$
$
15,100
—
72
15,172
(2,269)
12,903
(1) The trademark was identified in reverse acquisition of KAH with Haitaoche on June 25, 2021. As of December 31, 2023, the
trademark had remaining useful life of 7.5 years.
(2) The technology was identified in acquisition of Morning Start on August 23, 2023. As of December 31, 2023, the trademark has
remaining useful life 5.9 years.
For the years ended December 31, 2023, 2022 and 2021, amortization expense was $2,436, $1,531, $785, respectively. The following is a
schedule, by fiscal years, of amortization amount of intangible asset as of December 31, 2023:
2024
2025
2026
2027
Thereafter
Total
$
$
3,723
3,723
3,723
3,723
9,546
24,438
F-29
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS KAIXIN AUTO HOLDINGS)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
9. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Due to buyer of KAG arising from disposal of KAG (Note 4)
Loan payable (1)
Accrued professional fee
Individual income tax payable
Used car services payables
Other taxes payable
Others
Total
(1) Loans payable
As of December 31, 2022, the balance of loans payable consisted of the following:
As of December 31,
2023
2022
$
$
4,158
211
587
2,207
284
135
1,321
8,903
$
$
—
3,000
2,215
2,207
419
181
1,357
9,379
Lender
Scytech Limited
CPL Yellow stones Limited
Yunfeiyang Limited
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. During the year ended
December 31, 2023, the Company repaid the loans on maturity dates.
As of December 31, 2023, the balance of loans payable consisted of the following:
Lender
Shanghai Wuxia Jindongxue Technology Co., Ltd.
Interest rate
Issuance Date
Maturity Date
December 31,
2023
0 % On August 29, 2023 Payable on demand $
211
The loan due to Shanghai Wuxia Jindongxue Technology Co., Ltd. was an interest-free loan borrowed to support working capital of the
Company.
F-30
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS 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 Group entered into equity purchase agreements (the “Equity Purchase Agreements”) with certain dealership
operators to acquire 70% equity interest of the dealerships. According to the Equity Purchase Agreements, the Group agreed to make
share considerations to these 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 Group recognized the Contingent Consideration as liability at fair value on the acquisition date and the subsequent
changes in fair value as gain/loss into the consolidated statements of operations and comprehensive loss. In connection with the Group’s
IPO on April 30, 2019, Moatable agreed to assume the Contingent Consideration from the Group, and the Group reclassified the
Contingent Consideration from a liability to additional paid-in capital.
Since 2019, the Group had disruptions with certain dealership operators in operations of several dealerships. After continuous
negotiations with the dealership operators, the Group entered into the amendments to Equity Purchase Agreement (the “Amendments”)
with seven Dealership Operators in August 2021, to issue 1) a total of 300,917 ordinary shares (after giving effects to Share
Consolidation effected in September 2023. Note 1) 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) a total of 478,169 ordinary shares (after giving effects to Share
Consolidation effected in September 2023. Note 1) (“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 Group and the dealership operators. The number of Compensation Shares was determined through
negotiation of the Group 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 Group 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.
On November 30, 2021, Renren transferred 894,841 ordinary shares (after giving effects to Share Consolidation effected in September
2023. Note 1) of the Company it held, to an escrow company to fully settle the Contingent Consideration shares of 547,967 (after giving
effects to Share Consolidation effected in September 2023. Note 1). In addition to the Contingent Consideration shares, there were
346,874 shares (after giving effects to Share Consolidation effected in September 2023. Note 1) 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 131,295 shares (after giving effects to Share
Consolidation effected in September 2023. Note 1) 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 894,841 shares (after giving effects to Share Consolidation effected in
September 2023. Note 1) 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
478,169 Compensation Shares (after giving effects to Share Consolidation effected in September 2023. Note 1) to the Dealership
Operators for the dealership settlement was $11,142 for the year 2021.
F-31
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS 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)
In May 2022, the Company signed supplemental agreements to Equity Purchase Agreement (the “Supplemental Agreements”) with
seven Dealership Operators, to confirm a total of 1,437,755 ordinary shares (after giving effects to Share Consolidation effected in
September 2023. Note 1) 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 2,249,918 ordinary
shares (after giving effects to Share Consolidation effected in September 2023. Note 1). On May 26, 2022, the Company issued 1,355,077
ordinary shares (after giving effects to Share Consolidation effected in September 2023. Note 1) to the Dealership Operators and then put
the shares into an escrow account. The 1,355,077 ordinary shares (after giving effects to Share Consolidation effected in September 2023.
Note 1) 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.
11.
PAYABLE FOR SALES INCENTIVE
In the year of 2022, the Group entered into a share grant agreement with certain dealership operators to incentivize the dealership
operators to improve their sales performance. Pursuant to the share grant agreement, the Group agreed to provide sales incentives to the
dealership operators based on their sales performance.
For the years ended December 31, 2023 and 2022, the Group granted 341,971 shares and 372,376 shares (after giving effects to Share
Consolidation effected in September 2023. Note 1), respectively, to these dealership operators. The Group recognized share-based
compensation expenses of $2,701 and $1,638 for the year ended December 31, 2023 and 2022, respectively, in the account of selling
expenses. The share-based compensation expenses were recognized at fair value on grant dates.
As of December 31, 2022, the Group did not issue ordinary shares to dealership operators. During the year ended December 31, 2023,
the Group issued an aggregation of 661,537 shares (after giving effects to Share Consolidation effected in September 2023. Note 1) to
settle the payables for sales incentive. As of December 31, 2023 and 2022, the payable for sales incentive was $417 and $1,638,
respectively.
12.
LEASE
The Group leases offices space under one non-cancelable operating lease with lease term of five years. The Group considers those
renewal or termination options that are reasonably certain to be exercised in the determination of the lease term and initial measurement
of right of use assets and lease liabilities. Lease expense for lease payment is recognized on a straight-line basis over the lease term.
Leases with initial term of 12 months or less are not recorded on the balance sheet.
The Group determines whether a contract is or contains a lease at inception of the contract and whether that lease meets the classification
criteria of a finance or operating lease. When available, the Group uses the rate implicit in the lease to discount lease payments to present
value; however, most of the Group’s leases do not provide a readily determinable implicit rate. Therefore, the Group discount lease
payments based on an estimate of its incremental borrowing rate.
F-32
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS KAIXIN AUTO HOLDINGS)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
12.
LEASE (CONTINUED)
The Group’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Supplemental balance sheet information related to operating lease was as follows:
Right-of-use assets
Lease liabilities current
Lease liabilities non-current
Total operating lease liabilities
As of December 31,
2023
2022
389
$
126
238
364
$
428
119
311
430
$
$
The weighted average remaining lease terms and discount rates for the operating lease as of December 31, 2023 were as follows:
Remaining lease term and discount rate:
Weighted average remaining lease term (years)
Weighted average discount rate
2.86
11.3 %
For the years ended December 31, 2023, 2022 and 2021, operating lease asset of $328, $nil and $515 was obtained in exchange for
operating lease liabilities, respectively. For the years ended December 31, 2023, 2022 and 2021, cash prepaid for amounts included in the
measurement of lease liabilities were $nil, $nil and $31, respectively, for the years ended December 31, 2023, 2022 and 2021.
During the years ended December 31, 2023, 2022 and 2021, the Group incurred total operating lease expenses of $160, $133 and $29
respectively.
As of December 31, 2023, the future minimum rent payable under non-cancelable operating leases were:
2024
2025
2026
Total lease payments
Less: imputed interest
Present value of lease liabilities
$
$
134
163
97
394
(30)
364
F-33
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS 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
Mr. Lin Mingjun (“Mr. Lin”)
Moatable, Inc.
Henan Yujie Times Auto Co., Ltd.
(“Henan Yujie”)
Relationship
A controlling shareholder and chief executive officer of the Group
A non-controlling shareholder of the Group
An investee over which Morning Star holds 40% equity interest
Huandian Teconology Development
A subsidiary of Henan Yujie
Co., Ltd. (“Huandian”)
Mengzhou Enbowei Auto Technology
Co., Ltd. (“Enbowei”)
Amounts due from related parties
An investee over which the controlling shareholder of Morning Star holds 10% equity
interest
As of December 31, 2023 and 2022, significant amounts due from related parties consisted of the following:
Huandian Technology
Enbowei
Others
As of December 31,
2023
2022
$
$
1,006
369
79
1,455
$
$
—
—
—
—
(1) The balances due from related parties arose from acquisition of Morning Star (Note 5). As of December 31, 2023, the balances due
from related parties represented loans made to these related parties. The balances were interest free and repayable on demand. The
Company expected to get these balances within one year.
Amounts due to related parties
As of December 31, 2023 and 2022, significant amounts due to related parties consisted of the following:
Moatable, Inc. (1)
Henan Yujie (2)
Mr. Lin
Others
As of December 31,
2023
2022
$
$
1,278
808
71
30
2,187
$
$
1,427
—
200
—
1,627
(1) The balance mainly represented the advance fund provided by Moatable and its subsidiaries to finance the Group’s daily operations.
The amount due to Moatable and its subsidiaries were stripped off in conjunction with the disposal of the subsidiaries (Note 4).
(2) The balance was assumed by the Company in its acquisition of Morning Star (Note 5). The outstanding balance mainly represented
the advance fund provided by Henan Yujie to finance Morning Star’s daily operations.
F-34
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS KAIXIN AUTO HOLDINGS)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
14.
SHORT-TERM BANK BORROWING
East West Bank
As of December 31,
2023
2022
$
$
— $
— $
2,000
2,000
As of December 31, 2022, the borrowing from East West Bank bore an interest rate of 6% per annum. With Disposal of Renren Finance
Inc and its subsidiaries and VIEs and VIEs’ subsidiaries (Note 4), the borrowing was transferred to and assumed by Stanley Star, while
the Group was obliged to pay interest expenses on a monthly basis.
Interest expenses were $525, $1,034 and $223, respectively, recorded for bank loans in the consolidated statements of operations and
comprehensive income (loss) for the years ended December 31, 2023, 2022 and 2021.
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, 2023, 2022 and 2021. Therefore, no Hong Kong
profit tax has been provided for the years ended December 31, 2023, 2022 and 2021.
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-35
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS 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)
The components of the income tax expense are as follows:
For the years ended December 31,
2022
2021
2023
Current income tax benefit (expense)
Deferred income tax benefit
Total income tax benefit (expense)
$
$
(1)
229
228
$
$
(74)
—
(74)
$
$
729
—
729
The reconciliations of the statutory income tax rate and the Group’s effective income tax rate are as follows:
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 (expense)
Effective tax rates
$
$
For the years ended December 31,
2022
84,545
2023
53,782
$
$
2021
196,657
25 %
13,446
—
—
(52)
(3,075)
(1,636)
—
(8,455)
228
0.00 %
$
25 %
21,136
—
—
(79)
(13,783)
(1,721)
(288)
(5,339)
(74)
(0.00)%
$
25 %
49,164
(35,914)
1,354
500
(13,262)
(437)
(193)
(483)
729
0.38 %
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, 2023 and 2022 is as follows:
Deferred tax assets:
Write-down of Prepaid expenses and other current assets
Net operating loss carry forwards
Sub-total
Deferred tax liabilities:
Intangible assets acquired in business combination
Less: valuation allowance
Deferred tax liabilities, net
As of December 31,
2023
2022
$
$
$
8,157
1,023
9,180
(3,263)
477
584
1,061
—
(9,180)
(3,263)
$
(1,061)
—
The deferred tax assets related arising from net operating loss carry forwards were nil and $584 as of December 31, 2023 and 2022,
respectively. The Group 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, 2023 and 2022, full valuation allowances were established because the Group 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.
F-36
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS 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)
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
For the years ended December 31,
2022
2021
2023
1,061
8,455
—
—
—
—
—
(336)
9,180
$
$
25,240
5,267
(7,039)
(42)
(288)
(22,077)
—
—
1,061
$
$
388
1,454
(753)
(25)
(193)
—
23,843
526
25,240
$
$
Since January 1, 2008, the relevant tax authorities have not conducted a tax examination on the Group’s PRC entities. In
accordance with relevant PRC tax administration laws, tax years from 2018 to present of the Group’s PRC subsidiaries remain subject to
tax audits as of December 31, 2023 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 each Note is $2,180 and
contract terms of both Notes are substantially the same.
The purchase price of each Notes was $2,000, calculated at principal of $2,180 less discount of $160 at issuance and the transaction
expense of $20 in connection with the purchase and sale of the Securities. The Notes bore 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 option to repay the Notes in cash until it received the
conversion notice from Lender or repayment date. The Lender also has the option to convert the Notes into ordinary shares at any time
following the 6-month anniversary of the issuance date unless the outstanding balance was paid in full. The conversion price is $45.00
per ordinary share (after giving effects to Share Consolidation effected in September 2023. Note 1).
The Group did not elect the fair value option for the convertible note. In addition, the Note did not have any embedded
conversion option and redemption feature which shall be bifurcated and separately accounted for as a derivative under ASC 815, nor did
it contain a cash conversion feature or beneficial conversion feature. The Group accounted for two Notes as liabilities in its entirety
following ASC 470 Debt and recorded interest expenses of $493, $683 and $22 for the years ended December 31, 2023, 2022 and 2021.
During the year ended December 31, 2023, the Group issued 441,612 ordinary shares (after giving effects to Share Consolidation effected
in September 2023. Note 1), in the amount of $2,050, to settle Note A. The Lender agreed to extend the payment term of Note B to 27
months from its issuance.
As of December 31, 2023 and 2022, the balances of convertible notes were $2,392 and $4,305, respectively.
F-37
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS 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
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 instalment of $3,000 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. The preferred shares and ordinary shares underlying the warrants are not subject to stock split.
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 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 classified the Series A Preferred Shares as mezzanine equity as they were contingently redeemable upon the occurrence of the
redemption event which is outside the Group’s control. The Series A Preferred Shares was redeemable if the volume-weighted average
price is less than $3.00 on the 54-month anniversary of December 29, 2020 (the “Original Issue Date”) and expired in 2025.
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 into 72,610
ordinary shares of the Group. As of December 31, 2023 and 2022, the Group had no outstanding Series A Preferred Shares.
F-38
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS 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)
The Warrants were classified as the warrant liability on the issuance date and was subsequently remeasured at fair value at each reporting
date before the warrants are exercised or expired. The changes in fair value of warrant liabilities were charged to the consolidated
statements of operations and comprehensive loss. No warrants were exercised as of December 31, 2023. As of December 31, 2023 and
2022, the Group had outstanding warrant liabilities of $232 and $24. As of December 31, 2023 and 2022, the key factors in estimating
the fair value of warrant liabilities were as follow:
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, 2023
3.95 %
58.44 %
0 %
0.88
3 $
15 $
4.97 %
45.58 %
0 %
0.88
3 $
— $
3.94 %
57.54 %
0 %
0.88
3
—
$
$
Series A Warrant Series B Warrant Series C Warrant
As of December 31, 2022
4.12 %
55.29 %
0 %
0.29
45
24
$
$
4.53 %
54.43 %
0 %
0.29
45
$
— $
4.12 %
54.38 %
0 %
0.29
45
—
$
$
KAH issued 4,935,700 ordinary shares (after giving effects to Share Consolidation effected in September 2023. Note 1) 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.
On September 14, 2023, the Group effected a share consolidation at a ratio of one-for-fifteenth (15) ordinary shares with a par value of
US$0.00005 each in the Group’s issued and unissued share capital into one ordinary share with a par value of US$0.00075 (“the Share
Consolidation”). Immediately following the Share Consolidation, the authorized share capital of the Group to be US$50,000 divided into
1,000,000,000 ordinary shares of a par value of US$0.00005 per share and 66,666,667 preferred shares of a par value of US$0.00075 per
share. The Group believed that it was appropriate to reflect the transactions on a retroactive basis pursuant to ASC 260, Earnings Per
Share. The Group has retroactively adjusted all share and per share data for all periods presented.
As of December 31, 2023 and 2022, there were 49,806,556 and 15,216,681 ordinary shares (after giving effect to share consolidation
effected in September 2023) outstanding, respectively.
Preferred shares
Series D Preferred Shares
On March 31, 2021, KAH closed a securities purchase agreement with Moatable, Inc. (the “Holder”) a. Pursuant to the agreement, the
Holder invested $6,000 in the Group in exchange for 6,000 shares of newly designated Series D convertible preferred shares (the “Series
D Preferred Shares”) of KAH. The preferred shares and ordinary shares underlying the warrants are not subject to stock split. Major
terms of the Series D Preferred Shares are as follows:
F-39
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS 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)
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 April 8,
2021 at the option of the Holder into that number of ordinary shares.
Redemption Rights: the redemption was comprised of optional redemption and redemption on triggering events. With respect to optional
redemption, KAH may deliver a notice to the Holders of its irrevocable option 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 Group 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 in April 8, 2021.
Series F Preferred Shares
On December 28, 2022, KAG closed a securities purchase agreement with Stanley Star Group Inc. (the “Holder”). 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 Group to Stanley Star. The Group issued $50,000,000 convertible preferred shares of the Group to Stanley Star as
part of consideration of the divestment of the Disposal group (Note 4). The preferred shares and ordinary shares underlying the warrants
are not subject to stock split. 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 Group 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 was comprised of optional redemption and redemption on triggering events. With respect to optional
redemption, the Group 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 Group 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.
In November 2023, the KAH issued 7,000,000 ordinary shares to Stanley Star to settle partial conversion of the Series F Preferred
Shares.
F-40
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS 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)
Warrants
Issuance of ordinary shares and 2023 warrants
On November 7, 2023, KAH closed a securities purchase agreement with Mr. Long Li, Hermann Limited and Aslan Family Limited (the
“Investors”), pursuant to which the Group issued the Investors (i) an aggregate of 10,500,000 Class A Ordinary Shares of the Group, par
value of US$0.00075 per share, at a purchase price of US$0.87 per share (the “Purchase Shares”), and (ii) the warrants to purchase up to
10,500,000 shares of the Class A Ordinary Shares of the Group at an exercise price of US$1.00 per warrant (the “2023 Warrants”). Each
of the Investors will purchase 3,500,000 of the Purchase Shares and 3,500,000 of the Warrants. The 2023 Warrants will be exercisable
immediately commencing on the closing date of the Securities Purchase Agreement and will expire on the second anniversary of
November 7, 2023. On November 11, 2023, the Group and the Investors entered into an amendment to the Securities Purchase
Agreement pursuant to which the Purchase Price of the shares is adjusted from $0.87 per share to $1.80 per share and the exercise price
of the Warrants is adjusted from US$1.00 per share to US$1.80 per share.
Risk-free rate of return
Estimated volatility rate
Dividend yield
Spot price of underling ordinary share
Exercise price
Fair value of warrant
Issuance of ordinary shares and 2022 warrants
As of November 7, 2023
2023 Warrant
4.37 %
53.29 %
0 %
0.88
1.8
926
$
$
In January 2022, Suzhou government and its partners planned to invest RMB100 million (approximately $15.4 million) to the Group to
support the electronic vehicles business. The Group received the first instalment of RMB 30 million (approximately $4.6 million) in
February 2022. In return, the Group issued 293,769 ordinary shares (after giving effects to Share Consolidation effected in September
2023. Note 1) to Derong Group Limited (“Derong”), the entity designed by Suzhou government. In addition, the Group 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 Group’s ordinary shares at an exercise price of $15.00 per share (after giving effects to Share Consolidation
effected in September 2023. Note 1). The warrant shares were classified as equity and measured at relative fair value of $1,417 using the
Black-Scholes pricing model. The portion of the proceeds of $3,298 was allocated to the issued ordinary shares.
The Group paid issuance cost of $1,575 upon receipt of the first instalment of RMB 30 million. The issuance cost was calculated on a
fixed percentage of planned investment of RMB 100 million. Accordingly, the Group allocated 30% of the issuance cost, or $472, to the
warrant shares and ordinary shares based on their relative fair value. The issuance cost of $472 was reduced against additional paid-in
capital. The Group recorded the remaining 70% of the issuance cost, or $1,103 as general and administrative expenses in the
consolidated statements of operations and comprehensive loss due to the uncertainty of the remaining investment of RMB 70 million.
F-41
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS 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)
In November 2023, the Group issued 6,500,000 ordinary shares to redeem the warrants from Discover Flux Ltd. 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
Issuance of 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 $172.50 per 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.
F-42
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS 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)
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.
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 $118,909 and $121,656
as of December 31, 2023 and 2022, respectively.
F-43
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS KAIXIN AUTO HOLDINGS)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
19.
LOSS PER SHARE
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’s Shareholders
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,
2022
(84,706)
2023
(53,563)
$
$
2021
(196,579)
(2.34)
$
(6.35)
$
(25.77)
22,883,555
13,344,477
7,627,757
Since the Group suffered a net loss for the years ended December 31, 2023, 2022 and 2021, 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, 2023, 2022 and 2021, and 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 were
11,143, 11,143 and 11,143 ordinary shares (after giving effects to Share Consolidation effected in September 2023. Note 1), respectively,
for the years ended December 31, 2023, 2022 and 2021, as inclusion would have been anti-dilutive.
20.
SHARE-BASED COMPENSATION
Kaixin incentive plans
(a) Kaixin 2019 Plan
On April 30, 2019, KAH adopted Kaixin 2019 Plan, whereby 314,380 ordinary shares (after giving effects to Share Consolidation
effected in September 2023. Note 1) 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 Group’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 145,589
restricted shares (after giving effects to Share Consolidation effected in September 2023. Note 1). The exercise price of the options was
reduced from $25.5 per share to $0.15 per share (after giving effects to Share Consolidation effected in September 2023. Note 1).
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 13,681 (after giving effects to Share Consolidation effected in September 2023.
Note 1) replacement restricted shares granted to certain employees vested immediately and 61,183 replacement restricted shares (after
giving effects to Share Consolidation effected in September 2023. Note 1) 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-44
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS KAIXIN AUTO HOLDINGS)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
20.
SHARE-BASED COMPENSATION (CONTINUED)
(b) Kaixin 2020 Plan
On November 17, 2020, the board of directors of KAH approved the Kaixin 2020 Plan, under which, up to 333,333 ordinary shares (after
giving effects to Share Consolidation effected in September 2023. Note 1) 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. As of December 31, 2023 and 2022, the Group has granted 333,333 and 333,333 restricted shares (after giving
effects to Share Consolidation effected in September 2023. Note 1) under the Kaixin 2021 Plan.
(c) 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 1,773,067 (after giving effects to Share Consolidation effected in
September 2023. Note 1). As of December 31, 2023 and 2022, the Group has granted 1,773,067 and 1,369,000 restricted shares (after
giving effects to Share Consolidation effected in September 2023. Note 1) under the Kaixin 2021 Plan.
(d) 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 2,633,333 (after giving effects to Share Consolidation effected in
September 2023. Note 1). As of December 31, 2023 and 2022, the Group has granted 2,633,333 and 2,566,667 restricted shares (after
giving effects to Share Consolidation effected in September 2023. Note 1) under the Kaixin 2022 Plan.
(e) Kaixin 2023 Plan
On March 13, 2023, the board of directors of KAH approved the Kaixin 2023 Plan. The maximum number of ordinary shares that may
be delivered pursuant to awards granted under the Kaixin 2023 Plan is 2,633,333 (after giving effects to Share Consolidation effected in
September 2023. Note 1). As of December 31, 2023, the Group has granted 2,633,333 restricted shares (after giving effects to Share
Consolidation effected in September 2023. Note 1) under the Kaixin 2023 Plan.
F-45
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS KAIXIN AUTO HOLDINGS)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
20.
SHARE-BASED COMPENSATION (CONTINUED)
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)
Grant date
2.50-3.00 %
45%-46 %
10
0.01
—
2.12-$3.36
$
$
(1) Risk-free interest rate
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 Group estimated the expected term based on the vesting and contractual terms and employee
demographics. For the options granted to non-employees, the Group estimated the expected term as the original contractual term.
(4) Exercise price
The exercise price of the options was determined by the Group’s board of directors.
(5) Dividend yield
The dividend yield was estimated by the Group based on its expected dividend policy over the expected term of the options.
(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 Group, 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 Group’s ordinary shares traded in the Stock
Exchange.
F-46
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS KAIXIN AUTO HOLDINGS)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
20.
SHARE-BASED COMPENSATION (CONTINUED)
The estimated fair value of restricted shares granted under Kaixin 2020 Plan, Kaixin 2021 Plan, Kaxin 2022 Plan and Kaixin 2023 Plan
were the closing prices prevailing on each grant date.
A summary of the Group’s share options activities held by the Group’s employees for the year ended December 31, 2023 was as follows:
Options Granted to Employees
and Directors
Outstanding as of December 31, 2022
Forfeited
Granted
Exercised
Outstanding as of December 31, 2023
Expected to vest as of December 31, 2023
Exercisable as of December 31, 2023
Weighted
average
grant day
Fair
Value per
shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Years
Aggregate
Intrinsic
value
0.30
—
—
—
0.02
—
0.02
3.17
—
—
—
3.17
—
3.17
6.34
—
—
—
6.34
—
6.34
0.58
—
—
—
0.58
—
0.58
Number of
Shares
21,673
—
—
—
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 $0.88 of the Group’s ordinary share on December 28,2023.
As of December 31, 2023, there was no unrecognized compensation.
A summary of the nonvested restricted shares activity as of December 31, 2023 is as follows:
Number of nonvested
restricted shares
Weighted average fair value
per ordinary share
at the grant dates
Unvested as of December 31, 2022
Forfeited
Granted
Vested
Unvested as of December 31, 2023
$
$
335,356
$
— $
$
2,633,333
(2,777,393)
191,296
$
$
20.01
—
3.87
4.76
23.29
As of December 31, 2023, there was approximately $2,467 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 4.10 years. For the years ended
December 31, 2023, 2022 and 2021, the total fair value of vested shares was $11,897, $40,078 and $38,669.
F-47
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS KAIXIN AUTO HOLDINGS)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data, or otherwise noted)
20.
SHARE-BASED COMPENSATION(CONTINUED)
Total share-based compensation expense of share-based awards granted to employees and directors for the years ended December 31,
2023, 2022 and 2021 were as follows:
For the years ended December 31,
2022
2021
2023
Selling and marketing
Research and development
General and administrative
Total share-based compensation expense
21.
COMMITMENTS AND CONTINGENCIES
$
$
— $
—
11,968
11,968
$
239
44
39,027
39,310
$
$
264
55
41,270
41,589
From time to time, the Company may be subject to certain legal proceedings, claims and disputes that arise in the ordinary course of
business. Although the outcomes of these legal proceedings cannot be predicted, the Company does not believe these actions, in the
aggregate, will have a material adverse impact on its financial position, results of income or liquidity.
22.
SUBSEQUENT EVENTS
In April 2024, the Company changed its legal name from Kaixin Auto Holdings to Kaixin Holdings. The Company’s ordinary shares will
commence trading on the Nasdaq Capital Market under the new name at the market open on April 10, 2024. No action by the Company’s
shareholders is required with respect to the name change. The CUSIP number for the Company’s ordinary shares will remain unchanged.
On January 2, 2024, KAG adopted a 2024 Equity Incentive Plan (the “Plan”), as approved and authorized by the board of directors of the
Group and its compensation committee. The Group may grant options, restricted shares, restricted share units and other types of awards
to its employees, consultants and members of the board of directors pursuant to the Plan. The Plan will expire upon the tenth anniversary
of the effective date.
Under the Plan, the maximum aggregate number of the ordinary shares of the Group available for grant of awards consists of 8,000,000
Class A ordinary shares of the Group, par value of US$0.00075 per share and 1,000,000 Class B ordinary shares of the Group, par value
of US$0.00075 per share. Among the authorized Class B ordinary shares of the Group available for grant under the Plan, 550,000 Class
B ordinary shares shall be awarded to Mr. Mingjun Lin, the Chief Executive Officer of the Group, and 450,000 Class B ordinary shares
shall be awarded to Ms. Yi Yang, the Chief Financial Officer of the Group. The Group has issued an aggregate of 1,000,000 Class B
ordinary shares to Mr. Mingjun Lin and Ms. Yi Yang on January 3, 2024. According to the currently effective Fourth Amended and
Restated Memorandum and Articles of Association of the Group, Class B ordinary shares entitle the holders thereof the same rights as
Class A ordinary shares except for the voting rights and the conversion rights. Each Class A ordinary share shall entitle the holder thereof
to one (1) vote on all matters subject to vote at general meetings of the Group, and each Class B ordinary share shall entitle the holder
thereof to twenty (20) votes on all matters subject to vote at general meetings of the Group. Each Class B ordinary share is convertible
into one (1) Class A ordinary share, but Class A ordinary shares are not convertible into Class B ordinary shares under any
circumstances.
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-48
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS 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
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accrued expenses and other current liabilities
Amounts due to related parties
Convertible note
Deficits in investment in subsidiaries
Other liability
Total liabilities
Shareholders’ equity
Ordinary Shares (par value of $0.00075 per shares; 66,666,667 shares authorized, 49,806,556 and
15,891,257 shares issued as of December 31, 2023 and 2022, respectively. 49,806,556 and
15,216,681 shares outstanding as of December 31, 2023 and 2022, respectively)*
Series D convertible preferred shares (par value of $0.0001, 6,000 shares and 6,000 shares
authorized, issued and outstanding as of December 31, 2023 and 2022, respectively.)
Series F convertible preferred shares (par value of 0.00005, 43,000 shares and 50,000 shares
authorized, issued and outstanding as of December 31, 2023 and 2022, respectively)
Additional paid-in capital
Subscription receivable
Statutory reserve
Accumulated deficit
Accumulated other comprehensive income (loss)
Total shareholders’ equity
Total liabilities and shareholders’ equity
F-49
As of December 31,
2023
2022
170
$
20,665
44,574
—
65,409
4,965
31
2,392
12,438
$
$
—
19,826
171
9,830
3,726
27,964
41,691
4,257
200
4,305
—
1,614
10,376
37
1
1
399,117
(17,900)
8
(336,571)
890
45,583
65,409
$
11
1
2
312,831
—
8
(283,000)
1,470
31,315
41,691
$
$
$
$
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS 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,
2022
2021
2023
Operating expenses:
Share of loss of subsidiaries and VIEs
General and administrative expenses
Other income
Loss Before Income Tax Expenses
Income tax expenses
Net Loss
$
$
(40,402)
(13,140)
(12)
(53,554)
—
(53,554)
(78,256)
(5,897)
(465)
(84,619)
—
(84,619)
$ (196,579)
—
—
(196,579)
—
(196,579)
F-50
Table of Contents
KAIXIN HOLDINGS
(FORMERLY KNOWN AS 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 FLOWS
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Net decrease 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-51
2021
$
$
For the years ended December 31,
2022
(2,410)
—
(165)
(2,575)
2,746
171
2023
(1,016)
—
1,015
(1)
171
170
$
$
—
—
—
—
—
—
Exhibit 1.1
THE COMPANIES ACT (AS REVISED)
OF THE CAYMAN ISLANDS
COMPANY LIMITED BY SHARES
FIFTH AMENDED AND RESTATED
MEMORANDUM OF ASSOCIATION
OF
KAIXIN HOLDINGS
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
(Adopted by a Special Resolution passed on March 4, 2024)
The name of the Company is Kaixin Holdings.
The registered office of the Company shall be at Harneys Fiduciary (Cayman) Limited, 4th Floor, Harbour Place, 103 South
Church Street, P.O. Box 10240, Grand Cayman KY1-1002, Cayman Islands or at such other place as the Directors may from
time to time decide.
Subject to the following provisions of this Memorandum of Association, the objects for which the Company is established are
unrestricted and the Company shall have full power and authority to carry out any object not prohibited by the Companies Act
(As Revised) or as the same may be revised from time to time, or any other law of the Cayman Islands.
Nothing in this Memorandum of Association shall permit the Company to carry on a business for which a license is required
under the laws of the Cayman Islands unless duly licensed.
The Company shall not trade in the Cayman Islands with any person, firm or corporation except in furtherance of the business
of the Company carried on outside the Cayman Islands; provided that nothing in this clause shall be construed as to prevent the
Company effecting and concluding contracts in the Cayman Islands, and exercising in the Cayman Islands all of its powers
necessary for the carrying on of its business outside the Cayman Islands.
The liability of each Member is limited to the amount from time to time unpaid on such Member’s shares.
The authorised share capital of the Company is US$500,000 divided into (a) 660,461,733 Class A ordinary shares of a par value
of US$0.00075 each, (b) 6,000,000 Class B ordinary shares of a par value of US$0.00075 each, (c) 6,000 Series A convertible
preferred shares of a par value of US$0.0001 each, (d) 6,000 Series D convertible preferred shares of a par value of US$0.0001
each, (e) 50,005 Series F convertible preferred shares of a par value of US$0.00005 each, (f) 50,000 Series G convertible
preferred shares of a par value of US$0.00075 each, (g) 50,000 Series H convertible preferred shares of a par value of
US$0.00075 each, (h) 50,000 Series I convertible preferred shares of a par value of US$0.00075 each, and (i) 50,000 Series J
convertible preferred shares of a par value of US$0.00075 each.
The Company has the power to redeem or purchase any of its shares and to increase or reduce the said capital subject to the
provisions of the Companies Act (As Revised) and the Articles of Association and to issue any part of its capital, whether
original, redeemed or increased with or without any preference, priority or special privilege or subject to any postponement of
rights or to any conditions or restrictions and so that unless the conditions of issue shall otherwise expressly declare, every issue
of shares, whether declared to be preference or otherwise, shall be subject to the powers hereinbefore contained.
The Company has the power to register by way of continuation as a body corporate limited by shares under the laws of any
jurisdiction outside the Cayman Islands and to be deregistered in the Cayman Islands.
Capitalised terms that are not defined in this Memorandum of Association bear the same meaning as those given in the Articles
of Association of the Company.
THE COMPANIES ACT (AS REVISED)
OF THE CAYMAN ISLANDS
COMPANY LIMITED BY SHARES
FIFTH AMENDED AND RESTATED
ARTICLES OF ASSOCIATION
OF
KAIXIN HOLDINGS
(Adopted by a Special Resolution
passed on March 4, 2024)
TABLE A
The regulations contained or incorporated in Table ‘A’ in the First Schedule of the Companies Act shall not apply to the Company and
the following Articles shall comprise the Articles of Association of the Company.
INTERPRETATION
1.
In these Articles the following defined terms will have the meanings ascribed to them, if not inconsistent with the subject or context:
“Affiliate”
with respect to any specified Person, any other Person that directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control, with such specified Person; For
purposes of these Articles, except as otherwise expressly provided herein, when used with respect to
any Person, “control” means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the
terms “affiliated”, “controlling” and “controlled” have meanings correlative to the foregoing;
“applicable law”
includes the Act and Statutes, the rules and regulations of the Designated Stock Exchange, and any rules
and regulations of the United States Securities and Exchange Commission that may apply to the
Company by virtue of its trading on the Designated Stock Exchange, or of any other jurisdiction in
which the Company is offering securities;
“Articles”
these Fifth Amended and Restated Articles of Association of the Company as amended from time to
time;
“Board” and “Board of
Directors”and “Directors”
the directors of the Company for the time being, or as the case may be, the directors assembled as a
board or as a committee thereof;
“Business Day”
a day (excluding Saturdays or Sundays), on which banks in Hong Kong, Beijing, Shanghai and New
York are open for general banking business throughout their normal business hours;
“capital”
the share capital from time to time of the Company;
“Chairman”
the chairman of the Board of Directors;
“Change of Control
Event”
with respect to a Person, the occurrence of any of the following, whether in a single transaction or in a
series of related transactions: (A) an amalgamation, arrangement, merger, consolidation, scheme of
arrangement or similar transaction (i)in which such Person is not the surviving entity, except for a
transaction the principal purpose of which is to change the jurisdiction in which such Person is
incorporated or (ii)as result of which the holders of the voting securities of such Person do not hold
more than 50% of the combined voting power of the voting securities of the surviving entity, or (B)sale,
transfer or other disposition of all or substantially all of the assets of such Person (including without
limitation in a liquidation, dissolution or similar proceeding);
“Class A Ordinary Shares” means Ordinary Shares of a par value of US$0.00075 each in the capital of the Company, designated
as Class A Ordinary Shares and having the rights, benefits and privileges provided for in these
Articles;
“Class B Ordinary Shares” means Ordinary Shares of a par value of US$0.00075 each in the capital of the Company, designated
as Class B Ordinary Shares and having the rights, benefits and privileges provided for in these
Articles;
“clearing house”
a clearing house recognised by the laws of the jurisdiction in which the shares of the Company (or
depositary receipts therefor) are listed or quoted on a stock exchange or interdealer quotation system in
such jurisdiction;
“Commission”
Securities and Exchange Commission of the United States of America or any other federal agency for
the time being administering the Securities Act;
“Companies Act” and
“Act”
the Companies Act (As Revised) of the Cayman Islands and any statutory amendment or re-enactment
thereof. Where any provision of the Companies Act is referred to, the reference is to that provision as
amended by any law for the time being in force;
“Company”
Kaixin Holdings, a Cayman Islands exempted company limited by shares;
“Company’s website”
the website of the Company, the address or domain name of which has been notified to Members;
“debenture” and
“debenture holder”
a debenture and debenture holder(s)respectively, as those terms are defined in the rules of the
Designated Stock Exchange;
“Designated Stock
Exchange”
the Nasdaq Stock Market or any other stock exchange on which the Company’s Ordinary Shares are
listed for trading;
“Dividend”
“electronic”
“electronic
communication”
shall include bonus issues of shares or other securities of the Company and distributions permitted by
the Act to be categorised as dividends;
the meaning given to it in the Electronic Transactions Act (As Revised) of the Cayman Islands and any
amendment thereto or re-enactments thereof for the time being in force;
electronic posting to the Company’s Website, transmission to any number, address or internet website
or other electronic delivery methods as otherwise decided and approved by not less than two-thirds of
the vote of the Board;
“month”
a calendar month;
“Ordinary Resolution”
a resolution:
(a) passed by a simple majority of votes cast by such Members as, being entitled to do so, vote in
person or, in the case of any Member being an organisation, by its duly authorised representative or,
where proxies are allowed, by proxy at a general meeting of the Company; or
(b) approved in writing by all of the Members entitled to vote at a general meeting of the Company in
one or more instruments each signed by one or more of the Members and the effective date of the
resolution so adopted shall be the date on which the instrument, or the last of such instruments if more
than one, is executed;
“Ordinary Share”
means a Class A Ordinary Share or a Class B Ordinary Share;
“ordinary shares”
the Ordinary Shares, collectively or any of them;
“paid up”
“Person”
paid up as to the par value and any premium payable in respect of the issue of any shares and includes
credited as paid up;
any natural person, firm, company, joint venture, partnership, corporation, association or other entity
(whether or not having a separate legal personality) or any of them as the context so requires;
“Register of Members”
the register kept by the Company in accordance with the Companies Act;
“Seal”
the Common Seal of the Company (if adopted) including any facsimile thereof;
“secretary”
the person appointed as company secretary by the Board from time to time;
“Securities Act”
the Securities Act of 1933 of the United States of America, as amended, or any similar federal statute
and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the
time;
“Securities Exchange Act” the Securities Exchange Act of 1934 of the United States of America, as amended, or any similar
federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in
effect at the time;
“Series A Preferred
Shares”
means Series A convertible preferred shares of a par value of US$0.0001 each in the capital of the
Company and having the rights, benefits and privileges provided for in a certificate of designation
authorized by the Board of Directors;
“Series D Preferred
Shares”
means Series D convertible preferred shares of a par value of US$0.0001 each in the capital of the
Company and having the rights, benefits and privileges provided for in a certificate of designation
authorized by the Board of Directors;
“Series F Preferred
Shares”
means Series F convertible preferred shares of a par value of US$0.00005 each in the capital of the
Company and having the rights, benefits and privileges provided for in a certificate of designation
authorized by the Board of Directors;
“Series G Preferred
Shares”
means Series G convertible preferred shares of a par value of US$0.00075 each in the capital of the
Company and having the rights, benefits and privileges provided for in a certificate of designation
authorized by the Board of Directors;
“Series H Preferred
Shares”
means Series H convertible preferred shares of a par value of US$0.00075 each in the capital of the
Company and having the rights, benefits and privileges provided for in a certificate of designation
authorized by the Board of Directors;
“Series I Preferred
Shares”
means Series I convertible preferred shares of a par value of US$0.00075 each in the capital of the
Company and having the rights, benefits and privileges provided for in a certificate of designation
authorized by the Board of Directors;
“Series J Preferred
Shares”
means Series J convertible preferred shares of a par value of US$0.00075 each in the capital of the
Company and having the rights, benefits and privileges provided for in a certificate of designation
authorized by the Board of Directors;
“share”
“signed”
any share in the capital of the Company, without regard to class and includes a fraction of a share;
includes a signature or representation of a signature affixed by mechanical means or an electronic
symbol or process attached to or logically associated with an electronic communication and executed or
adopted by a person with the intent to sign the electronic communication;
“Special Resolution”
a resolution passed at a general meeting (or, if so specified, a meeting of Members holding a class of
shares) of the Company by a majority of not less than two-thirds (2/3) of the votes cast or a written
resolution passed by unanimous consent of all Members entitled to vote;
“Statutes”
“Subsidiaries”
the Companies Act and every other law and regulation of the legislature of the Cayman Islands for the
time being in force concerning companies and affecting the Company, its Memorandum of Association
and/or these Articles;
with respect to any Person, any or all corporations, partnerships, limited liability companies, joint
ventures, associations and other entities controlled by such person directly or indirectly through one or
more intermediaries;
“Transfer”
any sale, transfer or other disposition, whether or not for value;
“United States Dollars,”
dollars, the legal currency of the United States of America; and
or “US$”
“year”
a calendar year.
2.
In these Articles, save where the context requires otherwise:
(a)
(b)
(c)
(d)
(e)
(f)
words importing the singular number shall include the plural number and vice versa;
words importing the masculine gender only shall include the feminine gender;
words importing persons only shall include companies or associations or bodies of persons, whether corporate or not;
“may” shall be construed as permissive and “shall” shall be construed as imperative;
references to a statutory enactment shall include reference to any amendment or re-enactment thereof for the time being
in force;
any phrase introduced by the terms “including”, “include”, “in particular” or any similar expression shall be construed
as illustrative and shall not limit the sense of the words preceding those terms; and
(g)
Section 8 and 19(3) of the Electronic Transactions Act (As Revised) shall not apply.
Subject to the last two preceding Articles, any words defined in the Companies Act shall, if not inconsistent with the subject or
context, bear the same meaning in these Articles.
Subject to the Statutes, the business of the Company may be conducted as the Directors see fit.
PRELIMINARY
The registered office of the Company shall be at such address in the Cayman Islands as the Directors shall from time to time
determine. The Company may in addition establish and maintain such other offices and places of business and agencies in such
places as the Directors may from time to time determine.
ISSUE OF SHARES
Subject to these Articles, all Shares for the time being unissued shall be under the control of the Directors who may, in their
absolute discretion and without the approval of the Members, cause the Company to:
(a)
issue, allot and dispose of Shares (including, without limitation, preferred shares) (whether in certificated form or non-
certificated form) to such Persons, in such manner, on such terms and having such rights and being subject to such
restrictions as they may from time to time determine;
3.
4.
5.
6.
(b)
grant rights over Shares or other securities to be issued in one or more classes or series as they deem necessary or
appropriate and determine the designations, powers, preferences, privileges and other rights attaching to such Shares or
securities, including dividend rights, voting rights, conversion rights, terms of redemption and liquidation preferences,
any or all of which may be greater than the powers, preferences, privileges and rights associated with the then issued
and outstanding Shares, at such times and on such other terms as they think proper; and
(c)
grant options with respect to Shares and issue warrants or similar instruments with respect thereto.
7.
The Directors may provide, out of the unissued shares, for series of preferred shares. Before any preferred shares of any such
series are issued, the Directors shall fix, by resolution or resolutions, the following provisions of the preferred shares thereof:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
the designation of such series, the number of preferred shares to constitute such series and the subscription price thereof
if different from the par value thereof;
whether the preferred shares of such series shall have voting rights, in addition to any voting rights provided by law,
and, if so, the terms of such voting rights, which may be general or limited;
the dividends, if any, payable on such series, whether any such dividends shall be cumulative, and, if so, from what
dates, the conditions and dates upon which such dividends shall be payable, the preference or relation which such
dividends shall bear to the dividends payable on any shares of any other class or any other series of preferred shares;
whether the preferred shares of such series shall be subject to redemption by the Company, and, if so, the times, prices
and other conditions of such redemption;
the amount or amounts payable upon preferred shares of such series upon, and the rights of the holders of such series in,
a voluntary or involuntary liquidation, dissolution or winding up, or upon any distribution of the assets, of the
Company;
whether the preferred shares of such series shall be subject to the operation of a retirement or sinking fund and, if so,
the extent to and manner in which any such retirement or sinking fund shall be applied to the purchase or redemption of
the preferred shares of such series for retirement or other corporate purposes and the terms and provisions relative to the
operation thereof;
whether the preferred shares of such series shall be convertible into, or exchangeable for, shares of any other class or
any other series of preferred shares or any other securities and, if so, the price or prices or the rate or rates of conversion
or exchange and the method, if any, of adjusting the same, and any other terms and conditions of conversion or
exchange;
the limitations and restrictions, if any, to be effective while any preferred shares of such series are outstanding upon the
payment of dividends or the making of other distributions on, and upon the purchase, redemption or other acquisition
by the Company of, the existing Shares or shares of any other class of shares or any other series of preferred shares;
the conditions or restrictions, if any, upon the creation of indebtedness of the Company or upon the issue of any
additional shares, including additional shares of such series or of any other class of shares or any other series of
preferred shares; and
any other powers, preferences and relative, participating, optional and other special rights, and any qualifications,
limitations and restrictions thereof.
Without limiting the foregoing and subject to the Articles, the voting powers of any series of preferred shares may include the
right, in the circumstances specified in the resolution or resolutions providing for the issuance of such preferred shares, to elect
one or more Directors who shall serve for such term and have such voting powers as shall be stated in the resolution or
resolutions providing for the issuance of such preferred shares.
8.
The powers, preferences and relative, participating, optional and other special rights of each series of preferred shares, and the
qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding.
All shares of any one series of preferred shares shall be identical in all respects with all other shares of such series, except that
shares of any one series issued at different times may differ as to the dates from which dividends thereon shall be cumulative.
RIGHTS AND RESTRICTIONS ATTACHING TO ORDINARY SHARES
9.
Save and except for voting rights and conversion rights as set out in this Article 9, the Class A Ordinary Shares and the Class B
Ordinary Shares shall have the same rights, including economic and income rights, in all circumstances. The rights and
restrictions attaching to the ordinary shares are as follows:
(a)
Income
Holders of Ordinary Shares shall be entitled to such dividends as the Directors may in their absolute discretion lawfully declare
from time to time.
(b)
Capital
Holders of Ordinary Shares shall be entitled to a return of capital on liquidation, dissolution or winding-up of the Company
(other than on a conversion, redemption or purchase of shares, or an equity financing or series of financings that do not
constitute the sale of all or substantially all of the shares of the Company).
(c)
Change of Control Event
Each Ordinary Share shall have the same rights upon a Change of Control Event with respect to their rights and interests in the
Company, including without limitation receiving the same consideration on a per share basis.
(d)
Attendance at General Meetings and Voting
Holders of ordinary shares have the right to receive notice of, attend, speak and vote at general meetings of the Company.
Holders of Ordinary Shares shall at all times vote together as one class on all matters submitted to a vote by Members, and,
where a poll is requested, each Class A Ordinary Share shall entitle the holder thereof to one (1) vote on all matters subject to
vote at general meetings of the Company, and each Class B Ordinary Share shall entitle the holder thereof to two hundred and
fifty (250) votes on all matters subject to vote at general meetings of the Company.
(e)
Conversion
(i)
(ii)
Each Class B Ordinary Share is convertible into one (1) Class A Ordinary Share at any time at the option of the
holder thereof. The right to convert shall be exercisable by the holder of the Class B Ordinary Share delivering
a written notice to the Company that such holder elects to convert a specified number of Class B Ordinary
Shares into Class A Ordinary Shares.
Any conversion of Class B Ordinary Shares into Class A Ordinary Shares pursuant to these Articles shall be
effected by means of the re-designation and re-classification of each relevant Class B Ordinary Share as a Class
A Ordinary Share. Such conversion shall become effective forthwith upon entries being made in the Register of
Members to record the re-designation and re-classification of the relevant Class B Ordinary Shares as Class A
Ordinary Shares.
(iii)
Class A Ordinary Shares are not convertible into Class B Ordinary Shares under any circumstances.
10.
11.
12.
13.
14.
15.
16.
17.
REGISTER OF MEMBERS AND SHARE CERTIFICATES
The Company shall maintain a Register of Members and a Member shall only be entitled to a share certificate if the Directors
resolve that share certificates shall be issued. Share certificates (if any) shall specify the share or shares held by that person and
the amount paid up thereon, provided that in respect of a share or shares held jointly by several persons the Company shall not
be bound to issue more than one certificate, and delivery of a certificate for a share to one of several joint holders shall be
sufficient delivery to all. All certificates for shares shall be delivered personally or sent through the post addressed to the
Member entitled thereto at the Member’s registered address as appearing in the register.
All share certificates shall bear legends required under the applicable laws, including the Securities Act.
Any two or more certificates representing shares of any one class held by any Member may at the Member’s request be
cancelled and a single new certificate for such shares issued in lieu on payment (if the Directors shall so require) of US$1.00 or
such smaller sum as the Directors shall determine.
If a share certificate shall be damaged or defaced or alleged to have been lost, stolen or destroyed, a new certificate representing
the same shares may be issued to the relevant Member upon request subject to delivery up of the old certificate or (if alleged to
have been lost, stolen or destroyed) compliance with such conditions as to evidence and indemnity and the payment of out-of-
pocket expenses of the Company in connection with the request as the Directors may think fit.
In the event that shares are held jointly by several persons, any request may be made by any one of the joint holders and if so
made shall be binding on all of the joint holders.
TRANSFER OF SHARES
Shares of the Company are transferable; provided that the Board may, in its sole discretion, decline to register any transfer of
any share which is not fully paid up or on which the Company has a lien.
(a)
The Directors may also decline to register any transfer of any share unless:
(i)
the instrument of transfer is lodged with the 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;
(ii)
the shares to be transferred are free of any lien in favor of the Company;
(iii)
the instrument of transfer is in respect of only one Class of Shares;
(iv)
the instrument of transfer is properly stamped, if required; and
(v)
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 Designated Stock Exchange may determine to be payable,
or such lesser sum as the Board may from time to time require, is paid to the Company in respect thereof.
(b)
If the 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 the Board may from time to time determine.
The instrument of transfer of any share shall be in writing and executed by or on behalf of the transferor (and if the Directors so
require, signed by the transferee). Without prejudice to the last preceding Article, the Board may also resolve, either generally or
in any particular case, upon request by either the transferor or transferee, to accept mechanically executed transfers. The
transferor shall be deemed to remain a holder of the share until the name of the transferee is entered in the Register of Members.
18.
All instruments of transfer registered shall be retained by the Company.
19.
Subject to the provisions of the Statutes and these Articles, the Company may:
REDEMPTION AND PURCHASE OF OWN SHARES
(a)
(b)
(c)
issue shares on terms that they are to be redeemed or are liable to be redeemed at the option of the Company or the
Member and the redemption of shares shall be effected on such terms and in such manner as the Board may, before the
issue of such shares, determine;
purchase its own shares (including any redeemable shares) on such terms and in such manner as have been approved by
the Board or by the Members by Ordinary Resolution (provided that no such purchase may be made contrary to the
terms or manner recommended by the Board), or are otherwise authorised by these Articles; and
the Company may make a payment in respect of the redemption or purchase of its own shares in any manner permitted
by the Statutes, including out of capital.
20.
Purchase of shares listed on the Designated Stock Exchange: the Company is authorised to purchase any share listed on the
Designated Stock Exchange in accordance with the following manner of purchase:
(a)
(b)
the maximum number of shares that may be repurchased shall be equal to the number of issued and outstanding shares
less one share; and
the repurchase shall be at such time, at such price and on such other terms as determined and agreed by the Board in
their sole discretion; provided, however, that:
(i)
(ii)
such repurchase transactions shall be in accordance with the relevant code, rules and regulations applicable to
the listing of the shares on the Designated Stock Exchange; and
at the time of the repurchase, the Company is able to pay its debts as they fall due in the ordinary course of its
business.
20A.
Purchase of shares not listed on the Designated Stock Exchange: the Company is authorised to purchase any shares not listed on
the Designated Stock Exchange in accordance with the following manner of purchase:
(a)
(b)
(c)
(d)
the Company shall serve a repurchase notice in a form approved by the Board on the Member from whom the shares are
to be repurchased at least two Business Days prior to the date specified in the notice as being the repurchase date;
the price for the shares being repurchased shall be such price agreed between the Board and the applicable Member;
the date of repurchase shall be the date specified in the repurchase notice; and
the repurchase shall be on such other terms as specified in the repurchase notice as determined and agreed by the Board
and the applicable Member in their sole discretion.
21.
22.
The redemption or purchase of any share shall not be deemed to give rise to the redemption or purchase of any other share and
the Company is not obligated to purchase any other share other than as may be required pursuant to applicable law and any
other contractual obligations of the Company.
The holder of the shares being purchased shall be bound to deliver up to the Company the certificate(s) (if any) thereof for
cancellation and thereupon the Company shall pay to him the purchase or redemption monies or consideration in respect
thereof.
23.
24.
25.
26.
27.
28.
29.
30.
31.
VARIATION OF RIGHTS ATTACHING TO SHARES
If at any time the 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 these Articles, 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 provisions of these Articles relating to general meetings shall apply to every such general meeting of the holders of one
class or series of shares except the following:
(a)
(b)
separate general meetings of the holders of a class or series of shares may be called only by (i) the Chairman of the
Board, or (ii) a majority of the entire Board of Directors (unless otherwise specifically provided by the terms of issue of
the shares of such class or series). Nothing in this Article 24 shall be deemed to give any Member or Members the right
to call a class or series meeting.
the necessary quorum shall be one or more persons holding or representing by proxy at least one-third of the issued
shares of the class or series and any holder of shares of the class or series present in person or by proxy may demand a
poll.
The rights conferred upon the holders of the shares of any class or series issued with 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.
COMMISSION ON SALE OF SHARES
The Company may in so far as the Statutes from time to time permit make any payment of a commission to any person in
consideration of his subscribing or agreeing to subscribe whether absolutely or conditionally for any shares of the Company.
Such commissions may be satisfied by the payment of cash or the lodgement of fully or partly paid-up shares or partly in one
way and partly in the other. The Company may also on any issue of shares pay such brokerage fees as may be lawful.
NON-RECOGNITION OF TRUSTS
No person shall be recognised by the Company as holding any share upon any trust and the Company shall not be bound by or
be compelled in any way to recognise (even when having notice thereof) any equitable, contingent, future, or partial interest in
any share, or any interest in any fractional part of a share, or (except only as is otherwise provided by these Articles or the
Statutes) any other rights in respect of any share except an absolute right to the entirety thereof vested in the registered holder.
LIEN ON SHARES
The Company shall have a first and paramount lien and charge on all shares (whether fully paid-up or not) registered in the
name of a Member (whether solely or jointly with others) for all debts, liabilities or engagements to or with the Company
(whether presently payable or not) by such Member or his estate, either alone or jointly with any other person, whether a
Member or not, but the Directors may at any time declare any share to be wholly or in part exempt from the provisions of this
Article. The registration of a transfer of any such share shall operate as a waiver of the Company’s lien (if any) thereon. The
Company’s lien (if any) on a share shall extend to all dividends or other monies payable in respect thereof.
The Company may sell, in such manner as the Directors think fit, any shares on which the Company has a lien, but no sale shall
be made unless some sum in respect of which the lien exists is presently payable nor until the expiration of 14 calendar days
after a notice in writing, stating and demanding payment of such part of the amount in respect of which the lien exists as is
presently payable, has been given to the registered holder for the time being of the share, or the persons entitled thereto by
reason of his death or bankruptcy.
For giving effect to any such sale the Directors may authorise some person to transfer the shares sold to the purchaser thereof.
The purchaser shall be registered as the holder of the shares comprised in any such transfer and he shall not be bound to see to
the application of the purchase money, nor shall his title to the shares be affected by any irregularity or invalidity in the
proceedings in reference to the sale.
The proceeds of the sale shall be received by the Company and applied in payment of such part of the amount in respect of
which the lien exists as is presently payable, and the residue shall (subject to a like lien for sums not presently payable as
existed upon the shares prior to the sale) be paid to the person entitled to the shares at the date of the sale.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
CALLS ON SHARES
Subject to the terms of allotment, the Directors may from time to time make calls upon the Members in respect of any money
unpaid on their shares, and each Member shall (subject to receiving at least 14 calendar days’ notice specifying the time or
times of payment) pay to the Company at the time or times so specified the amount called on his shares. A call shall be deemed
to have been made at the time when the resolution of the Directors authorising such call was passed.
The joint holders of a share shall be jointly and severally liable to pay calls in respect thereof.
The provisions of these Articles as to the liability of joint holders and as to payment of interest shall apply in the case of non-
payment of any sum which, by the terms of issue of a share, becomes payable at a fixed time, whether on account of the amount
of the share, or by way of premium, as if the same had become payable by virtue of a call duly made and notified.
The Directors may make arrangements on the issue of shares for a difference between the Members, or the particular shares, in
the amount of calls to be paid and in the times of payment.
The Directors may, if they think fit, receive from any Member willing to advance the same all or any part of the moneys
uncalled and unpaid upon any shares held by him as may be agreed upon between the Member paying the sum in advance and
the Directors. No such sum paid in advance of calls shall entitle the Member paying such sum to any portion of a dividend
declared in respect of any period prior to the date upon which such sum would, but for such payment, become presently
payable.
FORFEITURE OF SHARES
If a Member fails to pay any call or instalment of a call on the day appointed for payment thereof, the Directors may, at any time
thereafter during such time as any part of such call or instalment remains unpaid, serve a notice on him requiring payment of
such much of the call or instalment as is unpaid.
The notice shall name a further day (not earlier than the expiration of 14 calendar days from the date of the notice) on or before
which the payment required by the notice is to be made, and shall state that in the event of non-payment at or before the time
appointed the shares in respect of which the call was made will be liable to be forfeited.
If the requirements of any such notice as aforesaid are not complied with, any share in respect of which the notice has been
given may at any time thereafter, before the payment required by notice has been made, be forfeited by a resolution of the
Directors to that effect.
A forfeited share may be sold or otherwise disposed of on such terms and in such manner as the Directors think fit, and at any
time before a sale or disposition the forfeiture may be cancelled on such terms as the Directors think fit.
A person whose shares have been forfeited shall cease to be a Member in respect of the forfeited shares, but shall,
notwithstanding, remain liable to pay to the Company all monies which at the date of forfeiture were payable by him to the
Company in respect of the shares, but his liability shall cease if and when the Company receives payment in full of the fully
paid up amount of the shares.
A certificate in writing under the hand of a Director of the Company, which certifies that a share has been forfeited on a date
stated in the certificate, shall be conclusive evidence of the facts therein stated as against all persons claiming to be entitled to
the share. The Company may receive the consideration, if any, given for the share or any sale or disposition thereof and may
execute a transfer of the share in favour of the person to whom the share is sold or disposed of and he shall thereupon be
registered as the holder of the share, and shall not be bound to see to the application of the purchase money, if any, nor shall his
title to the share be affected by any irregularity or invalidity in the proceedings in reference to the forfeiture, sale or disposal of
the share.
The provisions of these Articles as to forfeiture shall apply in the case of non-payment of any sum which by the terms of issue
of a share becomes due and payable, whether on account of the amount of the share, or by way of premium, as if the same had
been payable by virtue of a call duly made and notified.
TRANSMISSION OF SHARES
44.
45.
46.
The legal personal representative of a deceased sole holder of a share shall be the only person recognised by the Company as
having any title to the share. In the case of a share registered in the name of two or more holders, the survivors or survivor, or
the legal personal representatives of the deceased survivor, shall be the only person recognised by the Company as having any
title to the share.
Any person becoming entitled to a share in consequence of the death or bankruptcy of a Member shall upon such evidence
being produced as may from time to time be properly required by the Directors, have the right either to be registered as a
Member in respect of the share or, instead of being registered himself, to make such transfer of the share as the deceased or
bankrupt person could have made. If the person so becoming entitled shall elect to be registered himself as holder he shall
deliver or send to the Company a notice in writing signed by him stating that he so elects.
A person becoming entitled to a share by reason of the death or bankruptcy or winding-up of the holder shall be entitled to the
same dividends and other advantages to which he would be entitled if he were the registered holder of the share, except that he
shall not, before being registered as a Member in respect of the share, be entitled in respect of it to exercise any right conferred
by membership in relation to meetings of the Company, provided however, that the Directors may at any time give notice
requiring any such person to elect either to be registered himself or to transfer the share, and if the notice is not complied with
within 90 calendar days, the Directors may thereafter withhold payment of all dividends, bonuses or other monies payable in
respect of the share until the requirements of the notice have been complied with.
47.
Subject to Article 9(d), the Company may by Ordinary Resolution:
ALTERATION OF CAPITAL
(a)
(b)
(c)
increase its share capital by such sum, to be divided into shares of such classes and amount, as the resolution shall
prescribe;
consolidate and divide all or any of its share capital into shares of larger par value than its existing shares;
sub-divide its existing shares or any of them into shares of a smaller par value than is fixed by the Company’s
Memorandum of Association (subject, nevertheless, to the Act) provided that in the subdivision the proportion between
the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in case of the share
from which the reduced share is derived; and
(d)
cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any
person and diminish the amount of its share capital by the amount of the shares so cancelled.
48.
49.
Subject to the provisions of the Statutes and these Articles as regards to the matters to be dealt with by Ordinary Resolution, the
Company may by Special Resolution reduce its share capital and any capital redemption reserve in any manner authorised by
law.
All new shares created hereunder shall be subject to the same provisions with reference to the payment of calls, liens, transfer,
transmission, forfeiture and otherwise as the shares in the original share capital.
50.
51.
52.
53.
54.
55.
CLOSING REGISTER OF MEMBERS AND FIXING RECORD DATE
For the purpose of determining those Members that are entitled to receive notice of, attend or vote at any meeting of Members
or any adjournment thereof, or those Members that are entitled to receive payment of any dividend, or in order to make a
determination as to who is a Member for any other purpose, the Directors may provide that the Register of Members shall be
closed for transfers for a stated period but not to exceed in any case 30 calendar days. If the Register of Members shall be so
closed for the purpose of determining those Members that are entitled to receive notice of, attend or vote at a meeting of
Members such register shall be so closed for at least 10 calendar days immediately preceding such meeting and the record date
for such determination shall be the date of the closure of the Register of Members.
In lieu of or apart from closing the Register of Members, the Directors may fix in advance a date as the record date for any such
determination of those Members that are entitled to receive notice of, attend or vote at a meeting of the Members and for the
purpose of determining those Members that are entitled to receive payment of any dividend, the Directors may, at or within 30
calendar days prior to the date of declaration of such dividend fix a subsequent date as the record date of such determination.
If the Register of Members is not so closed and no record date is fixed for the determination of those Members entitled to
receive notice of, attend or vote at a meeting of Members or those Members that are entitled to receive payment of a dividend,
the date on which notice of the meeting is posted or the date on which the resolution of the Directors declaring such dividend is
adopted, as the case may be, shall be the record date for such determination of Members. When a determination of those
Members that are entitled to receive notice of, attend or vote at a meeting of Members has been made as provided in this Article,
such determination shall apply to any adjournment thereof.
GENERAL MEETINGS
All general meetings of the Company other than annual general meetings shall be called extraordinary general meetings.
The Company may hold an annual general meeting and shall specify the meeting as such in the notices calling it. The annual
general meeting shall be held at such time and place as the Directors shall determine.
(a)
(b)
At these meetings the report of the Directors (if any) shall be presented.
If the Company is exempted as defined in the Statute, it may but shall not be obliged to hold an annual general meeting.
Any Director may, and the Directors shall on the requisition of Members of the Company holding as at the date of the deposit of
the requisition not less than one-fifth of such of the aggregate voting power of the Company as at the date of the deposit carries
the right of voting at general meetings of the Company, proceed to convene a general meeting of the Company.
(a)
(b)
(c)
(d)
The requisition must state the objects of the meeting and must be signed by the requisitionists and be deposited at the
registered office of the Company and may consist of several documents in like form each signed by one or more
requisitionists.
If there are no Directors as at the date of deposit of the Members' requisition or if the Directors do not within twenty-
one (21) days from the date of the deposit of the requisition duly proceed to convene a general meeting, the
requisitionists, or any of them representing more than one-half of the total voting rights of all of them, may themselves
convene a general meeting, but any meeting so convened shall not be held after the expiration of three months after the
expiration of the said twenty-one (21) days.
A general meeting convened as aforesaid by requisitionists shall be convened in the same manner as nearly as possible
as that in which general meetings are to be convened by Directors.
Any resolutions passed on the extraordinary general meetings convened pursuant to sub-Article (a) above should be by
Special Resolutions.
NOTICE OF GENERAL MEETINGS
56.
At least seven calendar days’ notice shall be given for any general meeting. Every notice shall be exclusive of the day on which
it is given or deemed to be given and of the day for which it is given and shall specify the place, the day and the hour of the
meeting and the general nature of the business and shall be given in the manner hereinafter mentioned or in such other manner if
any as may be prescribed by the Company, provided that a general meeting of the Company shall, whether or not the notice
specified in this Article has been given and whether or not the provisions of these Articles regarding general meetings have been
complied with, be deemed to have been duly convened if it is so agreed:
(a)
(b)
in the case of an annual general meeting by all the Members (or their proxies) entitled to attend and vote thereat; and
in the case of an extraordinary general meeting by a majority in number of the Members (or their proxies) having a right
to attend and vote at the meeting, being a majority together holding not less than ninety five percent in par value of the
shares giving that right.
56A.
The accidental omission to give notice of a meeting to or the non-receipt of a notice of a meeting by any Member shall not
invalidate the proceedings at any meeting.
57.
58.
59.
60.
61.
62.
63.
PROCEEDINGS AT GENERAL MEETINGS
No business except for the appointment of a chairman for the meeting shall be transacted at any general meeting unless a
quorum of Members is present at the time when the meeting proceeds to business. At least one Member, and not less than an
aggregate of one-third of all voting power of the Company’s share capital in issue, shall be present in person or by proxy and
entitled to vote shall be a quorum for all purposes.
If determined by the Board of Directors and specified in the notice of a general meeting, a person may participate in a general
meeting by conference telephone or other communications equipment by means of which all the persons participating in the
meeting can communicate with each other. Participation by a person in a general meeting in this manner is treated as presence in
person at that meeting.
If within half an hour from the time appointed for the meeting a quorum is not present, the meeting shall stand adjourned to the
same day in the next week, at the same time and place, and if at the adjourned meeting a quorum is not present within half an
hour from the time appointed for the meeting, the meeting shall be dissolved.
The Chairman shall preside as chairman at every general meeting of the Company, except as provided in Article 61 below.
If there is no such Chairman, or if at any meeting the Chairman is not present within fifteen minutes after the time appointed for
holding the meeting or is unwilling to act as chairman, the Directors present shall elect one of their members to be the chairman
of the meeting, or, if no Director is so elected and willing to be the chairman of the meeting, the Members present shall choose a
chairman of the meeting.
The chairman of a general meeting may with the consent of any meeting at which a quorum is present (and shall if so directed
by the meeting) adjourn a meeting from time to time and from place to place, but no business shall be transacted at any
adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. When a
meeting is adjourned for 10 calendar days or more, not less than 7 Business Days’ notice of the adjourned meeting shall be
given as in the case of an original meeting. Save as aforesaid it shall not be necessary to give any notice of an adjournment or of
the business to be transacted at an adjourned meeting.
Subject to Article 9(d), at any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands,
unless a poll is (before or on the declaration of the result of the show of hands) demanded by one or more Members present in
person or by proxy entitled to vote and who together hold not less than one tenth of the paid up voting share capital of the
Company or by the chairman of the meeting, and unless a poll is so demanded, a declaration by the chairman that a resolution
has, on a show of hands, been carried, or carried unanimously, or by a particular majority, or lost, and an entry to that effect in
the book of the proceedings of the Company, shall be conclusive evidence of the fact, without proof of the number or proportion
of the votes recorded in favour of, or against, that resolution.
64.
65.
66.
66A.
67.
68.
69.
70.
71.
72.
73.
If a poll is duly demanded it shall be taken in such manner as the chairman directs, and the result of the poll shall be deemed to
be the resolution of the meeting at which the poll was demanded. The demand for a poll may be withdrawn.
In the case of an equality of votes, whether on a show of hands or on a poll, the chairman of the meeting at which the show of
hands takes place or at which the poll is demanded, shall be entitled to a second or casting vote.
A poll demanded on the election of a chairman or on a question of adjournment shall be taken forthwith. A poll demanded on
any other question shall be taken at such time as the chairman of the meeting directs.
A resolution (including a Special Resolution) in writing (in one or more counterparts) signed by or on behalf of all of the
Members for the time being entitled to receive notice of and to attend and vote at general meetings (or, in the case of
corporations or other non-natural persons, signed by their duly authorised representatives) shall be as valid and effective as if
the resolution had been passed at a general meeting of the Company duly convened and held.
VOTES OF MEMBERS
In the case of joint holders the vote of the senior who tenders a vote whether in person or by proxy shall be accepted to the
exclusion of the votes of the joint holders and for this purpose seniority shall be determined by the order in which the names
stand in the Register of Members.
A Member of unsound mind, or in respect of whom an order has been made by any court having jurisdiction in lunacy, may
vote, whether on a show of hands or on a poll, by his committee, or other person in the nature of a committee appointed by that
court, and any such committee or other person, may on a poll, vote by proxy.
No Member shall be entitled to vote at any general meeting unless all calls or other sums presently payable by him in respect of
shares in the Company have been paid.
On a poll, votes may be given either personally or by proxy.
The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in
writing or, if the appointor is a corporation, either under seal or under the hand of an officer or attorney duly authorised. A
proxy need not be a Member of the Company.
An instrument appointing a proxy may be in any usual or common form or such other form as the Directors may approve. The
instrument appointing a proxy shall be deemed to confer authority to demand or join in demanding a poll.
The instrument appointing a proxy shall be deposited at the registered office or at such other place as is specified for that
purpose in the notice convening the meeting, or in any instrument of proxy sent out by the Company:
(a)
(b)
(c)
not less than 48 hours before the time for holding the meeting or adjourned meeting at which the person named in the
instrument proposes to vote; or
in the case of a poll taken more than 48 hours after it is demanded, be deposited as aforesaid after the poll has been
demanded and not less than 24 hours before the time appointed for the taking of the poll; or
where the poll is not taken forthwith but is taken not more than 48 hours after it was demanded be delivered at the
meeting at which the poll was demanded to the chairman or to the secretary or to any Director;
provided that the Directors may in the notice convening the meeting, or in an instrument of proxy sent out by the Company,
direct that the instrument appointing a proxy may be deposited (no later than the time for holding the meeting or adjourned
meeting) at the registered office or at such other place as is specified for that purpose in the notice convening the meeting, or in
any instrument of proxy sent out by the Company. The Chairman may in any event at his discretion direct that an instrument of
proxy shall be deemed to have been duly deposited. An instrument of proxy that is not deposited in the manner permitted shall
be invalid.
74.
Votes given in accordance with the terms of an instrument of proxy shall be valid notwithstanding the previous death or insanity
of the principal or revocation of the proxy or of the authority under which the proxy was executed, or the transfer of the share in
respect of which the proxy is given unless notice in writing of such death, insanity, revocation or transfer was received by the
Company before the commencement of the general meeting, or adjourned meeting at which it is sought to use the proxy.
75.
76.
77.
78.
79.
CORPORATIONS ACTING BY REPRESENTATIVES AT MEETING
Any corporation which is a Member or a Director may by resolution of its directors or other governing body authorise such
person as it thinks fit to act as its representative at any meeting of the Company or of any class of Members, and the person so
authorised shall be entitled to exercise the same powers on behalf of the corporation which he represents as that corporation
could exercise if it were an individual Member.
CLEARING HOUSES
If a clearing house (or its nominee) is a Member of the Company it may, by resolution of its directors or other governing body
or by power of attorney, authorise such person or persons as it thinks fit to act as its representative or representatives at any
general meeting of the Company or at any general meeting of any class of Members of the Company provided that, if more than
one person is so authorised, the authorisation shall specify the number and class of shares in respect of which each such person
is so authorised. A person so authorised pursuant to this provision shall be entitled to exercise the same powers on behalf of the
clearing house (or its nominee) which he represents as that clearing house (or its nominee) could exercise if it were an
individual Member of the Company holding the number and class of shares specified in such authorisation, including the right
to vote individually on a show of hands.
DIRECTORS
The Board shall consist of not less than three (3) Directors and no more than nine (9) Directors (exclusive of alternate
Directors), provided that (subject to these Articles) the Company may from time to time by Special Resolution increase or
decrease the number of Directors on the Board. For so long as the Shares are listed on the Designated Stock Exchange, the
Directors shall include such number of independent directors as applicable law, rules or regulations or the Designated Stock
Exchange Rules require, unless the Board resolves to follow any available exceptions or exemptions.
(a) Each Director shall hold office until the expiration of his term and until his successor shall have been elected and qualified.
The Board of Directors shall have a Chairman elected and appointed by a majority of the Directors then in office. The
Directors may also elect a Co- Chairman or a Vice-Chairman of the Board of Directors (the “Co-Chairman”). The
Chairman shall preside as chairman at every meeting of the Board of Directors. To the extent the Chairman is not present at
a meeting of the Board of Directors within sixty minutes after the time appointed for holding the same, the Co-Chairman, or
in his absence, the attending Directors may choose one Director to be the chairman of the meeting. Other than as provided
in Article 102, the Chairman’s voting right as to the matters to be decided by the Board of Directors shall be the same as
other Directors.
(b) Subject to these Articles and the Companies Act, the Company may by Ordinary Resolution elect any person to be a
Director either to fill a casual vacancy on the Board or as an addition to the existing Board. The Directors by the affirmative
vote of a simple majority of the remaining Directors present and voting at a Board meeting, or the sole remaining Director,
shall 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 the Company’s compliance with the director nomination
procedures required under the applicable corporate governance rules of the Designated Stock Exchange’ as long as the
Company’s Ordinary Shares are trading on the Designated Stock Exchange. A Director may be removed from office by
Special Resolution at any time before the expiration of his term notwithstanding any agreement between the Company and
such Director (but without prejudice to any claim for damages under such agreement).
(c) Mr. Mingjun Lin and Ms. Lucy Yi Yang each have the right to appoint or remove one (1) Director by delivering a written
notice to the Company, respectively.
The Board may, from time to time, and except as required by applicable law or the listing rules of the Designated Stock
Exchange, adopt, institute, amend, modify or revoke the corporate governance policies or initiatives, which shall be intended to
set forth the policies of the Company and the Board on various corporate governance related matters as the Board shall
determine by resolution from time to time.
A Director shall not be required to hold any shares in the Company by way of qualification. A Director who is not a Member of
the Company shall nevertheless be entitled to receive notice of and to attend and speak at general meetings of the Company and
all classes of shares of the Company.
80.
81.
82.
83.
84.
85.
87.
DIRECTORS’ FEES AND EXPENSES
The Directors may receive such remuneration as the Board may from time to time determine. The Directors shall be entitled to
be repaid all traveling, hotel and incidental expenses reasonably incurred or expected to be incurred by them in attending
meetings of the Board or committees of the Board or general meetings or separate meetings of any class of shares or of
debentures of the Company or otherwise in connection with the discharge of his duties as a Director, or to receive such fixed
allowance in respect thereof as may be determined by the Directors from time to time, or a combination partly of one such
method and partly the other.
ALTERNATE DIRECTOR
Any Director may in writing appoint another Person to be his alternate and, save to the extent provided otherwise in the form of
appointment, such alternate shall have authority to sign written resolutions on behalf of the appointing Director, but shall not be
required to sign such written resolutions where they have been signed by the appointing director, and to act in such Director's
place at any meeting of the Directors at which the appointing Director is unable to be present. Every such alternate shall be
entitled to attend and vote at meetings of the Directors as a Director when the Director appointing him is not personally present
and where he is a Director to have a separate vote on behalf of the Director he is representing in addition to his own vote. A
Director may at any time in writing revoke the appointment of an alternate appointed by him. Such alternate shall be deemed for
all purposes to be a Director of the Company and shall not be deemed to be the agent of the Director appointing him. The
remuneration of such alternate shall be payable out of the remuneration of the Director appointing him and the proportion
thereof shall be agreed between them.
Any Director may appoint any person, whether or not a Director, to be the proxy of that Director to attend and vote on his
behalf, in accordance with instructions given by that Director, or in the absence of such instructions at the discretion of the
proxy, at a meeting or meetings of the Directors which that Director is unable to attend personally. The instrument appointing
the proxy shall be in writing under the hand of the appointing Director and shall be in any usual or common form or such other
form as the Directors may approve, and must be lodged with the chairman of the meeting at which such proxy is to be used, or
first used, prior to the commencement of the meeting.
POWERS AND DUTIES OF DIRECTORS
Subject to the provisions of the Companies Act, these Articles and to any resolutions made in a general meeting, the business of
the Company shall be managed by the Directors, who may pay all expenses incurred in setting up and registering the Company
and may exercise all powers of the Company. No resolution made by the Company in a general meeting shall invalidate any
prior act of the Directors that would have been valid if that resolution had not been made.
Subject to these Articles, the CEO 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 CEO may think necessary for the administration of the Company, including without prejudice
to the foregoing generality, the office of Chief Operating Officer, Chief Financial Officer or Chief Technology Officer, and for
such term and at such remuneration (whether by way of salary or commission or participation in profits or partly in one way and
partly in another), and with such powers and duties as the CEO may think fit. The Directors may appoint one or more members
of their body (but not an alternate Director) to the office of Managing Director upon like terms, but any such appointment shall
ipso facto determine if any Managing Director ceases from any cause to be a Director, or if the Company by Ordinary
Resolution resolves that his tenure of office be terminated.
The Directors may appoint any natural person or corporation to be a Secretary (and if need be an assistant Secretary or assistant
Secretaries) who shall hold office for such term, at such remuneration and upon such conditions and with such powers as they
think fit. Any Secretary or assistant Secretary so appointed by the Directors may be removed by the Directors or by the
Company by Ordinary Resolution.
The Directors may delegate any of their powers to committees consisting of such member or members of their body as they
think fit; any committee so formed shall in the exercise of the powers so delegated conform to any regulations that may be
imposed on it by the Directors.
88.
89.
90.
91.
92.
93.
The Directors may from time to time and at any time by power of attorney appoint any company, firm or person or body of
persons, whether nominated directly or indirectly by the Directors, to be the attorney or attorneys of the Company for such
purposes and with such powers, authorities and discretion (not exceeding those vested in or exercisable by the Directors under
these Articles) and for such period and subject to such conditions as they may think fit, and any such power of attorney may
contain such provisions for the protection and convenience of persons dealing with any such attorney as the Directors may think
fit, and may also authorise any such attorney to delegate all or any of the powers, authorities and discretion vested in him.
The Directors may from time to time provide for the management of the affairs of the Company in such manner as they shall
think fit and the provisions contained in the following paragraphs shall be without prejudice to the general powers conferred by
this paragraph.
The Directors from time to time and at any time may establish any committees, local boards or agencies for managing any of the
affairs of the Company and may appoint any persons to be members of such committees or local boards and may appoint any
managers or agents of the Company and may fix the remuneration of any of the aforesaid.
The Directors from time to time and at any time may delegate to any such committee, local board, manager or agent any of the
powers, authorities and discretions for the time being vested in the Directors and may authorise the members for the time being
of any such local board, or any of them to fill up any vacancies therein and to act notwithstanding vacancies and any such
appointment or delegation may be made on such terms and subject to such conditions as the Directors may think fit and the
Directors may at any time remove any person so appointed and may annul or vary any such delegation, but no person dealing in
good faith and without notice of any such annulment or variation shall be affected thereby.
Any such delegates as aforesaid may be authorised by the Directors to sub-delegate all or any of the powers, authorities, and
discretions for the time being vested to them.
BORROWING POWERS OF DIRECTORS
The Directors may exercise all the powers of the Company to raise or borrow money and to mortgage or charge its undertaking,
property and assets (present and future) and uncalled capital or any part thereof, to issue debentures, debenture stock, bonds and
other securities, whether outright or as collateral or as security for any debt, liability or obligation of the Company or of any
third party.
94.
Notwithstanding anything in these Articles, the office of a Director shall be vacated, if the Director:
DISQUALIFICATION OF DIRECTORS
(a)
(b)
(c)
(d)
dies, becomes bankrupt or makes any arrangement or composition with his creditors;
is found to be or becomes of unsound mind;
resigns his office by notice in writing to the Company;
without special leave of absence from the Board, is absent from meetings of the Board for three consecutive meetings
and the Board resolves that his office be vacated; or
(e)
shall be removed from office pursuant to Article 77(d) or the Statutes.
PROCEEDINGS OF DIRECTORS
95.
96.
97.
98.
99.
The Directors may meet together (whether within or outside the Cayman Islands) for the dispatch of business, adjourn, and
otherwise regulate their meetings and proceedings as they think fit.
The Chairman or at least a majority of the Directors then in office may at any time summon a meeting of the Directors, provided
every other Director and alternate Director has been provided at least 48 hours’ prior notice of the date, time, venue and the
proposed agenda of the proposed meeting of the Directors.
Notice of a meeting of the Board shall be deemed to be duly given to a Director if it is given to such Director verbally (in person
or by telephone) or otherwise communicated or sent to such Director by post, cable, telex, telecopier, facsimile, electronic mail
or other mode of representing words in a legible form at such Director’s last known address or any other address given by such
Director to the Company for this purpose.
A Director or Directors may participate in any meeting of the Board of Directors, or of any committee appointed by the Board
of Directors of which such Director or Directors are members, by means of conference telephone, video conference or similar
communication equipment by way of which all persons participating in such meeting can hear each other and such participation
shall be deemed to constitute presence in person at the meeting.
The quorum necessary for the transaction of the business of the Directors shall be a majority of the Directors then in office,
including the Chairman, and both the Directors appointed by Mr. Mingjun Lin and by Ms. Lucy Yi Yang, provided that a
Director and his appointed alternate Director shall be considered only one person for this purpose. A meeting of the Directors at
which a quorum is present when the meeting proceeds to business shall be competent to exercise all powers and discretions for
the time being exercisable by the Directors. A meeting of the Directors may be held by means of telephone or teleconferencing
or any other telecommunications facility provided that all participants are thereby able to communicate immediately by voice
with all other participants.
100.
If a quorum is not present at a Board meeting within thirty (30) minutes following the time appointed for such board meeting,
the relevant meeting shall be adjourned for a period of at least three (3) Business Days and the presence of any three (3)
directors shall constitute a quorum at such adjourned meeting. A meeting of the Directors at which a quorum is present when
the meeting proceeds to business shall be competent to exercise all powers and discretions for the time being exercisable by the
Directors.
101.
Questions arising at any meeting of the Directors shall be decided by a majority of votes and each Director shall be entitled to
one (1) vote in deciding matters deliberated at any meeting of the Directors.
102.
In case of equality of votes, the Chairman shall have a second or casting vote.
103.
104.
Except as required by the Company’s corporate governance policies, a Director who is in any way, whether directly or
indirectly, interested in a contract or proposed contract with the Company shall declare the nature of his interest at a meeting of
the Directors. A general notice given to the Directors by any Director to the effect that he is a member of any specified company
or firm and is to be regarded as interested in any contract which may thereafter be made with that company or firm shall be
deemed a sufficient declaration of interest in regard to any contract so made. A Director may vote in respect of any contract or
proposed contract or arrangement notwithstanding that he may be interested therein and if he does so his vote shall be counted
and he may be counted in the quorum at any meeting of the Directors at which any such contract or proposed contract or
arrangement shall come before the meeting for consideration.
A Director may hold any other office or place of profit under the Company (other than the office of auditor) in conjunction with
his office of Director for such period and on such terms (as to remuneration and otherwise) as the Directors may determine and
no Director or intending Director shall be disqualified by his office from contracting with the Company either with regard to his
tenure of any such other office or place of profit or as vendor, purchaser or otherwise, nor shall any such contract or
arrangement entered into by or on behalf of the Company in which any Director is in any way interested, be liable to be
avoided, nor shall any Director so contracting or being so interested be liable to account to the Company for any profit realised
by any such contract or arrangement by reason of such Director holding that office or of the fiduciary relation thereby
established. A Director, notwithstanding his interest, may be counted in the quorum present at any meeting whereat he or any
other Director is appointed to hold any such office or place of profit under the Company or whereat the terms of any such
appointment are arranged and he may vote on any such appointment or arrangement.
105.
Any Director may act by himself or his firm in a professional capacity for the Company, and he or his firm shall be entitled to
remuneration for professional services as if he were not a Director; provided that nothing herein contained shall authorise a
Director or his firm to act as auditor to the Company.
106.
The Directors shall cause minutes to be made in books or loose-leaf folders provided for the purpose of recording:
(a)
(b)
(c)
all appointments of officers made by the Directors;
the names of the Directors present at each meeting of the Directors and of any committee of the Directors; and
all resolutions and proceedings at all meetings of the Company, and of the Directors and of committees of Directors.
107. When the chairman of a meeting of the Directors signs the minutes of such meeting the same shall be deemed to have been duly
held notwithstanding that all the Directors have not actually come together or that there may have been a technical defect in the
proceedings.
108.
109.
110.
111.
112.
113.
A resolution signed by all the Directors or all the members of a committee of Directors entitled to receive notice of a meeting of
Directors or committee of Directors, as the case may be (an alternate Director, subject as provided otherwise in the terms of
appointment of the alternate Director, being entitled to sign such a resolution on behalf of his appointer), shall be as valid and
effectual as if it had been passed at a meeting of the Directors duly called and constituted and when signed, a resolution may
consist of several documents each signed by one or more of the Directors.
The continuing Directors may act, notwithstanding any vacancy in their body, but if their number is reduced below the number
fixed pursuant to these Articles as the necessary quorum of Directors, then the continuing Directors may act only to increase the
number or to summon a general meeting of the Company, but for no other purpose.
The Board may delegate any of its powers, authorities and discretions to committees, consisting of such Director or Directors
and other persons as it thinks fit, and they may, from time to time, revoke such delegation or revoke the appointment of and
discharge any such committees either wholly or in part, and either as to persons or purposes. Any committee so formed shall, in
the exercise of the powers, authorities and discretions so delegated, conform to any regulations which may be imposed on it by
the Board. A committee appointed by the Directors may elect a chairman of its meetings. If no such chairman is elected, or if at
any meeting the chairman is not present within five minutes after the time appointed for holding the same, the members present
may choose one of their number to be chairman of the meeting.
A committee appointed by the Directors may meet and adjourn as it thinks proper. Questions arising at any meeting shall be
determined by a majority of votes of the committee members present and in case of an equality of votes the chairman shall have
a second or casting vote.
All acts done by any meeting of the Directors or of a committee of Directors, or by any person acting as a Director, shall
notwithstanding that it be afterwards discovered that there was some defect in the appointment of any such Director or person
acting as aforesaid, or that they or any of them were disqualified, be as valid as if every such person had been duly appointed
and was qualified to be a Director.
PRESUMPTION OF ASSENT
A Director who is present at a meeting of the Board of Directors at which action on any Company matter is taken shall be
presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall
file his written dissent from such action with the person acting as the chairman or secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered post to such person immediately after the adjournment of the
meeting. Such right to dissent shall not apply to a Director who voted in favour of such action.
DIVIDENDS, DISTRIBUTIONS AND RESERVE
114.
115.
116.
117.
118.
119.
120.
Subject to any rights and restrictions for the time being attached to any class or classes of shares and these Articles, the
Directors may from time to time declare dividends (including interim dividends) and other distributions on shares in issue and
authorise payment of the same out of the funds of the Company lawfully available therefor. At any and every time the Directors
declare dividends, Ordinary Shares shall have identical rights in the dividends so declared.
Subject to any rights and restrictions for the time being attached to any class or classes of shares and these Articles, the
Company by Ordinary Resolution may declare dividends, but no dividend shall exceed the amount recommended by the
Directors.
The Directors may, before recommending or declaring any dividend, set aside out of the funds legally available for distribution
such sums as they think proper as a reserve or reserves which shall, at the discretion of the Directors, be applicable for meeting
contingencies, or for equalising dividends or for any other purpose to which those funds may be properly applied and pending
such application may, at the like discretion, either be employed in the business of the Company or be invested in such
investments (other than shares of the Company) as the Directors may from time to time think fit.
Any dividend may be paid by cheque or wire transfer to the registered address of the Member or person entitled thereto, or in
the case of joint holders, to any one of such joint holders at his registered address or to such person and such address as the
Member or person entitled, or such joint holders as the case may be, may direct. Every such cheque shall be made payable to the
order of the person to whom it is sent or to the order of such other person as the Member or person entitled, or such joint holders
as the case may be, may direct.
The Directors when paying dividends to the Members in accordance with the foregoing provisions may make such payment
either in cash or in specie.
Dividends may be declared and paid out of profits of the Company, realised or unrealised, or from any reserve set aside from
profits which the Directors determine is no longer needed. Dividends may also be declared and paid out of share premium
account or any other fund or account which can be authorised for this purpose in accordance with the Companies Act.
Subject to the rights of persons, if any, entitled to shares with special rights as to dividends, all dividends shall be declared and
paid according to the amounts paid or credited as fully paid on the shares, but if and so long as nothing is paid up on any of the
shares in the Company dividends may be declared and paid according to the amounts of the shares. No amount paid on a share
in advance of calls shall, while carrying interest, be treated for the purposes of this Article as paid on the share.
121.
If several persons are registered as joint holders of any share, any of them may give effectual receipts for any dividend or other
monies payable on or in respect of the share.
122.
No dividend shall bear interest against the Company.
123.
Any dividend unclaimed after a period of six calendar years from the date of declaration of such dividend may be forfeited by
the Board of Directors and, if so forfeited, shall revert to the Company.
BOOK OF ACCOUNTS
124.
125.
126.
127.
The books of account relating to the Company’s affairs shall be kept in such manner as may be determined from time to time by
the Directors.
The books of account shall be kept at such place or places as the Directors think fit, and shall always be open to the inspection
of the Directors.
The Directors shall from time to time determine whether and to what extent and at what times and places and under what
conditions or regulations the accounts and books of the Company or any of them shall be open to the inspection of Members not
being Directors, and no Member (not being a Director) shall have any right of inspecting any account or book or document of
the Company except as conferred by law or authorised by the Directors or by the Company by Ordinary Resolution.
Subject to the requirements of applicable law and the applicable rules of the Designated Stock Exchange, the accounts relating
to the Company’s affairs shall be audited in such manner and with such financial year end as may be determined from time to
time by the Company by Ordinary Resolution or failing any such determination by the Directors or failing any determination as
aforesaid shall not be audited.
128.
The Board shall make the requisite annual returns and any other requisite filings in accordance with the Companies Act.
ANNUAL RETURNS AND FILINGS
AUDIT
129.
130.
131.
132.
133.
The Directors may appoint an Auditor of the Company who shall hold office until removed from office by a resolution of the
Directors and may fix his or their remuneration.
Every Auditor of the Company shall have a right of access at all times to the books and accounts and vouchers of the Company
and shall be entitled to require from the Directors and officers of the Company such information and explanation as may be
necessary for the performance of the duties of the auditors.
Auditors shall, if so required by the Directors, make a report on the accounts of the Company during their tenure of office at the
next annual general meeting following their appointment in the case of a company which is registered with the Registrar of
Companies as an ordinary company, and at the next special meeting following their appointment in the case of a company which
is registered with the Registrar of Companies as an exempted company, and at any time during their term of office, upon request
of the Directors at any general meeting of the Members.
THE SEAL
The Seal of the Company shall not be affixed to any instrument except by the authority of a resolution of the Board of Directors
provided always that such authority may be given prior to or after the affixing of the Seal and if given after may be in general
form confirming a number of affixings of the Seal. The Seal shall be affixed in the presence of a Director or a Secretary (or an
assistant Secretary) or in the presence of any one or more persons as the Directors may appoint for the purpose and every person
as aforesaid shall sign every instrument to which the Seal of the Company is so affixed in their presence.
The Company may maintain a facsimile of its Seal in such countries or places as the Directors may appoint and such facsimile
Seal shall not be affixed to any instrument except by the authority of a resolution of the Board of Directors provided always that
such authority may be given prior to or after the affixing of such facsimile Seal and if given after may be in general form
confirming a number of affixings of such facsimile Seal. The facsimile Seal shall be affixed in the presence of such person or
persons as the Directors shall for this purpose appoint and such person or persons as aforesaid shall sign every instrument to
which the facsimile Seal of the Company is so affixed in their presence.
134.
Notwithstanding the foregoing, a Director shall have the authority to affix the Seal, or the facsimile Seal, to any instrument for
the purposes of attesting authenticity of the matter contained therein but which does not create any obligation binding on the
Company.
135.
Subject to the Statutes and these Articles, the Board may, with the authority of an Ordinary Resolution:
CAPITALISATION OF PROFITS
(a)
(b)
resolve to capitalise an amount standing to the credit of reserves (including a share premium account, capital
redemption reserve and profit and loss account), whether or not available for distribution;
appropriate the sum resolved to be capitalised to the Members in proportion to the nominal amount of shares (whether
or not fully paid) held by them respectively and apply that sum on their behalf in or towards:
(i)
paying up the amounts (if any) for the time being unpaid on shares held by them respectively; or
(ii)
paying up in full unissued shares or debentures of a nominal amount equal to that sum,
and allot the shares or debentures, credited as fully paid, to the Members (or as they may direct) in those proportions, or partly
in one way and partly in the other, but the share premium account, the capital redemption reserve and profits which are not
available for distribution may, for the purposes of this Article, only be applied in paying up unissued shares to be allotted to
Members credited as fully paid;
(c)
(d)
make any arrangements it thinks fit to resolve a difficulty arising in the distribution of a capitalised reserve and in
particular, without limitation, where shares or debentures become distributable in fractions the Board may deal with the
fractions as it thinks fit;
authorise a person to enter (on behalf of all the Members concerned) an agreement with the Company providing for
either:
(i)
(ii)
the allotment to the Members respectively, credited as fully paid, of shares or debentures to which they may be
entitled on the capitalisation, or
the payment by the Company on behalf of the Members (by the application of their respective operations of the
reserves resolved to be capitalised) of the amounts or part of the amounts remaining unpaid on their existing
shares, an agreement made under the authority being effective and binding on all those Members; and
(e)
generally do all acts and things required to give effect to the resolution.
136.
Notwithstanding any provisions in these Articles, the Directors may resolve to capitalise an amount standing to the credit of
reserves (including the share premium account, capital redemption reserve and profit and loss account) or otherwise available
for distribution by applying such sum in paying up in full unissued Shares to be allotted and issued to:
(a)
(b)
(c)
employees (including Directors) or service providers of the Company or its Affiliates upon exercise or vesting of any
options or awards granted under any share incentive scheme or employee benefit scheme or other arrangement which
relates to such persons that has been adopted or approved by the Directors or the Members;
any trustee of any trust or administrator of any share incentive scheme or employee benefit scheme to whom shares are
to be allotted and issued by the Company in connection with the operation of any share incentive scheme or employee
benefit scheme or other arrangement which relates to such persons that has been adopted or approved by the Directors
or Members; or
any depositary of the Company for the purposes of the issue, allotment and delivery by any depositary to employees
(including Directors) or service providers of the Company or its Affiliates upon exercise or vesting of any options or
awards granted under any share incentive scheme or employee benefit scheme or other arrangement which relates to
such persons that has been adopted or approved by the Directors or the Members.
NOTICES
137.
Except as otherwise provided in these Articles, any notice or document may be served by the Company or by the person entitled
to give notice to any Member either personally, by facsimile or by sending it through the post in a prepaid letter or via a
recognised courier service, fees prepaid, addressed to the Member at his address as appears in the Register of Members or, to the
extent permitted by all applicable laws and regulations, by electronic means by transmitting it to any electronic number or
address or website supplied by the Member to the Company or by placing it on the Company’s Website. In the case of joint
holders of a share, all notices shall be given to that one of the joint holders whose name stands first in the Register of Members
in respect of the joint holding, and notice so given shall be sufficient notice to all the joint holders.
138.
Notices posted to addresses outside the Cayman Islands shall be forwarded by prepaid airmail.
139.
Any Member present, either personally or by proxy, at any meeting of the Company shall for all purposes be deemed to have
received due notice of such meeting and, where requisite, of the purposes for which such meeting was convened.
140.
Any notice or other document, if served by:
(a)
(b)
(c)
post, shall be deemed to have been served five calendar days after the time when the letter containing the same is posted
(in proving such service it shall be sufficient to prove that the letter containing the notice or document was properly
addressed and duly posted to the courier);
facsimile, shall be deemed to have been served upon confirmation of receipt;
recognised courier service, shall be deemed to have been served 48 hours after the time when the letter containing the
same is delivered to the courier service and in proving such service it shall be sufficient to prove that the letter
containing the notice or documents was properly addressed and duly delivered to the courier; or
(d)
electronic means as provided herein shall be deemed to have been served and delivered on the day following that on
which it is successfully transmitted or at such later time as may be prescribed by any applicable laws or regulations.
141.
Any notice or document delivered or sent to any Member in accordance with the terms of these Articles shall notwithstanding
that such Member be then dead or bankrupt or being wound-up, and whether or not the Company has notice of his death or
bankruptcy or winding-up, be deemed to have been duly served in respect of any share registered in the name of such Member
as sole or joint holder, unless his name shall at the time of the service of the notice or document, have been removed from the
Register of Members as the holder of the share, and such service shall for all purposes be deemed a sufficient service of such
notice or document on all persons interested (whether jointly with or as claiming through or under him) in the share.
142.
Notice of every general meeting shall be given to:
(a)
(b)
all Members who have supplied to the Company an address for the giving of notices to them;
every person entitled to a share in consequence of the death or bankruptcy of a Member, who but for his death or
bankruptcy would be entitled to receive notice of the meeting; and
(c)
each Director and alternate Director.
No other person shall be entitled to receive notices of general meetings.
INFORMATION
143.
144.
145.
No Member shall be entitled to require discovery of any information in respect of any detail of the Company’s trading or any
information which is or may be in the nature of a trade secret or secret process which may relate to the conduct of the business
of the Company and which, in the opinion of the Board would not be in the interests of the Members of the Company to
communicate to the public.
The Board shall be entitled to release or disclose any information in its possession, custody or control regarding the Company
or its affairs to any of its members including, without limitation, information contained in the Register of Members and transfer
books of the Company and as applicable by Statute.
INDEMNITY
Every Director (including for the purposes of this Article any alternate Director appointed pursuant to the provisions of these
Articles), Secretary, assistant Secretary, or other officer for the time being and from time to time of the Company (but not
including the Company's auditors) and the personal representatives of the same (each an “Indemnified Person”) shall be
indemnified and secured harmless against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities
incurred or sustained by such Indemnified Person, other than by reason of such Indemnified Person's own dishonesty, willful
default or fraud, in or about the conduct of the 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 Indemnified Person in defending (whether successfully
or otherwise) any civil proceedings concerning the Company or its affairs in any court whether in the Cayman Islands or
elsewhere.
146. No Indemnified Person shall be liable:
(a)
(b)
(c)
(d)
(e)
for the acts, receipts, neglects, defaults or omissions of any other Director or officer or agent of the Company; or
for any loss on account of defect of title to any property of the Company; or
on account of the insufficiency of any security in or upon which any money of the Company shall be invested; or
for any loss incurred through any bank, broker or other similar Person; or
for any loss occasioned by any negligence, default, breach of duty, breach of trust, error of judgement or oversight on
such Indemnified Person's part; or
(f)
for any loss, damage or misfortune whatsoever which may happen in or arise from the execution or discharge of the
duties, powers, authorities, or discretions of such Indemnified Person's office or in relation thereto;
unless the same shall happen through such Indemnified Person's own dishonesty, willful default or fraud.
FINANCIAL YEAR
147.
Unless the Directors otherwise prescribe, the financial year of the Company shall end on December 31st in each year and shall
begin on January 1st in each year.
WINDING UP
148.
149.
Subject to these Articles, if the Company shall be wound up the liquidator may, with the sanction of a Special Resolution of the
Company, divide amongst the Members in specie or kind the whole or any part of the assets of the Company (whether they shall
consist of property of the same kind or not) and may for such purpose set such value as he deems fair upon any property to be
divided as aforesaid and may determine how such division shall be carried out as between the Members or different classes of
Members. The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for
the benefit of the contributories as the liquidator, with the like sanction shall think fit, but so that no Member shall be compelled
to accept any shares or other securities whereon there is any liability.
If the Company shall be wound up, and the assets available for distribution amongst the Members 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 the
Members in proportion to the par value of the Shares held by them. If in a winding up the assets available for distribution
amongst the Members 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 the Members 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 the Company for unpaid calls or otherwise. This Article is without prejudice to the rights of the holders of
Shares issued upon special terms and conditions.
AMENDMENT OF MEMORANDUM AND ARTICLES OF ASSOCIATION AND NAME OF COMPANY
150.
Subject to Article 9(d), the Company may at any time and from time to time by Special Resolution alter or amend these Articles
or the Memorandum of Association of the Company, in whole or in part, or change the name of the Company.
REGISTRATION BY WAY OF CONTINUATION
151.
Subject to Article 9(d), the Company may by Ordinary Resolution resolve to be registered by way of continuation in a
jurisdiction outside the Cayman Islands or such other jurisdiction in which it is for the time being incorporated, registered or
existing. In furtherance of a resolution adopted pursuant to this Article, the Directors may cause an application to be made to the
Registrar of Companies to deregister the Company in the Cayman Islands or such other jurisdiction in which it is for the time
being incorporated, registered or existing and may cause all such further steps as they consider appropriate to be taken to effect
the transfer by way of continuation of the Company.
DISCLOSURE
152.
The Directors, or any service providers (including the officers, the Secretary and the registered office agent of the Company)
specifically authorised by the Directors, shall be entitled to disclose to any regulatory or judicial authority any information
regarding the affairs of the Company including without limitation information contained in the Register and books of the
Company.
Principal Subsidiaries of the Registrant
Exhibit 8.1
Principal Subsidiaries
Morning Star Auto Inc.
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.
Wuxi Morning Star Technology Co., Ltd.
Zhejiang Kaixin Auto Co., Ltd. Beijing Branch
Zhejiang Kaixin Daman Auto Retail Co., Ltd.
Zhejiang Kaixin Yuanman Business Management Co., Ltd.
Zhejiang Kaixin Jingtao Auto Retail Co., Ltd.
Zhejiang Kaixin Manman Travel Technology Co., Ltd.
Zhejiang Kaixin Auto Co., Ltd.
Zhejiang Wuxian Auto Technology Co., Ltd.
Zhejiang Kaixin Wisdom Auto Co., Ltd.
Place of Incorporation
BVI
Hong Kong
PRC
PRC
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: April 29, 2024
/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: April 29, 2024
/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, 2023 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: April 29, 2024
/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, 2023 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: April 29, 2024
/s/ Yi Yang
By:
Name: Yi Yang
Title: Chief Financial Officer
Exhibit 15.1
Onestop Assurance PAC
10 Anson Road
#06-15 International Plaza
Singapore 079903
Tel: 9644 9531
Email:audit@onestop-ca.com
Website: www.onestop-ca.com
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements of Kaixin Holdings (formerly known as Kaixin Auto
Holdings) on Form F-3 (File No. 333-272954, File No. 333-258450) and Form S-8 (File No. 333-233442, File No. 333-256490, File No.
259239, File No.333-265295, File No.333-270487, and File No.333-276443) of our report dated April 29, 2024, with respect to our
audit of the consolidated financial statements of Kaixin Holdings (formerly known as Kaixin Auto Holdings) as of December 31, 2023
and for the years ended December 31, 2023, which report is included in this Annual Report on Form 20-F of Kaixin Holdings (formerly
known as Kaixin Auto Holdings) for the year ended December 31, 2023.
We also consent to the reference to us under the heading “Experts” in such Registration Statement.
/s/ Onestop Assurance PAC
Singapore
April 29, 2024
Exhibit 15.2
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S CONSENT
We consent to the incorporation by reference in the Registration Statement of Kaixin Holdings (formerly known
as “Kaixin Auto Holdings”) on Form F-3 (File No. 333-272954, File No. 333-258450) and Form S-8 (File No.
333-233442, File No. 333-256490, File No. 259239, File No.333-265295, File No.333-270487, and File No.333-
276443) Form S-8 (File No.333-265295, File No.333-270487, and File No.333-276443)of our report dated April
28, 2022, with respect to our audit of the consolidated statements of operations and comprehensive loss, changes
in equity and cash flows of Kaixin Holdings for the year ended December 31, 2021, which report is included in
this Annual Report on Form 20-F of Kaixin Holdings for the year ended December 31, 2023. 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”).
/s/ Marcum Asia CPAs LLP
Marcum Asia CPAs LLP
New York, NY
April 29, 2024
KAIXIN AUTO HOLDINGS
POLICY FOR THE
RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION
Exhibit 97.1
A.
OVERVIEW
In accordance with the applicable rules of The Nasdaq Stock Market (the “Nasdaq Rules”), Section 10D and Rule 10D-1 of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”) (“Rule 10D-1”), the Board of Directors (the “Board”) of Kaixin
Auto Holdings (the “Company”) has adopted this Policy (the “Policy”) to provide for the recovery of erroneously awarded Incentive-
based Compensation from Executive Officers. All capitalized terms used and not otherwise defined herein shall have the meanings set
forth in Section H, below.
B.
RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION
(1)
In the event of an Accounting Restatement, the Company will reasonably promptly recover the Erroneously Awarded
Compensation Received in accordance with the Nasdaq Rules and Rule 10D-1 as follows:
(i)
After an Accounting Restatement, the Compensation Committee (if composed entirely of independent directors, or in
the absence of such a committee, a majority of independent directors serving on the Board) (the “Committee”) shall
determine the amount of any Erroneously Awarded Compensation Received by each Executive Officer and shall
promptly notify each Executive Officer with a written notice containing the amount of any Erroneously Awarded
Compensation and a demand for repayment or return of such compensation, as applicable.
(a)
For Incentive-based Compensation based on (or derived from) the Company’s stock price or total shareholder
return, where the amount of Erroneously Awarded Compensation is not subject to mathematical
recalculation directly from the information in the applicable Accounting Restatement:
i.
The amount to be repaid or returned shall be determined by the Committee based on a reasonable
estimate of the effect of the Accounting Restatement on the Company’s stock price or total shareholder
return upon which the Incentive-based Compensation was Received; and
ii. The Company shall maintain documentation of the determination of such reasonable estimate and provide
the relevant documentation as required to Nasdaq.
(ii)
(iii)
(iv)
The Committee shall have discretion to determine the appropriate means of recovering Erroneously Awarded
Compensation based on the particular facts and circumstances. Notwithstanding the foregoing, except as set forth in
Section B(2) below, in no event may the Company accept an amount that is less than the amount of Erroneously
Awarded Compensation in satisfaction of an Executive Officer’s obligations hereunder.
To the extent that the Executive Officer has already reimbursed the Company for any Erroneously Awarded
Compensation Received under any duplicative recovery obligations established by the Company or applicable law, it
shall be appropriate for any such reimbursed amount to be credited to the amount of Erroneously Awarded
Compensation that is subject to recovery under this Policy.
To the extent that an Executive Officer fails to repay all Erroneously Awarded Compensation to the Company
when due, the Company shall take all actions reasonable and appropriate to recover such Erroneously Awarded
Compensation from the applicable Executive Officer. The applicable Executive Officer shall be required to reimburse
the Company for any and all expenses reasonably incurred (including legal fees) by the Company in recovering such
Erroneously Awarded Compensation in accordance with the immediately preceding sentence.
1
(2)
Notwithstanding anything herein to the contrary, the Company shall not be required to take the actions contemplated by
Section B(1) above if the Committee (which, as specified above, is composed entirely of independent directors or in the absence of such
a committee, a majority of the independent directors serving on the Board) determines that recovery would be impracticable and any of
the following three conditions are met:
(i)
(ii)
(iii)
The Committee has determined that the direct expenses paid to a third party to assist in enforcing the Policy would
exceed the amount to be recovered. Before making this determination, the Company must make a reasonable attempt to
recover the Erroneously Awarded Compensation, documented such attempt(s) and provided such documentation to
Nasdaq;
Recovery would violate home country law where that law was adopted prior to November 28, 2022, provided that,
before determining that it would be impracticable to recover any amount of Erroneously Awarded Compensation based
on violation of home country law, the Company has obtained an opinion of home country counsel, acceptable to the
Nasdaq, that recovery would result in such a violation and a copy of the opinion is provided to Nasdaq; or
Recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to
employees of the Company, to fail to meet the requirements of Section 401(a)(13) or Section 411(a) of the Internal
Revenue Code of 1986, as amended, and regulations thereunder.
C.
DISCLOSURE REQUIREMENTS
The Company shall file all disclosures with respect to this Policy required by applicable U.S. Securities and Exchange
Commission (“SEC”) filings and rules.
D.
PROHIBITION OF INDEMNIFICATION
The Company shall not be permitted to insure or indemnify any Executive Officer against (i) the loss of any Erroneously
Awarded Compensation that is repaid, returned or recovered pursuant to the terms of this Policy, or (ii) any claims relating to the
Company’s enforcement of its rights under this Policy. Further, the Company shall not enter into any agreement that exempts any
Incentive-based Compensation that is granted, paid or awarded to an Executive Officer from the application of this Policy or that waives
the Company’s right to recovery of any Erroneously Awarded Compensation, and this Policy shall supersede any such agreement
(whether entered into before, on or after the Effective Date of this Policy).
E.
ADMINISTRATION AND INTERPRETATION
This Policy shall be administered by the Committee, and any determinations made by the Committee shall be final and
binding on all affected individuals.
The Committee is authorized to interpret and construe this Policy and to make all determinations necessary, appropriate, or
advisable for the administration of this Policy and for the Company’s compliance with the Nasdaq Rules, Section 10D, Rule 10D-1 and
any other applicable law, regulation, rule or interpretation of the SEC or Nasdaq promulgated or issued in connection therewith.
F.
AMENDMENT; TERMINATION
The Committee may amend this Policy from time to time in its discretion and shall amend this Policy as it deems necessary.
Notwithstanding anything in this Section F to the contrary, no amendment or termination of this Policy shall be effective if such
amendment or termination would (after taking into account any actions taken by the Company contemporaneously with such amendment
or termination) cause the Company to violate any federal securities laws, SEC rule or the Nasdaq rule.
G.
OTHER RECOVERY RIGHTS
This Policy shall be binding and enforceable against all Executive Officers and, to the extent required by applicable law or
guidance from the SEC or Nasdaq, their beneficiaries, heirs, executors, administrators or other legal representatives. The Committee
intends that this Policy will be applied to the fullest extent required by applicable law. Any employment agreement, equity award
agreement, compensatory plan or any other agreement or arrangement with an Executive Officer shall be deemed to include,
2
as a condition to the grant of any benefit thereunder, an agreement by the Executive Officer to abide by the terms of this Policy. Any
right of recovery under this Policy is in addition to, and not in lieu of, any other remedies or rights of recovery that may be available to
the Company under applicable law, regulation or rule or pursuant to the terms of any policy of the Company or any provision in any
employment agreement, equity award agreement, compensatory plan, agreement or other arrangement.
H.
DEFINITIONS
For purposes of this Policy, the following capitalized terms shall have the meanings set forth below.
(1)
“Accounting Restatement” means an accounting restatement due to the material noncompliance of the Company
with any financial reporting requirement under the securities laws, including any required accounting restatement to correct an error in
previously issued financial statements that is material to the previously issued financial statements (a “Big R” restatement), or that would
result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period (a “little r”
restatement).
(2)
“Clawback Eligible Incentive Compensation” means all Incentive-based Compensation Received by an Executive
Officer (i) on or after the effective date of the applicable Nasdaq rules, (ii) after beginning service as an Executive Officer, (iii) who
served as an Executive Officer at any time during the applicable performance period relating to any Incentive-based Compensation
(whether or not such Executive Officer is serving at the time the Erroneously Awarded Compensation is required to be repaid to the
Company), (iv) while the Company has a class of securities listed on a national securities exchange or a national securities association,
and (v) during the applicable Clawback Period (as defined below).
(3)
“Clawback Period” means, with respect to any Accounting Restatement, the three completed fiscal years of the
Company immediately preceding the Restatement Date (as defined below), and if the Company changes its fiscal year, any transition
period of less than nine months within or immediately following those three completed fiscal years.
(4)
“Erroneously Awarded Compensation” means, with respect to each Executive Officer in connection with an
Accounting Restatement, the amount of Clawback Eligible Incentive Compensation that exceeds the amount of Incentive-based
Compensation that otherwise would have been Received had it been determined based on the restated amounts, computed without regard
to any taxes paid.
(5)
“Executive Officer” means each individual who is currently or was previously designated as an “officer” of the
Company as defined in Rule 16a-1(f) under the Exchange Act. For the avoidance of doubt, the identification of an executive officer for
purposes of this Policy shall include each executive officer who is or was identified pursuant to Item 401(b) of Regulation S-K or Item
6.A of Form 20-F, as applicable, as well as the principal financial officer and principal accounting officer (or, if there is no principal
accounting officer, the controller).
(6)
“Financial Reporting Measures” means measures that are determined and presented in accordance with the
accounting principles used in preparing the Company’s financial statements, and all other measures that are derived wholly or in part
from such measures. Stock price and total shareholder return (and any measures that are derived wholly or in part from stock price or
total shareholder return) shall, for purposes of this Policy, be considered Financial Reporting Measures. For the avoidance of doubt, a
Financial Reporting Measure need not be presented in the Company’s financial statements or included in a filing with the SEC.
(7)
“Incentive-based Compensation” means any compensation that is granted, earned or vested based wholly or in part
upon the attainment of a Financial Reporting Measure.
(8)
“Nasdaq” means The Nasdaq Stock Market.
(9)
“Received” means, with respect to any Incentive-based Compensation, actual or deemed receipt, and Incentive-based
Compensation shall be deemed received in the Company’s fiscal period during which the Financial Reporting Measure specified in the
Incentive-based Compensation award is attained, even if the payment or grant of the Incentive-based Compensation to the Executive
Officer occurs after the end of that period.
(10)
“Restatement Date” means the earlier to occur of (i) the date the Board, a committee of the Board or the officers of the
Company authorized to take such action if Board action is not required, concludes, or reasonably should have concluded, that
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the Company is required to prepare an Accounting Restatement, or (ii) the date a court, regulator or other legally authorized body directs
the Company to prepare an Accounting Restatement.
Effective as of December 1, 2023.
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