Qudian Inc.
Annual Report 2022

Plain-text annual report

Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549FORM 20-F(Mark One)☐REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934OR☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2022OR☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934OR☐SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934Date of event requiring this shell company report For the transition period from to Commission file number 001-38230Qudian Inc.(Exact name of Registrant as specified in its charter)Cayman Islands(Jurisdiction of incorporation or organization)Tower A, AVIC Zijin PlazaSiming District, XiamenFujian Province 361000,People’s Republic of China(Address of principal executive offices)Min Luo, Chairman and Chief Executive OfficerTelephone: telephone: +86-592-5911580Email: ir@qudian.comAt the address of the Company set forth above(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)Securities registered or to be registered pursuant to Section 12(b) of the Act:Title of each class Trading Symbol(s) Name of each exchange on which registeredAmerican Depositary Shares, each representing one Class A ordinary share QD New York Stock ExchangeClass A Ordinary Shares, par value US$0.0001 per share* *Not for trading, but only in connection with the listing on the New York Stock Exchange of American depositary shares.Securities registered or to be registered pursuant to Section 12(g)None(Title of Class)Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:None(Title of Class)Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report. 168,755,154 Class A ordinary shares 63,491,172 Class B ordinary sharesIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.☐ Yes ☒ NoIf 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 ☒ NoIndicate 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 shorterperiod that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.☒ Yes ☐ NoIndicate by check mark whether the registrant has submitted every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12months (or for such shorter period that the registrant was required to submit such files).☒ Yes ☐ NoLarge accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Emerging growth company ☐If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒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 registration has used to prepare the financial statements included in this filing:U.S. GAAP ☒ International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ Other ☐If “Other” has been checked in response to the previous question, indicate by check mark which consolidated financial statement item the registrant has elected to follow.    ☐ Item 17 ☐ Item 18If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).☐ Yes ☒ No(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.☐ Yes ☐ NoTable of ContentsiTable of ContentsCONVENTIONS THAT APPLY TO THIS ANNUAL REPORT ON FORM 20-F1FORWARD-LOOKING INFORMATION2Part I.3ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS3ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE3ITEM 3.KEY INFORMATION3ITEM 4.INFORMATION ON THE COMPANY48ITEM 4A.UNRESOLVED STAFF COMMENTS85ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS86ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES110ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS119ITEM 8.FINANCIAL INFORMATION120ITEM 9.THE OFFER AND LISTING122ITEM 10.ADDITIONAL INFORMATION122ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK130ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES131Part II.133ITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES133ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS133ITEM 15.CONTROLS AND PROCEDURES134ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT134ITEM 16B.CODE OF ETHICS135ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES135ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES135ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS136ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT136ITEM 16G.CORPORATE GOVERNANCE137ITEM 16H.MINE SAFETY DISCLOSURE137ITEM 16I.DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS137ITEM 16J.INSIDER TRADING POLICIES137Part III.138ITEM 17.FINANCIAL STATEMENTS138ITEM 18.FINANCIAL STATEMENTS138ITEM 19.EXHIBITS139SIGNATURES143INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTSF-1Table of Contents1CONVENTIONS THAT APPLY TO THIS ANNUAL REPORT ON FORM 20-FExcept where the context otherwise requires, references in this annual report to:●“ADSs” are to our American depositary shares, each of which represents one Class A ordinary share, and “ADRs” are to the American depositaryreceipts that evidence our ADSs;●“amount of transactions” are to the aggregate principal amount of credit drawdowns that are provided to borrowers in the specified period, which arecomprised of (i) credit drawdowns that are facilitated under the Group’s loan book business and (ii) credit drawdowns that are facilitated under theGroup’s transaction services business;●“China” and the “PRC” are to the People’s Republic of China, excluding, for the purposes of this annual report only, Taiwan, the Hong Kong SpecialAdministrative Region and the Macao Special Administrative Region;●“the Group” are to Qudian Inc., the Group VIEs and their respective subsidiaries;●“Group VIEs” are to Beijing Happy Time Technology Development Co., Ltd., or Beijing Happy Time, Xiamen Qudian Technology Co., Ltd., orXiamen Qudian, and Ganzhou Qudian Technology Co., Ltd, or Ganzhou Qudian;●“loan book business” are to the Group’s business of offering small credit products to consumers; the relevant transactions may be funded by theGroup’s institutional funding partners or the Group’s own capital, and the Group undertakes credit risk for such transactions. The Group ceased newcredit offering under its loan book business since September 6, 2022;●“M1+ delinquency coverage ratio” are to the balance of allowance for principal and financing service fee receivables at the end of a period, divided bythe total balance of outstanding principal for on-balance sheet transactions for which any installment payment was more than 30 calendar days past dueas of the end of such period;●“M1+ delinquency rate by vintage” are to the total outstanding principal balance of the transactions of a vintage for which any repayment is overdue formore than 30 days, divided by the total initial principal of the transactions facilitated in such vintage;●“off-balance sheet transactions” are to credit drawdowns under the Group’s loan book business that are not recorded on the Group’s balance sheets; theGroup bears credit risk for such transactions;●“on-balance sheet transactions” are to credit drawdowns under the Group’s loan book business that are recorded on the Group’s balance sheets;●“provision ratio” are to the amount of provision for loan principal and financing service fee receivables incurred during a period as a percentage of thetotal amount of on-balance sheet transactions facilitated during such period;●“P2P platforms” are to financial information intermediaries that are engaged in lending information business and directly provide peers, which can benatural persons, legal persons or other organizations, with lending information services;●“Qudian marketplace” are to the Group’s online marketplace where consumers purchased merchandise offered by third-party merchandise supplierswith the Group’s merchandise credit products;●“RMB” or “Renminbi” are to the legal currency of China;●“small credit products” are to cash or merchandise credit products that are less than RMB5,000 in amount;Table of Contents2●“Subsidiary” are to an entity controlled by Qudian Inc. and consolidated with Qudian Inc.’s results of operations due to Qudian Inc.’s equity interest insuch entity, instead of contractual arrangements; for avoidance of doubt, the Group VIEs are not subsidiaries of Qudian Inc.;●“transaction services business” are to the Group’s business of offering loan recommendation and referral services to third-party financial serviceproviders; the Group assumes no credit risk for the transactions facilitated under the transaction services business; the Group ceased its transactionservices business in the third quarter of 2021;●“transactions” are to borrowers’ credit drawdowns from the Group’s platform;●“US$,” “U.S. dollars,” or “dollars” are to the legal currency of the United States;●“vintage” are to the on-balance sheet transactions and off-balance sheet transactions facilitated under the loan book business during a specified timeperiod; and●“we,” “us,” “our company” and “our” are to Qudian Inc. and/or its subsidiaries, as the context requires.The translations from Renminbi to U.S. dollars and from U.S. dollars to Renminbi in this annual report were made at a rate of RMB6.8972 to US$1.00, theexchange rates set forth in the H. 10 statistical release of the Federal Reserve Board on December 30, 2022. We make no representation that the Renminbi or U.S.dollar amounts referred to in this annual report could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or atall. On March 31, 2023, the noon buying rate for Renminbi was RMB6.8676 to US$1.00.FORWARD-LOOKING INFORMATIONThis annual report on Form 20-F contains statements of a forward-looking nature. All statements other than statements of historical facts are forward-looking statements. These forward-looking statements are made under the “safe harbor” provision under Section 21E of the Securities Exchange Act of 1934, asamended, or the Exchange Act, and as defined in the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks,uncertainties and other factors that may cause the Group’s actual results, performance or achievements to be materially different from those expressed or implied bythe forward-looking statements. In some cases, these forward-looking statements can be identified by words or phrases such as “may,” “will,” “expect,” “anticipate,”“aim,” “estimate,” “intend,” “plan,” “believe,” “potential,” “continue,” “is/are likely to” or other similar expressions. These forward-looking statements relate to,among others:●the Group’s goal and strategies;●the Group’s expansion plans;●the Group’s future business development, financial condition and results of operations;●the Group’s expectations regarding demand for, and market acceptance of, the Group’s products and services;●the Group’s expectations regarding keeping and strengthening its relationships with customers, business partners and other parties the Groupcollaborates with; and●general economic and business conditions.We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believemay affect the Group’s financial condition, results of operations, business strategy and financial needs.Table of Contents3You should read these statements in conjunction with the risks disclosed in “Item 3.D. Key Information-Risk Factors” of this annual report and other risksoutlined in our other filings with the Securities and Exchange Commission, or the SEC. Moreover, the Group operates in an emerging and evolving environment.New risks may emerge from time to time, and it is not possible for our management to predict all risks, nor can we assess the impact of such risks on the Group’sbusiness or the extent to which any risk, or combination of risks, may cause actual results to differ materially from those contained in any forward-lookingstatements. The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in thisannual report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date onwhich the statements are made or to reflect the occurrence of unanticipated events. You should read this annual report and the documents that we have referred to inthis annual report, completely and with the understanding that the Group’s actual future results may be materially different from what we expect.Part I.ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSNot Applicable.ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLENot Applicable.ITEM 3.KEY INFORMATIONContractual Arrangements with the Group VIEs and Their ShareholdersQudian Inc. is a Cayman Islands holding company, and the Group’s operations are primarily conducted by its subsidiaries in China and through contractualarrangements with the Group VIEs. Investors in our ADSs and Class A ordinary shares do not hold equity interest in the Group’s operating entities in China, butinstead hold equity interest in Qudian Inc. As used in this annual report, “Qudian,” “we,” “us,” “our company” or “our” refers to Qudian Inc. and/or its subsidiaries,and “the Group” refers to Qudian Inc., the Group VIEs and their respective subsidiaries.Under the PRC laws and regulations, the operations of Internet content providers in the PRC are subject to foreign investment restrictions and licenserequirements. Therefore, we operate such businesses in China through the Group VIEs. Currently, the Group VIEs are (i) Beijing Happy Time, (ii) Ganzhou Qudianand (iii) Xiamen Qudian. We have entered into a series of contractual arrangements with each of the Group VIEs and the respective shareholders of the Group VIEs,including (i) power of attorney agreements and equity interest pledge agreements, which provide us with the power to direct the activities that most significantlyimpact the economic performance of the Group VIEs; (ii) exclusive business cooperation agreements, which allow us to receive substantially all of the economicbenefits from the Group VIEs; and (iii) exclusive call option agreements, which provide us with exclusive options to purchase all or part of the equity interests in orall or part of the assets of or inject registered capital into the Group VIEs when and to the extent permitted by PRC law. As a result of these contractual arrangements,we are the primary beneficiary of the Group VIEs for accounting purposes. We have consolidated their financial results in the Group’s consolidated financialstatements. However, we do not own any equity interest in the Group VIEs.The contractual arrangements with the Group VIEs and the respective shareholders of the Group VIEs may not be as effective as direct ownership inproviding us with control over the Group VIEs. If any of the Group VIEs or the respective shareholders of the Group VIEs fails to perform their obligations under thecontractual arrangements, we may have to incur substantial costs and expend additional resources to enforce such arrangements. Furthermore, there are very fewprecedents and little formal guidance as to how contractual arrangements in the context of a variable interest entity should be interpreted or enforced under PRC law.If the PRC government deems that the contractual arrangements in relation to the Group VIEs do not comply with PRC regulatory restrictions on foreign investmentin the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, our ADSs may significantly decline in value orbecome worthless if we are unable to assert our contractual control rights over the assets of the Group VIEs. See “Item 3. Key Information⸺⸺D. Risk Factors⸺⸺Risks Related to Our Corporate Structure.”Table of Contents4Operations in ChinaThe Group faces various legal and operational risks and uncertainties associated with being based in and having its operations primarily in China and thecountry’s complex and evolving laws and regulations. For example, the Group faces risks associated with regulatory approvals on offerings conducted overseas byand foreign investment in China-based issuers, the use of the Group VIEs, anti-monopoly regulatory actions, and oversight on cybersecurity and data privacy, whichmay impact the Group’s ability to conduct certain businesses, accept foreign investments, or list on a U.S. or other foreign exchange outside of China. In addition, theChinese government may intervene or influence the Group’s operations at any time. These risks could result in a material adverse change in the Group’s operationsand the value of our ADSs and Class A ordinary shares, significantly limit or completely hinder our ability to offer or continue to offer securities to investors, orcause the value of such securities to significantly decline or become worthless. See “Item 3. Key Information⸺⸺D. Risks Factors⸺⸺Risks Related to DoingBusiness in China.”Furthermore, the Holding Foreign Companies Accountable Act, or the HFCA Act, may affect our ability to maintain our listing on the NYSE. Among otherthings, the HFCA Act states that if the SEC determines that we are an issuer that has filed audit reports issued by a registered public accounting firm that has not beensubject to inspection for the PCAOB for two consecutive years, the SEC shall prohibit our shares or ADSs from being traded on a national securities exchange or inthe over-the-counter trading market in the United States. In the event of such determination by the SEC, the NYSE would delist our ADSs. In December 2021, theU.S. Public Company Accounting Oversight Board, or the PCAOB, PCAOB made its determinations, or the 2021 determinations, pursuant to the HFCA Act that itwas unable to inspect or investigate completely registered public accounting firms headquartered in mainland China or Hong Kong, including our auditor Ernst &Young Hua Ming LLP. After we filed our annual report on Form 20-F for the fiscal year ended December 31, 2021 that included an audit report issued by Ernst &Young Hua Ming LLP on April 29, 2022, the SEC conclusively identified us as an SEC-identified issuer on May 26, 2022. On December 15, 2022, the PCAOBissued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable toinspect or investigate completely registered public accounting firms. For this reason, we do not expect to be identified as a SEC-identified issuer under the HFCA Actafter we file this annual report on Form 20-F for the year ended December 31, 2022. Each year, the PCAOB will determine whether it can inspect and investigatecompletely audit firms in mainland China and Hong Kong, among other jurisdictions. If PCAOB determines in the future that it no longer has full access to inspectand investigate completely accounting firms in mainland China and Hong Kong and we continue to use an accounting firm headquartered in one of these jurisdictionsto issue an audit report on our financial statements filed with the SEC, we would be identified as a SEC-identified issuer following the filing of the annual report onForm 20-F for the relevant fiscal year. There can be no assurance that we would not be identified as a SEC-identified issuer for any future fiscal year, and if we wereso identified for two consecutive years, we would become subject to the prohibition on trading under the HFCA Act. See “Item 16I. Disclosure Regarding ForeignJurisdictions that Prevent Inspections” and “Item 3. Key Information⸺⸺D. Risks Factors⸺⸺Risks Related to Doing Business in China⸺⸺If the PCAOBdetermines that it is unable to inspect or investigate completely our auditor at any point in the future, our ADSs may be prohibited from trading in the United Statesunder the Holding Foreign Companies Accountable Act, as amended, or the HFCA Act, and any such trading prohibition on our ADSs or threat thereof maymaterially and adversely affect the price of our ADSs and value of your investment.”PRC Permissions and ApprovalsThe Group has received all material permissions that are, or may be, required for its operations in China, and no material permission has been denied fromthe Group by relevant authorities in China. See “Item 4. Information on the Company⸺⸺B. Business Overview-Licenses and Permissions Requirements.” However,the Group is subject to risks relating to the regulatory environment in China. See “Item 3. Key Information⸺⸺D. Risk Factors⸺⸺Risks Related to Doing Businessin China⸺⸺There are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations. In addition, rules and regulations in China canchange quickly with little advance notice.”Table of Contents5Furthermore, the PRC authorities have recently promulgated new or proposed laws and regulations to further regulate securities offerings that are conductedoverseas by China-based issuers. For more detailed information, see “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations onM&A Rules and Overseas Listings”. According to these new laws and regulations and the draft laws and regulations if enacted in their current forms, in connectionwith our future offshore offering activities, we may be required to fulfill filing, reporting procedures with or obtain approval from the China Securities RegulatoryCommission, and may be required to go through cybersecurity review by the PRC authorities. However, we cannot assure you that we can obtain the requiredapproval or accomplish the required filing or other regulatory procedures in a timely manner, or at all. See “Item 3. Key Information⸺⸺D. Risks Factors⸺⸺RisksRelated to Doing Business in China⸺⸺The approval or filing requirement of the China Securities Regulatory Commission, or the CSRC, may be required inconnection with any future offering we may conduct, and, if required, we cannot predict whether we will be able to obtain such approval or complete such filings”and “Item 3. Key Information⸺⸺D. Risks Factors⸺⸺Risks Related to Doing Business in China⸺⸺The greater oversight by the Cyberspace Administration ofChina, or the CAC, over data security, particularly for companies seeking to list on a foreign exchange, could adversely impact our business and our offering.”Cash Transfers within Our Corporate StructureOur subsidiaries and the Group VIEs conduct business transactions that include intercompany loans and other intercompany transactions related to operatingactivities, subject to satisfaction of applicable government registration and approval requirements. We have established stringent cash management policies andprocedures for cash flows within the Group. Each transfer of funds among our Cayman Islands holding company, our subsidiaries and the VIE is subject to internalapproval. In general, transfer of funds is required to be effected through online banking system. Our management is directly supervising cash management. TheGroup VIE may initiate a cash request by putting forward a cash request plan, which explains the specific amount and timing of cash requested, and submitting it tothe finance department. The cashier specialists of our financial department review the cash request and submit it to relevant management personnel for approvalaccording to our internal control procedures. To ensure the liquidity, there is no limit on the amount of cash that can be transferred within our Group. In addition, wemonitor our cash balance on a daily basis and conduct periodic review on our cash holdings. The cash flows occurred between our company, our subsidiaries and theGroup VIEs are summarized below:For the years ended December 31, 2020, 2021 and 2022, our company did not provide any capital contribution to our subsidiaries. For the years endedDecember 31, 2020, 2021 and 2022, the Group VIEs provided loans of RMB488 million, RMB141 million and RMB85 million (US$12 million), respectively, to oursubsidiaries, and received repayments of RMB1,051 million, RMB642 million and RMB140 million (US$20 million), respectively. For the years endedDecember 31, 2020, 2021 and 2022, our subsidiaries provided loans of RMB1,854 million, RMB410 million and RMB77 million (US$11 million), respectively, tothe Group VIEs, and received repayments of RMB322 million, RMB189 million and RMB5 million (US$1 million), respectively.With respect to other intercompany transactions related to operating activities, our company received cash from our subsidiaries amounted to RMB1,029million, nil and RMB443 million (US$64 million) for the years ended December 31, 2020, 2021 and 2022, respectively, and paid cash to our subsidiaries amountedto RMB553 million, RMB33 million and RMB93 million (US$13 million) for the years ended December 31, 2020, 2021 and 2022, respectively. The Group VIEsreceived cash from our subsidiaries amounted to RMB212 million, RMB308 million and RMB32 million (US$5 million) for the years ended December 31, 2020,2021 and 2022, respectively, and repaid cash to our subsidiaries amounted to RMB335 million, RMB942 million and RMB53 million (US$8 million) for the yearsended December 31, 2020, 2021 and 2022, respectively. The Group VIEs received cash from our company amounted to RMB543 million, nil and RMB139 million(US$20 million) for the years ended December 31, 2020, 2021 and 2022, respectively, and repaid cash to our company amounted to RMB365 million, RMB150 million and RMB95 million (US$14 million) for the years ended December 31, 2020, 2021 and 2022, respectively.Table of Contents6We are subject to restrictions on currency exchange. In particular, the PRC government imposes controls on the convertibility of Renminbi into foreigncurrencies and, in certain cases, currency remittance out of the PRC. Since the Group receives substantially all of its revenues in Renminbi and cash flow will bedenominated in Renminbi, any existing and future restrictions on currency exchange may limit the Group’s ability to utilize cash generated in Renminbi to fund theGroup’s business activities outside of the PRC or pay dividends in foreign currencies to our shareholders, including holders of the ADSs, and may limit our ability toobtain foreign currency through debt or equity financing for our PRC subsidiaries and the affiliated consolidated entities. See “Item 3. Key Information⸺⸺D. RiskFactors⸺⸺Risks Related to Doing Business in China⸺⸺PRC regulation of loans to, and direct investment in, PRC entities by offshore holding companies andgovernmental control of currency conversion may restrict or prevent us from using the proceeds of our initial public offering to make loans to our PRC subsidiariesand Group VIEs, or to make additional capital contributions to our PRC subsidiaries.” In addition, there are certain limitations on the ability of our PRC subsidiariesand the Group VIEs to distribute earnings to our offshore holding companies and the U.S. investors. In particular, each of our PRC subsidiaries, the Group VIEs andtheir subsidiaries in the PRC are required to set aside at least 10% of its net income each year to fund certain statutory reserves until the cumulative amount of suchreserves reaches 50% of its registered capital. These reserves, together with the registered capital, are not distributable as cash dividends. See “Item 3. KeyInformation⸺⸺D. Risk Factors⸺⸺Risks Related to Our Corporate Structure⸺⸺We rely to a significant extent on dividends and other distributions on equity paidby our principal operating subsidiaries to fund offshore cash and financing requirements.”If any of our subsidiaries incurs debt on its own behalf in the future, the instruments governing such debt may restrict its ability to pay dividends to us.Since inception, we have not declared or paid any dividends on our shares. We do not have any present plan to declare or pay any dividends on our ordinaryshares or ADSs in the foreseeable future. We 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 certain Cayman Islands, PRC and United States federal income tax considerations of an investment in the ADSs and Class A ordinary shares, see“Item 10. Additional Information⸺⸺E. Taxation.”Financial Schedules Related to the Group VIEsThe tables set forth below the condensed consolidated schedule depicting the results of operations, the financial position and cash flows that disclose thefinancial information for Qudian Inc., or the Parent Company, the financial information for the subsidiaries of the Parent Company that are not the Group VIEs, thefinancial information for the Group VIEs, the eliminating adjustments between our Company and the Group VIEs and the consolidated results.Table of Contents7Condensed Consolidated Schedule of Results of Operation For the year ended December 31,202020212022 Parent Company Subsidiaries of Parent Company Group VIEs Elimination Consolidated Parent Company Subsidiaries of Parent Company Group VIEs Elimination Consolidated Parent Company Subsidiaries of Parent Company Group VIEs Elimination Consolidated(RMB in thousands)(RMB in thousands)(RMB in thousands)Third-party revenues — 248,062 3,532,955 (93,043) 3,687,974 — 550,886 1,591,171 (488,014) 1,654,043 — 276 577,217 — 577,493Intra-Grouprevenues(1) — 214,272 16,503 (230,775) — — 648 9,541 (10,189) — — 128 785 (913) —Total revenues — 462,334 3,549,458 (323,818) 3,687,974 — 551,534 1,600,712 (498,203) 1,654,043 — 404 578,002 (913) 577,493Third-party costs andexpenses (84,147) (298,575) (1,447,312) 217,801 (1,612,233) (45,318) (99,247) (947,955) 81,878 (1,010,642) (50,254) (7,346) (966,669) 23,834 (1,000,435)Intra-Group costsand expenses(1) — (45,692) (135,105) 180,797 — — (490,060) (648) 490,708 — — (913) — 913 —Total costs andexpenses (84,147) (344,267) (1,582,417) 398,598 (1,612,233) (45,318) (589,307) (948,603) 572,586 (1,010,642) (50,254) (8,259) (966,669) 24,747 (1,000,435)Operating gain/(loss) (84,147) 118,067 1,967,041 74,780 2,075,741 (45,318) (37,773) 652,109 74,383 643,401 (50,254) (7,855) (388,667) 23,834 (422,942)Income (loss) fromnon-operations 628,098 (265,671) (1,404,569) (74,780) (1,116,922) (5,128) (194,327) 216,364 (74,383) (57,474) 8,834 (91,174) 167,065 (23,835) 60,890Share of loss insubsidiaries (192,797) — — 192,797 — (292,444) — — 292,444 — (121,865) — — 121,865 —Contractual interestsin VIEs and VIEs’subsidiaries(3) 607,665 — — (607,665) — 931,964 — — (931,964) — (198,679) — — 198,679 —Net income/(loss) 958,819 (147,604) 562,472 (414,868) 958,819 589,074 (232,100) 868,473 (639,520) 585,927 (361,964) (99,029) (221,602) 320,543 (362,052)Table of Contents8Condensed Consolidated Schedule of Balance Sheets For the year ended December 31,202020212022 Parent Company Subsidiaries of Parent Company Group VIEs Elimination Consolidated Parent Company Subsidiaries of Parent Company Group VIEs Elimination Consolidated Parent Company Subsidiaries of Parent Company Group VIEs Elimination Consolidated(RMB in thousands)(RMB in thousands)(RMB in thousands)Cash and cashequivalents 813,176 149,933 574,449 — 1,537,558 558,272 123,342 1,383,881 — 2,065,495 559,373 230,325 2,696,678 — 3,486,376Restricted cash — 128,879 6,525 — 135,404 — 158,332 19,593 — 177,925 — 10,479 75,893 —86,372Total current assets 813,176 1,270,729 9,534,136 72,435 11,690,476 758,510 1,909,229 9,787,359 (237,009) 12,218,089 777,311 266,947 10,077,616 (63,348) 11,058,526Investments insubsidiaries(2) 10,178,732 — — (10,178,732) — 10,850,691 — — (10,850,691) — 10,406,137 — — (10,406,137) —Total non-currentassets — 345,467 1,360,689 1,400 1,707,556 — 105,027 1,744,115 23,895 1,873,037 — 44,263 1,619,592 24,054 1,687,909Amounts due fromQudian Inc. — 3,505 4,330 (7,835) — — — 4,330 (4,330) — — — 3,880 (3,880) —Amounts due fromsubsidiaries 1,564,134 — 1,506,501 (3,070,635) — 1,569,605 — 1,975,679 (3,545,284) — 797,287 — 105,833 (903,120) —Amounts due fromVIEs and VIEs’subsidiaries 179,847 1,080,556 — (1,260,403) — 25,631 889,898 — (915,529) — 70,882 11,364 — (82,246) —Amounts due fromgroup companies 1,743,981 1,084,0611,510,831 (4,338,873) — 1,595,236889,898 1,980,009 (4,465,143) — 868,169 11,364 109,713 (989,246) —Total assets 12,735,889 2,700,25712,405,656 (14,443,770) 13,398,032 13,204,4372,904,154 13,511,483 (15,528,948) 14,091,126 12,051,617 322,574 11,806,921 (11,434,677) 12,746,435Total currentliabilities 6,206 140,961 281,482 43,959 472,608 2,021 128,276 423,523 (60,303) 493,517 5,024 55,158 584,278 (59,530) 584,930Total non-currentliabilities 822,005 881 184,761 7,933 1,015,580 681,401 — 592,668 (200,000) 1,074,069 — 10 118,783 — 118,793Amounts due toQudian Inc. — 1,564,134 179,847 (1,743,981) — — 1,569,605 25,631 (1,595,236) — — 797,287 70,882 (868,169) —Amounts due tosubsidiaries 3,505 — 1,080,556 (1,084,061) — — 889,898 (889,898) — — — 11,364 (11,364) —Amounts due toVIEs and VIEs’subsidiaries 4,330 1,506,501 — (1,510,831) — 4,330 1,975,679 — (1,980,009) — 3,880 105,833 — (109,713) —Amounts due togroup companies 7,835 3,070,635 1,260,403 (4,338,873) — 4,330 3,545,284 915,529 (4,465,143) — 3,880 903,120 82,246 (989,246) —Total liabilities 836,046 3,212,477 1,726,646 (4,286,981) 1,488,188 687,752 3,673,560 1,931,720 (4,725,446) 1,567,586 8,904 958,288 785,307 (1,048,776) 703,723Table of Contents9Condensed Consolidated Schedule of Cash Flows For the year ended December 31,202020212022 Parent Company Subsidiaries of Parent Company Group VIEs Elimination Consolidated Parent Company Subsidiaries of Parent Company Group VIEs Elimination Consolidated Parent Company Subsidiaries of Parent Company Group VIEs Elimination Consolidated(RMB in thousands)(RMB in thousands)(RMB in thousands)Cash flows generatedfrom/(used in)operating activities (223,271) (86,145) 2,250,346 530,782 2,471,712 (11,537) 1,003,060 747,408 (816,866) 922,065 44,844 172,649 (329,949) 373,327 260,871Cash flows (usedin)/generated frominvesting activities 1,497,131 (135,982) (2,252,530) (2,378,495) (3,269,876) (132,143) (927,961) 645,957 167,567 (246,580) 908,576 1,240,565 489,499 (753,811)1,884,829Cash flows generatedfrom/(used in)financing activities (1,522,314) (734,396) (1,429,390) 2,094,828 (1,591,272) (127,088) (108,221) (571,156) 722,273 (84,192) (834,991) (701,934) 575,110 126,824 (834,991)Effect of exchangerate changes oncash, cashequivalents andrestricted cash 84,221 106,134 571 (247,115) (56,189) 15,864 35,984 291 (72,974) (20,835) (117,328) (91,304) (26,408) 253,660 18,620Netincrease/(decrease)in cash, cashequivalents andrestricted cash (164,233) (850,389) (1,431,003) — (2,445,625) (254,904) 2,862 822,500 — 570,458 1,101 619,976 708,252 — 1,329,329(1) Represents the intra-group transaction charge under a series of commercial agreements among the our subsidiaries, the Group VIEs and subsidiaries of the GroupVIEs.(2) Represents our investments in our subsidiaries.(3) Represents the primary beneficiary’s share of income/(loss) generated from the Group VIEs and their subsidiaries.Table of Contents10A.[Reserved]B.Capitalization and IndebtednessNot Applicable.C.Reasons for the Offer and Use of ProceedsNot Applicable.D.Risk FactorsSummary of Risk FactorsInvesting in our ADSs and Class A ordinary shares involves significant risks. You should carefully consider all of the information in this annual reportbefore making an investment in our ADSs and Class A ordinary shares. Below please find a summary of the principal risks we face, organized under relevantheadings.Risks Related to Our Business and Industry●The Group is in the process of winding down its credit business, and its revenue has and may continue to decrease significantly.●The Group historically operated its credit business, and it may be subject to penalties or administrative actions if the relevant regulatory authoritiesconsidered the Group’s past practice relating to its credit business to be not compliant with the relevant laws and regulations.●We intend to continue to explore new business opportunities, and such new businesses may not deliver the expected benefits.●From time to time the Group may evaluate and potentially consummate strategic investments or acquisitions, which could require significantmanagement attention, disrupt its business and materially and adversely affect its financial results.Risks Related to Our Corporate Structure●If the PRC government deems that the contractual arrangements in relation to the Group VIEs do not comply with PRC regulatory restrictions onforeign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could besubject to severe penalties or be forced to relinquish our interests in those operations.●Our contractual arrangements with the Group VIEs may result in adverse tax consequences to the Group.●We rely on contractual arrangements with the Group VIEs and their shareholders to operate the our business, which may be less effective than directownership in providing operational control and otherwise have a material adverse effect than to our business.●The shareholders of the Group VIEs may have potential conflicts of interest with us, which may materially and adversely affect our business andfinancial condition.●Our corporate actions will be substantially controlled by our founder, chairman and chief executive officer, Mr. Min Luo, who will have the ability tocontrol or exert significant influence over important corporate matters that require approval of shareholders, which may deprive you of an opportunityto receive a premium for your ADSs and materially reduce the value of your investment.Table of Contents11Risks Related to Doing Business in China●Changes in the political and economic policies of the PRC government may materially and adversely affect the Group’s business, financial conditionand results of operations and may result in the Group’s inability to sustain its growth and expansion strategies.●There are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations. In addition, rules and regulations in China canchange quickly with little advance notice.●The audit report included in this annual report is prepared by an auditor which the U.S. Public Company Accounting Oversight Board was unable toinspect and investigate completely before 2022 and, as such, our investors have been deprived of the benefits of such inspections in the past, and maybe deprived of the benefits of such inspections in the future.●If the PCAOB determines that it is unable to inspect or investigate completely our auditor at any point in the future, our ADSs may be prohibited fromtrading in the United States under the Holding Foreign Companies Accountable Act, as amended, or the HFCA Act, and any such trading prohibitionon our ADSs or threat thereof may materially and adversely affect the price of our ADSs and value of your investment.●The opinions on supervision of illegal securities activities issued by the General Office of the Central Committee of the Communist Party of China andthe General Office of the State Council may subject us to additional compliance requirements in the future.●The approval or filing requirement of the China Securities Regulatory Commission, or the CSRC, may be required in connection with any futureoffering we may conduct, and, if required, we cannot predict whether we will be able to obtain such approval or complete such filings.●PRC regulations relating to investments in offshore companies by PRC residents may subject our PRC-resident beneficial owners or our PRCsubsidiaries to liability or penalties, limit our ability to inject capital into our PRC subsidiaries or limit our PRC subsidiaries’ ability to increase theirregistered capital or distribute profits.●Any failure to comply with PRC regulations regarding our employee share incentive plans may subject the PRC plan participants or us to fines andother legal or administrative sanctions.●We rely to a significant extent on dividends and other distributions on equity paid by our principal operating subsidiaries to fund offshore cash andfinancing requirements.Risks Related to Our Ordinary Shares and ADSs●The trading price of our ADSs may be volatile, which could result in substantial losses to you.●If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price for ourADSs and trading volume could decline.●Because we do not expect to pay dividends in the foreseeable future, you must rely on price appreciation of our ADSs for return on your investment.Table of Contents12Risks Related to Our Business and IndustryThe Group is in the process of winding down its credit business, and its revenue has and may continue to decrease significantly.The Group historically derived substantially all of its revenue from its credit business. After careful evaluation, the Company has decided to cease newcredit offerings as of September 6, 2022. As a result of the Group’s decision to cease new credit offerings, there was no outstanding loan balance from the loan bookbusiness as of December 31, 2022. As a result, the Group expects its revenue to decline substantially in 2023, compared with 2022.The Group historically operated its credit business, and it may be subject to penalties or administrative actions if the relevant regulatory authorities consideredthe Group’s past practice relating to its credit business to be not compliant with the relevant laws and regulations.The Group historically operated a credit business. The Group has ceased new credit offerings after September 6, 2022 and there was no outstanding loanbalance from the Group’s loan book business as of December 31, 2022. The Group’s credit business was subject to a variety of laws and regulations in the PRC thatare related to financial services, including consumer finance, small credit, and private lending. The application and interpretation of these laws and regulations areambiguous, particularly in the evolving online consumer finance industry in which the Group operated, and may be interpreted and applied inconsistently betweenthe different government authorities. As of the date of this annual report, the Group has not been subject to any material fines or other penalties under any PRC lawsor regulations as to the Group’s business operations. Nonetheless, if the relevant regulatory authorities determined that the Group’s past practice relating to its creditbusiness was not compliant with the relevant laws and regulations, the Group may be subject to penalties and potential administrative actions.We intend to continue to explore new business opportunities, and such new businesses may not deliver the expected benefits.The Group has been exploring new business opportunities. If the Group experiences initial success with a new business, the Group may decide to investsignificant amounts of capital to grow the business. We cannot assure you that the Group’s new business initiatives will be successful. For example, the Group is inthe process of winding down its budget auto financing business, the Wanlimu e-commerce platform and the QD Food business. The Group had closed all of itsWanlimu education centers in November 2022 and completely wound down its Wanlimu Kids Clubs business in March 2023. The Group may make significantcapital expenditures to develop new businesses, and our management’s attention may be diverted. The Group may also incur significant cost to comply with the lawsand regulations that apply to such new businesses. Any failure of the Group’s efforts to pursue new business opportunities could have a material adverse effect on theGroup’s business, prospects, financial condition and results of operations. In addition, if the Group is unable to identity suitable new business opportunity to persue,the Group may not be able to continue its business.In addition, the Group may also explore business opportunities overseas. As such, the Group may face risks associated with entering into markets where theGroup has limited or no experience, the Group may be less well-known or have fewer local resources and it may need to localize its business practices, culture andoperations. The Group may not be able to secure sufficient capital to support its overseas operations. In addition, the Group may incur significant cost to comply withoverseas laws and regulations, and it could be subject to penalties for any failure to comply with such laws and regulations. The Group also faces protectionist ornational security policies that could, among other things, hinder the Group’s ability to execute its business strategies and put the Group at a competitive disadvantagerelative to domestic companies in other jurisdictions. Failure to manage these risks and challenges could negatively affect our ability to explore businessopportunities overseas, as well as materially and adversely affect our business, financial condition and results of operations.From time to time the Group may evaluate and potentially consummate strategic investments or acquisitions, which could require significant managementattention, disrupt its business and materially and adversely affect its financial results.We may evaluate and consider strategic investments, combinations, acquisitions or alliances to better serve customers and enhance our competitive position.These transactions could be material to the Group’s financial condition and results of operations if consummated. There can be no assurance that these transactionswill offer the expected benefits, and we may suffer significant investment losses as a result of such transactions.Table of Contents13We purchased 10,204,082 Class A ordinary shares issued by Secoo Holding Limited (NASDAQ: SECO), or Secoo, for an aggregate consideration ofUS$100 million in June 2020. Secoo is a large online integrated upscale products and services platform. As of March 31, 2023, we had sold substantially all of theequity interests we previously held in Secoo. The Group may continue to recognize loss from its strategic investments in the future, which could have a material andadverse effect on the Group’s financial condition and results of operations.●If we are able to identify an appropriate business opportunity, we may not be able to successfully consummate the transaction and, even if we doconsummate such a transaction, we may be unable to obtain the benefits or avoid the difficulties and risks of such transaction, which may result ininvestment losses. Strategic investments or acquisitions will involve risks commonly encountered in business relationships, including: difficulties inassimilating and integrating the operations, personnel, systems, data, technologies, products and services of the acquired business;●inability of the acquired technologies, products or businesses to achieve expected levels of revenue, profitability, productivity or other benefitsincluding the failure to successfully further develop the acquired technology;●difficulties in retaining, training, motivating and integrating key personnel;●diversion of management’s time and resources from the Group’s normal daily operations and potential disruptions to the Group’s ongoing businesses;●difficulties in maintaining uniform standards, controls, procedures and policies within the combined organizations;●difficulties in retaining relationships with users, business partners, employees and other partners of the acquired business;●risks of entering markets in which the Group has limited or no prior experience;●regulatory risks, including remaining in good standing with existing regulatory bodies or receiving any necessary pre-closing or post-closing approvals,as well as being subject to new regulators with oversight over an acquired business;●assumption of contractual obligations that contain terms that are not beneficial to the Group, require the Group to license or waive intellectual propertyrights or increase the Group’s risk for liability;●liability for activities of the acquired business before the acquisition, including intellectual property infringement claims, violations of laws,commercial disputes, tax liabilities and other known and unknown liabilities; and●unexpected costs and unknown risks and liabilities associated with strategic investments or acquisitions.We may not make any investments or acquisitions, or any future investments or acquisitions may not be successful, may not benefit the Group’s businessstrategy, may not generate sufficient revenues to offset the associated acquisition costs or may not otherwise result in the intended benefits.From time to time we may also make financial investments, such as investments in equity securities of other companies, and there can be no assurance thatwe will be able to realize profits from such investments. We may also engage in corporate restructuring in order to facilitate capital raising and/or incubate newbusinesses. However, we may fail to obtain such intended benefits.As the Group is winding down QD Food, it may incur significant write-downs or write-offs, and the Group’s results of operations, financial condition andliquidity may be materially and adversely affected.The Group launched QD Food business, a ready-to-cook meals business, in March 2022 and the Group is in the process of winding down such business. Asa result, the Group expects to incur employee severance costs, termination fees for business partners and inventory write offs, which may adversely affect its financialcondition and results of operations.Table of Contents14PRC regulation of loans to, and direct investment in, PRC entities by offshore holding companies and governmental control of currency conversion may restrictor prevent us from making loans to our PRC subsidiaries and the Group VIEs, or to make additional capital contributions to our PRC subsidiaries.We, as an offshore holding company, are permitted under PRC laws and regulations to provide funding to our PRC subsidiaries, which are treated as foreign-invested enterprises under PRC laws, through loans or capital contributions. However, loans by us to our PRC subsidiaries to finance their activities cannot exceedstatutory limits and must be registered with the local counterpart of State Administration of Foreign Exchange, or the SAFE, and capital contributions to our PRCsubsidiaries are subject to the requirement of making necessary filings in the Foreign Investment Comprehensive Management Information System, and registrationwith other governmental authorities in China.SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming the Administration of Foreign Exchange Settlement ofCapital of Foreign-invested Enterprises, or Circular 19, effective on June 1, 2015, in replacement of the Circular on the Relevant Operating Issues Concerning theImprovement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or SAFE Circular 142, the Noticefrom the State Administration of Foreign Exchange on Relevant Issues Concerning Strengthening the Administration of Foreign Exchange Businesses, or Circular59, and the Circular on Further Clarification and Regulation of the Issues Concerning the Administration of Certain Capital Account Foreign Exchange Businesses,or Circular 45. According to Circular 19, the flow and use of the RMB capital converted from foreign currency-denominated registered capital of a foreign-investedcompany is regulated such that RMB capital may not be used for the issuance of RMB entrusted loans, the repayment of inter-enterprise loans or the repayment ofbanks loans that have been transferred to a third party. Although Circular 19 allows RMB capital converted from foreign currency-denominated registered capital of aforeign-invested enterprise to be used for equity investments within the PRC, it also reiterates the principle that RMB converted from the foreign currency-denominated capital of a foreign-invested company may not be directly or indirectly used for purposes beyond its business scope. Thus, it is unclear whether SAFEwill permit such capital to be used for equity investments in the PRC in actual practice. SAFE promulgated the Notice of the State Administration of ForeignExchange on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of Capital Account, or Circular 16, effective on June 9, 2016,which reiterates some of the rules set forth in Circular 19, but changes the prohibition against using RMB capital converted from foreign currency-denominatedregistered capital of a foreign-invested company to issue RMB entrusted loans to a prohibition against using such capital to issue loans to non-associated enterprises.Violations of SAFE Circular 19 and Circular 16 could result in administrative penalties. Circular 19 and Circular 16 may significantly limit our ability to transfer anyforeign currency we hold to our PRC subsidiaries, which may adversely affect our liquidity and our ability to fund and expand our business in the PRC.Due to the restrictions imposed on loans in foreign currencies extended to any PRC domestic companies, we are not likely to make such loans to any of theGroup VIEs and their subsidiaries, each a PRC domestic company. Meanwhile, we are not likely to finance the activities of the Group VIEs and their subsidiaries bymeans of capital contributions given the restrictions on foreign investment in the businesses that are currently conducted by the Group VIEs and their subsidiaries.In light of the various requirements imposed by PRC regulations on loans to, and direct investment in, PRC entities by offshore holding companies, wecannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all,with respect to future loans to our PRC subsidiaries or any consolidated variable interest entity or future capital contributions by us to our PRC subsidiaries. As aresult, uncertainties exist as to our ability to provide prompt financial support to our PRC subsidiaries or the Group VIEs and their subsidiaries when needed. If wefail to complete such registrations or obtain such approvals, our ability to use foreign currency and to capitalize or otherwise fund our PRC operations may benegatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.Table of Contents15We may need additional capital to pursue business objectives and respond to business opportunities, challenges or unforeseen circumstances, and financing maynot be available on terms acceptable to us, or at all.Since inception, we have issued equity securities to support the growth of the Group’s business. In addition, we issued US$345 million aggregate principalamount of convertible senior notes in July 2019, and we had repurchased all outstanding convertible senior notes as of December 31, 2022. As we intend to continueto make investments to support the growth of the Group’s business, we may require additional capital to pursue the Group’s business objectives and respond tobusiness opportunities, challenges or unforeseen circumstances, including developing new products and services, further enhancing the Group’s risk managementcapabilities, increasing the Group’s marketing expenditures to improve brand awareness and diversify the Group’s borrower engagement channels by collaboratingwith other leading Internet companies, enhancing the Group’s operating infrastructure and acquiring complementary businesses and technologies. Accordingly, wemay need to engage in equity or debt financings to secure additional funds. However, additional funds may not be available when we need them, on terms that areacceptable to us, or at all. Repayment of the debts may divert a substantial portion of cash flow to pay principal and interest on such debt, which would reduce thefunds available for expenses, capital expenditures, acquisitions and other general corporate purposes; and we may suffer default and foreclosure on the Group’s assetsif the Group’s operating cash flow is insufficient to repay debt obligations, which could in turn result in acceleration of obligations to repay the indebtedness and limitour 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 issuancesof equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights,preferences and privileges superior to those of holders of our Class A ordinary shares. If we are unable to obtain adequate financing or financing on terms satisfactoryto us when we require it, our ability to continue to pursue the Group’s business objectives and to respond to business opportunities, challenges or unforeseencircumstances could be significantly limited, and the Group’s business, operating results, financial condition and prospects could be adversely affected.Any harm to our brands or reputation or any damage to the reputation of the online consumer finance industry may materially and adversely affect the Group’sbusiness and results of operations.Enhancing the recognition and reputation of our brands is critical to the Group’s business and competitiveness. Any malicious or otherwise negativeallegation made by the media or other parties about the foregoing or other aspects of the Group, including our management, business, compliance with law, financialcondition, prospects or the Group’s historical credit business, such as the putative shareholder class action lawsuits that we were involved in, whether with merit ornot, could severely hurt our reputation and harm the Group’s business and results of operations. In addition, certain factors that may adversely affect our reputationare beyond our control. Negative publicity about the parties that the Group collaborates with, including negative publicity about any failure by them to adequatelyprotect the information of their users, to comply with applicable laws and regulations or to otherwise meet required quality and service standards, could also harm ourreputation or result in negative perception of the products the Group offers. Negative developments in the industry the Group operates in may also lead to tightenedregulatory scrutiny of the sector and limit the scope of permissible business activities that may be conducted. If any of the foregoing takes place, the Group’s businessand results of operations could be materially and adversely affected.As the Group winds down Dabai Auto business, revenues generated from such business will decrease, and the Group may record write-downs in relation to theprocess of winding down such business.The Group has started to wind down its budget auto financing business in the second quarter of 2019. As a result, revenues generated from the Dabai Autobusiness will further decrease. Sales income in relation to Dabai Auto business was RMB122.8 million, RMB23.3 million and RMB3.8 million (US$0.6 million) in2020, 2021 and 2022, respectively. As of December 31, 2022, the Group carried finance lease receivable of RMB1.4 million (US$0.2 million). The decrease inrevenues generated from Dabai Auto business and any further write-down that may be recorded during the process of winding down such business may adverselyaffect the Group’s business, financial condition and results of operations.Table of Contents16The Group’s quarterly results may fluctuate significantly and may not fully reflect the underlying performance of the Group’s business.The Group’s quarterly results of operations, including the levels of the Group’s total revenues, cost of revenues and operating expenses, net income/(loss)and other key metrics, may vary significantly in the future due to a variety of factors, some of which are outside of our control, and period-to-period comparisons ofthe Group’s operating results may not be meaningful, especially given the Group’s limited operating history. Accordingly, the results for any one quarter are notnecessarily an indication of future performance. Fluctuations in quarterly results may adversely affect the price of our ADSs. Factors that may cause fluctuations inthe Group’s quarterly financial results include:●the mix of products the Group offers;●performance of the Group’s businesses;●the timing of expenses related to the development or acquisition of technologies or businesses;●network outages or security breaches;●general economic, industry and market conditions; and●changes in applicable laws and regulations.In addition, the Group has commenced construction of its innovation park in Xiamen, Fujian Province, and the construction is expected to be completed inthe third quarter of 2023. If the costs and expenses incurred for the construction exceed our planned limits, the Group’s financial results may be negatively affected.The Group’s success and future growth depend significantly on the Group’s successful marketing efforts, and if the Group is unable to promote and maintainour brands in an effective and cost-efficient way, the Group’s business and financial results may be harmed.We believe that developing and maintaining awareness of our brands effectively is critical to attracting new and retaining existing customers. Successfulpromotion of our brands and the Group’s ability to attract customers depend largely on the effectiveness of the Group’s marketing efforts and the success of thechannels the Group uses to promote its brands and products. Our efforts to build our brands may cause the Group to incur significant expenses. These efforts may notresult in increased revenue in the immediate future or at all and, even if they do, any increases in revenue may not offset the expenses incurred. If the Group fails tosuccessfully promote and maintain our brands while incurring substantial expenses, the Group’s results of operations and financial condition would be adverselyaffected, which may impair the Group’s ability to grow its business.The Group’s business and internal systems rely on software that is highly technical, and if it contains undetected errors, the Group’s business could be adverselyaffected.The Group’s business and internal systems rely on software that is highly technical and complex. In addition, the Group’s business and internal systemsdepend on the ability of such software to store, retrieve, process and manage large amounts of data. The software on which the Group relies has contained, and maynow or in the future contain, undetected errors or bugs. Some errors may only be discovered after the code has been released for external or internal use. Errors orother design defects within the software on which the Group relies may result in a negative experience for users, delay introductions of new features orenhancements, result in errors or compromise our ability to protect user data or the Group’s intellectual property, or affect the accuracy of the Group’s operating data.Any errors, bugs or defects discovered in the software on which the Group relies could result in harm to the Group’s reputation, loss of users, liability for damages,any of which could adversely affect the Group’s business, financial condition and results of operations.Table of Contents17Any significant disruption in the Group’s information technology systems, including events beyond our control, could prevent the Group from offering itsproducts, thereby reduce the attractiveness of the Group’s products and result in a loss of borrowers or institutional funding partners.In the event of a system outage and physical data loss, the Group’s ability to provide products would be materially and adversely affected. The satisfactoryperformance, reliability and availability of the Group’s technology and its underlying network infrastructure are critical to the Group’s operations, user service,reputation and the Group’s ability to attract new and retain existing borrowers and institutional funding partners. The Group’s information technology systemsinfrastructure is currently deployed and the Group’s data is currently maintained on customized cloud computing services in China. The Group’s operations dependon the service provider’s ability to protect its and the Group’s systems in its facilities against damage or interruption from natural disasters, power ortelecommunications failures, air quality issues, environmental conditions, computer viruses or attempts to harm the Group’s systems, criminal acts and similar events.Since the launch of the Group’s business, the Group had experienced the system outage during the holiday seasons in China due to competition for available cloudcomputing services provided by the Group’s service provider and we cannot assure you that such incidents will not occur in the future. Moreover, if the Group’sarrangement with this service provider is terminated or if there is a lapse of service or damage to their facilities, the Group could experience interruptions in itsservice as well as delays and additional expense in arranging new products for borrowers.Any interruptions or delays in the Group’s service, whether as a result of third-party error, the Group’s error, natural disasters or security breaches, whetheraccidental or willful, could harm the Group’s relationships with users and business partners and our reputation. Additionally, in the event of damage or interruption,the Group’s insurance policies may not adequately compensate the Group for any losses that it may incur. The Group also may not have sufficient capacity to recoverall data and services in the event of an outage. These factors could prevent the Group from maintaining business operations, damage our brands and reputation, divertthe Group’s employees’ attention, reduce the Group’s revenue, subject the Group to liability and cause users to abandon the Group’s products, any of which couldadversely affect the Group’s business, financial condition and results of operations.Misconduct and errors by the Group’s employees and parties the Group collaborates with could harm the Group’s business and reputation.The Group is exposed to many types of operational risks, including the risk of misconduct and errors by the Group’s employees and parties that the Groupcollaborates with. The Group’s business depends on its employees and/or business partners to interact with users and its business may involve the collection and useof personal information. The Group could be materially and adversely affected if personal information was disclosed to unintended recipients or if an operationalbreakdown occurred, whether as a result of human error, purposeful sabotage or fraudulent manipulation of the Group’s operations or systems. It is not alwayspossible to identify and deter misconduct or errors by employees or business partners, and the precautions the Group takes to detect and prevent this activity may notbe effective in controlling unknown or unmanaged risks or losses. If any of the Group’s employees or business partners take, convert or misuse funds, documents ordata or fail to follow the Group’s rules and procedures when interacting with users, the Group could be liable for damages and subject to regulatory actions andpenalties. Any future allegations of employee misconduct, whether perceived or actual, could materially and adversely affect the Group’s reputation and business.The Group could also be perceived to have facilitated or participated in the illegal misappropriation of funds, documents or data, or the failure to follow the Group’srules and procedures, and therefore be subject to civil or criminal liability. Any of these occurrences could result in the Group’s diminished ability to operate itsbusiness, potential liability to users, inability to attract users, reputational damage, regulatory intervention and financial harm, which could negatively impact theGroup’s business, financial condition and results of operations.Table of Contents18If the Group is unable to protect the confidential information of its users and adapt to the relevant regulatory framework as to protection of such information,the Group’s business and operations may be adversely affected.The Group collects, store and process certain personal and other sensitive data from its users, which makes the Group an attractive target and potentiallyvulnerable to cyber-attacks, computer viruses, physical or electronic break-ins or similar disruptions. While the Group has taken steps to protect the confidentialinformation that it has access to, the Group’s security measures could be breached. Because techniques used to sabotage or obtain unauthorized access to systemschange frequently and generally are not recognized until they are launched against a target, the Group may be unable to anticipate these techniques or to implementadequate preventative measures. Any accidental or willful security breaches or other unauthorized access to the Group’s system could cause confidential userinformation to be stolen and used for criminal purposes. Security breaches or unauthorized access to confidential information could also expose the Group to liabilityrelated to the loss of the information, time-consuming and expensive litigation and negative publicity. If security measures are breached because of third-party action,employee error, malfeasance or otherwise, or if design flaws in the Group’s technology infrastructure are exposed and exploited, the Group’s relationships with userscould be severely damaged, the Group could incur significant liability and its business and operations could be adversely affected. For example, there have beenmedia reports alleging that former employees of the Group have misappropriated and sold borrower data. The Group is not aware of any former employee who hasbeen identified by law enforcement authorities to have engaged in such misconduct, and we do not believe such allegations have had a material impact on theGroup’s business. However, future allegations of data breaches, whether perceived or actual, could materially and adversely affect the Group’s reputation andbusiness.In addition, PRC government authorities have enacted a series of laws and regulations in regard of the protection of personal information, under whichinternet service providers and other network operators are required to comply with the principles of legality, justification and necessity, to clearly indicate thepurposes, methods and scope of any information collection and usage, and to obtain the consent of users, as well as to establish user information protection systemwith appropriate remedial measures. The Group has obtained the consents from its users to use their personal information within the scope of authorization and theGroup has taken technical measures to ensure the security of such personal information and prevent the personal information from being divulged, damaged or lost.However, there is uncertainty as to the interpretation and application of such laws which may be interpreted and applied in a manner inconsistent with the Group’scurrent policies and practices or require changes to the features of the Group’s system. We cannot assure you that the Group’s existing user information protectionsystem and technical measures will be considered sufficient under applicable laws and regulations. If the Group is unable to address any information protectionconcerns, or to comply with the then applicable laws and regulations, it may incur additional costs and liability and the Group’s reputation, business and operationsmight be adversely affected.If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired.We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of the NYSE. The Sarbanes-OxleyAct requires, among other things, that we maintain effective disclosure controls and procedures and internal controls over financial reporting. We must performsystem and process evaluation and testing of our internal controls over financial reporting to allow management to report on the effectiveness of our internal controlsover financial reporting in our Form 20-F filing for each year, as required by Section 404 of the Sarbanes-Oxley Act. In addition, our independent registered publicaccounting firm must attest to and report on the effectiveness of our internal control over financial reporting.As of December 31, 2022, our management has concluded that our internal control over financial reporting is effective. See “Item 15. Controls andProcedures⸺⸺Management’s Annual Report on Internal Control over Financial Reporting.” Our independent registered public accounting firm has issued a report,which has concluded that we maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022.However, our internal control over financial reporting may not prevent or detect all errors and all fraud for a variety of reasons. Among others, the Groupoperates its business in China, an emerging market where the overall internal control environment may not be as strong as in more established markets. In addition, acontrol system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met.Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will notoccur or that all control issues and instances of fraud will be detected.Table of Contents19If we are unable to maintain proper and effective internal controls, we may not be able to produce timely and accurate financial statements. If that were tohappen, the trading price of our ADSs could decline and we could be subject to sanctions or investigations by the NYSE, SEC or other regulatory authorities.The Group may not be able to prevent others from unauthorized use of its intellectual property, which could harm its business and competitive position.We regard the Group’s trademarks, domain names, copyrights, know-how, proprietary technologies and similar intellectual property as critical to theGroup’s success, and the Group relies on trademark and trade secret law and confidentiality, invention assignment and non-compete agreements with the Group’semployees and others to protect the Group’s proprietary rights. See “Item 4. Information on the Company⸺⸺B. Business Overview-Regulation⸺⸺RegulationsRelated to Intellectual Property Rights.” However, we cannot assure you that any of the Group’s intellectual property rights would not be challenged, invalidated orcircumvented, or such intellectual property will be sufficient to provide the Group with competitive advantages. In addition, other parties may misappropriate theGroup’s intellectual property rights, which would cause the Group to suffer economic or reputational damages. Because of the rapid pace of technological change,nor can we assure you that all of the Group’s proprietary technologies and similar intellectual property will be patented in a timely or cost-effective manner, or at all.Furthermore, parts of the Group’s business rely on technologies developed or licensed by other parties, or co-developed with other parties, and the Group’s may notbe able to obtain or continue to obtain licenses and technologies from these other parties on reasonable terms, or at all.It is often difficult to register, maintain and enforce intellectual property rights in China. Statutory laws and regulations are subject to judicial interpretationand 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 the Group for any such breach. Accordingly, the Groupmay not be able to effectively protect its intellectual property rights or to enforce the Group’s contractual rights in China. Preventing any unauthorized use of theGroup’s intellectual property is difficult and costly and the steps the Group takes may be inadequate to prevent the misappropriation of its intellectual property. In theevent that the Group resorts to litigation to enforce its intellectual property rights, such litigation could result in substantial costs and a diversion of our managerialand financial resources. We can provide no assurance that the Group will prevail in such litigation. In addition, the Group’s trade secrets may be leaked or otherwisebecome available to, or be independently discovered by, our competitors. To the extent that the Group’s employees or consultants use intellectual property owned byothers in their work for the Group, disputes may arise as to the rights in related know-how and inventions. Any failure in protecting or enforcing the Group’sintellectual property rights could have a material adverse effect on the Group’s business, financial condition and results of operations.The Group may be subject to intellectual property infringement claims, which may be expensive to defend and may disrupt its business and operations.We cannot be certain that the Group’s operations or any aspects of the Group’s business do not or will not infringe upon or otherwise violate trademarks,copyrights, know-how, proprietary technologies or other intellectual property rights held by other parties. The Group may be from time to time in the future subject tolegal proceedings and claims relating to the intellectual property rights of others. In addition, there may be other parties’ trademarks, copyrights, know-how,proprietary technologies or other intellectual property rights that are infringed by the Group’s products or other aspects of the Group’s business without the Group’sawareness. Holders of such intellectual property rights may seek to enforce such intellectual property rights against the Group in China, the United States or otherjurisdictions. If any infringement claims are brought against the Group, the Group may be forced to divert management’s time and other resources from its businessand operations to defend against these claims, regardless of their merits.Additionally, the application and interpretation of China’s intellectual property right laws and the procedures and standards for granting trademarks,copyrights, know-how, proprietary technologies or other intellectual property rights in China are still evolving and are uncertain, and we cannot assure you that PRCcourts or regulatory authorities would agree with our analysis. If the Group were found to have violated the intellectual property rights of others, the Group may besubject to liability for its infringement activities or may be prohibited from using such intellectual property, and it may incur licensing fees or be forced to developalternatives of its own. As a result, the Group’s business and results of operations may be materially and adversely affected.Table of Contents20We may continue to repurchase our shares, and such repurchases may be at prices that exceed the trading price of our ADSs. We cannot guarantee that ourshare repurchase program will enhance long-term shareholder value, and it may fail to deliver the intended benefits.In January 2020, we announced a share repurchase program, under which we may repurchase up to US$500 million worth of our outstanding ADSs/orordinary shares over a period of 30 months. In June 2022, we announced a new share repurchase program, under which we may repurchase up to US$200 millionworth of our outstanding ADSs/ or ordinary shares over a period of 24 months. Under the new share repurchase program, we are authorized to repurchase our ADSsfrom time to time through open market transactions at prevailing market prices, privately negotiated transactions, block trades or any combination thereof. Ourmanagement is authorized to determine the terms and conditions relating to the program, including, among others, the quantity, timing, price and purpose of sharerepurchases.In the future, we plan to continue to make share repurchases, and such repurchases may be at prices that differ from the trading price of our ADSs. Forexample, upon obtaining approval from our board of directors, we purchased all 18,173,885 of our Class A ordinary shares then held by Kunlun Group Limited, orKunlun, at a premium to the then prevailing trading price of our ADSs on April 29, 2019. While we believe our share repurchases in the past helped us stabilize shareprice and promote shareholders’ interests, there can be no assurance that we will achieve the intended benefit of any future share repurchase to enhance value toshareholders.The Group’s business depends on the continued efforts of our senior management. If one or more of our key executives were unable or unwilling to continue intheir present positions, our business may be severely disrupted.The Group’s business operations depend on the continued services of our senior management, particularly the executive officers named in this annual report.In particular, Mr. Min Luo, our founder, chairman and chief executive officer, is critical to the management of the Group’s business and operations and thedevelopment of our strategic direction. While we have provided different incentives to our management, we cannot assure you that we can continue to retain theirservices. If one or more of our key executives were unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all, theGroup’s future growth may be constrained, the Group’s business may be severely disrupted and the Group’s financial condition and results of operations may bematerially and adversely affected, and we may incur additional expenses to recruit, train and retain qualified personnel. In addition, although we have entered intoconfidentiality and non-competition agreements with our management, there is no assurance that any member of our management team will not join our competitorsor form a competing business. If any dispute arises between our current or former officers and us, we may have to incur substantial costs and expenses in order toenforce such agreements in China or we may be unable to enforce them at all.Competition for employees is intense, and the Group may not be able to attract and retain the qualified and skilled employees needed to support the Group’sbusiness.We believe the Group’s success depends on the efforts and talent of the Group’s employees, including technology and product development, riskmanagement, operation management and finance personnel. The Group’s future success depends on its continued ability to attract, develop, motivate and retainqualified and skilled employees. Competition for highly skilled technical, risk management, operation management and financial personnel is extremely intense. TheGroup may not be able to hire and retain these personnel at compensation levels consistent with its existing compensation and salary structure. Some of thecompanies with which the Group competes for experienced employees have greater resources than the Group has and may be able to offer more attractive terms ofemployment.In addition, the Group invests significant time and expenses in training the Group’s employees, which increases their value to competitors who may seek torecruit them. If the Group fails to retain its employees, the Group could incur significant expenses in hiring and training their replacements, and the quality of theGroup’s services and the Group’s ability to serve borrowers and investors could diminish, resulting in a material adverse effect to the Group’s business.Table of Contents21Increases in labor costs in the PRC may adversely affect the Group’s 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 continueto increase. In addition, the Group is required by PRC laws and regulations to pay various statutory employee benefits, including pension, housing fund, medicalinsurance, work-related injury insurance, unemployment insurance and maternity insurance to designated government agencies for the benefit of the Group’semployees. The relevant government agencies may examine whether an employer has made adequate payments to the statutory employee benefits, and thoseemployers who fail to make adequate payments may be subject to late payment fees, fines and/or other penalties. We expect that the Group’s labor costs, includingwages and employee benefits, will continue to increase. Unless the Group is able to control its labor costs or pass on these increased labor costs, the Group’s financialcondition and results of operations may be adversely affected.If the Group cannot maintain its corporate culture as it grows, it could lose the innovation, collaboration and focus that contribute to the success of the Group’sbusiness.We believe that a critical component of the Group’s success is its corporate culture, which we believe cultivates efficiency, fosters innovation, encouragesteamwork and embraces changes and development. As the Group develops the infrastructure of a public company and continues to grow, we may find it difficult tomaintain these valuable aspects of the Group’s corporate culture. Any failure to preserve the Group’s culture could negatively impact the Group’s future success,including the Group’s ability to attract and retain employees, encourage innovation and teamwork and effectively focus on and pursue the Group’s corporateobjectives.The Group does not have any business insurance coverage.Insurance companies in China currently do not offer as extensive an array of insurance products as insurance companies in more developed economies.Currently, the Group does not have any business liability or disruption insurance to cover the Group’s operations. We have determined that the costs of insuring forthese risks and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for the Group to have such insurance.Any uninsured business disruptions may result in the Group’s incurring substantial costs and the diversion of resources, which could have an adverse effect on theGroup’s results of operations and financial condition.We could be adversely affected by political tensions between the United States and China.Political tensions between the United States and China have escalated in recent years due to, among other things,●the trade war between the two countries since 2018;●the COVID-19 pandemic;●the PRC National People’s Congress’ passage of Hong Kong national security legislation;●the imposition of U.S. sanctions on certain Chinese officials from China’s central government and the Hong Kong Special Administrative Region bythe U.S. government, and the imposition of sanctions on certain individuals from the U.S. by the Chinese government;●various executive orders issued by the U.S. government, which include, among others,●the executive order issued in August 2020, as supplemented and amended from time to time, that prohibits certain transactions with ByteDance Ltd.,Tencent Holdings Ltd. and the respective subsidiaries of such companies;●the executive order issued in November 2020, as supplemented and amended from time to time, including, among others, by an executive order issuedin June 2021, that prohibits U.S. persons from transacting publicly traded securities of certain Chinese companies named in such executive order;●the executive order issued in January 2021, as supplemented and amended from time to time, that prohibits such transactions as are identified by theU.S. Secretary of Commerce with certain “Chinese connected software applications,” including Alipay and WeChat Pay;Table of Contents22●the imposition and application of sanction blocking statutes by the Chinese government, including the Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures promulgated by the MOFCOM, on January 9, 2021, which will apply to Chineseindividuals or entities that are purportedly barred by a foreign country’s law from dealing with nationals or entities of a third country; and●the implementation of comprehensive export controls by the U.S. government to restrict the export of advanced semiconductors and the equipmentrequired to manufacture them to China.Rising political tensions between China and the U.S. could reduce levels of trades, investments, technological exchanges and other economic activitiesbetween the two major economies, which would have a material adverse effect on global economic conditions and the stability of global financial markets. Themeasures taken by the U.S. and Chinese governments may have the effect of restricting our ability to transact or otherwise do business with entities within or outsideof China and may cause investors to lose confidence in Chinese companies and counterparties, including us. If the Group was unable to conduct its business as it iscurrently conducted as a result of such regulatory changes, the Group’s business, results of operations and financial condition would be materially and adverselyaffected.Furthermore, the U.S. government has imposed measures regarding limiting or restricting China-based companies from accessing U.S. capital markets, anddelisting China-based companies from U.S. national securities exchanges. For further information, see “⸺⸺Risks Related to Doing Business in China⸺⸺The auditreport included in this annual report is prepared by an auditor which the U.S. Public Company Accounting Oversight Board was unable to inspect and investigatecompletely before 2022 and, as such, our investors have been deprived of the benefits of such inspections in the past, and may be deprived of the benefits of suchinspections in the future.” In January 2021, after reversing its own delisting decision, the NYSE ultimately resolved to delist China Mobile, China Unicom and ChinaTelecom in compliance with the executive order issued in November 2020, after receiving additional guidance from the U.S. Department of Treasury and its Office ofForeign Assets Control. In addition, the NYSE announced in February 2021 that it has determined to commence proceedings to delist CNOOC Limited in light of thesame executive order. These delistings have introduced greater confusion and uncertainty about the status and prospects of Chinese companies listed on the U.S.stock exchanges. If any further such deliberations were to materialize, the resulting legislation may have a material and adverse impact on the stock performance ofChina-based issuers listed in the United States such as us, and we cannot assure you that we will always be able to maintain the listing of our ADSs on a nationalstock exchange in the U.S., such as the NYSE or the Nasdaq Stock Market, or that you will always be allowed to trade our shares or ADSs.A severe or prolonged downturn in the Chinese or global economy could affect consumers’ willingness to seek services or products provided by the Group, whichcould materially and adversely affect the Group’s business and financial condition.Any prolonged slowdown in the Chinese or global economy may have a negative impact on the Group’s business, results of operations and financialcondition. In particular, general economic factors and conditions in China or worldwide may affect consumers’ willingness to seek services or products provided bythe Group. Economic conditions in China are sensitive to global economic conditions. The COVID-19 pandemic has resulted in declines in economic activities inChina and other parts of the world and raised concerns about the prospects of the global economy. In addition, there is considerable uncertainty over the long-termeffects of the expansionary monetary and fiscal policies adopted by the central banks and financial authorities of some of the world’s leading economies, includingthe United States and China. There have also been concerns over conflicts in North Korea, Ukraine, the Middle East and Africa, which have resulted in volatility infinancial and other markets. There have also been concerns about the economic effect of the tensions in the relationship between China and surrounding Asiancountries, as well as trade tensions between China and the United States. If present Chinese and global economic uncertainties persist, the Group may have difficultyin exploring new business opportunities. Adverse economic conditions could also reduce the number of consumers seeking services or products from the Group.Should any of these situations occur, the Group’s business and financial condition will be negatively impacted. Additionally, continued turbulence in the internationalmarkets may adversely affect our ability to access the capital markets to meet liquidity needs.Table of Contents23The Group’s operations depend on the performance of the Internet infrastructure and fixed telecommunications networks in China.Almost all access to the Internet in China is maintained through state-owned telecommunication operators under the administrative control and regulatorysupervision of the MIIT. The Group’s systems infrastructure is currently deployed and the Group’s data is currently maintained on customized cloud computingservices. The Group’s cloud computing service provider may rely on a limited number of telecommunication service providers to provide it with datacommunications capacity through local telecommunications lines and Internet data centers to host its servers. Such service provider may have limited access toalternative networks or services in the event of disruptions, failures or other problems with China’s Internet infrastructure or the fixed telecommunications networksprovided by telecommunication service providers. With the expansion of the Group’s business, it may be required to upgrade its technology and infrastructure to keepup with increasing traffic. We cannot assure you that the Group’s cloud computing service provider and the underlying Internet infrastructure and the fixedtelecommunications networks in China will be able to support the demands associated with the continued growth in Internet usage.In addition, we have no control over the costs of the services provided by telecommunication service providers which in turn, may affect the Group’s costsof utilizing customized cloud computing services. If the prices the Group pays for customized cloud computing services rise significantly, the Group’s results ofoperations may be adversely affected. Furthermore, if Internet access fees or other charges to Internet users increase, the Group’s user traffic may decline and theGroup’s business may be harmed.The Group faces risks related to natural disasters, health epidemics and other outbreaks, which could significantly disrupt the Group’s operations.The Group is vulnerable to natural disasters and other calamities. Fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins,war, riots, terrorist attacks or similar events may give rise to server interruptions, breakdowns, system failures or Internet failures, which could cause the loss orcorruption of data or malfunctions of software or hardware as well as adversely affect the Group’s ability to provide its products.The COVID-19 pandemic has materially and adversely affected the Group’s business, results of operations and financial condition. The Group’s businesscould also be adversely affected by the effects of Ebola virus disease, H1N1 flu, H7N9 flu, avian flu, Severe Acute Respiratory Syndrome, or SARS, or otherepidemics. The Group’s business operations could be disrupted if any of its employees is suspected of having COVID-19 coronavirus, Ebola virus disease, H1N1 flu,H7N9 flu, avian flu, SARS or other epidemic, since it could require the Group’s employees to be quarantined and/or the Group’s offices to be disinfected. In addition,the Group’s results of operations could be adversely affected to the extent that any of these epidemics harms the Chinese economy in general.Risks Related to Our Corporate StructureIf the PRC government deems that the contractual arrangements in relation to the Group VIEs do not comply with PRC regulatory restrictions on foreigninvestment in the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severepenalties or be forced to relinquish our interests in those operations.The PRC government regulates telecommunications-related businesses through strict business licensing requirements and other government regulations.These laws and regulations also include limitations on foreign ownership of PRC companies that engage in telecommunications-related businesses. Specifically,foreign investors are not allowed to own more than a 50% equity interest in any PRC company providing value-added telecommunications services, or VATS, withcertain exceptions relating to e-commerce, domestic multi-party, communication, store-and-forward and call center.Table of Contents24Because we are an exempted company incorporated in the Cayman Islands, we are classified as a foreign enterprise under PRC laws and regulations, andour wholly-owned PRC subsidiary, Ganzhou Qufenqi is a foreign-invested enterprise, or FIE. To comply with PRC laws and regulations, we conduct our business,including the provision of VATS, in China through the Group VIEs and their affiliates. Investors in our ADSs may never hold equity interests in these PRC operatingcompanies. Ganzhou Qufenqi has entered into a series of contractual arrangements with the applicable Group VIEs and their shareholders. In addition, pursuant tothe resolutions of all shareholders of Qudian Inc. and the resolutions of the board of directors of Qudian Inc., the board of directors of Qudian Inc. or any officerauthorized by such board shall cause Ganzhou Qufenqi to exercise its rights under the applicable power of attorney agreements entered into among GanzhouQufenqi, the applicable Group VIEs and the nominee shareholders of the applicable Group VIEs and the rights of Ganzhou Qufenqi under the applicable exclusivecall option agreements between Ganzhou Qufenqi and the applicable Group VIEs. As a result of these resolutions and the provision of unlimited financial supportfrom the Company to each of the Group VIEs, Qudian Inc. has been determined to be most closely associated with each of the Group VIEs within the group ofrelated parties and was considered to be the primary beneficiary of each of the Group VIEs and its subsidiaries for accounting purposes.We believe that our corporate structure and contractual arrangements comply with the current applicable PRC laws and regulations. Our PRC legal counsel,based on its understanding of the relevant laws and regulations, is of the opinion that each of the contracts among our wholly-owned PRC subsidiary, the Group VIEsand their shareholders is valid, binding and enforceable in accordance with its terms. However, this structure involves unique risks to investors. As there aresubstantial uncertainties regarding the interpretation and application of PRC laws and regulations, including the Regulations on Mergers and Acquisitions ofDomestic Enterprises by Foreign Investors, or the M&A Rules and the Telecommunications Regulations and the relevant regulatory measures concerning thetelecommunications industry, there can be no assurance that the PRC government authorities, such as the Ministry of Commerce, or the MOFCOM, or the MIIT, orother authorities that regulate online consumer finance platforms and other participants in the telecommunications industry, would agree that our corporate structureor any of the above contractual arrangements comply with PRC licensing, registration or other regulatory requirements, with existing policies or with requirements orpolicies that may be adopted in the future. PRC laws and regulations governing the validity of these contractual arrangements are uncertain and the relevantgovernment authorities have broad discretion in interpreting these laws and regulations.If our corporate structure and contractual arrangements are deemed by the MIIT or the MOFCOM or other regulators having competent authority to beillegal, either in whole or in part, we may lose control of the Group VIEs and have to modify such structure to comply with regulatory requirements. However, therecan be no assurance that we can achieve this without material disruption to our business. Further, if our corporate structure and contractual arrangements are found tobe in violation of any existing or future PRC laws or regulations, the relevant regulatory authorities would have broad discretion in dealing with such violations,including:●revoking the Group’s business and operating licenses;●levying fines on the Group;●confiscating any of the Group’s income that they deem to be obtained through illegal operations;●shutting down the Group’s services;●discontinuing or restricting the Group’s operations in China;●imposing conditions or requirements with which the Group may not be able to comply;●requiring us to change our corporate structure and contractual arrangements;●restricting or prohibiting the use of the proceeds from overseas offering to finance the Group VIEs’ business and operations; and●taking other regulatory or enforcement actions that could be harmful to the Group’s business.Table of Contents25Furthermore, new PRC laws, rules and regulations may be introduced to impose additional requirements that may be applicable to our corporate structureand contractual arrangements. If the imposition of any of these penalties or requirement to restructure our corporate structure causes us to lose the rights to direct theactivities of the Group VIEs or our right to receive their economic benefits, we would no longer be able to consolidate the financial results of the Group VIEs in theGroup’s consolidated financial statements. Furthermore, if the PRC government determines that our contractual arrangements do not comply with PRC regulations,or if these regulations change or are interpreted differently in the future, our ADSs may decline in value or become worthless, and the Group’s operations would bematerially and adversely affected, if we are unable to assert contractual control rights over the assets of the Group VIEs. See “Item 4. Information on the Company⸺⸺B. Business Overview-Overview⸺⸺Our Contractual Arrangements with the Group VIEs and Their Shareholders.”Our contractual arrangements with the Group VIEs may result in adverse tax consequences to the Group.The Group could face material and adverse tax consequences if the PRC tax authorities determine that our contractual arrangements with the Group VIEswere not made on an arm’s length basis and adjust the Group’s income and expenses for PRC tax purposes by requiring a transfer pricing adjustment. A transferpricing adjustment could adversely affect the Group by (i) increasing the tax liabilities of the Group VIEs without reducing the tax liability of our subsidiaries, whichcould further result in late payment fees and other penalties to the Group VIEs for underpaid taxes; or (ii) limiting the ability of the Group VIEs to obtain or maintainpreferential tax treatments and other financial incentives.We rely on contractual arrangements with the Group VIEs and their shareholders to operate the our business, which may be less effective than direct ownershipin providing operational control and otherwise have a material adverse effect as to our business.Qudian Inc. is not a Chinese operating company but a Cayman Islands holding company with operations primarily conducted through contractualarrangements with certain variable interest entities, or the Group VIEs, based in China. For a description of these contractual arrangements, see “Item 4. Informationon the Company⸺⸺B. Business Overview⸺⸺Overview⸺⸺Our Contractual Arrangements with the Group VIEs and Their Shareholders.” All of the Group’srevenue are attributed to the Group VIEs. These contractual arrangements may be less effective than direct ownership in providing us with control over the GroupVIEs. Investors in our ADSs are not purchasing equity interest in the Group’s operating entities in China, but instead are purchasing an equity interest in Qudian Inc.,a Cayman Islands holding company. The Group VIEs are consolidated with our results of operations for accounting purposes. However, we do not own a majorityequity interest in the Group VIEs. Furthermore, Qudian Inc., as our holding company, does not conduct operating activities. If the Group VIEs or their shareholdersfail to perform their respective obligations under these contractual arrangements, our recourse to the assets held by the Group VIEs is indirect and we may have toincur substantial costs and expend significant resources to enforce such arrangements in reliance on legal remedies under PRC law. These remedies may not alwaysbe effective, particularly in light of uncertainties in the PRC legal system. Furthermore, in connection with litigation, arbitration or other judicial or dispute resolutionproceedings, assets under the name of any of record holder of equity interest in the Group VIEs, including such equity interest, may be put under court custody. As aconsequence, we cannot be certain that the equity interest will be disposed pursuant to the contractual arrangement or ownership by the record holder of the equityinterest.All of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. Accordingly, thesecontracts would be interpreted in accordance with PRC laws and any disputes would be resolved in accordance with PRC legal procedures. However, these contractshave not been tested in the PRC legal procedures. The legal environment in the PRC is not as developed as in other jurisdictions, such as the United States. As aresult, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements. In the event that we are unable to enforce thesecontractual arrangements, or if we suffer significant time delays or other obstacles in the process of enforcing these contractual arrangements, it would be verydifficult to have the power to direct the activities that most significantly impact the economic performance of and provide us with economic benefits of the GroupVIEs, and our ability to conduct our business and our financial condition and results of operations may be materially and adversely affected. See “⸺⸺Risks Relatedto Doing Business in China⸺⸺There are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations. In addition, rules andregulations in China can change quickly with little advance notice.”Table of Contents26Ganzhou Qudian and Xiamen Qudian became Group VIEs in 2017. Min Luo, our founder, chairman and chief executive officer, and Mr. Lianzhu Lv, ourhead of user experience department, are the only shareholders of Ganzhou Qudian. Mr. Min Luo is the only shareholder of Xiamen Qudian. We believe suchshareholding structure will enhance our administrative efficiency and reduce uncertainties associated with the enforcement of the relevant contractual arrangementsentered into with the new Group VIEs and their respective shareholder(s). Instead of relying on several shareholders’ compliance with their respective contractualobligations, we will only rely on one or two shareholders’ compliance for each new Group VIE and would only need to enforce against such shareholder(s) in theevent of a breach. However, there can be no assurance that the shareholding structure of the new Group VIEs will deliver the expected benefits. If any of theshareholders of the new Group VIEs breaches his obligations under the applicable contractual arrangements, our business, financial condition and results andoperations could be materially and adversely affected.The shareholders of the Group VIEs may have potential conflicts of interest with us, which may materially and adversely affect our business and financialcondition.In connection with our operations in China, we rely on the shareholders of the Group VIEs to abide by the obligations under such contractual arrangements.The interests of these shareholders in their individual capacities as the shareholders of the Group VIEs may differ from the interests of our company as a whole, aswhat is in the best interests of the Group VIEs, including matters such as whether to distribute dividends or to make other distributions to fund our offshorerequirement, may not be in the best interests of our company. There can be no assurance that when conflicts of interest arise, any or all of these individuals will act inthe best interests of our company or those conflicts of interest will be resolved in our favor. In addition, these individuals may breach or cause the Group VIEs andtheir subsidiaries to breach or refuse to renew the existing contractual arrangements with us.Currently, we do not have arrangements to address potential conflicts of interest the shareholders of the Group VIEs may encounter, on one hand, and as abeneficial owner of our company, on the other hand. We, however, could, at all times, exercise our option under the exclusive call option agreement to cause them totransfer all of their equity ownership in the Group VIEs to a PRC entity or individual designated by us as permitted by the then applicable PRC laws. In addition, ifsuch conflicts of interest arise, we could also, in the capacity of attorney-in-fact of the then existing shareholders of the Group VIEs as provided under the power ofattorney agreements, directly appoint new directors of the Group VIEs. We rely on the shareholders of the Group VIEs to comply with PRC laws and regulations,which protect contracts and provide that directors and executive officers owe a duty of loyalty to our company and require them to avoid conflicts of interest and notto take advantage of their positions for personal gains, and the laws of the Cayman Islands, which provide that directors have a duty of care and a duty of loyalty toact honestly in good faith with a view to our best interests. However, the legal frameworks of China and the Cayman Islands do not provide guidance on resolvingconflicts in the event of a conflict with another corporate governance regime. If we cannot resolve any conflicts of interest or disputes between us and theshareholders of the Group VIEs, we would have to rely on legal proceedings, which could result in disruption of our business and subject us to substantial uncertaintyas to the outcome of any such legal proceedings.Our corporate actions will be substantially controlled by our founder, chairman and chief executive officer, Mr. Min Luo, who will have the ability to control orexert significant influence over important corporate matters that require approval of shareholders, which may deprive you of an opportunity to receive apremium for your ADSs and materially reduce the value of your investment.Mr. Min Luo, our founder, chairman of the board and chief executive officer, beneficially owns 2,836,200 Class A ordinary shares and all the Class Bordinary shares issued and outstanding, representing 80.1% of our aggregate voting power as of March 31, 2023. As a result, Mr. Min Luo has the ability to control orexert significant influence over important corporate matters, investors may be prevented from affecting important corporate matters involving our company thatrequire approval of shareholders, including:●the composition of our board of directors and, through it, any determinations with respect to the Group’s operations, business direction and policies,including the appointment and removal of officers;●any determinations with respect to mergers or other business combinations;●our disposition of substantially all of the Group’s assets; and●any change in control.Table of Contents27These actions may be taken even if they are opposed by our other shareholders, including the holders of the ADSs. Furthermore, this concentration ofownership may also discourage, delay or prevent a change in control of our company, which could have the dual effect of depriving our shareholders of anopportunity to receive a premium for their shares as part of a sale of our company and reducing the price of the ADSs. As a result of the foregoing, the value of yourinvestment could be materially reduced.If the custodians or authorized users of our controlling non-tangible assets, including chops and seals, fail to fulfill their responsibilities, or misappropriate ormisuse these assets, our business and operations may be materially and adversely affected.Under PRC law, legal documents for corporate transactions, including agreements and contracts such as the leases and sales contracts that our business relieson, 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 relevantlocal branch of the SAIC. We generally execute legal documents by affixing chops or seals, rather than having the designated legal representatives sign thedocuments.We have three major types of chops-corporate chops, contract chops and finance chops. We use corporate chops generally for documents to be submitted togovernment agencies, such as applications for changing business scope, directors or company name, and for legal letters. We use contract chops for executing leasesand commercial contracts. We use finance chops generally for making and collecting payments, including issuing invoices. Use of corporate chops and contractchops must be approved by our legal department and administrative department, and use of finance chops must be approved by our finance department. The chops ofour subsidiaries and the Group VIEs are generally held by the relevant entities so that documents can be executed locally. Although we usually utilize chops toexecute contracts, the registered legal representatives of our subsidiaries and the Group VIEs have the apparent authority to enter into contracts on behalf of suchentities without chops, unless such contracts set forth otherwise.In order to maintain the physical security of our chops, we generally have them stored in secured locations accessible only to the designated key employeesof our legal, administrative or finance departments. Our designated legal representatives generally do not have access to the chops. Although we have approvalprocedures in place and monitor our key employees, including the designated legal representatives of our subsidiaries and the Group VIEs, the procedures may not besufficient to prevent all instances of abuse or negligence. There is a risk that our key employees or designated legal representatives could abuse their authority, forexample, by binding our subsidiaries and the Group VIEs with contracts against our interests, as we would be obligated to honor these contracts if the othercontracting party acts in good faith in reliance on the apparent authority of our chops or signatures of our legal representatives. If any designated legal representativeobtains control of the chop in an effort to obtain control over the relevant entity, we would need to have a shareholder or board resolution to designate a new legalrepresentative and to take legal action to seek the return of the chop, apply for a new chop with the relevant authorities, or otherwise seek legal remedies for the legalrepresentative’s misconduct. If any of the designated legal representatives obtains and misuses or misappropriates our chops and seals or other controlling intangibleassets for whatever reason, we could experience disruption to our normal business operations. We may have to take corporate or legal action, which could involvesignificant time and resources to resolve while distracting management from the Group’s operations, and the Group’s business and operations may be materially andadversely affected.Substantial uncertainties exist with respect to how the 2019 Law of Foreign Investment (including its implementation regulations) may affect our currentcorporate structure, corporate governance and business and financial condition.On March 15, 2019, the Standing Committee of the National People’s Congress, or SCNPC, promulgated the Law of Foreign Investment of the PRC, or the2019 Law of Foreign Investment, which became effective on January 1, 2020. On December 26, 2019, the State Council issued the Regulations on Implementing theLaw of Foreign Investment of the PRC, which came into effect on January 1, 2020. The 2019 Law of Foreign Investment and its implementation regulations replacedthe trio of laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint VentureEnterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary regulations.The 2019 Law of Foreign Investment stipulates four forms of foreign investment, namely, (1) a foreign investor, individually or collectively with otherinvestors, establishes a foreign-invested enterprise within China; (2) a foreign investor acquires stock shares, equity shares, interests in assets, or other like rights andinterests of an enterprise within China; (3) a foreign investor, individually or collectively with other investors, invests in a new project within China; and (4) foreigninvestments in other forms as provided by law, administrative regulations, or by the State Council.Table of Contents28As mentioned above, the 2019 Law of Foreign Investment and its implementation regulations do not mention concepts including “de facto control” and“controlling through contractual arrangements,” nor does it specify the regulation on controlling through contractual arrangements. Specifically, it does notincorporate contractual arrangements as a form of foreign investment, the contractual arrangements as a whole and each of the arrangements comprising thecontractual arrangements will not be materially affected and will continue to be legal, valid and binding on the parties.However, the 2019 Law of Foreign Investment stipulates that “foreign investment includes foreign investors invest in China through any other methodsunder laws, administrative regulations, or provisions prescribed by the State Council,” which means there are possibilities that future laws, administrative regulationsor provisions of State Council may stipulate contractual arrangements as a way of foreign investment and our contractual arrangements would be regarded as foreigninvestment correspondingly. If that is the case, whether our contractual arrangements will be deemed to be in violation of the foreign investment access requirementsand how our contractual arrangements will be handled are subject to uncertainties.Therefore, there is no guarantee that the contractual arrangements and the business of the Group VIEs will not be materially and adversely affected in thefuture due to changes in PRC laws and regulations. If future laws, administrative regulations or provisions prescribed by the State Council mandate further actions tobe completed by companies with existing contractual arrangements, we may face substantial uncertainties as to whether we can complete such actions timely, or atall.Risks Related to Doing Business in ChinaChanges in the political and economic policies of the PRC government may materially and adversely affect the Group’s business, financial condition and resultsof operations and may result in the Group’s inability to sustain its growth and expansion strategies.Substantially all of the Group’s operations are conducted in the PRC and all of the Group’s revenue is sourced from the PRC. Accordingly, the Group’sfinancial condition and results of operations are affected to a significant extent by economic, political and legal developments in the PRC.The PRC economy differs from the economies of most developed countries in many respects, including the extent of government involvement, level ofdevelopment, growth rate, and control of foreign exchange and allocation of resources. Although the PRC government has implemented measures emphasizing theutilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of improved corporate governance inbusiness enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, the PRC government continues to play asignificant role in regulating industry development by imposing industrial policies. The PRC government also exercises significant control over China’s economicgrowth by allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, regulating financial services andinstitutions and providing preferential treatment to particular industries or companies.While the PRC economy has experienced significant growth in the past three decades, growth has been uneven, both geographically and among varioussectors of the economy. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of thesemeasures may benefit the overall PRC economy, but may also have a negative effect on the Group. The Group’s financial condition and results of operations could bematerially and adversely affected by government control over capital investments or changes in tax regulations that are applicable to the Group. The PRC governmentalso has significant authority to exert influence on the ability of a China-based issuer, such as our company, to conduct its business. The PRC government mayintervene or influence the Group’s operations at any time, which could result in a material change in the Group’s operations and/or the value of our ADSs. Inparticular, there have been recent statements by the PRC government indicating an intent to exert more oversight and control over offerings that are conductedoverseas and/or foreign investment in China-based issuers. Any such regulatory oversight or control could significantly limit or completely hinder our ability to offeror continue to offer securities to investors and cause the value of our securities to significantly decline or become worthless. Recent statements and regulatory actionsby the PRC government, such as those related to the use of VIEs, data security and anti-monopoly concerns, may give rise to regulatory restrictions on the Group’sability to conduct its business and/or accept foreign investments. In addition, the PRC government has implemented in the past certain measures to control the pace ofeconomic growth. These measures may cause decreased economic activity, which in turn could lead to a reduction in demand for the Group’s services andconsequently have a material adverse effect on the Group’s businesses, financial condition and results of operations.Table of Contents29There are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations. In addition, rules and regulations in China canchange quickly with little advance notice.Substantially all of the Group’s operations are conducted in the PRC, and are governed by PRC laws, rules and regulations. Our PRC subsidiaries and theGroup VIEs are subject to laws, rules and regulations applicable to foreign investment in China. The PRC legal system is a civil law system based on written statutes.Unlike the common law system, prior court decisions may be cited for reference but have limited precedential value.In 1979, the PRC government began to promulgate a comprehensive system of laws, rules and regulations governing economic matters in general. Theoverall effect of legislation over the past three decades has significantly enhanced the protections afforded to various forms of foreign investment in China. However,China has not developed a fully integrated legal system, and recently enacted laws, rules and regulations may not sufficiently cover all aspects of economic activitiesin China or may be subject to significant degrees of interpretation by PRC regulatory agencies. In particular, because these laws, rules and regulations are relativelynew, and because of the limited number of published decisions and the nonbinding nature of such decisions, and because the laws, rules and regulations often give therelevant regulator significant discretion in how to enforce them, the interpretation and enforcement of these laws, rules and regulations involve uncertainties and canbe inconsistent and unpredictable. In addition, the PRC legal system is based in part on government policies and internal rules, some of which are not published on atimely basis or at all, and which may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until after the occurrenceof the violation.Any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention.Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficultto evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. These uncertaintiesmay impede the Group’s ability to enforce the contracts it has entered into and could materially and adversely affect the Group’s business, financial condition andresults of operations.The opinions on supervision of illegal securities activities issued by the General Office of the Central Committee of the Communist Party of China and theGeneral Office of the State Council may subject us to additional compliance requirements in the future.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 onSeverely Cracking Down on Illegal Securities Activities According to Law, or the Opinions, which were made available to the public on July 6, 2021. The Opinionsemphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies. Theseopinions proposed to take effective measures, such as promoting the construction of relevant regulatory systems, to deal with the risks and incidents facing China-based overseas-listed companies and the demand for data security and cross-border data flows. The aforementioned policies and any related implementation rules tobe enacted may subject us to additional compliance requirements in the future. As the official guidance and interpretation of the Opinions still remain unclear inseveral respects at this time, we cannot assure you that we will remain fully compliant with all new regulatory requirements of the Opinions or any futureimplementation rules on a timely basis, or at all.Table of Contents30The approval or filing requirement of the China Securities Regulatory Commission, or the CSRC, may be required in connection with any future offering wemay conduct, and, if required, we cannot predict whether we will be able to obtain such approval or complete such filings.On February 17, 2023, the China Securities Regulatory Commission, or the CSRC, released the Trial Administrative Measures of Overseas SecuritiesOffering and Listing by Domestic Companies (the “Trial Measures”), and five supporting guidelines, which came into effect on March 31, 2023. Pursuant to the TrialMeasures, domestic companies that seek to offer or list securities overseas, both directly and indirectly, should fulfill the filing procedure and report relevantinformation to the CSRC. See “Regulations⸺⸺Regulation Relating to M&A and Overseas Listings.” However, since the Trial Measures was newly promulgated, itsinterpretation, application and enforcement remain unclear. If we engage in any future offerings, listing or any other capital raising activities in overseas markets, wemay be required to comply with the filing procedure with the CSRC under the Trial Measures, and it is uncertain whether we could complete the filing procedure in atimely manner, or at all. Any failure to complete such filings may subject us to regulatory actions or other sanctions from the CSRC or other PRC regulatoryagencies. These regulatory agencies may impose fines and penalties on our operations in China, limit our ability to pay dividends outside of China, limit ouroperating privileges in China, delay or restrict the repatriation of the proceeds from offering of securities overseas into China or take other actions that could have amaterial adverse effect on our business, financial condition, results of operations and prospects, as well as the trading price of our ordinary shares or ADSs.PRC regulations relating to investments in offshore companies by PRC residents may subject our PRC-resident beneficial owners or our PRC subsidiaries toliability or penalties, limit our ability to inject capital into our PRC subsidiaries or limit our PRC subsidiaries’ ability to increase their registered capital ordistribute profits.The SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financingand Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, on July 4, 2014, which replaced the former circular commonly known as “SAFECircular 75” promulgated by the SAFE on October 21, 2005. SAFE Circular 37 requires PRC residents to register with local branches of the SAFE in connectionwith their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’ legally ownedassets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a “special purpose vehicle.” SAFE Circular 37further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease ofcapital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. In the event that a PRC shareholder holding interests in aspecial purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profitdistributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in itsability to contribute additional capital into its PRC subsidiary. Moreover, failure to comply with the various SAFE registration requirements described above couldresult in liability under PRC law for evasion of foreign exchange controls. According to the Notice on Further Simplifying and Improving Policies for the ForeignExchange Administration of Direct Investment released on February 13, 2015 by the SAFE, local banks will examine and handle foreign exchange registration foroverseas direct investment, including the initial foreign exchange registration and amendment registration, under SAFE Circular 37 from June 1, 2015.Mr. Min Luo has completed the SAFE registration pursuant to SAFE Circular 75 in 2014. We have notified substantial beneficial owners of ordinary shareswho we know are PRC residents of their filing obligation. Nevertheless, we may not be aware of the identities of all of our beneficial owners who are PRC residents.We do not have control over our beneficial owners and there can be no assurance that all of our PRC-resident beneficial owners will comply with SAFE Circular 37and subsequent implementation rules, and there is no assurance that the registration under SAFE Circular 37 and any amendment will be completed in a timelymanner, or will be completed at all. The failure of our beneficial owners who are PRC residents to register or amend their foreign exchange registrations in a timelymanner pursuant to SAFE Circular 37 and subsequent implementation rules, or the failure of future beneficial owners of our company who are PRC residents tocomply with the registration procedures set forth in SAFE Circular 37 and subsequent implementation rules, may subject such beneficial owners or our PRCsubsidiaries to fines and legal sanctions. Failure to register or comply with relevant requirements may also limit our ability to contribute additional capital to our PRCsubsidiaries and limit our PRC subsidiaries’ ability to distribute dividends to our company. These risks may have a material adverse effect on the Group’s business,financial condition and results of operations.Table of Contents31Any failure to comply with PRC regulations regarding our employee share incentive plans may subject the PRC plan participants or us to fines and other legal oradministrative sanctions.Pursuant to SAFE Circular 37, PRC residents who participate in share incentive plans in overseas non-publicly-listed companies due to their position asdirector, senior management or employees of the PRC subsidiaries of the overseas companies may submit applications to SAFE or its local branches for the foreignexchange registration with respect to offshore special purpose companies. Our directors, executive officers and other employees who are PRC residents and who havebeen granted options may follow SAFE Circular 37 to apply for the foreign exchange registration before our company becomes an overseas listed company. After ourcompany became an overseas listed company since the completion of our initial public offering, we and our directors, executive officers and other employees who arePRC residents and who have been granted options have been subject to the Notice on Issues Concerning the Foreign Exchange Administration for DomesticIndividuals Participating in Stock Incentive Plan of Overseas Publicly Listed Company, issued by SAFE in February 2012, according to which, employees, directors,supervisors and other management members participating in any stock incentive plan of an overseas publicly listed company who are PRC residents are required toregister with SAFE through a domestic qualified agent, which could be a PRC subsidiary of such overseas listed company, and complete certain other procedures. Wewill continue to make efforts to comply with these requirements. However, there can be no assurance that they can successfully register with SAFE in full compliancewith the rules. Failure to complete the SAFE registrations may subject them to fines and legal sanctions and may also limit the ability to make payment under ourshare incentive plans or receive dividends or sales proceeds related thereto, or our ability to contribute additional capital into our wholly-foreign owned enterprises inChina and limit our wholly-foreign owned enterprises’ ability to distribute dividends to us. We also face regulatory uncertainties that could restrict our ability toadopt additional share incentive plans for our directors and employees under PRC law.We rely to a significant extent on dividends and other distributions on equity paid by our principal operating subsidiaries to fund offshore cash and financingrequirements.We are a holding company and rely to a significant extent on dividends and other distributions on equity paid by our principal operating subsidiaries and onremittances from the Group VIEs, for our offshore cash and financing requirements, including the funds necessary to pay dividends and other cash distributions toour shareholders, fund inter-company loans, service any debt we may incur outside of China and pay our expenses. When our principal operating subsidiaries or theGroup VIEs incur additional debt, the instruments governing the debt may restrict their ability to pay dividends or make other distributions or remittances to us.Furthermore, the laws, rules and regulations applicable to our PRC subsidiaries, Group VIEs and their subsidiaries permit payments of dividends only out of theirretained earnings, if any, determined in accordance with applicable accounting standards and regulations.Under PRC laws, rules and regulations, each of our subsidiaries incorporated in China, the Group VIEs and their subsidiaries is required to set aside at least10% of its net income each year to fund certain statutory reserves until the cumulative amount of such reserves reaches 50% of its registered capital. These reserves,together with the registered capital, are not distributable as cash dividends. As a result of these laws, rules and regulations, our subsidiaries incorporated in China, theGroup VIEs and their subsidiaries are restricted in their ability to transfer a portion of their respective net assets to their shareholders as dividends, loans or advances.Certain of our subsidiaries, the Group VIEs and their subsidiaries did not have any retained earnings available for distribution in the form of dividends as ofDecember 31, 2022. In addition, registered share capital and capital reserve accounts are also restricted from withdrawal in the PRC, up to the amount of net assetsheld in each operating subsidiary. Furthermore, we intend to reinvest our undistributed earnings from our operating subsidiaries in the PRC to fund future operations.Limitations on the ability of the Group VIEs to make remittance to the wholly-foreign owned enterprise and on the ability of our subsidiaries to paydividends to us could limit our ability to access cash generated by the operations of those entities, including to make investments or acquisitions that could bebeneficial to our businesses, pay dividends to our shareholders or otherwise fund and conduct our business.Table of Contents32We may be treated as a resident enterprise for PRC tax purposes under the PRC Enterprise Income Tax Law, and we may therefore be subject to PRC income taxon our global income.Under the PRC Enterprise Income Tax Law and its implementing rules, enterprises established under the laws of jurisdictions outside of China with “defacto management bodies” located in China may be considered PRC tax resident enterprises for tax purposes and may be subject to the PRC enterprise income tax atthe rate of 25% on their global income. “De facto management body” refers to a managing body that exercises substantive and overall management and control overthe production and business, personnel, accounting books and assets of an enterprise. The State Administration of Taxation issued the Notice Regarding theDetermination of Chinese-Controlled Offshore-Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, or Circular82, on April 22, 2009. Circular 82 provides certain specific criteria for determining whether the “de facto management body” of a Chinese-controlled offshore-incorporated enterprise is located in China. Although Circular 82 only applies to offshore enterprises controlled by PRC enterprises, not those controlled by foreignenterprises or individuals, the determining criteria set forth in Circular 82 may reflect the State Administration of Taxation’s general position on how the “de factomanagement body” test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises.If we were to be considered a PRC resident enterprise, we would be subject to PRC enterprise income tax at the rate of 25% on our global income. In such case, ourprofitability and cash flow may be materially reduced as a result of our global income being taxed under the Enterprise Income Tax Law. We believe that none of ourentities outside of China is a PRC resident enterprise for PRC tax purposes. However, the tax resident status of an enterprise is subject to determination by the PRCtax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.”Dividends payable to our foreign investors and gains on the sale of our ADSs or Class A ordinary shares by our foreign investors may become subject to PRCtax.Under the Enterprise Income Tax Law and its implementation regulations issued by the State Council, a 10% PRC withholding tax is applicable to dividendspayable to investors that are non-resident enterprises, which do not have an establishment or place of business in the PRC or which have such establishment or placeof business but the dividends are not effectively connected with such establishment or place of business, to the extent such dividends are derived from sources withinthe PRC. Similarly, any gain realized on the transfer of ADSs or Class A ordinary shares by such investors is also subject to PRC tax at a current rate of 10%, subjectto any reduction or exemption set forth in applicable tax treaties or under applicable tax arrangements between jurisdictions, if such gain is regarded as incomederived from sources within the PRC. If we are deemed a PRC resident enterprise, dividends paid on our Class A ordinary shares or ADSs, and any gain realizedfrom the transfer of our Class A ordinary shares or ADSs, would be treated as income derived from sources within the PRC and would as a result be subject to PRCtaxation. Furthermore, if we are deemed a PRC resident enterprise, dividends payable to individual investors who are non-PRC residents and any gain realized on thetransfer of ADSs or Class A ordinary shares by such investors may be subject to PRC tax at a current rate of 20%, subject to any reduction or exemption set forth inapplicable tax treaties or under applicable tax arrangements between jurisdictions. If we or any of our subsidiaries established outside China are considered a PRCresident enterprise, it is unclear whether holders of our ADSs or Class A ordinary shares would be able to claim the benefit of income tax treaties or agreementsentered into between China and other countries or areas. If dividends payable to our non-PRC investors, or gains from the transfer of our ADSs or Class A ordinaryshares by such investors, are deemed as income derived from sources within the PRC and thus are subject to PRC tax, the value of your investment in our ADSs orClass A ordinary shares may decline significantly.Table of Contents33We and our shareholders face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises or other assets attributed to a Chineseestablishment of a non-Chinese company, or immovable properties located in China owned by non-Chinese companies.On February 3, 2015, the State Administration of Taxation, or the SAT, issued the Bulletin on Issues of Enterprise Income Tax on Indirect Transfers ofAssets by Non-PRC Resident Enterprises, or Bulletin 7, which partially replaced and supplemented previous rules under the Notice on Strengthening Administrationof Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises, or SAT Circular 698, issued by the State Administration of Taxation, onDecember 10, 2009. Pursuant to Bulletin 7, an “indirect transfer” of assets, including equity interests in a PRC resident enterprise, by non-PRC resident enterprisesmay be re-characterized and treated as a direct transfer of PRC taxable assets, if such arrangement does not have a reasonable commercial purpose and wasestablished for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRCenterprise income tax. According to Bulletin 7, “PRC taxable assets” include assets attributed to an establishment in China, immovable properties located in China,and equity investments in PRC resident enterprises, in respect of which gains from their transfer by a direct holder, being a non-PRC resident enterprise, would besubject to PRC enterprise income taxes. When determining whether there is a “reasonable commercial purpose” of the transaction arrangement, features to be takeninto consideration include: whether the main value of the equity interest of the relevant offshore enterprise derives from PRC taxable assets; whether the assets of therelevant offshore enterprise mainly consists of direct or indirect investment in China or if its income mainly derives from China; whether the offshore enterprise andits subsidiaries directly or indirectly holding PRC taxable assets have real commercial nature which is evidenced by their actual function and risk exposure; theduration of existence of the business model and organizational structure; the replicability of the transaction by direct transfer of PRC taxable assets; and the taxsituation of such indirect transfer and applicable tax treaties or similar arrangements. In respect of an indirect offshore transfer of assets of a PRC establishment, theresulting gain is to be included with the enterprise income tax filing of the PRC establishment or place of business being transferred, and would consequently besubject to PRC enterprise income tax at a rate of 25%. Where the underlying transfer relates to the immovable properties located in China or to equity investments ina PRC resident enterprise, which is not related to a PRC establishment or place of business of a non-resident enterprise, a PRC enterprise income tax of 10% wouldapply, subject to available preferential tax treatment under applicable tax treaties or similar arrangements, and the party who is obligated to make the transferpayments has the withholding obligation. Where the payor fails to withhold any or sufficient tax, the transferor is required to declare and pay such tax to the taxauthority by itself within the statutory time limit. Late payment of applicable tax will subject the transferor to default interest. Bulletin 7 does not apply totransactions of sale of shares by investors through a public stock exchange where such shares were acquired from a transaction through a public stock exchange. OnOctober 17, 2017, the SAT issued the Announcement of the State Administration of Taxation on Issues Relating to Withholding at Source of Income Tax of Non-resident Enterprises, or SAT Circular 37, which was revised on June 15, 2018, to completely repeal SAT Circular 698 and the second paragraph of Section 8 ofBulletin 7. According to SAT Circular 37, the amount of taxable income equals the remainder after deducting the net equity value from the equity transfer income.Equity transfer income means the consideration collected by the transferor from the equity transfer, including income in both monetary form and non-monetary form.Net equity value means the tax basis for acquiring such equity. The tax basis for the equity is the capital contribution costs actually paid by the equity transferor to aPRC resident enterprise at the time of the investment and equity participation, or the equity transfer costs actually paid at the time of acquisition of such equity to theoriginal transferor of such equity.There is uncertainty as to the application of Bulletin 7 and SAT Circular 37. We face uncertainties as to the reporting and other implications of certain pastand future transactions where PRC taxable assets are involved, such as offshore restructuring, sale of the shares in our offshore subsidiaries or investments. Ourcompany may be subject to filing obligations or taxed if our company is transferor in such transactions, and may be subject to withholding obligations if our companyis transferee in such transactions, under SAT Circular 37 and Bulletin 7. For transfer of shares in our company by investors that are non-PRC resident enterprises, ourPRC subsidiaries may be requested to assist in the filing under SAT Circular 37 and Bulletin 7. As a result, we may be required to expend valuable resources tocomply with SAT Circular 37 and Bulletin 7 or to request the relevant transferors from whom we purchase taxable assets to comply with these circulars, or toestablish that our company should not be taxed under these circulars, which may have a material adverse effect on our financial condition and results of operations.Table of Contents34We are subject to restrictions on currency exchange.All of the Group’s net income is denominated in Renminbi. The Renminbi is currently convertible under the “current account,” which includes dividends,trade and service-related foreign exchange transactions, but not under the “capital account,” which includes foreign direct investment and loans, including loans wemay secure from our onshore subsidiaries or the Group VIEs. Currently, certain of our PRC subsidiaries, may purchase foreign currency for settlement of “currentaccount transactions,” including payment of dividends to us, without the approval of the SAFE by complying with certain procedural requirements. However, therelevant PRC governmental authorities may limit or eliminate our ability to purchase foreign currencies in the future for current account transactions. Foreignexchange transactions under the capital account remain subject to limitations and require approvals from, or registration with, the SAFE and other relevant PRCgovernmental authorities. Since substantially all of the Group’s future net income and cash flow will be denominated in Renminbi, any existing and future restrictionson currency exchange may limit our ability to utilize cash generated in Renminbi to fund our business activities outside of the PRC or pay dividends in foreigncurrencies to our shareholders, including holders of our ADSs, and may limit our ability to obtain foreign currency through debt or equity financing for oursubsidiaries and the Group VIEs.Fluctuations in exchange rates could result in foreign currency exchange losses and could materially reduce the value of your investment.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 andeconomic conditions and the monetary or fiscal policies adopted by the PRC government. On July 21, 2005, the PRC government changed its policy of pegging thevalue 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 thefollowing three years. Between July 2008 and June 2010, the exchange rate between the Renminbi and the U.S. dollar had been stable and traded within a narrowband. In June 2010, the PRC government indicated that it would make the foreign exchange rate of the Renminbi more flexible, which increases the possibility ofsharp fluctuations of the Renminbi’s value in the near future and the unpredictability associated with the Renminbi’s exchange rate. Since then, the Renminbi hasfluctuated against the U.S. dollar, at times significantly and unpredictably. On November 30, 2015, the Executive Board of the International Monetary Fund (IMF)completed the regular five-year review of the basket of currencies that make up the Special Drawing Right, or the SDR, and decided that with effect from October 1,2016, 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, theJapanese yen and the British pound. In the fourth quarter of 2016, the Renminbi has depreciated significantly in the backdrop of a surging U.S. dollar and persistentcapital outflows of China. In 2017, however, the RMB appreciated approximately 6.7% against the U.S. dollar. The value of the Renminbi continued to fluctuate inrecent years. With the development of the foreign exchange market and progress towards interest rate liberalization and Renminbi internationalization, the PRCgovernment may in the future announce further changes to the exchange rate system, and we cannot assure you that the Renminbi will not appreciate or depreciatesignificantly in value against the U.S. dollar in the future. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange ratebetween the Renminbi and the U.S. dollar in the future.All of the Group’s revenue and substantially all of the Group’s costs are denominated in Renminbi. We are a holding company and we rely on dividends paidby our operating subsidiaries in China for our cash needs. Any significant revaluation of Renminbi may materially and adversely affect our results of operations andfinancial position reported in Renminbi when translated into U.S. dollars, and the value of, and any dividends payable on, the ADSs in U.S. dollars. To the extent thatwe need to convert U.S. dollars we receive from our initial public offering into Renminbi for the Group’s operations, appreciation of the Renminbi against the U.S.dollar would have an adverse effect on the Renminbi amount we would receive. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose ofmaking payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the Renminbi would have anegative effect on the U.S. dollar amount.Table of Contents35PRC regulations establish more complex procedures for acquisitions conducted by foreign investors which could make it more difficult for us to pursue growththrough acquisitions.The M&A Rules promulgated by six PRC regulatory agencies on August 8, 2006 established new procedures and requirements that could make merger andacquisition activities by foreign investors more time-consuming and complex, including requirements in some instances that the Ministry of Commerce be notified inadvance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. On February 3, 2011, the General Office of theState Council promulgated the Notice on Launching the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or theM&A Security Review Notice, which became effective on March 6, 2011. The M&A Security Review Notice provides for certain circumstances under which foreigninvestors’ acquisition of domestic enterprises shall be subject to the security review of the PRC governments. The security review assesses such acquisition’s impacton national security, stable operation of national economy, basic living of the people, and R&D capacity for key technologies related to national security. OnAugust 25, 2011, the Ministry of Commerce of PRC promulgated the Regulation of Ministry of Commerce on Implementation of the Security Review System forMergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Security Review Regulation, which became effective on September 1, 2011.The M&A Security Review Regulation stipulates the requirements of application documents and security review procedures of the Ministry of Commerce. In thefuture, we may grow the Group’s business in part by acquiring complementary businesses. Complying with the requirements of the M&A Rules, the M&A SecurityReview Notice and the M&A Security Review Regulation to complete such transactions could be time-consuming, and any required approval processes, includingobtaining approval from the Ministry of Commerce or its provincial affiliates, may delay or inhibit our ability to complete such transactions, which could affect ourability to expand the Group’s business or maintain the Group’s market share.The enforcement of the laws on Employment Contracts and other labor-related regulations in the PRC may adversely affect the Group’s business and its resultsof operations.On June 29, 2007, the National People’s Congress of China enacted the laws on Employment Contracts, or the Employment Contract Law, which becameeffective on January 1, 2008, amended on December 28, 2012. The Employment Contract Law established new restrictions and increased costs for employers todismiss employees, including specific provisions related to fixed-term employment contracts, temporary employment, probation, consultation with the labor unionand employee assembly, employment without a contract, dismissal of employees, compensation upon termination and overtime work, and collective bargaining.According to the Employment Contract Law, an employer is obliged to sign a labor contract with an unlimited term with an employee if the employer continues tohire the employee after the expiration of two consecutive fixed-term labor contracts subject to certain conditions or after the employee has worked for the employerfor ten consecutive years. The employer also has to pay compensation to an employee if the employer terminates an unlimited-term labor contract. Suchcompensation is also required when the employer refuses to renew a labor contract that has expired, unless it is the employee who refuses to extend the expiredcontract or resign. In addition, under the Regulations on Paid Annual Leave for Employees, which became effective on January 1, 2008 and its ImplementationRules on Paid Annual Leave for Employees, which became effective on September 18, 2008, employees who have served more than one year for an employer areentitled to a paid vacation ranging from five to 15 days, depending on their accumulative total length of service. Employers who fail to allow for such vacation timemust compensate their employees three times their regular salaries for each vacation day disallowed, unless such employers can provide evidence, such as a copy of awritten notice provided to their employees, that suggests the employers made arrangements for their employees to take such annual leaves, but such employeesvoluntarily waived taking their leaves or such employees waived their right to such vacation days in writing.Table of Contents36The audit report included in this annual report is prepared by an auditor which the U.S. Public Company Accounting Oversight Board was unable to inspect andinvestigate completely before 2022 and, as such, our investors have been deprived of the benefits of such inspections in the past, and may be deprived of thebenefits of such inspections in the future.Our auditor, the independent registered public accounting firm that issues the audit report included elsewhere in this annual report, as an auditor ofcompanies that are traded publicly in the U.S. and a firm registered with the U.S. Public Company Accounting Oversight Board, or the PCAOB, is required by thelaws of the U.S. to undergo regular inspections by the PCAOB to assess its compliance with the laws of the U.S. and professional standards. According to Article 177of the PRC Securities Law which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collectionactivities within the territory of the PRC. Accordingly, without the consent of the competent PRC securities regulators and relevant authorities, no organization orindividual may provide the documents and materials relating to securities business activities to overseas parties. In 2021, PCAOB made determinations that thepositions taken by PRC authorities prevented the PCAOB from inspecting and investigating firms headquartered in mainland China and Hong Kong completely. OnAugust 26, 2022, the PCAOB signed a Statement of Protocol with the China Securities Regulatory Commission and the Ministry of Finance of the PRC, taking thefirst step toward opening access for the PCAOB to inspect and investigate completely registered public accounting firms headquartered in mainland China and HongKong including our auditor. According to its announcement, the PCAOB sent staff to conduct on-site inspections and investigations in Hong Kong from September toNovember 2022 and conducted inspection field work and investigative testimony in a manner consistent with the PCAOB’s methodology and approach to inspectionsand investigations in the U.S. and globally. The PCAOB inspections have preliminarily identified numerous deficiencies in the audit firms in China, which areconsistent with the types and number of findings the PCAOB has encountered in other first-time inspections around the world, and the final inspection reports isexpected to be completed and made public in 2023. If audit firms in China had been subject to such inspections in the past, such deficiencies may have beenidentified earlier and these audit firms, including our auditor, may have taken remedial measures to address any such deficiencies, and the historical inability of thePCAOB to inspect audit firms in China has deprived our investors of the benefits of such inspections. Because our auditor was not subject to such inspections before2022, we cannot assure you that it will have sufficient time to fully address any deficiency that may be identified as part of the inspection process to improve futureaudit quality. The inability of the PCAOB to conduct complete inspections of auditors in China before 2022 may have made it more difficult to evaluate theeffectiveness of our auditor’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections, whichcould cause investors or potential investors in our ADSs to lose confidence in the quality of our consolidated financial statements.In addition, while the PCAOB announced in December 2022 that it secured complete access to inspect and investigate registered public accounting firmsheadquartered in China, we cannot assure you that the PCAOB will continue to have such access in the future. If the PCAOB is not able to inspect and investigatecompletely auditors in China for any reason, such as any change in the position of the governmental authorities in China in the future, our investors may be deprivedof the benefits of such inspections again.If the PCAOB determines that it is unable to inspect or investigate completely our auditor at any point in the future, our ADSs may be prohibited from trading inthe United States under the Holding Foreign Companies Accountable Act, as amended, or the HFCA Act, and any such trading prohibition on our ADSs orthreat thereof may materially and adversely affect the price of our ADSs and value of your investment.The HFCA Act was signed into law on December 18, 2020 and amended pursuant to the Consolidated Appropriations Act, 2023 on December 29, 2022.Under the HFCA Act and the rules issued by the SEC and the PCAOB thereunder, if we have retained a registered public accounting firm to issue an audit reportwhere the registered public accounting firm has a branch or office that is located in a foreign jurisdiction and the PCAOB has determined that it is unable to inspector investigate completely because of a position taken by an authority in the foreign jurisdiction, the SEC will identify us as a “covered issuer”, or SEC-identifiedissuer, shortly after we file with the SEC a report required under the Securities Exchange Act of 1934, or the Exchange Act (such as our annual report on Form 20-F)that includes an audit report issued by such accounting firm; and if we were to be identified as an SEC-identified issuer for two consecutive years, the SEC wouldprohibit our securities (including our shares or ADSs) from being traded on a national securities exchange or in the over-the-counter trading market in the UnitedStates.Table of Contents37In December 2021, the PCAOB made its determinations, or the 2021 determinations, pursuant to the HFCA Act that it was unable to inspect or investigatecompletely registered public accounting firms headquartered in mainland China or Hong Kong including our auditor, Ernst & Young Hua Ming LLP. After we filedour annual report on Form 20-F for the fiscal year ended December 31, 2021 that included an audit report issued by Ernst & Young Hua Ming LLP on April 29,2022, the SEC conclusively identified us as an SEC-identified issuer on May 26, 2022. As such, we are required to satisfy additional disclosure requirement for SEC-identified issuers that are also foreign issuers in this annual report. See “Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.”Following the Statement of Protocol signed between the PCAOB and the China Securities Regulatory Commission and the Ministry of Finance of the PRCin August 2022 and the on-site inspections and investigations conducted by the PCAOB staff in Hong Kong from September to November 2022, the PCAOB Boardvoted in December 2022 to vacate the previous 2021 determinations, and as a result, our auditor, Ernst & Young Hua Ming LLP, is no longer a registered publicaccounting firm that the PCAOB is unable to inspect or investigate completely as of the date of this annual report or at the time of issuance of the audit reportincluded herein. As such, we do not expect to be identified as an SEC-identified issuer again in 2023. However, the PCAOB may change its determinations under theHFCA Act at any point in the future. In particular, if the PCAOB finds its ability to completely inspect and investigate registered public accounting firmsheadquartered in mainland China or Hong Kong is obstructed by the PRC authorities in any way in the future, the PCAOB may act immediately to consider the needto issue new determinations consistent with the HFCA Act. We cannot assure you that the PCAOB will always have complete access to inspect and investigate ourauditor, or that we will not be identified as an SEC-identified issuer again in the future.If we are identified as an SEC-identified issuer again in the future, we cannot assure you that we will be able to change our auditor or take other remedialmeasures in a timely manner, and if we were to be identified as an SEC-identified issuer for two consecutive years, we would be delisted from the NYSE and oursecurities (including our shares and ADSs) will not be permitted for trading “over-the-counter” either. If our securities are prohibited from trading in the UnitedStates, 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 aprohibition or any threat thereof would substantially impair your ability to sell or purchase our ADSs when you wish to do so, and the risk and uncertainty associatedwith delisting would have a negative impact on the price of our ADSs. Also, such a prohibition or any threat thereof would significantly affect our ability to raisecapital on terms acceptable to us, or at all, which would have a material adverse impact on our business, financial condition, and prospects. Moreover, theimplementation of the HFCA Act and other efforts to increase the U.S. regulatory access to audit information could cause investor uncertainty as to China-basedissuers’ ability to maintain their listings on the U.S. national securities exchanges and the market price of the securities of China-based issuers, including us, could beadversely affected.Additional remedial measures could be imposed on certain PRC-based accounting firms, including our independent registered public accounting firm, inadministrative proceedings instituted by the SEC, as a result of which our financial statements may be determined to not be in compliance with the requirementsof the Exchange Act, if at all.In December 2012, the SEC brought administrative proceedings against the PRC-based “big four” accounting firms, including the auditors of our auditreport in this annual report, alleging that they had violated U.S. securities laws by failing to provide audit work papers and other documents related to certain otherPRC-based companies under investigation by the SEC. On January 22, 2014, an initial administrative law decision was issued, censuring and suspending theseaccounting firms from practicing before the SEC for a period of six months. The decision was neither final nor legally effective until reviewed and approved by theSEC, and on February 12, 2014, the PRC-based accounting firms appealed to the SEC against this decision. In February 2015, each of the four PRC-basedaccounting firms agreed to a censure and to pay a fine to the SEC to settle the dispute and avoid suspension of their ability to practice before the SEC. The settlementrequired the firms to follow detailed procedures to seek to provide the SEC with access to such firms’ audit documents via the CSRC. If the firms did not followthese procedures or if there is a failure in the process between the SEC and the CSRC, the SEC could impose penalties such as suspensions, or it could restart theadministrative proceedings. Under the terms of the settlement, the underlying proceeding against the four PRC-based accounting firms was deemed dismissed withprejudice for four years after entry of the settlement. The four-year mark occurred on February 6, 2019.Table of Contents38Pursuant to the HFCA Act, the PCAOB issued a report on December 16, 2021 notifying the SEC of its determination that it is unable to inspect orinvestigate completely accounting firms headquartered in mainland China or Hong Kong, including the four PRC-based accounting firms. Although the PCAOBBoard voted in December 2022 to vacate its previous determination following the Statement of Protocol signed between the PCAOB and the China SecuritiesRegulatory Commission and the Ministry of Finance of the PRC in August 2022 and the on-site inspections and investigations conducted by the PCAOB staff inHong Kong, we cannot assure you that the PCAOB will always have complete access to inspect and investigate the four PRC-based accounting firms. See “—If thePCAOB determines that it is unable to inspect or investigate completely our auditor at any point in the future, our ADSs may be prohibited from trading in the UnitedStates under the Holding Foreign Companies Accountable Act, as amended, or the HFCA Act, and any such trading prohibition on our ADSs or threat thereof maymaterially and adversely affect the price of our ADSs and value of your investment.” In the event that the PRC-based “big four” accounting firms become subject toadditional legal challenges by the SEC or PCAOB, depending upon the final outcome, listed companies in the U.S. with major PRC operations may find it difficult orimpossible to retain auditors in respect of their operations in the PRC, which could result in financial statements being determined to not be in compliance with therequirements of the Exchange Act, including possible delisting. Moreover, any negative news about any such future proceedings against these audit firms may causeinvestor uncertainty regarding China-based, U.S.-listed companies and the market price of our Class A ordinary shares and/or our ADSs may be adversely affected.If the auditors of our audit report in this annual report independent registered public accounting firm were denied, even temporarily, the ability to practicebefore the SEC and we were unable to timely find another registered public accounting firm to audit and issue an opinion on the Group’s consolidated financialstatements, the Group’s consolidated financial statements could be determined not to be in compliance with the requirements of the Exchange Act. Such adetermination could ultimately lead to delisting of the ADSs from the NYSE or deregistration from the SEC, or both, which would substantially reduce or effectivelyterminate the trading of the ADSs in the U.S.The ability of U.S. authorities to bring actions for violations of U.S. securities law and regulations against us, our directors, executive officers or the expertnamed in this annual report may be limited and therefore you may not be afforded the same protection as provided to investors in U.S. domestic companies.The SEC, U.S. Department of Justice (“DOJ”) and other authorities often have substantial difficulties in bringing and enforcing actions against non-U.S.companies such as us, and non-U.S. persons, such as our directors and executive officers in China. Due to jurisdictional limitations, matters of comity and variousother factors, the SEC, DOJ and other U.S. authorities may be limited in their ability to pursue bad actors, including in instances of fraud, in emerging markets suchas China. The Group conducts substantially all of its operations in China and substantially all of the Group’s assets are located in China. In addition, a majority of ourdirectors and executive officers reside within China. There are significant legal and other obstacles for U.S. authorities to obtain information needed forinvestigations or litigation against us or our directors, executive officers or other gatekeepers in case we or any of these individuals engage in fraud or otherwrongdoing. In addition, local authorities in China may be constrained in their ability to assist U.S. authorities and overseas investors more generally. As a result, ifwe have any material disclosure violation or if our directors, executive officers or other gatekeepers commit any fraud or other financial misconduct, the U.S.authorities may not be able to conduct effective investigations or bring and enforce actions against us, our directors, executive officers or other gatekeepers.Therefore, you may not be able to enjoy the same protection provided by various U.S. authorities as it is provided to investors in U.S. domestic companies.Privacy concerns relating to the Group’s products and services and the use of user information could damage our reputation, deter current and potential usersand customers from using the Group’s products.The Group may collect personal data while providing products, services and solutions to the Group’s customers. Our reputation may be damaged due to thecollection, use, disclosure or security of personal information or other privacy-related matters, even if unfounded, which will cause the Group to lose users and othercustomers and adversely affect the Group’s operations. The Group strives to comply with applicable laws and regulations on data protection, as well as the Group’sprivacy policies and data protection obligations in accordance with its terms of use and other obligations the Group may have. However, any non-compliance orperceived non-compliance with these laws, regulations or policies may lead to investigations and other lawsuits against the Group by government agencies or otherindividuals. This will have a negative impact on our reputation and brand image, may cause the Group to lose users and customers, and have a negative impact on theGroup’s business. In addition, any system failure or breach of the Group’s privacy policy by the Group’s current or former employees that may compromise of theGroup’s security and result in an unauthorized access to or release of the Group’s users’ or other customers’ data could greatly limit the user engagement of theGroup’s products and services, harm our reputation and brand image, as well as affect the Group’s business operations.Table of Contents39PRC government authorities have promulgated laws and regulations to protect personal information from any abuse or unauthorized disclosure. InNovember 2016, the SCNPC promulgated the Cybersecurity Law of the People’s Republic of China, or the Cybersecurity Law, which took effect as of June 1, 2017.The Cybersecurity Law is the first special law establishing the overall regulatory regime of personal information protection at the digital age. Since the CybersecurityLaw came into effect, a series of legislative and administrative actions in connection with personal information protection have been taken by the PRC government.The newly adopted legislature includes laws, judicial interpretations, national standards and governmental regulations related to personal information protection,while governmental agencies such as the Central Cyberspace Affairs Commission, the Ministry of Industry and Information Technology, the Ministry of PublicSecurity, and the State Administration for Market Regulation have taken a series campaigns to enhance and tighten the supervision of collection, usage, storage andtransfer practices of personal information by internet service providers. For instance, pursuant to the Order for the Protection of Telecommunication and Internet UserPersonal Information issued by the Ministry of Industry and Information Technology in July 2013, any collection and use of user personal information must besubject to the consent of the user, abide by the principles of legality, rationality and necessity and be within the specified purposes, methods and scopes. Furthermore,the Information Security Technology-Personal Information Security Specification (GB/T 35273-2017), or the Specification, was issued by the GeneralAdministration of Quality Supervision, Inspection and Quarantine of the PRC and the Standardization Administration of the PRC, or the StandardizationAdministration, on December 29, 2017 and has been replaced by Information Security Technology Personal Information Security Specification (GB/T 35273-2020),or the 2020 Specification, issued by the State Administration for Market Regulation and the Standardization Administration jointly which took effect on October 1,2020. Pursuant to the Specification, product and service providers should take technical and other necessary measures to ensure the safety of personal information,clearly demonstrate the purpose, approaches and scope of processing the personal information to the individual and acquire the authorization. In addition, accordingto the 2020 Specification, personal biometric information should be stored separately from personal identity information and in principle, the original personalbiometric information should not be stored; besides, it further requires that main function of privacy policy is to disclose the scope and rules of personal informationcollection and use by the personal information controller, which should not be regarded as a contract signed by the subject of personal information. Furthermore, onAugust 20, 2021, the SCNPC, promulgated the Personal Information Protection Law of the PRC, or the Personal Information Protection Law, which took effect inNovember 2021. As the first systematic and comprehensive law specifically for the protection of personal information in the PRC, the Personal InformationProtection Law provides, among others, that (i) an individual’s consent shall be obtained to use sensitive personal information, such as biometric characteristics andindividual location tracking, (ii) personal information operators using sensitive personal information shall notify individuals of the necessity of such use and impacton 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 lawsuitwith a People’s Court. In particular, in 2019, operators of hundreds of Apps, including many popular and well-known Apps such as Douyu, YY, Meituan and Alipay,have been consulted or ordered by government agencies to rectify their practices of personal information protection; since September 2019, the so-called “big data”companies have caught regulatory attentions for the suspect of illegal collection and abuse of personal information through internet crawling practices, whileHangzhou Moxie Data Technology Co., Ltd. and Shanghai Xinyan Artificial Intelligence Technology Co., Ltd. have even been officially investigated.As laws and regulations on data protection evolve, the Group’s practices may be deemed to be inconsistent with such laws or regulations. In addition to thepotential fines, such non-compliances could result in an order requiring the Group to change its practices, which may adversely affect the Group’s business andoperation.The greater oversight by the Cyberspace Administration of China, or the CAC, over data security, particularly for companies seeking to list on a foreignexchange, could adversely impact our business and our offering.The regulatory framework for data security in the PRC is rapidly evolving. On June 10, 2021, the SCNPC promulgated the Data Security Law to regulatedata processing activities and security supervision in the PRC, which took effect in September 2021.Table of Contents40On November 14, 2021, the CAC published the Draft Regulations on the Network Data Security Administration (Draft for Comments), or the SecurityAdministration Draft, which provides that data processing operators engaging in data processing activities that affect or may affect national security must be subjectto network data security review by the relevant Cyberspace Administration of the PRC. According to the Security Administration Draft, data processing operatorswho possess personal data of at least one million users or collect data that affects or may affect national security must be subject to network data security review bythe relevant Cyberspace Administration of the PRC. The Security Administration Draft also stipulates that a data processor listed overseas must conduct an annualdata 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 municipalcybersecurity department before January 31 of the following year. If the Security Administration Draft is enacted in the current form, we, as an overseas listedcompany, will be required to carry out an annual data security review and comply with the relevant reporting obligations. The Security Administration Draft has notbeen enacted as of the date of this annual report.On December 28, 2021, the CAC, together with 12 other governmental departments of the PRC, jointly promulgated the Cybersecurity Review Measures,which became effective on February 15, 2022. The Cybersecurity Review Measures provides that, in addition to critical information infrastructure operators, or theCIIOs, that intend to purchase Internet products and services, online platform operators engaging in data processing activities that affect or may affect nationalsecurity must be subject to cybersecurity review by the Cybersecurity Review Office of the PRC. According to the Cybersecurity Review Measures, online platformoperators that possess personal data of at least one million users must apply for a review by the Cybersecurity Review Office of the PRC before conducting listings inforeign countries. However, given the recency of the issuance of the Cybersecurity Review Measures, there is a general lack of guidance and substantial uncertaintiesexist with respect to their interpretation and implementation. For example, it is unclear whether the requirement of cybersecurity review applies to follow-onofferings 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 operatoris already listed overseas.On July 7, 2022, CAC promulgated Measures for the Security Assessment of Outbound Data Transfers, which became effective on September 1, 2022 andprovide 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 dataprocessor provides critical data to offshore entities and individuals; (ii) where a CIIO or a data processor which processes personal information of more than onemillion individuals provides personal information to offshore entities and individuals; (iii) where a data processor has provided personal information in the aggregateof 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 theprevious year; or (iv) other circumstances prescribed by the CAC for which declaration for security assessment for cross-board transfer of data is required. We maybe required to declare security assessment if we fall under any of the aforementioned circumstances and our business operations may be restricted according to theregulations above mentioned.As of the date of this annual report, we have not received any notice from any authorities identifying us as a CIIO or requiring us to go throughcybersecurity review or network data security review by the CAC. However, as there remains uncertainty regarding how the Cybersecurity Review Measures and theMeasures for the Security Assessment of Outbound Data Transfers will be interpreted, how the Security Administration Draft will be implemented and interpreted,and whether the PRC regulatory agencies, including the CAC, may adopt any other new laws, regulations, rules, or detailed implementation and interpretation relatedto the Cybersecurity Review Measures and the Security Administration Draft. If any such new laws, regulations, rules, or implementation and interpretation comeinto effect, we will take all reasonable measures and actions to comply and to minimize the adverse effect of such laws on us. But we cannot guarantee that we willnot be subject to cybersecurity review or network data security review in the future. During such reviews, we may be required to suspend our operation or experienceother disruptions to our operations. Cybersecurity review and network data security review could also result in negative publicity with respect to our Company anddiversion of our managerial and financial resources, which could materially and adversely affect our business, financial conditions, and results of operations.Table of Contents41Uncertainties exist with respect to the interpretation and implementation of the Foreign Investment Law and its implementing rules and how they may impactour business, financial condition and results of operations.The VIE structure through contractual arrangements has been adopted by many PRC-based companies, including us, to obtain necessary licenses andpermits in the industries that are currently subject to foreign investment restrictions in China. The MOFCOM published a discussion draft of the proposed ForeignInvestment Law in January 2015, or the 2015 Draft FIL, according to which, variable interest entities that are controlled via contractual arrangements would also bedeemed as foreign-invested entities, if they are ultimately “controlled” by foreign investors. In March 2019, the PRC National People’s Congress promulgated theForeign Investment Law, and in December 2019, the State Council promulgated the Implementing Rules of Foreign Investment Law, or the Implementing Rules, tofurther clarify and elaborate the relevant provisions of the Foreign Investment Law. The Foreign Investment Law and the Implementing Rules both became effectivefrom January 1, 2020 and replaced the major previous laws and regulations governing foreign investments in the PRC. Pursuant to the Foreign Investment Law,“foreign investments” refer to investment activities conducted by foreign investors (including foreign natural persons, foreign enterprises or other foreignorganizations) directly or indirectly in the PRC, which include any of the following circumstances: (i) foreign investors setting up foreign-invested enterprises in thePRC solely or jointly with other investors, (ii) foreign investors obtaining shares, equity interests, property portions or other similar rights and interests of enterpriseswithin the PRC, (iii) foreign investors investing in new projects in the PRC solely or jointly with other investors, and (iv) investment in other methods as specified inlaws, administrative regulations, or as stipulated by the State Council. The Foreign Investment Law and the Implementing Rules do not introduce the concept of“control” in determining whether a company would be considered as a foreign-invested enterprise, nor do they explicitly provide whether the VIE structure would bedeemed as a method of foreign investment. However, the Foreign Investment Law has a catch-all provision that includes into the definition of “foreign investments”made by foreign investors in China in other methods as specified in laws, administrative regulations, or as stipulated by the State Council, and as the relevantgovernment authorities may promulgate more laws, regulations or rules on the interpretation and implementation of the Foreign Investment Law, the possibilitycannot be ruled out that the concept of “control” as stated in the 2015 Draft FIL may be embodied in, or the VIE structure adopted by us may be deemed as a methodof foreign investment by, any of such future laws, regulations and rules. If any Group VIEs were deemed as a foreign-invested enterprise under any of such futurelaws, regulations and rules, and any of the businesses that we operate would be in any “negative list” for foreign investment and therefore be subject to any foreigninvestment restrictions or prohibitions, further actions required to be taken by us under such laws, regulations and rules may materially and adversely affect ourbusiness, financial condition and results of operations. Furthermore, if future laws, administrative regulations or provisions mandate further actions to be taken bycompanies with respect to existing contractual arrangements, we may face substantial uncertainties as to whether we can complete such actions in a timely manner, orat all. Failure to take timely and appropriate measures to cope with any of these or similar regulatory compliance challenges could materially and adversely affect ourcurrent corporate structure, business, financial condition and results of operations.Risks Related to Our Ordinary Shares and ADSsThe trading price of our ADSs may be volatile, which could result in substantial losses to you.The trading prices of our ADSs have been, and are likely to continue to be, volatile and could fluctuate widely due to factors beyond our control. This mayhappen because of broad market and industry factors, like the performance and fluctuation in the market prices or the underperformance or deteriorating financialresults 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 aftertheir offerings, including Internet companies, online retail and mobile commerce platforms and consumer finance service providers, may affect the attitudes ofinvestors toward Chinese companies listed in the United States, which consequently may impact the trading performance of our ADSs, regardless of the Group’sactual operating performance. In addition, any negative news or perceptions about inadequate corporate governance practices or fraudulent accounting, corporatestructure or matters of other Chinese companies may also negatively affect the attitudes of investors towards companies that have major operations based in China ingeneral, including us, regardless of whether we have conducted any inappropriate activities. Furthermore, securities markets may from time to time experiencesignificant price and volume fluctuations that are not related to the Group’s 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 ourADSs.In addition to the above factors, the price and trading volume of our ADSs may be highly volatile due to multiple factors, including the following:●regulatory developments affecting the Group’s or its industry;Table of Contents42●announcements of studies and reports relating to the quality of the Group’s product offerings or those of our competitors;●changes in the economic performance or market valuations of other consumer finance service providers;●actual or anticipated fluctuations in the Group’s quarterly results of operations and changes or revisions of the Group’s expected results;●changes in financial estimates by securities research analysts;●conditions in the market for consumer finance services;●announcements by us or our competitors of new product and service offerings, acquisitions, strategic relationships, joint ventures, capital raisings orcapital commitments;●additions to or departures of our senior management;●fluctuations of exchange rates between the Renminbi and the U.S. dollar;●release or expiry of lock-up or other transfer restrictions on our outstanding shares or ADSs; and●sales or perceived potential sales of additional Class A ordinary shares or ADSs.If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price for our ADSs andtrading volume could decline.The trading market for our ADSs will depend in part on the research and reports that securities or industry analysts publish about us or the Group’s 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 ADSs or publishesinaccurate or unfavorable research about the Group’s business, the market price for our ADSs would likely decline. If one or more of these analysts cease coverage ofour company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volumefor our ADSs to decline.Because we do not expect to pay dividends in the foreseeable future, you must rely on price appreciation of our ADSs for return on your investment.We currently intend to retain most, if not all, of our available funds and any future earnings to fund the development and growth of the Group’s business. Asa result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in our ADSs as a source for any futuredividend income.Our board of directors has complete discretion as to whether to distribute dividends. Even if our board of directors decides to declare and pay dividends, thetiming, amount and form of future dividends, if any, will depend on, among other things, the Group’s future results of operations and cash flow, the Group’s capitalrequirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions and other factorsdeemed relevant by our board of directors. Accordingly, the return on your investment in our ADSs will likely depend entirely upon any future price appreciation ofour ADSs. There is no guarantee that our ADSs will appreciate in value or even maintain the price at which you purchased the ADSs. You may not realize a return onyour investment in our ADSs and you may even lose your entire investment in our ADSs.Table of Contents43Substantial future sales or perceived potential sales of our ADSs in the public market could cause the price of our ADSs to decline.Sales of our ADSs in the public market, or the perception that these sales could occur, could cause the market price of our ADSs to decline significantly. Thetotal number of ordinary shares outstanding as of March 31, 2023 was 224,898,926, comprising 161,407,754 Class A ordinary shares and 63,491,172 Class Bordinary shares. All outstanding ADSs representing our Class A ordinary shares are freely transferable by persons other than our “affiliates” without restriction oradditional registration under the U.S. Securities Act of 1933, as amended, or the Securities Act. All of the other ordinary shares outstanding are available for sale,subject to volume and other restrictions as applicable under Rules 144 and 701 under the Securities Act. We cannot predict what effect, if any, market sales ofsecurities held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of our ADSs.If we fail to maintain compliance with the continued listing requirements of the New York Stock Exchange, our ADSs may be delisted and the liquidity and thetrading price of our ADSs could be materially and adversely affected.We fell below the continued listing requirements of the New York Stock Exchange in the past. In particular, we were notified by the NYSE in February,May and September 2022, of our company’s non-compliance with the continued listing standard because the average closing price of our ADSs was less thanUS$1.00 per ADS over a consecutive 30 trading-day period. We have subsequently regained compliance with NYSE’s continued listing criteria regarding the price ofthe ADSs following each such notice. We cannot assure you, however, that the trading prices of our ADSs will not fall below NYSE’s continued listing standardagain in the future, nor that we will always be able to maintain compliance with the other continued listing requirements of the NYSE. Should we fail to comply withany of the NYSE’s continued listing requirements and fail to regain compliance during any cure period that may be allowed by the NYSE, our ADSs may be delistedfrom the NYSE, and the liquidity and the trading price of our ADSs could be materially and adversely affected.You, as holders of ADSs, may have fewer rights than holders of our ordinary shares and must act through the depositary to exercise those rights.Holders of ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying Class A ordinaryshares in accordance with the provisions of the deposit agreement. Under our second amended and restated articles of association, the minimum notice periodrequired to convene a general meeting will be 10 days. When a general meeting is convened, you may not receive sufficient notice of a shareholders’ meeting topermit you to withdraw your Class A ordinary shares to allow you to cast your vote with respect to any specific matter. In addition, the depositary and its agents maynot be able to send voting instructions to you or carry out your voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary toextend voting rights to you in a timely manner, but there can be no assurance that you will receive the voting materials in time to ensure that you can instruct thedepositary to vote your ADSs. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner inwhich any vote is cast or for the effect of any such vote. As a result, you may not be able to exercise your right to vote and you may lack recourse if your ADSs arenot voted as you requested. In addition, in your capacity as an ADS holder, you will not be able to call a shareholders’ meeting.Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings.We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights available to youin the United States unless we register both the rights and the securities to which the rights relate under the Securities Act or an exemption from the registrationrequirements is available. Under the deposit agreement, the depositary will not make rights available to you unless both the rights and the underlying securities to bedistributed to ADS holders are either registered under the Securities Act or exempt from registration under the Securities Act. We are under no obligation to file aregistration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective and we may not beable to establish a necessary exemption from registration under the Securities Act. Accordingly, you may be unable to participate in our rights offerings in the futureand may experience dilution in your holdings.Table of Contents44You may not receive cash dividends if the depositary decides it is impractical to make them available to you.The depositary will pay cash dividends on the ADSs only to the extent that we decide to distribute dividends on our Class A ordinary shares or otherdeposited securities, and we do not have any present plan to pay any cash dividends in the foreseeable future. See “Item 8. Financial Information-A. ConsolidatedStatements and Other Financial Information-Dividend Policy” To the extent that there is a distribution, the depositary of our ADSs has agreed to pay to you the cashdividends or other distributions it or the custodian receives on our Class A ordinary shares or other deposited securities after deducting its fees and expenses. You willreceive these distributions in proportion to the number of Class A ordinary shares your ADSs represent. However, the depositary may, at its discretion, decide that itis inequitable or impractical to make a distribution available to any holders of ADSs. For example, the depositary may determine that it is not practicable to distributecertain property through the mail, or that the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may decide not todistribute such property to you.You may be subject to limitations on transfer of your ADSs.Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when itdeems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generallywhen our books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or ofany government or governmental body, or under any provision of the deposit agreement, or for any other reason.Certain judgments obtained against us by our shareholders may not be enforceable.We are an exempted company incorporated under the laws of the Cayman Islands. We conduct the Group’s operations outside the United States andsubstantially all of the Group’s assets are located outside the United States. In addition, substantially all of our directors and executive officers and the experts namedin this annual report reside outside the United States, and most of their assets are located outside the United States. As a result, it may be difficult or impossible foryou to bring an action against us or against them in the United States in the event that you believe that your rights have been infringed under the U.S. federalsecurities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands, China or other relevant jurisdiction mayrender you unable to enforce a judgment against the Group’s assets or the assets of our directors and officers.There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although the Cayman Islands will generally recognize asa valid judgment, a final and conclusive judgment in personam obtained in the federal or state courts in the United States under which a sum of money is payable(other than a sum of money payable in respect of multiple damages, taxes or other charges of a like nature or in respect of a fine or other penalty), or, in certaincircumstances, an in personam judgment for non-monetary relief, and would give a judgment based thereon provided that (i) such courts had proper jurisdiction overthe parties subject to such judgment; (ii) such courts did not contravene the rules of natural justice of the Cayman Islands; (iii) such judgment was not obtained byfraud; (iv) the enforcement of the judgment would not be contrary to the public policy of the Cayman Islands; (v) no new admissible evidence relevant to the action issubmitted prior to the rendering of the judgment by the courts of the Cayman Islands; and (vi) there is due compliance with the correct procedures under the laws ofthe Cayman Islands. There is uncertainty as to whether a judgment obtained from the United States courts under the civil liability provisions of the securities lawswill be determined by the courts of the Cayman Islands as penal or punitive in nature. If such a determination is made, the courts of the Cayman Islands will notrecognize or enforce the judgment against a Cayman Islands company. Because the courts of the Cayman Islands have yet to rule on whether such judgments arepenal or punitive in nature, it is uncertain whether they would be enforceable in the Cayman Islands.Table of Contents45The recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedure Law. PRC courts may recognize and enforce foreignjudgments in accordance with the requirements of the PRC Civil Procedure Law based either on treaties between China and the country where the judgment is madeor on principles of reciprocity between jurisdictions. Under PRC law, a foreign judgment, which does not otherwise violate basic legal principles, state sovereignty,safety or social public interest, may be recognized and enforced by a PRC court, based either on treaties between China and the country where the judgment is madeor on principles of reciprocity between jurisdictions. As there existed no treaty or other form of reciprocity between China and the United States, the UnitedKingdom, Japan or most other western countries governing the recognition and enforcement of judgments as of the date of this annual report, including thosepredicated upon the liability provisions of the United States federal securities laws, recognition and enforcement in China of judgments of a court in any of thesejurisdictions may be difficult or impossible. In addition, you may not be able to bring original actions in China based on the U.S. or other foreign laws against us, ourdirectors, executive officers or the expert named in this annual report either. As a result, shareholder claims that are common in the U.S., including class actionsecurities law and fraud claims, are difficult or impossible to pursue as a matter of law and practicality in China. Therefore, you may not be able to effectively enjoythe protection offered by the U.S. laws and regulations that intend to protect public investors.You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporatedunder Cayman Islands law.We are an exempted company limited by shares incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our memorandumand articles of association, the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands and the common law of the CaymanIslands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary duties of our directors to us under CaymanIslands 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 comparativelylimited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority, but are notbinding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors under Cayman Islands law are not as clearlyestablished as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands have a less developedbody 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 thanthe 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 or to obtaincopies of lists of shareholders of these companies. Our directors have discretion under the second amended and restated memorandum and articles of association todetermine 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 ourshareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder resolution or to solicitproxies from other shareholders in connection with a proxy contest.As a result of all of the above, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by management,members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States. The CompaniesLaw is modeled after that of England and Wales but does not follow recent statutory enactments in England. In addition, the Companies Law differs from lawsapplicable to United States corporations and their shareholders.Table of Contents46Our second amended and restated memorandum and articles of association contain anti-takeover provisions that could discourage a third party from acquiringus, which could limit our shareholders’ opportunity to sell their shares, including Class A ordinary shares represented by our ADSs, at a premium.We have adopted the second amended and restated memorandum and articles of association, which became effective immediately prior to the completion ofour initial public offering that contain provisions to limit the ability of others to acquire control of our company or cause us to engage in change-of-controltransactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices bydiscouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction. For example, our board of directors 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 relativeparticipating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms ofredemption and liquidation preferences, any or all of which may be greater than the rights associated with our Class A ordinary shares, in the form of ADS orotherwise. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of managementmore difficult. If our board of directors decides to issue preferred shares, the price of our ADSs may fall and the voting and other rights of the holders of our Class Aordinary shares and ADSs may be materially and adversely affected. In addition, our second amended and restated memorandum and articles of association containother provisions that could limit the ability of third parties to acquire control of our company or cause us to engage in a transaction resulting in a change of control,including a provision that entitles each Class B ordinary share to 10 votes in respect of all matters subject to a shareholders’ vote.These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices bydiscouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction.We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to U.S.domestic public companies.Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in theUnited States that are applicable to U.S. domestic issuers, including:●the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current reports on Form 8-K;●the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the ExchangeAct;●the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders whoprofit from trades made in a short period of time; and●the selective disclosure rules by issuers of material nonpublic information under Regulation FD.We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish the Group’s resultson a quarterly basis as press releases, distributed pursuant to the rules and regulations of the NYSE. Press releases relating to financial results and material events willalso 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 timelycompared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information that would bemade available to you were you investing in a U.S. domestic issuer.Table of Contents47As a company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters thatdiffer significantly from the NYSE corporate governance listing standards; these practices may afford less protection to shareholders than they would enjoy if wecomplied fully with the NYSE corporate governance listing standards.As a Cayman Islands company listed on the NYSE, we are subject to the NYSE corporate governance listing standards. However, the NYSE marketrules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the CaymanIslands, which is our home country, may differ significantly from the NYSE corporate governance listing standards.For instance, we are not required to:●have a majority of the board be independent (although all of the members of the audit committee must be independent under the Exchange Act);●have a compensation committee or a nominating and corporate governance committee consisting entirely of independent directors;●obtain shareholders’ approval for issuance of securities in certain situations;●hold annual shareholders meetings; or●have regularly scheduled executive sessions with only independent directors each year.We have relied on and intend to continue to rely on all of these exemptions. As a result, you may not be provided with the benefits of certain corporategovernance requirements of the NYSE.There is a significant risk that we will be classified as a passive foreign investment company, or PFIC, which could result in adverse United States taxconsequences to United States investors.The determination of whether we are a PFIC is made on an annual basis and will depend on the composition of our income and assets from time to time.Specifically, for any taxable year, we will be classified as a PFIC for United States federal income tax purposes if either (i) 75% or more of our gross income in thattaxable year is passive income or (ii) at least 50% of the value (generally determined based on a quarterly average) of our assets in that taxable year is attributable toassets that produce or are held for the production of passive income. For this purpose, passive income generally includes dividends, interest, royalties and rents (otherthan royalties and rents derived in the active conduct of a trade or business and not derived from a related person). The calculation of the value of our assets will bebased, in part, on the quarterly market value of our ADSs, which is subject to change. See “Item 10. Additional Information⸺⸺E. Taxation⸺⸺Certain UnitedStates Federal Income Tax Considerations-Passive Foreign Investment Company.”Based on the past and projected composition and classification of the Group’s income and assets, we believe there is a significant risk that we wereclassified as a PFIC for United States federal income tax purposes for 2022 and will be a PFIC for the current taxable year, and that we may be classified as a PFICfor future taxable years. Our PFIC status for future taxable years will depend, in part, on the nature of any new business opportunities that we pursue, and whether theincome and assets attributable to any such new business would be considered passive for purposes of the PFIC rules.If we are a PFIC for any taxable year during which you hold our ADSs or Class A ordinary shares, our PFIC status could result in adverse United Statesfederal income tax consequences to you if you are a United States Holder, as defined under “Item 10. Additional Information-E. Taxation-Certain United StatesFederal Income Tax Considerations.” For example, if we are a PFIC, you may become subject to increased tax liabilities under United States federal income tax lawsand regulations, and will become subject to burdensome reporting requirements. See “Item 10. Additional Information⸺⸺E. Taxation⸺⸺Certain United StatesFederal Income Tax Considerations-Passive Foreign Investment Company.”Table of Contents48We will continue to incur increased costs as a result of being a public company.As a U.S. public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of2002, as well as rules subsequently implemented by the SEC and the New York Stock Exchange, impose various requirements on the corporate governance practicesof public companies. These rules and regulations increase our legal and financial compliance costs and make some corporate activities more time-consuming andcostly. We expect to continue to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements ofSection 404 of the Sarbanes-Oxley Act of 2002 and the other rules and regulations of the SEC. For example, as a result of becoming a public company, we haveincreased the number of independent directors and adopted policies regarding internal controls and disclosure controls and procedures. We also expect that operatingas a public company will continue to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required toaccept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. In addition, we incur additional costs associatedwith our public company reporting requirements. It may also be more difficult for us to find qualified persons to serve on our board of directors or as executiveofficers.ITEM 4.INFORMATION ON THE COMPANYA.History and Development of the CompanyThe Group was founded in April 2014 and operated its business through Beijing Happy Time Technology Development Co., Ltd., or Beijing Happy Time.The Group initially operated its business by facilitating credit solutions to college students on campuses across China. In November 2015, the Group shifted its focusto a broader base of young consumers in China, and the Group terminated its on-campus business.In September 2016, Qufenqi (Ganzhou) Information Technology Co., Ltd., or Ganzhou Qufenqi, was incorporated as a wholly foreign owned entity inChina. In November 2016, we incorporated Qudian Inc. under the laws of the Cayman Islands as our offshore holding company, and subsequently, we established awholly-owned subsidiary in the British Virgin Islands, QD Technology Limited, in November 2016, and a wholly-owned subsidiary in Hong Kong, QD DataLimited, to be our intermediate holding company in December 2016, to facilitate our initial public offering in the United States. The entire equity interest of GanzhouQufenqi was transferred from its former holding company to QD Data Limited. As a result of the restructuring in 2016, we hold equity interest in Ganzhou Qufenqithrough our current offshore structure. At the same time, Ganzhou Qufenqi entered into a series of contractual arrangements with Beijing Happy Time and itsshareholders. In addition, pursuant to the resolutions of all shareholders of Qudian Inc. and the resolutions of the board of directors of Qudian Inc., the board ofdirectors of Qudian Inc. or any officer authorized by such board will cause Ganzhou Qufenqi to exercise its rights under such contractual arrangements. As a result ofthese resolutions and the provision of unlimited financial support from the Company to Beijing Happy Time, Qudian Inc. has been determined to be most closelyassociated with Beijing Happy Time within the group of related parties and was considered to be the primary beneficiary of Beijing Happy Time and its subsidiariesfor accounting purposes.Ganzhou Qudian and Xiamen Qudian became Group VIEs in 2017. We have entered into a series of contractual arrangements with each new Group VIE andits shareholders, which allows us to have the power to direct the activities that most significantly impact the economic performance of each new Group VIE andrealize substantially all of the economic risks and benefits arising from such new Group VIE. The contractual arrangements for each Group VIE, including those as tothe new Group VIEs, contain substantively identical provisions that afford us, through our wholly-owned subsidiary Ganzhou Qufenqi, the right to control all of theGroup VIEs in the same manner and degree. Mr. Min Luo, our founder, chairman and chief executive officer, and Mr. Lianzhu Lv, our head of user experiencedepartment, are the only shareholders of Ganzhou Qudian. Mr. Min Luo is the only shareholder of Xiamen Qudian. We believe such shareholding structure willenhance our administrative efficiency and reduce uncertainties associated with the enforcement of the relevant contractual arrangements entered into with the GroupVIEs and their respective shareholder(s). Instead of relying on several shareholders’ compliance with their respective contractual obligations, we will only rely onone or two shareholders’ compliance for each Group VIE and would only need to enforce against such shareholder(s) in the event of a breach. The establishment ofany of these Group VIEs is not intended to, and will not, have an adverse impact on the rights of our ADS holders. For more information, see “Item 3. KeyInformation on the Company⸺⸺D. Risk Factors-Risks Related to Our Corporate Structure⸺⸺We rely on contractual arrangements with the Group VIEs and theirshareholders to operate our business, which may be less effective than direct ownership in providing operational control and otherwise have a material adverse effectthan to our business.”We currently conduct business in China mainly through the Group VIEs and their subsidiaries.Table of Contents49Hunan Qudian Technology Development Co., Ltd., or Hunan Qudian, became a VIE of the Group in 2017. In January 2021, we completed the dissolution ofHunan Qudian and terminated the contractual arrangements with Hunan Qudian and its shareholders. Xiamen Weipujia Technology Co., Ltd., or Xiamen Weipujia,became a Group VIEs in 2018. In April 2022, we completed the dissolution of Xiamen Weipujia and terminated the contractual arrangements with Xiamen Weipujiaand its shareholders. Xiamen Qu Plus Plus Technology Development Co., Ltd., or Xiamen Qu Plus Plus, became a Group VIE in 2019. In December 2022, wecompleted the dissolution of Xiamen Qu Plus Plus and terminated the contractual arrangements with Xiamen Qu Plus Plus and its shareholders.Our principal executive offices are located at Tower A, AVIC Zijin Plaza, Siming District, Xiamen, Fujian Province 361000, People’s Republic of China,and our telephone number is +(86) 592 591 1580. Our website address is www.qudian.com. The information on our website does not form a part of this annualreport. The SEC also maintains a website at www.sec.gov that contains reports, proxy statements and other information regarding registrants that file electronicallywith the SEC. Our annual report and some of the other information submitted by us to the SEC may be accessed through this web site.B.Business OverviewOverviewThe Group is a consumer-oriented technology company in China. The Group historically focused on providing credit solutions to consumers. The Group hasbeen exploring new business opportunities to promote long-term value for its shareholders.The Group historically operated a loan book business, whereby the Group offered small credit products to consumers and undertook the related credit risk.The Group has ceased new credit offerings since September 6, 2022. As of December 31, 2022, there was no outstanding loan balance from the Group’s loan bookbusiness.The Group historically generated (i) financing income, loan facilitation income and other related income and guarantee income from cash credit products,(ii) sales income from the QD Food business, (iii) financing income and sales commission fee from merchandise credit products and (iv) transaction services fee andother related income from the Group’s transaction services business. The Group historically generated sales income from merchandise sales on the Wanlimu e-commerce platform, which the Group is in the process of winding down. In addition, the Group historically offered budget auto financing products, from which theGroup generated sales income and financing income. The Group started to wind down its budget auto financing business in the second quarter of 2019.The Group’s total revenues decreased from RMB3,688.0 million in 2020 to RMB1,654.0 million in 2021, and decreased to RMB577.5 million (US$83.7million) in 2022. The Group recorded net income of RMB958.8 million, RMB585.9 million and net loss of RMB362.1 million (US$52.5 million) in 2020, 2021 and2022, respectively.Credit BusinessThe Group historically operated a credit business. The Company has decided to cease new credit offerings since September 6, 2022 and, as of December 31,2022, there was no outstanding balance from the Group’s loan book business.Loan Book BusinessSmall Credit ProductsUnder the Group’s loan book business, the Group offered small cash credit products to consumers and undertook the related credit risk. Users accessed theGroup’s small credit products through the Group’s mobile apps.The Group’s cash credit products comprised short-term, unsecured lines of credit that could be drawn down at any time, subject to the Group’s approval atthe time of each drawdown request. Borrowers were typically charged financing service fees for cash credit drawdowns.Table of Contents50Historically, the Group also offered merchandise credit products to finance borrowers’ direct purchase of merchandise offered on the Qudian marketplace oninstallment basis. The Qudian marketplace connected consumers with merchandise suppliers. The Group neither sold merchandise nor held inventory for the Qudianmarketplace. Customers accessed the Qudian marketplace through mobile apps. Only customers with approved merchandise credit limits could make purchases, andthe Group required a minimum amount of each purchase to be funded by utilizing the Group’s credit product. Borrowers were typically charged financing servicefees for merchandise credit drawdowns. The Group also earned sales commission fee from its merchandise suppliers for the intermediary services rendered.The terms of the credit products were clearly stated in the electronic borrowing agreements borrowers entered into with the Group upon drawdowns:●Installments. Borrowers were generally required to make fixed weekly or monthly payments. The combined total represented the loan principal andfinancing service fees charged to borrowers.●Durations. Durations of cash credit products typically ranged from one to 18 months.●Penalty fee. A penalty fee for late payment was clearly disclosed in the agreement and was imposed as a daily penalty rate of the amount past due.●Repayment method. Repayments were made through the borrower’s specified digital account.Budget Auto Financing ProductsThe Group historically offered budget auto financing products in the form of sales-type finance leases and vehicle sales with guarantee under the Dabai Autobrand. The Group started to wind down its budget auto financing business in the second quarter of 2019.In the case of sales-type finance leases, the Group purchased cars on its inventory and leased them to creditworthy car buyers. Each car buyer was requiredto make a down payment and pay installments throughout the term of the lease. The legal title of the car was transferred to the car buyer upon full repayment. In thecase of vehicle sales with guarantee, the Group sold vehicles to buyers and provided loan facilitation services to funding partners who provided financing to thevehicle buyers. The buyer obtained control of the vehicle when the borrower physically possessed the vehicle and when the Group received cash consideration for thevehicle from the buyer. The Group received recurring service fees from the financial institution for the Group’s loan facilitation services and post-origination servicesthroughout the term of the loan. In addition, the Group provided a guarantee on the principal and accrued interest repayments of the defaulted loans to the financialinstitution.Transaction Services BusinessIn the fourth quarter of 2018, the Group launched an open platform for transaction services business. The transaction services business allowed the Group tomonetize its user base and mitigate its credit risk exposure. The Group performed credit assessment on users applying for credit on its platform, following which theGroup referred users that met the Group’s credit requirements to licensed institutional funding partners that participated on the platform. The Group receivedcommissions from the institutional funding partners for such referrals. The Group ceased to provide transaction services through its open platform in the third quarterof 2021.Table of Contents51FundingHistorically, the Group collaborated with institutional funding partners to fund transactions under the loan book businessand the transaction servicesbusiness. While the Group bore credit risk for transactions under the loan book business, the Group did not bear credit risk for transactions under the transactionservices business. In 2022, the Group funded all transactions on its platform with its own capital.The table below sets forth a breakdown by funding sources for total amount of transactions in the periods presented: Year Ended December 31,202020212022RMBRMBRMBUS$(in thousands)On-balance sheet transactions: Credit drawdowns that were funded by institutional funding partners 611,751 — — —Credit drawdowns funded through trusts(1) 611,751 — — —Credit drawdowns that were funded by the Group’s own capital 17,683,191 14,636,497 3,955,465 573,489Total on-balance sheet transactions 18,294,942 14,636,497 3,955,465 573,489Off-balance sheet transactions 97,879 128,368 — —Transactions under the loan book business 18,392,821 14,764,865 3,955,465 573,489Transactions under the transaction services business 4,020,778 352,402 — —Total 22,413,599 15,117,267 3,955,465 573,489(1)Excludes credit drawdowns funded by the Group’s own capital through trusts.The table below sets forth a breakdown by funding sources, as a percentage of the amount of transactions, in the periods presented Year Ended December 31,202020212022%On-balance sheet transactions: Credit drawdowns that were funded by institutional funding partners 2.7 — —Credit drawdowns funded through trusts(1) 2.7 — —Credit drawdowns that were funded by the Group’s own capital 78.9 96.8 100.0Total on-balance sheet transactions 81.6 96.8 100.0Off-balance sheet transactions 0.5 0.9 —Transactions under the loan book business 82.1 97.7 100.0Transactions under the transaction services business 17.9 2.3 —Total 100.0 100.0 100.0(1)Excludes credit drawdowns funded by the Group’s own capital through trusts.E-commerce BusinessThe Group launched the Wanlimu e-commerce platform, which offers online luxury fashion products, in March 2020. The Group is in the process ofwinding down this business.Early Childhood Education BusinessThe Group launched Wanlimu Kids Clubs, an early childhood education business in January 2021. The Group offered various early childhood educationservices for young children to participate in. The Group had closed all of its Wanlimu education centers in November 2022 and completely wound down its WanlimuKids Clubs business in March 2023.Table of Contents52QD FoodThe Group launched its ready-to-cook meal business, or “QD Food,” in March 2022. After assessing current market conditions, the Group has decided towind down its QD Food business. With the streamlining in QD Food operations, the Group has incurred and expects to continue to incur employee severance costs,termination fees for business partners and inventory write offs, which may adversely affect its financial condition and results of operations.Intellectual PropertyWe regard the Group’s trademarks, domain names, copyrights, know-how, proprietary technologies and similar intellectual property as critical to theGroup’s success, and the Group relies on trademark and trade secret law and confidentiality, invention assignment and non-compete agreements with the Group’semployees and others to protect the Group’s proprietary rights. As of March 31, 2023, the Group had registered 597 trademarks in the PRC for “趣店”, “Qufenqi”and other trademarks and had 15 trademarks under application in the PRC. As of March 31, 2023, the Group was the registered holder of 174 domain names in thePRC that include qudian.com and laifenqi.com. The Group was also granted 75 copyrights that corresponding to the Group’s proprietary techniques in connectionwith its systems.InsuranceThe Group provides social security insurance including pension insurance, unemployment insurance, work-related injury insurance and medical insurancefor its employees. The Group also purchased employer’s liability insurance and additional commercial health insurance to increase insurance coverage of itsemployees. The Group does not maintain business interruption insurance or general third-party liability insurance, nor does the Group maintain product liabilityinsurance or key-man insurance. We consider the Group’s insurance coverage to be sufficient for the Group’s business operations in China.Table of Contents53Licenses and Permissions RequirementsThe below table sets forth material permissions and/or licenses the Group has obtained for its operations in China as of March 31, 2023. The Group hasreceived all material permissions that are, or may be, required for its operations in China, and no material permission has been denied from the Group by relevantauthorities in China. However, the Group is subject to risks relating to the regulatory environment in China. See “Item 3. Key Information⸺⸺D. Risk Factors- RisksRelated to Doing Business in China⸺⸺There are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations. In addition,rules and regulations in China can change quickly with little advance notice.”Company NameCompany StatusName of Permission/License Governing Government AuthorityBeijing Happy Time Technology DevelopmentCo., Ltd.(北京快乐时代科技发展有限公司)Group VIEBusiness LicenseAdministration for Market RegulationHaidian District of Beijing CityQufenqi (Ganzhou) Information TechnologyCo., Ltd.(趣分期（赣州）信息技术有限公司)Our PRC subsidiaryBusiness LicenseAdministration for Market Regulationof Ganzhou CityXiamen Happy Time Technology Co., Ltd.(厦门快乐时代科技有限公司)Our PRC subsidiaryBusiness LicenseAdministration for Market Regulationof Xiamen CityXiamen Qudian Financial Lease Ltd.(厦门趣店融资租赁有限公司)Subsidiary of a GroupVIEBusiness LicenseAdministration for Market Regulationof Xiamen CityGanzhou Qudian Technology Co., Ltd.(赣州趣店科技有限公司)Group VIEBusiness LicenseAdministrative Examination andApproval Bureau of GanzhouEconomic Technological DevelopmentZoneXiamen Qudian Technology Co., Ltd.(厦门趣店科技有限公司)Group VIEBusiness LicenseAdministration for Market Regulationof Xiamen CityService Provider LicenseMinistry of Industry and InformationTechnology of the PRCICP LicenseFujian CommunicationsAdministrationODPTP LicenseFujian CommunicationsAdministrationGanzhou Happy Fenqi Network ServiceCo., Ltd.(赣州快乐分期网络服务有限公司)Subsidiary of a GroupVIEBusiness LicenseAdministration for Market Regulationof Ganzhou CityXiamen Xincheng Youda Financing GuaranteeLtd.(厦门信诚友达融资担保有限公司)Our PRC subsidiaryBusiness LicenseFinancing Guarantee BusinessPermitAdministration for Market Regulationof Xiamen CityLocal Financial Supervision andAdministration of Xiamen CityXiamen Qudian Commercial Factoring Co., Ltd.(厦门趣店商业保理有限公司)Subsidiary of a GroupVIEBusiness LicenseAdministration for Market Regulationof Xiamen CityRegulationThe following is a summary of the most significant rules and regulations that affect the Group’s business activities in China or the rights of our shareholdersto receive dividends and other distributions from the Group.Table of Contents54Regulation Related to Foreign Investment RestrictionsThe 2019 Law of Foreign Investment was adopted at the second meeting of the thirteenth National People’s Congress on March 15, 2019, which becameeffective on January 1, 2020. On December 26, 2019, the State Council issued the Regulations on Implementing the Law of Foreign Investment of the PRC, whichcame into effect on January 1, 2020. The 2019 Law of Foreign Investment and its implementation regulations replaced the trio of laws regulating foreign investmentin China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-investedEnterprise Law, together with their implementation rules and ancillary regulations. The 2019 Law of Foreign Investment stipulates that the PRC governmentimplements a system of pre-establishment national treatment plus negative list for the administration of foreign investment. Foreign investors are not allowed toinvest in fields or sectors prohibited in the market access negative list for foreign investment. Foreign investors that intend to invest in the fields subject to accessrestrictions stipulated in market access negative list for foreign investment shall satisfy the conditions stipulated in such negative list. The PRC government’s policiessupporting enterprise development are equally applicable to foreign-invested enterprises. The PRC government does not impose expropriation on foreign investment.Under special circumstances, if it requires imposing expropriation on foreign investment due to the need of public interest, expropriation shall be imposed accordingto legal procedures, and the foreign-invested enterprises concerned shall receive fair and reasonable compensation. Foreign-invested enterprises can raise fundsthrough public issuance of stocks, corporate bonds and other securities in accordance with the law.Investment activities in the PRC by foreign investors are principally governed by the Provisions for Guiding the Foreign Investment Direction, or theGuiding Provisions promulgated by the State Council on February 11, 2002. According to the Guiding Provisions, industries in the PRC are classified into fourcategories namely, “permitted foreign investment industries”, “encouraged foreign investment industries”, “restricted foreign investment industries” and “prohibitedforeign investment industries”. The “encouraged foreign investment industries”, “restricted foreign investment industries” and “prohibited foreign investmentindustries” are stipulated in the Guidance Catalog of Industries for Foreign Investment, or the Catalog, which was promulgated and is amended from time to time bythe Ministry of Commerce and the National Development and Reform Commission. Those industries which do not fall within any of these three categories stipulatedin the Catalog are regarded as “permitted foreign investment industries” and open to foreign investment unless specifically restricted by other PRC regulations.Industries such as VATS (other than e-commerce, domestic multi-party, communication, store-and-forward and call center) are restricted to foreign investment.The Special Administrative Measures for Access of Foreign Investment (Negative List) ( 2021 Edition), or the List, which was promulgated jointly by theMOFCOM and the NDRC on December 27, 2021 and became effective on January 1, 2022, and replaced the Special Administrative Measures for Access of ForeignInvestment (Negative List) (2020 Edition), has listed the special administrative measures for foreign investment in certain industries in the PRC, includingrequirements on ownership percentage, senior management and etc. The industries that do not fall within the List are administered under uniform principles fordomestic and foreign investment. According to the List, the value-added telecommunications services business (excluding e-commerce business, domestic multi-party communications, store-and-forward and call center) is subject to restrictions on percentage of foreign ownership (not exceeding 50 percent). According to theAdministrative Regulations on Foreign-invested Telecommunications Enterprises issued by the State Council on December 11, 2001 and amended on September 10,2008 and February 6, 2016 respectively, foreign-invested value-added telecommunications enterprises must be in the form of a Sino-foreign equity joint venture. Theregulations restrict the ultimate capital contribution percentage held by foreign investor(s) in a foreign-invested value-added telecommunications enterprise to 50% orless and require the primary foreign investor in a foreign invested value-added telecommunications enterprise to have a good track record and operational experiencein the VATS industry.Table of Contents55In July 2006, the predecessor, the MIIT issued the Circular of the Ministry of Information Industry on Strengthening the Administration of ForeignInvestment in Value-added Telecommunications Business, or the MIIT Circular, according to which, a foreign investor in the telecommunications service industry ofChina must establish a foreign invested enterprise and apply for a telecommunications businesses operation license. The MIIT Circular further requires that: (i) PRCdomestic telecommunications business enterprises must not, through any form, lease, transfer or sell a telecommunications businesses operation license to a foreigninvestor, or provide resources, offices and working places, facilities or other assistance to support the illegal telecommunications services operations of a foreigninvestor; (ii) value-added telecommunications enterprises or their shareholders must directly own the domain names and trademarks used by such enterprises in theirdaily operations; (iii) each value-added telecommunications enterprise must have the necessary facilities for its approved business operations and maintain suchfacilities in the regions covered by its license; and (iv) all VATS providers are required to maintain network and Internet security in accordance with the standards setforth in relevant PRC regulations. If a license holder fails to comply with the requirements in the MIIT Circular and cure such non-compliance, the MIIT or its localcounterparts have the discretion to take measures against such license holder, including revoking its license for value-added telecommunications business, or theVATS License.In light of the above restrictions and requirements, we conduct the value-added telecommunications businesses through the Group VIEs.Regulations Related to VATSAmong all of the applicable laws and regulations, the Telecommunications Regulations of the People’s Republic of China, or the Telecom Regulations,promulgated by the PRC State Council in September 25, 2000 and amended on July 29, 2014 and February 6, 2016 respectively, is the primary governing law, andsets out the general framework for the provision of telecommunications services by domestic PRC companies. Under the Telecom Regulations, telecommunicationsservice providers are required to procure operating licenses prior to their commencement of operations. The Telecom Regulations distinguish “basictelecommunications services” from “VATS.” VATS are defined as telecommunications and information services provided through public networks. The TelecomCatalog was issued as an attachment to the Telecom Regulations to categorize telecommunications services as either basic or value-added. In February 2003,December 2015 and June 2019, the Telecom Catalog was updated respectively, categorizing online data and transaction processing, information services, amongothers, as VATS.The Administrative Measures on Telecommunications Business Operating Licenses, promulgated by the MIIT in 2009 and most recently amended inJuly 2017, which set forth more specific provisions regarding the types of licenses required to operate VATS, the qualifications and procedures for obtaining suchlicenses and the administration and supervision of such licenses. Under these regulations, a commercial operator of VATS must first obtain a VATS License, from theMIIT or its provincial level counterparts, otherwise such operator might be subject to sanctions including corrective orders and warnings from the competentadministration authority, fines and confiscation of illegal gains and, in the case of significant infringements, the websites may be ordered to close. In September 2000,the State Council issued the Administrative Measures on Internet Information Services, which was amended in January 2011. Internet information service is a kind ofinformation service categorized as a VATS in the current Telecom Catalog attached to the Telecommunications Regulation as most recently updated inDecember 2019. Pursuant to these measures, “Internet information services” refers to the provision of information through the Internet to online users, and aredivided into “commercial Internet information services” and “non-commercial Internet information services.” A commercial Internet information services operatormust obtain a VATS license for Internet information services, or the ICP license, from the relevant government authorities before engaging in any commercialInternet information services operations in China, while the ICP license is not required if the operator will only provide Internet information on a non-commercialbasis. According to the Administrative Measures on Telecommunications Business Operating Licenses, the ICP license has a term of five years and can be renewedwithin 90 days before expiration.Table of Contents56Beijing Happy Time, one of the Group VIEs, had obtained ICP licenses for provision of commercial Internet information services issued by BeijingTelecommunication Administration in February 2019. In September 2020, the ICP license of Beijing Happy Time expired and we did not renew such license due toadjustments to our business structure. In addition, Xiamen Qudian and Xiamen Wanlimu Growth have obtained ICP licenses for provision of Internet informationservices issued by Fujian Telecommunication Administration in September 2019 and January 2021, respectively. As the implementing rules of the AdministrativeMeasures on Telecommunications Business Operating Licenses have not been published, it remains uncertain as to how the “commercial Internet informationservices” and “non-commercial Internet information services” are interpreted and distinguished, and whether online consumer finance service providers like theGroup will be deemed as commercial Internet information service operator, or operators of online data and transaction processing, therefore there is uncertainty as towhether any or all of the Group VIEs, or the subsidiaries of the Group VIEs need to obtain ICP licenses, or VATS license for online data and transaction processingservices, or any other VATS licenses in order to be in full compliance with regulatory requirements with respect to VATS.In addition to the Telecommunications Regulations of the People’s Republic of China and other regulations above, provision of commercial Internetinformation services on mobile Internet applications are regulated by the Administrative Provisions on Information Services of Mobile Internet Applications, whichwas promulgated by the State Internet Information Office on June 28, 2016. The information service providers of mobile internet applications are subject torequirements under the Administrative Provisions on Information Services of Mobile Internet Applications, including acquiring relevant qualifications required bylaws and regulations and being responsible for management of information security.Regulations Related to Internet Information Security, Privacy Protection and CybersecurityPRC government authorities have enacted laws and regulations with respect to Internet information security and protection of personal information from anyabuse or unauthorized disclosure. Internet information in China is regulated and restricted from a national security standpoint. The SCNPC, China’s nationallegislative body, enacted the Decisions on Maintaining Internet Security in December 2000, which may subject violators to criminal punishment in China for anyeffort to: (i) gain improper entry into a computer or system of strategic importance; (ii) disseminate politically disruptive information; (iii) leak state secrets;(iv) spread false commercial information; or (v) infringe intellectual property rights. The Ministry of Public Security has promulgated measures that prohibit use ofthe Internet in ways which, among other things, result in a leakage of state secrets or a spread of socially destabilizing content. If an Internet information serviceprovider violates these measures, the Ministry of Public Security and the local security bureaus may revoke its operating license and shut down its websites.Under the Several Provisions on Regulating the Market Order of Internet Information Services, issued by the MIIT in December 2011, an Internetinformation service provider may not collect any user personal information or provide any such information to third parties without the consent of a user and it mustexpressly inform the users of the method, content and purpose of the collection and processing of such user personal information and may only collect suchinformation necessary for the provision of its services. An Internet information service provider is also required to properly maintain the user personal information,and in case of any leak or likely leak of the user personal information, the Internet information service provider must take immediate remedial measures and, insevere circumstances, make an immediate report to the telecommunications regulatory authority. In addition, pursuant to the Decision on Strengthening the Protectionof Online Information issued by the SCNPC in December 2012 and the Order for the Protection of Telecommunication and Internet User Personal Information issuedby the MIIT in July 2013, any collection and use of user personal information must be subject to the consent of the user, abide by the principles of legality, rationalityand necessity and be within the specified purposes, methods and scopes. An Internet information service provider must also keep such information strictlyconfidential, and is further prohibited from divulging, tampering or destroying any such information, or selling or providing such information to other parties. AnInternet information service provider is required to take technical and other measures to prevent the collected personal information from any unauthorized disclosure,damage or loss. Any violation of these laws and regulations may subject the Internet information service provider to warnings, fines, confiscation of illegal gains,revocation of licenses, cancellation of filings, closedown of websites or even criminal liabilities.Table of Contents57Pursuant to the Notice of the Supreme People’s Court, the Supreme People’s Procuratorate and the Ministry of Public Security on Legally PunishingCriminal Activities Infringing upon the Personal Information of Citizens, issued in 2013, and the Interpretation of the Supreme People’s Court and the SupremePeople’s Procuratorate on Several Issues regarding Legal Application in Criminal Cases Infringing upon the Personal Information of Citizens, which was issued onMay 8, 2017 and took effect on June 1, 2017, the following activities may constitute the crime of infringing upon a citizen’s personal information: (i) providing acitizen’s personal information to specified persons or releasing a citizen’s personal information online or through other methods in violation of relevant nationalprovisions; (ii) providing legitimately collected information relating to a citizen to others without such citizen’s consent (unless the information is processed, nottraceable to a specific person and not recoverable); (iii) collecting a citizen’s personal information in violation of applicable rules and regulations when performing aduty or providing services; or (iv) collecting a citizen’s personal information by purchasing, accepting or exchanging such information in violation of applicablerules and regulations.The Internet Finance Guidelines jointly released by ten PRC regulatory agencies in July 2015 purport, among other things, to require Internet finance serviceproviders to improve technology security standards, and safeguard customer and transaction information. The Internet Finance Guidelines also prohibit Internetfinance service providers from illegally selling or disclosing customers’ personal information. The PBOC and other relevant regulatory authorities will jointly adoptthe implementing rules. Pursuant to the Ninth Amendment to the Criminal Law issued by the SCNPC in August 2015, which became effective in November 2015,any Internet service provider that fails to fulfill the obligations related to Internet information security administration as required by applicable laws and refuses torectify upon orders is subject to criminal penalty for the result of (i) any dissemination of illegal information in large scale; (ii) any severe effect due to the leakage ofthe client’s information; (iii) any serious loss of criminal evidence; or (iv) other severe situation, and any individual or entity that (i) sells or provides personalinformation to others in a way violating the applicable law, or (ii) steals or illegally obtain any personal information is subject to criminal penalty in severe situation.The Cybersecurity Law is formulated to maintain the network security, safeguard the cyberspace sovereignty, national security and public interests, protectthe lawful rights and interests of citizens, legal persons and other organizations, and requires that a network operator, which includes, among others, Internetinformation services providers, take technical measures and other necessary measures in accordance with the provisions of applicable laws and regulations as well asthe compulsory requirements of the national and industrial standards to safeguard the safe and stable operation of the networks, effectively respond to thecybersecurity incidents, prevent illegal and criminal activities, and maintain the integrity, confidentiality and availability of network data. The Cybersecurity Lawemphasizes that any individuals and organizations that use networks is required to comply with the PRC Constitution and laws, abide by public order and cannotendanger cybersecurity or make use of networks to engage in unlawful activities such as endangering national security, economic order and social order, andinfringing the reputation, privacy, intellectual property rights and other lawful rights and interests of other people. The Cybersecurity Law has reaffirmed the basicprinciples and requirements as specified in other existing laws and regulations on personal information protections, such as the requirements on the collection, use,processing, storage and disclosure of personal information, and internet service providers being required to take technical and other necessary measures to ensure thesecurity of the personal information they have collected and prevent the personal information from being divulged, damaged or lost. Any violation of the provisionsand requirements under the Cybersecurity Law may subject the Internet service provider to warnings, fines, confiscation of illegal gains, revocation of licenses,cancellation of filings, closedown of websites or even criminal liabilities.On December 29, 2017, the Information Security Technology Personal Information Security Specification (GB/T 35273-2017), or the Specification, wasissued by the General Administration of Quality Supervision, Inspection and Quarantine of the PRC and the Standardization Administration and has been replaced bythe 2020 Specification issued by the State Administration for Market Regulation and the Standardization Administration jointly which has taken effect on October 1,2020. Pursuant to the Specification, product and service providers should take technical and other necessary measures to ensure the safety of personal information,clearly demonstrate the purpose, approaches and scope of processing the personal information to the individual and acquire the authorization. In addition, accordingto the 2020 Specification, personal biometric information should be stored separately from personal identity information and in principle, the original personalbiometric information should not be stored; besides, it further requires that the privacy policy is to disclose the scope and rules of personal information collection anduse by the personal information controller, which should not be regarded as a contract signed by the subject of personal information.Table of Contents58On January 23, 2019, the Office of the Central Cyberspace Affairs Commission, the Ministry of Public Security, the State Administration for MarketRegulation and the MIIT jointly issued the Announcement of Launching Special Crackdown Against Illegal Collection and Use of Personal Information by Apps, orthe Announcement. According to the Announcement, from January to December 2019, four authorities abovementioned shall organize special crackdown against theillegal collection and use of personal information all over the country. App operators shall strictly fulfill their obligations regulated in the Cybersecurity Law whencollecting and using personal information, and they shall be responsible for the security of personal information obtained and take effective measures to strengthenpersonal information protection. The App operators shall, by following the principles of lawfulness, legitimacy and necessity, not collect personal information that isnot related to the services provided; when collecting personal information, they shall display the rules for the collection and use of personal information in an easy-to-understand, simple and clear manner, and personal information subjects shall independently choose consents; they shall not force the users to make authorization inthe forms of default, bundling, stopping installation and use, etc., and may not collect personal information in violation of laws and regulations or against theagreements with users. It is advocated for App operators to provide users with the options to refuse to receive targeted pushes when they push news, current affairsand advertisements to targeted users.On March 13, 2019, the State Administration for Market Regulation and the Office of the Central Cyberspace Affairs Commission jointly issued theAnnouncement on Launching the Security Certification of Apps, which encourages app operators to voluntarily pass the security certification of apps, andencourages search engines and app stores to clearly identify and give priority to recommending those certified Apps. On November 28, 2019, the CyberspaceAdministration of PRC and other three authorities jointly issued the Announcement on Identification method of App Collecting and Using Personal Information inViolation of Laws and Regulations, which provides reference for determining the unlawful collection and usage of personal information via Apps.On April 10, 2019, the Ministry of Public Security issued the Guide for Internet Personal Information Security Protection, which sets out the managementmechanism, security technical measures and business processes for personal information security protection. This Guide is applicable for personal informationholders to carry out security protection work during personal information life cycle processing. It is applicable to enterprises that provide services through theInternet, and also to organizations or individuals who use a private or non-networked environment to control and process personal information.On February 13, 2020, the People’s Bank of China issued the Personal Financial Information Protection Technical Specification, which is an industrystandard, to specify the security protection requirements for all aspects of personal financial information life cycle processing, including collection, transmission,storage, use, deletion, and destruction. This standard is applicable for financial industry institutions to provide financial products and services, and also provides areference for security assessment agencies to conduct security inspections and assessments. According to the potential impact caused by unauthorized viewing orunauthorized change of financial information, this standard classifies personal financial information into three categories of C3, C2, and C1 from high to lowsensitivity, and different requirements are put forward for the whole life cycle processing of all kinds of information according to different categories.On August 20, 2021, the SCNPC promulgated the Personal Information Protection Law, which took effect in November 2021. As the first systematic andcomprehensive law specifically for the protection of personal information in the PRC, the Personal Information Protection Law provides, among others, that (i) anindividual’s consent shall be obtained to use sensitive personal information, such as biometric characteristics and individual location tracking, (ii) personalinformation operators using sensitive personal information shall notify individuals of the necessity of such use and impact on the individual’s rights, and (iii) wherepersonal information operators reject an individual’s request to exercise his or her rights, the individual may file a lawsuit with a People’s Court.On November 14, 2021, the CAC published the Draft Regulations on the Network Data Security Administration (Draft for Comments), or the SecurityAdministration Draft, which provides that data processing operators engaging in data processing activities that affect or may affect national security must be subjectto network data security review by the relevant Cyberspace Administration of the PRC. According to the Security Administration Draft, data processing operatorswho possess personal data of at least one million users or collect data that affects or may affect national security must be subject to network data security review bythe relevant Cyberspace Administration of the PRC. The Security Administration Draft also stipulates that a data processor listed overseas must conduct an annualdata 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 municipalcybersecurity department before January 31 of the following year. If the Security Administration Draft is enacted in the current form, we, as an overseas listedcompany, will be required to carry out an annual data security review and comply with the relevant reporting obligations. The Security Administration Draft has notbeen enacted as of the date of this annual report.Table of Contents59On December 28, 2021, the Cybersecurity Review Measures was promulgated and became effective on February 15, 2022, which requires that the purchaseof network products and services by critical information infrastructure operator and the data processing activities carries out online platform operators, which affectsor may affect national security, shall be subject to cybersecurity review. Besides, any “online platform operators” controlling personal information of more than onemillion users which seeks to list on a foreign stock exchange should also be subject to cybersecurity review.On June 10, 2021, the SCNPC promulgated the PRC Data Security Law, which became effective on September 1, 2021. The PRC Data Security Law setsforth the data security protection obligations for entities and individuals handling personal data, including that no entity or individual may acquire such data bystealing or other illegal means, and the collection and use of such data should not exceed the necessary limits. On July 7, 2022, CAC promulgated Measures for theSecurity Assessment of Outbound Data Transfers, which became effective on September 1, 2022 and provide that a data processor is required to apply for securityassessment 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 entitiesand individuals; (iii) where a data processor has provided personal information in the aggregate of more than 100,000 individuals or sensitive personal information ofmore 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 forwhich declaration for security assessment for cross-board transfer of data is required.The costs of compliance with, and other burdens imposed by, Cybersecurity Law and any other cybersecurity, data security and related laws may limit theuse and adoption of our products and services and could have an adverse impact on our business. Further, if the enacted version of the Security Administration Draftmandate clearance of cybersecurity review and other specific actions to be completed by companies like us, we face uncertainties as to whether such clearance can betimely obtained, or at all.In providing the Group’s online consumer finance service, the Group collects certain personal information from borrowers, and also need to share theinformation with our business partners such as institutional funding partners for the purpose of facilitating credit to borrowers. The Group has obtained consent fromborrowers to collect and use their personal information, and have also established information security systems to protect the user information and to abide by othercybersecurity requirements under such laws and regulations. The Group has not received any investigation or punishment for data breach issues from the PRCregulatory agencies except for one notification from an APP Special Crackdown Working Group consisted of the Office of the Central Cyberspace AffairsCommission, the MIIT, the Ministry of Public Security and the State Administration for Market Regulation in July 2019. The notice required Beijing Happy Time tomake rectification to conduct certain corrections to the private policy of the Laifenqi APP to be in compliance with the Announcement. On acceptance of the notice,the Group has since carried out improvements and corrections as required, including correcting the private policy of Laifenqi APP, updating Laifenqi App andsubmitting the rectification report to APP Special Crackdown Working Group to comply with certain requirements under the Announcement. Since, there isuncertainty as to how the cybersecurity requirements for maintaining cybersecurity and protecting customers’ personal information will be interpreted andimplemented, we cannot assure you that the Group’s existing policies and procedures will be deemed to be in full compliance with any laws and regulations that areapplicable, or may become applicable to the Group in the future.Table of Contents60Regulations Related to Loans and IntermediationThe PRC Civil Code governs the formation, validity, performance, enforcement and assignment of contracts. The PRC Civil Code requires that the interestrates charged under a loan agreement must not violate the applicable provisions of the PRC laws and regulations. In accordance with the Second Revised PrivateLending Judicial Interpretations issued by the Supreme People’s Court of the PRC in December, 2020, which came into effect on January 1, 2021, private lending isdefined as financing between individuals, legal entities and other organizations. Loans funded by financial institutions which are licensed by financial regulatoryauthorities are not private lending transactions. When private loans between individuals are paid by wire transfer, the loan contracts between individuals came intoeffect upon the deposit of funds to the borrower’s account. In the event that the loans are made through an online consumer finance lending platform and the platformonly provides intermediary services, the courts will dismiss the claims of the parties concerned against the platform demanding the repayment of loans by theplatform as guarantors. However, if the online consumer finance service provider guarantees repayment of the loans as evidenced by its web page, advertisements orother media, or the court is provided with other proof, the lender’s claim alleging that the online consumer service provider assumes the obligations of a guarantorwill be upheld by the courts. The Second Revised Private Lending Judicial Interpretations also provide that the lender could request the borrower to pay the interestaccording to the interest rate agreed in the contract, except that the interest rate agreed upon by the parties exceeds four times the market interest rate for one-yearloan at the conclusion of the contract. The “market interest rate for one-year loan” mentioned above refers to the market interest rate for one-year loan releasedevery month by the National Interbank Funding Center with the authorization of the People’s Bank of China from August 20, 2019. However, according to theSecond Revised Private Lending Judicial Interpretation and Reply by Supreme People’s Court to Issues Concerning the Scope of Application of the New JudicialInterpretation on Private Lending, the interest rate cap “market interest rate for one-year loan” is not applicable to the lending business of financial institutions andtheir branches that have been established with the approval of financial regulatory authorities. The agreements between the lender which is a financial institution andborrower on loans with interest rates below 24% per annum are valid and enforceable. As to loans with interest rates per annum between 24% and 36%, if the intereston the loans has already been paid to the lender, and so long as such payment has not damaged the interest of the state, the community and any third parties, thecourts will turn down the borrower’s request to demand the return of the interest payment. If the annual interest rate of a loan is higher than 36%, the excess will bevoid and will not be enforced by the courts.Pursuant to the PRC Civil Code, a creditor may assign its rights under an agreement to a third party, provided that the debtor is notified. Upon dueassignment of the creditor’s rights, the assignee is entitled to the creditor’s rights and the debtor must perform the relevant obligations under the agreement for thebenefit of the assignee. In addition, according to the PRC Civil Code, an intermediation contract is a contract whereby an intermediary presents to its client anopportunity for entering into a contract or provides the client with other intermediary services in connection with the conclusion of a contract, and the client pays theintermediary service fees. The Group’s business practice of connecting the Group’s institutional funding partners, certain of which are online lending informationintermediaries, with individual borrowers may constitute intermediary service, and the Group’s service agreements with borrowers and investors may be deemed asintermediation contracts under the PRC Civil Code. Pursuant to the PRC Civil Code, an intermediary must provide true information relating to the proposed contract.If an intermediary conceals any material fact intentionally or provides false information in connection with the conclusion of the proposed contract, which results inharm to the client’s interests, the intermediary may not claim for service fees and is liable for the damages caused.Regulations Related to Cash Loan LendingThe Office of the Leading Group for Specific Rectification against Online Finance Risks and the Office of the Leading Group for Specific Rectificationagainst P2P Online Lending Risks jointly issued the Circular on Regulating and Rectifying Cash Loan Business on December 1, 2017, or Circular 141. Among otherthings, Circular 141 provides that:●The overall capital cost charged on a borrower, comprised of interests and fees, should be in compliance with the judicial interpretations by theSupreme People’s Court of the PRC regarding interest rates in private lending; according to the Private Lending Judicial Interpretations, if the annualinterest rate of a private loan is higher than 36%, the excess will be void and will not be enforced by the courts;●A provider of cash loan shall not deduct interests, service fees, management fees or deposits from the loan principal or set excessive overdue interest,late fee or penalty interest;●A bank may not outsource its core business functions, such as credit assessment and risk management, to third parties;Table of Contents61●A bank participating in loan facilitation transactions may not accept credit enhancement services from a third party which has not obtained any licenseor approval to provide guarantees, including credit enhancement service in the form of a commitment to assume default risks; and●A bank may not permit its service provider in cash loan business to collect interest or fees from borrowers.On July 12, 2020, Provisional Measures for Administration of Internet Lending by Commercial Banks was issued. Under this regulation, the regulatoryrange was broadened from the supervision on a lending entity to the supervision on such lending behavior. Moreover, this document sets detailed regulation on theduty of confidentiality of lending entities. Any online entity should bear the responsibility of information confidentiality. Leaking clients’ information includingnames, ages, phone numbers will bring severe punishment for the relevant entity. This regulation also makes it clear that when conducting lending business online,entities must have their service information fully exposure to clients, including and not limited to the amount of each lending, the interest, termination clause, etc.On September 7, 2020, Notice of General Office of the China Banking and Insurance Regulatory Commission on Strengthening the Supervision andAdministration of Microlending Companies was promulgated. Under this regulation, lending entities should adhere to the principle of petty sum and decentralization.Microlending companies shall, by following the principle of petty sum and decentralization, reasonably determine the amount and term of loans based on the incomelevel, overall liabilities, asset status, actual needs and other factors of borrowers, so as to ensure that the repayment amount of the borrowers does not exceed theirrepayment capacity. The balance of the loans provided by a microlending company to the same borrower shall not exceed 10% of the company’s net assets; and thebalance of the loans provided by a microlending company to the same borrower and its affiliated parties shall not exceed 15% of the company’s net assets. Localfinancial regulatory authorities may, in light of regulatory needs, lower the maximum balance of the aforesaid loans.On November 11, 2020, Interim Measures for the Administration of Network Small-sum Loan Business (Trial) was issued. Under this regulation, lendingentities have the duty of major-risk reporting. Upon the occasion where major risks are incurred, especially when it is an inter-provincial case, entities must reportsuch major-risk event to regulatory bodies.On December 19, 2020, Alert to the Risk of Over-borrowing Induced by Internet Platform was issued. Under this document, the regulatory bodies asked themarket to be alarmed of over-advertising and false-advertising, over-self-dragging and various traps of internet loaning platforms.On December 29, 2020, Reply by Supreme People’s Court to Issues Concerning the Scope of Application of the New Judicial Interpretation on PrivateLending was issued. Under this regulation, upon the matter of the scope of private lending, after soliciting the opinions of financial regulatory authorities, seven typesof local financial organizations, including small-sum loan companies, financing guarantee companies, regional equity markets, pawnshops, financing leasecompanies, commercial factoring companies and local asset management companies under the regulation of local financial regulatory authorities, are financialinstitutions established upon approval by financial regulatory authorities. The new judicial interpretation on private lending is not applicable to disputes arising fromtheir engagement in relevant financial businesses.On February 19, 2021, Notice of General Office of the China Banking and Insurance Regulatory Commission on Further Regulating the Internet LendingBusiness of Commercial Banks. Under this regulation, if a commercial bank and a cooperative agency jointly contribute to the issuance of Internet loans, themanagement requirements for the range of capital contribution proportion shall be strictly implemented, and the capital contribution proportion of the cooperativeparty in a single loan shall not be less than 30%. If a commercial bank and a cooperative agency jointly contribute to the issuance of Internet loans, the bank’s balanceof loans granted with a single cooperative party (including its affiliated parties) shall not exceed 25% of the net tier 1 capital of the bank. The balance of Internetloans jointly issued by a commercial bank and all cooperative agencies shall not exceed 50% of the bank’s balance of total loans granted by the bank. Also, thisregulation imposes strict control over cross-regional operations. A local corporate bank that engages in Internet lending business shall provide services for localclients and shall not carry out Internet lending business beyond the jurisdiction of its registration place. However, a corporate bank that has no physical businessoutlets, mainly carries out its business online, and meets other conditions prescribed by the China Banking and Insurance Regulatory Commission is excluded. OnFebruary 24, 2021, Notice on Further Standardizing the Supervision and Administration of Internet Consumer Loans for College Student was issued. Under thisregulation, loaning entities are strictly banned from false-advertising towards college students. Entities must have a pre-loaning research on the way how collegestudents would use this sum of loaning.Table of Contents62On March 15, 2021, Measures for the Supervision and Administration of Network Transactions was issued. Under this regulation, other than individualswhose transaction sum is under RMB10,000 a year, online platforms and business entities must register themselves under regulations of related regulatory bodies.Moreover, online business bodies shall secure clients’ information by not revealing clients’ privacy, moreover, online business entities are forbidden from sendingadvertising messages to clients.The Group adjusted the pricing of certain of its credit products in April 2017 to ensure that the annualized fee rates charged on all credit drawdowns did notexceed 36%.Historically, the Group entered into arrangements with several banks which directly funded credit drawdowns to borrowers. When a borrower defaulted, theGroup was obligated to repay the full overdue amount to the relevant bank. It remains uncertain how the regulatory authorities will interpret and enforce therequirements of Circular 141 under various circumstances.Regulations Related to Illegal High-interest LendingOn July 23, 2019, the Supreme People’s Court of the PRC, the Supreme People’s Procuratorate of the PRC, the Ministry of Public Security and Ministry ofJustice of the PRC jointly issued the Opinions on Several Issues Concerning Handling Illegal Lending Criminal Cases, or the Illegal Lending Opinions. According tothe Illegal Lending Opinions, providing loans to unspecified public regularly (meaning more than ten borrowers in any given two years) without necessarygovernmental approvals will constitute illegal lending practices, of which the provision of loans of annual interest rate (including nominal interest and fees charged toborrowers in combination) higher than 36%, under serious or very serious circumstances, is criminally punishable (“Illegal High-interest Lending”). The IllegalLending Opinions also provides specific definition of “serious” and “very serious” Illegal High-Lending. In comparison to previous administrative and judicialpractices, the Illegal Lending Opinions criminalizes Illegal High-interest Lending practices at the first time. In addition, under the Illegal Lending Opinions, thecollection of debts by means of violence is forbidden. Whoever gathers, instigates or hires others to forcibly collect debts by disturbing, pestering, beguiling,gathering a crowd to create momentum or otherwise, which does not constitute a crime independently, but the illegal lending has constituted the crime of illegaloperation, shall be imposed a heavier punishment as the case may be in accordance with the provisions on the crime of illegal operation.In an effort to comply with potentially applicable laws and regulations, the Group adjusted the pricing of its credit products in April 2017 to ensure that theannualized fee charged on all credit drawdowns rates (including interest and fees combined) did not exceed 36%.Regulations Related to Online Peer-to-Peer LendingOn July 18, 2015, ten PRC regulatory agencies, including the PBOC, the MIIT and the CBRC, jointly issued the Guidelines on Promoting the HealthyDevelopment of Internet Finance, or the Internet Finance Guidelines. The Internet Finance Guidelines define “online peer-to-peer lending” as direct loans betweenparties through an Internet platform, which is under the supervision of CBRC, and governed by the PRC Civil Code, the General Principles of the Civil Law of thePRC, and related judicial interpretations promulgated by the Supreme People’s Court. Online peer-to-peer lending institutions are required to specify their nature asinformation intermediaries, mainly provide information services for the direct lending between borrowers and lenders, and can neither provide credit enhancementservices nor engage in illegal fund-raising.On April 12, 2016, the General Office of the State Council issued the Implementing Scheme of Special Rectification of Risks in the Internet Finance Sector,which emphasizes that P2P platforms shall specify their nature as information intermediaries and can never engage in certain activities, including but not limited to,setting up capital pool, extending loans and illegal fund raising. In addition, without approval from competent regulator, P2P platforms shall not engage in financialbusiness activities such as asset management, debt or equity transfer, and high-risk allocation in security markets. Furthermore, P2P platforms are required tosegregate assets of lenders and borrowers in qualified banks as depositary institutions from their own assets.Table of Contents63On August 17, 2016, the CBRC, the MIIT, Ministry of Public Security and State Internet Information Office promulgated The Interim Measures forAdministration of the Business Activities of Online Lending Information Intermediary Institutions, or the Interim Online Lending Information IntermediaryMeasures, to regulate the business activities of online lending information intermediary institutions. The “online lending” as specified in the Interim Online LendingInformation Intermediary Measures refers to direct lending between peers, which can be natural persons, legal persons or other organizations, through Internetplatforms, which we understand is equivalent to the “online peer-to-peer lending” as defined in the Internet Finance Guidelines. According to the Interim OnlineLending Information Intermediary Measures, “online lending information intermediary institution” refer to financial information intermediaries that are engaged inthe lending information business and directly provide peers, which can be natural persons, legal persons or other organizations, with lending information services,such as information collection and publication, credit rating, information interaction and loan facilitation between borrowers and lenders for them to form direct peer-to-peer lending relationships. The Interim Online Lending Information Intermediary Measures are only applicable to private lending transactions according torelevant interpretations by the China Banking Regulatory Commission. Loans funded by financial institutions which are licensed by financial regulatory authoritiesare not private lending transactions within the meaning of the Private Lending Judicial Interpretation issued by the Supreme People’s Court of the PRC inAugust 2015, which has been amended in December 2020.The Interim Online Lending Information Intermediary Measures generally require that online lending information intermediary institutions shall not engagein credit enhancement services, direct or indirect cash concentration or illegal fundraising, and stipulate a supervisory system and list the administrativeresponsibilities of different supervisory authorities, among others, the banking regulatory authority of the State Council and its dispatching offices are responsible forformulating a regulatory and administrative system for the business activities of online lending information intermediary institutions and to regulate the behaviorsthereof, and the provincial-level governments are responsible for institutional regulation of the online lending information intermediary institutions within theirrespective jurisdictions. Furthermore, an online lending information intermediary institution and its branches are required, within 10 working days after obtaining thebusiness license, to complete record-filing and registration with the local financial regulatory department of the place of the industrial and commercial registration bypresenting relevant materials. After completing the record-filing and registration with the local financial regulatory authority, they are required to apply for anappropriate telecommunication business operation permit in accordance with relevant provisions of competent communication departments, and to include serving asan Internet lending information intermediary in its business scope. An intermediary institution that fails to apply for telecommunication business operation permit asrequired cannot carry out an online lending information intermediary business.Table of Contents64According to these Interim Online Lending Information Intermediary Measures, online lending information intermediary institutions cannot directly orindirectly engage in the following activities: (1) financing their own operations with the funds of lenders; (2) accepting or collecting directly or indirectly the funds oflenders; (3) providing lenders with a guarantee or promise to guarantee principal and interest thereon directly or in disguised form; (4) publicizing or promotingfinancing projects by themselves or by delegating or authorizing a third party at physical places other than by electronic means such as the Internet, landlines,mobiles etc.; (5) extending loans, except otherwise provided by applicable laws and regulations; (6) splitting the term of any financing project; (7) offering wealthmanagement and other financial products by themselves to raise funds, and selling as agent bank wealth management, securities company asset management, fund,insurance or trust products and other financial products; (8) conducting asset securitization business or transferring of creditors’ rights in the forms of assetspackaging, asset securitization, trust asset, fund shares etc.; (9) engaging in any form of mixture, bundling or agency with other institutions in investment, agency insale, brokerage and other business except as permitted by laws, regulations and relevant regulatory provisions on online lending; (10) falsifying or exaggerating thetruthfulness and earnings outlook of financing projects, concealing the defects and risks of financing projects, making false advertising or promotion, etc., by usingambiguous words or other fraudulent means, fabricating or spreading false or incomplete information, impairing the business reputation of others or misleadinglender or borrowers; (11) providing information intermediary services for the high-risk financing with the borrowed funds to be used for investment in stocks, over-the-counter fund distribution, futures contracts, structured funds and other derivative products; (12) engaging in a business such as crowd-funding in equity; and (13)other activities prohibited by laws and regulations. The Interim Online Lending Information Intermediary Measures also stipulate the following obligations as thebusiness principles of online lending information intermediary institutions: (1) providing, in accordance with laws, regulations and contracts, lenders and borrowerswith collection, arrangement, identification, screening and online publication of direct lending information as well as the relevant services such as credit assessment,matching between borrowing and lending, financing consulting and online dispute resolution; (2) conducting necessary examination of the qualification andeligibility of lenders and borrowers, authenticity of information as well as the authenticity and legitimacy of financing projects; (3) taking reasonable measures toprevent fraudulent behaviors and announcing and terminating relevant network-based lending activities in a timely manner upon discovery of any fraudulentbehaviors or any other circumstances impairing the interests of lenders; (4) conducting continuously the activities for popularization of the knowledge and educationof the risks of network-based lending, strengthening risk disclosure, guiding lenders to participate in network-based lending in small-amount and scattered mannerand ensuring that lenders are fully aware of lending risks; (5) submitting relevant information in accordance with laws, regulations and relevant regulatory provisionson network-based lending, of which the information on creditors’ rights and liabilities in connection with network-based lending shall be submitted to and registeredwith the relevant data statistical departments in a timely manner; (6) keeping proper custody of the data and transaction information of lenders and borrowers withoutdeleting, tampering with, illegally selling or divulging the basic information and transaction information of lenders and borrowers; (7) performing according to lawthe anti-money laundering and anti-terrorist financing obligations, such as client identity identification, suspicious transaction reporting, keeping the identity data andtransaction records of clients, etc.; (8) cooperating with relevant departments in properly handling the work relating to preventing, investigating and punishing thefinance-related illegal activities and crimes; (9) ensuring the work relating to the Internet information content management as well as network and informationsecurity pursuant to the relevant requirements; and (10) other obligations prescribed by the banking regulatory authority of the State Council and the provincialpeople’s governments of the places of industrial and commercial registration. Furthermore, in offline physical locations, online lending information intermediaryinstitutions shall not operate businesses other than risk management and necessary business processes such as information collection and confirmation, post-loantracking and pledge management in accordance with online-lending regulations. Online lending information intermediary institutions shall, based on their riskmanagement capabilities, set upper limits on the loan balance of a single borrower borrowing both from one online lending intermediary and from all online lendinginformation intermediary institutions. In the case of natural persons, this limit shall not be more than RMB200,000 for one online lending intermediary and not morethan RMB1 million in total from all platforms, while the limit for a legal person or organization shall not be more than RMB1 million for one online lendingintermediary and not more than RMB5 million in total from all platforms. For the protection of investors and borrowers, the Interim Online Lending InformationIntermediary Measures require that online lending information intermediary institutions (i) separate their own capital from funds received from lenders and borrowersand (ii) select a qualified banking financial institution as their funding depository institution, which shall perform depository and administration responsibilities asrequired. In addition, the Interim Online Lending Information Intermediary Measures provide for other miscellaneous requirements for online lending informationintermediary institutions, including but not limited to, risk assessment and disclosure, auditing and authentication, industry association, reporting obligations,information security and disclosure and legal liabilities. Online lending information intermediary institutions established prior to the effectiveness of the InterimOnline Lending Information Intermediary Measures have a transition period of twelve months to rectify any activities that are non-compliant with the Interim OnlineLending Information Intermediary Measures, except with respect to criminal activity, which must be terminated immediately.Table of Contents65In February 2017, the CBRC released the Guidance on Depositary Business of Online Lending Funds, or Depositary Guidance, to regulate fundsdepositories for online lending information intermediary institutions. The Depositary Guidance defines depositories as commercial banks that provide online lendingfund depository services, and stipulates that the depositories shall not be engaged in offering any guarantee, including: (i) offering guarantees for lending transactionactivities conducted by online lending information intermediary institutions, or undertaking any liability for breach of contract related to such activities; (ii) offeringguarantees to lenders, guarantying principal and dividend payments or bearing the risks associated with fund lending operations for lenders. The Depositary Guidancealso stipulates certain conditions that must be met before depositories are entitled to develop an online lending fund depository business, including: (i) having a goodcredit record and not having been included on the List of Enterprises with Abnormal Operations or the List of Enterprises with Serious Illegal and Dishonest Acts;(ii) satisfying various requirements relating to the technological systems of such entity’s depository fund business and general operations, including but not limited toassuming fund administration responsibilities and not outsourcing or assigning such entity’s responsibilities to third parties to set up accounts, process tradinginformation or verify trading passwords; and (iii) setting up special deposit accounts to hold online lending capital and sub-accounts for online lenders and borrowersas well as guarantors, and in order to assure fund security, use separate accounts to hold private capital of online lending information intermediary institutions.In addition, the Depositary Guidance prohibits depositories from outsourcing or assigning their responsibilities to set up capital accounts, deal withtransaction information, verify trading passwords and various other services to third parties, provided, however, that certain cooperation regarding payment serviceswith third-party payment companies and depository banks is permitted in accordance with clarifications by the CBRC. Apart from the requirements set forth in theInterim Online Lending Information Intermediary Measures and the Registration Guidance, the Depositary Guidance imposes certain responsibilities on onlinelending information intermediary institutions, including requiring them to enter into fund depository agreements with only one commercial bank to provide funddepository services, organize independent auditing on funds depository accounts of borrowers and investors and various other services. The Depositary Guidancerequires online lending information intermediary institutions to perform various obligations, and prohibits them advertising their services with the information oftheir depository except for in accordance with necessary exposure requirements. The Guidance also raises other business standards and miscellaneous requirementsfor depositories and online lending information intermediary institutions as well. Online lending information intermediary institutions and commercial banksconducting the online depository services prior to the effectiveness of the Guidance have a six-month grace period to rectify any activities not in compliance with theGuidance.It has been reported that in May 2017, the PBOC and other PRC regulatory agencies issued the Notice on Further Effectively Conducting the SpecialCampaign on Reorganizing and Rectification in Respect of Risks Related to the Internet Finance Market, or Circular 119, which classified enterprises in the Internetfinance market into “compliant enterprises,” “enterprises to conduct rectifications” and “enterprises to be suspended.” Circular 119 further stipulates variousprocedures to be taken with respect to these three types of enterprises, namely compliant enterprises, enterprises to conduct rectifications and enterprises to besuspended. According to the Circular 119 (as reported, same below), provincial government agencies should identify key market players engaged in internetfinancing and conduct on-site inspections. If finding business institutions involving in illegal operations, provincial government agencies should issue rectificationnotice to the institutions and require them to put together rectification plan and submit for review. An enterprise that has received rectification notices fromgovernment agencies, or an “enterprise to conduct rectifications” to promise, in its rectification plan, that it will not engage in any new non-compliant operations.Furthermore, such rectification plan shall provide a clear schedule for such enterprises to wind down and terminate all outstanding non-compliant business contractsand operations, which schedule in principal shall be no longer than one year, except if other specific regulations stipulate otherwise. Enterprise to conductrectifications should report regularly to the government agencies of its rectification process, finish the rectification in accordance with the rectification plan, andapply for and accept review by government agencies. Enterprises which refuse to rectify non-compliant activities, or fail to pass rectifying inspections, or engage insignificant non-compliance shall be shut down in accordance with relevant regulations. During the process of the Special Campaign, provincial government agenciesshall ensure that the number of enterprises in the Internet finance market and relevant business scale in such province to decrease, which is sometimes referred to asthe Institutional Dual Decrease.Table of Contents66It has been reported that according to Circular 175, the overarching objective of Circular 175 is for PRC government agencies to effect orderly exits ofcertain peer-to-peer direct lending marketplaces without inducing systematic risk in the financial system or causing significant social turbulence until only thosemarketplaces that are strictly in compliance with all relevant laws and regulations remain in operation in the peer-to-peer direct lending industry. Circular 175classifies peer-to-peer direct lending marketplaces into (i) marketplaces on which investors are not fully repaid or that are otherwise unable to operate their businessesand (ii) marketplaces that have not been involved in such incidents, and the latter is further classified, based on the scale of their business operations, into (a) shellcompanies with zero loan balance or loan origination for more than three months and marketplaces that no longer facilitate loan application and investment, or areotherwise not in operation, (b) small-scale marketplaces, which shall be determined based on factors including outstanding balance and number of borrowers byprovincial governmental agencies, and (c) large-scale marketplaces, including marketplaces with high risks, and Normal Marketplaces that have not demonstratedany high-risk characteristics. In accordance with Circular 175, marketplaces with high risks include, for instance, marketplaces that fund loans to themselves orfacilitate sham loans, marketplaces with unclear fund flows, marketplaces with massive negative publicity and complaints, marketplaces that refuse to or are reluctantto rectify non-compliant operations. Pursuant to Circular 175, except for Normal Marketplaces, other marketplaces shall exit the peer-to-peer lending industry orcease operation. Even for the Normal Marketplaces, Circular 175 requires to limit the scale of outstanding business and number of investors, which is sometimesreferred as the Business Dual Decrease.The aforementioned summaries of Circular 119 and Circular 175 are based on certain media reports, including alleged photocopies of Circular 119 andCircular 175 presented in such reports. We are aware that Circular 119 and Circular 175 have not been officially issued to the public by any government agencies, andtherefore there are uncertainties as to the accuracy of the media reports, as well as the authenticity, meaning and application of Circular 119 and Circular 175.On December 8, 2017, the Office of the Leading Group for Specific Rectification against P2P Online Lending Risks issued the Circular on SpecificRectification and Inspection Relating to P2P Online Lending Risks, or Circular 57. Circular 57 requires local regulatory authorities to jointly inspect and evaluate asto whether an online lending information intermediary has complied with in the Interim Online Lending Information Intermediary Measures. An online lendinginformation intermediary may not complete record-filing and registration until it receives joint approval from the local financial regulator and the local branch of theCBRC as to its rectification measures. Circular 57 prohibits four forms of credit transfers: (i) asset securitization or transfer creditor’s rights in form of packagedassets, securitized assets, trust assets or fund shares; (ii) loans initially funded by a management member of related party and subsequently transferred to lenders onthe P2P platform; (iii) wealth management products (whether with fixed terms or redeemable on demand) that are matched with transferred loans; and (iv) usingcreditor’s rights from P2P platforms as pledge to borrow funds from other lenders. On the other hand, Circular 57 provides that infrequent transfers of loans amonglenders are deemed to be in compliance with the relevant laws and regulations.On November 28, 2019, the Office of the Leading Group for Specific Rectification against Online Finance Risks and the Office of the Leading Group forSpecific Rectification against P2P Online Lending Risks jointly issued the Guidance of Transformation of Online Lending Information Intermediaries to Small CreditCompanies, or Guidance 83, which further signals the fundamental goal of the PRC government to end of P2P business. The regulatory actions under such stringentregulation on P2P lending platforms have decimated P2P lending platforms, including many well-known or listed companies such as Yidai, LuFax, and China RapidFinance (NYSE: XRF). As of December 31, 2020, all P2P lending platforms have been exited or have completed their business transformation. The Group hasceased new credit offerings since September 6, 2022. The Group did not engage in direct loan facilitation between peers, which can be natural persons, legal personsor other organizations. While the Group facilitated loans that were directly funded by certain institutional funding partners such as banks, such companies werefinancial institutions licensed by financial regulatory authorities to lend. Facilitation of loans pursuant to the Group’s arrangements with such licensed financialinstitutions was not subject to the regulation set forth in the Interim Online Lending Information Intermediary Measures. As such, we do not believe that the Groupwas an “online lending information intermediary institution” regulated under the above regulations. However, we cannot assure you that the CBRC or other PRCregulatory authorities would not expand the applicability of the Interim Online Lending Information Intermediary Measures and determine that the Group was an“online lending information intermediary institution.” In the event that the Group is deemed to have operated as an online lending information intermediaryinstitution by the PRC regulatory authorities in the future, the Group’s historical credit business may be considered to have not been in compliance with the InterimOnline Lending Information Intermediary Measures, and accordingly, the Group could be subject to administrative penalties.Table of Contents67Regulations Related to Illegal Fund-RaisingRaising funds by entities or individuals from the general public must be conducted in strict compliance with applicable PRC laws and regulations to avoidadministrative and criminal liabilities. The Measures for the Banning of Illegal Financial Institutions and Illegal Financial Business Operations promulgated by theState Council in July 1998, latest revised on January 8, 2011, and the Notice on Relevant Issues Concerning the Penalty on Illegal Fund-Raising issued by theGeneral Office of the State Council in July 2007 explicitly prohibit illegal public fund-raising. The main features of illegal public fund-raising include: (i) illegallysoliciting and raising funds from the general public by means of issuing stocks, bonds, lotteries or other securities without obtaining the approval of relevantauthorities, (ii) promising a return of interest or profits or investment returns in cash, properties or other forms within a specified period of time, and (iii) using alegitimate form to disguise the unlawful purpose.To further clarify the criminal charges and punishments relating to illegal public fund-raising, the Supreme People’s Court promulgated the JudicialInterpretations to Issues Concerning Applications of Laws for Trial of Criminal Cases on Illegal Fund-Raising, or the Illegal Fund-Raising Judicial Interpretations,which came into force in January 2011. The Illegal Fund-Raising Judicial Interpretations provide that a public fund-raising will constitute a criminal offense relatedto “illegally soliciting deposits from the public” under the PRC Criminal Law, if it meets all the following four criteria: (i) the fund-raising has not been approved bythe relevant authorities or is concealed under the guise of legitimate acts; (ii) the fund-raising employs general solicitation or advertising such as social media,promotion meetings, leafleting and short message service, or SMS, advertising; (iii) the fundraiser promises to repay, after a specified period of time, the capital andinterests, or investment returns in cash, property in kind and other forms; and (iv) the fund-raising targets the general public as opposed to specific individuals.Pursuant to the Illegal Fund-Raising Judicial Interpretations, an offender that is an entity will be subject to criminal liabilities, if it illegally solicits deposits from thegeneral public or illegally solicits deposits in disguised form (i) with the amount of deposits involved exceeding RMB1,000,000, (ii) with over 150 fund-raisingtargets involved, or (iii) with the direct economic loss caused to fund-raising targets exceeding RMB500,000, or (iv) the illegal fund-raising activities have causedbaneful influences to the public or have led to other severe consequences. An individual offender is also subject to criminal liabilities but with lower thresholds. Inaddition, an individual or an entity who has aided in illegal fund-raising from the general public and charges fees, including but not limited to agent fees, rewards,rebates and commission, would constitute an accomplice of the crime of illegal fund-raising. In accordance with the Opinions of the Supreme People’s Court, theSupreme People’s Procurator and the Ministry of Public Security on Several Issues concerning the application of Law in the Illegal Fund-Raising Criminal Cases,administrative proceedings for determining the nature of illegal fund-raising activities is not a prerequisite procedure for the initiation of criminal proceedingconcerning the crime of illegal fund-raising, and the administrative departments’ failure in determining the nature of illegal fund-raising activities does not affect theinvestigation, prosecution and trial of cases concerning the crime of illegal fund-raising.Regulation Related to Finance LeaseThe Administrative Measures of Supervision on Finance Lease Enterprises, or the Administrative Measures, was formulated by the MOFCOM and becameeffective on October 1, 2013. According to the Administrative Measures, the MOFCOM and the provincial-level commerce authorities are in charge of thesupervision and administration of finance lease enterprises. A finance lease company shall report, according to the requirements of the MOFCOM, the relevant datain a timely and truthful manner through the National Finance Lease Company Management Information System. Specifically, a finance lease enterprise shall, submit,within 15 business days after the end of each quarter, the statistics on and summary of its operation in the preceding quarter, and statistics on and summary of itsoperations in the preceding year as well as its financial and accounting report (including appended notes thereto) audited by an auditing firm for the preceding yearprior to April 30 of each year. In the event of a change of name, a relocation to another region, an increase or decrease of registered capital, a change oforganizational form, an adjustment of ownership structure or other changes, a finance lease company shall report to the competent provincial-level commerceauthority in advance. A foreign-invested finance lease company that undergoes such changes shall go through approval and other procedures according to therelevant provisions. A finance lease company shall, within five business days after registering such changes, log into the National Finance Lease CompanyManagement Information System to modify the above information.Table of Contents68Finance lease enterprises should use real entities, which have clear ownership and capable of generating revenue, as lessor to carry out the finance leasebusiness. Finance lease enterprises shall not engage in deposits, loans, entrusted loans or other financial services or inter-bank borrowing unless permission has beengranted from the relevant departments. Finance lease enterprises must not carry out illegal fund-raising activities under the name of a finance lease company.According to the Administrative Measures, finance lease enterprises shall strengthen their internal risk controls, and establish effective systems for classifying at riskassets, and adopt a credit appraisal system for the lessee, a post recovery and disposal system and a risk alert mechanism. A finance lease company shall alsoestablish an affiliated transaction management system, and exclude persons related to the affiliated transactions from the voting or decision-making process foraffiliated transactions where the lessee is an affiliate. In the event of any purchase of equipment from an affiliated production company, the settlement price for suchequipment shall not be lower than the price offered by such company to any third party of such equipment or equipment of the same batch.The Administrative Measures also contain regulatory provisions specifically focusing on sale-leaseback transactions. The subject matter of a sale-leasebacktransaction shall be properties that possess economic functions and produce continuous economic benefits. A finance lease company shall not accept any property towhich a lessee has no title, or on which any mortgage has been created, or which has been sealed up or seized by any judicial organ, or whose ownership has anyother defects as the subject matter of a sale-leaseback transaction. A finance lease company shall give adequate consideration to and objectively evaluate assetsleased back, set purchasing prices for subject matter thereof with reference to reasonable pricing basis in compliance with accounting principles, and shall notpurchase any subject matter at a price in excess of the value thereof.The Guiding Opinions on Accelerating the Development of Finance Lease Industry, or the Guiding Opinion, was promulgated by the General Office of theState Council of the PRC on August 31, 2015; the Guiding Opinion’s main task is to accelerate the development of the finance lease industry in four aspects: systemand mechanism reform, development in major fields, innovative development and industry supervision. According to the Guiding Opinion, there is no minimumregistered capital requirement for subsidiaries of a finance lease company, a finance lease company is allowed to engage in a side business which is related to its mainbusiness, private capital and independent third-party service providers are encouraged to incorporate the finance lease company and applications for filing orobtaining a license for business deals in medical devices for the finance lease company will be facilitated.On 26 May 2020, the China Banking and Insurance Regulatory Commission, or the CBIRC, promulgated the Interim Measures for the Supervision andAdministration of , or the Interim Measures, which made supplement and further requirements for finance lease enterprises on the basis of the AdministrativeMeasures. According to the Interim Measures, the CBIRC shall be responsible for the formulation of business operation and supervision and administration rules forfinance leasing companies and local financial regulatory authorities at the provincial level shall be specifically responsible for the supervision and administration offinance leasing companies within their respective jurisdictions. Pursuant to the Interim Measures, a finance lease company shall not engage in calling loans with otherfinance leasing companies or doing so in a disguised form. Furthermore, the Interim Measures stipulated different regulatory indicators on the assets of a financelease company. Under the Interim Measures, the proportion of finance leasing and other leasing assets of finance lease companies shall not be lower than 60% of thetotal assets, and the total amount of risk assets of finance lease companies shall not exceed eight times of their net assets. The total amount of risk assets shall bedetermined by deduction of cash, bank deposits and treasury bonds from the enterprise’s total assets. Particularly, the Interim Measures regulate a transition periodwhich shall not exceed three years in principle for the finance lease companies established prior to the implementation of Interim Measures to meet the requirementshereof. Local financial regulatory authorities at the provincial level may appropriately extend the transitional arrangements according to the actual situation ofspecific industries.The PRC Civil Code was, promulgated by the National People’s Congress on May 28, 2020 and became effective from January 1, 2021, and the PRC CivilCode regulates the civil contractual relationship among natural persons, legal persons and other organizations. Chapter 15 of the Part III Contracts of PRC Civil Codesets forth mandatory rules about finance lease contracts including that finance lease contracts shall be in written form and shall include terms such as the name,quantity, specifications, technical performance and inspection method of the leased property, the lease term, the composition, payment term, payment method andcurrency of the rent and the ownership of the leased property upon expiration of the lease.Under finance lease contracts, the lessor shall conclude a purchase contract based on the lessee’s selections in respect of the seller and the leased property,and the seller shall deliver the leased property to the lessee as agreed. The lessee has the rights of a buyer when taking delivery of the leased property.Table of Contents69Without the consent of the lessee, the lessor may not modify relevant details related to the lessee of the purchase contract that has been concluded based onthe lessee’s selections in respect of the seller and the leased property. The lessor is not liable for injury to the body or damage to the property of a third party causedby the leased property while in the possession of the lessee. However, the ownership of the leased property vests in the lessor. If they have not stipulated in whichparty ownership shall vest upon expiration, if such stipulation is not clear, or if ownership cannot be determined in accordance with the PRC Civil Code, theownership of the leased property shall vest in the lessor.Pursuant to the PRC Civil Code, unless otherwise agreed upon by the parties, the rental shall be determined according to the major part or whole of the costsfor the purchasing the leased property and reasonable profits of the lessor.Our subsidiary Xiamen Qudian Financial Lease Ltd. has obtained the approval to operate finance lease business as issued by the MOFCOM.Anti-money Laundering RegulationsThe PRC Anti-money Laundering Law, which became effective in January 2007, sets forth the principal anti-money laundering requirements applicable tofinancial 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 transactionsand suspicious transactions. According to the PRC Anti-money Laundering Law, financial institutions subject to the PRC Anti-money Laundering Law includebanks, credit unions, trust investment companies, stock brokerage companies, futures brokerage companies, insurance companies and other financial institutions aslisted and published by the State Council, while the list of the non-financial institutions with anti-money laundering obligations will be published by the StateCouncil. The PBOC and other governmental authorities issued a series of administrative rules and regulations to specify the anti-money laundering obligations offinancial institutions and certain non-financial institutions, such as payment institutions. However, the State Council has not promulgated the list of the non-financialinstitutions with anti-money laundering obligations.The Internet Finance Guidelines jointly released by ten PRC regulatory agencies in July 2015, purport, among other things, to require Internet financeservice providers to comply with certain anti-money laundering requirements, including the establishment of a customer identification program, the monitoring andreporting of suspicious transactions, the preservation of customer information and transaction records, and the provision of assistance to the public securitydepartment and judicial authority in investigations and proceedings in relation to anti-money laundering matters. The PBOC will formulate implementing rules tofurther specify the anti-money laundering obligations of Internet finance service providers.The Group has implemented various policies and procedures, such as internal controls and “know-your-customer” procedures, for anti-money launderingpurposes. However, as the implementing rules of the Internet Finance Guidelines have not been published, there is uncertainty as to how the anti-money launderingrequirements in the Guidelines will be interpreted and implemented, and whether online consumer finance service providers like the Group must abide by therules and procedures set forth in the PRC Anti-money Laundering Law that are applicable to non-financial institutions with anti-money laundering obligations. Wecannot assure you that the Group’s existing anti-money laundering policies and procedures will be deemed to be in full compliance with any anti-money launderinglaws and regulations.Table of Contents70Regulations Related to the Food IndustryThe Food Safety Law of the PRC, or the Food Safety Law, was promulgated by the Standing Committee on February 28, 2009, became effective on June 1,2009 and most recently amended on April 24, 2021, and the Implementing Regulations for the Food Safety Law of the PRC, were promulgated by the State Councilon July 20, 2009, became effective on the same day and most recently amended October 11, 2019. The Food Safety Law and its implementing regulations require:(i) food producing, food distributing or catering services to obtain a permit; however, provided that only ready-to-cook food is sold, it is not subject to a permit butshall be filed with the local food safety regulatory department for the record; (ii) food production and operation to comply with food-safety standards and certainother requirements. Food producers shall not purchase or use raw food materials, food additives or food related products which do not meet food-safety standards;(iii) each food producer or trader to establish and implement a personnel health management system. Each worker who engages in food production or trading workeris required to take a physical examination each year and obtain health certificate prior to working; (vi) food producers to check the licenses and food eligibilitycertification documents of their suppliers before purchasing raw food materials, food additives and food-related products from them. Each food production enterpriseshall establish a procurement check record system and a food ex-factory check record system and ensure the records are authentic and retained for at least two years;and (v) the packages of pre-packed food to bear labels. The labels shall state matters including the name, specifications, net content, date of production, list ofingredients or components, producer’s name, address and contact information, shelf life, product standard code, storage conditions, the general name of the foodadditives used in the national standards, category number of the food production license, and other content acquired by laws, regulations or food safety standards. Asfor the entrustment of food producing, the Implementing Regulations for the Food Safety Law of the PRC further stipulates that business operators of foods whoentrust others with the manufacturing of foods shall entrust manufacturers who have obtained a food manufacturing permit, supervise their manufacturing activities,and be responsible for the safety of the foods produced under entrustment. In the event of any breach of the Food Safety Law, relevant authorities may confiscate anyillegal gains and food products, issue warnings and impose rectification orders and monetary penalties ranging from two to ten times the value of the illegal products,as well as revoke the food safety certificate and impose criminal liability in severe cases.The PRC has established a food recall system. According to Administrative Measures for Food Recall which was promulgated by the State Administrationfor Market Regulation and became effective on October 23, 2022, when a food producer finds that the food produced by it does not comply with food safetystandards, it shall immediately stop production, recall the food on the market, notify the relevant producers, traders and consumers, and record the recall andnotification. When a food trader finds that the food traded by it does not comply with food safety standards, it shall immediately stop trading such food, notify therelevant producers, traders and consumers, and record the cessation of trading and the notification. The food producers shall take measures to safely recall anddestroy the affected food, and report the recall and treatment of the recalled food to the quality supervision authority at or above the county level. Where the foodproducers or traders fail to recall or stop producing or trading the food which are not in compliance with food safety standards under Article 53 of the Food SafetyLaw, the quality supervision, administration for industry and commerce, food and drug supervision and administration authorities at or above the county level shallorder them to recall or stop production or trading.Regulations Related to Intellectual Property RightsThe SCNPC the State Council and the National Copyright Administration, or the NCAC, have promulgated various rules and regulations relating to theprotection of software in China, including without limitation the PRC Copyright Law, adopted in 1997 and revised in 2001, 2010, and 2020 respectively, with itsimplementation rules adopted in 1991 and revised in 2002 and 2013 respectively, and the Regulations for the Protection of Computer Software as promulgated onJune 4, 1991 and revised on December 20, 2001, January 30, 2013, respectively. Under these rules and regulations, software owners, licensees and transferees mayregister their rights in software with the NCAC or its local branches and obtain software copyright registration certificates. Although such registration is notmandatory under PRC law, software owners, licensees and transferees are encouraged to go through the registration process to enjoy the better protections afforded toregistered software rights.The PRC Trademark Law, adopted in 1982 and revised in 1993, 2001, 2013 and 2019 respectively, with its implementation rules adopted in 2002 andrevised in 2014, protects registered trademarks. The PRC Trademark Office of the State Administration for Industry and Commerce, or the SAIC, handles trademarkregistrations and grants a protection term of ten years to registered trademarks.Table of Contents71Domain names are protected under the Administrative Measures on Internet Domain Names, which was promulgated by the MIIT on August 24 and becameeffective on November 1, 2017. The MIIT is in charge of the overall administration of domain names in China. The registration of domain names in PRC is on a“first-apply-first-registration” basis. A domain name applicant will become the domain name holder upon the completion of the application procedure.Regulations Related to EmploymentOn June 29, 2007, the SCNPC, adopted the Employment Contract Law, or ECL, which became effective as of January 1, 2008 and was revised in 2012. TheECL requires employers to enter into written contracts with their employees, restricts the use of temporary workers and aims to give employees long-term jobsecurity. Pursuant to the ECL, employment contracts lawfully concluded prior to the implementation of the ECL and continuing as of the date of its implementationwill continue to be performed. Where an employment relationship was established prior to the implementation of the ECL but no written employment contract wasconcluded, a contract must be concluded within one month after the ECL’s implementation.According to the Social Insurance Law promulgated by SCNPC and effective from July 1, 2011 and was revised in 2018, the Regulation of Insurance forWork-Related Injury, the Provisional Measures on Insurance for Maternity of Employees, Regulation of Unemployment Insurance, the Decision of the State Councilon Setting Up Basic Medical Insurance System for Staff Members and Workers in Cities and Towns, the Interim Regulation on the Collection and Payment of SocialInsurance Premiums and the Interim Provisions on Registration of Social Insurance, an employer is required to contribute the social insurance for its employees in thePRC, including the basic pension insurance, basic medical insurance, unemployment insurance, maternity insurance and injury insurance. Under the Regulations onthe Administration of Housing Funds, promulgated by the State Council on April 3, 1999 and as amended on March 24, 2002 and March 24, 2019, an employer isrequired to make contributions to a housing fund for its employees.Regulations Related to Foreign Exchange Regulation on Foreign Currency ExchangeThe principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations, most recently amended inAugust 2008. Under the PRC foreign exchange regulations, payments of current account items, such as profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. Bycontrast, approval from or registration with appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out ofChina to pay capital account items, such as direct investments, repayment of foreign currency-denominated loans, repatriation of investments and investments insecurities outside of China.In November 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign DirectInvestment, which substantially amends and simplifies the current foreign exchange procedure. Pursuant to this circular, the opening of various special purposeforeign exchange accounts, such as pre-establishment expenses accounts, foreign exchange capital accounts and guarantee accounts, the reinvestment of RMBproceeds derived by foreign investors in the PRC, and remittance of foreign exchange profits and dividends by a foreign-invested enterprise to its foreignshareholders no longer require the approval or verification of SAFE, and multiple capital accounts for the same entity may be opened in different provinces, whichwas not possible previously. In addition, SAFE promulgated another circular in May 2013, which specifies that the administration by SAFE or its local branches overdirect investment by foreign investors in the PRC must be conducted by way of registration and banks must process foreign exchange business relating to the directinvestment in the PRC based on the registration information provided by SAFE and its branches. On February 13, 2015, SAFE promulgated the Notice on FurtherSimplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment, or SAFE Notice 13. After SAFE Notice 13 became effectiveon June 1, 2015, instead of applying for approvals regarding foreign exchange registrations of foreign direct investment and overseas direct investment from SAFE,entities and individuals may apply for such foreign exchange registrations from qualified banks. The qualified banks, under the supervision of SAFE, may directlyreview the applications and conduct the registration.Table of Contents72On March 30, 2015, SAFE promulgated the Circular of the SAFE on Reforming the Management Approach regarding the Settlement of Foreign Capital ofForeign-invested Enterprise, or Circular 19, which expands a pilot reform of the administration of the settlement of the foreign exchange capitals of foreign-investedenterprises nationwide. Circular 19 came into force and replaced both the Circular of the State Administration of Foreign Exchange on Issues Relating to theImprovement of Business Operations with Respect to the Administration of Foreign Exchange Capital Payment and Settlement of Foreign-invested Enterprises, orCircular 142 and the Circular of the State Administration of Foreign Exchange on Issues concerning the Pilot Reform of the Administrative Approach Regarding theSettlement of the Foreign Exchange Capitals of Foreign-invested Enterprises in Certain Areas, or Circular 36 on June 1, 2015. Circular 19 allows all foreign-investedenterprises established in the PRC to use their foreign exchange capitals to make equity investment and removes certain other restrictions had been provided inCircular 142. However, Circular 19 continues to prohibit foreign-invested enterprises from, among other things, using RMB fund converted from its foreignexchange capitals for expenditure beyond its business scope and providing entrusted loans or repaying loans between non-financial enterprises. SAFE promulgatedthe Notice of the State Administration of Foreign Exchange on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of CapitalAccount, or Circular 16, effective in June 2016, which reiterates some of the rules set forth in Circular 19, but Compared to Circular 19, Circular 16 provides thatdiscretionary foreign exchange settlement applies to foreign exchange capital, foreign debt offering proceeds and remitted foreign listing proceeds, and thecorresponding RMB capital converted from foreign exchange are not restricted from extending loans to related parties or repaying the inter-company loans (includingadvances by third parties). However, there exist substantial uncertainties with respect to the interpretation and implementation in practice with respect to the Circular16. Circular 19 or Circular 16 may delay or limit us from using the proceeds of offshore offerings to make additional capital contributions or loans to our PRCsubsidiaries and any violations of these circulars could result in severe monetary or other penalties.In January 2017, SAFE promulgated the Circular on Further Improving Reform of Foreign Exchange Administration and Optimizing Genuineness andCompliance Verification, or Circular 3, which stipulates several capital control measures with respect to the outbound remittance of profit from domestic entities tooffshore entities, including (i) under the principle of genuine transaction, banks shall check board resolutions regarding profit distribution, the original version of taxfiling records and audited financial statements; and (ii) domestic entities shall hold income to account for previous years’ losses before remitting the profits.Moreover, pursuant to Circular 3, domestic entities shall make detailed explanations of the sources of capital and utilization arrangements, and provide boardresolutions, contracts and other proof when completing the registration procedures in connection with an outbound investment.Regulations on Foreign Exchange Registration of Overseas Investment by PRC ResidentsSAFE issued SAFE Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment through SpecialPurpose Vehicles, or SAFE Circular 37, that became effective in July 2014, replacing the Circular of the State Administration of Foreign Exchange on IssuesConcerning the Regulation of Foreign Exchange in Equity Finance and Return Investments by Domestic Residents through Offshore Special Purpose Vehicles, orSAFE Circular 75. SAFE Circular 37 regulates foreign exchange matters in relation to the use of special purpose vehicles, or SPVs, by PRC residents or entities toseek offshore investment and financing or conduct round trip investment in China. Under SAFE Circular 37, a SPV refers to an offshore entity established orcontrolled, directly or indirectly, by PRC residents or entities for the purpose of seeking offshore financing or making offshore investment, using legitimate onshoreor offshore assets or interests, while “round trip investment” refers to direct investment in China by PRC residents or entities through SPVs, namely, establishingforeign-invested enterprises to obtain the ownership, control rights and management rights. SAFE Circular 37 provides that, before making contribution into an SPV,PRC residents or entities are required to complete foreign exchange registration with SAFE or its local branch. SAFE promulgated the Notice on Further Simplifyingand Improving the Administration of the Foreign Exchange Concerning Direct Investment in February 2015, which took effect on June 1, 2015. This notice hasamended SAFE Circular 37 requiring PRC residents or entities to register with qualified banks rather than SAFE or its local branch in connection with theirestablishment or control of an offshore entity established for the purpose of overseas investment or financing.Table of Contents73PRC residents or entities who had contributed legitimate onshore or offshore interests or assets to SPVs but had not obtained registration as required beforethe implementation of the SAFE Circular 37 must register their ownership interests or control in the SPVs with qualified banks. An amendment to the registration isrequired if there is a material change with respect to the SPV registered, such as any change of basic information (including change of the PRC residents, name andoperation term), increases or decreases in investment amount, transfers or exchanges of shares, and mergers or divisions. Failure to comply with the registrationprocedures set forth in SAFE Circular 37 and the subsequent notice, or making misrepresentation on or failure to disclose controllers of the foreign-investedenterprise that is established through round-trip investment, may result in restrictions being imposed on the foreign exchange activities of the relevant foreign-invested enterprise, including payment of dividends and other distributions, such as proceeds from any reduction in capital, share transfer or liquidation, to itsoffshore parent or affiliate, and the capital inflow from the offshore parent, and may also subject relevant PRC residents or entities to penalties under PRC foreignexchange administration regulations.Regulations Related to Stock Incentive PlansSAFE promulgated the Circular of the State Administration of Foreign Exchange on Issues concerning the Administration of Foreign Exchange Used forDomestic Individuals’ Participation in Equity Incentive Plans of Companies Listed Overseas, or the Stock Option Rules in February 2012, replacing the previousrules issued by SAFE in March 2007. Under the Stock Option Rules and other relevant rules and regulations, PRC residents who participate in stock incentive plan inan overseas publicly-listed company are required to register with SAFE or its local branches and complete certain other procedures. Participants of a stock incentiveplan who are PRC residents must retain a qualified PRC agent, which could be a PRC subsidiary of the overseas publicly listed company or another qualifiedinstitution selected by the PRC subsidiary, to conduct the SAFE registration and other procedures with respect to the stock incentive plan on behalf of theparticipants. In addition, the PRC agent is required to amend the SAFE registration with respect to the stock incentive plan if there is any material change to the stockincentive plan, the PRC agent or other material changes. The PRC agent must, on behalf of the PRC residents who have the right to exercise the employee shareoptions, apply to SAFE or its local branches for an annual quota for the payment of foreign currencies in connection with the PRC residents’ exercise of theemployee share options. The foreign exchange proceeds received by the PRC residents from the sale of shares under the stock incentive plans granted and dividendsdistributed by the overseas listed companies must be remitted into the bank accounts in the PRC opened by the PRC agents before distribution to such PRC residents.We have adopted the 2016 Equity Incentive Plan, under which we have the discretion to grant a broad range of equity-based awards to eligible participants.See “Item 6. Directors, Senior Management and Employees⸺⸺B. Compensation⸺⸺2016 Equity Incentive Plan.” We have advised the recipients of awards underour 2016 Equity Incentive Plan to handle foreign exchange matters in accordance with the Stock Option Rules. However, we cannot assure you that they cansuccessfully register with SAFE in full compliance with the Stock Option Rules. Any failure to complete their registration pursuant to the Stock Option Rules andother foreign exchange requirements may subject these PRC individuals to fines and legal or administrative sanctions, and may also limit our ability to contributeadditional capital to our PRC subsidiary, limit our PRC subsidiary’s ability to distribute dividends to us or otherwise materially adversely affect our business.Regulations Related to Dividend DistributionUnder our current corporate structure, our Cayman Islands holding company may rely on dividend payments from Ganzhou Qufenqi, which is a whollyforeign-owned enterprise incorporated in China, to fund any cash and financing requirements we may have. Prior to January 1, 2020 when the 2019 Law of ForeignInvestment came into effect, the principal regulations governing distribution of dividends of foreign holding companies include the Wholly Foreign-investedEnterprise Law, issued in 1986 and amended in 2000 and 2016, and the Implementation Rules under the Wholly Foreign-invested Enterprise Law, issued in 1990 andamended in 2001 and 2014 respectively. Under these regulations, foreign investment enterprises in the PRC may pay dividends only out of their accumulated profits,if any, determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise shall, upon payment of income taxon its profits pursuant to the provisions of China tax laws, make apportionment to its reserve fund as well as employees’ bonus and welfare fund. The percentage tobe apportioned to the reserve fund shall not be less than 10% of the after-tax profits; when the cumulative apportioned amount attains 50% of the registered capital,the enterprise may stop making apportionment. The percentage of apportionment to the employees’ bonus and welfare fund shall be determined by the whollyforeign-owned enterprise. These reserves are not distributable as cash dividends.A PRC company is not permitted to distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal yearsmay be distributed together with distributable profits from the current fiscal year.Table of Contents74The 2019 Law of Foreign Investment was adopted at the second meeting of the thirteenth National People’s Congress on March 15, 2019, which becameeffective on January 1, 2020. On December 26, 2019, the State Council issued the Regulations on Implementing the Law of Foreign Investment of the PRC, whichcame into effect on January 1, 2020. The 2019 Law of Foreign Investment and its implementation rule replaced the trio of laws regulating foreign investment inChina, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-investedEnterprise Law, together with their implementation rules and ancillary regulations. The regulations mentioned above in the Wholly Foreign-invested Enterprise Lawwill be no longer applicable. Under the 2019 Law of Foreign Investment, the organization form and structure and operating rules of foreign-funded enterprises aresubject to the provisions of the Company Law of the People’s Republic of China, the Partnership Enterprise Law of the People’s Republic of China and otherapplicable laws. Therefore, under PRC laws and regulations, any companies within the PRC may pay dividends only out of its respective accumulated profits asdetermined in accordance with PRC accounting standards and regulations. In addition, a PRC company is required to set aside at least 10% of its annual after-taxprofits, if any, to fund the statutory reserve fund, until the aggregate amount of such fund reaches 50% of its registered capital. At its discretion, a wholly foreign-owned enterprise may or may not allocate certain portion of its after-tax profits to the discretional reserve fund. The statutory reserve fund and discretional reservefund (if any) are not distributable as cash dividends.Regulations Related to TaxationEnterprise Income TaxUnder the Enterprise Income Tax Law, effective on January 1, 2008 and last amended on December 29, 2018, enterprises organized under the laws ofjurisdictions outside China with their “de facto management bodies” located within China may be considered PRC resident enterprises and therefore be subject toPRC enterprise income tax at the rate of 25% on their worldwide income. The Implementing Rules of the Enterprise Income Tax Law, which took effect onJanuary 1, 2008 and were last amended on April 23, 2019, further define the term “de facto management body” as the management body that exercises substantialand overall management and control over the production and operations, personnel, accounts and properties of an enterprise. If an enterprise organized under the lawsof jurisdiction outside China is considered a PRC resident enterprise for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences couldfollow. First, it would be subject to the PRC enterprise income tax at the rate of 25% on its worldwide income. Second, a 10% withholding tax would be imposed ondividends it pays to its non-PRC enterprise shareholders and with respect to gains derived by its non-PRC enterprise shareholders from transfer of its shares.According to the Enterprise Income Tax Law, dividends generated after January 1, 2008 and payable by a foreign-invested enterprise in China to its foreignenterprise 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 fora preferential withholding arrangement. Furthermore, the State Administration of Taxation, or the SAT, promulgated the Announcement on Issues Concerning“Beneficial Owners” in Tax Treaties in February 2018, which stipulates that non-resident enterprises that cannot provide valid supporting documents as “beneficialowners” may not be approved to enjoy tax treaty benefits. Specifically, it expressly excludes an agent or a “conduit company” from being considered as a “beneficialowner” and a “beneficial owner” analysis is required to be conducted on a case-by-case basis. This announcement also stipulates that where an applicant has theidentity as a “beneficial owner,” but the tax authority finds that the primary purpose test clause in tax treaties or the general rules on anti-tax avoidance in domestictax laws shall apply, the general anti-tax avoidance investigation procedures may apply.On October 17, 2017, the SAT issued the Announcement of the State Administration of Taxation on Issues Relating to Withholding at Source of Income Taxof Non-resident Enterprises, or SAT Circular 37, which was revised on June 15, 2018, to completely repeal SAT Circular 698 and the second paragraph of Section 8of Bulletin 7. Under Bulletin 7, an “indirect transfer” of assets, including equity interests in a PRC resident enterprise, by a non-resident enterprise may be re-characterized and treated as a direct transfer of PRC taxable assets, if such transfer does not have a reasonable commercial purpose and was established for thepurpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax.According to SAT Circular 37, the amount of taxable income equals the remainder after deducting the net equity value from the equity transfer income. Equitytransfer income means the consideration collected by the transferor from the equity transfer, including income in both monetary form and non-monetary form. Netequity value means the tax basis for acquiring such equity. The tax basis for the equity is the capital contribution costs actually paid by the equity transferor to a PRCresident enterprise at the time of the investment and equity participation, or the equity transfer costs actually paid at the time of acquisition of such equity to theoriginal transferor of such equity.Table of Contents75Pursuant to the Arrangement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation andthe Prevention of Fiscal Evasion with respect to Taxes on Income, the withholding tax rate with respect to the payment of dividends by a PRC enterprise to a HongKong enterprise may be 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 theNotice on the Issues concerning the Application of the Dividend Clauses of Tax Agreements issued by the SAT on February 20, 2009, or SAT Circular 81, a HongKong resident enterprise must meet the following conditions, among others, in order to apply the reduced withholding tax rate: (i) it must be a company; (ii) it mustdirectly own the required percentage of equity interests and voting rights in the PRC resident enterprise; and (iii) it must have directly owned suchrequired percentage in the PRC resident enterprise throughout the 12 months prior to receiving the dividends. On August 27, 2015, the SAT promulgated theAdministrative Measures for Non-Resident Taxpayers to Enjoy Treatment under Tax Treaties, or SAT Circular 60, which became effective on November 1, 2015.SAT Circular 60 provides that non-resident enterprises are not required to obtain pre-approval from the relevant tax authority in order to enjoy the reducedwithholding tax. Instead, non-resident enterprises and their withholding agents may, by self-assessment and on confirmation that the prescribed criteria to enjoy thetax treaty benefits are met, directly apply the reduced withholding tax rate, and file necessary forms and supporting documents when performing tax filings, whichwill be subject to post-tax filing examinations by the relevant tax authorities. SAT Circular 60 has been replaced by the Measures for the Administration of Non-resident Taxpayers’ Enjoyment of Treaty Benefits, or SAT Circular 35, which was promulgated by the State Administration of Taxation on October 14, 2019 andbecame effective on January 1, 2020. SAT Circular 35 provides that non-resident taxpayers’ enjoyment of treaty benefits shall be handled in the manner of “self-assessment, claim for and enjoyment of treaty benefits, and retention of relevant materials for review.” If a non-resident taxpayer determines through self-assessmentthat he or she is eligible for treaty benefits, he or she may, when filing tax returns, or when a withholding agent files withholding returns, enjoy tax treaty benefits,and collect and retain relevant materials for review in accordance with the provisions of SAT Circular 35 and accept the follow-up administration of tax authorities.According to SAT Circular 81, and SAT Circular 35, if the relevant tax authorities consider the transactions or arrangements we have are for the primary purpose ofenjoying a favorable tax treatment, the relevant tax authorities may adjust the favorable withholding tax in the future.Value-Added Tax and Business TaxPursuant to applicable PRC tax regulations, any entity or individual conducting business in the service industry is generally required to pay a business tax atthe rate of 5% on the revenues generated from providing such services. However, if the services provided are related to technology development and transfer, suchbusiness tax may be exempted subject to approval by the relevant tax authorities. Whereas, pursuant to the Provisional Regulations on Value-Added Tax of the PRCand its implementation regulations, unless otherwise specified by relevant laws and regulations, any entity or individual engaged in the sales of goods, provision ofprocessing, repairs and replacement services and importation of goods into China is generally required to pay a value-added tax, or VAT, for revenues generated fromsales of products, while qualified input VAT paid on taxable purchase can be offset against such output VAT.In November 2011, the Ministry of Finance and the State Administration of Taxation promulgated the Pilot Plan for Imposition of Value-Added Tax toReplace Business Tax. In March 2016, the Ministry of Finance and the State Administration of Taxation further promulgated the Notice on Fully Promoting the PilotPlan for Replacing Business Tax by Value-Added Tax, which became effective on May 1, 2016 and was amended in 2019. Pursuant to the pilot plan and relevantnotices, VAT is generally imposed in lieu of business tax in the modern service industries, including the VATS, on a nationwide basis. VAT of a rate of 6% applies torevenue derived from the provision of some modern services. Unlike business tax, a taxpayer is allowed to offset the qualified input VAT paid on taxable purchasesagainst the output VAT chargeable on the modern services provided.On March 20, 2019, the Ministry of Finance, the State Administration of Taxation and the General Administration of Customs jointly issued theAnnouncement on Issuing Relevant Policies for Deepening the Reform of Value-Added Tax, which became effective on April 1, 2019. According to the above-mentioned Announcement, the current VAT rate of 16% related to certain categories of sale and imported goods will be reduced to 13%, and the current VAT rate of10% related to other categories of sale and imported goods will be reduced to 9% from April 1, 2019. In addition, the scope of business VAT deductions will beexpanded under the above-mentioned Announcement. Furthermore, the refund system of the period-end excess input VAT for trial implementation will be adoptedfrom April 1, 2019. However, it may be difficult to predict the trends of the VAT rates in the future. We cannot assure you that the VAT rates will not be raised in thefuture, which could have a material adverse effect on the Group’s financial condition and results of operations.Table of Contents76Regulations Relating to E-CommerceThe Administrative Measures on Online Transactions issued by the State Administration for Market Regulation, or SAMR, on January 26, 2014 whichbecame effective on March 15, 2014, or the Online Trading Measures. According to the Online Trading Measures, enterprises or other operators which engage inonline commodities trading and other services and have been registered with SAMR or its local branches must make the information stated in their business licensesavailable to the public or provide links to their business licenses on their websites. Online distributors must adopt measures to ensure the safety of online transactions,protect online shoppers’ rights and prevent the sale of counterfeit goods. Information on products and transactions released by online distributors must be authentic,accurate, complete and sufficient. Under the Online Trading Measures, e-commerce platform operators are required to examine, register and archive the identityinformation of the merchants applying for access to their platforms as sellers, and verify and update such information regularly. The Online Trading Measures alsoprovide that e-commerce platform operators must make publicly available (i) the link to or the information contained in the business licenses of the merchants, in thecase of business entities, or (ii) a label confirming the verified identity of the merchants, in the case of individuals. In addition, operators are prohibited from settingforth provisions in contracts or other terms that are not fair or reasonable to consumers such as those excluding or restraining consumers’ rights, relieving orexempting operators’ responsibilities, and increasing the consumers’ responsibilities, or conducting transactions in a forcible manner taking advantage of contractualterms or technical means. The Group is subject to such rules as a result of its online merchandise sales.In March 2016, the State Administration of Taxation, or SAT, the Ministry of Finance and the General Administration of Customs jointly issued the Circularon Tax Policy for Cross-Border E-Commerce Retail Imports, which took effect in April 2016. Pursuant to this circular, goods imported through the cross-border e-commerce retail are subject to tariff, import value-added tax, and consumption tax based on the types of goods. Individuals purchasing any goods imported throughcross-border e-commerce retail are taxpayers, and e-commerce companies, companies operating e-commerce transaction platforms or logistic companies are requiredto withhold the taxes.On August 31, 2018, the Standing Committee of the National People’s Congress promulgated the E-Commerce Law, which became effective on January 1,2019. The E-Commerce Law sets forth a series of requirements on e-commerce platform operators. According to the E-Commerce Law, e-commerce platformoperators shall verify and register platform merchants, and cooperate with the market regulatory administrative department and tax administrative department toconduct industry and commerce registrations and tax registrations for merchants. The e-commerce platform operators shall also prepare a contingency plan forcybersecurity events and take technological measures and other measures to prevent online illegal and criminal activities. The E-Commerce Law also expresslyrequires platform operators to take necessary actions to ensure fair dealing on their platforms to safeguard the legitimate rights and interests of consumers, includingto prepare platform service agreements and transaction information record-keeping and transaction rules, to prominently display such documents on the platform’swebsite, and to keep such information for no less than three years following the completion of a transaction. To legally handle intellectual property infringementdisputes, upon receipt of the notice specifying preliminary evidence for alleged infringement, the platform operators are required to take necessary measures in atimely manner, such as deleting, blocking and disconnecting the hyperlinks, terminating transactions and services, and to forward notices to merchants on itsplatform. If an e-commerce platform operator fails to take necessary measures when it knows or should have known that a merchant on the platform infringes anythird-party intellectual property rights, products or services provided by a merchant on its platform do not meet the requirements regarding personal or propertysafety, or any merchant otherwise impairs the lawful rights and interests of consumers, the e-commerce platform operator will be held jointly liable with themerchants on its platform.On March 15, 2021, the Administrative Regulations on Internet Transactions were released by the State Administration for Market Regulation and becameeffective on May 1, 2021, which are the supplementary rules to the E-Commerce Law and repealed the Online Trading Measures. Pursuant to the AdministrativeRegulations on Internet Transactions, any online transaction operators, as well as online platform operators, shall conduct their businesses in full compliance with theAnti-unfair Competition Law and other relevant PRC laws and regulations, and shall not unfairly compete with other operators or disturb social and economic orders.Such unfair competition conducts include, but are not limited to, carrying out any fictitious transactions and making up user evaluations.Table of Contents77The Law of the People’s Republic of China on the Protection of Rights and Interests of Consumers, or the Consumer Protection Law, as amended onOctober 25, 2013, sets out the obligations of business operators and the rights and interests of the consumers. Pursuant to this law, business operators must guaranteethat the commodities they sell satisfy the requirements for personal or property safety, provide consumers with authentic information about the commodities, andguarantee the quality, function, usage and term of validity of the commodities. The amendment in 2013 further strengthens the protection of consumers and imposesmore stringent requirements and obligations on business operators, especially on the businesses operating through the Internet. For example, when a consumerpurchases products (including cosmetics and food) or accepts services via an online trading platform and his or her interests are prejudiced, if the online tradingplatform provider fails to provide the name, address and valid contact information of the seller, the manufacturer or the service provider, the consumer is entitled todemand compensation from the online trading platform provider. Failure to comply with the Consumer Protection Law may subject business operators to civilliabilities such as refunding purchase prices, replacement of commodities, repairing or ceasing damages, compensation, and restoring reputation, and could subjectthe business operators or the responsible individuals to criminal penalties when personal damages are involved or if the circumstances are severe.Regulations Relating to Cross-border TradingThe Customs Law, effective as of July 1, 1987 and amended on July 8, 2000, June 29, 2013, December 28, 2013, November 17, 2016, November 4, 2017and April 29, 2021, divides imported and exported items into “means of transports”, “goods” and “articles” based upon the nature and purpose of such items. Underthe Customs Law, “goods” and “articles” are not defined, but these concepts are clarified in the Implementation Regulations of Administrative Punishments Underthe Customs Law, effective as of November 1, 2004. The regulation describes “articles” as postal items and travelers’ luggage that are brought in and out of the PRCon an individual’s person or luggage. When the quantity of articles is higher than a reasonable amount for personal use, it will be regarded as “goods.” “Personal use”means that the traveler or consignee will use the items themselves or give the items as gifts, rather than selling or renting the items. “Reasonable amount” means theregular amount determined in accordance with the traveler or consignee’s situation, purpose of travel and duration of stay.The Foreign Trade Law, effective as of July 1, 2004 and amended on November 7, 2016 and December 30, 2022, governs international trade in services andthe import and export of goods and technologies. Under this law, goods and technologies are categorized as (i) permitted, which may be freely imported andexported, (ii) restricted, which require advance approval or (iii) prohibited, which may not be imported or exported at all. Furthermore, an “import and export trader”,or any company or individual engaging in the import or export of goods or technologies, must register with the administrative department of foreign trade under theState Council or any of its authorized bodies in order to be qualified as a foreign trade business operator. According to current foreign trade laws, the Ministry ofCommerce and its competent local branches are the authorized bodies to conduct qualification filings and registrations for foreign trade business operators.The Customs Law requires that importers and exporters make true declarations of their goods and technologies to customs. The Imported and ExportedCommodity Inspection Law, issued February 21, 1989 and amended on April 28, 2002, June 29, 2013, April 27, 2018, December 29, 2018 and April 29, 2021, alsorequires that certain items listed in the Catalog of Import and Export Commodities for Inspection, or the Customers Catalog, must be inspected by a commodityinspection organization authorized by the State Administration for Commodity Inspection before they can be exported. For import and export commodities not listedin the Customers Catalog, the commodity inspection authorities may conduct random inspections pursuant to the Measures for the Administration of RandomInspection of Import and Export Commodities, issued as of December 31, 2002 and amended as of April 28, 2018. Further, the Ministry of Commerce and theGeneral Administration of Customs jointly adopted a mandatory licensing system for the export of certain merchandise, which exporters must comply withdepending on the commodities they export. Further, the Administration for Industry promulgated Measures for Penalties for Infringement upon Rights and Interestsof Consumers which requires strict compliance with the Law on Protection of Rights and Interest of Consumers and related laws and regulations for the purpose ofstopping infringement upon rights and interests of consumers pursuant to the law, protecting the legitimate rights and interests of consumers, and safeguarding socialand economic order. On October 23, 2020, under State Administration for Market Regulation Decree No. 31, Measures for Penalties for Infringement upon Rightsand Interests of Consumers was revised and further focuses on the disclosure of its information to consumers. The information that must be disclosed includes but notlimited to: (i) information on grant, alteration, or renewal or renewal of administrative permit; (ii) information on administrative punishment; (iii) other informationto be announced pursuant to the law; (iv) registration and filing information; (v) registration information for chattel mortgage; (vi) registration information for pledgeof equity; (vii) information on administrative punishment and (viii) other information to be announced pursuant to law. Violation against such requirements wouldconstitute a direct violation of both Provisional Regulations on Enterprise Information Disclosure and Measures for Penalties for Infringement upon Rights andInterests of Consumers and would be punished severely.Table of Contents78The customs declaration, clearance and inspection procedures for goods and articles are different. The declaration of import or export of goods may be madeby the consignees or consigners themselves or by customs brokers that have registered with the permission of the customs. The consignees, consigners or customsbrokers shall make true declarations and submit the import or export license for restricted goods and relevant documentation to the customs for inspection. Where thecommodities are imported or exported by means of express delivery, the consignees or consignor shall entrust an entry-exit express delivery enterprise with theinspection declaration, pursuant to the Regulations on the Implementation of the Law of the People’s Republic of China on Import and Export CommodityInspection, effective as December 1, 2005 and amended on February 6, 2016, March 1, 2017, March 2, 2019 and May 1, 2022. In addition, a new informationmanagement system for express delivery consignments was established on November 30, 2018, according to the Announcement on Initiating the Application of theInformation Management System for Inward and Outward Postal Items issued on November 8, 2018, requiring express delivery operators to collect data of each itemof mail and submit it to the information management system.On November 24, 2015, the General Administration of Quality Supervision, Inspection and Quarantine of the People’s Republic of China issued the WorkNorms for Cross-border E-commerce Business Entities and Commodity Record Management, which became effect on January 1, 2016. Pursuant to the work norms,if a cross-border e-commerce business entity develops a cross-border e-commerce business, it shall provide the inspection and quarantine institution with the businessentity’s record information.On November 28, 2018, the Ministry of Commerce, National Development and Reform Commission, Ministry of Finance, General Administration ofCustoms, State Taxation Administration and State Administration for Market Regulation promulgated the Circular on Improving the Regulation of Cross-border E-Commerce Retail Imports, which took effect on January 1, 2019. Pursuant to this circular, cross-border e-commerce operator shall (i) engage a PRC-incorporatedcompany as its domestic agent, (ii) be responsible for product quality and safety and its consumers’ rights and interests, (iii) provide adequate disclosures toconsumers, (iv) establish a risk prevention and control system and a quality assurance system for products that are subject to bonded import procedure, and(v) transmit real-time electronic transaction data to the customs.The Announcement on Regulatory Matters Relating to Cross-border E-commerce Retail Imports and Exports, which was issued by General Administrationof Customs on December 10, 2018 and has come into effect on January 1, 2019 requires that (i) enterprises participating in cross-border e-commerce retailimportation and exportation business, such as cross-border e-commerce platform enterprises, logistics enterprises, payment enterprises, shall register with thecustoms at the locality pursuant to the relevant provisions on registration and administration of customs declaration; (ii) prior to declaration for cross-border e-commerce retail imports, the cross-border e-commerce platform enterprise or the domestic agent of cross-border e-commerce enterprise, the payment enterprise, andthe logistics enterprise shall respectively transmit electronic information on transaction, payment and logistics through the international trade “single window” or thecross-border e-commerce customs clearance service platform to the customs, and bear the corresponding legal liability for veracity of the data; (iii) cross-border e-commerce platform enterprises carrying out cross-border e-commerce retail importation business and domestic agents of cross-border e-commerce enterprises shallverify the veracity of the transaction and the identity information of the consumer (purchaser), and bear the corresponding liability; where the identity informationhas not been authenticated by the state authorities in charge or the agency authorized thereby, the purchaser and the payor shall be the same person; (iv) for cross-border e-commerce retail imports, the customs shall levy customs duties and import value-added tax and consumption tax in accordance with state tax policies forcross-border e-commerce retail importation; the dutiable price shall be the actual transaction price, including the retail price of the goods, shipping fee and insurancepremium, and the cross-border e-commerce platform enterprises, logistics enterprises or declaration enterprises registered with the customs shall be withholdingagents, pay tax on behalf of the taxpayers, and bear the corresponding obligation to pay overdue tax and the relevant legal liability. Furthermore, on December 29,2018, General Administration of Customs issued the Announcement on Matters Relating to Customs Registration and Administration for Cross-border E-commerceEnterprises, which has come into effect on January 1, 2019. Pursuant to the Announcement, cross-border e-commerce payment enterprises, logistics enterprises shallobtain the relevant qualification certificate pursuant to the provisions of the Announcement on Regulatory Matters Relating to Cross-border E-commerce RetailImports and Exports and submit the relevant qualification certificate pursuant to the relevant provisions of the authorities in charge when completing customsregistration formalities.Table of Contents79Regulations Related to M&A and Overseas ListingsOn August 8, 2006, six PRC regulatory agencies, including the Ministry of Commerce, the State-owned Assets Supervision and AdministrationCommission, the SAT, the SAIC, the China Securities Regulatory Commission, or CSRC, and the SAFE, jointly issued the Regulations on Mergers and Acquisitionsof Domestic Enterprises by Foreign Investors, or the M&A Rules, which became effective on September 8, 2006 and was amended on June 22, 2009. The M&ARules, among other things, require that (i) PRC entities or individuals obtain MOFCOM approval before they establish or control a SPV overseas, provided that theyintend to use the SPV to acquire their equity interests in a PRC company at the consideration of newly issued share of the SPV, or Share Swap, and list their equityinterests in the PRC company overseas by listing the SPV in an overseas market; (ii) the SPV obtains MOFCOM’s approval before it acquires the equity interestsheld by the PRC entities or PRC individual in the PRC company by Share Swap; and (iii) the SPV obtains CSRC approval before it lists overseas.The Anti-Monopoly Law promulgated by the Standing Committee of the National People’s Congress on August 30, 2007 and effective on August 1, 2008requires that transactions which are deemed concentrations and involve parties with specified turnover thresholds must be cleared by MOFCOM before they can becompleted. In addition, on February 3, 2011, the General Office of the State Council promulgated a Notice on Establishing the Security Review System for Mergersand Acquisitions of Domestic Enterprises by Foreign Lenders, or Circular 6, which officially established a security review system for mergers and acquisitions ofdomestic enterprises by foreign investors. Further, on August 25, 2011, MOFCOM promulgated the Regulations on Implementation of Security Review System forthe Merger and Acquisition of Domestic Enterprises by Foreign Lenders, or the MOFCOM Security Review Regulations, which became effective on September 1,2011, to implement Circular 6. Under Circular 6, a security review is required for mergers and acquisitions by foreign investors having “national defense andsecurity” concerns and mergers and acquisitions by which foreign investors may acquire the “de facto control” of domestic enterprises with “national security”concerns. Under the MOFCOM Security Review Regulations, MOFCOM will focus on the substance and actual impact of the transaction when deciding whether aspecific merger or acquisition is subject to security review. If MOFCOM decides that a specific merger or acquisition is subject to security review, it will submit it tothe Inter-Ministerial Panel, an authority established under the Circular 6 led by the National Development and Reform Commission, or NDRC, and MOFCOM underthe leadership of the State Council, to carry out the security review. The regulations prohibit foreign investors from bypassing the security review by structuringtransactions through trusts, indirect investments, leases, loans, control through contractual arrangements or offshore transactions.On December 24, 2021, the CSRC released the Administrative Provisions of the State Council Regarding the Overseas Issuance and Listing of Securities byDomestic Enterprises (Draft for Comments) , or the Draft Administrative Provisions, and the Measures for the Overseas Issuance of Securities and Listing Record-Filings by Domestic Enterprises (Draft for Comments) (the “Draft Filing Measures”, collectively with the Draft Administrative Provisions, the “DraftRules Regarding Overseas Listing”), both of which have a comment period that expires on January 23, 2022. The Draft Rules Regarding Overseas Listing lay out thefiling regulation arrangement for both direct and indirect overseas listing, and clarify the determination criteria for indirect overseas listing in overseas markets.Table of Contents80On February 17, 2023, with the approval of the State Council, the CSRC released the Trial Administrative Measures of Overseas Securities Offering andListing by Domestic Companies (the “Trial Measures”), and five supporting guidelines, which came into effect on March 31, 2023. The Trial Measures supersede theDraft Rules Regarding Overseas Listing. According to the Trial Measures, (1) domestic companies that seek to offer or list securities overseas, both directly andindirectly, should fulfill the filing procedure and report relevant information to the CSRC; (2) if the issuer meets both of the following conditions, the overseasoffering and listing shall be determined as an indirect overseas offering and listing by a domestic company: (i) any of the total assets, net assets, revenues or profits ofthe domestic operating entities of the issuer in the most recent accounting year accounts for more than 50% of the corresponding figure in the issuer’s auditedconsolidated financial statements for the same period; (ii) its major operational activities are carried out in China or its main places of business are located in China,or the senior managers in charge of operation and management of the issuer are mostly Chinese citizens or are domiciled in China; and (3) where a domesticcompany seeks to indirectly offer and list securities in an overseas market, the issuer shall designate a major domestic operating entity responsible for all filingprocedures with the CSRC, and where an issuer makes an application for initial public offering and listing in an overseas market, the issuer shall submit filings withthe CSRC within three business days after such application is submitted.On the same day, the CSRC held a press conference for the release of the Trial Measures and issued the Notice on Administration for the Filing of OverseasOffering and Listing by Domestic Companies, which, among others, clarifies that (1) a six-month transition period will be granted to domestic companies which,prior to the effective date of the Trial Measures, have already obtained the approval from overseas regulatory authorities or stock exchanges, such as completion ofregistration in the market of the United States, but have not completed the overseas listing; and (2) domestic companies that have already submitted valid applicationsfor overseas offering and listing but have not obtained approval from overseas regulatory authorities or stock exchanges on or prior to the effective date of the TrialMeasures, may reasonably arrange the timing for submitting their filing applications with the CSRC, and shall complete the filing before the completion of theiroverseas offering and listing.Table of Contents81C.Organizational StructureThe following diagram illustrates the Group’s organizational structure, and the place of formation, ownership interest and affiliation of each of our principalsubsidiaries and affiliated entities as of December 31, 2022. It omits certain entities that are immaterial to the Group’s results of operations, business and financialcondition, such as Xiamen Qudian Financial Lease Ltd. and Xiamen Wanlimu Growth, which do not currently engage in material business operations. Except asotherwise specified, equity interests depicted in this diagram are held as to 100%. The relationships between (i) each of Ganzhou Qudian, Xiamen Qudian andBeijing Happy Time and (ii) Ganzhou Qufenqi are governed by contractual arrangements and do not constitute equity ownership.(1)Investors in our ADSs hold equity interest in Qudian Inc., which does not conduct operations.Table of Contents82(2)Mr. Min Luo, our founder, chairman and chief executive officer, and Mr. Lianzhu Lv, our head of user experience department, respectively hold 99.0% and 1.0%of equity interests in Ganzhou Qudian.(3)The following table sets forth the shareholders of Beijing Happy Time, their respective equity interests in Beijing Happy Time as of the date of this annualreport. Amount Percentageof ofRegisteredEquityShareholdersCapitalInterests RMBMr. Min Luo 5,025,579 21.0Phoenix Auspicious Internet Investment L.P. and Shenzhen Guosheng Qianhai Investment Co., Ltd 4,596,670 19.2Beijing Kunlun Tech Co., Ltd. 4,587,496 19.2Ningbo Yuanfeng Venture Capital L.P.(a) 3,757,355 15.7Shanghai Yunxin Venture Capital Co., Ltd.(a) 2,985,744 12.5Jiaxing Blue Run Quchuan Investment L.P. and Tianjin Blue Run Xinhe Investment Center L.P.(a) 1,681,366 7.0Tianjin Happy Share Asset Management L.P., referred to as Tianjin Happy Share(b) 1,251,742 5.2(a)Ningbo Yuanfeng Venture Capital L.P., Shanghai Yunxin Venture Capital Co., Ltd., Jiaxing Blue Run Quchuan Investment L.P. and Tianjin Blue Run XinheInvestment Center L.P. entered into a series of agreements to transfer their respective equity interest in Beijing Happy Time to Mr. Min Luo in October 2020. Weare still in the process of completing the registration of such share transfer with the relevant regulatory authorities.(b)Tianjin Happy Share was established in connection with the share incentive plan of Beijing Happy Time adopted in 2015. Tianjin Happy Share is a limitedpartnership established under the laws of PRC. As of the date of this annual report, the sole general partner of Tianjin Happy Share is Mr. Lianzhu Lv, and thelimited partners are certain employees and a third party consultant. The 2015 Share Incentive Plan was terminated in December 2016.(4)The main subsidiary of Ganzhou Qudian is Xiamen Qudian Commercial Factoring Co., Ltd.(5)Main subsidiaries of Xiamen Qudian include Xiamen Qudian Financial Lease Co., Ltd. and Xiamen Xincheng Youda Financing Guarantee Ltd.(6)The main subsidiary of Beijing Happy Time is Ganzhou Happy Fenqi Network Service Co., Ltd. Bejing Happy Time currently operates the Group’s websitesand mobile apps under the Laifenqi brand.Our Contractual Arrangements with the Group VIEs and Their ShareholdersDue to PRC legal restrictions on foreign ownership and investment in, among other areas, VATS, which include the operations of Internet content providers,or ICPs, we currently conduct part of such operations through Beijing Happy Time and its subsidiaries. We established two additional Group VIEs, Ganzhou Qudianand Xiamen Qudian, in 2017. We have the power to direct the activities that most significantly impact the economic performance of the Group VIEs and provide uswith economic benefits of each Group VIE through a series of contractual arrangements with such Group VIE, its shareholders and Ganzhou Qufenqi, as described inmore detail below, which collectively enables us to:●exercise power to direct the activities that most significantly impact the economic performance of each of the Group VIEs and its subsidiaries;●receive substantially all the economic benefits of each of the Group VIEs; and●have an exclusive option to purchase all or part of the equity interests in the equity interest in or all or part of the assets of each of the Group VIEswhen and to the extent permitted by PRC law.Table of Contents83In addition, pursuant to the resolutions of the board of directors of Qudian Inc. and/or the resolutions of all shareholders of Qudian Inc., the board ofdirectors of Qudian Inc. or any officer authorized by such board shall cause Ganzhou Qufenqi to exercise its rights under the power of attorney agreements enteredinto among Ganzhou Qufenqi, each of the Group VIEs and the nominee shareholders of each of the Group VIEs and the rights of Ganzhou Qufenqi under theexclusive call option agreement between Ganzhou Qufenqi and each of the Group VIEs. As a result of these resolutions and the provision of unlimited financialsupport from the Company to each of the Group VIEs, Qudian Inc. has been determined to be most closely associated with each of the Group VIEs within the groupof related parties and was considered to be the primary beneficiary of each of the Group VIEs for accounting purposes. We have consolidated their financial results inthe Group’s consolidated financial statements in accordance with U.S. GAAP.In the opinion of Han Kun Law Offices, our PRC legal counsel:●the ownership structures of Ganzhou Qufenqi and the Group VIEs in China do not violate any applicable PRC law, regulation, or rule currently ineffect; and●the contractual arrangements among Ganzhou Qufenqi, each of the Group VIEs and its shareholders governed by PRC laws are valid, binding andenforceable in accordance with their terms and applicable PRC laws, rules, and regulations currently in effect, and will not violate any applicable PRClaw, regulation, or rule currently in effect.However, we have been further advised by our PRC legal counsel, Han Kun Law Offices, that there are uncertainties regarding the interpretation andapplication of current and future PRC laws, rules and regulations. The 2019 Law of Foreign Investment became effective on January 1, 2020. The 2019 Law ofForeign Investment has replaced the trio of laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillaryregulations. The 2019 Law of Foreign Investment does not mention concepts including “de facto control” and “controlling through contractual arrangements,” nordoes it specify the regulation on controlling through contractual arrangements. Specifically, it does not incorporate contractual arrangements as a form of foreigninvestment, our Contractual Arrangements as a whole and each of the arrangements comprising our Contractual Arrangements will not be materially affected and willcontinue to be legal, valid and binding on the parties. Notwithstanding the above, the 2019 Law of Foreign Investment stipulates that “foreign investment includesforeign investors invest in China through any other methods under laws, administrative regulations, or provisions prescribed by the State Council.” Therefore, thereare possibilities that future laws, administrative regulations or provisions of the State Council may stipulate contractual arrangements as a way of foreign investmentand our Contractual Arrangements will be regarded as foreign investment. If that is the case, whether our contractual arrangements will be deemed to be in violationof the foreign investment access requirements and how our Contractual Arrangements will be handled are subject to uncertainties. The PRC regulatory authoritiesmay in the future take a view that is contrary to the opinion of our PRC legal counsel. We have been further advised by our PRC legal counsel that if the PRCgovernment finds that the agreements that establish the structure for operating our business do not comply with PRC government restrictions on foreign investment inthe aforesaid business we engage in, we could be subject to severe penalties including being prohibited from continuing operations. See “Item 3. Key Information⸺⸺D. Risk Factors⸺⸺Risks Related to Our Corporate Structure.”The following is a summary of the currently effective contractual arrangements by and among our wholly-owned subsidiary, Ganzhou Qufenqi, theapplicable Group VIEs, and their respective shareholders.Table of Contents84Equity Interest Pledge AgreementsPursuant to the equity interest pledge agreements, the shareholders of the Group VIEs have pledged all of their equity interest in the Group VIEs as acontinuing first priority security interest, as applicable, to respectively guarantee the Group VIEs and their shareholders’ performance of their obligations under therelevant contractual arrangements, which include the exclusive business cooperation agreements, exclusive call option agreements and power of attorney agreements.If the Group VIEs or any of their shareholders breach their contractual obligations under these agreements, Ganzhou Qufenqi, as pledgee, will be entitled to certainrights regarding the pledged equity interests. In the event of such breaches, the rights of Ganzhou Qufenqi include forcing the auction or sale of all or part of thepledged equity interests of the applicable Group VIE and receiving proceeds from such auction or sale in accordance with PRC law. Upon purchase of equityinterests in the applicable the Group VIE by other persons, Ganzhou Qufenqi, and such persons will need to enter into contractual arrangements that are similar toexisting ones in order for Ganzhou Qufenqi to have power to direct the activities that most significantly impact the economic performance of such Group VIE. Eachof the shareholders of the Group VIEs agrees that, during the term of the applicable equity interest pledge agreement, such shareholder will not dispose of thepledged equity interests or create or allow creation of any encumbrance on the pledged equity interests without the prior written consent of Ganzhou Qufenqi.Ganzhou Qufenqi is entitled to all dividends and other distributions declared by the Group VIEs except as it agrees otherwise in writing. Each equity interest pledgeagreement will remain effective until the applicable Group VIE and its shareholders discharge all their obligations under the contractual arrangements. We haveregistered pledges of equity interest in each of the Group VIEs with the relevant offices of the administration for industry and commerce in accordance with the PRCProperty Rights Law.Power of Attorney AgreementsPursuant to the power of attorney agreements, each shareholder of the Group VIEs has irrevocably appointed the Ganzhou Qufenqi to act as suchshareholder’s exclusive attorney-in-fact to exercise all shareholder rights, including the right to attend and vote on shareholder’s meetings and appoint directors andexecutive officers. In the absence of contrary written instructions of Ganzhou Qufenqi, each power of attorney agreement will remain in force for so long as theshareholder remains a shareholder of the applicable Group VIE.Exclusive Business Cooperation AgreementsUnder the exclusive business cooperation agreements, Ganzhou Qufenqi has the exclusive right to provide the Group VIEs and their subsidiaries thatgenerate substantial income, including Ganzhou Happy Fenqi, Ganzhou Network, and Fuzhou Microcredit, or the profitable Group VIEs and their subsidiaries, withtechnical support, consulting services and other services. In exchange, Ganzhou Qufenqi is entitled to receive a service fee from each of the profitable Group VIEs ona monthly basis and at an amount equivalent to all of its net income as confirmed by Ganzhou Qufenqi. Ganzhou Qufenqi owns the intellectual property rights arisingout of the performance of the respective exclusive business cooperation agreement. In addition, each of the Group VIEs and their subsidiaries has granted GanzhouQufenqi an exclusive right to purchase any or all of the business or assets of each of the profitable Group VIEs and their subsidiaries at the lowest price permittedunder PRC law. Unless otherwise agreed by the parties, this agreement will continue remaining effective.Table of Contents85Exclusive Call Option AgreementsPursuant to the exclusive call option agreements, the Group VIEs and each of their shareholders have irrevocably granted Ganzhou Qufenqi an exclusiveoption to purchase, or have its designated person or persons to purchase, at its discretion at any time, to the extent permitted under PRC law, all or part of suchshareholder’s equity interests in the applicable, or any or all of the assets of such Group VIE. For reasons discussed in this section, there may be PRC legalrestrictions on the ability of Ganzhou Qufenqi to directly purchase such equity interests or assets. In the event such equity interests or assets are sold to personsdesignated by Ganzhou Qufenqi, Ganzhou Qufenqi and such persons will need to enter into contractual arrangements that are similar to the existing ones in order forGanzhou Qufenqi to have power to direct the activities that most significantly impact the economic performance of such Group VIE and receive substantially all theeconomic benefits of such equity interests or assets. As for the equity interests in a Group VIE, the purchase price should be equal to the minimum price as permittedby PRC law. As for the assets of a Group VIE, the purchase price should be equal to the book value of the assets or the minimum price as permitted by applicablePRC law, whichever is higher. Without prior written consent of Ganzhou Qufenqi, each Group VIE and its shareholders have agreed that such Group VIE shall notamend its articles of association, increase or decrease the registered capital, sell or otherwise dispose of its assets or beneficial interest, create or allow anyencumbrance on its assets or other beneficial interests, provide any loans or guarantees and etc. Ganzhou Qufenqi is entitled to all dividends and other distributionsdeclared by the applicable Group VIE except as it agrees otherwise in writing, and the shareholders of the applicable Group VIE have agreed to pay any suchdividends or distributions to Ganzhou Qufenqi. Each agreement will remain effective until all equity interests of the applicable Group VIE held by its shareholdersand all assets of such Group VIE have been transferred or assigned to Ganzhou Qufenqi or its designated person(s).Financial Support Undertaking LettersWe executed a financial support undertaking letter addressed to each Group VIE, pursuant to which we irrevocably undertake to provide unlimited financialsupport to such Group VIE to the extent permissible under the applicable PRC laws and regulations, regardless of whether such Group VIE has incurred anoperational loss. The form of financial support includes but is not limited to cash, entrusted loans and borrowings. We will not request repayment of any outstandingloans or borrowings from a Group VIE if it or its shareholders do not have sufficient funds or are unable to repay such loans or borrowings. Each letter is effectivefrom the date of the other agreements entered into among Ganzhou Qufenqi, the applicable Group VIE and its shareholders until the earlier of (i) the date on whichall of the equity interests of such Group VIE have been acquired by or its designated representative(s), and (ii) the date on which we in our sole and absolutediscretion unilaterally terminates the applicable financial support undertaking letter.We expect to provide the financial support if and when required with a portion of the proceeds from our initial public offering and convertible senior notesand proceeds from the issuance of equity or debt securities in the future.D.Property, Plants and EquipmentThe Group’s corporate headquarters are located in Xiamen, Fujian Province, China, where the Group leases 5,167 square meters of office space pursuant toa series of lease expiring in the fourth quarter of 2024. The Group also leases office space of 13 square meters, 36 square meters, 65 square meters and 263 squaremeters in Beijing, Xinjiang Autonomous Region, Fuzhou and Ganzhou in Jiangxi Province, respectively.In January 2018, the Group purchased the use rights with respect to a parcel of land of approximately 53,239 square meters located in Xiamen, FujianProvince for a price of RMB106 million. Pursuant to the contract the Group signed with the local government authorities, the Group’s land lease right of use assetwill last for 40 years. The Group has commenced construction of its innovation park on such parcel of land, and the construction is expected to be completed in thethird quarter of 2023.We believe that the Group will be able to obtain adequate facilities to accommodate the Group’s future expansion plans.ITEM 4A.UNRESOLVED STAFF COMMENTSNone.Table of Contents86ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTSYou should read the following discussion and analysis of the Group’s financial condition and results of operations in conjunction with the Group’sconsolidated financial statements and the related notes included elsewhere in this annual report. This discussion may contain forward-looking statements based uponcurrent expectations that involve risks and uncertainties. The Group’s actual results may differ materially from those anticipated in these forward-looking statementsas a result of various factors, including those set forth under “Item 3. Key Information⸺⸺D. Risk Factors” or in other parts of this annual report.For comparison of the Group’s results of operations for the years ended December 31, 2021 to December 31, 2020, refer to “Item 5. Operating and FinancialReview and Prospects” in our annual report on Form 20-F for the year ended December 31, 2021, filed with the SEC on April 29, 2022.A.Operating ResultsOverviewThe Group is a consumer-oriented technology company in China. The Group historically focused on providing credit solutions to consumers. The Group hasbeen exploring new business opportunities to promote long-term value for its shareholders.The Group historically operated a loan book business, whereby the Group offered small credit products to consumers and undertook the related credit risk.The Group has ceased new credit offerings since September 6, 2022. As of December 31, 2022, there was no outstanding loan balance under the Group’s loan bookbusiness.The Group historically generated (i) financing income, loan facilitation income and other related income and guarantee income from cash credit productsand (ii) sales income from the QD Food business, (iii) financing income and sales commission fee from merchandise credit products and (iv) transaction services feeand other related income from the Group’s transaction services business. The Group historically generated sales income from merchandise sales on the Wanlimu e-commerce platform, which the Group is in the process of winding down. In addition, the Group historically offered budget auto financing products, from which theGroup generated sales income and financing income. The Group started to wind down its budget auto financing business in the second quarter of 2019.The Group’s total revenues decreased from RMB3,688.0 million in 2020 to RMB1,654.0 million in 2021, and decreased to RMB577.5 million (US$83.7million) in 2022. The Group recorded net income of RMB958.8 million and RMB585.9 million and net loss of RMB362.1 million (US$52.5 million) in 2020, 2021and 2022, respectively.Key Factors Affecting the Group’s Results of OperationsWind-down of Credit BusinessThe Group historically derived substantially all of its revenue from its credit business. In light of the regulatory uncertainties in China’s online consumerfinance market and to maintain its asset quality, the Group has ceased new credit offerings in September 2022. As a result, the Group expects to record decreases inits revenue over the first half of 2023.New Business InitiativesThe Group has been exploring innovative consumer products and services by leveraging its technology capabilities. The Group’s results of operationsdepends on its ability to execute its new business initiatives. The success of these new business initiatives will depend on, among other things, the Group’s ability to●enhance brand recognition and acquire consumer in a cost-efficient manner;●design and offer products or services that meet consumer demand; and●enhance operational efficiency.Table of Contents87New businesses may significantly change the Group’s cost structure. For example, the Group may incur significant marketing expenses to acquire newconsumers. As a result, the Group is likely to incur losses initially due to its new business initiatives.Economic Conditions and Regulatory Environment in ChinaThe demand for the Group’s products and services is dependent upon overall economic conditions in China. General economic factors, including the interestrate environment and unemployment rates, may affect consumers’ willingness to seek the Group’s services or products.The regulatory environment in China is developing and evolving, creating both challenges and opportunities that could affect the Group’s financialperformance. We will continue to make efforts to ensure that the Group is compliant with the existing laws, regulations and governmental policies relating to ourbusiness and to comply with new laws and regulations or changes under existing laws and regulations that may arise in the future.Transaction Volume MetricsIn connection with the Group’s credit business, we regularly reviewed a number of transaction volume metrics, including the following metrics, to monitorthe size of the Group’s transaction volume, identify trends, formulate financial projections and make strategic decisions.The table below sets forth a breakdown for the amount of transactions the Group facilitated in the periods presented: Year Ended December 31,202020212022RMBRMBRMBUS$(in thousands)On-balance sheet transactions 18,294,942 14,636,497 3,955,465 573,489Off-balance sheet transactions 97,879 128,368 — —Transactions under the loan book business 18,392,821 14,764,865 3,955,465 573,489Transactions under the transaction services business 4,020,778 352,402 — —Total 22,413,599 15,117,267 3,955,465 573,489We define “amount of transactions” as the aggregate principal amount of credit drawdowns that are provided to borrowers in the specified period, which arecomprised of (i) credit drawdowns that are facilitated under the Group’s loan book business and (ii) credit drawdowns that are facilitated under the Group’stransaction services business.The table below sets forth a breakdown for the outstanding principal of transactions the Group facilitated as of the dates presented: Year Ended December 31,202020212022RMBRMBRMBUS$(in thousands)On-balance sheet transactions 4,718,032 2,596,741 — —Off-balance sheet transactions 83,723 — — —Transactions under the loan book business 4,801,755 2,596,741 — —Transactions under the transaction services business 5,135,404 2,712,210 — —Total 9,937,159 5,308,951 — —Credit Performance MetricsThe credit performance of the transactions the Group facilitated under the loan book business directly affected the Group’s financial condition and results ofoperations. We regularly reviewed a number of credit performance metrics, including the following metrics, to evaluate credit performance of the Group’s loan bookbusiness, identify trends, formulate financial projections and make strategic decisions.Table of Contents88If one payment for a credit drawdown facilitated by the Group is past due, the remaining payments that are not yet due are also considered past due for thepurpose of evaluating the performance of the credit drawdown.The Group ceased new credit offerings in September 2022. The Group disposed all outstanding loan principal and financing service fee receivables bytransferring such assets to third parties by end of 2022. The Group received cash from these third parties in consideration of the fair market value of such assets, andthe Group is not liable for the credit risk of such third parties. As the Group already made appropriate charge-off for its outstanding loan principal and financing feereceivables prior to the disposal, the Group did not recognize any loss in connection with such disposal.M1+ Delinquency Rate by VintageBased on our experience, credit drawdowns past due 1 to 30 calendar days would be largely recovered by collection, therefore our focus on creditperformance are those transactions for which any installment payment was more than 30 calendar days (“M1+”) past due. We closely monitor the credit performancemeasured by the M1+ delinquency rates by vintage, which track the lifetime performance of the credit drawdowns originated in a certain vintage and vintage charge-off rate.The following chart displays M1+ delinquency rate by vintage. M1+ delinquency rate by vintage (with respect to on- and off-balance sheet transactionsfacilitated under the loan book business during a specified time period) refers to the total outstanding principal balance of the transactions of a vintage for which anyrepayment is overdue for more than 30 days, divided by the total initial principal of the transactions facilitated in such vintage.M1+ delinquency rate by vintage for transactions in 2020 reached 7.9% through March 31, 2021. M1+ delinquency rate by vintage for transactions in 2021was less than 3.0% through March 31, 2022. M1+ delinquency rate by vintage for transactions in 2022 was less than 2.5% through March 31, 2023. Such changeswere primarily due to the Group’s decision to cease new credit offerings since September 6, 2022.Table of Contents89Vintage Charge-off RateThe following charts display the vintage charge-off rate. Vintage charge-off (with respect to on- and off-balance sheet transactions facilitated under the loanbook business during a specified time period) refers to the total outstanding principal balance of the transactions for which any repayment is overdue for more than180 days during such period, divided by the total initial principal of the transactions facilitated in such vintage.Provision RatioWe define “provision ratio” as the amount of provision for loan principal and financing service fee receivables incurred during a period as a percentage ofthe total amount of on-balance sheet transactions during such period. The following table sets forth the Group’s provision ratio for the periods presented: Year Ended December 31,202020212022Provision ratio 7.84% (1.33)% (5.29)%The Group periodically adjust its allowance for loan principal and financing service fee receivables when the Group believes that the future collection ofprincipal is unlikely. The Group bases the allowance for loan principal and financing service fee receivables primarily on historical loss experience using a roll rate-based model applied to the Group’s principal and financing service fee receivables portfolios and, to a lesser extent, macroeconomic factors. The Group recognizesany increase in allowance for loan principal and financing service fee receivables as provision for loan principal and financing service fee receivables for the relevantperiod. The Group’s provision ratio changed from 1.33% in 2021 to 5.29% in 2022 primarily due to the significant reduction in amount of transactions from loanbook business in 2022.Charge-Off RatioWe define “charge-off ratio” as the amount of loan principal receivables the Group charged off during a period, divided by the total amount of on-balancesheet transactions during such period. Year Ended December 31,20202021 2022 % Charge-off ratio 11.63% 2.64% 1.46%Table of Contents90Non-GAAP MeasureAdjusted Net Income Attributable to Qudian Inc.’s ShareholdersWe use adjusted net income attributable to Qudian Inc.’s shareholders, a non-GAAP financial measure, in evaluating the Group’s operating results and forfinancial and operational decision-making purposes. We believe that adjusted net income attributable to Qudian Inc.’s shareholders help identify underlying trends inthe Group’s business by excluding the impact of (i) share-based compensation expenses, which are non-cash charges, and (ii) convertible senior notes buybackincome, which is non-cash and non-recurring. We believe that such non-GAAP financial measure provides useful information about the Group’s operating results,enhance the overall understanding of the Group’s past performance and future prospects and allow for greater visibility with respect to key metrics used by ourmanagement in its financial and operational decision-making. For the year ended December 31,20182019202020212022RMB RMB RMB RMB RMB US$(in thousands)Adjusted net income attributable to Qudian Inc.’s shareholders(1) 2,549,297 3,351,587 382,344 612,372 (347,938) (50,446)(1)Defined as net income attributable to Qudian Inc.’s shareholders excluding share-based compensation expenses and convertible senior notes buyback income.Adjusted net income attributable to Qudian Inc.’s shareholders is not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. Thisnon-GAAP financial measure has limitations as analytical tools, and when assessing the Group’s operating performance, cash flows or the Group’s liquidity,investors should not consider them in isolation, or as a substitute for net income, cash flows provided by operating activities or other consolidated statements ofoperation and cash flow data prepared in accordance with U.S. GAAP.The Group mitigates these limitations by reconciling the non-GAAP financial measure to the most comparable U.S. GAAP performance measure, all ofwhich should be considered when evaluating the Group’s performance.The following table reconciles the Group’s adjusted net income attributable to Qudian Inc.’s shareholders in the years presented to the most directlycomparable financial measure calculated and presented in accordance with U.S. GAAP, which is net income attributable to Qudian Inc.’s shareholders: For the year ended December 31,20182019202020212022RMB RMB RMB RMB RMB US$(in thousands)Net income attributable to Qudian Inc.’s shareholders 2,491,316 3,264,288 958,819 589,074 (361,964) (52,480)Add: share-based compensation expenses 57,981 87,299 45,634 35,345 24,054 3,488Less: Convertible senior notes buyback income — — 622,109 12,047 10,028 1,454Adjusted net income attributable to Qudian Inc.’s shareholders 2,549,297 3,351,587 382,344 612,372 (347,938) (50,446)Table of Contents91Components of Results of OperationsRevenuesThe Group’s total revenues comprise financing income, sales commission fee, sales income, penalty fees, guarantee income, loan facilitation income andother related income and transaction services fee and other related income. The Group’s total revenues are presented net of VAT. Financing income representsfinancing service fees that the Group collects from borrowers for on-balance sheet transactions, which the Group has facilitated since inception in April 2014. Salescommission fee represents fee earned from merchandise suppliers in connection with merchandise credit products. Sales income represents the sales price of cars theGroup sells to car buyers in connection with the Group’s budget auto financing products and revenues from product sales through the Group’s Wanlimu e-commerceplatform and QD foods. Penalty fees represent fees the Group charges borrowers for late repayment. Guarantee income represents income earned from the Group’sobligation to provide risk assurance on the principal and accrued interest repayment of loans facilitated, which is recognized over the term of the arrangement as theGroup is released from the stand ready obligation based on the borrower’s repayment of the loan principal. Loan facilitation income and other related incomerepresent loan facilitation fees earned from certain institutional funding partners in connection with off-balance sheet transactions, a type of funding arrangement thatstarted in September 2016. Transaction services fee and other related income represent commissions and fees earned from financial service providers in connectionwith the Group’s transaction services business. For more information, see “Item 5. Operating and Financial Review and Prospects⸺⸺A. Operating Results⸺⸺Critical Accounting Policies⸺⸺Revenue Recognition.” The following table sets forth the breakdown of the Group’s total revenues, both in absolute amount and asa percentage of the Group’s total revenues, for the periods presented: Year Ended December 31,2020 2021 2022% of total% of total% of totalRMBrevenuesRMBrevenuesRMBUS$revenues(in thousands, except for percentages)Revenues Financing income 2,102,665 57.0 1,255,488 75.9 308,717 44,760 53.4Sales commission fee 80,992 2.2 35,411 2.1 115 17 0.0Sales income and others 610,793 16.5 100,668 6.1 82,617 11,978 14.3Penalty fees 72,235 2.0 67,316 4.1 53,445 7,749 9.3Guarantee income 826,198 22.4 3,935 0.2 — — —Loan facilitation income and other related income 131,633 3.6 39,531 2.4 18,809 2,727 3.3Transaction services fee and other related income (136,542) (3.7) 151,694 9.2 113,790 16,498 19.7Total revenues 3,687,974 100.0 1,654,043 100.0 577,493 83,729 100.0Financing IncomeThe Group charges financing service fees for facilitating on-balance sheet transactions. The financing service fees are recorded as financing income in thestatement of comprehensive income in accordance with ASC 310 using the effective interest method.Incentives are provided to certain borrowers and can only be applied as a reduction to the borrower’s repayments and cannot be withdrawn by the borrowersin cash. These incentives are recorded as a reduction in financing service fees using the effective interest method.Sales Commission FeeSales commission fee represents fee earned from merchandise suppliers when borrowers purchase their merchandise on the Qudian marketplace andcomprise the difference between the retail prices of the merchandise sold to borrowers and the prices of the merchandise that the Group pays to the merchandisesuppliers.Table of Contents92Sales income and othersSales income and others comprise (i) the sales price of cars, which consists of down payment and principal under the sales-type finance leases, (ii) theamount of consideration the Group receives from the buyer for the sale of the vehicle, net of value-added tax, in vehicle sales with guarantee transactions and (iii) thesales price of fashion products the Group sold on Wanlimu e-commerce platform, (iv) the amount of consideration the Group receives from the buyer for productsales through its QD Food business, and (v) the amount of consideration the Group receives as the tutoring sessions are delivered through its Wanlimu educationcenters.Penalty FeesPenalty fees represent fees the Group charges borrowers for late repayment. Penalty fees are recognized on a cash basis when the penalty fees will not bereversed.Guarantee IncomeGuarantee income represents the non-contingent aspect of the risk assurance liability that the Group recognizes over the term of the arrangement as theGroup is released from the stand ready obligation on the borrowers’ repayment of the loan principal.Loan Facilitation Income and Other Related IncomeLoan facilitation income and others represent loan facilitation fees earned from certain institutional funding partners for credit directly funded by them andvehicle sales with guarantee. Revenues from loan facilitation services are recognized when the Group matches borrower with the funding partners and the funds aretransferred to the borrower. Additionally, revenues from post-origination services are recognized evenly over the term of the loans as the services are performed.Transaction Services Fee and Other Related IncomeTransaction services fee and other related income represent commissions and fees earned from financial service providers in connection with the Group’stransaction services business. Revenues from transaction services are recognized when the Group matches borrower with the financial service provider and the fundsare transferred to the borrower. Additionally, revenues from post-origination services are recognized evenly over the term of the loans as the services are performed.Cost of Revenues and Operating ExpensesThe Group’s cost of revenues and operating expenses consist of cost of revenues, sales and marketing expenses, general and administrative expenses,research and development expenses, changes in guarantee liabilities, changes in risk assurance liabilities and expected credit loss for receivables and other assets. Thefollowing table sets forth the Group’s cost of revenues and operating expenses, both in absolute amount and as a percentage of the Group’s total revenues, for theperiods presented: Year Ended December 31,202020212022RMB % RMB % RMB US$ % (in thousands, except for percentages)Cost of revenues and operating expenses: Cost of revenues 862,354 23.4 298,72618.1 383,091 55,54366.3Sales and marketing 293,282 8.0 127,376 7.7 271,611 39,380 47.0General and administrative 285,905 7.7 443,276 26.8 287,457 41,677 49.8Research and development 170,691 4.6 141,264 8.5 58,275 8,449 10.1Changes in guarantee liabilities and risk assurance liabilities (87,894) (2.4) (201,602) (12.2) (103,991) (15,077) (18.0)Expected credit loss for receivables and other assets 1,621,362 44.0 (151,817) (9.2) (221,121) (32,060) (38.3)Impairment loss from other assets 20,000 0.5 156,394 9.5 268,927 38,991 46.6Total 3,165,700 85.8 813,61749.2 944,249 136,903163.5Table of Contents93Cost of RevenuesThe Group’s cost of revenues represent cost of goods sold, which primarily consists of the purchase price of products and packaging material. The followingtable sets forth components of the Group’s cost of revenues, both in absolute amount and as a percentage of the Group’s total revenues, for the periods presented: Year Ended December 31,202020212022RMB % RMB % RMB US$ % (in thousands, except for percentages)Cost of revenues: Cost of goods sold 645,083 17.5 78,533 4.8 326,889 47,394 56.6Cost of other revenues 217,271 5.9 220,193 13.3 56,202 8,149 9.7Total 862,354 23.4 298,726 18.1 383,091 55,543 66.3Interest expenses of borrowings depend on the institutional funding partners which the Group works with to fund the transactions the Group facilitates. Theinterests payable to institutional funding partners are lower than financing service fees the Group collects from borrowers on the credit drawdowns transferred.Certain institutional funding partners provide funds directly to borrowers for credit that the Group facilitates, and the Group does not recognize interest expenses ofborrowings relating to such credit drawdowns. In addition, when utilizing the Group’s own capital to fund credit, the Group also does not incur interest expenses ofborrowings.Sales and MarketingSales and marketing expenses include expenses for (i) the Group’s core online consumer finance business and consist primarily of expenses related toborrower engagement and retention, salaries, benefits and share-based compensation related to the Group’s sales and marketing staff; (ii) the Group’s Wanlimu e-commerce platform business and consist primarily of expenses related to marketing activities the Group conducted to promote the platform; (iii) the Group'sWanlimu Kids Clubs business and consist primarily of expenses related to marketing activities the Group conducted to promote the brand; and (iv) the Group's ready-to-cook meals business and consist primarily of expenses related to marketing activities the Group conducted to promote the brand.General and AdministrativeGeneral and administrative expenses consist primarily of share-based compensation, salaries and benefits related to accounting and finance, businessdevelopment, legal, human resources and other personnel, as well as professional service fees related to various corporate activities.Research and DevelopmentResearch and development expenses consist primarily of share-based compensation, salaries and benefits related to technology and product developmentpersonnel, as well as rental expenses related to offices for the Group’s technology and product development personnel.Table of Contents94Changes in Guarantee Liabilities and Risk Assurance LiabilitiesAt the inception of each off-balance sheet transaction, the Group records the fair value of (i) guarantee liabilities, which represent the present value of theGroup’s expected payout based on the estimated delinquency rate and the applicable discount rate for time value; or (ii) risk assurance liabilities, which considers thepremium required by a third-party market participant to issue the same risk assurance in a standalone transaction, as applicable. Prior to January 1, 2020, the releaseof the non-contingent aspect of the risk assurance liability is recognized in earnings as a reduction of changes in guarantee liabilities and risk assurance liabilities.The contingent loss arising from the obligation to make future payments is recognized when borrower default is probable, and the amount of loss is estimable.Subsequent to January 1, 2020, the non-contingent aspect of the risk assurance liability is subsequently recognized as guarantee income over the term of thearrangement as the Group is released from the stand ready obligation based on the borrower’s repayment of the loan principal. The contingent liability relating to theexpected credit losses arising from the contingent aspect of the risk assurance liability is initially measured under the CECL model. The subsequent changes in thecontingent aspect of the risk assurance liability is adjusted through earnings as changes in guarantee liabilities and risk assurance liabilities. The service fees payableto the Group, net of guarantee liabilities and risk assurance liabilities which were deducted from the consideration in connection with such transaction, are recognizedas loan facilitation income and other related income. Increases in the amount of guarantee liabilities and risk assurance liabilities are recognized as changes inguarantee liabilities and risk assurance liabilities in the Group’s results of operations. The Group recognized a loss of RMB22.3 million, a gain of RMB53.0 millionand a gain of RMB37.1 million (US$5.4 million) from changes in guarantee liabilities in 2020, 2021 and 2022, respectively. The Group recognized a gain ofRMB110.2 million, RMB148.6 million and RMB66.9 million (US$9.7 million) from changes in risk assurance liabilities in 2020, 2021 and 2022, respectively.Expected Credit Loss for Receivables and Other AssetsThe Group periodically adjusts its allowance for loan principal and financing service fee receivables when it believes that the future collection of principal isunlikely. The Group bases this allowance primarily on historical loss experience using a roll rate-based model applied to the Group’s principal and financing servicefees receivables portfolios and, adjusted for various qualitative factors that reflect current conditions and reasonable and supportable forecasts of future economicconditions after the adoption of ASC 326. The allowance for finance lease receivables is calculated based on historical loss experience using probability of defaultand loss given default methods and adjusted for various qualitative factors that reflect current conditions and reasonable and supportable forecasts of future economicconditions after the adoption of ASC 326. The Group stratifies probability of default and loss given default by the recovered rate under different scenarios (i.e., cashcollection, repossessing the leased vehicle or non-recovery), and calculates allowance balance by timing exposure at default under each scenario. For informationregarding the Group’s accounting policy related to allowance for receivables, see “⸺⸺Critical Accounting Policies⸺⸺ Loan Principal and Financing Service FeeReceivables” and “Critical Accounting Policies Finance lease receivables.” The Group periodically adjusts its allowance for other receivables when it believes thatthe future collection of receivables is unlikely. The Group recognizes any increase in allowance for loan principal, financing service fee receivables and otherreceivables as expected credit loss for receivables for the relevant period.The following table sets forth the expected credit loss for receivables and other assets, both in an absolute amount and as a percentage of total revenues, forthe periods presented. Year Ended December 31,202020212022RMB % RMB % RMB US$ % (in thousands, except for percentages)Expected credit loss for receivables and other assets 1,621,362 44.0 (151,817) (9.2) (221,121) (32,060) (38.3)Impairment loss from other assetsThe Group reviews the impairment for long-lived assets in accordance with authoritative guidance for impairment or disposal of long-lived assets. Long-lived assets are reviewed for events or changes in circumstances, which indicate that their carrying value may not be recoverable. Long-lived assets are reported atthe lower of carrying amount or fair value less cost to sell for long-lived assets held for sales, or at the lower of carrying amount or fair value for long-lived assetsheld for use. The Group recorded the impairment loss from other assets in 2022, mainly due to the winding down of its Wanlimu Kids Clubs business and QD Foodbusiness.Table of Contents95Share-based CompensationThe following table sets forth the effect of share-based compensation expenses on the Group’s operating expenses line items, both in an absolute amount andas a percentage of total revenues, for the periods presented. Year Ended December 31,202020212022RMB % RMB % RMB US$ % (in thousands, except for percentages)Sales and marketing 1,912 0.1 1,727 0.1 528 76 0.1General and administrative 40,895 1.1 29,684 1.8 21,102 3,061 3.7Research and development 2,827 0.1 3,934 0.2 2,424 351 0.4Total 45,634 1.3 35,345 2.1 24,054 3,488 4.2See “⸺⸺Critical Accounting Policies⸺⸺Share-based Payments” for a description of what the Group accounts for the compensation cost from share-basedpayment transactions.TaxationCayman IslandsWe are an exempted company incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, we are not subject to tax based uponprofits, 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 ourshareholders, no Cayman Islands withholding tax will be imposed.Hong KongOur subsidiary incorporated in Hong Kong is subject to Hong Kong profit tax at a rate of 16.5%. No Hong Kong profit tax has been levied as we did nothave 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 ondividends.ChinaGenerally, our subsidiary and the Group VIEs in China are subject to enterprise income tax on their taxable income in China at a rate of 25%. The enterpriseincome tax is calculated based on the entity’s global income as determined under PRC tax laws and accounting standards. Xinjiang Qudian Technology Co., Ltd. is acompany established in a special economic development zone and is therefore entitled to an exemption from income tax from January 1, 2017 to December 31, 2020.The Group is subject to VAT at a rate of 6% on the services the Group provides to borrowers, less any deductible VAT the Group has already paid or borne.The Group is subject to VAT at a rate of 13% on the budget auto financing services the Group provides to borrowers and sales of ready-to-cook dishes. The Group isalso subject to surcharges on VAT payments in accordance with PRC law.Dividends paid by our wholly foreign-owned subsidiary in China to our intermediary holding company in Hong Kong will be subject to a withholding taxrate of 10%, unless the relevant Hong Kong entity satisfies all the requirements under the Arrangement between the PRC and the Hong Kong Special AdministrativeRegion on the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income and Capital and receives approval from the relevanttax authority. If our Hong Kong subsidiary satisfies all the requirements under the tax arrangement and receives approval from the relevant tax authority, then thedividends 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 PRCEnterprise Income Tax Law, it would be subject to enterprise income tax on its worldwide income at a rate of 25%.Table of Contents96Critical Accounting PoliciesWe prepare the Group’s consolidated financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates and assumptions.We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experiences and various otherassumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actualresults could differ from our expectations as a result of changes in our estimates. Some of our accounting policies require a higher degree of judgment than others intheir application and require us to make significant accounting estimates.The selection of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reportedresults to changes in conditions and assumptions are factors that should be considered when reviewing our financial statements. For further information on ourcritical accounting policies, see Note 2 to the Group’s consolidated financial statements. We believe the following accounting policies involve the most significantjudgments and estimates used in the preparation of our financial statements.Revenue recognitionThe Group generates revenues primarily by providing borrowers with merchandise and cash installment credit services, credit facilitation services,transaction services, automobile financing services, e-commerce sales and educational services.Under ASC 606, revenue is recognized when control of the promised goods or services is transferred to the Group’s customers, in an amount that reflects theconsideration that the Group expects to be entitled to in exchange for those goods or services, net of value-added tax. We determine revenue recognition through thefollowing steps:●Identify the contract(s) with a customer;●Identify the performance obligations in the contract;●Determine the transaction price;●Allocate the transaction price to the performance obligations in the contract; and●Recognize revenue when (or as) the entity satisfies a performance obligation.Credit facilitationThe Group entered into credit facilitation arrangements with various institutional funding partners. The Group: (i) matches borrowers with the institutionalfunding partners which directly fund the credit drawdowns to the borrowers and (ii) provides post-origination services, such as short messaging reminder servicesthroughout the term of the loans. For each successful match, we receive a recurring service fee throughout the term of the loans. When borrowers make instalmentrepayments directly to the institutional funding partners, the institutional funding partners will then remit the recurring service fees to us on a periodic basis. Inaddition, the Group provides a guarantee on the principal and accrued interest repayments of the defaulted loans to the institutional funding partners.We consider the loan facilitation service, post-origination services and guarantee service as separate services, of which the guarantee service and the postorigination service is accounted for in accordance with ASC 815, Derivatives and Hedging, (“ASC 815”), ASC 460, Guarantees, (“ASC 460”) (refer to “Guaranteeliabilities” and “Risk Assurance Liabilities” for additional information) and ASC 860, Transfers and servicing of financial assets, respectively (“ASC 860”).Table of Contents97The transaction price is the amount of consideration to which the Group expects to be entitled in exchange for transferring the promised services to thecustomer, net of value-added tax. The transaction price allocated to loan facilitation income and post-origination services includes variable consideration which iscontingent on the borrower making timely repayments. The amount of variable consideration is limited to the amount that is probable not to be reversed in futureperiods. We estimated the variable consideration using the expected value method, based on historical defaults, current and forecasted borrower repayment trends andassessed whether variable consideration should be constrained. Any subsequent changes in the transaction price will be allocated to the performance obligations onthe same basis as at contract inception.We first allocate the transaction price to the guarantee liabilities or risk assurance liabilities. The remaining transaction price is then allocated to the loanfacilitation services and post-origination services on a relative standalone selling price basis. The Group does not have observable price for the loan facilitationservices and post-origination services because the services are not provided separately. As a result, the estimation of standalone selling price involves significantjudgement. We estimate the standalone selling price of the loan facilitation and post-origination services using the expected cost plus a margin approach.Revenues from loan facilitation services are recognized when the Group matches borrowers with the institutional funding partners and the funds areprovided to the borrower. Additionally, revenues from post-origination services are recognized evenly over the term of the loans as the services are performed.Sales incomeThe Group recognizes revenue from product sales through our platform of e-commerce and ready-to-cook meal business. The Group’s single performanceobligation is to sell products to customers. The Group is the principal and record revenue on a gross basis as the Group controls the products before transfer to thecustomers. Revenue is measured based on the amount of consideration the Group expects to receive reduced by value-added tax, discount and estimate for productreturns. Product returns are estimated using the expected value method based on historical return patterns. Revenues are recognized at a point in time when theproducts are accepted by the customers. As of December 31, 2021 and 2022, estimated product returns were not material.Transaction services feeThe Group entered into credit transaction arrangements with certain institutional funding partners. The Group refers borrowers to the institutional fundingpartners which directly fund the credit drawdowns to the borrowers and provides post-origination services, such as short messaging reminder services throughout theterm of the loans. For each successful transaction, the Group typically receives a pre-agreed recurring service fee throughout the term of the loans. When borrowersmake installment repayments directly to the institutional funding partners, the institutional funding partners will remit the recurring transaction services fees to theGroup on a periodic basis.The referral services are considered to be the performance obligations in the arrangement. The transaction price is the amount of consideration to which theGroup expects to be entitled to in exchange for transferring the promised service to the customer, net of value-added tax. The transaction price allocated to thereferral services and post origination services includes variable service fees which are contingent on the borrower making timely repayments to the institutionalfunding partners. Variable consideration is estimated using the expected value method based on historical default rate, current and forecasted borrower repaymenttrends and is limited to the amount of variable consideration that is probable not to be reversed in future periods. We will update our estimate of the variableconsideration at the end of each reporting period. The estimation of variable consideration (including the amount of variable consideration constrained) involvessignificant judgement. Revenues from transaction services are recognized when the Group successfully refers the borrower to the institutional funding partner and theinstitutional funding partner provides the funds to the borrower. Revenues from post-origination services are recognized evenly over the term of the loans as theservices are performed.Financing incomeBorrowers can withdraw cash (“cash installment credit services”) or purchase products (e.g. personal consumer electronics) (“merchandise installment creditservices”) up to their approved credit limit and elect the installment repayment period, ranging from one to eighteen installments repayment period (either weeklyor monthly) through the our application (collectively “financing platform”) or via borrowers’ Alipay accounts. The Group charges financing service fees forfacilitating the financing and managing the financing platform. The financing service fees are recorded as financing income in the consolidated statement ofcomprehensive income in accordance with ASC 310 Receivables (ASC 310) using the effective interest method.Table of Contents98Incentives are provided to certain borrowers and can only be applied as a reduction to the borrower’s repayments and cannot be withdrawn by the borrowersin cash. These incentives are recorded as a reduction in financing service fees using the effective interest method.Sales commission feesIn addition to financing income, the Group earns a margin from its merchandise installment credit services on the products purchased from suppliers onbehalf of the borrowers. The margin earned is fixed based on the retail sales price without considering the financing terms chosen by the borrower.Sales commission fees are recognized and recorded net of the related cost on delivery date, as the Group is an agent and arrange for the goods to be providedby the suppliers.Penalty feeThe Group charges borrowers and lessees penalty fee for late installment payments. The penalty fee is calculated based on the number of overdue days ofunpaid outstanding balance of loan principals and lease receivables at the applicable late payment rate. The penalty fee is recognized on a cash basis, which coincideswith the penalty fee being probable not to be reversed.Loan principal and financing service fee receivablesLoan principal and financing service fee receivables represent payments due from borrowers that utilize the Group’s credit services. Loan principal andfinancing service fee receivables are recorded at amortized cost, net of allowance for loan principal and financing service fee receivables. Deferred origination costsare netted against revenue and amortized over the financing term using the effective interest method.Allowance for loan principal and financing service fee receivablesWe consider the loans to be homogenous as they are all unsecured consumer loans of similar principal amounts. The profiles of the borrowers are alsosimilar i.e. age, credit histories and employment status. The allowance for loan principal and financing service fee receivables losses is calculated based on historicalloss experience with the entire loan portfolio, using a roll rate-based model. The roll rate-based model stratifies the loan principal and financing service feereceivables by delinquency stages (i.e., current, 1-30 days past due, and 31-60 days past due, etc.) and projected forward in one-month increments using historical rollrates. In each month of the simulation, losses on the loan principal and financing service fee receivables types are captured, and the ending delinquency stratificationserves as the beginning point of the next iteration. This process is repeated on a monthly rolling basis. The loss rate calculated for each delinquency stage is thenapplied to the respective loan principal and service fees balance. Prior to January 1, 2020, we apply a consistent credit risk management framework to the entireportfolio of loans in accordance with ASC 450-20, Loss Contingencies (“ASC 450-20”) and adjust the allowance that is determined by the roll rate-based model forvarious qualitative factors. These factors may include gross-domestic product rates, per capita disposable income, consumer price indexes, regulatory impact andother considerations. Each of these macroeconomic factors are equally weighted, and a score is applied to each factor based on year-on-year increases and decreasesin that respective factor.We apply a consistent credit risk management framework to the entire portfolio of loans in accordance with Accounting Standards Update (“ASU”)No. 2016-13, Financial instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASC 326”) and adjust the allowance forloan principal and financing service fee receivables that is determined by the roll rate-based model for various qualitative factors that reflect current conditions andreasonable and supportable forecasts of future economic conditions. These factors mainly include gross-domestic product rates, consumer price indexes, per capitaconsumption expenditure, per capita disposable income and other considerations. The Group analyzes a combination of qualitative factors to the change in roll rateusing a regression model. Factors that had a strong correlation and economic and commercial significance were selected for the model. One-year projections of theabovementioned factors are used as the life of loans are all within one year, and the projections are either sourced or derived from publicly available marketinformation. These abovementioned factors are then fed into the linear regression equation to derive an expected loss rate for each loan portfolios based ondelinquencies.Table of Contents99For all the years presented, loan principal and financing service fee receivables are charged off when a settlement is reached for an amount that is less thanthe outstanding balance or when we determined the balance to be uncollectable. In general, we consider loan principal and financing service fee receivables meetingany of the following conditions as uncollectable and charged-off: (i) death of the borrower; (ii) identification of fraud, and the fraud is officially reported to and filedwith relevant law enforcement departments or (iii) loans that are 180 days past due.Nonaccrual loan principalThe Group does not accrue financing service fee on loan principals that are considered impaired or are more than 90 days past due. Prior to January 1, 2020,a corresponding allowance is determined under ASC 450-20. Subsequent to January 1, 2020, a corresponding allowance is determined under ASC 326. After animpaired financing service fee receivable is placed on nonaccrual status, financing service fee will be recognized when cash is received on a cash basis cost recoverymethod by applying first to reduce principal and then to financing income thereafter. Financing service fee accrued but not received is generally reversed againstfinancing income. Financing service fee receivables may be returned to accrual status after all of the borrower’s delinquent balances of loan principal and financingservice fee have been settled and the borrower remains current for an appropriate period.Finance lease receivablesFinance lease receivables are carried at amortized cost comprising of original financing lease and direct costs, net of unearned income and allowance forfinance lease receivables.Allowance for finance lease receivablesWe consider the finance lease receivables to be homogenous as they are all automotive finance lease receivables collateralized by vehicle titles of similarprincipal amounts.The allowance for finance lease receivables is calculated based on historical loss experience using probability of default (PD) and loss given default (LGD)methods. We stratify PD and LGD by the recovered rate under different scenarios (i.e. cash collection, repossessing the leased vehicle or non-recovery), and calculateallowance balance by timing exposure at default under each scenario. This process is repeated on a monthly basis. LGD is projected based on historical experience ofactual loss and considered proceeds from recovery of the repossessed assets.We apply a consistent credit risk management framework to the entire portfolio of finance lease receivables in accordance with ASC 326 and adjust theallowance that is determined by the PD and LGD methods for various qualitative factors that reflect reasonable and supportable forecasts of future economicconditions. These factors may include gross-domestic product rates, consumer price indexes, per capita consumption expenditure and other considerations. Weanalyze a combination of qualitative factors to the change in roll rate using a regression model. Factors that had a strong correlation and economic and commercialsignificance were selected for the model. One-year projections of the abovementioned factors are used as the life of loans are all within one year, and the projectionsare either sourced or derived from publicly available market information. These abovementioned factors are then fed into the linear regression equation to derive anexpected loss rate for each loan portfolios based on delinquencies.For all the years presented, finance lease receivables are charged off when a settlement is reached for an amount that is less than the outstanding balance orwhen we determined the balance to be uncollectable. In general, we consider finance fee receivables meeting any of the following conditions as uncollectable andcharged-off: (i) death of the borrower; (ii) identification of fraud, and the fraud is officially reported to and filed with relevant law enforcement departments or (iii) allfinance lease receivables that are 180 days past due are therefore deemed uncollectible and charged-off; (iv) the vehicle is repossessed.Table of Contents100Nonaccrual finance lease receivablesA finance lease receivable is considered impaired when the lease receivables are more than 90 days past due, or when it is probable that we will be unable tocollect all amounts due according to the terms of the contract. Factors such as payment history, compliance with terms and conditions of the underlying financinglease agreement and other subjective factors related to the financial stability of the borrower are considered when determining whether finance lease receivables areimpaired. The Group does not accrue financing lease income on net investment of finance lease receivables that are considered impaired. Prior to January 1, 2020, acorresponding allowance is determined under ASC 450-20. Subsequent to January 1, 2020, a corresponding allowance is determined under ASC 326. Accrual offinancing lease income is suspended on accounts that are impaired, accounts in bankruptcy and accounts in repossession. Payments received on non-accrual financelease receivables are first applied to any fees due, then to any interest due and, finally, any remaining amounts received are recorded to principal. Interest accrualresumes once an account has received payments bringing the impaired status to current.Long-term investmentsLong-term investments represent equity investments in privately-held companies without a readily determinable fair value and listed companies with readilydeterminable fair value. Equity securities with readily determinable fair values are measured at fair value, and any changes in fair value are recognized in earnings inaccordance with ASC 321. The Group elected to measure equity securities without a readily determinable fair value that do not qualify for the net asset valuepractical expedient using the measurement alternative. Under the measurement alternative, the equity securities are measured at cost minus impairment, if any, plusor minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.For equity investments that the Group elects to use the measurement alternative, the Group makes a qualitative assessment considering impairmentindicators to evaluate whether investments are impaired at each reporting date. Impairment indicators considered include, but are not limited to, a significantdeterioration in the earnings performance or business prospects of the investee, including factors that raise significant concerns about the investee’s ability to continueas a going concern, a significant adverse change in the regulatory, economic, or technologic environment of the investee and a significant adverse change in thegeneral market condition of either the geographical area or the industry in which the investee operates. If a qualitative assessment indicates that the investment isimpaired, the entity has to estimate the investment’s fair value in accordance with the principles of ASC 820. If the fair value is less than the investment’s carryingvalue, the Group recognizes an impairment loss in earnings equal to the difference between the carrying value and fair value.As of December 31, 2021 and 2022, the Group measured a long-term investment at fair value on a nonrecurring basis using valuation methodology underthe market approach. The significant unobservable inputs (level 3) include enterprise value to revenue multiple which was determined based on the median ofselected comparable companies ranging from 2.5 times to 3.8 times as of December 31, 2021 and from 1.3 times to 2.1 times as of December 31, 2022, and thediscount for lack of marketability which was estimated at 33% and 30% for 2021 and 2022, respectively. The fair value of the long-term investment was RMB172million and RMB4 million (US$1 million) as of December 31, 2021 and 2022, respectively.Income taxesWe account for income taxes using the liability approach and recognize deferred tax assets and liabilities for the expected future consequences of events thathave been recognized in the consolidated financial statements or in the Group’s tax returns. Deferred tax assets and liabilities are recognized on the basis of thetemporary differences that exist between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements using enacted taxrates in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in earnings. Deferred tax assetsare reduced by a valuation allowance through a charge to income tax expense when, in the opinion of management, it is more-likely-than-not that a portion of or allof the deferred tax assets will not be realized. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected andconsidering prudent and feasible tax planning strategies. The components of the deferred tax assets and liabilities are classified as non-current.Table of Contents101We account for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-step process to determine the amount ofthe benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxingauthorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefits to recognize in theconsolidated financial statements. The amount of the benefits that may be recognized is the largest amount that is more-likely-than not to be realized upon ultimatesettlement. The Group’s estimated liability for unrecognized tax benefits which is included in the income tax payable in the consolidated balance sheets isperiodically assessed for adequacy and may be affected by changing interpretations of laws, rulings by tax authorities, changes and/or developments with respect totax audits, and expiration of the statute of limitations. Changes in recognition and measurement estimates are recognized in the period in which the changes occur. Weelect to classify interest and penalties related to an uncertain tax position, if and when required, as part of income tax expense in the consolidated statements ofcomprehensive income. The Group did not recognize any income tax due to uncertain tax position nor incurred any interest and penalties related to potentialunderpaid income tax expenses for the years ended December 31, 2020, 2021 and 2022.Share-based paymentsShare-based payment transactions with employees and independent directors, such as share options are measured based on the grant date fair value of theequity instrument. The Group recognizes the compensation costs net of estimated forfeitures using the accelerated recognition method, over the applicable vestingperiod for each separately vesting portion of the award. The estimate of forfeitures is adjusted over the requisite service period to the extent that actual forfeituresdiffer, or are expected to differ, from such estimates. Changes in estimated forfeitures are recognized through a cumulative catch-up adjustment in the period ofchange and also impact the amount of share-based compensation expense to be recognized in future periods.A change in any of the terms or conditions of share options is accounted for as a modification of share options. We calculate the incremental compensationcost 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 theperiod the modification occurred. For unvested options, the Group recognizes, over the remaining requisite service period, the sum of the incremental compensationcost and the remaining unrecognized compensation cost for the original award on the modification date.Table of Contents102Results of OperationsThe following tables set forth a summary of the Group’s consolidated results of operations for the periods presented. The Group’s historical results presentedbelow are not necessarily indicative of the results that may be expected for any future period. Year Ended December 31,2020 2021 2022RMBRMBRMB US$(in thousands, except for share and per share data)Revenues:Financing income 2,102,665 1,255,488 308,717 44,760Sales commission fee 80,992 35,411 115 17Sales income and others 610,793 100,668 82,617 11,978Penalty fees 72,235 67,316 53,445 7,749Guarantee income 826,198 3,935 — —Loan facilitation income and other related income 131,633 39,531 18,809 2,727Transaction services fee and other related income (136,542) 151,694 113,790 16,498Total revenues 3,687,974 1,654,043 577,493 83,729Cost of revenues: Cost of goods sold (645,083) (78,533) (326,889) (47,394)Cost of other revenues (217,271) (220,193) (56,202) (8,149)Total cost of revenues (862,354) (298,726) (383,091) (55,543)Operating expenses: Sales and marketing (293,282) (127,376) (271,611) (39,380)General and administrative (285,905) (443,276) (287,457) (41,677)Research and development (170,691) (141,264) (58,275) (8,449)Changes in guarantee liabilities and risk assurance liabilities 87,894 201,602 103,991 15,077Expected credit loss for receivables and other assets (1,621,362) 151,817 221,121 32,060Impairment loss from other assets (20,000) (156,394) (268,927) (38,991)Total operating expenses (2,303,346) (514,891) (561,158) (81,360)Other operating income 343,324 82,273 37,255 5,401Income/(Loss) from operations 865,598 922,699 (329,501) (47,773)Interest and investment income, net 708,251 129,456 112,816 16,357(Loss)/Gain from equity method investments (370,039) (221,798) 13,998 2,030Gain/(loss) on derivative instruments — 17,375 (70,421) (10,210)Foreign exchange (loss)/gain, net (107) (51) 250 36Other income 26,358 5,213 19,833 2,876Other expenses (9,263) (6,485) (16,599) (2,407)Net income/(loss) before income taxes 1,220,798 846,409 (269,624) (39,091)Income tax expenses (261,979) (260,482) (92,428) (13,401)Net income/(loss) 958,819 585,927 (362,052) (52,492)Table of Contents103 Year Ended December 31,2020 2021 2022% Revenues:Financing income 57.0 75.9 53.4Sales commission fee 2.2 2.1 0.0Sales income and others 16.5 6.1 14.3Penalty fees 2.0 4.1 9.3Guarantee income 22.4 0.2 —Loan facilitation income and other related income 3.6 2.4 3.3Transaction services fee and other related income (3.7) 9.2 19.7Total revenues 100.0 100.0 100.0Cost of revenues: Cost of goods sold (17.5) (4.8) (56.6)Cost of other revenues (5.9) (13.3) (9.7)Total cost of revenues (23.4) (18.1) (66.3)Operating expenses: Sales and marketing (8.0) (7.7) (47.0)General and administrative (7.7) (26.8) (49.8)Research and development (4.6) (8.5) (10.1)Changes in guarantee liabilities and risk assurance liabilities 2.4 12.2 18.0Expected credit loss for receivables and other assets (44.0) 9.2 38.3Impairment loss from other assets (0.5) (9.5) (46.6)Total operating expenses (62.4) (31.1) (97.2)Other operating income 9.3 5.0 6.5Income/(Loss) from operations 23.5 55.8 57.0Interest and investment income, net 19.2 7.8 19.5(Loss)/Gain from equity method investments (10.0) (13.4) 2.4Gain/(loss) on derivative instruments — 1.1 (12.2)Foreign exchange (loss)/gain, net (0.0) (0.0) 0.1Other income 0.7 0.3 3.4Other expenses (0.3) (0.4) (2.9)Net income/(loss) before income taxes 33.1 51.2 (46.7)Income tax expenses (7.1) (15.8) (16.0)Net income/(loss) 26.0 35.4 (62.7)Comparison of Year Ended December 31, 2022 and Year Ended December 31, 2021Total revenues. The Group’s total revenues in 2022 decreased by 65.1% to RMB577.5 million (US$83.7 million) from RMB1,654.0 million in 2021,primarily due to the winding down of the Group’s loan book business. Financing income decreased by 75.4% from RMB1,255.5 million in 2021 to RMB308.7million (US$44.8 million) in 2022 primarily due to the decrease in the average on-balance sheet loan balance during 2022. Loan facilitation income and other relatedincome decreased by 52.4% to RMB18.8 million (US$2.7 million) in 2022 from RMB39.5 million in 2021, primarily as a result of the winding down of off-balancesheet transactions. The Group also recorded transaction services fee and other related income of RMB113.8 million (US$16.5 million) in 2022, compared toRMB151.7 million for 2021, primarily due to the change in estimate for variable consideration for the transactions facilitated in the past years. Sales income andothers decreased to RMB82.6 million (US$12.0 million) in 2022 from RMB100.7 million for 2021 primarily due to the winding down of the Wanlimu e-commerceplatform, partially offset by sales relating to QD Food business.Total cost of revenues and operating expenses. Total cost of revenues and operating expenses increased by 16.1% to RMB944.2 million (US$136.9 million)in 2022 from RMB813.6 million in 2021.●Cost of revenues. The Group’s cost of revenues increased by 28.2% to RMB383.1 million (US$55.5 million) from RMB298.7 million for 2021,primarily due to the increase in the cost of goods sold related to QD Food business.Table of Contents104●Sales and marketing expenses. The Group’s sales and marketing expenses increased by 113.2% to RMB271.6 million (US$39.4 million) fromRMB127.4 million for 2021. The increase was primarily due to marketing expenses related to QD Food business.●General and administrative expenses. The Group’s general and administrative expenses decreased by 35.2% to RMB287.5 million (US$41.7 million)from RMB443.3 million for 2021, as a result of a decrease in the number of our employees relating to the winding down of its Wanlimu Kids Clubsbusiness.●Research and development expenses. The Group’s research and development expenses decreased by 58.7% to RMB58.3 million (US$8.4 million) fromRMB141.3 million for 2021. The decrease was primarily due to the decrease in staff head count, which led to a corresponding decrease in staff salariesand a decrease in third-party service fees.●Changes in guarantee liabilities and risk assurance liabilities. The Group recorded a gain from changes in guarantee liabilities and risk assuranceliabilities of RMB104.0 million (US$15.1 million) in 2022, compared to RMB201.6 million in 2021, primarily due to the winding down of off-balancesheet transactions.●Expected credit loss for receivables and other assets. The Group’s expected credit loss for receivables and other assets was a reversal of RMB221.1million (US$32.1 million) this year, compared with RMB151.8 million for 2021, primarily due to the decrease in past-due on-balance sheet outstandingprincipal receivables.●Impairment loss from other assets. The Group’s impairment loss from other assets was RMB268.9 million (US$39.0 million) for 2022, compared withRMB156.4 million for 2021, as a result of the winding down of the Group’s Wanlimu Kids Clubs business and QD Food business.Loss from operations. The Group’s loss from operations was RMB329.5 million (US$47.8 million) compared to an income of RMB922.7 million for 2021.Interest and investment income, net. The Group’s interest and investment income, net decreased to RMB112.8 million (US$16.4 million) for 2022 fromRMB129.5 million for 2021, mainly due to the decline in interest rate published by the banks on a regular basis.Gain or loss on derivative instrument. The Group’s loss on derivative instrument was RMB70.4 million (US$10.2 million) for 2022 as compared with a gainon derivative instrument of RMB17.4 million for 2021, primarily due to the decrease in quoted price of the equity securities relating to the derivative instruments theGroup holds.Income tax expenses. The Group’s income tax expenses decreased by 64.5% to RMB92.4 million (US$13.4 million) in 2022 from RMB260.5 million in2021.Net loss or income. The Group’s net loss was RMB362.1 million (US$52.5 million) in 2022, compared to net income of RMB585.9 million in 2021. Netloss attributable to the Company’s shareholders per diluted share was RMB1.47 (US$0.21), compared to net income of RMB2.27 in the prior year.Adjusted net loss attributable to Qudian Inc.’s shareholders. The Group’s adjusted net loss attributable to Qudian Inc.’s shareholders, which excludes share-based compensation expenses and convertible senior notes buyback income was RMB347.9 million (US$50.4 million), compared to an income of RMB612.4 millionin the prior year. Adjusted net loss attributable to Qudian Inc, shareholders per diluted share was RMB1.41 (US$0.21) compared to income of RMB2.36 in theprior year.Comparison of Year Ended December 31, 2021 and Year Ended December 31, 2020For a discussion of the Group’s results of operations for the year ended December 31, 2021 compared with the year ended December 31, 2020, see “Item 5.Operating and Financial Review and Prospects⸺⸺A. Operating Results⸺⸺Comparison of Year Ended December 31, 2021 and Year Ended December 31, 2020” inour annual report on Form 20-F for the year ended December 31, 2021, filed with the SEC on April 29, 2022.Table of Contents105B.Liquidity and Capital ResourcesThe Group’s primary sources of liquidity have been cash provided by operating activities and funds provided by our investors, including through theissuance of equity securities and convertible debt securities, which have historically been sufficient to meet the Group’s working capital and substantially all of theGroup’s capital expenditure requirements. In October 2017, we completed our initial public offering in which we issued and sold an aggregate of 35,625,000 ADSs,representing 35,625,000 Class A ordinary shares, resulting in net proceeds to us of approximately US$799.6 million. In 2020, 2021 and 2022, the Group had net cashprovided by operating activities of RMB2,471.7 million, RMB922.1 million and RMB260.9 million (US$37.8 million), respectively.As of December 31, 2022, the Group had cash and cash equivalents of RMB3,486.4 million (US$505.5 million), as compared to cash and cash equivalentsof RMB2,065.5 million as of December 31, 2021.As of December 31, 2022, the Group had short-term amounts due from Alipay of RMB3.4 million (US$0.5 million), as compared to short-term amounts duefrom Alipay of RMB456.5 million as of December 31, 2021. These represent amounts deposited in the Group’s Alipay accounts, and are unrestricted as towithdrawal and use and readily available to the Group on demand.In July 2019, we issued US$345 million aggregate principal amount of convertible senior notes due 2026 (including full exercise of the initial purchasers’option to purchase additional notes), raising US$334.2 million in net proceeds to us after deducting underwriting discounts and commissions and other offeringexpenses. In connection with the offering of the convertible senior notes, we entered into capped call transactions with the initial purchasers and/or their respectiveaffiliates and used approximately US$28.2 million of the net proceeds of the offering to pay the cost of such transactions. The convertible notes bear interest at a rateof 1.00% per year, payable on July 1 and January 1 of each year, beginning on January 1, 2020. The convertible notes will mature on July 1, 2026, unless earlierredeemed, repurchased or converted in accordance with their terms. We completed a repurchase of all outstanding convertible notes in 2022.In November 2019, Xiamen Qudian, a Group VIE, entered into an eight-year term and revolving syndicated facility agreement with China ConstructionBank and Bank of China, pursuant to which Xiamen Qudian is entitled to borrow a secured loan of RMB1,200 million to be used in connection with the Group’sinnovation park, a construction in progress, which is guaranteed by Xinjiang Qudian Technology Co., Ltd. and Qufenqi (Ganzhou) Information Technology Co., Ltd.and collateralized by the land-use-right with a carrying amount of RMB95.6 million (US$13.9 million) as of December 31, 2022. Outstanding borrowings will accrueinterest at a rate equal to the loan prime rate of China. Xiamen Qudian is required to comply with certain financial covenants, which had been met as of December,31, 2022. As of December 31, 2022, the aggregate amount of unused lines of credit for such long-term loan was RMB1,054.7 million (US$152.9 million).The following table sets forth the Group’s total assets, total liabilities and total net assets as of the dates indicated. As of December 31,202020212022RMB RMB RMB US$(in thousands)Total assets 13,398,032 14,091,125 12,746,435 1,848,059Total liabilities 1,488,188 1,567,586 703,723 102,030Total net assets(1) 11,909,844 12,523,539 12,042,712 1,746,029(1)Defined as total assets minus total liabilities.The Group’s total net assets increased from RMB11,909.8 million as of December 31, 2020 to RMB12,523.5 million as of December 31, 2021. The Group’stotal net assets decreased to RMB12,042.7 million (US$1,746.0 million) as of December 31, 2022, primarily attributable to decrease of accumulated retainedearnings.Table of Contents106The table below sets forth certain balance sheet item related to credit products. The decrease in such line item since December 31, 2020 is in line with theGroup’s shifting business strategy. As of December 31,202020212022RMB RMB RMB US$(in thousands)Short-term loan principal and financing service fee receivables 3,940,461 2,371,966 — —We believe that the cash we received from our initial public offering and the anticipated cash flows from operating activities will be sufficient to meet theGroup’s anticipated working capital requirements and capital expenditures in the ordinary course of business for the next 12 months. We may, however, needadditional cash resources in the future if the Group experiences changes in business conditions or other developments, or if we find and wish to pursue opportunitiesfor investment, acquisition, capital expenditure or similar actions. If we determine that the Group’s cash requirements exceed the amount of cash and cash equivalentsthe Group has on hand at the time, we may seek to issue equity or debt securities or obtain credit facilities. The issuance and sale of additional equity would result infurther dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that wouldrestrict the Group’s operations. We cannot assure you 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 Our Industry⸺⸺We may need additional capital to pursue business objectives and respond to businessopportunities, challenges or unforeseen circumstances, and financing may not be available on terms acceptable to us, or at all.”Our ability to manage the Group’s working capital, including receivables and other assets and accrued expenses and other liabilities, may materially affectthe Group’s financial condition and results of operations.The following table sets forth a summary of the Group’s cash flows for the periods presented: Year Ended December 31,202020212022RMB RMB RMB US$(in thousands)Summary Consolidated Cash Flow Data: Net cash provided by operating activities 2,471,712 922,065 260,871 37,823Net cash (used in)/provided by investing activities (3,269,876) (246,580) 1,884,829 273,275Net cash used in financing activities (1,591,272) (84,192) (834,991) (121,062)Cash and cash equivalents, and restricted cash and cash equivalent at beginning of period 4,118,587 1,672,962 2,243,420 325,265Cash and cash equivalents, and restricted cash and cash equivalent at end of period 1,672,962 2,243,420 3,572,748 518,000Operating ActivitiesNet cash provided by operating activities was RMB260.9 million (US$37.8 million) in 2022, mainly attributable to net loss of RMB362.1 milllion (US$52.5million), adjusted for (i) impairment loss from other assets of RMB268.9 million (US$39.0 million), (ii) expected credit loss for receivables and other assets was areversal of RMB221.1 million (US$32.1 million) and (iii) unrealized investment losses of derivative instruments of RMB180.5 million (US$26.2 million).Adjustment for changes in working capital primarily consisted of a decrease in other current and non-current assets of RMB254.6 million (US$36.9 million) as aresult of decrease in receivables from third-party payment service providers.Net cash provided by operating activities was RMB922.1 million in 2021, mainly attributable to net income of RMB585.9 million, adjusted for a reversal ofthe expected credit loss for receivables and other assets of RMB151.8 million.Net cash provided by operating activities was RMB2,471.7 million in 2020, mainly attributable to net income of RMB958.8 million, adjusted for(i) expected credit loss for receivables and other assets of RMB1,621.4 million, (ii) income from the repurchase of convertible senior notes of RMB622.1 million,(iii) share of loss from equity method investment of RMB370.0 million. Adjustment for changes in working capital primarily consisted of (i) a decrease in riskassurance liabilities of RMB2,328.0 million primarily due to a decrease in the off-balance sheet transaction for which the Group provides risk assurance, (ii) adecrease in contract assets of RMB2,899.5 million, (iii) a decrease in other current and non-current liabilities of RMB879.0 million and (iv) a decrease in othercurrent and non-current assets of RMB438.9 million.Table of Contents107Investing ActivitiesNet cash provided by investing activities was RMB1,884.8 million (US$273.3 million) in 2022, which was primarily attributable to (i) proceeds fromredemption of short-term investments of RMB16,062.3 million (US$2,328.8 million) and (ii) proceeds from the collection of loan principal of RMB6,492.8 million(US$941.4 million), partially offset by purchases of short-term investments of RMB15,538.7 million (US$2,252.9 million).Net cash used in investing activities was RMB246.6 million in 2021, mainly due to the payments of deposit pledged as collateral for derivative instruments.Net cash used in investing activities was RMB3,269.9 million in 2020, mainly due to (i) investments in short-term wealth management products ofRMB16,802.9 million, (ii) payments to originate loan principal of RMB18,294.9 million and (iii) purchase of equity method investment of RMB738.8 million,partially offset by (i) proceeds from redemption of short-term investments of RMB11,815.2 million and (ii) proceeds from collection of loan principal ofRMB20,724.8 million.Financing ActivitiesNet cash used in financing activities was RMB835.0 million (US$121.1 million) in 2022, which was primarily attributable to the repurchases of ordinaryshares and convertible senior notes.Net cash used in financing activities was RMB84.2 million in 2021, mainly due to the repurchases of convertible senior notes.Net cash used in financing activities was RMB1,591.3 million in 2020, mainly due to repayments of borrowings of RMB1,038.7 million and repurchases ofconvertible senior notes of RMB859.2 million.Capital ExpendituresThe Group made capital expenditures of RMB221.8 million, RMB478.4 million and RMB273.6 million (US$39.7 million) in 2020, 2021 and 2022,respectively. In these periods, the Group’s capital expenditures were mainly used for building construction and purchase of equipment and intangible assets andleasehold improvements. The Group will continue to make capital expenditures to meet the expected growth of its business.Contractual ObligationsThe following table sets forth the Group’s operating lease commitments and long-term borrowings and interest payable as of December 31, 2022. Payment due by periodLess than More than Total1 Year 1-3 Years 3-5 Years 5 YearsRMB US$ RMB(million)Operating lease commitments 7.7 1.1 7.2 0.5 0.0 —Long-term borrowings and interest payable 133.9 19.4 6.3 66.6 61.0 —Operating lease obligations represent leasing arrangements relating to the lease of the Group’s office premises.The Group’s capital commitments relate primarily to commitments in connection with the Group’s plan to build an office building and innovation center.Total capital commitments contracted but not yet reflected in the financial statements amounted to RMB596.9 million (US$86.5 million) as of December 31, 2022.All of the commitments relating to the construction will be settled in installments.Table of Contents108Holding Company StructureQudian Inc. is a holding company with no material operations of its own. We conduct our operations primarily through our subsidiaries, the Group VIEs andtheir subsidiaries in China. As a result, Qudian Inc.’s ability to pay dividends depends upon dividends paid by our PRC subsidiaries. If our existing PRC subsidiariesor any newly formed ones incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. Inaddition, each of our PRC subsidiaries is permitted to pay dividends to us only out of its retained earnings, if any, as determined in accordance with PRC accountingstandards and regulations. Under PRC law, each of our PRC subsidiaries, the Group VIEs and their subsidiaries in China is required to set aside at least 10% of itsafter-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital. In addition, our PRC subsidiariesmay allocate a portion of their after-tax profits based on PRC accounting standards to enterprise expansion funds and staff bonus and welfare funds at their discretion,and the Group VIEs and their subsidiaries may allocate a portion of their after-tax profits based on PRC accounting standards to a discretionary surplus fund at theirdiscretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-ownedcompany out of China is subject to examination by the banks designated by SAFE. Our PRC subsidiaries have not paid dividends and will not be able to paydividends until they generate accumulated profits and meet the requirements for statutory reserve funds.Recent Accounting PronouncementsA list of recent accounting pronouncements that are relevant to us is included in note 2 to our consolidated financial statements, which are included in thisannual report.Off-Balance Sheet ArrangementsSince September 2016, the Group has entered into several arrangements with financial institutions that provides funding directly to borrowers fortransactions that the Group facilitates. From April 2018 to the second quarter of 2019, the Group also entered into vehicle sales with guarantee arrangements withfinancial institutions that provides funding directly to car buyers. As of December 31, 2022, the Group did not have any outstanding off-balance sheet transactions.See “Item 5. Operating and Financial Review and Prospects⸺⸺A. Operating Results.”Other than the above, the Group has not entered into any other commitments to guarantee the payment obligations of any third parties. The Group has notentered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in the Group’s consolidated financialstatements. Furthermore, the Group does not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity ormarket risk support to such entity. The Group does not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or creditsupport to the Group or engages in leasing, hedging or product development services with the Group.C.Research and Development, Patent and Licenses, etc.The Group has focused on and will continue to invest in its technology system, which supports all key aspects of the Group’s online platform and isdesigned to optimize for scalability and flexibility.See “Item 4. Information of the Company⸺⸺B. Business Overview⸺⸺The Group’s Information Technology and Security.”D.Trend InformationOther than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the year endedDecember 31, 2022 that are reasonably likely to have a material effect on the Group’s total net revenues, income, profitability, liquidity or capital reserves, or thatcaused the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.Table of Contents109E.Critical Accounting EstimatesThe Group prepares the consolidated financial statements in accordance with U.S. GAAP, which requires the Group to make judgments, estimates andassumptions that affect its financial condition and results. The Group continually evaluates these estimates and assumptions based on historical experience, currentconditions and reasonable and supportable forecasts of future economic conditions. The use of estimates is an integral component of the financial reporting process,which requires the Group to make judgments and estimates that affect the reported amounts of assets, liabilities, revenues, and expenses in its consolidated financialstatements and the accompanying notes. These estimates may differ from actual results under different conditions, which is subject to uncertainty. Some of theaccounting policies require the most difficult, subjective and complex judgments and estimates and have had, or are reasonably likely to have a material impact onthe Group’s financial condition or results of operations. The Group considers the policies discussed below to be critical to an understanding of its financial statementsas their application places the most significant demands on the judgment of the Group’s management. For a detailed discussion of the Group’s significant accountingpolicies and related judgments, please see “Note 2—Summary of Significant Accounting Policies” in the Group’s audited consolidated financial statements includedelsewhere in this annual report.Allowance for loan principal and financing service fee receivablesIn 2020 and 2021, the Group recognized an allowance for loan principal and financing service fee receivables based on estimate of the expected credit lossesover the contractual term of these financial assets.Allowance for loan principal and financing service fee receivables was calculated based on historical loss experience with the entire loan portfolio, using aroll rate-based model. For the detailed description of roll rate-based model, please see “Item 5. Operating and Financial Review and Prospectus — A. OperatingResults — Critical Accounting Policies.” The Group applied a consistent credit risk management framework and adjusted the allowance that is determined by the rollrate-based model for various qualitative factors that reflected current conditions and reasonable and supportable forecasts of future economic conditions which aresubject to uncertainty. These factors mainly included gross-domestic product rates, consumer price indexes, per capita consumption expenditure, per capitadisposable income and other considerations in 2021 and 2020. The Group analyzed a combination of qualitative factors to the change in roll rate using a regressionmodel. Factors that had a strong correlation and economic and commercial significance were selected for the model. Projections of the abovementioned factors wereused as the life of loans were all within one year, and the projections were either sourced or derived from publicly available market information. Theseabovementioned factors were then fed into the linear regression equation to derive an expected loss rate for each loan portfolios based on delinquencies.The expected loss rate of loan principal and financing service fee receivables were 10.1% and 17.7% as of December 31, 2021 and 2020, respectively. As ofDecember 31, 2021, the estimate of expected credit losses was most sensitive to certain key inputs presented below, mainly due to the potentially significant impactthat changes in these inputs may have on the Group’s consolidated statements of operations. The impacts of the indicated increase/decrease in the key inputs for theGroup’s net income before income taxes were as follows (in RMB thousands, except for percentages): Relative InputChangeIncrease/(Decrease)Roll rate of current stage portfolio (not past due) +/- 1% 24,524/(24,542)Forecasted variation ratio of gross-domestic product rates +/- 1% (13,713)/15,971Forecasted variation ratio of per capita disposable income +/- 1% (780)/706Allowance for finance lease receivablesThe Group recognized an allowance for finance lease receivables based on estimate of the expected credit losses over the contractual term of these financialassets.Table of Contents110Allowance for finance lease receivables was calculated based on historical loss experience using probability of default (“PD”) and loss given default(“LGD”) methods. The Group applied a consistent credit risk management framework to the finance lease receivables in accordance with ASC 326 and adjusted theallowance that is determined by the PD and LGD methods for various qualitative factors that reflect reasonable and supportable forecasts of future economicconditions which are subject to uncertainty. These factors mainly included gross-domestic product rates, consumer price indexes, per capita consumption expenditure,per capita disposable income and other considerations in 2021 and 2020. The Group analyzed a combination of qualitative factors to the change in PD using aregression model. Factors that had a strong correlation and economic and commercial significance were selected for the model. Projections of the abovementionedfactors were used as the life of leases were all within one year, and the projections were either sourced or derived from publicly available market information. Theseabovementioned factors were then fed into the linear regression equation to derive an expected loss rate.The expected loss rate of finance lease receivables was 13.9% and 10.5% as of December 31, 2021 and 2020, respectively. As of December 31, 2021, theestimate of expected credit losses was most sensitive to certain key inputs presented below, mainly due to the potentially significant impact that changes in theseinputs may have on the Group’s consolidated statements of operations. The impacts of the indicated increase/decrease in the key inputs for the Group’s net incomebefore income taxes were as follows (in RMB thousands, except for percentages): Relative InputChangeIncrease/(Decrease)Probability of default+/- 1% 72/(72)Loss given default +/- 1% 313/(313)Forecasted variation ratio of gross-domestic product rates +/- 1% (612)/601As of December 31, 2022, as the Group has ceased new credit offerings, the allowance for loan principal and financing service fee receivables was nil andthe allowance for finance lease receivables was immaterial. Therefore, the critical accounting estimates are not applicable for 2022 and no other critical accountingestimates were identified.See “Item 5. Operating and Financial Review and Prospectus—A. Operating Results—Critical Accounting Policies.” for the accounting policies related toother accounting estimates.ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESA.Directors and Senior ManagementDirectors and Executive OfficersThe following table sets forth information regarding our directors and executive officers as of March 31, 2023.Name Age Position/TitleMin Luo 40 Chairman and Chief Executive OfficerLong Xu 40 Director and Senior Vice PresidentYingming Li 45 DirectorShengwen Rong 54 Independent DirectorYifan Li 56 Independent DirectorYan Gao 42 Vice President of FinanceMr. Min Luo is our founder, chairman of our board of directors, and, since the inception of our company in 2014, has served as our chief executive officer.Prior to founding our company, Mr. Luo served as a vice president of marketing of OkBuy.com, an online marketplace for apparel and shoe products in China, from2010 to 2013. Mr. Luo was a founder and chief executive officer of Jiyiri.com, an online birthday-related service provider, from 2007 to 2009, and a co-founder ofdipian.com, an online social platform for college students, from 2006 to 2007. Mr. Luo received a bachelor’s degree in telecommunication engineering from JiangxiNormal University in 2004. Table of Contents111Mr. Long Xu has served as our director since November 2019. He joined our company in 2016 as the senior vice president. Mr. Xu has extensivemanagement experience in start-up companies. Before joining us, Mr. Xu cofounded Quwan.com from 2009 to 2015, a retail platform focusing on creative lifeproducts. From 2007 to 2009, Mr. Xu and Mr. Min Luo founded Jiyiri.com, a reminder service for anniversary through Internet and mobile communicationtechnology. Between 2005 and 2007, Mr. Xu founded Beijing Time Film Network Technology Co., Ltd., which provides resource liaisons between enterprises andcampus, and Mr. Xu served as the chief executive officer. Mr. Xu received his bachelor’s degree in resource environment and urban and rural planning from PekingUniversity in 2005.Mr. Yingming Li has served as our director since December 2019. Mr. Li served as director and deputy general manager of Guosheng Financial Holding incharge of investments prior to the end of March 2023. Mr. Li has rich experience in enterprise consultancy, valuation, investment banking and equity investments.Mr. Li graduated from Fudan University with a master degree in economics.Mr. Shengwen Rong has served as our independent director since August 2018. From February 2017 to September 2018, Mr. Rong served as senior vicepresident and then chief financial officer of Yixia Technology Co., Ltd. Prior to that, Mr. Rong served as the chief financial officer at Quixey, Inc, from 2015 to 2016,the chief financial officer at UCWeb from 2012 to 2014, and the chief financial officer at Country Style Cooking Restaurant Chain Co., Ltd., an NYSE-listedcompany, from 2010 to 2012. Currently Mr. Rong serves as an independent director and audit committee chair of Tarena International, Inc. (NASDAQ: TEDU),China Online Education (NYSE: COE), X Financial (NYSE: XYF), Mogu Inc. (NYSE: MOGU) and Vision Deal HK Acquisition Corp. (SEHK: 7827). Mr. Rongreceived a bachelor’s degree in international finance from Renmin University, a master’s degree in accounting from West Virginia University and an MBA degreefrom University of Chicago Booth School of Business. Mr. Rong is a Certified Public Accountant in the United States.Mr. Yifan Li has served as our independent director since October 2017. After servicing as chief financial officer since April 2021, Mr. Li is currently chieffinance and investment advisor of Human Horizons Holdings Co. Ltd., a premium luxury electric vehicle manufacturer. Prior to that, he had served as a boarddirector and a vice president of Geely Holding Group Co., Ltd., an automotive manufacturing company, since October 2014. From May 2014 to September 2014, hewas vice president and international chief financial officer of Sanpower Group Co., Ltd., a company in the technology and modern service industries. FromDecember 2010 to February 2014, he served as vice president and chief financial officer of China Zenix Auto International Co., Ltd., a manufacturer of commercialvehicle wheels listed on the NYSE. Mr. Li is also currently a director and a member of the audit committee for a number of companies, including Xinyuan RealEstate Co., Ltd. (NYSE: XIN), Sunlands Technology Group (NYSE: STG), 36Kr Holdings Inc. (NASDAW: KRKR). Mr. Li received his MBA from the Universityof Chicago Booth School of Business in 2000, his master’s degree in accounting from University of Texas at Dallas in 1994, and his bachelor’s degree in economicsfrom Fudan University in 1989. Mr. Li is a Certified Public Accountant in the United States and a Chartered Global Management Accountant. His business address is1339 Wanfang Road, Minhang District, Shanghai, PRC, 201112.Mr. Yan Gao has been our vice president of finance since March 2020 and has served as the financial director of our company since 2017. Prior to joiningour company, Mr. Gao worked at PricewaterhouseCoopers from 2003 to 2016, where he rose to the position of senior manager. Mr. Gao received his master’s degreein Statistic from Dongbei University of Finance and Economic, and his bachelor’s degree in accounting from the Dongbei University of Finance and Economic.The business address for all of our executive officers and directors is Tower A, AVIC Zijin Plaza, Siming District, Xiamen, Fujian Province 361000, thePeople’s Republic of China.B.CompensationIn 2022, the Group paid aggregate cash compensation of approximately RMB5.0 million (US$0.7 million) to our directors and executive officers as a group.We did not pay any other cash compensation or benefits in kind to our directors and executive officers. We have not set aside or accrued any amount to providepension, retirement or other similar benefits to our directors and executive officers. Our PRC subsidiaries and the Group VIEs are required by law to makecontributions equal to certain percentages of each employee’s salary for his or her pension insurance, medical insurance, unemployment insurance and other statutorybenefits and a housing provident fund. Our board of directors may determine compensation to be paid to the directors and the executive officers. The compensationcommittee will assist the directors in reviewing and approving the compensation structure for the directors and the executive officers.For information regarding share awards granted to our directors and executive officers, see “⸺⸺2016 Equity Incentive Plan.”Table of Contents112Employment Agreements and Indemnification AgreementsWe have entered into employment agreements with each of our executive officers. Under these agreements, each of our executive officers is employed for aspecified time period. We may terminate employment for cause, at any time, without advance notice, for certain acts of the executive officer, such as conviction orplea of guilty to a felony or any crime involving moral turpitude, willful misconduct or gross negligence to our detriment, or serious breach of duty of loyalty to us.We may also terminate an executive officer’s employment without cause upon three-month advance written notice. In such case of termination by us, we will provideseverance payments to the executive officer as expressly required by applicable law of the jurisdiction where the executive officer is based. The executive officer mayresign at any time with a three-month advance written notice.Each executive officer has agreed to hold, both during and within two years after the termination or expiry of his or her employment agreement, in strictconfidence and not to use, except as required in the performance of his or her duties in connection with the employment or pursuant to applicable law, any of ourconfidential information or trade secrets, any confidential information or trade secrets of our business partners, or the confidential or proprietary information of anythird party received by us and for which we have confidential obligations. The executive officers have also agreed to disclose in confidence to us all inventions,designs and trade secrets which they conceive, develop or reduce to practice during the executive officer’s employment with us and to assign all right, title andinterest in them to us, and assist us in obtaining and enforcing patents, copyrights and other legal rights for these inventions, designs and trade secrets.In addition, each executive officer has agreed to be bound by non-competition and non-solicitation restrictions during the term of his or her employment andtypically for one year following the last date of employment. Specifically, each executive officer has agreed not to (i) approach borrowers, institutional fundingpartners, merchandise suppliers or other persons or entities introduced to the executive officer in his or her capacity as a representative of us for the purpose of doingbusiness with such persons or entities that will harm our business relationships with these persons or entities; (ii) assume employment with or provide services to anyof our competitors, or engage, whether as principal, partner, licensor or otherwise, any of our competitors, without our express consent; or (iii) seek directly orindirectly, to solicit the services of any of our employees who is employed by us on or after the date of the executive officer’s termination, or in the year precedingsuch termination, without our express consent.We have entered into indemnification agreements with each of our directors and executive officers. Under these agreements, we may agree to indemnify ourdirectors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being a director orofficer of our company.2016 Equity Incentive PlanOn December 9, 2016, Qudian Inc. adopted the 2016 Equity Incentive Plan, which allows us to grant share options, restricted shares, restricted share unitsand other share-based awards to our employees, directors and consultants. The maximum number of ordinary shares may be subject to equity awards pursuant to the2016 Equity Incentive Plan is 15,814,019 initially. On January 1, 2018, and on every January 1 thereafter for eight years, the aggregate number of ordinary sharesreserved and available for issuance pursuant to awards granted under the 2016 Equity Incentive Plan will be increased by 1.0% of the total number of ordinary sharesoutstanding on December 31 of preceding calendar year. Unless terminated earlier, the 2016 Equity Incentive Plan will terminate automatically in 2026.AdministrationThe 2016 Equity Incentive Plan is administered by (i) the compensation committee, (ii) such other committee of the board to which the board delegates thepower to administer the 2016 Equity Incentive Plan or (iii) the board. The administrator will determine the provisions and terms and conditions of each equity award.Change in ControlIn the event of a change in control, the administrator may provide for acceleration of equity awards, purchase of equity awards from holders or replacementof equity awards.Table of Contents113TermUnless terminated earlier, the 2016 Equity Incentive Plan will continue in effect for a term of ten years from the date of its adoption.Award AgreementsGenerally, equity awards granted under the 2016 Equity Incentive Plan are evidenced by an award agreement providing for the number of ordinary sharessubject to the award, and the terms and conditions of the award, which must be consistent with the 2016 Equity Incentive Plan.Vesting ScheduleThe administrator determines the vesting schedule of each equity award granted under the 2016 Equity Incentive Plan, which vesting schedule will be setforth in the award agreement for such equity award.Amendment and TerminationThe board of directors may at any time amend or terminate the 2016 Equity Incentive Plan, subject to certain exceptions.Granted OptionsWe have granted options to purchase our Class A ordinary shares to certain of our officers, directors, employees and a third-party consultant pursuant to the2016 Equity Incentive Plan. Certain options previously granted were subsequently canceled. As of March 31, 2023, options to purchase 792,032 Class A ordinaryshares remained outstanding.The table below summarizes, as of the date of this annual report, the options we have granted to our directors and executive officers. Ordinary SharesUnderlyingOption OptionsExerciseOption Expiration NamePositionAwardedPriceGrant DateDateLong XuDirector*US$ 0.0February 23, 2016February 23, 2026*US$ 0.0December 20, 2018December 20, 2028*US$ 0.0September 22, 2019September 22, 2029*US$ 0.0December 25, 2019December 25, 2029 *US$ 0.0March 26, 2020March 26, 2030Yifan Li Independent director *US$ 0.0October 17, 2017December 8, 2026 *US$ 0.0June 14, 2019June 14, 2029Shengwen Rong Independent director *US$ 0.0November 30, 2018November 30, 2028 *US$ 0.0June 14, 2019June 14, 2029Yan Gao Vice President of Finance *US$ 0.0May 3, 2017May 3, 2027 *US$ 0.0March 12, 2018March 12, 2028 *US$ 0.0December 20, 2018December 20, 2028 *US$ 0.0September 22, 2019September 22, 2029 *US$ 0.0December 25, 2019December 25, 2029 *US$ 0.0March 26, 2020March 26,2030*Less than 1% of our outstanding shares, assuming conversion of our preferred shares into ordinary shares.Table of Contents114Equity Incentive TrustThe Qudian Inc. Equity Incentive Trust, or the Equity Incentive Trust, is a trust established by a deed dated December 30, 2016 between us and Ark Trust(Hong Kong) Limited, or Ark Trust, as trustee of the Equity Incentive Trust, through which our ordinary shares, dividends and other rights and interests under awardsgranted pursuant to our equity incentive plans may be provided to certain of recipients of equity awards granted pursuant to our share incentive plans.Participants in the Equity Incentive Trust transfer their equity awards to Ark Trust to be held for their benefit. Upon satisfaction of vesting conditions andrequest by grant recipients, Ark Trust will exercise the equity awards and transfer the relevant ordinary shares, dividends and other rights and interest under theequity awards to the relevant grant recipients.In April 2017, we directly issued 13,865,219 ordinary shares pursuant to our 2016 Equity Incentive Plan to Ark Trust in its capacity as trustee of the EquityIncentive Trust. As of March 31, 2023, the Equity Incentive Trust held 4,058,108 Class A ordinary shares. The trust deed provides that Ark Trust shall not exercisethe voting rights attached to such ordinary shares unless otherwise directed by the plan administrator, which is our board of directors as of the date of this annualreport, or its authorized representative.C.Board PracticesOur board of directors consists of five directors. A director is not required to hold any shares in our company to qualify to serve as a director. A director mayvote with respect to any contract or any proposed contract or arrangement in which he is interested, and if he does so his vote shall be counted and he may be countedin the quorum at any meeting of our directors at which any such contract or proposed contract or arrangement is considered, provided (a) such director has declaredthe nature of his interest at the meeting of the board at which the question of entering into the contract or arrangement is first considered if he knows his interest thenexists, or in any other case at the first meeting of the board after he knows he is or has become so interested, 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. The directors may exercise all thepowers of the company to borrow money, to mortgage or charge its undertaking, property and uncalled capital, and to issue debentures or other securities whenevermoney is borrowed or as security for any debt, liability or obligation of the company or of any third party. None of our non-executive directors has a service contractwith us that provides for benefits upon termination of service.Committees of the Board of DirectorsOur board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee. We haveadopted a charter for each of the committees. Each committee’s members and functions are described below.Audit CommitteeOur audit committee consists of Yifan Li and Shengwen Rong. Yifan Li is the chairperson of our audit committee. Yifan Li satisfies the criteria of an auditcommittee financial expert as set forth under the applicable rules of the SEC. Each of Yifan Li and Shengwen Rong satisfies the requirements for an “independentdirector” within the meaning of Section 303A of the NYSE Listed Company Manual and will meet the criteria for independence set forth in Rule 10A-3 of theExchange Act. Our audit committee will consist solely of independent directors within one year of our initial public offering.The audit committee oversees our accounting and financial reporting processes and the audits of our financial statements. Our audit committee is responsiblefor, among other things:●selecting the independent auditor;●pre-approving auditing and non-auditing services permitted to be performed by the independent auditor;●annually reviewing the independent auditor’s report describing the auditing firm’s internal quality control procedures, any material issues raised by themost recent internal quality control review, or peer review, of the independent auditors and all relationships between the independent auditor and ourcompany;Table of Contents115●setting clear hiring policies for employees and former employees of the independent auditors;●reviewing with the independent auditor any audit problems or difficulties and management’s response;●reviewing and, if material, approving all related party transactions on an ongoing basis;●reviewing and discussing the annual audited financial statements with management and the independent auditor;●reviewing and discussing with management and the independent auditors major issues regarding accounting principles and financial statementpresentations;●reviewing reports prepared by management or the independent auditors relating to significant financial reporting issues and judgments;●discussing earnings press releases with management, as well as financial information and earnings guidance provided to analysts and rating agencies;●reviewing with management and the independent auditors the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, onthe Group’s financial statements;●discussing policies with respect to risk assessment and risk management with management, internal auditors and the independent auditor;●timely reviewing reports from the independent auditor regarding all critical accounting policies and practices to be used by our company, all alternativetreatments of financial information within U.S. GAAP that have been discussed with management and all other material written communicationsbetween the independent auditor and management;●establishing procedures for the receipt, retention and treatment of complaints received from the Group’s employees regarding accounting, internalaccounting controls or auditing matters and the confidential, anonymous submission by the Group’s employees of concerns regarding questionableaccounting or auditing matters;●annually reviewing and reassessing the adequacy of our audit committee charter;●such other matters that are specifically delegated to our audit committee by our board of directors from time to time;●meeting separately, periodically, with management, internal auditors and the independent auditor; and●reporting regularly to the full board of directors.Compensation CommitteeOur compensation committee consists of Yifan Li and Shengwen Rong. Yifan Li is the chairperson of our compensation committee. Each of Yifan Li andShengwen Rong satisfies the requirements for an “independent director” within the meaning of Section 303A of the NYSE Listed Company Manual.Our compensation committee is responsible for, among other things:●reviewing, evaluating and, if necessary, revising our overall compensation policies;●reviewing and evaluating the performance of our directors and senior officers and determining the compensation of our senior officers;●reviewing and approving our senior officers’ employment agreements with us;Table of Contents116●setting performance targets for our senior officers with respect to our incentive compensation plan and equity-based compensation plans;●administering our equity-based compensation plans in accordance with the terms thereof; and such other matters that are specifically delegated to theremuneration committee by our board of directors from time to time.Nominating and Corporate Governance CommitteeOur nominating and corporate governance committee consists of Yifan Li and Min Luo. Min Luo is the chairperson of our nominating and corporategovernance committee. Yifan Li satisfies the “independence” requirements of Section 303A of the NYSE Listed Company Manual. The nominating and corporategovernance committee assists the board of directors in selecting individuals qualified to become our directors and in determining the composition of the board and itscommittees. The nominating and corporate governance committee is responsible for, among other things:●selecting and recommending to the board nominees for election by the shareholders or appointment by the board;●reviewing annually with the board the current composition of the board with regards to characteristics such as independence, knowledge, skills,experience and diversity;●making recommendations on the frequency and structure of board meetings and monitoring the functioning of the committees of the board; and●advising the board periodically with regards to significant developments in the law and practice of corporate governance as well as our compliance withapplicable laws and regulations, and making recommendations to the board on all matters of corporate governance and on any remedial action to betaken.Duties of DirectorsUnder Cayman Islands law, our directors have a fiduciary duty to act honestly in good faith with a view to our best interests. Our directors also have a dutyto exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, ourdirectors must ensure compliance with our second amended and restated memorandum and articles of association. A shareholder has the right to seek damages if aduty owed by our directors is breached.The functions and powers of our board of directors include, among others:●conducting and managing the business of our company;●representing our company in contracts and deals;●appointing attorneys for our company;●selecting senior management such as managing directors and executive directors;●providing employee benefits and pension;●managing our company’s finance and bank accounts;●exercising the borrowing powers of our company and mortgaging the property of our company; and●exercising any other powers conferred by the shareholders meetings or under our second amended and restated memorandum and articles ofassociation.Table of Contents117Terms of Directors and Executive OfficersOur directors may be elected by a resolution of our board of directors, or by an ordinary resolution of our shareholders, pursuant to our second amended andrestated memorandum and articles of association. Each of our directors will hold office until his or her successor takes office or until his or her earlier death,resignation or removal or the expiration of his or her term as provided in the written agreement with our company, if any. A director will cease to be a director if,among other things, the director (i) dies, or becomes bankrupt or makes any arrangement or composition with his creditors; (ii) is found to be or becomes of unsoundmind, (iii) resigns his office by notice in writing to the company, or (iv) without special leave of absence from our board, is absent from six consecutive boardmeetings and our directors resolve that his office be vacated. Our officers are elected by and serve at the discretion of the board of directors.Guosheng HK is a principal shareholder of our company. On April 25, 2020, Guosheng HK, its parent company Guosheng Financial Holding Inc. andMr. Min Luo (solely in his capacity as our director and the chairman of our board of directors) entered into a deed of undertaking, or the deed. Pursuant to the deed,for a period of three years, Mr. Luo undertook (i) not to remove the director designated by Guosheng HK and (ii) in the event such designee no longer serves ourdirector, to nominate another designee of Guosheng HK to fill such vacancy and vote in favor of such nomination. Furthermore, for a period of three years, Mr. Luoundertook to keep the number of directors designated by Guosheng HK equal to one sixth of the total number of directors of our company (rounded down the nearestwhole number), provided that such number would in no event be less than one. Mr. Luo’s undertakings pursuant to the deed expired on April 24, 2023. Mr. YingmingLi was designated by Guosheng HK pursuant to the deed and remains a director of our company as of the date of this annual report. Guosheng HK is furtherdescribed under “Item 6. Directors, Senior Management and Employees E. Share Ownership.”D.EmployeesAs of December 31, 2022, the Group had a total of 215 employees. The following table sets forth the breakdown of the Group’s employees as ofDecember 31, 2022 by function:Number of Function Employees % of TotalRisk management 12 5.6Technology and product development 50 23.3Finance 68 31.6Operation management 33 15.3General administrative and others 31 14.4Others(1) 21 9.8Total 215 100.0(1)Including employees in the Group’s new businesses, sales and marketing, Dabai Auto and Wanlimu Kids project teams.As of December 31, 2022, a majority of the Group’s employees were based in Xiamen in Fujian Province and Fuzhou in Jiangxi Province. The remaindersof the Group’s employees were based in various other locations across China.The number of the Group’s employees decreased from 940 as of December 31, 2021 to 215 as of December 31, 2022, primarily due to the winding down ofcertain businesses of the Group.We believe the Group offers its employees competitive compensation packages and a dynamic work environment that encourages initiative and is based onmerit. As a result, the Group has generally been able to attract and retain qualified personnel and maintain a stable core management team.Table of Contents118As required by PRC regulations, the Group participates in various statutory employee benefit plans, including social insurance funds, namely a pensioncontribution plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan and a maternity insurance plan, and a housingprovident fund. The Group is required under PRC law to make contributions to employee benefit plans at specified percentages of the salaries, bonuses and certainallowances of the Group’s employees, up to a maximum amount specified by the local government from time to time. In addition, the Group purchased employer’sliability insurance and additional commercial health insurance to increase insurance coverage of the Group’s employees. The Group enters into standard labor,confidentiality and non-compete agreements with its employees. The non-compete restricted period typically expires two years after the termination of employment,and the Group agrees to compensate the employee with a certain percentage of his or her pre-departure salary during the restricted period.We believe that the Group maintains a good working relationship with its employees, and the Group has not experienced any major labor disputes.E.Share OwnershipThe following table sets forth information as of March 31, 2023 with respect to the beneficial ownership of our ordinary shares by:●each of our directors and executive officers; and●each person known to us to own beneficially 5.0% or more of our ordinary shares.Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to, or the power to receivethe economic benefit of ownership of the securities. In computing the number of shares beneficially owned by a person and the percentage ownership of that person,we have included shares that the person has the right to acquire within 60 days, including through the exercise of any option or other right or the conversion of anyother security.The total number of ordinary shares outstanding as of March 31, 2023 was 224,898,926, comprising 161,407,754 Class A ordinary shares and 63,491,172Class B ordinary shares, excluding (i) ordinary shares represented by the ADSs repurchased by the Company, (ii) ordinary shares issuable upon the exercise ofoutstanding share options and (iii) ordinary shares reserved for future issuance under our share incentive plans: Ordinary Shares Beneficially OwnedPercentage ofPercentage ofaggregateClass AClass Btotal ordinaryvotingordinary sharesordinary sharessharespower**Directors and Executive Officers:Min Luo(1) 2,836,200 63,491,172 29.5 80.1Long Xu* —**Yingming Li — — — —Shengwen Rong * — * *Yifan Li * — * *Yan Gao * — * *Directors and Executive Officers as a Group 4,595,950 63,491,172 30.3 80.3Principal Shareholders Qufenqi Holding Limited — 63,491,172 28.2 79.7Guosheng HK(2) 12,670,000 4,125,698 7.5 6.8*Beneficially owns less than 1% of our outstanding shares.**For each person and group included in this column, percentage of voting power is calculated by dividing the voting power beneficially owned by such person orgroup by the voting power of all of our Class A and Class B ordinary shares as a single class. In respect of all matters subject to a shareholders’ vote, eachClass A ordinary share is entitled to one vote, and each Class B ordinary share is entitled to ten votes, voting together as one class. Each Class B ordinary shareis convertible into one Class A ordinary share at any time by the holder thereof. Class A ordinary shares are not convertible into Class B ordinary shares underany circumstances.Table of Contents119(1)Represents (i) 2,836,200 Class A ordinary shares held by the spouse of Mr. Min Luo and (ii) 63,491,172 Class B ordinary shares held by Qufenqi HoldingLimited, a limited liability company established in the British Virgin Islands. Qufenqi Holding Limited is indirectly wholly owned by a trust of which Mr. MinLuo and his wife are the beneficiaries. Mr. Min Luo is our founder, chairman of the board and chief executive officer. The registered address of Qufenqi HoldingLimited is Geneva Place, Waterfront Drive, P.O. Box 3469, Road Town, Tortola, British Virgin Islands.(2)Represents (i) 12,670,000 Class A ordinary shares held by Guosheng (Hong Kong) Investment Limited, or Guosheng HK, and (ii) 4,125,698 Class B ordinaryshares subject to a proxy and power of attorney, or the Guosheng proxy. Pursuant to the Guosheng proxy, Qufenqi Holding Limited appointed Guosheng HK asits proxy and attorney-in-fact with respect to 4,125,698 Class B ordinary shares held by Qufenqi Holding Limited. The Guosheng proxy provides Guosheng HKwith the power to exercise the voting rights relating to the 4,125,698 Class B ordinary shares. Qufenqi Holding Limited is further described in footnote 1 above.Information regarding Guosheng HK’s beneficial ownership is reported as of December 31, 2020, based on the information contained in the Schedule 13G/Afiled by Guosheng HK and its affiliates on March 10, 2021, or the Guosheng 13G/A. Guosheng HK is a limited liability company incorporated under the laws ofHong Kong and a subsidiary of Guosheng Financial Holding Inc., or Guosheng, a public company listed on the Shenzhen Stock Exchange. Based on Guosheng’spublic filings, Mr. Li Du has control over Guosheng as of the date of this annual report. The registered address of Guosheng HK is Unit 606, 6th Floor, AllianceBuilding, 133 Connaught Road Central, Hong Kong.We are not aware of any of our shareholders being affiliated with a registered broker-dealer or being in the business of underwriting securities.Except as otherwise disclosed in this annual report on Form 20-F, none of our existing shareholders has voting rights that differ from the voting rights ofother shareholders. 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 CompensationNot Applicable.ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSA.Major ShareholdersPlease refer to “Item 6. Directors, Senior Management and Employees⸺⸺E. Share Ownership.”B.Related Party TransactionsContractual Arrangements with the Group VIEs and Their ShareholdersPRC laws and regulations currently restrict foreign ownership and foreign investment in VATS in China. As a result, we operate our relevant businessthrough contractual arrangements among Ganzhou Qufenqi, our wholly-owned PRC subsidiary, Beijing Happy Time, a Group VIE, and the shareholders of BeijingHappy Time. We established two new Group VIEs, Ganzhou Qudian and Xiamen Qudian in 2017. Ganzhou Qufenqi has also entered into a series of contractualarrangements with the aforementioned four Group VIEs and its shareholders. For a description of these contractual arrangements, see “Item 4. Information on theCompany⸺⸺B. Business Overview⸺⸺Overview⸺⸺Our Contractual Arrangements with the Group VIEs and Their Shareholders.”Equity Incentive PlanSee “Item 6. Directors, Senior Management and Employees⸺⸺B. Compensation⸺⸺2016 Equity Incentive Plan.”C.Interests of Experts and CounselNot Applicable.Table of Contents120ITEM 8.FINANCIAL INFORMATIONA.Consolidated Statements and Other Financial InformationWe have appended consolidated financial statements filed as part of this annual report.Legal and Administrative ProceedingsThe Group may from time to time be subject to various legal or administrative claims and proceedings arising in the ordinary course of business. Litigationor any other legal or administrative proceeding, regardless of the outcome, is likely to result in substantial cost and diversion of the Group’s resources, including ourmanagement’s time and attention.We and certain of our directors and officers were named as defendants in four putative securities class actions filed in the United States District Court for theSouthern District of New York: Ramnath v. Qudian Inc. et al., Civil Action No. 1:17-cv-09741-RA (S.D.N.Y.), Maia v. Min Luo et al., Civil Action No. 1:17-cv-09796-RA (S.D.N.Y.), Foat v. Qudian Inc. et al., Civil Action No. 1:17-cv-09875-RA (S.D.N.Y.), and Perez v. Qudian Inc. et al., Civil Action No. 1:17-cv-09903-RA (S.D.N.Y.) (collectively, the “Federal Actions”). The Federal Actions - purportedly brought on behalf of a class of persons who allegedly suffered damages as aresult of their purchase of our ADSs pursuant and/or traceable to our IPO - allege violations of Sections 11 and 15 of the United States Securities Act of 1933 inconnection with our disclosure of business and regulatory risks.On March 16, 2018, the Court entered an order consolidating the Federal Actions under master caption In re Qudian Inc. Securities Litigation, Master FileNo. 1:17-cv-09741-RA (S.D.N.Y.) and appointing lead plaintiffs and lead counsel for the consolidated case. On May 18, 2018, Plaintiffs filed a ConsolidatedAmended Complaint, and, on July 27, 2018, Plaintiffs filed a Second Amended Complaint. On October 12, 2018, we filed a motion to dismiss the Second AmendedComplaint for failure to state a claim under the federal securities laws.On September 27, 2019, the Court issued an Order (the “Order”) granting in part and denying in part our motion to dismiss the Second Amended Complaint.The Order granted the motion to dismiss with leave to amend the Second Amended Complaint with respect to certain of Plaintiffs’ allegations, and denied the motionto dismiss with respect to the launch of the Company’s Dabai Auto business. On October 17, 2019, Plaintiffs filed a stipulation confirming that they will not seek toamend the Second Amended Complaint.On November 8, 2019, Plaintiffs filed a motion asking the court to reconsider the Order with respect to one of the dismissed allegations. On December 6,2019, we filed an opposition to the motion for reconsideration, and Plaintiffs filed a reply on December 20, 2019. On July 10, 2020, the court denied Plaintiffs’motion for reconsideration.On August 10, 2020, certain defendants filed an answer to the Second Amended Complaint. Certain remaining defendants separately moved to dismiss theSecond Amended Complaint on additional grounds on the same date. Plaintiffs’ filed their opposition to the motion to dismiss on September 24, 2020.On November 13, 2020, Plaintiffs filed an unopposed motion requesting approval for settlement pursuant to the terms stipulated by the parties. OnNovember 16, 2020, Judge Furman preliminarily approved the stipulated settlement, certified a settlement class, and set a settlement hearing for April 27, 2021.On November 18, 2020, certain absent class members filed a motion to compel vacatur and denial of the order preliminarily approving the settlement. OnNovember 20, 2020, the Company and Plaintiffs filed oppositions to the motion to compel vacatur, and on November 23, 2020, Judge Furman denied the motion. OnMarch 23, 2021, Plaintiffs filed a motion for final approval of the settlement. On April 9, 2021, the court continued the settlement hearing date to June 8, 2021. OnJune 8, 2021, the court entered judgment approving the class action settlement.Table of Contents121We and certain of our directors and officers were also named as defendants in Song v. Qudian Inc. et al., Case No. 18CIV01425 (Cal. Supr. Ct., San MateoCty.), a putative securities class action filed in the Superior Court of California, County of San Mateo (the “California Action”). The California Action - purportedlybrought on behalf of a class of persons who allegedly suffered damages as a result of their purchase of our ADSs pursuant and/or traceable to our IPO - allegesviolations of Sections 11, 12(a)(2), and 15 of the United States Securities Act of 1933 in connection with our disclosure of business and regulatory risks. On May 15,2018, we filed a motion to stay the action in light of, inter alia, the Federal Actions. Plaintiff filed an opposition to the motion to stay on June 8, 2018, and we filed areply on June 22, 2018. A hearing on the motion to stay was held on September 14, 2018. On December 21, 2018, the court granted our motion to stay. On July 14,2021, Plaintiff filed a voluntary dismissal of the suit in light of the settlement of the Federal Actions. The voluntary dismissal was granted on July 26, 2021.We and certain of our directors and officers were also named as defendants in two putative securities class actions filed in New York Supreme Court,Panther Partners Inc. v. Qudian Inc., Index No. 651804/2018 (N.Y. Sup. Ct., N.Y. Cty.), and The Morrow Property Trust v. Qudian Inc., Index No. 653047/2018(N.Y. Sup. Ct., N.Y. Cty.) (collectively, the “New York State Actions”). The New York State Actions - purportedly brought on behalf of a class of persons whoallegedly suffered damages as a result of their purchase of our ADSs pursuant and/or traceable to our IPO - similarly allege violations of Sections 11, 12(a)(2), and 15of the United States Securities Act of 1933 in connection with our disclosure of business and regulatory risks. On August 15, 2018, the two putative securities classactions were consolidated by joint stipulation under the master caption In re Qudian Inc. Securities Litigation, Index No. 651804/2018 (N.Y. Sup. Ct., N.Y. Cty.). OnJune 1, 2018, we filed a motion to dismiss the actions for failure to state a claim or, alternatively, to stay the actions in light of the Federal Actions. On August 24,2018, Plaintiffs filed an opposition to our motion to dismiss or stay, and we filed a reply on October 5, 2018. A hearing was held on November 8, 2018. OnNovember 14, 2018, the court granted our motion to stay.On January 24, 2020, Plaintiffs filed a motion to lift the stay and file an amended complaint. We filed an opposition to the motion on February 21, 2020, andPlaintiffs filed a reply on March 6, 2020. On April 28, 2020, the court denied Plaintiffs’ motion to lift the stay. Plaintiffs noticed an appeal from the court’s decisionon May 15, 2020 and filed their opening brief on July 13, 2020. On August 12, 2020, we filed a responsive brief, and on August 21, 2020, Plaintiffs filed their replybrief. On December 3, 2020, the Appellate Division reversed the order denying Plaintiffs’ motion to lift the stay, and on December 9, 2020, Plaintiffs filed anamended complaint.On December 29, 2020, we filed a motion to dismiss the amended complaint for failure to state a claim or, alternatively, to stay the actions in light of thepending settlement hearing in the Federal Actions. On January 7, 2021, Plaintiffs filed an opposition to the motion, and we filed a reply on January 13, 2021. OnJune 10, 2021, Plaintiffs filed a stipulation and proposed order voluntarily dismissing the actions in light of the settlement in the Federal Actions. The court grantedthe stipulation and proposed order the same day.We and certain of our officers and directors were also named as defendants in a putative securities class action filed on January 22, 2020 in the United StatesDistrict Court for the Southern District of New York, captioned Greco et al v. Qudian Inc. et al, Case 1:20-cv-00577-GHW (S.D.N.Y.) (the “Federal Exchange ActAction”). The Federal Exchange Act Action alleges violations of Sections 10(b) and 20(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgatedthereunder in connection with our FY19 financial guidance and certain related public statements. On April 7, 2020, the Court entered a stipulated order appointingCo-Lead Plaintiffs and Co-Lead Counsel.On June 17, 2020, Plaintiffs filed an Amended Class Action Complaint (“AC”). On September 4, 2020, we moved to dismiss the AC for failure to state aclaim under the federal securities laws. Plaintiffs filed their opposition to our motion to dismiss on October 2, 2020, and we filed a reply on October 16, 2020. OnSeptember 13, 2022, the Court granted our motion to dismiss the AC. On December 7, 2022, judgment was entered for defendants, and the case was closed.Dividend PolicySince inception, we have not declared or paid any dividends on our shares. We do not have any present plan to pay any dividends on our Class A ordinaryshares or ADSs in the foreseeable future. We intend to retain most, if not all, of our available funds and any future earnings to operate and expand the Group’sbusiness.Table of Contents122Any other future determination to pay dividends will be made at the discretion of our board of directors and may be based on a number of factors, includingour future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directorsmay deem relevant. If we pay any dividends, we will pay our ADS holders to the same extent as holders of our Class A ordinary shares, subject to the terms of thedeposit agreement, including the fees and expenses payable thereunder. Cash dividends on our Class A ordinary shares, if any, will be paid in U.S. dollars.We are an exempted company incorporated in the Cayman Islands. In order for us to distribute any dividends to our shareholders and ADS holders, we mayrely on dividends distributed by our PRC subsidiaries. Certain payments from our PRC subsidiaries to us may be subject to PRC withholding income tax. In addition,regulations in the PRC currently permit payment of dividends of a PRC company only out of accumulated distributable after-tax profits as determined in accordancewith its articles of association and the accounting standards and regulations in China. Each of our PRC subsidiaries is required to set aside at least 10% of its after-taxprofit based on PRC accounting standards every year to a statutory common reserve fund until the aggregate amount of such reserve fund reaches 50% of theregistered capital of such subsidiary. Such statutory reserves are not distributable as loans, advances or cash dividends.B.Significant ChangesThe Group has not experienced any other significant changes since the date of the Group’s audited consolidated financial statements included in this annualreport.ITEM 9.THE OFFER AND LISTINGA.Offer and Listing DetailsOur ADSs, each representing one of our Class A ordinary share, have been listed on the New York Stock Exchange since October 18, 2017 under the symbol“QD.”B.Plan of DistributionNot Applicable.C.MarketsSee “ ⸺⸺A. Offering and Listing Details.”D.Selling ShareholdersNot Applicable.E.DilutionNot Applicable.F.Expenses of the IssueNot Applicable.ITEM 10.ADDITIONAL INFORMATIONA.Share CapitalNot Applicable.Table of Contents123B.Memorandum and Articles of AssociationWe incorporate by reference into this annual report the description of our second amended and restated memorandum of association contained in our F-1registration statement (File No. 333-220511), as amended, initially filed with the Securities and Exchange Commission on September 18, 2017. Our shareholdersadopted our second amended and restated memorandum and articles of association by unanimous resolutions passed on May 3, 2017, and effective immediately priorto the completion of our initial public offering of ordinary shares represented by our ADSs.C.Material ContractsWe 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 theCompany” or elsewhere in this annual report.D.Exchange ControlsSee “Item 4. Information on the Company⸺⸺B. Business Overview⸺⸺Regulation⸺⸺Regulations Related to Foreign Exchange.”E.TaxationThe following is a general summary of the material Cayman Islands, People’s Republic of China and United States federal income tax consequencesrelevant to an investment in our ADSs and Class A ordinary shares. The discussion is not intended to be, nor should it be construed as, legal or tax advice to anyparticular prospective purchaser. The discussion is based on laws and relevant interpretations thereof in effect as of the date of this annual report, all of which aresubject to change or different interpretations, possibly with retroactive effect. The discussion does not address U.S. state or local tax laws, or tax laws of jurisdictionsother than the Cayman Islands, the People’s Republic of China and the United States. You should consult your own tax advisors with respect to the consequences ofacquisition, ownership and disposition of our ADSs and Class A ordinary shares.Cayman Islands TaxationThe Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciations and there is no taxation inthe nature of inheritance tax or estate duty or withholding tax applicable to us or to any holder of our ADSs and Class A ordinary shares. There are no other taxeslikely 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 afterexecution brought within the jurisdiction of the Cayman Islands. No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman Islands companiesexcept those which hold interests in land in the Cayman Islands. The Cayman Islands is a party to a double tax treaty entered with the United Kingdom in 2010 but isotherwise not party to any double tax treaties. There are no exchange control regulations or currency restrictions in the Cayman Islands.Pursuant to Section 6 of the Tax Concessions Law (2011 Revision) of the Cayman Islands, we have obtained an undertaking from the Governor-in-Cabinet:(1)that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciations shall apply to us or ouroperations; and(2)that the aforesaid tax or any tax in the nature of estate duty or inheritance tax shall not be payable on our shares, debentures or other obligations or byway of the withholding in whole or in part of any relevant payment as defined in Section 6(3) of the Tax Concessions Law (2011 Revision).The undertaking for us is for a period of twenty years from November 29, 2016.Table of Contents124People’s Republic of China TaxationIn March 2007, the National People’s Congress of China enacted the Enterprise Income Tax Law, which became effective on January 1, 2008. TheEnterprise Income Tax Law provides that enterprises organized under the laws of jurisdictions outside China with their “de facto management bodies” located withinChina may be considered PRC resident enterprises and therefore subject to PRC enterprise income tax at the rate of 25% on their worldwide income. TheImplementing Rules of the Enterprise Income Tax Law, which took effect on January 1, 2008 and was last amended on April 23, 2019, further defines the term “defacto management body” as the management body that exercises substantial and overall management and control over the business, personnel, accounts andproperties of an enterprise. While we do not currently consider our company or any of our overseas subsidiaries to be a PRC resident enterprise, there is a risk that thePRC tax authorities may deem our company or any of our overseas subsidiaries as a PRC resident enterprise since a substantial majority of the members of ourmanagement team as well as the management team of some of our overseas subsidiaries are located in China, in which case we or the overseas subsidiaries, as thecase may be, would be subject to the PRC enterprise income tax at the rate of 25% on worldwide income. If the PRC tax authorities determine that our CaymanIslands holding company is a “resident enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. Oneexample is a 10% withholding tax would be imposed on dividends we pay to our non-PRC enterprise shareholders and with respect to gains derived by our non-PRCenterprise shareholders from transferring our shares or ADSs. It is unclear whether, if we are considered a PRC resident enterprise, holders of our shares or ADSswould be able to claim the benefit of income tax treaties or agreements entered into between China and other countries or areas.On April 30, 1984, China and the United States (each a “Contracting State”) entered into an agreement for the avoidance of double taxation and theprevention of tax evasion with respect to taxes on income, or the Sino-US Treaty. The Sino-US Treaty provides that, among others, subject to certain conditions andlimitations, dividends paid by a company which is a resident enterprise of one Contracting State, to a resident (an individual citizen or a resident enterprise) of theother Contracting State, or interest arising in one Contracting State and paid to a resident of the other Contracting State, may be taxed in that other Contracting State,such dividend or interest may also be taxed in the Contracting State where the company paying the dividends is a resident, or the interest arises, according to the lawsof such Contracting State, but if the recipient of dividend or interest is the beneficial owner of the dividend or interest, the tax so charged shall not exceed 10% of thegross amount of the dividend or the interest. The Sino-US Treaty also provides several methods for the elimination of double taxation: (1) in China, (a) where aresident of China derives income from the United States, the amount of the United States income tax payable in respect of that income in accordance with theprovisions of the Sino-US Treaty shall be allowed as a credit against the Chinese tax imposed on that resident. The amount of credit, however, shall not exceed theamount of the Chinese tax computed with respect to that income in accordance with the taxation laws and regulations of China; (b) where the income derived fromthe United States is a dividend paid by a company which is a resident of the United States to a company which is a resident of China and which owns not less than10% of the shares of the company paying the dividend, the credit shall take into account the United States income tax payable by the company paying the dividend inrespect of the profits out of which the dividends are paid; (2) in the United States, in accordance with the provisions of the law of the United States, the United Statesshall allow to a resident or citizen of the United States as a credit against the United States tax on income: (a) the income tax paid to China by or on behalf of suchresident or citizen; and (b) in the case of a United States company owning at least 10% of the voting rights in a company which is a resident of China and from whichthe United States company receives dividends, the income tax paid to China by or on behalf of the distributing company with respect to the profits out of which thedividends are paid; and (3) income derived by a resident of a Contracting State which may be taxed in the other Contracting State in accordance with the Sino-USTreaty shall be deemed to arise in that other Contracting State.Certain United States Federal Income Tax ConsiderationsThe following discussion describes certain United States federal income tax consequences of the purchase, ownership and disposition of our ADSs andClass A ordinary shares. This discussion deals only with ADSs and Class A ordinary shares that are held as capital assets by a United States Holder (as definedbelow). In addition, the discussion set forth below is applicable only to United States Holders (i) who are residents of the United States for purposes of the Sino-USTreaty, (ii) whose ADSs or Class A ordinary shares are not, for purposes of the Sino-US Treaty, effectively connected with a permanent establishment in PRC and(iii) who otherwise qualify for the full benefits of the Sino-US Treaty.As used herein, the term “United States Holder” means a beneficial owner of our ADSs or Class A ordinary shares that is, for United States federal incometax purposes, any of the following:●an individual who is a citizen or resident of the United States;Table of Contents125●a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or organized in or under the laws of theUnited States, any state thereof or the District of Columbia;●an estate the income of which is subject to United States federal income taxation regardless of its source; or●a trust if it (1) is subject to the primary supervision of a court within the United States and one or more United States persons have the authority tocontrol all substantial decisions of the trust or (2) has a valid election in effect under applicable United States Treasury regulations to be treated as aUnited States person.This discussion is based upon provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and regulations, rulings and judicial decisionsthereunder as of the date hereof, as well as the Sino-US Treaty. Those authorities may be changed, perhaps retroactively, so as to result in United States federalincome tax consequences different from those summarized below. In addition, this discussion assumes that the deposit agreement, and all other related agreements,will be performed in accordance with their terms.This discussion does not represent a detailed description of the United States federal income tax consequences applicable to you if you are subject to specialtreatment under the United States federal income tax laws, including if you are:●a dealer or broker in securities or currencies;●a financial institution;●a regulated investment company;●a real estate investment trust;●an insurance company;●a tax-exempt organization;●a person holding our ADSs or Class A ordinary shares as part of a hedging, integrated or conversion transaction, a constructive sale or a straddle;●a trader in securities that has elected the mark-to-market method of accounting for your securities;●a person liable for alternative minimum tax;●a person who owns or is deemed to own 10% or more of our stock (by vote or value);●a person required to accelerate the recognition of any item of gross income with respect to our ADSs or Class A ordinary shares as a result of suchincome being recognized on an applicable financial statement;●a partnership or other pass-through entity for United States federal income tax purposes; or●a person whose “functional currency” is not the U.S. dollar.If a partnership (or other entity or arrangement treated as a partnership for United States federal income tax purposes) holds our ADSs or Class A ordinaryshares, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partnership or a partner of apartnership holding our ADSs or Class A ordinary shares, you should consult your tax advisors.Table of Contents126As discussed below under “- Passive Foreign Investment Company,” we believe there is a significant risk that we were classified as a passive foreigninvestment company (a “PFIC”) for United States federal income tax purposes for 2022 and will be a PFIC for the current taxable year, and that we may beclassified as a PFIC for future taxable years. Accordingly, you are urged to review the discussion below under “- Passive Foreign Investment Company,”and to consult with your tax advisors regarding the tax consequences to you if we were or are classified as a PFIC.This discussion does not contain a detailed description of all the United States federal income tax consequences to you in light of your particularcircumstances and does not address the Medicare tax on net investment income, United States federal estate and gift taxes or the effects of any state, local or non-United States tax laws. If you are considering the purchase of our ADSs or Class A ordinary shares, you should consult your own tax advisors concerning theparticular United States federal income tax consequences to you of the purchase, ownership and disposition of our ADSs or Class A ordinary shares, as well as theconsequences to you arising under other United States federal tax laws and the laws of any other taxing jurisdiction.ADSsIf you hold ADSs, for United States federal income tax purposes, you generally will be treated as the owner of the underlying Class A ordinary shares thatare represented by such ADSs. Accordingly, deposits or withdrawals of Class A ordinary shares for ADSs will not be subject to United States federal income tax.Passive Foreign Investment CompanyIn general, we will be a PFIC for United States federal income tax purposes for any taxable year in which:●at least 75% of our gross income is passive income, or●at least 50% of the value (generally determined based on a quarterly average) of our assets is attributable to assets that produce or are held for theproduction of passive income.For this purpose, passive income generally includes dividends, interest, royalties and rents (other than royalties and rents derived in the active conduct of atrade or business and not derived from a related person). In addition, cash and other assets readily convertible into cash are generally considered passive assets. If weown at least 25% (by value) of the stock of another corporation, for purposes of determining whether we are a PFIC, we will be treated as owning our proportionateshare of the other corporation’s assets and receiving our proportionate share of the other corporation’s income. However, there is uncertainty as to the treatment ofour corporate structure and ownership of the Group VIEs for United States federal income tax purposes. For United States federal income tax purposes, we considerourselves to own the stock of the Group VIEs. If it is determined, contrary to our view, that we do not own the stock of the Group VIEs for United States federalincome tax purposes (for instance, because the relevant PRC authorities do not respect these arrangements), we are more likely to be treated as a PFIC.Based on the past and projected composition and classification of the Group’s income and assets, we believe there is a significant risk that we wereclassified as a PFIC for United States federal income tax purposes for 2022 and will be a PFIC for the current taxable year, and that we may be classified as a PFICfor future taxable years. The determination of whether we are a PFIC is made annually. Accordingly, it is possible that our PFIC status may change due to changes inour asset or income composition. Our PFIC status for future taxable years will depend, in part, on the nature of any new business opportunities that we pursue, andwhether the income and assets attributable to any such new business would be considered passive for purposes of the PFIC rules. The calculation of the value of ourassets will be based, in part, on the quarterly market value of our ADSs, which is subject to change. If we are a PFIC for any taxable year during which you hold ourADSs or Class A ordinary shares, you will be subject to special tax rules discussed below.Table of Contents127If we are a PFIC for any taxable year during which you hold our ADSs or Class A ordinary shares and you do not make a timely mark-to-market election, asdescribed below, you will be subject to special tax rules with respect to any “excess distribution” received and any gain realized from a sale or other disposition,including a pledge, of ADSs or Class A ordinary shares. Distributions received in a taxable year will be treated as excess distributions to the extent that they aregreater than 125% of the average annual distributions received during the shorter of the three preceding taxable years or your holding period for the ADSs or Class Aordinary shares. Under these special tax rules:●the excess distribution or gain will be allocated ratably over your holding period for the ADSs or Class A ordinary shares,●the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, will be treated as ordinaryincome, and●the amount allocated to each other year will be subject to tax at the highest tax rate in effect for that year for individuals or corporations, as applicable,and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.As discussed above, we believe there is a significant risk that we were classified as a PFIC for United States federal income tax purposes for 2022 and willbe a PFIC for the current taxable year, and that we may be classified as a PFIC for future taxable years. Although the determination of whether we are a PFIC is madeannually, if we are a PFIC for any taxable year in which you hold our ADSs or Class A ordinary shares, you will generally be subject to the special taxrules described above for that year and for each subsequent year in which you hold the ADSs or Class A ordinary shares (even if we do not qualify as a PFIC in suchsubsequent years). However, if we cease to be a PFIC, you can avoid the continuing impact of the PFIC rules by making a special election to recognize gain as ifyour ADSs or Class A ordinary shares had been sold on the last day of the last taxable year during which we were a PFIC. You are urged to consult your own taxadvisor about this election.In lieu of being subject to the special tax rules discussed above, you may make a mark-to-market election with respect to your ADSs or Class A ordinaryshares provided such ADSs or Class A ordinary shares are treated as “marketable stock.” The ADSs or Class A ordinary shares generally will be treated asmarketable stock if the ADSs or Class A ordinary shares are regularly traded on a “qualified exchange or other market” (within the meaning of the applicableTreasury regulations). Under current law, the mark-to-market election may be available to holders of ADSs since the ADSs are listed on the NYSE, which constitutesa qualified exchange, although there can be no assurance that the ADSs will continue to be listed on the NYSE or that the ADSs will be “regularly traded” forpurposes of the mark-to-market election. It should also be noted that only the ADSs and not the Class A ordinary shares are listed on the NYSE. Consequently, if youare a holder of Class A ordinary shares that are not represented by ADSs, you generally will not be eligible to make a mark-to-market election.If you make an effective mark-to-market election, for each taxable year that we are a PFIC you will include as ordinary income the excess of the fair marketvalue of your ADSs at the end of the year over your adjusted tax basis in the ADSs. You will be entitled to deduct as an ordinary loss in each such year the excess ofyour adjusted tax basis in the ADSs over their fair market value at the end of the year, but only to the extent of the net amount previously included in income as aresult of the mark-to-market election. Your adjusted tax basis in the ADSs will be increased by the amount of any income inclusion and decreased by the amount ofany deductions under the mark-to-market rules. In addition, upon the sale or other disposition of your ADSs in a year that we are a PFIC, (i) any gain will be treatedas ordinary income and (ii) any loss will be treated as ordinary loss, but only to the extent of the net amount of previously included income as a result of the mark-to-market election.If you make a mark-to-market election, it will be effective for the taxable year for which the election is made and all subsequent taxable years unless theADSs are no longer regularly traded on a qualified exchange or other market, or the Internal Revenue Service consents to the revocation of the election. However,because a mark-to-market election cannot be made for any lower-tier PFICs that we may own (as discussed below), you will generally continue to be subject to thespecial tax rules discussed above with respect to your indirect interest in any such lower-tier PFIC. You are urged to consult your tax advisor about the availability ofthe mark-to-market election, and whether making the election would be advisable in your particular circumstances.Alternatively, U.S. taxpayers can sometimes avoid the special tax rules described above by electing to treat a PFIC as a “qualified electing fund” underSection 1295 of the Code. However, this option is not available to you because we do not intend to comply with the requirements necessary to permit you to makethis election.Table of Contents128If we are a PFIC for any taxable year during which you hold our ADSs or Class A ordinary shares and any of our non-United States subsidiaries is also aPFIC, you will be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of the PFIC rules. You areurged to consult your tax advisors about the application of the PFIC rules to any of our subsidiaries.You will generally be required to file Internal Revenue Service Form 8621 if you hold our ADSs or Class A ordinary shares in any year in which we areclassified as a PFIC. You are urged to consult your tax advisors concerning the United States federal income tax consequences of holding ADSs or Class A ordinaryshares if we are considered a PFIC in any taxable year.Taxation of DividendsSubject to the discussion under “- Passive Foreign Investment Company” above, the gross amount of distributions on the ADSs or Class A ordinary shares(including any amounts withheld to reflect potential PRC withholding taxes, as discussed above under “Taxation - People’s Republic of China Taxation”) will betaxable as dividends to the extent paid out of our current or accumulated earnings and profits, as determined under United States federal income tax principles. To theextent that the amount of any distribution exceeds our current and accumulated earnings and profits for a taxable year, the distribution will first be treated as a tax-free return of capital, causing a reduction in your tax basis in the ADSs or Class A ordinary shares, and to the extent the amount of the distribution exceeds your taxbasis, the excess will be taxed as capital gain recognized on a sale or exchange. We do not, however, expect to determine earnings and profits in accordance withUnited States federal income tax principles. Therefore, you should expect that a distribution will generally be reported as a dividend.Any dividends that you receive (including any withheld taxes) will be includable in your gross income as ordinary income on the day actually orconstructively received by you, in the case of Class A ordinary shares, or by the depositary, in the case of ADSs. Such dividends will not be eligible for the dividendsreceived deduction generally allowed to corporations under the Code.Subject to applicable conditions and limitations (including a minimum holding period requirement), dividends received by non-corporate United Statesinvestors from a qualified foreign corporation may be treated as “qualified dividend income” that is subject to reduced rates of taxation. A foreign corporationgenerally is treated as a qualified foreign corporation with respect to dividends paid by that corporation on shares (or ADSs backed by such shares) that are readilytradable on an established securities market in the United States. United States Treasury Department guidance indicates that our ADSs (which are listed on theNYSE) are readily tradable on an established securities market in the United States. Since our Class A ordinary shares are not listed on an established securitiesmarket in the United States, we do not believe that dividends that we pay on our common shares that are not represented by ADSs currently meet the conditionsrequired for these reduced tax rates. There also can be no assurance that our ADSs will be considered readily tradable on an established securities market in theUnited States in later years. A qualified foreign corporation also generally includes a foreign corporation that is eligible for the benefits of certain income tax treatieswith the United States. In the event that we are deemed to be a PRC resident enterprise under the Enterprise Income Tax Law, we may be eligible for the benefits ofthe Sino-US Treaty, and if we are eligible for such benefits, dividends we pay on our Class A ordinary shares, regardless of whether such shares are represented byADSs, may be eligible for reduced rates of taxation. See “Taxation⸺⸺People’s Republic of China Taxation.”In addition, notwithstanding the foregoing, we will not be treated as a qualified foreign corporation, and non-corporate United States Holders will not beeligible for reduced rates of taxation, for any dividends that we pay if we are a PFIC in the taxable year in which such dividends are paid or in the precedingtaxable year. As discussed above under “- Passive Foreign Investment Company,” we believe there is a significant risk that we were classified as a PFIC for UnitedStates federal income tax purposes for 2022 and will be a PFIC for the current taxable year, and that we may be classified as a PFIC for future taxable years.Therefore, if you are a non-corporate United States Holder, you should not assume that any dividends will be taxed at a reduced rate. You should consult your owntax advisors regarding the application of these rules given your particular circumstances.Table of Contents129Subject to certain conditions and limitations (including a minimum holding period requirement) and the Foreign Tax Credit Regulations (as defined below),any PRC withholding taxes on dividends may be treated as foreign taxes eligible for credit against your United States federal income tax liability. For purposes ofcalculating the foreign tax credit, dividends paid on the ADSs or Class A ordinary shares will be treated as income from sources outside the United States and willgenerally constitute passive category income. However, recently issued Treasury regulations (the “Foreign Tax Credit Regulations”) impose additional requirementsfor foreign taxes to be eligible for a foreign tax credit, and there can be no assurance that those requirements will be satisfied. In addition, any PRC withholding taxeson dividends will not be creditable against your United States federal income tax liability to the extent withheld at a rate exceeding the applicable rate under the Sino-US Treaty. Instead of claiming a foreign tax credit, you may be able to deduct PRC withholding taxes in computing your taxable income, subject to generallyapplicable limitations under United States law (including that a United States Holder is not eligible for a deduction for otherwise creditable foreign income taxes paidor accrued in a taxable year if such United States Holder claims a foreign tax credit for any foreign income taxes paid or accrued in the same taxable year). Therules governing the foreign tax credit and deductions for foreign taxes are complex. You are urged to consult your tax advisors regarding the availability of theforeign tax credit or a deduction under your particular circumstances.Distributions of ADSs, Class A ordinary shares or rights to subscribe for ADSs or Class A ordinary shares that are received as part of a pro rata distributionto all of our shareholders generally will not be subject to United States federal income tax.Taxation of Capital GainsFor United States federal income tax purposes, you will recognize taxable gain or loss on any sale, exchange or other taxable disposition of the ADSs orClass A ordinary shares in an amount equal to the difference between the amount realized for the ADSs or Class A ordinary shares and your tax basis in the ADSs orClass A ordinary shares, both determined in U.S. dollars. Subject to the discussion under “- Passive Foreign Investment Company” above, such gain or loss willgenerally be capital gain or loss and will generally be long-term capital gain or loss if you have held the ADSs or Class A ordinary shares for more than one year.Long-term capital gains of non-corporate United States Holders (including individuals) are eligible for reduced rates of taxation. The deductibility of capital losses issubject to limitations. Any gain or loss recognized by you will generally be treated as United States source gain or loss. However, if we are treated as a PRC residententerprise for PRC tax purposes and PRC tax were imposed on any gain, you may elect to treat such gain as PRC source gain under the Sino-US Treaty. If you fail tomake the election to treat any gain as PRC source, then you generally would not be eligible for a foreign tax credit arising from any PRC tax imposed on thedisposition of ADSs or Class A ordinary shares unless such credit can be applied (subject to applicable limitations) against tax due on other income derived fromforeign sources. However, pursuant to the Foreign Tax Credit Regulations, unless you elect the benefits of the Sino-US Treaty, any such PRC tax would generally notbe a foreign income tax eligible for a foreign tax credit (regardless of any other income that you may have that is derived from foreign sources). In such case,however, the non-creditable PRC tax may reduce the amount realized on the sale, exchange or other taxable disposition of the ADSs or Class A ordinary shares. Youare urged to consult your tax advisors regarding the tax consequences in case any PRC tax is imposed on gain on a disposition of the ADSs or Class A ordinaryshares, including the availability of the foreign tax credit and the election to treat any gain as PRC source, under your particular circumstances.Information Reporting and Backup WithholdingIn general, information reporting will apply to dividends in respect of our ADSs or Class A ordinary shares and the proceeds from the sale, exchange orother disposition of our ADSs or Class A ordinary shares that are paid to you within the United States (and in certain cases, outside the United States), unless youestablish that you are an exempt recipient. A backup withholding tax may apply to such payments if you fail to provide a taxpayer identification number and acertification that you are not subject to backup withholding or if you fail to report in full dividend and interest income.Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules will be allowed as a refund or a credit againstyour United States federal income tax liability provided the required information is timely furnished to the Internal Revenue Service.F.Dividends and Paying AgentsNot Applicable.Table of Contents130G.Statement by ExpertsNot Applicable.H.Documents on DisplayWe have filed this annual report on Form 20-F, including exhibits, with the SEC. As allowed by the SEC, in Item 19 of this annual report, we incorporate byreference certain information we filed with the SEC. This means that we can disclose important information to you by referring you to another document filedseparately with the SEC. The information incorporated by reference is considered to be part of this annual report.You may read and copy this annual report, including the exhibits incorporated by reference in this annual report, at the SEC’s Public Reference Room at 100F Street, N.E., Washington, D.C. 20549 and at the SEC’s regional offices in New York, New York and Chicago, Illinois. You also can request copies of this annualreport, including the exhibits incorporated by reference in this annual report, upon payment of a duplicating fee, by writing information on the operation of the SEC’sPublic Reference Room.The SEC also maintains a website at www.sec.gov that contains reports, proxy statements and other information regarding registrants that file electronicallywith the SEC. Our annual report and some of the other information submitted by us to the SEC may be accessed through this web site. Additionally, we will post thisannual report on Form 20-F on our website at http://ir.qudian.com.As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxystatements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of theExchange Act.The Group’s financial statements have been prepared in accordance with U.S. GAAP.We will furnish our shareholders with annual reports, which will include a review of operations and annual audited consolidated financial statementsprepared in conformity with U.S. GAAP.I.Subsidiary InformationNot applicable.ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKForeign Exchange RiskAll of the Group’s revenues and substantially all of Group’s expenses are denominated in Renminbi. The functional currency of our company, QDTechnology Limited and QD Data Limited is the U.S. dollar. The functional currency of our subsidiaries in the PRC, the Group VIEs and the Group VIEs’subsidiaries is the Renminbi. We use Renminbi as our reporting currency. Monetary assets and liabilities denominated in currencies other than the functional currencyare translated into the functional currency at the rates of exchange ruling at the balance sheet date. Transactions in currencies other than the functional currencyduring the year are converted into functional currency at the applicable rates of exchange prevailing when the transactions occurred. Transaction gains and losses arerecognized in the statements of operations. Due to foreign currency translation adjustments, the Group had a foreign exchange loss, net, of RMB38.5 million,RMB7.6 million, and a foreign exchange gain, net, of RMB13.0 million (US$1.9 million) in 2020, 2021 and 2022, respectively.We do not believe that the Group currently has any significant direct foreign exchange risk and have not used any derivative financial instruments to hedgeexposure to such risk. Although in general the Group’s exposure to foreign exchange risks should be limited, the value of your investment in our ADSs will beaffected by the exchange rate between U.S. dollar and RMB because the value of the Group’s business is effectively denominated in Renminbi, while our ADSs willbe traded in U.S. dollars.Table of Contents131The conversion of Renminbi into foreign currencies, including U.S. dollars, is based on rates set by the PBOC. The PRC government allowed the Renminbito appreciate by more than 20% against the U.S. dollar between July 2005 and July 2008. Between July 2008 and June 2010, the exchange rate between the Renminbiand the U.S. dollar had been stable and traded within a narrow band. In June 2010, the PRC government indicated that it would make the foreign exchange rate of theRenminbi more flexible, which increases the possibility of sharp fluctuations of the Renminbi’s value in the near future and the unpredictability associated with theRenminbi’s exchange rate. Since then, the Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. On November 30, 2015, theExecutive Board of the International Monetary Fund (IMF) completed the regular five-year review of the basket of currencies that make up the SpecialDrawing Right, or the SDR, and decided that with effect from October 1, 2016, Renminbi is determined to be a freely usable currency and will be included in theSDR 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 hasdepreciated significantly in the backdrop of a surging U.S. dollar and persistent capital outflows of China. In 2017, however, the RMB appreciated approximately6.7% against the U.S. dollar; and in 2018, the RMB depreciated approximately 5.7% against the U.S. dollar. With the development of the foreign exchange marketand progress towards interest rate liberalization and Renminbi internationalization, the PRC government may in the future announce further changes to the exchangerate 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 topredict how market forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi and the U.S. dollar in the future.To the extent that we need to convert U.S. dollars into Renminbi for the Group’s operations, appreciation of the Renminbi against the U.S. dollar would havean adverse effect on the Renminbi amount we receive from the conversion. Conversely, if we decide to convert Renminbi into U.S. dollars for the purpose of makingpayments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the Renminbi would have a negativeeffect on the U.S. dollar amounts available to us.Interest Rate RiskThe Group has not been exposed to material risks due to changes in market interest rates, and the Group has not used any derivative financial instruments tomanage its interest risk exposure. However, we cannot provide assurance that the Group will not be exposed to material risks due to changes in market interest rate inthe future.After the completion of this annual report, we may invest the net proceeds we receive from the offering in interest-earning instruments. Investments in bothfixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacteddue to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall.InflationSince inception, inflation in China has not materially affected the Group’s results of operations. According to the National Bureau of Statistics of China,the year-over-year percent changes in the consumer price index for December 2020, December 2021 and December 2022 were increases of 0.2%, 1.5% and 1.8%,respectively. Although the Group has not been materially affected by inflation in the past, it may be affected if China experiences higher rates of inflation in thefuture.ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESA.Debt SecuritiesNot ApplicableB.Warrants and RightsNot ApplicableTable of Contents132C.Other SecuritiesNot ApplicableD.American Depositary SharesDepositary FeesUnder the terms of the deposit agreement for our ADSs, an ADS holder will be required to pay the following service fees to the depositary and certain taxesand governmental charges (in addition to any applicable fees, expenses, taxes and other governmental charges payable on the deposited securities represented by anyof ADSs):ServiceFees● To any person to which ADSs are issued or to any person to which a distribution is made in respect of ADS distributions pursuant to stock dividends or other free distributions of stock, bonus distributions, stock splits or other distributions (except where converted to cash)● Up to US$0.05 per ADS issued● Cancelation of ADSs, including the case of termination of the deposit agreement● Up to US$0.05 per ADS canceled● Distribution of cash dividends● Up to US$0.05 per ADS held● Distribution of cash entitlements (other than cash dividends) and/or cash proceeds from the sale of rights, securities and other entitlements● Up to US$0.05 per ADS held● Distribution of ADSs pursuant to exercise of rights.● Up to US$0.05 per ADS held●Distribution of securities other than ADSs or rights to purchase additionalADSs● Up to US$0.05 per ADS held● Depositary services● Up to US$0.05 per ADS held on the applicable record date(s) established by the depositaryDepositary ChargesAn ADS holder will also be responsible to pay certain fees and expenses incurred by the depositary and certain taxes and governmental charges (in additionto any applicable fees, expenses, taxes and other governmental charges payable on the deposited securities represented by any of ADSs) such as:●Fees for the transfer and registration of ordinary shares charged by the registrar and transfer agent for the ordinary shares in the Cayman Islands (i.e.,upon deposit and withdrawal of ordinary shares).●Expenses incurred for converting foreign currency into U.S. dollars.●Expenses for cable, telex and fax transmissions and for delivery of securities.Table of Contents133●Taxes and duties upon the transfer of securities, including any applicable stamp duties, any stock transfer charges or withholding taxes (i.e., whenordinary shares are deposited or withdrawn from deposit).●Fees and expenses incurred in connection with the delivery or servicing of ordinary shares on deposit.●Fees and expenses incurred in connection with complying with exchange control regulations and other regulatory requirements applicable to ordinaryshares, deposited securities, ADSs and ADRs.●Any applicable fees and penalties thereon.The depositary fees payable upon the issuance and cancelation of ADSs are typically paid to the depositary by the brokers (on behalf of their clients)receiving the newly issued ADSs from the depositary and by the brokers (on behalf of their clients) delivering the ADSs to the depositary for cancelation. Thebrokers in turn charge these fees to their clients. Depositary fees payable in connection with distributions of cash or securities to ADS holders and the depositaryservices fee are charged by the depositary to the holders of record of ADSs as of the applicable ADS record date.The depositary fees payable for cash distributions are generally deducted from the cash being distributed or by selling a portion of distributable property topay the fees. In the case of distributions other than cash (i.e., share dividends, rights), the depositary charges the applicable fee to the ADS record date holdersconcurrent with the distribution. In the case of ADSs registered in the name of the investor (whether certificated or uncertificated in direct registration), thedepositary sends invoices to the applicable record date ADS holders. In the case of ADSs held in brokerage and custodian accounts (via DTC), the depositarygenerally collects its fees through the systems provided by DTC (whose nominee is the registered holder of the ADSs held in DTC) from the brokers and custodiansholding ADSs in their DTC accounts. The brokers and custodians who hold their clients’ ADSs in DTC accounts in turn charge their clients’ accounts the amount ofthe fees paid to the depositary.In the event of refusal to pay the depositary fees, the depositary may, under the terms of the deposit agreement, refuse the requested service until payment isreceived or may set off the amount of the depositary fees from any distribution to be made to the ADS holder.The depositary has agreed to reimburse us for certain expenses we incur that are related to establishment and maintenance of the ADR program upon suchterms and conditions as we and the depositary may agree from time to time.Payments by DepositaryIn 2022, excluding withholding tax, we received US$1.7 million cash payment from Deutsche Bank Trust Company Americas, the depositary bank for ourADR program.PART II.ITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNone.ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSSee “Item 10. Additional Information” for a description of the rights of securities holders, which remain unchanged.”The following “Use of Proceeds” information relates to the registration statement on Form F-1, as amended (File No. 333-220511) in relation to our initialpublic offering, which was declared effective by the SEC on October 17, 2017. In October 2017, we completed our initial public offering in which we issued and soldan aggregate of 35,625,000 ADSs, representing 35,625,000 Class A ordinary shares, resulting in net proceeds to us of approximately US$799.6 million.Table of Contents134As of December 31, 2022, we had used substantially all of the net proceeds received from our initial public offering, which consisted of US$100 million forcapital contribution to fund our Dabai Auto business, and US$100 million for investment in Secoo in June 2020, and US$595.4 million to repurchase our outstandingADSs, including commission paid to brokers.ITEM 15.CONTROLS AND PROCEDURESDisclosure Controls and ProceduresWe maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under theExchange Act is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to our management, includingour principal executive officer and principal accounting officer, as appropriate, to allow timely decisions regarding required disclosure.Our management, under the supervision and with the participation of our principal executive officer and our principal accounting officer, evaluated theeffectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) or 15d-15(e) promulgated under the Exchange Act, as of December 31, 2022.Based on that evaluation, our principal executive officer and principal accounting officer have concluded that our disclosure controls and procedures are effective inensuring that material information required to be disclosed in this annual report is recorded, processed, summarized and reported to them for assessment, and requireddisclosure is made within the time period specified in the rules and forms of the Commission.Management’s Annual Report on Internal Control over Financial Reporting.Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) under theExchange Act). Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fairpresentation of its published consolidated financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, eventhose systems determined to be effective may not prevent or detect misstatements and can provide only reasonable assurance with respect to financial statementpreparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. As required by Section 404 of the Sarbanes-OxleyAct of 2002 and related rules promulgated by the Securities and Exchange Commission, our management conducted an assessment of the effectiveness of our internalcontrol over financial reporting as of December 31, 2022. In making this assessment, it used the criteria established within the Internal Control - IntegratedFramework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, our management hasconcluded that, as of December 31, 2022, our internal control over financial reporting was effective.Attestation Report of the Independent Registered Public Accounting FirmOur independent registered public accounting firm, Ernst & Young Hua Ming LLP has audited the effectiveness of our internal control over financialreporting as of December 31, 2022, as stated in its report, which appears on page F-6 of this annual report on Form 20-F.Changes in Internal Control over Financial ReportingThere were no changes in our internal controls over financial reporting that occurred during the period covered by this annual report on Form 20-F that havematerially affected, or are reasonably likely to materially affect, our internal control over financial reporting.ITEM 16.[RESERVED]ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERTOur Board of Directors has determined Yifan Li, who is an independent director, qualifies as an audit committee financial expert as defined in Item 16A ofthe instruction to Form 20-F.Table of Contents135ITEM 16B.CODE OF ETHICSOur board of directors has adopted a code of ethics that applies to our directors, officers and employees. We have filed our code of business conduct andethics as an exhibit to our registration statement on Form F-1 (File No. 333-220511), as amended, initially filed with the SEC on September 18, 2017. We herebyundertake to provide to any person without charge, a copy of our code of business conduct and ethics within ten working days after we receive such person’s writtenrequest.ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICESThe following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by Ernst & YoungHua Ming LLP, our independent public accountant for the periods indicated. We did not pay any other fees to our auditors during the periods indicated below. For the Year Ended December 31,2021 2022(in thousands of RMB)Audit Fees(1) 10,650 10,370Tax Fees(2) 508 150Total 11,158 10,520(1)Audit fees in 2021 include the aggregate fees billed in each of the fiscal period listed for professional services rendered by our independent public accountant forthe audit and the agreed upon procedures of our financial statements. Audit fees in 2022 include the aggregate fees billed in each of the fiscal period listed forprofessional services rendered by our independent public accountant for the audit and the agreed upon procedures of our financial statements.(2)Tax fees include the aggregated fees billed in each of the fiscal periods listed for professional services rendered by our independent public accountant for taxcompliance, tax advice and tax planning.The policy of our audit committee or our board of directors is to pre-approve all audit and non-audit services provided by our independent public accountant,including audit services, audit-related services and other services as described above. All of the services of Ernst & Young Hua Ming LLP for 2022 and 2021described above were in accordance with the audit committee pre-approval policy.ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESNone.Table of Contents136ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSThe following table sets forth information about our purchases of outstanding ADSs in 2022:Total Number ofApproximateADSs PurchasedDollar Value ofas Part of PubliclyADSs that MayTotal Number ofAverage PriceAnnounced PlansYet Be PurchasedPeriod ADSs Purchased Paid per ADS(1) or Programs(2) Under the Program(2)January 2022 — — —US$497,741,888February 2022 — — —US$497,741,888March 2022 1,426,170US$1.20 1,426,170US$496,033,171April 2022 4,381,200US$1.12 4,381,200US$491,143,614May 2022 555,000US$1.08 555,000US$490,545,139June 2022 573,500 US$1.04 573,500 US$199,403,997July 2022 — — — US$199,403,997August 2022 2,660,057 US$1.03 2,660,057 US$196,676,130September 2022 3,728,212 US$0.93 3,728,212 US$193,225,107October 2022 2,312,518 US$0.90 2,312,518 US$191,149,944November 2022 2,274,309 US$0.83 2,274,309 US$189,263,604December 2020 3,785,131 US$0.92 3,785,131 US$185,776,208Total 21,696,097 US$0.99 21,696,097 US$185,776,208(1)Each of our ADSs represents one Class A ordinary share. The average price per ADS is calculated using the execution price for each repurchase excludingcommissions paid to brokers.(2)We announced a share repurchase program in January 2020, under which we may repurchase up to US$500 million worth of our outstanding ADSs over a periodof 30 months (the “2020 Share Repurchase Program”). The repurchases have been, and will be, through various means, including open market transactions,privately negotiated transactions, tender offers or any combination thereof. The repurchases have been, and will be, effected in compliance with Rule 10b5-1under the Securities Exchange Act of 1934, as amended, and our insider trading policy. The number of ADSs repurchased and the timing of repurchases willdepend on a number of factors, including, but not limited to, price, trading volume and general market conditions. We further announced a share repurchaseprogram in June 2022, under which we may repurchase up to US$200 million worth of our outstanding (i) ADSs and/or (ii) Class A ordinary shares over aperiod of 24 months starting from June 13, 2022 (the “2022 Share Repurchase Program”). Under the 2022 Share Repurchase Program, we may repurchase ourADSs from time to time through open market transactions at prevailing market prices, privately negotiated transactions, block trades or any combination thereof.In addition, we will also effect repurchase transactions in compliance with Rule 10b5-1 and/or Rule 10b-18 under the Securities Exchange Act of 1934, asamended, and our insider trading policy. The number of ADSs repurchased and the timing of repurchases will depend on a number of factors, including, but notlimited to, share price, trading volume and general market conditions, along with our working capital requirements and general business conditions.In December 2021, we announced that Mr. Min Luo, the Company’s founder, chairman and chief executive officer, intended to use personal funds topurchase up to US$10 million of our ADSs over the next 12 months. Mr. Min Luo did not repurchase any of our ADSs in 2021 or 2022. The share purchases may bemade from time to time in the open market at prevailing market prices, in privately negotiated transactions, in block trades and/or through other legally permissiblemeans in accordance with applicable rules and regulations, including, but not limited to, Rule 10b5-1 and/or Rule 10b-18 under the Securities Exchange Act of 1934,as amended, as well as our insider trading policy.ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTNot Applicable.Table of Contents137ITEM 16G.CORPORATE GOVERNANCEWe are a “foreign private issuer” (as such term is defined in Rule 3b-4 under the Exchange Act), and our ADSs, each representing one ordinary share, arelisted on the New York Stock Exchange. Under Section 303A of the New York Stock Exchange Listed Company Manual, New York Stock Exchange listedcompanies that are foreign private issuers are permitted to follow home country practice in lieu of the corporate governance provisions specified by the New YorkStock Exchange with limited exceptions.Under the New York Stock Exchange Listed Company Manual, or the NYSE Manual, U.S. domestic listed companies are required to have a majority of theboard consisting of independent directors and have a compensation committee and a nominating/corporate governance committee, each composed entirely ofindependent directors, which are not required under the Companies Law (2018 Revision) of the Cayman Islands, our home country. Currently, our board of directorsis composed of five members, only two of whom are independent directors. Our nominating and corporate governance committee is composed of two members, onlyone of whom is an independent director. The NYSE Manual also requires U.S. domestic listed companies to regularly hold executive sessions for non-managementdirectors, or an executive session that only includes independent directors at least once a year. We are not subject to this requirement under the Cayman Islands lawand have decided to follow our home country practice on this matter. In addition, the NYSE Manual requires shareholder approval for certain matters, such asrequiring that shareholders must be given the opportunity to vote on all equity compensation plans and material revisions to those plans, which is not required underthe Cayman Islands law. We intend to follow the home country practice in determining whether shareholder approval is required. Furthermore, we are not required bythe NYSE to hold annual shareholders meetings.ITEM 16H.MINE SAFETY DISCLOSURENot Applicable.ITEM 16I.DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONSFor the fiscal year ended December 31, 2021, Ernst & Young Hua Ming LLP, which was a registered public accounting firm that the PCAOB determined inDecember 2021 that it was unable to inspect or investigate completely because of the positions taken by the PRC authorities, issued an audit report for us, and suchaudit report was included in our annual report on Form 20-F for the fiscal year ended December 31, 2021. On May 26, 2022, we were conclusively identified by theSEC as an SEC-identified issuer pursuant to Section 104(i)(2)(A) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7214(i)(2)(A)). The PCAOB vacated its 2021determinations in December 2022, and as a result, Ernst & Young Hua Ming LLP, which issued an audit report included in this annual report, is no longer a registeredpublic accounting firm that the PCAOB determines it is unable to inspect or investigate completely because of the positions taken by an authority in any foreignjurisdiction.The Company is incorporated in the Cayman Islands. The Group VIEs and other operating entities being consolidated in our financial statements, or ourconsolidated foreign operating entities, are incorporated or otherwise organized in the PRC.To the best of our knowledge, no governmental entity in the PRC or the Cayman Islands owns any shares of the Company or any of the Group’sconsolidated foreign operating entities.To the best of our knowledge, no governmental entity in the PRC (i.e. the applicable foreign jurisdiction with respect to Ernst & Young Hua Ming LLP) hasa controlling financial interest with respect to the Company or any of our consolidated foreign operating entities.None of the directors of the Company or any of our consolidated foreign operating entities is any official of the Chinese Communist Party.Neither the memorandum and articles of association of the Company nor the articles of incorporation (or equivalent organizing document) of ourconsolidated foreign operating entities contains any charter of the Chinese Communist Party.ITEM 16J.INSIDER TRADING POLICIESNot Applicable.Table of Contents138PART III.ITEM 17.FINANCIAL STATEMENTSWe have elected to provide financial statements pursuant to Item 18.ITEM 18.FINANCIAL STATEMENTSThe consolidated financial statements of Qudian Inc. its subsidiaries and the Group VIEs are included at the end of this annual report.Table of Contents139ITEM 19.EXHIBITSExhibit Number Description of Document 1.1 Second Amended and Restated Memorandum and Articles of Association of the Registrant (incorporated herein by reference to Exhibit 3.3 to theregistration statement on Form F-1 (File No. 333-220511), as amended, initially filed with the Securities and Exchange Commission onSeptember 18, 2017)2.1 Form of American Depositary Receipt evidencing American Depositary Shares (incorporated herein by reference to Exhibit (a) to the registrationstatement on Form F-6 (File No. 333-220779) filed with the Securities and Exchange Commission on October 3, 2017 with respect to Americandepositary shares representing our Class A ordinary shares)2.2 Specimen of Ordinary Share Certificate (incorporated herein by reference to Exhibit 4.1 to the registration statement on Form F-1 (File No. 333-220511), as amended, initially filed with the Securities and Exchange Commission on September 18, 2017)2.3 Form of Deposit Agreement between the Registrant and Deutsche Bank Trust Company Americas, as depositary (incorporated herein byreference to Exhibit (a) to the registration statement on Form F-6 (File No. 333-220779) filed with the Securities and Exchange Commission onOctober 3, 2017 with respect to American depositary shares representing our Class A ordinary shares)2.4 Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (incorporated herein by reference toExhibit 2.4 to the annual report on Form 20-F (File No. 001-38230), filed with the Securities and Exchange Commission on April 27, 2020)4.1 Form of Indemnification Agreement between the Registrant and its directors and executive officers (incorporated herein by reference toExhibit 10.1 to the registration statement on Form F-1 (File No. 333-220511), as amended, initially filed with the Securities and ExchangeCommission on September 18, 2017)4.2 Form of Employment Agreement between the Registrant and its executive officers (incorporated herein by reference to Exhibit 10.2 to theregistration statement on Form F-1 (File No. 333-220511), as amended, initially filed with the Securities and Exchange Commission onSeptember 18, 2017)4.3 Qudian Inc. 2016 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.3 to the registration statement on Form F-1 (File No. 333-220511), as amended, initially filed with the Securities and Exchange Commission on September 18, 2017)4.4 Amendment No. 1 to Qudian Inc. 2016 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.4 to the registration statement onForm F-1 (File No. 333-220511), as amended, initially filed with the Securities and Exchange Commission on September 18, 2017)4.5 Amendment No. 2 to Qudian Inc. 2016 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.5 to the registration statement onForm F-1 (File No. 333-220511), as amended, initially filed with the Securities and Exchange Commission on September 18, 2017)4.6 English Translation of Equity Interest Pledge Agreement concerning Beijing Happy Time, among Ganzhou Qufenqi, Mr. Min Luo, TianjinHappy Share, Shanghai Yunxin Venture Capital Co., Ltd., Phoenix Auspicious Internet Investment L.P., Tianjin Blue Run Xinhe InvestmentCenter L.P., Jiaxins Blue Run Quchuan Investment L.P., Ningbo Yuanfeng Venture Capital L.P., Shenzhen Guoshens Oianhai InvestmentCo., Ltd., Beijing Kunlun Tech Co., Ltd. and Beijing Happy Time, dated December 9, 2016 (incorporated herein by reference to Exhibit 10.6 tothe registration statement on Form F-l (File No. 333-220511), as amended, initially filed with the Securities and Exchange Commission onSeptember 18, 2017)4.7 English translation of Power of Attorney Agreement concerning Beijing Happy Time, between Ganzhou Qufenqi and Tianjin Happy Share, datedDecember 9, 2016 (incorporated herein by reference to Exhibit 10.7 to the registration statement on Form F-1 (File No. 333-220511), asamended, initially filed with the Securities and Exchange Commission on September 18, 2017)4.8 English translation of Power of Attorney Agreement concerning Beijing Happy Time, between Ganzhou Qufenqi and Shanghai Yunxin VentureCapital Co., Ltd., dated December 9, 2016 (incorporated herein by reference to Exhibit 10.8 to the registration statement on Form F-1 (FileNo. 333-220511), as amended, initially filed with the Securities and Exchange Commission on September 18, 2017)4.9 English translation of Power of Attorney Agreement concerning Beijing Happy Time, between Ganzhou Qufenqi and Phoenix AuspiciousInternet Investment L.P., dated December 9, 2016 (incorporated herein by reference to Exhibit 10.9 to the registration statement on Form F-1(File No. 333-220511), as amended, initially filed with the Securities and Exchange Commission on September 18, 2017)Table of Contents140Exhibit Number Description of Document 4.10 English translation of Power of Attorney Agreement concerning Beijing Happy Time, between Ganzhou Qufenqi and Tianjin Blue Run XinheInvestment Center L.P., dated December 9, 2016 (incorporated herein by reference to Exhibit 10.10 to the registration statement on Form F-1(File No. 333-220511), as amended, initially filed with the Securities and Exchange Commission on September 18, 2017)4.11 English translation of Power of Attorney Agreement concerning Beijing Happy Time, between Ganzhou Qufenqi and Jiaxing Blue Run QuchuanInvestment L.P., dated December 9, 2016 (incorporated herein by reference to Exhibit 10.11 to the registration statement on Form F-1 (FileNo. 333-220511), as amended, initially filed with the Securities and Exchange Commission on September 18, 2017)4.12 English translation of Power of Attorney Agreement concerning Beijing Happy Time, between Ganzhou Qufenqi and Ningbo Yuanfeng VentureCapital L.P., dated December 9, 2016 (incorporated herein by reference to Exhibit 10.12 to the registration statement on Form F-1 (File No. 333-220511), as amended, initially filed with the Securities and Exchange Commission on September 18, 2017)4.13 English translation of Power of Attorney Agreement concerning Beijing Happy Time, between Ganzhou Qufenqi and Shenzhen GuoshengQianhai Investment Co., Ltd., dated December 9, 2016 (incorporated herein by reference to Exhibit 10.13 to the registration statement onForm F-1 (File No. 333-220511), as amended, initially filed with the Securities and Exchange Commission on September 18, 2017)4.14 English translation of Power of Attorney Agreement concerning Beijing Happy Time, between Ganzhou Qufenqi and Beijing Kunlun TechCo., Ltd., dated December 9, 2016 (incorporated herein by reference to Exhibit 10.14 to the registration statement on Form F-1 (File No. 333-220511), as amended, initially filed with the Securities and Exchange Commission on September 18, 2017)4.15 English translation of Power of Attorney Agreement concerning Beijing Happy Time, between Ganzhou Qufenqi and Mr. Min Luo, datedDecember 9, 2016 (incorporated herein by reference to Exhibit 10.15 to the registration statement on Form F-1 (File No. 333-220511), asamended, initially filed with the Securities and Exchange Commission on September 18, 2017)4.16 English translation of Exclusive Business Cooperation Agreement among Ganzhou Qufenai, Beijing Happy Time, Ganzhou Network, GanzhouHappy Fenqi and Fuzhou Happy Time Technology Co., Ltd., dated December 9, 2016 (incorporated herein by reference to Exhibit 10.16 to theregistration statement on Form F-l (File No. 333-220511), as amended, initially filed with the Securities and Exchange Commission onSeptember 18, 2017)4.17 English translation of Exclusive Call Option Agreement concerning Beijing Happy Time, among Ganzhou Qufenqi, Mr. Min Luo, Tianjin HappyShare, Shanghai Yunxin Venture Capital Co., Ltd., Phoenix Auspicious Internet Investment L.P., Tianjin Blue Run Xinhe Investment Center L.P.,Jiaxing Blue Run Quchuan Investment L.P., Ningbo Yuanfeng Venture Capital L.P., Shenzhen Guosheng Qianhai Investment Co., Ltd., BeijingKunlun Tech Co., Ltd. and Beijing Happy Time, dated December 9, 2016 (incorporated herein by reference to Exhibit 10.17 to the registrationstatement on Form F-1 (File No. 333-220511), as amended, initially filed with the Securities and Exchange Commission on September 18, 2017)4.18 Financial Support Undertaking Letter issued by the Registrant to Beijing Happy Time, dated February 15, 2017 (incorporated herein by referenceto Exhibit 10.18 to the registration statement on Form F-1 (File No. 333-220511), as amended, initially filed with the Securities and ExchangeCommission on September 18, 2017)4.19 English translation of Equity Interest Pledge Agreement concerning Ganzhou Qudian, among Ganzhou Qufenqi, Mr. Min Luo, Mr. Lianzhu Lvand Ganzhou Qudian, dated May 1, 2017 (incorporated herein bv reference to Exhibit 10.19 to the registration statement on Form F-1 (FileNo. 333-220511), as amended, initially filed with the Securities and Exchange Commission on September 18, 2017)4.20 English translation of Power of Attorney Agreement concerning Ganzhou Qudian, between Mr. Min Luo and Ganzhou Qufenqi, dated May 1,2017 (incorporated herein by reference to Exhibit 10.20 to the registration statement on Form F-1 (File No. 333-220511), as amended, initiallyfiled with the Securities and Exchange Commission on September 18, 2017)4.21 English translation of Power of Attorney Agreement concerning Ganzhou Qudian, between Mr. Lianzhu Lv and Ganzhou Qufenqi, dated May 1,2017 (incorporated herein by reference to Exhibit 10.21 to the registration statement on Form F-1 (File No. 333-220511), as amended, initiallyfiled with the Securities and Exchange Commission on September 18, 2017)4.22 English translation of Exclusive Business Cooperation Agreement between Ganzhou Qufenai and Ganzhou Qudian, dated May 1, 2017(incorporated herein by reference to Exhibit 10.22 to the registration statement on Form F-1 (File No. 333-220511), as amended, initially filedwith the Securities and Exchange Commission on September 18, 2017)Table of Contents141Exhibit Number Description of Document 4.23 English translation of Exclusive Call Option Agreement concerning Ganzhou Qudian, among Ganzhou Qufenqi, Mr. Min Luo, Mr. Lianzhu Lvand Ganzhou Qudian, dated May 1, 2017 (incorporated herein by reference to Exhibit 10.23 to the registration statement on Form F-1 (FileNo. 333-220511), as amended, initially filed with the Securities and Exchange Commission on September 18, 2017)4.24 Financial Support Undertaking Letter issued by the Registrant to Ganzhou Qudian, dated May 1, 2017 (incorporated herein by reference toExhibit 10.24 to the registration statement on Form F-1 (File No. 333-220511), as amended, initially filed with the Securities and ExchangeCommission on September 18, 2017)4.25 Trust Deed Constituting Qudian Inc. Equity Incentive Trust, dated December 30, 2016, between Qudian Inc. and Ark Trust (Hong Kong) Limited(incorporated herein by reference to Exhibit 10.37 to the registration statement on Form F-1 (File No. 333-220511), as amended, initially filedwith the Securities and Exchange Commission on September 18, 2017)4.26 English translation of Equity Interest Pledge Agreement concerning Xiamen Qudian, among Ganzhou Qufenqi, Mr. Min Luo and XiamenQudian, dated June 20, 2017 (incorporated herein by reference to Exhibit 10.38 to the registration statement on Form F-1 (File No. 333-220511),as amended, initially filed with the Securities and Exchange Commission on September 18, 2017)4.27 English translation of Power of Attorney Agreement concerning Xiamen Qudian, between Ganzhou Qufenai and Mr. Min Luo, dated June 20,2017 (incorporated herein by reference to Exhibit 10.39 to the registration statement on Form F-l (File No. 333-220511), as amended, initiallyFiled with the Securities and Exchange Commission on September 18, 2017)4.28 English translation of Exclusive Business Cooperation Agreement between Ganzhou Qufenqi and Xiamen Qudian, dated June 20, 2017(incorporated herein by reference to Exhibit 10.40 to the registration statement on Form F-l (File No. 333-220511), as amended, initially filedwith the Securities and Exchange Commission on September 18, 2017)4.29 English translation of Exclusive Call Option Agreement concerning Xiamen Qudian, among Ganzhou Qufenai, Mr. Min Luo and XiamenQudian, dated June 20, 2017 (incorporated herein by reference to Exhibit 10.41 to the registration statement on Form F-1 (File No. 333-220511),as amended, initially filed with the Securities and Exchange Commission on September 18, 2017)4.30 Financial Support Undertaking Letter issued by the Registrant to Xiamen Qudian, dated June 20, 2017 (incorporated herein by reference toExhibit 10.42 to the registration statement on Form F-1 (File No. 333-220511), as amended, initially filed with the Securities and ExchangeCommission on September 18, 2017)4.31 Indenture, dated July 1, 2019, between the Registrant and Deutsche Bank Trust Company Americas, as Trustee, relating to the issuance ofRegistrant’s 1.00% Convertible Senior Notes due 2026 (incorporated herein by reference to Exhibit 4.43 to the annual report on Form 20-F (FileNo. 001-38230), filed with the Securities and Exchange Commission on April 27, 2020)4.32 WLM Kids Inc. 2021 Share Incentive Plan (incorporated herein by reference to Exhibit 4.44 to the annual report on Form 20-F (File No. 001-38230), filed with the Securities and Exchange Commission on April 29, 2021)8.1* List of Subsidiaries11.1 Code of Business Conduct and Ethics of the Registrant (incorporated herein by reference to Exhibit 99.1 to the registration statement on Form F-1 (File No. 333-220511), as amended, initially filed with the Securities and Exchange Commission on September 18, 2017)12.1* Certification by Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200212.2* Certification by Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200213.1** Certification by Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 200213.2** Certification by Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 200215.1* Consent of Han Kun Law Offices15.2* Consent of Independent Registered Public Accounting Firm15.3**Certification by the Chief Executive Officer Pursuant to Item 16I(a) of Form 20-F99.1 Consolidated Financial Statements of Secoo Holding Limited as of December 31, 2020 and 2021 and for the years ended December 31, 2020 and2021 (incorporated herein by reference to Exhibit 99.1 to Amendment No. 1 to the annual report on Form 20-F for the fiscal year endedDecember 31, 2021 (File No. 001-38230), filed with the Securities and Exchange Commission on November 18, 2022)101.INS* Inline XBRL Instance Document101.SCH* Inline XBRL Taxonomy Extension Schema Document101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document101.LAB* Inline XBRL Taxonomy Extension Label Linkbase DocumentTable of Contents142Exhibit Number Description of Document 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document104* Cover Page Interactive Data File (embedded within the Inline XBRL document)*Filed herewith**Furnished herewithTable of Contents143SIGNATURESThe registrant hereby certifies that it meets all of the requirements for filing its annual report on Form 20-F and that it has duly caused and authorized theundersigned to sign this annual report on its behalf.QUDIAN INC.By:/s/ Min LuoName:Min LuoTitle:Chairman and Chief Executive OfficerDate: April 28, 2023Table of ContentsF-1QUDIAN INC.INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE(S)Reports of Independent Registered Public Accounting Firm (PCAOB ID:1408)F-2Consolidated Balance Sheets as of December 31, 2021 and 2022F-5Consolidated Statements of Comprehensive Income /(loss) for the Years Ended December 31, 2020, 2021 and 2022F-10Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2020, 2021 and 2022F-12Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2021 and 2022F-13Notes to the Consolidated Financial StatementsF-15Table of ContentsF-2Report of Independent Registered Public Accounting FirmTo the Shareholders and the Board of Directors of Qudian Inc.Opinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of Qudian Inc. (the “Company”) as of December 31, 2022 and 2021, the related consolidatedstatements of comprehensive income/(loss), shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the relatednotes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects,the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the periodended December 31, 2022, in conformity with U.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internalcontrol over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission (2013 framework), and our report dated April 28, 2023 expressed an unqualified opinion thereon.Basis for OpinionThese financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statementsbased on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance withthe U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risksof material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures includedexamining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principlesused and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide areasonable basis for our opinion.Critical Audit MatterThe critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to becommunicated to the audit committee and that: (1) relates to the account or disclosures that are material to the consolidated financial statements and (2) involved ourespecially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidatedfinancial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter oron the account or disclosures to which it relates.Table of ContentsF-3Description of the Matter As described in Notes 2, 9, 17 and 20 to the consolidated financial statements, as of December 31, 2022, the Company’sconsolidated balance of equity investments accounted for using the measurement alternative was RMB 191 million. Forthe year ended December 31, 2022, the Company recognized impairment losses of RMB 27 million for equityinvestments accounted for using the measurement alternative, which is classified within interest and investment income,net in the consolidated statements of comprehensive income/(loss). For equity investments accounted for using themeasurement alternative, the Company made a qualitative assessment considering impairment indicators to evaluatewhether investments were impaired at each reporting date. If the qualitative assessment indicates that an investment wasimpaired, the Company estimated the investment’s fair value and recognized an impairment loss if the fair value was lessthan the investment’s carrying value.Auditing the Company’s impairment valuation of equity investments accounted for using the measurement alternativewas complex due to the significant estimates and judgments involved in the significant unobservable inputs used bymanagement in the valuation methodologies to determine the fair value for these investments, such as comparablecompanies’ multiples and discount for lack-of-marketability.How We Addressed the Matter in OurAuditWe obtained an understanding, evaluated the design and tested the operating effectiveness of controls over theCompany’s impairment valuation processes for equity investments accounted for using the measurement alternative. Forexample, we tested controls over management’s review of the significant unobservable inputs described above used inthe measurement of fair value of the investments.To test the Company’s impairment valuation of equity investments accounted for using the measurement alternative, weperformed audit procedures that included, among others, testing the completeness, accuracy and relevance of theunderlying data used by management in the valuation models to determine fair value. We evaluated the appropriatenessof the valuation methodologies used by management and tested the significant unobservable inputs used in the valuationmethodologies with the assistance of our internal valuation specialists. We also performed sensitivity analyses byevaluating the changes to fair value of the investments resulting from changes in significant unobservable inputs./s/ Ernst & Young Hua Ming LLPWe have served as the Company’s auditor since 2016.Shanghai, The People’s Republic of ChinaApril 28, 2023Impairment valuation of equity investments accounted for using the measurement alternativeTable of ContentsF-4Report of Independent Registered Public Accounting FirmTo the Shareholders and the Board of Directors of Qudian Inc.Opinion on Internal Control Over Financial ReportingWe have audited Qudian Inc.’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—IntegratedFramework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, Qudian Inc.(the “Company”) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balancesheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of comprehensive income/(loss), shareholders’ equity, and cash flowsfor each of the three years in the period ended December 31, 2022, and the related notes and our report dated April 28, 2023 expressed an unqualified opinionthereon.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internalcontrol over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is toexpress an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB andare 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 theSecurities 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 assuranceabout whether effective internal control over financial reporting was maintained in all material respects.Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluatingthe design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in thecircumstances. We believe that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control Over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financialreporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactionsand dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance withauthorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness 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 thepolicies or procedures may deteriorate./s/ Ernst & Young Hua Ming LLPShanghai, The People’s Republic of ChinaApril 28, 2023Table of ContentsF-5QUDIAN INC.CONSOLIDATED BALANCE SHEETSAS OF DECEMBER 31, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)As of December 31, Notes20212022 RMB RMB US$ASSETS: Current assets: (including amounts from the consolidated trusts of RMB 4,892,342,449,and RMB 378,628,769 (US$ 54,896,011) as of December 31, 2021 and 2022,respectively) Cash and cash equivalents 2,065,495,008 3,486,376,077 505,477,016Restricted cash and cash equivalents 177,924,840 86,371,914 12,522,750Short-term investments 3 5,926,600,761 5,378,305,435 779,780,989Short-term loan principal and financing service fee receivables (net of allowance ofRMB 267,039,108 and RMB nil (US$ nil) as of December 31, 2021 and 2022,respectively) 4 2,371,965,781 — —Short-term finance lease receivables (net of allowance of RMB 4,948,676 and RMB21,496 (US$ 3,117) as of December 31, 2021 and 2022, respectively; includingunearned revenue of RMB 1,215,118 and RMB 11,866 (US$ 1,720) as of December31, 2021 and 2022, respectively) 5 31,462,237 1,381,091 200,239Short-term contract assets (net of allowance of RMB 31,168 and RMB nil (US$ nil) asof December 31, 2021 and 2022, respectively) 27,964,852 — —Derivative instruments-asset 17,375,517 — —Other current assets (net of allowance of RMB 201,242,068 and RMB 256,349,242(US$ 37,167,147) as of December 31, 2021 and 2022, respectively) 6 1,599,299,671 2,106,091,784 305,354,604Total current assets 12,218,088,667 11,058,526,301 1,603,335,598The accompanying notes are an integral part of these consolidated financial statements.Table of ContentsF-6QUDIAN INC.CONSOLIDATED BALANCE SHEETS - continuedAS OF DECEMBER 31, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)As of December 31, Notes20212022 RMB RMB US$Non-current assets: (including amounts from the consolidated trusts of RMB nil andRMB nil (US$nil) as of December 31, 2021 and 2022, respectively) Long-term finance lease receivables (net of allowance of RMB 193,812 and RMB nil(US$ nil) as of December 31, 2021 and 2022, respectively; including unearned revenueof RMB 71,896 and RMB nil (US$ nil) as of December 31, 2021 and 2022,respectively) 5 398,955 — —Right-of-use assets 300,607,320 103,142,446 14,954,249Investment in equity method investee 8 85,581,620 133,058,138 19,291,617Long-term investments (including amounts measured at fair value of RMB 234,425,472and RMB 30,045,542 (US$ 4,356,194) as of December 31, 2021 and 2022,respectively) 9 286,065,467 217,045,546 31,468,646Property and equipment, net (net of allowance of RMB 147,137,267 and RMB3,612,025 (US$ 523,694) as of December 31, 2021 and 2022, respectively) 10 659,100,648 773,886,342 112,202,973Intangible assets 11,011,807 9,700,742 1,406,475Long-term contract assets (net of allowance of RMB 23,174 and RMB nil (US$nil) as ofDecember 31, 2021 and 2022, respectively) 31,438 — —Deferred tax assets 18 87,285,917 — —Other non-current assets (net of allowance of RMB 2,982,978 and RMB 1,453,719 (US$210,769) as of December 31, 2021 and 2022, respectively) 442,953,334 451,075,872 65,399,854Total non-current assets 1,873,036,506 1,687,909,086 244,723,814TOTAL ASSETS 14,091,125,173 12,746,435,387 1,848,059,412The accompanying notes are an integral part of these consolidated financial statements.Table of ContentsF-7QUDIAN INC.CONSOLIDATED BALANCE SHEETS - continuedAS OF DECEMBER 31, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)As of December 31, Notes20212022 RMB RMB US$LIABILITIES AND EQUITY Current liabilities: Short-term borrowings and interest payables (including short-term borrowings and interestpayables of the consolidated VIEs without recourse to the Company of RMB nil and RMB29,062,344 (US$ 4,213,644) as of December 31, 2021 and 2022, respectively)11—29,062,3444,213,644Short-term lease liabilities (including short-term lease liabilities of the consolidated VIEswithout recourse to the Company of RMB 37,083,335 and RMB 6,226,324 (US$ 902,732)as of December 31, 2021 and 2022, respectively)7 37,470,431 6,311,201 915,038Accrued expenses and other current liabilities (including accrued expenses and other currentliabilities of the consolidated VIEs without recourse to the Company of RMB 308,973,067and RMB 283,572,997 (US$ 41,114,220) as of December 31, 2021 and 2022, respectively) 12 376,867,814 295,674,975 42,868,841Guarantee liabilities and risk assurance liabilities (including amounts of guarantee liabilitiesof RMB 885,303 and RMB nil (US$ nil), risk assurance liabilities of RMB nil and RMBnil(US$nil) as of December 31, 2021 and 2022, respectively; including guarantee liabilitiesand risk assurance liabilities of the consolidated VIEs without recourse to the Company ofRMB nil and RMB nil(US$nil) as of December 31, 2021 and 2022, respectively) 13 885,303 — —Income tax payable (including income tax payable of the consolidated VIEs without recourseto the Company of RMB 77,466,381 and RMB 87,603,805 (US$12,701,358) as ofDecember 31, 2021 and 2022, respectively) 78,293,697 90,753,024 13,157,952Derivative instruments-liability (including derivative instruments-liability of the consolidatedVIEs without recourse to the Company of RMB nil and RMB 163,128,402 (US$23,651,395) as of December 31, 2021 and 2022, respectively)—163,128,40223,651,395Total current liabilities 493,517,245 584,929,946 84,806,870The accompanying notes are an integral part of these consolidated financial statements.Table of ContentsF-8QUDIAN INC.CONSOLIDATED BALANCE SHEETS - continuedAS OF DECEMBER 31, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)As of December 31, Notes20212022 RMB RMB US$Non-current liabilities: Long-term borrowings and interest payables (including long-term borrowings and interestpayables of the consolidated VIEs without recourse to the Company of RMB 145,311,721and RMB 116,249,377 (US$ 16,854,575) as of December 31, 2021 and 2022, respectively) 11 145,311,721 116,249,377 16,854,575Convertible senior notes 14 681,400,553 — —Deferred tax liabilities (including deferred tax liabilities of the consolidated VIEs withoutrecourse to the Company of RMB 68,543,130 and RMB 2,107,470 (US$ 305,554) as ofDecember 31, 2021 and 2022, respectively) 18 68,543,130 2,117,892 307,065Long-term lease liabilities (including long-term lease liabilities of the consolidated VIEswithout recourse to the Company of RMB 168,800,246 and RMB 425,964 (US$ 61,759)as of December 31, 2021 and 2022, respectively) 7 168,800,246 425,964 61,759Other non-current liabilities (including other non-current liabilities of the consolidated VIEswithout recourse to the Company of RMB 10,012,997 and RMB nil (US$ nil) as ofDecember 31, 2021 and 2022, respectively) 10,012,997 — —Total non-current liabilities 1,074,068,647 118,793,233 17,223,399Total liabilities 1,567,585,892 703,723,179 102,030,269The accompanying notes are an integral part of these consolidated financial statements.Table of ContentsF-9QUDIAN INC.CONSOLIDATED BALANCE SHEETS - continuedAS OF DECEMBER 31, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)As of December 31, Notes20212022 RMB RMB US$Commitments and contingencies 23 Equity: Class A Ordinary shares (US$0.0001 par value; 656,508,828 shares authorized,201,304,881 shares issued and 190,243,651 shares outstanding, as of December 31,2021; 656,508,828 shares authorized, 201,304,881 shares issued and 168,755,154shares outstanding, as of December 31, 2022) 24 132,052 132,052 19,146Class B Ordinary shares (US$0.0001 par value; 63,491,172 shares authorized,63,491,172 shares issued and outstanding, as of December 31, 2021 and 2022) 24 43,836 43,836 6,355Treasury shares 25 (346,320,584) (486,954,953) (70,601,832)Additional paid-in capital 4,017,374,973 4,036,197,237 585,193,592Accumulated other comprehensive loss (58,997,174) (45,960,186) (6,663,601)Retained earnings 8,904,453,278 8,539,254,222 1,238,075,483Total Qudian Inc. shareholders’ equity 12,516,686,381 12,042,712,208 1,746,029,143Non-controlling interests 6,852,900 — —Total equity 12,523,539,281 12,042,712,208 1,746,029,143TOTAL LIABILITIES AND EQUITY 14,091,125,173 12,746,435,387 1,848,059,412The accompanying notes are an integral part of these consolidated financial statements.Table of ContentsF-10QUDIAN INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)For the years ended December 31, Notes202020212022 RMB RMB RMB US$Revenues: Financing income 2,102,664,997 1,255,487,959 308,716,991 44,759,756Sales commission fee 80,991,883 35,411,010 115,042 16,680Penalty fee 72,234,947 67,316,352 53,445,376 7,748,851Guarantee income 826,197,593 3,934,761 — —Loan facilitation income and other related income 131,633,096 39,531,049 18,809,073 2,727,059Transaction services fee and other related income (136,542,213) 151,693,310 113,790,389 16,498,056Sales income and others 610,793,584 100,668,099 82,616,493 11,978,266Total revenues 3,687,973,887 1,654,042,540 577,493,364 83,728,668Cost of revenues: Cost of goods sold (645,082,780) (78,532,651) (326,888,967) (47,394,446)Cost of other revenues 15 (217,271,212) (220,193,581) (56,202,270) (8,148,563)Total cost of revenues (862,353,992) (298,726,232) (383,091,237) (55,543,009)Operating expenses: Sales and marketing (293,282,118) (127,376,379) (271,611,475) (39,379,962)General and administrative (285,905,509) (443,275,523) (287,457,156) (41,677,369)Research and development (170,690,876) (141,263,820) (58,275,392) (8,449,138)Changes in guarantee liabilities and risk assurance liabilities (including changes in guarantee liabilities amounts ofRMB 22,265,996, RMB 53,009,582 and RMB 37,120,954 (US$ 5,382,032), change in risk assurance liabilitiesamounts of RMB (110,160,462), RMB 148,592,603 and RMB 66,870,069 (US$ 9,695,249) for the years endedDecember 31, 2020, 2021 and 2022, respectively). 87,894,466 201,602,185 103,991,023 15,077,281Expected credit loss for receivables and other assets 16 (1,621,362,182) 151,816,830 221,121,383 32,059,587Impairment loss from other assets (20,000,000) (156,394,433) (268,926,952) (38,990,743)Total operating expenses (2,303,346,219) (514,891,140) (561,158,569) (81,360,344)Other operating income 343,324,461 82,273,807 37,255,254 5,401,504Income/(loss) from operations 865,598,137 922,698,975 (329,501,188) (47,773,181)Interest and investment income, net 17.1 708,250,666 129,455,869 112,816,211 16,356,814(Loss)/gain from equity method investments (370,038,652) (221,798,009) 13,998,022 2,029,522Gain/(loss) on derivative instruments 17.2 — 17,375,517 (70,420,481) (10,210,010)Foreign exchange (loss)/gain, net (107,144) (51,356) 250,234 36,281Other income 26,357,832 5,213,254 19,832,854 2,875,493Other expenses (9,262,586) (6,485,205) (16,599,481) (2,406,699)The accompanying notes are an integral part of these consolidated financial statements.Table of ContentsF-11QUDIAN INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS) -- continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)For the years ended December 31, Notes202020212022 RMB RMB RMB US$Net income/(loss) before income taxes 1,220,798,253 846,409,045 (269,623,829) (39,091,780)Income tax expenses 18 (261,979,592) (260,482,067) (92,428,127) (13,400,819)Net income/(loss) 958,818,661 585,926,978 (362,051,956) (52,492,599)Less: net loss attributable to noncontrolling interests — (3,147,100) (87,833) (12,735)Net income/(loss) attributable to Qudian Inc.’s shareholders 958,818,661 589,074,078 (361,964,123) (52,479,864)Earnings/(loss) per share for Class A and Class B ordinary shares: Basic 19 3.78 2.32 (1.47) (0.21)Diluted 19 3.59 2.27 (1.47) (0.21)Earnings/(loss) per ADS (1 Class A ordinary share equals 1 ADS): Basic 19 3.78 2.32 (1.47) (0.21)Diluted 19 3.59 2.27 (1.47) (0.21)Weighted average number of Class A and Class B ordinary sharesoutstanding: Basic 19 253,658,448 253,438,807 246,024,592 246,024,592Diluted 19 274,333,161 266,292,869 246,024,592 246,024,592Other comprehensive income/(loss) Foreign currency translation adjustment (38,454,600) (7,577,408) 13,036,988 1,890,186Total comprehensive income/(loss) 920,364,061 578,349,570 (349,014,968) (50,602,413)Less: comprehensive loss attributable to noncontrolling interests — (3,147,100) (87,833) (12,735)Total comprehensive income/(loss) attributable to Qudian Inc.’sshareholders 920,364,061 581,496,670 (348,927,135) (50,589,678)The accompanying notes are an integral part of these consolidated financial statements.Table of ContentsF-12QUDIAN INC.CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITYFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data) Class A and B Accumulated Total Ordinary sharesAdditionalother comprehensiveQudian Inc.Number ofTreasurypaid-inloss/foreign currencyRetainedshareholders’Non-controllingTotalShares Outstanding Amount sharescapitaltranslation adjustmentearningsequityinterestsequityRMBRMBRMBRMBRMBRMBRMBRMBBalance at December 31,2019253,730,026175,474(362,130,324)3,967,733,108(12,965,166)8,331,238,53711,924,051,629—11,924,051,629Adjustments due to the adoption of ASC 326—————(974,677,998)(974,677,998)—(974,677,998)Repurchase of ordinary shares (1,495,291) — (15,528,092) — — — (15,528,092) — (15,528,092)Issuance of shares by the Company’s subsidiary* — — — — — — — 10,000,000 10,000,000Vesting of share options held by Share Based Payment Trust 562,500 389 — (389) — — — — —Exercise of share options 207,963 25 6,107,285 (6,106,879) — — 431 — 431Share-based compensation (Note 22) — — — 45,633,820 — — 45,633,820 — 45,633,820Other comprehensive loss — — — — (38,454,600) — (38,454,600) — (38,454,600)Net income — — — — — 958,818,661 958,818,661 — 958,818,661Balance at December 31,2020 253,005,198 175,888 (371,551,131) 4,007,259,660 (51,419,766) 8,315,379,200 11,899,843,851 10,000,000 11,909,843,851Exercise of share options 729,625 — 25,230,547 (25,229,307) — — 1,240 — 1,240Share-based compensation (Note 22) — — — 35,344,620 — — 35,344,620 — 35,344,620Other comprehensive loss — — — — (7,577,408) — (7,577,408) — (7,577,408)Net income — — — — — 589,074,078 589,074,078 (3,147,100) 585,926,978Balance at December 31,2021 253,734,823 175,888 (346,320,584) 4,017,374,973 (58,997,174) 8,904,453,278 12,516,686,381 6,852,900 12,523,539,281Repurchase of ordinary shares(21,696,097)—(145,866,006)———(145,866,006)—(145,866,006)Exercise of share options 207,600 — 5,231,637 (5,231,496) — — 141 — 141Share-based compensation (Note 22) — — — 24,053,760 — — 24,053,760 — 24,053,760Other comprehensive income — — — — 13,036,988 — 13,036,988 — 13,036,988Net loss — — — — — (361,964,123) (361,964,123) (87,833) (362,051,956)Changes in subsidiaries’ ownership—————(3,234,933)(3,234,933)(6,765,067)(10,000,000)Balance at December 31,2022 232,246,326 175,888 (486,954,953) 4,036,197,237 (45,960,186) 8,539,254,222 12,042,712,208 — 12,042,712,208*The subsidiary is Xiamen Beijing Wanlimu Yijie Growth Technology Co., Ltd.The accompanying notes are an integral part of these consolidated financial statements.Table of ContentsF-13QUDIAN INC.CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)For the years ended December 31, 202020212022 RMB RMB RMB US$Cash flows from operating activities: Net income/(loss) 958,818,661 585,926,978 (362,051,956) (52,492,599)Adjustments to reconcile net income/(loss) to net cash provided by operatingactivities: Expected credit loss for receivables and other assets 1,621,362,182 (151,816,830) (221,121,383) (32,059,587)Impairment loss from other assets 20,000,000 156,394,433 268,926,952 38,990,743Depreciation and amortization 10,424,113 21,619,246 7,946,648 1,152,156Amortization of right-of-use assets 33,525,924 77,855,551 56,380,582 8,174,416Loss on disposal of property and equipment — 256,289 8,227,046 1,192,810Gain on lease contract termination——(55,108,922)(7,990,043)Accrued interest of convertible senior notes 27,107,232 15,982,460 1,732,915 251,249Income from the repurchase of convertible senior notes (622,109,001) (12,046,522) (10,028,456) (1,453,989)Share-based compensation expense 45,633,820 35,344,620 24,053,760 3,487,467Losses/(income) from equity method investments 370,038,652 221,798,009 (13,998,022) (2,029,522)Unrealized investment (income)/losses of short-term investments (45,478,742) (17,213,203) 41,288,248 5,986,233Unrealized investment losses of long-term Investments — 24,635,329 58,356,978 8,460,966Unrealized investment (income)/losses of derivative instruments — (17,375,517) 180,503,919 26,170,608Foreign exchange loss/(gain), net 107,144 51,356 (250,234) (36,281)Changes in operating assets and liabilities: Financing service fee receivables 77,321,929 31,940,278 44,040,204 6,385,229Contract assets 2,899,485,965 133,132,960 27,996,290 4,059,080Deferred tax assets and liabilities 132,655,274 125,293,714 20,860,679 3,024,514Other current and non-current assets 438,899,289 (402,938,535) 254,556,401 36,907,210Interest payables (10,843,333) — — —Guarantee liabilities (251,768,288) (10,812,329) (885,303) (128,357)Risk assurance liabilities (2,328,042,357) (168,294,292) — —Operating lease liabilities (26,406,203) (77,467,656) (29,219,868) (4,236,483)Other current and non-current liabilities (879,020,326) 349,798,672 (41,335,021) (5,993,014)Net cash provided by operating activities 2,471,711,935 922,065,011 260,871,457 37,822,806Cash flows from investing activities: Proceeds from redemption of short-term investments 11,815,240,269 18,799,896,906 16,062,252,248 2,328,807,668Proceeds from redemption of long-term investments 50,985,560 — — —Proceeds from collection of loan principal 20,724,809,596 16,368,229,503 6,492,787,117 941,365,644Principal collection of finance lease receivables 273,855,570 189,717,720 36,115,570 5,236,265Proceeds from disposal of long-term assets — 149,084 7,895,615 1,144,757Purchases of short-term investments (16,802,875,965) (19,796,721,359) (15,538,749,194) (2,252,906,860)Purchases of property and equipment, intangible assets and land lease right of useasset (221,786,498) (478,432,280) (273,627,149) (39,672,207)Purchases of long-term investments (76,403,621) (63,185,197) (4,161,298) (603,331)Purchases of equity method investment (738,758,741) — (32,150,000) (4,661,312)Payments to originate loan principal (18,294,941,866) (14,636,496,696) (3,955,464,909) (573,488,504)Deposit pledged as collateral or prepayment for derivative instruments — (629,737,680) (880,068,744) (127,597,974)Payments of film investment as passive investor——(30,000,000)(4,349,591)Net cash provided by/(used in) investing activities (3,269,875,696) (246,579,999) 1,884,829,256 273,274,555Table of ContentsF-14QUDIAN INC.CONSOLIDATED STATEMENTS OF CASH FLOWS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)For the years ended December 31, 202020212022 RMB RMB RMB US$Cash flows from financing activities: Proceeds from deposits to funding 235,245,240 — — —Proceeds from borrowings 102,415,457 42,896,264 — —Proceeds from issuance of shares of subsidiary 10,000,000 — — —Proceeds from exercise of share options 431 1,240 141 20Repayment of borrowings (1,038,727,000) — — —Repurchase of ordinary shares (15,528,092) — (145,866,006) (21,148,583)Repurchase of convertible senior notes (859,219,671) (119,367,198) (689,124,926) (99,913,723)Payments for interest of convertible senior notes (25,457,967) (7,722,291) — —Net cash used in financing activities (1,591,271,602) (84,191,985) (834,990,791) (121,062,286)Effect of exchange rate changes (56,189,971) (20,835,203) 18,618,221 2,699,388Net increase/(decrease) in cash and cash equivalents, and restricted cash andcash equivalents (2,445,625,334) 570,457,824 1,329,328,143 192,734,463Cash and cash equivalents, and restricted cash and cash equivalents atbeginning of the year 4,118,587,358 1,672,962,024 2,243,419,848 325,265,303Cash and cash equivalents, and restricted cash and cash equivalents atend of the year 1,672,962,024 2,243,419,848 3,572,747,991 517,999,766Reconciliation of cash and cash equivalents, and restricted cash and cashequivalents to the consolidated balance sheet Cash and cash equivalents 1,537,557,823 2,065,495,008 3,486,376,077 505,477,016Restricted cash and cash equivalents 135,404,201 177,924,840 86,371,914 12,522,750Total cash and cash equivalents, and restricted cash and cash equivalents 1,672,962,024 2,243,419,848 3,572,747,991 517,999,766Supplemental disclosures of cash flow information: Income taxes paid 638,407,957 137,550,241 59,108,121 8,569,872Interest expense paid 26,083,616 7,722,291 1,707,057 247,500The accompanying notes are an integral part of these consolidated financial statements.Table of ContentsF-15QUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)1. OrganizationQudian Inc. (the “Company”, and where appropriate, the term “Company” also refers to its subsidiaries, variable interest entities (“VIEs”) and subsidiaries of theVIEs, is a limited company incorporated in the Cayman Islands under the laws of the Cayman Islands on November 16, 2016. The Company, through its subsidiaries,VIEs and subsidiaries of the VIEs, are principally engaged in the operation of online platforms to provide small consumer credit products in the People’s Republic ofChina (the “PRC”). The Company does not conduct any substantive operations of its own. As PRC law and regulations prohibit foreign control of companiesinvolved in internet value-added business, the Company conducts its primary business operations through its subsidiaries incorporated in mainland China andcontractual arrangements with the variable interest entities based in mainland China.As of December 31, 2022, the Company’s main subsidiaries and VIEs are as follows: Percentage of legalownership byPlace of theEntity Date of incorporation incorporation Company Principal activitiesSubsidiariesQD Data Limited (“Qudian HK”)December 2, 2016 Hong Kong (“HK”) 100% Investment holdingQD Technology Limited (“Qudian BVI”)November 23, 2016 British Virgin Islands (“BVI”) 100% Investment holdingQufenqi (Ganzhou) Information Technology Co., Ltd. (“Qufenqi Ganzhou”)September 5, 2016 PRC 100% Investment holding, research anddevelopmentQudian Inc. Equity Incentive Trust (“Share Based Payment Trust”)December 30, 2016 HK Nil Employee benefitsQufenqi (HK) Limited (“Qufenqi HK”)April 28, 2014 HK 100% Investment holdingQu Plus Plus Inc. (“Qu Plus Plus”)June 28, 2018Cayman Islands100% Investment holdingXiamen Happy Time Technology Co., Ltd. (“Xiamen Happy Time”)September 5, 2018 PRC 100% Technology development and serviceQu Plus Plus Limited (“Qu Plus Plus BVI”)June 29, 2018 BVI 100% Investment holdingQu Plus (HK) Limited (“Qu Plus HK”)May 12, 2020 HK 100% Investment holdingXiamen Youxiang Time Technology Service Co., Ltd. (“Xiamen Youxiang Time”)August 3, 2018 PRC 100% Technology development and service,research and developmentTable of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-161. Organization - continued Percentage of legalownership byPlace oftheEntity Date of incorporation incorporation Company Principal activitiesVIEs Beijing Happy Time Technology Development Co., Ltd. (“Beijing Happy Time”)April 9, 2014 PRC Nil Technology development and service,sale of productsGanzhou Qudian Technology Co., Ltd. (“Ganzhou Qudian”)November 25, 2016 PRC Nil Technology development service,sale of products and educationalservicesXiamen Qudian Technology Co., Ltd. (“Xiamen Qudian”)April 1, 2017 PRC Nil Technology development and service,sale of productsThe Company, through Qufenqi Ganzhou and Xiamen Youxiang Time (collectively the “WFOEs”) entered into power of attorney and an exclusive call optionagreement with the nominee shareholders of the VIEs that gave the WFOEs the power to direct the activities that most significantly affect the economic performanceof the VIEs and acquire the equity interests in the VIEs when permitted by the PRC laws, respectively. Certain exclusive agreements have been entered into with theVIEs through the WFOEs, which obligate the WFOEs to absorb a majority of the risk of loss from the VIEs’ activities and entitle the WFOEs to receive a majority oftheir residual returns. In addition, the Company has entered into share pledge agreements for the equity interests in the VIEs held by the nominee shareholders of theVIEs. The Company agreed to provide unlimited financial support to the VIEs for their operations. In addition, pursuant to the resolutions of all shareholders of theCompany and the resolutions of the board of directors of the Company (the “Resolutions”), the board of directors of the Company (the “Board of Directors”) or anyofficer authorized by the Board of Directors (the “Authorized Officer”) shall cause the WFOEs to exercise the rights under the power of attorney entered into amongthe WFOEs, the VIEs and the nominee shareholders of the VIEs and the WFOEs’ rights under the exclusive call option agreement between the WFOEs and the VIEs.As a result of the Resolutions and the provision of unlimited financial support from the Company to the VIEs, the Company has been determined to be most closelyassociated with the VIEs within the group of related parties and was considered to be the Primary Beneficiary.Despite the lack of equity ownership, as a result of a series of contractual arrangements (the “Contractual Arrangements”), the shareholders of the VIEs effectivelyassigned all of their voting rights underlying their equity interests in the VIEs to the Company, which gives the Company the power to direct the activities that mostsignificantly impact the VIEs’ economic performance. In addition, through the other exclusive agreements, which consist of exclusive option agreement, exclusivebusiness cooperation agreement, and equity pledge agreement, the Company, through its wholly-owned subsidiaries in the PRC, has the right to receive economicbenefits from the VIEs that potentially could be significant to the VIEs. Lastly, through the financial support undertaking letter, the Company has the obligation toabsorb losses of the VIEs that could potentially be significant to the VIEs. Therefore, the Company is considered the primary beneficiary of the VIEs andconsolidates the VIEs and its consolidated subsidiaries as required by SEC Regulation S-X Rule 3A-02 and ASC topic 810 (“ASC 810”), Consolidation.Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-171. Organization - continuedThe following is a summary of the VIE Agreements:(1)Power of Attorney Agreements:Pursuant to the power of attorney agreements signed between the VIEs’ nominee shareholders and WFOEs, each nominee shareholder irrevocably appointed WFOEsas its attorney-in-fact to exercise on each shareholder’s behalf any and all rights that each shareholder has in respect of its equity interest in the VIEs (including butnot limited to executing the exclusive right to purchase agreements, the voting rights and the right to appoint directors and executive officers of the VIEs). Theagreements are effective and irrevocable as long as the nominee shareholder remains a shareholder of the VIEs.(2)Exclusive Call Option Agreements:Pursuant to the exclusive call option agreements entered into between the VIEs’ nominee shareholders and WFOEs, the nominee shareholders irrevocably grantedWFOEs a call option to request the nominee shareholders to transfer or sell any part or all of its equity interests in the VIEs, or any or all of the assets of the VIEs, toWFOEs, or their designees. The purchase price of the equity interests in the VIEs shall be equal to the minimum price required by PRC law. As for the assets of theVIEs, the purchase price should be equal to the book value of the assets or the minimum price as permitted by applicable PRC law, whichever is higher. WithoutWFOEs’ prior written consent, the VIEs and their nominee shareholders shall not amend their articles of association, increase or decrease the registered capital, sellor otherwise dispose of their assets or beneficial interests, create or allow any encumbrance on their assets or other beneficial interests and provide any loans orguarantees, etc. The nominee shareholders cannot request any dividends or other form of assets. If dividends or other form of assets were distributed, the nomineeshareholders shall transfer all received distribution to WFOEs or their designees. The agreements are not terminated until all of the equity interests of the VIEs havebeen transferred to WFOEs or the person(s) designated by WFOEs. None of the nominee shareholders have the right to terminate or revoke the agreements under anycircumstance unless otherwise regulated by law.(3)Exclusive Business Cooperation Agreements:Pursuant to the exclusive business cooperation agreements entered into by WFOEs and the VIEs and their subsidiaries, WFOEs provides exclusive technical supportand consulting services in return for fees based on 100% of the VIEs’ profit before tax, which is adjustable at the sole discretion of WFOEs. Without WFOEs’consent, the VIEs and their subsidiaries cannot procure services from any third party or enter into similar service arrangements with any other third party, except forthose from WFOEs. In addition, the profitable consolidated VIEs and their subsidiaries have granted WFOEs an exclusive right to purchase any or all of the businessor assets of each of the profitable consolidated VIEs and their subsidiaries at the lowest price permitted under PRC law. The agreements are irrevocable or can onlybe unilaterally revoked/amended by WFOEs.Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-181. Organization - continuedThe following is a summary of the VIE Agreements: - continued(4)Equity Pledge Agreements:Pursuant to the equity interest pledge agreements, each nominee shareholder of the VIEs has pledged all of its respective equity interests in the VIEs to WFOEs ascontinuing first priority security interest to guarantee the performance of their and the VIEs’ obligations under the power of attorney agreements, the exclusive calloption agreements and the exclusive business cooperation agreements. WFOEs is entitled to all dividends during the effective period of the share pledge except as itagrees otherwise in writing. If the VIEs or any of the nominee shareholder breaches its contractual obligations, WFOEs will be entitled to certain rights regarding thepledged equity interests, including receiving proceeds from the auction or sale of all or part of the pledged equity interests of the VIEs in accordance with PRC law.None of the nominee shareholders shall, without the prior written consent of WFOEs, assign or transfer to any third party, distribute dividends and create or causeany security interest and any liability in whatsoever form to be created on, all or any part of the equity interests it holds in the VIEs. The agreements are notterminated until all of the technical support and consulting and service fees have been fully paid under the exclusive business cooperation agreements and all ofVIEs’ obligations have been terminated under the other controlling agreements.In addition, the Company entered into following agreements:(1)Financial support undertaking lettersPursuant to the financial support undertaking letters, the Company is obligated and hereby undertakes to provide unlimited financial support to the VIEs, to the extentpermissible under the applicable PRC laws and regulations, whether or not any such operational loss is actually incurred. The Company will not request repayment ofthe loans or borrowings if the VIEs or their shareholders do not have sufficient funds or are unable to repay.(2)Resolutions of all shareholders and resolution of the board of directors of Qudian Inc.The shareholders and the Board of Directors resolved that the Board of Directors or any officer authorized by the Board of Directors shall cause WFOEs to exerciseits rights under the power of attorney agreements and the exclusive call option agreements when the Board of Directors or the Authorized Officer determines thatsuch exercise is in the best interests of the Company and WFOEs to do so.In the opinion of the Company’s legal counsel, (i) the ownership structure of the PRC subsidiaries and the VIEs, both currently does not violate applicable PRC lawsand regulations; (ii) each of the VIE Agreements is valid, binding and enforceable in accordance with its terms and applicable PRC laws or regulations and will notviolate applicable PRC laws or regulations and (iii) the financial support letters issued by the Company to the VIEs, does not violate the PRC laws and regulationsHowever, uncertainties in the PRC legal system could cause the Company’s current ownership structure to be found in violation of existing and/or future PRC laws orregulations and could limit the Company’s ability to enforce its rights under these contractual arrangements. Furthermore, the nominee shareholders of the VIEs mayhave interests that are different than those of the Company, which could potentially increase the risk that they would seek to act contrary to the terms of thecontractual agreements with the VIEs.Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-191. Organization - continuedIn addition, if the current structure or any of the contractual arrangements were found to be in violation of any existing or future PRC laws or regulations, theCompany could be subject to penalties, which could include, but not be limited to, revocation of business and operating licenses, discontinuing or restricting businessoperations, restricting the Company’s right to collect revenues, temporary or permanent blocking of the Company’s internet financial services platforms, restructuringof the Company’s operations, imposition of additional conditions or requirements with which the Company may not be able to comply, or other regulatory orenforcement actions against the Company that could be harmful to its business. The imposition of any of these or other penalties could have a material adverse effecton the Company’s ability to conduct its business.Except for the deposits that were held by banks and other institutions, trust beneficiaries and other funding partners (collectively referred to as the “FundingPartners”) as guarantee deposits, all assets of the consolidated trusts, and the collateralization of the land lease right of use asset as described in Note 11, there was noother pledge or collateralization of the VIEs’ assets. Creditors of the VIEs have no recourse to the general credit of the Company, who is the primary beneficiary ofthe VIEs, through its WFOEs. The Company has not provided any financial or other support that it was not previously contractually required to provide to the VIEsduring the periods presented. The carrying amounts of the assets, liabilities and the results of operations of the VIEs and VIEs’ subsidiaries are presented in aggregatedue to the similarity of the purpose and design of the VIEs and VIEs’ subsidiaries, the nature of the assets in these VIEs and VIEs’ subsidiaries and the type of theinvolvement of the Company in these VIEs and VIEs’ subsidiaries. The carrying amounts of the assets, liabilities and the results of operations of the VIEs and VIEs’subsidiaries included in the Company’s consolidated balance sheets and statements of comprehensive income/(loss) are as follows:As of December 31, 2021 2022 RMB RMB US$Short-term loan principal and financing service fee receivables 2,339,575,202 — —Amounts due from group companies1,980,008,928109,713,45715,906,956Other current assets 7,447,784,233 10,077,615,569 1,461,116,912Total current assets 11,767,368,363 10,187,329,026 1,477,023,868Total non-current assets 1,744,115,342 1,619,591,980 234,818,765Total assets 13,511,483,705 11,806,921,006 1,711,842,633Amounts due to group companies915,529,10796,930,12914,053,548Other current liabilities423,522,783569,593,87282,583,349Total current liabilities 1,339,051,890 666,524,001 96,636,897Total non-current liabilities 592,668,094 118,782,810 17,221,888Total liabilities 1,931,719,984 785,306,811 113,858,785The following table sets forth the results of operations of the VIEs included in the Company’s consolidated statements of comprehensive income/(loss):For the years ended December 31, 2020 2021 2022 RMB RMB RMB US$Revenues 3,549,458,230 1,600,712,429 578,002,415 83,802,474Net income/(loss) 562,471,865 868,473,261 (221,602,406) (32,129,326)Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-201. Organization - continuedThe table sets forth the cash flows of the VIEs included in the Company’s consolidated statements of cash flows: For the years ended December 31, 2020 2021 2022 RMB RMB RMB US$Net cash provided by/(used in) operating activities 2,250,346,449 747,408,333 (329,949,497) (47,838,180)Net cash provided by/(used in) investing activities (2,252,529,599) 645,957,049 489,498,990 70,970,682Net cash provided by/(used in) financing activities (1,429,389,722) (571,156,011) 575,109,678 83,383,065The carrying amounts of the assets, liabilities and the results of operations of the VIEs and their subsidiaries are presented in aggregate due to the similarity of thepurpose and design of the VIEs and their subsidiaries, the nature of the assets in these VIEs and their subsidiaries and the type of the involvement of the Company inthese VIEs and their subsidiaries.The amounts of the net assets of the VIEs were RMB 11,580 million and RMB 11,022 million (US$ 1,598 million) as of December 31, 2021 and 2022. The creditorsof the VIEs’ third-party liabilities did not have recourse to the general credit of the Primary Beneficiary in the normal course of business.Consolidated TrustsThe Company established several trusts to invest in loans through the Company’s platform using funds from the Company. Such trusts are administered by third partytrust companies as the trustees. The Company provides loan facilitation service and financial guarantee to the trusts.All assets of the consolidated trusts are collateral for the trusts’ obligations and can only be used to settle the trusts’ obligations.Share Based Payment TrustOn December 30, 2016, the board of the Company approved and set up Qudian Inc. Equity Incentive Trust (the “Share Based Payment Trust”) for the purpose ofholding options awarded to certain employees and the underlying shares before they are exercised as instructed by the employees. Upon the exercise of the options,the shares will be transferred to the relevant employees. As the Company has the power to govern the financial and operating policies of the Share Based PaymentTrust and derives benefits from the contributions of the employees who have been awarded the options of the Company through their continued employment with theCompany, the assets and liabilities of the Share Based Payment Trust are included in the consolidated balance sheets.Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-212. Summary of Significant Accounting PoliciesBasis of presentationThe consolidated financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles (“U.S.GAAP”).Principles of consolidationThe consolidated financial statements include the financial statements of the Company, its subsidiaries, VIEs and the subsidiaries of the VIEs. For controlledsubsidiaries that are not wholly-owned, the noncontrolling interests are included in net income and total equity. All inter-company transactions and balances havebeen eliminated.Use of estimatesThe preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts ofrevenues and expenses during the reporting period. Areas where management uses subjective judgment include, but are not limited to, allowance for loan principaland financing service fee receivables, allowance for finance lease receivables, allowance for contract assets, allowance for other receivables, impairment of otherassets, incremental borrowing rates for lease liabilities, share-based compensation, impairment of equity investment, valuation allowance for deferred tax assets,uncertain tax positions, estimate of risk assurance liabilities, fair value of guarantee liabilities and fair value of investments. Actual results could differ from theseestimates, and as such, differences may be material to the consolidated financial statements.Revenue recognitionThe Company generates revenues primarily by providing borrowers with merchandise and cash installment credit services, credit facilitation services, transactionservices, automobile financing services, e-commerce and ready-to-cook meal sales, and educational services.Under ASC 606, revenue is recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects theconsideration that the Company expects to be entitled to in exchange for those goods or services, net of value-added tax. The Company determines revenuerecognition through the following steps:●Identify the contract(s) with a customer;●Identify the performance obligations in the contract;●Determine the transaction price;●Allocate the transaction price to the performance obligations in the contract; and●Recognize revenue when (or as) the entity satisfies a performance obligation.Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-222. Summary of Significant Accounting Policies – continuedRevenue recognition - continuedCredit facilitationThe Company entered into credit facilitation arrangements with various Funding Partners. The Company: (i) matches borrowers with the Funding Partners whichdirectly fund the credit drawdowns to the borrowers and (ii) provides post-origination services, such as short messaging reminder services throughout the term of theloans. For each successful match, the Company receives a recurring service fee throughout the term of the loans. When borrowers make instalment repaymentsdirectly to the Funding Partners, the Funding Partners will then remit the recurring service fees to the Company on a periodic basis. In addition, the Companyprovides a guarantee on the principal and accrued interest repayments of the defaulted loans to the Funding Partners.The Company considers the loan facilitation service, post-origination services and guarantee service as separate services, of which the guarantee service and the postorigination service are accounted for in accordance with ASC 815, Derivatives and Hedging, (“ASC 815”), ASC 460, Guarantees, (“ASC 460”) (refer to “Guaranteeliabilities” and “Risk Assurance Liabilities” for additional information) and ASC 860, Transfers and servicing of financial assets, respectively (“ASC 860”).The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring the promised services to the customer,net of value-added tax. The transaction price allocated to loan facilitation income and post-origination services includes variable consideration which is contingent onthe borrower making timely repayments. The amount of variable consideration is limited to the amount that is probable not to be reversed in future periods.Management estimated the variable consideration using the expected value method, based on historical defaults, current and forecasted borrower repayment trendsand assessed whether variable consideration should be constrained. Any subsequent changes in the transaction price will be allocated to the performance obligationson the same basis at contract inception.The Company first allocates the transaction price to the guarantee liabilities or risk assurance liabilities. The remaining transaction price is then allocated to the loanfacilitation services and post-origination services on a relative standalone selling price basis. The Company does not have observable price for the loan facilitationservices and post-origination services because the services are not provided separately. As a result, the estimation of standalone selling price involves significantjudgment. The Company estimates the standalone selling price of the loan facilitation and post-origination services using the expected cost plus a margin approach.Revenues from loan facilitation services are recognized when the Company matches borrowers with the Funding Partners and the funds are provided to the borrower.Additionally, revenues from post-origination services are recognized evenly over the term of the loans as the services are performed. The loan facilitation incomerecognized was RMB (32,908,294), RMB 37,028,082 and RMB 18,316,858 (US$ 2,655,695) for the years ended December 31, 2020, 2021 and 2022, respectively.The post-origination services fee recognized was RMB 164,541,390, RMB 2,502,967 and RMB 492,215 (US$ 71,364) for the years ended December 31, 2020, 2021and 2022, respectively.Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-232. Summary of Significant Accounting Policies – continuedRevenue recognition - continuedSales incomeThe Company recognizes revenue from product sales through its platform of e-commerce and ready-to-cook meal business. The Company’s single performanceobligation is to sell products to customers. The Company acts as a principal as it takes control of the products before they are transferred to customers. The Companyis also primarily obligated for the products sold to the customers, bears inventory risks and has the latitude in establishing prices. Revenue is measured based on theamount of consideration the Company expects to receive reduced by value-added tax, discounts and estimates for product returns. Product returns are estimated usingthe expected value method based on historical return patterns. Revenues are recognized at a point in time when the products are accepted by the customers. As ofDecember 31, 2021 and 2022, estimated product returns were not material.Educational servicesThe Company provides non-academic, junior art and sports educational services, and recognizes tuition revenues beginning in 2021. Tuition fee is generally collectedin advance and initially recorded as prepayments from customers. Revenue is recognized when control of promised services is transferred to the customers in anamount of consideration to which the Company expects to be entitled to in exchange for those services. Tuition revenues are recognized proportionately as thetutoring sessions are delivered. As of December 31, 2021 and 2022, estimated tuition fee revenue was not material.Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-242. Summary of Significant Accounting Policies – continuedRevenue recognition - continuedTransaction services feeThe Company entered into credit transaction arrangements with certain Funding Partners. The Company refers borrowers to the Funding Partners which directly fundthe credit drawdowns to the borrowers and provides post-origination services, such as short messaging reminder services throughout the term of the loans. For eachsuccessful transaction, the Company typically receives a pre-agreed recurring service fee throughout the term of the loans. When borrowers make installmentrepayments directly to the Funding Partners, the Funding Partners will remit the recurring transaction services fees to the Company on a periodic basis.The referral services are considered to be the performance obligations in the arrangement. The transaction price is the amount of consideration to which the Companyexpects to be entitled to in exchange for transferring the promised service to the customer, net of value-added tax. The transaction price allocated to the referralservices and post origination services includes variable service fees which are contingent on the borrower making timely repayments to the Funding Partners.Variable consideration is estimated using the expected value method based on historical default rate, current and forecasted borrower repayment trends and is limitedto the amount of variable consideration that is probable not to be reversed in future periods. The Company will update its estimate of the variable consideration at theend of each reporting period. The estimation of variable consideration (including the amount of variable consideration constrained) involves significant judgment.Revenues from transaction services are recognized when the Company successfully refers the borrower to the Funding Partner and the Funding Partner provides thefunds to the borrower. Revenues from post-origination services are recognized evenly over the term of the loans as the services are performed. The transactionservices fee recognized was RMB (168,120,830), RMB 131,475,605 and RMB 110,912,689 (US$ 16,080,828) for the years ended December 31, 2020, 2021 and2022, respectively. The post-origination services fee recognized was RMB 31,578,617, RMB 20,217,705 and RMB 2,877,700 (US$417,227) for the years endedDecember 31, 2020, 2021 and 2022, respectively.Financing incomeBorrowers can withdraw cash (“cash installment credit services”) or purchase products (e.g. personal consumer electronics) (“merchandise installment creditservices”) up to their approved credit limit and elect the installment repayment period, ranging from one to eighteen installments repayment period (either weeklyor monthly) through the Company’s application (collectively “financing platform”) or via borrowers’ Alipay accounts. The Company charges financing service feesfor facilitating the financing and managing the financing platform. The financing service fees are recorded as financing income in the consolidated statement ofcomprehensive income/(loss) in accordance with ASC 310 Receivables (ASC 310) using the effective interest method.Incentives are provided to certain borrowers and can only be applied as a reduction to the borrower’s repayments and cannot be withdrawn by the borrowers in cash.These incentives are recorded as a reduction in financing service fees using the effective interest method.Sales commission feesIn addition to financing income, the Company earns a margin from its merchandise installment credit services on the products purchased from suppliers on behalf ofthe borrowers. The margin earned is fixed based on the retail sales price without considering the financing terms chosen by the borrower.Sales commission fees are recognized and recorded net of the related cost on delivery date, as the Company is an agent and arranges for the goods to be provided bythe suppliers.Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-252. Summary of Significant Accounting Policies - continuedRevenue recognition – continuedPenalty feeThe Company charges borrowers and lessees penalty fee for late installment payments. The penalty fee is calculated based on the number of overdue days of unpaidoutstanding balance of loan principals and lease receivables at the applicable late payment rate. The penalty fee is recognized on a cash basis, which coincides withthe penalty fee being probable not to be reversed.Cost of goods soldCost of goods sold primarily consists of the purchase price of products, packaging material and fulfillment expenses, including (i) lease expenses for regionalprocessing centers and outsourcing expenses charged by third-party labor service companies for workers at regional processing centers, and (ii) logistics expensescharged by third party couriers.LeasesSales-type leasesThe Company purchases cars from car dealers and leases them to car buyers. Each car buyer is required to make a down payment and pay installments throughout theterm of the lease. The lease agreements include lease payments that are largely fixed, do not contain residual value guarantees or variable lease payments. The leaseterms are based on the non-cancellable term of the lease and the buyer may have options to terminate the lease in advance when meets certain conditions. The buyerobtains control of the car when the buyer physically possesses the car and when the Company receives cash consideration for the car from the buyer.A lease arrangement that transfers substantially all of the benefits and risks incident to the ownership of property and that give rise to a dealer’s profit or loss isclassified as a sales-type lease. For sales-type leases, when collectability is probable at lease commencement, the Company derecognizes the underlying asset andrecognizes the net investment in the lease which is the sum of the lease receivable and the unguaranteed residual asset and recognizes in net income any selling profitor loss. Initial direct costs are expensed, at the commencement date, if the fair value of the underlying asset is different from its carrying amount. Interest income isrecognized in financing income over the lease term using the interest method.Operating leasesThe Company has operating leases for certain office rentals, educational service activity centers and regional processing centers as a lessee. At inception of acontract, the Company determines whether that contract is, or contains a lease. For each lease arrangement identified, the Company determines its classification as anoperating or finance lease.Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-262. Summary of Significant Accounting Policies - continuedLeases – continuedOperating leases - continuedThe Company records a lease liability and corresponding operating lease right-of-use (“ROU”) asset at lease commencement. Lease liabilities represent the presentvalue of the lease payments not yet paid, discounted using the discount rate for the lease at lease commencement. The Company’s lease agreements include leasepayments that are largely fixed, do not contain material residual value guarantees or variable lease payments. The discount rate is determined using the Company’sincremental borrowing rate at lease commencement since the rate implicit in the lease is not readily determinable. The incremental borrowing rate is the rate ofinterest that the Company could borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment.ROU asset represents the right to use an underlying asset for the lease term and is recognized in an amount equal to the lease liability adjusted for any lease paymentsmade prior to the commencement date, less any lease incentives received, and any initial direct costs incurred by the Company. Lease terms are based on the non-cancellable term of the lease and may contain options to extend the lease when it is reasonably certain that the Company will exercise the option, however none ofthese have been recognized in the Company’s right-of-use assets or lease liabilities since those options were not reasonably certain to be exercised.If there is a lease modification, the Company considers whether the lease modification results in a separate contract. If so, the Company accounts for the separatecontract the same manner as any other new lease, in addition to the original unmodified contract. Otherwise, the Company remeasures and reallocates the remainingconsideration in the contract, reassesses the classification of the lease at the effective date of the modification and accounts for any initial direct costs, lease incentivesand other payments made to or by the lessee. If the modification fully or partially terminates the existing lease, the Company remeasures the lease liability anddecreases the carrying amount of the right-of-use asset in proportion to the full or partial termination of the existing lease and recognizes in profit or loss anydifference between the reduction in the lease liability and the reduction in the right-of-use asset.Besides, operating lease expense is recognized as a single lease cost on a straight-line basis over the lease term and is included in cost of goods sold, cost of otherrevenues and general and administrative expenses, in the consolidated statements of comprehensive income/(loss). Lease liabilities that become due within one yearafter the balance sheet date are classified as current liabilities.Land lease right of use assetAll land in the PRC is owned by the PRC government. The PRC government may sell land use rights for a specified period of time. Land use rights representoperating leases in accordance with ASC 842, Leases (ASC 842). The purchase price of land use rights represents lease prepayments to the PRC government and isrecorded as an operating lease right-of-use (“ROU”) asset in the consolidated balance sheet. The ROU asset is amortized over the remaining lease term – 35 years.Foreign currency translation and transactionsThe functional currency of the Company, and the subsidiaries that are not in mainland China is US$. The Company’s subsidiaries, VIEs, and subsidiaries of the VIEswith operations in the PRC adopted RMB as their functional currency. The determination of the respective functional currency is based on the criteria stated in ASC830, Foreign Currency Matters. The Company uses RMB as its reporting currency. The financial statements of the Company, and the subsidiaries that are not inmainland China are translated into RMB using the exchange rate as of the balance sheet date for assets and liabilities and average exchange rate for the year forincome and expense items. Translation gains and losses are recorded in accumulated other comprehensive loss, as a component of shareholders’ equity. Transactionsin currencies other than the functional currency are measured and recorded in the functional currency at the exchange rate prevailing on the transaction date.Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-272. Summary of Significant Accounting Policies - continuedForeign currency translation and transactions - continuedMonetary assets and liabilities denominated in currencies other than the functional currency are remeasured into the functional currency at the rates of exchangeprevailing at the balance sheet dates. Transaction gains and losses are recognized in the consolidated statements of comprehensive income/(loss) during the period oryear in which they occur.Cash and cash equivalentsCash and cash equivalents primarily consist of cash and demand deposits which are highly liquid. The Company considers highly liquid investments that are readilyconvertible to known amounts of cash and with original maturities from the date of purchase of three months or less to be cash equivalents. All cash and cashequivalents are unrestricted as to withdrawal and use.Restricted cash and cash equivalentsRestricted cash is cash and cash equivalents that are not readily available for normal disbursement and mainly represents security deposits held in designated bankaccounts for the guarantee of on-and-off balance sheet transactions. Such restricted cash is not available to fund the general liquidity needs of the Company.Short-term investmentsAll highly liquid investments with original maturities of greater than three months but less than twelve months, are classified as short-term investments. Investmentsthat are expected to be realized in cash during the next twelve months are also included in short-term investments.Short-term investments include wealth management products with the intention to sell in the near term which are classified as trading securities and measured at fairvalue. The realized investment income and changes in fair value are recognized in interest and investment income in the consolidated statements of comprehensiveincome/(loss). The banks or trust companies publish the redemption price of wealth management products daily (level 1) or publish their net value on a regular basis(level 2). As of December 31, 2021 and 2022, the amounts of wealth management products are RMB 5,408 million and RMB 5,159 million (US$ 748 million),respectively. In 2021 and 2022, the Company also holds marketable equity securities (level 1) in listed companies and measures them at fair value. The amount ofmarketable equity securities in listed companies is RMB 406 million and RMB 219 million (US$ 32 million) as of December 31, 2021 and 2022, respectively.Short-term investments also include negotiable certificates of deposit. The Company purchased negotiable certificates of deposit in 2021 for the purpose ofgenerating trading revenue. The negotiable certificate of deposit was measured at fair value on a recurring basis using quoted prices in active markets (level 1). As ofDecember 31, 2021, the amount of negotiable certificate of deposit is RMB 112 million. The Company sold all of the negotiable certificates of deposit in 2022.Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-282. Summary of Significant Accounting Policies - continuedDerivative instrumentsIn 2021 and 2022, the Company entered into total return swap contracts with CITIC Securities Company Limited (“CITIC”) and China International CapitalCorporation Limited (“CICC”) respectively, for the purpose of generating return from Chinese public companies’ ADSs in the US stock markets. In exchange, theCompany paid CITIC and CICC a periodic interest based on LIBOR plus 2.8% or SOFR plus 2.0% or fixed rate published by CICC. The Company net settles alltotal return swap contracts with CITIC and CICC.The total notional amount of the outstanding contracts was RMB 619,332,499 and RMB 834,038,316 (US$ 120,924,189) as of December 31, 2021 and 2022,respectively. The total return swap contracts can be initiated and terminated upon requests of the Company. The Company accounts for the total return swap contractsin accordance with ASC 815, Derivatives and hedging. The total return swap contracts were measured at fair value, which are primarily based on the change in themarket value of the ADSs underlying the total return swap contracts, recorded as earnings. As there is no initial cost associated with the derivative, the net unrealizedgain/(loss) represents the derivative’s fair value which is classified as derivative instruments-asset/(liability) within the consolidated balance sheets. The netunrealized investment income during the year ended December 31, 2021 and the net unrealized investment loss during the year ended December 31, 2022 recognizedin the comprehensive income/(loss) related to the total return swap contracts were RMB 17,375,517 and RMB 163,128,402 (US$ 23,651,395), respectively.The total return swap contracts may expose the Company to credit risk to the extent that the counterparty may be unable to meet the terms of the arrangement. TheCompany mitigates this credit risk by transacting with counterparty with high credit ratings. The Company pledged cash collateral of RMB 619,332,499 and RMB834,038,316 (US$ 120,924,189) to CITIC and CICC for its total return swap contracts as of December 31, 2021 and 2022, respectively. The Company also prepaysRMB 10,405,181 and RMB 676,742,849 (US$ 98,118,490) as collateral prepaid to securities companies for new contracts to be entered into in the future as ofDecember 31, 2021 and 2022 respectively.Guarantee depositsThe Company is required to guarantee the recoverability of the loan principal and interest for loans originated by the Company that are transferred to certain FundingPartners. As a result, the Company may provide a cash deposit to the respective Funding Partners. The cash deposits are released only after the loan principal andinterest are settled. Guarantee deposits represent cash that cannot be withdrawn without the permission of the Funding Partners. These guarantee deposits qualify ascompensating balance arrangements under SEC Regulation S-X Rule 5-02 and are classified as other current assets in the consolidated balance sheets. The balance isimmaterial as of December 31,2022.Loan principal and financing service fee receivablesLoan principal and financing service fee receivables represent payments due from borrowers that utilize the Company’s credit services. Loan principal and financingservice fee receivables are recorded at amortized cost, net of allowance for loan principal and financing service fee receivables. Deferred origination costs are nettedagainst revenue and amortized over the financing term using the effective interest method.Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-292. Summary of Significant Accounting Policies - continuedAllowance for loan principal and financing service fee receivablesThe Company considers the loans to be homogenous as they are all unsecured consumer loans of similar principal amounts. The profiles of the borrowers are alsosimilar i.e. age, credit histories and employment status. The allowance for loan principal and financing service fee receivables losses is calculated based on historicalloss experience with the entire loan portfolio, using a roll rate-based model. The roll rate-based model stratifies the loan principal and financing service feereceivables by delinquency stages (i.e., current, 1-30 days past due, and 31-60 days past due, etc.) and projected forward in one-month increments using historical rollrates. In each month of the simulation, losses on the loan principal and financing service fee receivables types are captured, and the ending delinquency stratificationserves as the beginning point of the next iteration. This process is repeated on a monthly rolling basis. The loss rate calculated for each delinquency stage is thenapplied to the respective loan principal and service fees receivables balance.The Company applies a consistent credit risk management framework to the entire portfolio of loans in accordance with Accounting Standards Update (“ASU”) No.2016-13, Financial instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASC 326”) and adjusts the allowance for loanprincipal and service fees receivables that is determined by the roll rate-based model for various qualitative factors that reflect current conditions and reasonable andsupportable forecasts of future economic conditions. These factors mainly include gross-domestic product rates, consumer price indexes, per capita consumptionexpenditure, per capita disposable income and other considerations. The Group analyzes a combination of qualitative factors to the change in roll rate using aregression model. Factors that had a strong correlation and economic and commercial significance were selected for the model. Projections of the abovementionedfactors commensurate with the life of loans are used, which are all within one year, and the projections are either sourced or derived from publicly available marketinformation. The abovementioned factors are then fed into the linear regression equation to derive an expected loss rate for each loan portfolio based ondelinquencies.For all the years presented, loan principal and financing service fee receivables are charged off when a settlement is reached for an amount that is less than theoutstanding balance or when the Company determined the balance to be uncollectable. In general, the Company considers loan principal and financing service feereceivables meeting any of the following conditions as uncollectable and charged-off: (i) death of the borrower; (ii) identification of fraud, and the fraud is officiallyreported to and filed with relevant law enforcement departments or (iii) loans that are 180 days past due.Nonaccrual loan principalThe Company does not accrue financing service fee on loan principals that are considered impaired or are more than 90 days past due. A corresponding allowance isdetermined under ASC 326. After an impaired financing service fee receivable is placed on nonaccrual status, financing service fee will be recognized when cash isreceived on a cash basis cost recovery method by applying first to reduce principal and then to financing income thereafter. Financing service fee accrued but notreceived is generally reversed against financing income. Financing service fee receivables may be returned to accrual status after all of the borrower’s delinquentbalances of loan principal and financing service fee have been settled and the borrower remains current for an appropriate period.Finance lease receivablesFinance lease receivables are carried at amortized cost comprising original financing lease and direct costs, net of unearned income and allowance for finance leasereceivables.Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-302. Summary of Significant Accounting Policies - continuedAllowance for finance lease receivablesThe Company considers the finance lease receivables to be homogenous as they are all automotive finance lease receivables collateralized by vehicle titles of similarprincipal amounts. The allowance for finance lease receivables is calculated based on historical loss experience using probability of default (PD) and loss givendefault (LGD) methods. The Company stratifies PD and LGD by the recovered rate under different scenarios (i.e. cash collection, repossessing the leased vehicle ornon-recovery), and calculates allowance balance by timing exposure at default under each scenario. This process is repeated on a monthly basis. LGD is projectedbased on historical experience of actual loss and considered proceeds from recovery of the repossessed assets.The Company applies a consistent credit risk management framework to the entire portfolio of finance lease receivables in accordance with ASC 326 and adjusts theallowance that is determined by the PD and LGD methods for various qualitative factors that reflect reasonable and supportable forecasts of future economicconditions. These factors may include gross-domestic product rates, consumer price indexes, per capita consumption expenditure and other considerations. TheCompany analyzes a combination of qualitative factors to the change in roll rate using a regression model. Factors that had a strong correlation and economic andcommercial significance were selected for the model.For all the years presented, finance lease receivables are charged off when a settlement is reached for an amount that is less than the outstanding balance or when theCompany determines the balance to be uncollectable. In general, the Company considers finance fee receivables meeting any of the following conditions asuncollectable and charged-off: (i) death of the borrower; (ii) identification of fraud, and the fraud is officially reported to and filed with relevant law enforcementdepartments or (iii) all finance lease receivables that are 180 days past due are therefore deemed uncollectible and charged-off; (iv) the vehicle is repossessed.Nonaccrual finance lease receivablesA finance lease receivable is considered impaired when the lease receivables are more than 90 days past due, or when it is probable that the Company will be unableto collect all amounts due according to the terms of the contract. Factors such as payment history, compliance with terms and conditions of the underlying financinglease agreement and other subjective factors related to the financial stability of the borrower are considered when determining whether finance lease receivables areimpaired. The Company does not accrue financing lease income on net investment of finance lease receivables that are considered impaired. Accrual of financinglease income is suspended on accounts that are impaired, accounts in bankruptcy and accounts in repossession. Payments received on non-accrual finance leasereceivables are first applied to any fees due, then to any interest due and, finally, any remaining amounts received are recorded in principal. Interest accrual resumesonce an account has received payments bringing the impaired status to current.Contract Assets and Account ReceivablesContract assets represent the Company’s right to consideration in exchange for loan facilitation business and transaction services business that the Company hastransferred to the customer before payment is due. Account receivables represent the considerations for which the Company has satisfied its performance obligationsand has the unconditional right to consideration. The Company assesses contract assets and accounts receivables for impairment in accordance with ASC 326.Contract assets as of December 31,2021 and 2022 were RMB 27,996,290 and RMB nil (US$ nil) respectively, net of allowance of RMB 31,168 and RMB nil (US$nil), respectively. Account receivables were RMB 204,791,835 and RMB nil (US$ nil) as of December 31,2021 and 2022 respectively, net of allowance of RMB45,217,416 and RMB 8,208,679 (US$ 1,190,146), respectively, which are repayments the borrowers made directly to the Funding Partners and remitted to theCompany on a periodic basis. The remaining unsatisfied performance obligations as of December 31,2021 and 2022, pertaining to post-origination services amountedto RMB 1,751,348 and RMB nil (US$ nil), respectively.Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-312. Summary of Significant Accounting Policies - continuedLong-term investmentsLong-term investments represent equity investments in privately-held companies without a readily determinable fair value and listed companies with readilydeterminable fair value. Equity securities with readily determinable fair values are measured at fair value, and any changes in fair value are recognized in earnings inaccordance with ASC 321. The Company elected to measure equity securities without a readily determinable fair value that do not qualify for the net asset valuepractical expedient using the measurement alternative. Under the measurement alternative, the equity securities are measured at cost minus impairment, if any, plusor minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.For equity investments that the Company elects to use the measurement alternative, the Company makes a qualitative assessment considering impairment indicatorsto evaluate whether investments are impaired at each reporting date. Impairment indicators considered include, but are not limited to, a significant deterioration in theearnings performance or business prospects of the investee, including factors that raise significant concerns about the investee’s ability to continue as a goingconcern, a significant adverse change in the regulatory, economic, or technological environment of the investee and a significant adverse change in the general marketcondition of either the geographical area or the industry in which the investee operates. If a qualitative assessment indicates that the investment is impaired, the entityhas to estimate the investment’s fair value in accordance with the principles of ASC 820. If the fair value is less than the investment’s carrying value, the Companyrecognizes an impairment loss in earnings equal to the difference between the carrying value and fair value.InventoriesInventories are stated at the lower of cost or net realizable value. Cost is determined using the specific identification method for the vehicle sales business. Cost isdetermined using the average cost method for the e-commerce, ready-to-cook meal business, and educational services.BorrowingsThe borrowings from banks are initially recognized equaling to the cash received from the beneficiary and measured subsequently at amortized cost using theeffective interest method. Interest costs are capitalized if they are incurred during the acquisition, construction or production of a qualifying asset and such costscould have been avoided if expenditures for these assets have not been made.Guarantee liabilitiesAs part of the Company’s cooperation with various Funding Partners, the Company provides guarantee on the principal and accrued interest repayment of thedefaulted loans to the Funding Partners, even if the loans are subsequently sold by the Funding Partners.The financial guarantee is accounted for as a credit derivative under ASC 815 because the scope exemption in ASC 815-10-15-58(c) is not met. The guaranteeliabilities are remeasured at each reporting date. The change in fair value of the guarantee liabilities is recorded as changes in guarantee liabilities in the consolidatedstatements of comprehensive income/(loss). When the Company settles the guarantee liabilities through performance of the guarantee by making requisite paymentson the respective defaulted loans, the Company records a corresponding deduction to the guarantee liabilities. Subsequent collection from the borrower through theFunding Partners will be recognized as a reversal of the deduction to guarantee liabilities.Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-322. Summary of Significant Accounting Policies - continuedRisk assurance liabilitiesIn April 2019, the Company and various Funding Partners entered into contracts to provide risk assurance on the principal and accrued interest repayment of loansfacilitated through the platform the Company operates. The risk assurance liability is exempted from being accounted for as a derivative in accordance with ASC815-10-15-58.The risk assurance liability consists of two components. The Company’s obligation to stand ready to make delinquent payments over the term of the arrangement (thenon-contingent aspect) is accounted for in accordance with ASC 460. At inception, the Company recognizes the non-contingent aspect of the risk assurance liabilityat fair value, which considers the premium required by a third-party market participant to issue the same risk assurance in a standalone transaction.The non-contingent aspect of the risk assurance liability is subsequently recognized as guarantee income over the term of the arrangement as the Company is releasedfrom the stand ready obligation based on the borrower’s repayment of the loan principal. The contingent liability relating to the expected credit losses arising fromthe contingent aspect of the risk assurance liability is initially measured under a current expected credit loss model. The subsequent changes in the contingent aspectof the risk assurance liability is adjusted through earnings as changes in guarantee liabilities and risk assurance liabilities. The contingent loss is calculated based onthe expected future payouts, adjusted for various qualitative factors that reflect current conditions and reasonable and supportable forecasts of future economicconditions. These factors may include gross-domestic product rates, consumer price indexes, per capita consumption expenditure and other considerations. TheCompany analyzes a combination of qualitative factors to the change in roll rate using a regression model. Factors that had a strong correlation and economic andcommercial significance were selected for the model.Treasury sharesThe Company accounts for treasury shares using the cost method. Under this method, the cost incurred to purchase the shares at market price is recorded in thetreasury shares account on the consolidated balance sheets. Differences between the resale price and repurchase cost of the treasury shares is reflected in additionalpaid-in capital.Property and equipment, netProperty and equipment are stated at cost less accumulated depreciation. Depreciation is provided using the straight-line method with the residual value based on theestimated useful lives of the class of asset, which range as follows:EstimatedEstimatedCategory Useful Life ResidualOffice and electronic equipment 3-5 years Nil%-5%Motor vehicles4 years5%Leasehold improvementsOver the shorter of the expected life ofleasehold improvements or the lease termNil%Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-332. Summary of Significant Accounting Policies - continuedProperty and equipment, net - continuedCosts associated with the repair and maintenance of property and equipment are expensed as incurred. Construction in progress represents building construction costsand unfinished leasehold improvements. Depreciation is recorded starting at the time when assets are ready for the intended use. Retirements, sales and disposals ofassets are recorded net of the cost and accumulated depreciation from the asset and accumulated depreciation accounts with any resulting gain or loss reflected in theconsolidated statements of comprehensive loss.Intangible assetsIntangible assets represent purchased computer software. These intangible assets are amortized on a straight-line basis over their estimated useful lives of therespective assets, most of which vary from 1-10 years.Research and developmentResearch and development expenses are primarily incurred in the development of new services, and new features of the Company’s technology infrastructure tosupport its business operations. Research and development costs are expensed as incurred unless such costs qualify for capitalization as software development costs.In order to qualify for capitalization, (i) the preliminary project should be completed, (ii) management has committed to funding the project and it is probable that theproject will be completed and the software will be used to perform the function intended, and (iii) it will result in significant additional functionality in theCompany’s services. No research and development costs were capitalized for all years presented as the Company has not met all of the necessary capitalizationrequirements.Impairment of long-lived assets, including intangible assets with definite livesLong-lived assets and intangible assets with definite lives are reviewed for impairment in accordance with authoritative guidance for impairment or disposal of long-lived assets. Long-lived assets are reviewed for events or changes in circumstances, which indicate that their carrying value may not be recoverable. Long-livedassets are reported at the lower of the carrying amount or fair value less cost to sell.Employee defined contribution planFull time employees of the Company in the PRC participate in a government mandated multi-employer defined contribution plan pursuant to which certain pensionbenefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require thatthe Company make contributions to the government for these benefits based on a certain percentage of the employee’s salaries. The Company has no legal obligationfor the benefits beyond the contributions. The total amount that was expensed as incurred, was RMB 30,138,113, RMB 79,010,301 and RMB 29,871,441 (US$4,330,952) for the years ended December 31, 2020, 2021 and 2022, respectively.Advertising costsAdvertising costs are expensed as incurred in accordance with ASC 720-35, Other Expense-Advertising costs. Advertising costs were RMB 153,327,392, RMB19,047,468 and RMB 207,905,890 (US$ 30,143,521) for the years ended December 31, 2020, 2021 and 2022, respectively. Advertising costs are included in salesand marketing expenses in the consolidated statements of comprehensive income/(loss).Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-342. Summary of Significant Accounting Policies - continuedGovernment grantsGovernment grants include cash subsidies received by the Company’s entities in the PRC from local governments as incentives for investing in certain local districtsand contributions to technology development and are typically granted based on the amount of investment made by the Company in the form of registered capital ortaxable income generated by the Company in these local districts. Such grants allow the Company full discretion in utilizing the funds and are used by the Companyfor general corporate purposes. The local governments have sole discretion as to whether the Company met all of the criteria to be entitled to the subsidies.Government financial incentives received involved no future conditions or continuing performance obligations of the Company and are recognized as other (expense)income. The Company recognized government grants of RMB 76,912,252, and RMB19,472,671 (US$2,823,272) during the years ended December 31, 2021 and2022, respectively, in other operating income, net in the consolidated statements of comprehensive income/(loss).Value added taxesXiamen Youdun Technology Co., Ltd., and Xiamen Youqi Technology Co., Ltd. are small-scale VAT taxpayers with an applicable VAT rate of 3%. The othersubsidiaries of the VIEs are all general VAT taxpayers (applicable tax rate: 6% or 13%).VAT is reported as a deduction to revenue when incurred and amounted to RMB 201,297,527, RMB 104,938,590 and RMB 80,085,288 (US$ 11,611,275) for theyears ended December 31, 2020, 2021 and 2022, respectively. Entities that are VAT general taxpayers are allowed to offset qualified input VAT paid to suppliersagainst their output VAT liabilities. Output VAT receivable net of input VAT payable is recorded in accrued expenses and other current liabilities on the consolidatedbalance sheets.Income taxesThe Company accounts for income taxes using the liability approach and recognizes deferred tax assets and liabilities for the expected future consequences of eventsthat have been recognized in the consolidated financial statements or in the Company’s tax returns. Deferred tax assets and liabilities are recognized on the basis ofthe temporary differences that exist between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements using enacted taxrates in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in earnings. Deferred tax assetsare reduced by a valuation allowance through a charge to income tax expense when, in the opinion of management, it is more-likely-than-not that a portion of or allof the deferred tax assets will not be realized. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected andconsidering prudent and feasible tax planning strategies. The components of the deferred tax assets and liabilities are classified as non-current.Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-352. Summary of Significant Accounting Policies - continuedIncome taxes - continuedThe Company accounts for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-step process to determine the amountof the benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxingauthorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefits to recognize in theconsolidated financial statements. The amount of the benefits that may be recognized is the largest amount that more-likely-than not to be realized upon ultimatesettlement. The Company’s estimated liability for unrecognized tax benefits which is included in the income tax payable in the consolidated balance sheets isperiodically assessed for adequacy and may be affected by changing interpretations of laws, rulings by tax authorities, changes and/or developments with respect totax audits, and expiration of the statute of limitations. Changes in recognition and measurement estimates are recognized in the period in which the changes occur.The Company elects to classify interest and penalties related to an uncertain tax position, if and when required, as part of income tax expense in the consolidatedstatements of comprehensive income/(loss). The Company did not recognize any income tax due to uncertain tax position nor incurred any interest and penaltiesrelated to potential underpaid income tax expenses for the years ended December 31, 2020, 2021 and 2022.Segment informationIn accordance with ASC 280 Segment Reporting (“ASC 280”), the Company’s chief operating decision maker (“CODM”) has been identified as the Chief ExecutiveOfficer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. In 2020, the Company hadtwo reportable segments, consisting of installment credit services and e-commerce sales services. In 2021 and 2022, the e-commerce sales services were combinedwith the installment credit services segment as the e-commerce sales services were substantially wound down in 2021. The CODM reviewed the consolidated resultswhen making decisions about allocating resources and assessing performance of the Company as a whole, and the Company had only one reportable segment.Because substantially all of the Company’s long-lived assets and revenues are located in and derived from the PRC, geographical segments are not presented.Fair value measurements of financial instrumentsThe fair values of cash and cash equivalents, restricted cash and cash equivalent, short-term investments, loan principal and financing service fee receivables, financelease receivables, derivative instruments, other receivables (as defined in Note 6), borrowings, guarantee liabilities and risk assurance liabilities in current assets andliabilities are measured at fair value or approximate to their respective fair values because of their short maturities. The carrying amount of the long-term loanprincipal and financing service fee receivables, long-term finance lease receivables, and long-term borrowings, approximate to their fair values due to the fact that therelated interest rates approximate to the rates currently offered by Funding Partners for similar debt instruments of comparable maturities.The fair value of the guarantee liabilities was estimated using a discounted cash flow model based on expected payouts from the arrangement with the FundingPartners. The Company estimates its expected future payouts based on estimates of expected delinquency rate and a discount rate for time value.Fair value measurementsFair 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 themeasurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considersthe principal or most advantageous market in which it would transact and the market-based risk measurement or assumptions that market participants would usewhen pricing the asset or liability.Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-362. Summary of Significant Accounting Policies – continuedFair value measurements – continuedFair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorizationwithin the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:ØLevel 1-Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active marketsØLevel 2-Include observable inputs other than quoted prices included in Level 1, such as 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, or other inputs that are observable or can be corroborated byobservable market dataØLevel 3-Unobservable inputs which are supported by little or no market activityEarnings/(loss) per shareBasic earnings/(loss) per share is computed by dividing the net income/(loss) attributable to ordinary shareholders by the weighted average number of ordinary sharesoutstanding during the period and year presented.Diluted earnings/(loss) per ordinary share reflects the potential dilution that could occur if securities were exercised or converted into ordinary shares.The dilutive effect from the conversion of convertible senior notes is reflected in diluted EPS using the if-converted method and the dilutive effect of share options isreflected in diluted EPS using the treasury stock method.Share-based paymentsThe Company accounts for share-based compensation in accordance with ASC 718, Compensation-Stock Compensation (“ASC 718”).Share-based payment transactions with employees and independent directors, such as share options are measured based on the grant date fair value of the equityinstrument. The Company recognizes the compensation costs net of estimated forfeitures using the accelerated recognition method, over the applicable vesting periodfor each separately vesting portion of the award. The estimate of forfeitures is adjusted over the requisite service period to the extent that actual forfeitures differ, orare expected to differ, from such estimates. Changes in estimated forfeitures are recognized through a cumulative catch-up adjustment in the period of change andalso impact the amount of share-based compensation expense to be recognized in future periods.A change in any of the terms or conditions of share options is accounted for as a modification of share options. The Company calculates the incrementalcompensation cost of a modification as the excess, if any, of the fair value of the modified option over the fair value of the original option immediately before itsterms are modified, measured based on the fair value of the options the share price and other pertinent factors at the modification date. For vested options, theCompany recognizes incremental compensation cost in the period the modification occurred. For unvested options, the Company recognizes, over the remainingrequisite service period, the sum of the incremental compensation cost and the remaining unrecognized compensation cost for the original award on the modificationdate. If the fair value of the modified option is lower than the fair value of the original option immediately before modification, the minimum compensation cost theCompany recognizes is the cost of the original options. The Company, with the assistance of an independent third-party valuation firm, determined the fair value ofshare-based option awards granted to employees.Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-372. Summary of Significant Accounting Policies – continuedConvenience translation for financial statements presentationTranslations of amounts from RMB into US$ for the convenience of the readers were calculated at the exchange rate of RMB 6.8972 per US$1.00 on December 30,2022, as published on the website of the United States Federal Reserve Board. No representation is made that the RMB amounts could have been, or could beconverted into US$ at such rate.Investment in equity method investeeThe Company uses the equity method to account for an equity investment over which it has significant influence but does not own a majority equity interest orotherwise control, generally accompanying a shareholding of between 20% and 50% of the voting rights, and an equity investment over limited partnership whichinvestor’s interest is over 3% to 5%. The cost of the investment over the proportional fair value of the assets and liabilities of the investee is reflected in theCompany’s memo accounts as “equity method goodwill”. The equity method goodwill is not subsequently amortized and is not tested for impairment under ASC350. Equity method investments shall continue to be reviewed for impairment in accordance with paragraph ASC 323-10-35-32. The share of earnings or losses ofthe investee are recognized in the consolidated statements of comprehensive income/(loss). Equity method adjustments include the Company’s proportionate share ofinvestee income or loss and other adjustments required by the equity method.The Company assesses its equity investment for other-than-temporary impairment by considering factors as well as relevant and available information including, butnot limited to, current economic and market conditions, the operating performance of the investees including current earnings trends, the general market conditions inthe investee’s industry or geographic area, factors related to the investee’s ability to remain in business, such as the investee’s liquidity, debt ratios, and cash burn rateand other company-specific information.Significant risks and uncertaintiesCurrency convertibility riskSubstantially all of the Company’s businesses are transacted in RMB, which is not freely convertible into foreign currencies. All foreign exchange transactions takeplace either through the People’s Bank of China (“PBOC”) or other authorized Funding Partners at exchange rates quoted the PBOC. Approval of foreign currencypayments by the PBOC or other regulatory institutions requires submitting a payment application form together with suppliers’ invoices and signed contracts.The Company has not made any foreign currency payments that are subject to approval by the PBOC or other institutions during the periods presented.Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-382. Summary of Significant Accounting Policies – continuedSignificant risks and uncertainties - continuedConcentration of credit riskFinancial assets that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents, guarantee deposit, short-terminvestment, derivative instruments, cash collateral for derivatives and other receivables.Deposits held in mainland China are subject to restrictions on foreign exchange and the ability to transfer cash outside of mainland China. In May 2015, a newDeposit Insurance System (“DIS”) managed by the People’s Bank of China (‘‘PBOC’’) was implemented by the Chinese government. Deposits in the licensed banksin mainland China are protected by DIS, up to a limit of RMB500 thousands.The Company places its cash and cash equivalents, guarantee deposits, short-term investments, derivative instruments, cash collateral for derivatives and otherreceivables with reputable counterparties that have high-credit ratings and quality. There has been no recent history of default in relation to these counterparties. TwoChinese government banks represented 10% or more of the total financial assets for the year ended December 31, 2021, amounted to approximately RMB 2,349million (US$ 369 million), representing 27% of the total balances from counterparties. China Merchants Bank Company Limited and CITIC represented 10% ormore of the total financial assets for the years ended December 31, 2022, amounted to approximately RMB 1,329 million (US$ 193 million) and RMB 1,354 million(US$196 million), representing 12.02% and 12.24% of the total balances from counterparties, respectively.Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-392. Summary of Significant Accounting Policies - continuedSignificant risks and uncertainties - continuedBorrower default riskFinancial assets that potentially expose the Company to borrower default risk consist primarily of loan principal and financing service fee receivables, finance leasereceivables, and contract assets.Besides, the Company enters into guarantee arrangements with Funding Partners to facilitate borrowing transactions, under which the Company provides the FundingPartners protection against the borrower default risk on a set of loans invested by them. The Company will have to perform the guarantee obligation if a default eventas defined under the contract occurs. The contractual or notional amounts of these liabilities represent the maximum potential amounts of future payments withoutconsideration of possible recoveries under recourse provisions.The Company manages borrower default risk on their payment for loan principal and financing service fee receivables, and finance lease receivables by performingcredit assessments on its borrowers and its ongoing monitoring of the outstanding balances. No receivables from a borrower represented 10% or more of the loanreceivables, financing service fee receivables and finance lease receivables as of December 31, 2021 and 2022.The Company manages borrower default risk of contract assets, including guarantee liabilities and risk assurance liabilities， through the self-developed riskmanagement model. The rating scale of the risk management model takes into account factors such as identity characteristics, credit history, payment overdue history,payment capacity, behavioral characteristics and online social network activity. No contract assets relating to a borrower represented 10% or more of total contractassets as of December 31, 2021 and 2022.Interest rate riskThe Company is exposed to interest rate risk on its interest-bearing assets and liabilities. As part of its asset and liability risk management, the Company reviews andtakes appropriate steps to manage its interest rate exposures on its interest-bearing assets and liabilities. The Company has not been exposed to material risks due tochanges in market interest rates, and not used any derivative financial instruments to manage the interest risk exposure during the years presented.Business and economic riskThe Company believes that changes in any of the following areas could have a material adverse effect on the Company’s future financial position, results ofoperations or cash flows: changes in the overall demand for services; competitive pressures due to new entrants; advances and new trends in new technologies andindustry standards; changes in certain strategic relationships; regulatory considerations and risks associated with the Company’s ability to attract employees necessaryto support its growth and risks related to outbreaks of epidemics. The Company’s operations could also be adversely affected by significant political, regulatory,economic and social uncertainties in the PRC.Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-402. Summary of Significant Accounting Policies – continuedRecently Adopted Accounting PronouncementsIn January 2020, the FASB issued ASU No. 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), andDerivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the FASB Emerging Issues TaskForce) (“ASU 2020-01”), which clarifies the interactions of the accounting for certain equity securities under ASC 321, investments accounted for under the equitymethod of accounting in ASC 323, and the accounting for certain forward contracts and purchased options accounted for under ASC 815. ASU 2020-01 could changehow an entity accounts for (i) an equity security under the measurement alternative and (ii) a forward contract or purchased option to purchase securities that, uponsettlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting or the fair value option inaccordance with ASC 825. These amendments improve the current U.S. GAAP by reducing diversity in practice and increasing comparability of the accounting forthese interactions. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 31, 2020. Early adoption ispermitted. The Company has adopted this guidance on its consolidated financial statements. The standard update did not have a material impact on the Company’sstatement of financial position.In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), whichfocuses on amending the legacy guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity. ASU 2020-06simplifies an issuer’s accounting for convertible instruments by reducing the number of accounting models that require separate accounting for embedded conversionfeatures. ASU 2020-06 also simplifies the settlement assessment that entities are required to perform to determine whether a contract qualifies for equityclassification. Further, ASU 2020-06 enhances information transparency by making targeted improvements to the disclosures for convertible instruments andearnings-per-share (EPS) guidance, i.e., aligning the diluted EPS calculation for convertible instruments by requiring that an entity uses the if-converted method andthat the effect of potential share settlement be included in the diluted EPS calculation when an instrument may be settled in cash or shares, adding information aboutevents or conditions that occur during the reporting period that cause conversion contingencies to be met or conversion terms to be significantly changed. This updatewill be effective for the Company’s fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Entities can elect to adopt the newguidance through either a modified retrospective method of transition or a fully retrospective method of transition. The Company has adopted this guidance on itsconsolidated financial statements. The standard update did not have a material impact on the Company’s statement of financial position.In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. This updaterequires certain annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy.This update is effective for annual periods beginning after December 15, 2021, and early application is permitted. This guidance should be applied eitherprospectively to all transactions that are reflected in financial statements at the date of initial application and new transactions that are entered into after the date ofinitial application or retrospectively to those transactions. The Company adopted this standard on January 1, 2022. There was no material impact to the Company’sfinancial position or results of operations upon adoption.Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-412. Summary of Significant Accounting Policies - continuedRecent Accounting Pronouncements: Issued but not effectiveIn March 2022, the FASB issued ASU 2022- 02, Financial Instruments — Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, whicheliminates the recognition and measurement guidance for troubled debt restructurings (TDRs) for companies that have adopted ASU 2016-13 (Topic 326) and addsrequirements for enhanced disclosures for modifications made to borrowers experiencing financial difficulty. The amendments also require public business entities topresent current period gross write-offs by year of origination in vintage disclosures. The Company is currently in the process of evaluating the impact of adoptingASU 2022- 02 on its consolidated financial statements and related disclosure.In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual SaleRestrictions, 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 when measuring fair value. Recognizing such a restriction as a separate unit of account is also not permitted. The guidance will be appliedprospectively, with special transition provisions for entities that qualify as investment companies under ASC 946. The guidance is effective for all public businessentities for fiscal years beginning after 15 December 2023, and interim periods within those fiscal years. For all other entities, it is effective for fiscal years beginningafter 15 December 2024, and interim periods within those fiscal years. Early adoption is permitted for all entities. The Company is currently in the process ofevaluating the impact of adopting ASU 2022-03 on its consolidated financial statements and related disclosure.3. Short-term investmentsThe following table presents short-term investments classification as of December 31, 2021 and 2022.As of December 31, 2021 2022RMBRMB US$Debt securities: Wealth management products issued by banks or trust companies 5,408,132,272 5,159,098,986 747,999,041Negotiable certificates of deposit 112,173,645 — —Equity securities: Marketable equity securities 406,294,844 219,206,449 31,781,948 5,926,600,761 5,378,305,435 779,780,9894. Loan principal and financing service fee receivables4.1 Loan principal and financing service fee receivables consist of the following:As of December 31, 20212022RMBRMBUS$Short-term loan principal and financing service fee receivables: Loan principal and financing service fee receivables 2,639,004,889 — —Less: allowance for loan principal and financing service fee receivables (267,039,108) — —Short-term loan principal and financing service fee receivables, net 2,371,965,781 — —Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-424. Loan principal and financing service fee receivables – continued4.2 The following table presents nonaccrual loan principal as of December 31, 2021 and 2022.As of December 31, 20212022RMBRMBUS$Nonaccrual loan principal 91,016,662 — —Less: allowance for nonaccrual loan principal (89,311,940) — —Nonaccrual loan principal, net 1,704,722 — —4.3 The following table presents the aging of past-due loan principal and financing service fee receivables as of December 31, 2021: 1-30 days 31-60 days 61-90 days 91-120 days 121-150 days 151-180 days Total past due Current TotalRMBRMBRMBRMBRMBRMBRMBRMBRMBDomestic consumer loans (uncollateralized) – Loan principal 43,284,767 32,715,863 28,694,398 27,904,847 29,486,766 33,625,049 195,711,690 2,399,252,995 2,594,964,685– Financing service fee receivables 650,524 821,076 926,548 — — — 2,398,148 41,642,056 44,040,204 43,935,291 33,536,939 29,620,946 27,904,847 29,486,766 33,625,049 198,109,838 2,440,895,051 2,639,004,889As of December 31, 2021, all loans which are past due 90 days or more are nonaccrual.As of December 31, 2022, loan principal and financing service fee receivables were RMB nil.4.4 Movements of allowance for loan principal and financing service fee receivables are as follows:As of December 31, 20212022FinancingFinancing service fee service feeLoan principalreceivablesTotalLoan principal receivablesTotalRMBRMBRMBRMBRMBRMBUS$Balance at thebeginning of the year 837,075,499 12,159,437 849,234,936 263,685,104 3,354,004 267,039,108 38,717,031Additions/ (reverse) (186,372,132) (8,805,433) (195,177,565) (206,042,627) (3,354,004) (209,396,631) (30,359,658)Charge-offs (387,018,263) — (387,018,263) (57,642,477) — (57,642,477) (8,357,373)Balance at the end ofthe year 263,685,104 3,354,004 267,039,108 — — — —Evaluated forimpairment on aportfolio basis 263,685,104 3,354,004 267,039,108 — — — —Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-435. Finance lease receivables5.1 Finance lease receivables consist of the following:As of December 31, 20212022RMBRMBUS$Gross investment in finance lease receivables 38,290,695 1,414,453 205,076Less: unearned income (1,287,015) (11,866) (1,720)Net investment in finance lease receivables 37,003,680 1,402,587 203,356Less: allowance for finance lease receivables (5,142,488) (21,496) (3,117)Finance lease receivables, net 31,861,192 1,381,091 200,2395.2 The following table presents nonaccrual finance lease receivables as of December 31, 2021 and 2022.As of December 31, 20212022RMBRMBUS$Nonaccrual finance lease receivables 567,406 15,143 2,196Less: allowance for nonaccrual financial lease receivables (114,169) (3,110) (451)Nonaccrual finance lease receivables, net 453,237 12,033 1,7455.3 The following table presents the aging of past-due finance lease receivables as of December 31, 2021: 1-30 31-60 61-90 90-120 120-150 150-180 Total past daysdaysdaysdaysdaysdaysdueCurrentTotalRMBRMBRMBRMBRMBRMBRMBRMBRMBFinance lease receivables 2,155,618 169,237 317,440 97,182 242,872 227,352 3,209,701 33,793,979 37,003,680The following table presents the aging of past-due finance lease receivables as of December 31, 2022: 1-30 31-60 61-90 90-120 120-150 150-180 Total past daysdaysdaysdaysdaysdaysdueCurrent Total TotalRMBRMBRMBRMBRMBRMBRMBRMBRMBUS$Finance lease receivables 78,279 29,943 9,352 — 3,920 11,223 132,717 1,269,870 1,402,587 203,356As of December 31, 2021 and 2022, all finance lease receivables which are past due 90 days or more are nonaccrual.5.4 The following table presents the future minimum lease payments to be received: Less than 1 year 1 – 2 years 2 – 3 years 3 – 4 years TotalRMBRMBRMBRMBRMBAs of December 31, 2021 Finance lease receivables 37,626,031 664,664 — — 38,290,695 Less than 1 year 1 – 2 years 2 – 3 years 3 – 4 years TotalRMBRMBRMBRMBRMBAs of December 31, 2022 Finance lease receivables 1,414,453 — — — 1,414,453Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-445. Finance lease receivables - continued Less than 1 year 1 – 2 years 2 – 3 years 3 – 4 years TotalUS$US$US$US$US$As of December 31, 2022 Finance lease receivables 205,076 — — — 205,0765.5 Movements of allowance for finance lease receivables for the years ended December 31, 2021 and 2022 are as follows:As of December 31, 20212022RMBRMBUS$Balance at the beginning of the year 24,549,329 5,142,488 745,591Reverse (16,452,740) (5,086,116) (737,418)Charge-offs (2,954,101) (34,876) (5,056)Balance at the end of the year 5,142,488 21,496 3,117Evaluated for impairment on a portfolio basis 5,142,488 21,496 3,1176. Other current assetsOther current assets consist of the following:As of December 31, 20212022RMBRMBUS$Prepaid expenses 36,116,886 15,108,499 2,190,526Inventory 6.1 15,212,282 116,711,168 16,921,529Deposits in trust protection fund 6.2 82,872,000 13,501,146 1,957,482Guarantee deposits held by Funding Partners 63,977,048 1,690,507 245,100Receivables from third party payment service providers 6.3 456,492,520 3,415,532 495,206Receivables from Funding Partners and other service providers 270,647,297 34,738,492 5,036,608Other account receivables 34,157,040 23,837,329 3,456,088Receivable from broker for derivative collateral 6.4 619,332,499 834,038,316 120,924,189Deposit prepayment6.410,405,181676,742,84998,118,490Receivables from trust companies6.5—293,543,84242,559,857Others 6.6 211,328,986 349,113,346 50,616,676Total 1,800,541,739 2,362,441,026 342,521,751Less: Allowance for other current assets (201,242,068) (256,349,242) (37,167,147) 1,599,299,671 2,106,091,784 305,354,6046.1The Company’s inventory mainly consists of products and packing materials to be sold in ready-to-cook meal business. In 2022, the Company had purchased alarge number of ingredients to support the development of the ready-to-cook meal business. Due to poor market response, this business had been wound downand the Company had recognized an impairment charge of RMB 74 million for the year ended December 31, 2022 for the inventory not expected to be sold.Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-456. Other current assets - continued6.2According to the relevant PRC regulations, the consolidated trusts are required to deposit 1% of the trusts’ capital to the trust protection fund, which will bereleased when the trusts are liquidated.6.3The Company has accounts with third-party payment service providers mainly to grant and collect loans. The balance of receivables from third-party paymentservice providers is unrestricted as to withdrawal and use and readily available to the Company on demand.6.4Receivable from broker for derivative collateral is cash collateral pledged by the Company into the accounts of securities companies for its total return swapcontracts. Deposit prepayment is the collateral prepaid to securities companies for new contracts to be entered into in the future.6.5Receivables from trust companies are the funds to be distributed back by the trust companies due to the liquidation of the trust plans.6.6Others include borrowings to third-party individuals of RMB 92 million as of December 31, 2022. Maturity dates of these borrowings range from February 2,2023 to December 1, 2023, and the interest rates range from 4.00% to 5.50%. The borrowings are partially secured by certain financial and real estate assets.Other receivables as referred to in the “Fair value measurements of financial instruments” accounting policy consist of deposits in trust protection fund, guaranteedeposits held by Funding Partners, receivables from third party payment service providers, accounts receivables and others.Allowance for other current assets consists of the following:As of December 31, 20212022RMBRMBUS$Balance at the beginning of the year 160,745,160 201,242,068 29,177,357Additions 59,901,259 72,112,392 10,455,314Charge-offs (19,404,351) (17,005,218) (2,465,524)Balance at the end of the year 201,242,068 256,349,242 37,167,1477. LeasesSales-type leasesSales-type lease income recognized consists of the following:For the years ended December 31,202020212022RMBRMBRMBUS$Financing income 45,993,173 5,502,703 337,355 48,912Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-467. Lease - continuedOperating lease arrangementsThe Company leases certain office premises, educational service activity centers and regional processing centers under non-cancelable leases, and an operating leasearrangement with the local government of Xiamen for land. Lease costs under operating leases for the years ended December 31, 2020, 2021 and 2022 wereRMB 33,525,924, RMB 80,884,049 and RMB 56,019,089 (US$ 8,122,004), respectively.Future minimum lease payments under non-cancelable operating lease agreements consist of the following as of December 31, 2021 and 2022:As of December 31, 20212022RMBRMBUS$1 year (Including 1 year) 40,321,257 7,217,720 1,046,4711 year to 2 years (Including 2 years) 28,953,101 418,138 60,6242 years to 3 years (Including 3 years) 27,307,080 33,840 4,9063 years to 4 years (Including 4 years) 26,593,652 1,151 1674 years to 5 years (Including 5 years) 22,452,011 — —Over 5 years 108,101,711 — —Total lease payments 253,728,812 7,670,849 1,112,168Less: imputed interest 47,458,135 933,684 135,371Present value of lease liabilities 206,270,677 6,737,165 976,797The Company’s operating lease commitments have no renewal options, rent escalation clauses and restriction or contingent rents as of December 31, 2020, 2021 and2022. The weighted average discount rate as of December 31,2021 and 2022 is 4.01%, and 3.08%, respectively. The weighted average remaining lease term as ofDecember 31, 2021 and 2022 is 103 months and 11 months, respectively. Lease payments of over 5 years were reduced from RMB 108,101,711 to RMB nil as ofDecember 31, 2022 due to the early termination of lease contracts for educational services.Supplemental lease cash flow disclosuresFor the years ended December 31,20212022RMBRMBUS$Cash payments for operating leases72,086,69349,405,5837,163,136Operating ROU assets released in exchange for operating lease liabilities 352,298,094 543,534,687 78,805,122Operating ROU assets obtained in exchange for new operating lease liabilities 522,578,298 375,303,436 54,413,883Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-478. Investment in equity method investeeThe Company subscribed for 3.02% to 99.99% of the registered capital of four limited partnerships for RMB 56 million and RMB 88 million as of December 31,2021 and 2022. The carrying amounts of all investments in equity method investee were RMB 86 million and RMB 133 million (US$ 19 million) as of December 31,2021 and 2022, respectively.On June 3, 2020, the Company agreed to acquire up to 10,204,082 Class A ordinary shares of Secoo Holding Limited for a price of US$ 9.80 per Class A ordinaryshare. The total aggregate purchase price was US$ 100 million. Secoo Holding Limited operates an integrated online and offline platform that sells high-end lifestyleproducts and services and its American depositary shares (“ADS”) are listed on the NASDAQ under the code “SECO”. Two ADS represents one Class A ordinaryshare. The transaction was closed on June 17, 2020. The Company determined that it had significant influence of SECO. The aggregate Class A ordinary sharespurchased by the Company represented 28.89% of the total ordinary shares, and the Company’s Vice President, Ms. Qi Zhu, was appointed to SECO’s Board. TheCompany elected to measure SECO at fair value. The Company ceases equity method accounting for SECO as the Company represents less than 20% voting shareand Qi Zhu resigned from the post of director as of December 28, 2021. SECO is accounted for as long-term investment measured at fair value as of December 31,2021. Changes in fair value of RMB 366,344,810 and RMB 251,634,432 were recorded in the consolidated statement of comprehensive income/(loss) for the yearended December 31, 2020 and for the period from January 1, 2021 to December 28, 2021, respectively.9. Long-term investmentsThe balance of long-term investments was RMB 286 million and RMB 217 million (US$ 31 million) as of December 31, 2021 and 2022, respectively. There were noobservable price changes for all equity investments in 2022 except for SECO. Impairment charges recognized on equity investment without readily determinable fairvalue were RMB nil, RMB 219 million, RMB 27 million (US$ 4 million) for the years ended December 31, 2020, 2021 and 2022, respectively.In 2019, the Company invested RMB 185 million for a 9.24% equity interest in Beijing Changba Technology Co., Ltd. (“Changba”), and the percentage of equityinterest changed to 9.02% in 2020. There was no observable price change for Changba in 2020. In 2021, the Company identified an observable price change in anorderly transaction for an identical investment of the same issuer and recognized an unrealized gain of RMB 182 million (US$ 29 million). As of December 31, 2021,the Company identified certain impairment indicators related to the investment and recognized an impairment charge of RMB 195 million for this investment. Netunrealized loss recognized during 2021 for Changba is RMB 13 million (US$ 2 million) and the fair value of Changba was RMB 172 million (US$ 27 million) as ofDecember 31, 2021.In 2022, the Company identified significant cumulative loss for some equity investments accounted for using the measurement alternative. The Company usedunobservable inputs in the valuation methodologies to determine the fair value such as comparable companies’ multiples and discount for lack-of-marketability, andrecognized an impairment loss of RMB 27 million (US$4 million) for the year ended December 31, 2022.The Company ceases equity method accounting for SECO and accounted for it as a long-term investment measured at fair value through profit or loss upon transferof investment category in 2021. Changes in fair value of RMB 12 million (US$ 2 million) were recorded in the consolidated statement of comprehensiveincome/(loss) for the period from December 28 to December 31, 2021. The fair value of SECO was RMB 62 million and RMB 26 million (US$ 4 million) as ofDecember 31, 2021 and 2022 based on the last quoted share price, respectively.Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-4810. Property and equipment, netAs of December 31, 20212022RMBRMBUS$Construction in progress 660,788,221 767,221,882 111,236,717Leasehold improvements 169,217,493 28,943,095 4,196,354Office and electronic equipment 9,856,959 9,965,437 1,444,853Motor vehicles 10,204,623 10,572,823 1,532,915Property and equipment, gross 850,067,296 816,703,237 118,410,839Less accumulated depreciation 43,829,381 39,204,870 5,684,172Less allowance 147,137,267 3,612,025 523,694Property and equipment, net 659,100,648 773,886,342 112,202,973Depreciation expense, for the years ended December 31, 2020, 2021 and 2022, was RMB 9 million, RMB 18 million and RMB 6 million (US$ 1 million),respectively.For the years ended December 31, 2020, 2021 and 2022, the interest cost incurred and capitalized was RMB 3 million, RMB 7 million and RMB 7 million(US$ 1 million), respectively.For the years ended December 31, 2021 and 2022, the Company had respectively recorded a charge of RMB 42,544,996 and RMB 158,713,927 of leaseholdimprovements, and RMB 104,592,271 and RMB nil of construction in progress in the consolidated statement of comprehensive income/(loss). According to thechanges of the Company’s plan and executive management team that occurred during 2022, the Company has closed all of the educational service activity centers.Thus the Company has written off RMB 201,258,922 of leasehold improvements and RMB 104,592,271 of construction in progress in connection with educationalservice.Due to the termination of educational services and the wind-down of the ready-to-cook meal business, the Company disposed of equipment in 2022. As of December31, 2021 and 2022, the carrying amounts of the disposed property and equipment were RMB 405,376 and RMB 9,611,937 (US$ 1,393,600), respectively. the lossfrom disposal of property and equipment was RMB 256,289 and RMB 8,227,046 (US$1,192,810) for the years ended December 31, 2021 and 2022, respectively.Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-4911. Short-term and long-term borrowingsIn November 2019, the Company entered into a revolving credit facility with several banks. The credit facility enables the Company to borrow RMB1,200 million tobe used for the construction of the Company’s office building and innovation center. The credit facility expires in eight years and is guaranteed by Xinjiang QudianTechnology Co., Ltd. and Qufenqi (Ganzhou) Information Technology Co., Ltd. and collateralized by the land lease right of use asset which has a carrying amount ofRMB 95.65 million (US$ 13.87 million) as of December 31, 2022. Drawdowns from the credit facility will incur interest at a rate equal to the Loan Prime Rate(“LPR”). The Company is required to comply with certain financial covenants, which had been met as of December, 31, 2022. As of December 31, 2021 and 2022,the aggregate amounts of unused lines of credit for such long-term loan were RMB 1,055 and RMB 1,055 million (US$ 153 million), respectively.11.1 Short-term borrowingsThe following table presents short-term borrowings from banks mentioned above as of December 31, 2021 and 2022:As of December 31, Floating annual rate (%) Term* 2021 2022 RMBRMB US$Banks LPR4 to 10 months — 29,062,344 4,213,644*All short-term borrowings are current portion of borrowings greater than 1 year.The weighted average interest rate for the outstanding borrowings was approximately 4.75% as of December 31, 2022.11.2 Long-term borrowingsThe following table presents long-term borrowings from banks mentioned above as of December 31,2021 and 2022:As of December 31, Floating annual rate (%) Term 20212022RMB RMB US$BanksLPR16 to 58 months145,311,721116,249,37716,854,575The weighted average interest rate for the outstanding borrowings was approximately 4.95% and 4.75% as of December 31, 2021 and 2022, respectively.The following table sets forth the contractual obligations which has not included the impact of discount of time value as of December 31, 2021 and 2022: Less than 1 year 1 – 2 years 2 – 3 years 3 – 4 years 4 – 5 years Greater than 5 years TotalRMBRMBRMBRMBRMBRMBRMBAs of December 31, 2021 Long-term borrowings and interestpayables (RMB) 7,185,665 35,588,502 34,186,806 32,733,923 31,296,790 29,859,658 170,851,344As of December 31, 2022 Long-term borrowings and interestpayables (RMB) 6,262,209 33,979,547 32,585,427 31,206,419 29,827,410 — 133,861,012Long-term borrowings and interestpayables (US$) 907,935 4,926,571 4,724,443 4,524,505 4,324,568 — 19,408,022Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-5012. Accrued expenses and other current liabilitiesAccrued expenses and other current liabilities consist of the following:As of December 31, 20212022 RMB RMB US$Accrued payroll 16,843,567 1,030,216 149,369Tax payables 155,211,471 47,276,768 6,854,487Payable to suppliers 32,100,134 52,627,693 7,630,298Payable to external service providers 77,657,212 55,247,794 8,010,177Payable to funding partner 22,694,769 84,635,053 12,270,929Business deposits8,828,9807,959,0801,153,958Others 63,531,681 46,898,371 6,799,623376,867,814295,674,97542,868,84113. Guarantee liabilities and risk assurance liabilities13.1 Guarantee liabilitiesThe movements of guarantee liabilities are as follows:As of December 31, 20212022 RMB RMB US$Balance at beginning of the year 11,697,633 885,303 128,357Fair value of guarantee liabilities upon the inception of new loans 5,604,145 — —Collections 36,593,107 36,235,652 5,253,675Change in fair value of guarantee liabilities (53,009,582) (37,120,955) (5,382,032)Balance at end of the year 885,303 — —As of December 31, 2021 and 2022, the maximum potential undiscounted future payment the Company would be required to make was RMB 37 million andRMB nil (US$ nil), respectively.Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-5113. Guarantee liabilities and risk assurance liabilities - continued13.2 Risk assurance liabilitiesThe movements of risk assurance liabilities are as follows:As of December 31, 20212022ContingentNon-contingentTotalContingentNon-contingentTotal RMB RMB RMB RMB RMB RMB US$Balance at the beginning of theyear 15,766,928 3,934,761 19,701,689 — — — —Recognized as guaranteeincome — (3,934,761) (3,934,761) — — — —Collections 132,825,675 — 132,825,675 66,870,069 — 66,870,069 9,695,249Change in fair value of riskassurance liabilities (148,592,603) — (148,592,603) (66,870,069) — (66,870,069) (9,695,249)Balance at end of the year — — — — — — —As of December 31, 2021 and 2022, the maximum potential undiscounted future payment that the Company would be required to make was RMB nil. The riskassurance liability has expired as of December 31, 2021.14. Convertible senior notesOn July 1, 2019, the Company issued US$300 million convertible senior notes (the “Notes”) to several initial purchasers and an additional US$45 million principalamount of the Notes pursuant to the initial purchaser’s option to purchase additional Notes. The Notes are senior, unsecured obligations of the Company, and interestis payable semi-annually in cash at a rate of 1.00% per annum on July 1 and January 1 of each year, beginning on January 1, 2020. The Notes will mature on July 1,2026 unless repurchased, converted, or redeemed earlier prior to such date.The net proceeds from the issuance of the Notes were US$334 million (equivalent to RMB 2,290 million at the exchange rates in July 1, 2019), after deductingunderwriting discounts and offering expenses of US$11 million (equivalent to RMB 73 million at the exchange rates on July 1, 2019) from the initial proceeds ofUS$345 million. The underwriting discounts and offering expenses are amortized at an effective interest rate of 2.07% to accrete the discounted carrying value of theNotes to their face value on July 1, 2022, the repurchase date of the Notes.In 2021 and 2022, the Company repurchased Notes with a principal amount of RMB 133 million and RMB 701 million (US$102 million), with an amortized cost ofRMB 131 million and RMB 699 million (US$101 million), for a total cash consideration of RMB 119 million and RMB 689 million (US$100 million), respectively.As a result, the Company recognized a net gain of RMB 12 million and RMB 10 million (US$1 million) from the repurchase that is recorded as interest andinvestment income, net in the consolidated statements of comprehensive income/(loss). The Company has repurchased all the Notes on July 1, 2022.As of December 31, 2021 and 2022, the gross carrying amount of the Notes was RMB 685 million and RMB nil (US$ nil), net against unamortized debt discount andoffering expenses were RMB 4 million and RMB nil (US$ nil), respectively. The net carrying amount of the liability was RMB 681 million and RMB nil(US$ nil), respectively.Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-5215. Cost of other revenuesCost of other revenues consists of the following:For the years ended December 31, 202020212022 RMB RMB RMB US$Interest expenses of borrowings 15,240,283 — — —Other costs* 202,030,929 220,193,581 56,202,270 8,148,563 217,271,212 220,193,581 56,202,270 8,148,563*Other costs include commission expenses, salaries and cost of educational services.16. Expected credit loss/(reversal) for receivables and other assetsExpected credit loss/(reversal) for receivables and other assets consists of the following:For the years ended December 31, 202020212022 RMB RMB RMB US$Expected credit loss/(reversal) for loan principal and financing service feereceivables 1,434,446,417 (195,177,565) (209,396,631) (30,359,658)Reversal for finance lease receivables (29,287,359) (16,452,740) (5,086,116) (737,418)Reversal for contract assets (3,089,153) (87,784) (31,168) (4,519)Expected credit loss/(reversal) for other current assets 219,292,278 59,901,259 (8,061,187) (1,168,762)Expected credit loss for other non-current assets — — 1,453,719 210,770 1,621,362,182 (151,816,830) (221,121,383) (32,059,587)17.1 Interest and investment income, netInterest and investment income, net consists of the following:For the years ended December 31, 202020212022 RMB RMB RMB US$Unrealized investment income/(loss) of short-term investments 45,478,742 17,213,203 (41,288,248) (5,986,233)Realized investment income of short-term investments 35,892,481 113,179,422 159,629,366 23,144,083Unrealized investment loss of long-term investments — (24,635,329) (58,356,978) (8,460,966)Realized investment income/(loss) of long-term investments4,472,410—(8,550,287)(1,239,675)Interest income 27,405,264 27,634,511 54,793,874 7,944,365Income from the repurchase of convertible senior notes 622,109,001 12,046,522 10,028,456 1,453,989Interest expense of convertible senior notes (27,107,232) (15,982,460) (3,439,972) (498,749) 708,250,666 129,455,869 112,816,211 16,356,814Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-5317.2 Gain/(loss) on derivative instrumentsFor the years ended December 31, 2020 2021 2022RMBRMBRMB US$Unrealized investment income/(loss) of derivative instruments—17,375,517(180,503,919)(26,170,608)Realized investment income of derivative instruments— — 110,083,438 15,960,598— 17,375,517 (70,420,481) (10,210,010)18. Income taxesCayman IslandsUnder the current laws of the Cayman Islands, the Company, Qu Plus Plus and WLM Kids are not subject to tax on income or capital gain arising in Cayman Islands.Additionally, upon payments of dividends by the Company to its shareholders, no Cayman Islands withholding tax will be imposed.British Virgin IslandsUnder the current laws of the BVI, Qudian BVI, Qu Plus Plus BVI and WLM Kids BVI are not subject to tax on income or capital gains. In addition, upon paymentsof dividends by these companies to their shareholders, no British Virgin Islands withholding tax will be imposed.Hong KongQudian HK, Qufenqi HK, Qu Plus HK, Qu Plus Plus (HK) Limited, WLM Kids HK, Qudian Fresh (HK) Limited, Qudian Cuisine (HK) Limited, Qudian Daily Food(HK) Limited and Qudian Chief (HK) Limited are incorporated in Hong Kong and are subject to Hong Kong profits tax of 16.5% on their activities conducted inHong Kong.PRCThe Company’s subsidiaries, VIEs and subsidiaries of the VIEs domiciled in the PRC are subject to the statutory rate of 25%, in accordance with the EnterpriseIncome Tax law (the ‘‘EIT Law’’), which was effective since January 1, 2008 except for the following entities eligible for preferential tax rates.Xiamen Qudian Technology Co., Ltd. was qualified as High and New Technology Enterprise and was subject to a preferential statutory tax rate of 15% forthree years in 2020 and 2021.Dividends, interest, rent or royalties payable by the Company’s PRC subsidiaries, to non-PRC resident enterprises, and proceeds from any such non-residententerprise investor’s disposition of assets (after deducting the net value of such assets) shall be subject to 10% withholding tax, unless the respective non-PRCresident enterprise’s jurisdiction of incorporation has a tax treaty or arrangements with China that provides for a reduced withholding tax rate or an exemption fromwithholding tax.Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-5418. Income taxes - continuedThe current and deferred components of income tax expenses which were substantially attributable to the Company’s PRC subsidiaries, VIEs and subsidiaries of theVIEs, are as follows:For the years ended December 31, 202020212022 RMB RMB RMB US$Current income tax expenses 129,397,492 135,188,353 71,567,448 10,376,305Deferred income tax expenses 132,582,100 125,293,714 20,860,679 3,024,514Total income tax expenses 261,979,592 260,482,067 92,428,127 13,400,819The principal components of the deferred tax assets and liabilities are as follows:As of December 31, 20212022 RMB RMB US$Non-current deferred tax assets Allowance for loan principal and financing service fee receivables 391,551,056 18,465,2062,677,203Allowance for finance lease receivable 10,216,523 8,944,9941,296,902Allowance for other current assets 66,008,093 53,566,3197,766,386Impairment loss from long-lived assets 39,083,895 22,131,5413,208,773Guarantee liabilities 186,637,271 100,082,62514,510,617Risk assurance liabilities 56,287,963 ——Share-based compensation 33,776,437 35,798,1025,190,237Fair value change on investments 2,691,614 67,969,7009,854,680Fair value change on financial assets 8,201,268 34,319,4624,975,854Lease liabilities 51,560,367 1,675,482242,922Advertising cost 1,787,054 35,811,8155,192,225Uncollected revenue—4,501,793652,699Outside basis difference—44,907,6096,510,991Net operating loss carry forwards 272,561,783 746,950,201108,297,599Less: valuation allowance (838,371,909) (1,100,270,879)(159,524,282)Total non-current deferred tax assets net of valuation allowance 281,991,415 74,853,97010,852,806Net non-current deferred tax assets 87,285,917 ——Non-current deferred tax liabilities Right-of-use assets (52,117,255) (1,864,922)(270,388)Fair value change on financial assets (3,629,878) (63,732,300)(9,240,315)Unallocated revenue (207,501,495) (11,374,640)(1,649,168)Total non-current deferred tax liabilities (263,248,628) (76,971,862)(11,159,871)Net non-current deferred tax liabilities (68,543,130) (2,117,892)(307,065)Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-5518. Income taxes - continuedThe Company operates through its subsidiaries, VIEs and subsidiaries of the VIEs and valuation allowance is considered on an individual entity basis. The Companyrecorded full valuation allowance against deferred tax assets of those entities that were in a three-year cumulative financial loss and/or are not forecasting profits inthe near future as of December 31, 2021 and 2022. In making such determination, the Company also evaluated a variety of factors including the Company’s operatinghistory, accumulated deficit, existence of taxable temporary differences and reversal periods.As of December 31, 2021 and 2022, the Company had net operation loss of RMB 1,098,237,738 and RMB 3,024,134,001 (US$ 438,458,215), respectively, from itsPRC and Hong Kong subsidiaries, which can be carried forward to offset future taxable income. The PRC subsidiaries’ net operating losses will expire from years2023 to 2027 if not utilized. Net operating losses from Hong Kong subsidiaries can be carried forward with no expiration date.Reconciliation between the income taxes expense computed by applying the PRC statutory tax rate to profit/(loss) before income taxes and the actual provision forincome taxes is as follows:For the years ended December 31, 202020212022 RMB RMB RMB US$ Profit/(loss) before income tax 1,220,798,253 846,409,045 (269,623,829) (39,091,780)PRC statutory income tax rate 25% 25% 25%25%Income tax at statutory tax rate 305,199,563 211,602,261 (67,405,957) (9,772,945)Effect of different tax rates (272,361,568) (60,256,708) 12,944,788 1,876,818Tax exempted income(350,121)———Outside basis difference——(109,594,486)(15,889,707)Expenses not deductible for tax purposes 73,694,299 62,168,979 12,666,674 1,836,495Adjustment on current income tax of the previous periods 24,502,181 8,525,032 (18,081,862) (2,621,623)Deferred only adjustment — 26,769,243 — —Research and development super-deduction (20,606,639) (19,928,755) — —Tax rate change (157,679,128) (105,024,051) — —Changes in valuation allowance 309,581,005 136,626,066 261,898,970 37,971,781Income tax expenses 261,979,592 260,482,067 92,428,127 13,400,819As of December 31, 2022, the Company intends to permanently reinvest the undistributed earnings from foreign subsidiaries to fund future operations. As ofDecember 31, 2022, the total amount of undistributed earnings from its PRC subsidiaries as well as VIEs is RMB 12,481 million (US$ 1,810 million). The amount ofunrecognized deferred tax liabilities for temporary differences related to investments in foreign subsidiaries is not determined because such a determination is notpracticable.Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-5618. Income taxes - continuedUnrecognized Tax BenefitAs of December 31, 2021 and 2022, the Company recorded an unrecognized tax benefit of RMB 2,588,962 and RMB nil (US$ nil) respectively, of whichRMB 2,588,962 and RMB nil (US$ nil) are presented on a net basis against the deferred tax assets related to tax loss carry forwards on the consolidated balancesheets. It is possible that the amount of uncertain tax position will change in the next twelve months; however, an estimate of the range of the possible outcomescannot be made at this moment. As of December 31, 2022, unrecognized tax benefits of RMB nil (US$ nil), if ultimately recognized, will impact the effective taxrate. A reconciliation of the beginning and ending amount of unrecognized tax benefit was as follows:For the years ended December 31, 20212022 RMB RMB US$Balance at beginning of the year — 2,588,962 375,364Additions 2,588,962 — —Decreases — (2,588,962) (375,364)Balance at end of the year 2,588,962 — —As of December 31, 2021 and 2022, the Company did not record any interest expense and penalty accrued in relation to the unrecognized tax benefit in income taxexpense.In general, the PRC tax authority has up to five years to conduct examinations of the Company’s tax filings. Accordingly, as of December 31, 2022, the tax yearsended December 31, 2017 through the period ended as of December 31, 2022 reporting date for the Company’s PRC subsidiaries remain open to examination by thePRC tax authorities. For the non-PRC entities, the tax years ended December 31, 2016 through period ended December 31, 2022 remain open to examination by taxauthorities.19. Earnings/(loss) per shareThe following table sets forth the computation of basic earnings/(loss) per share for the years ended December 31, 2020, 2021 and 2022:For the years ended December 31,202020212022RMBRMBRMBRMBRMBUS$RMBUS$Class AClass BClass AClass BClass AClass AClass BClass BEarnings/(loss) per share – basic: Numerator: Allocation of net income/(loss) attributable to Qudian Inc. for basiccomputation 718,824,602 239,994,059 441,499,980 147,574,098 (268,552,622) (38,936,470) (93,411,501) (13,543,395)Millions of Shares (denominator): Weighted average number of ordinary share outstanding – basic 190.17 63.49 189.95 63.49 182.53 182.53 63.49 63.49Denominator used for basic earnings per share 190.17 63.49 189.95 63.49 182.53 182.53 63.49 63.49Earnings/(loss) per share – basic 3.78 3.78 2.32 2.32 (1.47) (0.21) (1.47) (0.21)Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-5719. Earnings/(Loss) per share - continuedThe following table sets forth the computation of diluted earnings/(loss) per share for the years ended December 31, 2020, 2021 and 2022:For the years ended December 31, 202020212022RMBRMBRMBRMBRMBUS$RMBUS$ Class A Class B Class A Class B Class A Class A Class B Class BEarnings/(loss) per share – diluted:Numerator: Interest charges applicable to the ConvertibleSenior Notes 20,833,583 6,273,649 12,171,824 3,810,636 — — — —Allocation of net income/(loss) attributableto Qudian Inc. for diluted computation 736,911,399 221,907,262 448,623,440 140,450,638 (268,552,622) (38,936,470) (93,411,501) (13,543,395)Reallocation of net income/(loss) attributableto Qudian Inc. as a result of conversion ofClass B to Class A shares 228,180,911 — 144,261,274 — (93,411,501) (13,543,395) — —Allocation of net income/(loss) attributableto Qudian Inc 985,925,893 228,180,911 605,056,538 144,261,274 (361,964,123) (52,479,865) (93,411,501) (13,543,395)Millions of Shares (denominator): Weighted average number of ordinary shareoutstanding – basic 190.17 63.49 189.95 63.49 182.53 182.53 63.49 63.49Conversion of Class B to Class A ordinaryshares 63.49 — 63.49 — 63.49 63.49 — —Conversion of the Convertible Senior Notesto Class A ordinary share 20.67 — 12.85 — — — — —Denominator used for diluted earnings pershare 274.33 63.49 266.29 63.49 246.02 246.02 63.49 63.49Earnings/(loss) per share – diluted 3.59 3.59 2.27 2.27 (1.47) (0.21) (1.47) (0.21)The following table sets forth the computation of basic and diluted earnings per ADS for the years ended December 31, 2020, 2021 and 2022:For the years ended December 31, 202020212022RMBRMBRMBUS$Class AClass AClass AClass AEarnings/(loss) per share – ADS: Denominator used for earnings per ADS – basic 181.84 46.74 182.53 182.53Denominator used for earnings per ADS – diluted 196.67 49.11 182.53 182.53Earnings/(loss) per ADS – basic 3.78 2.32 (1.47) (0.21)Earnings/(loss) per ADS – diluted 3.59 2.27 (1.47) (0.21)Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-5820. Fair value measurementsAssets and liabilities disclosed at fair valueThe cash and cash equivalents, restricted cash, short-term investments and time deposit are classified as Level 1 because their carrying values are the same as fairvalues using quoted market price. The Company’s other financial instruments included account receivables, short-term borrowing and certain amount of accruedexpense and other liabilities as well as prepaid expense and other current asset. The carrying values of these financial instruments approximate to their fair values dueto their short-term maturities and are classified within Level 3.Assets measured at fair value on a nonrecurring basisThe Company measures its property and equipment, intangible assets and equity method investment at fair value on a nonrecurring basis whenever events or changesin circumstances indicate that the carrying value may no longer be recoverable.The Company also measures equity investments without readily determinable fair values on a nonrecurring basis. The non-recurring fair value measurements to thecarrying amount of such investments usually require management to estimate a price adjustment for the different rights and obligations between a similar instrumentof the same issuer from an observable price change in an orderly transaction and the investment held by the Company. These non-recurring fair value measurementswere measured as of the observable transaction dates. The valuation methodologies involved require management to use the observable transaction price at thetransaction date (level 2). When there is impairment of equity securities accounted for under the measurement alternative, the non-recurring fair value measurementsare measured at the date of impairment. Estimating the fair value of investees is highly judgmental due to the subjectivity of the unobservable inputs (level 3) used inthe valuation methodologies used to determine fair value. The Company uses valuation methodology under the market approach which requires management to useunobservable inputs (level 3) such as selection of comparable companies and their multiples, and discount for lack of marketability.As of December 31, 2021 and 2022, the Company measured long-term investments at fair value on a nonrecurring basis using valuation methodology under themarket approach. In 2021, the significant unobservable inputs (level 3) include enterprise value to revenue multiple which was determined based on the median ofselected comparable companies ranging from 2.5 times to 3.8 times, and the discount for lack of marketability which was estimated ranging from 30% to 33%. Thefair value of the long-term investment was RMB 172 million (US$ 27 million) as of December 31, 2021. In 2022, the significant unobservable inputs (level 3)include enterprise value to revenue multiple which was determined based on the median of selected comparable companies ranging from 1.3 times to 2.1 times, andthe discount for lack of marketability which was estimated at 30%. The fair value of the long-term investments was RMB 4 million (US$ 1 million) as of December31, 2022.The fair value information is sensitive to changes in the unobservable inputs used to determine fair value and such changes could result in the fair value at thereporting date to be different from the fair value presented. When the Company’s assessment indicates that an impairment exists, the Company writes down theinvestment to its fair value.Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-5920. Fair value measurements - continuedAssets and liabilities measured at fair value on a recurring basisThe Company measured its short-term investments, long-term investments with readily determinable fair values, derivative instruments, convertible senior notes andguarantee liabilities at fair value on a recurring basis. The Company measures its short-term investments at fair value using the redemption price of wealthmanagement products (level 1) daily or net value (level 2) on a regular basis published by the banks or trust companies, quoted prices of marketable equity securities(level 1) and negotiable certificate of deposit in active markets (level 1). As the Company’s guarantee liabilities are not traded in an active market with readilyobservable prices, the Company uses significant unobservable inputs to measure the fair value of guarantee liabilities. Guarantee liabilities are categorized in theLevel 3 valuation hierarchy based on the significance of unobservable factors in the overall fair value measurement. The Company did not transfer any assets orliabilities in or out of level 3 during the years ended December 31, 2021 and 2022. The Company carries the convertible senior notes at face value less unamortizeddebt discount and issuance costs on its consolidated balance sheets and presents the fair value for disclosure purposes only. The fair value of the convertible seniornotes is classified as Level 2 fair value measurements based on dealer quotes. For further information on the convertible senior notes, see Note 14.The following table summarizes the Company’s financial assets and liabilities measured or disclosed at fair value on a recurring basis as of December 31, 2021 and2022:As of December 31, 2021Active marketObservableNon-observable(Level 1)input (Level 2)input (Level 3)TotalRMBRMBRMBRMBAssets: Short-term investments 2,412,379,263 3,514,221,498 — 5,926,600,761Long-term investments with readily determinable fair values 62,425,472 — — 62,425,472Derivative instruments—17,375,517—17,375,517Liabilities: Guarantee liabilities — — 885,303 885,303Convertible senior notes — 611,000,109 — 611,000,109As of December 31, 2022Active market Observable Non-observable (Level 1)input (Level 2)input (Level 3)Total RMB RMB RMB RMBAssets:Short-term investments 2,118,365,856 3,259,939,579 — 5,378,305,435Long-term investments with readily determinable fair values 25,833,155 — — 25,833,155Liabilities: Derivative instruments — 163,128,402 — 163,128,402Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-6020. Fair value measurements – continuedAssets and liabilities measured at fair value on a recurring basis - continuedAs of December 31, 2022Active market Observable Non-observable (Level 1)input (Level 2)input (Level 3)TotalUS$US$US$US$Assets: Short-term investments 307,134,179 472,646,810 — 779,780,989Long-term investments with readily determinable fair values 3,745,455 — — 3,745,455Liabilities: Derivative instruments — 23,651,395 — 23,651,395As of December 31, 2021, the discounted cash flow methodology is used to estimate the fair value of guarantee liabilities. The significant unobservable inputs usedin the fair value measurement of guarantee liabilities include the discount rate and expected delinquency rates applied in the valuation models. These inputs inisolation can cause significant increases or decreases in fair value. Specifically, when a discounted cash flow model is used to determine fair value, the significantinput used in the valuation model is the discount rate applied to present value the projected cash flows. Increases in the discount rate can significantly lower the fairvalue of guarantee liabilities; conversely a decrease in the discount rate can significantly increase the fair value of the guarantee liabilities. The discount rate isdetermined based on the market rates. Increase in the expected delinquency rates can significantly increase the fair value of guarantee liabilities; conversely adecrease in the expected delinquency rates can significantly decrease the fair value of guarantee liabilities.Significant Unobservable InputsRange of Inputs Weighted - Average As of December 31,Financial Liabilities Unobservable Input 2021 2022Guarantee liabilities Discount rates 6.04%Not applicable Expected delinquency rates 18.77% - 19.70%Not applicableRefer to Note 13.1 for additional information about Level 3 guarantee liabilities measured at fair value on a recurring basis for the years ended December 31, 2021and 2022.21. Related party balances and transactionsName of related parties Relationship with the CompanyLuo Min Founder, chief executive officer and controlling shareholder of the CompanyKey management and their immediate families The Company’s key management and their immediate familiesThere were no significant related party transactions in 2020, 2021 and 2022.Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-6122. Share-based compensationStock optionsOn December 9, 2016, the Board of Directors of Qudian Inc. approved the 2016 Equity Incentive Plan (the “2016 Plan”). All the share options granted under the2016 Plan were vested over 3 to 5 years. The 2016 Plan expires 10 years from the date of the grant. The Company reserved 1,000,000 shares for issuance under the2016 Plan. The exercise price for such options is RMB 0.0006 (US$ 0.0001) per share.The Company has set up the Share Based Payment Trust for the purpose of holding options awarded to certain employees and underlying shares before they areexercised as instructed by the employees. Shares options held by Share Based Payment Trust are legally outstanding upon satisfaction of vesting conditions.The Company estimated the fair value of the options based on the quoted share price at grant date. Due to the options’ di minimis exercise price, the variousassumptions used in the binomial option pricing model will not have a material impact in the calculation of the fair value of the options.The Company recognized compensation cost for the share options on a graded vesting basis. The total share-based compensation expenses recognized by theCompany for the share option granted were RMB 45,633,820, RMB 35,344,620 and RMB 24,053,760 (US$ 3,487,467) for the years ended December 31, 2020, 2021and 2022, respectively.A summary of share option activities under the 2016 Plan for the years ended December 31, 2021 and 2022 is as follows: Weighted average remaining Aggregated Weighted averageWeighted average contractual intrinsic Number of options exercise pricegrant date fair valueterm YearsvalueRMBRMBRMBBalance, December 31, 201912,055,912—19.878.18578,275,151Granted878,125—14.51——Exercised(797,463)—13.45—10,316,855Forfeited(1,066,563)—52.22——Balance, December 31, 2020 11,070,011 — 16.79 7.31 99,672,691Exercised (1,019,625) — 13.60 — 13,879,913Forfeited (158,500) — 28.96 — —Balance, December 31, 2021 9,891,886 — 16.92 6.30 61,139,618Exercised (357,600) — 5.66 — 2,037,155Forfeited (72,500) — 28.76 — —Balance, December 31, 2022 9,461,786 — 17.26 5.31 61,990,313Vested and expected to vest as of December 31, 2022 9,287,789 — 33.26 5.31 60,850,345Exercisable, December 31, 2022 8,499,473 — 33.19 5.13 55,685,575Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-6222. Share-based compensation - continuedStock options - continuedThe aggregate intrinsic value in the table above represents the difference between the exercise price and the Company’s closing stock price on the last trading day in2020, 2021 and 2022, respectively. The total intrinsic value of options exercised for the years ended December 31, 2020, 2021 and 2022 was RMB 10,723,410, RMB13,862,597 and RMB 2,023,265 (US$ 293,346) respectively. The total fair value of shares vested during the years ended December 31, 2020, 2021 and 2022 wasRMB 94,674,877, RMB 55,458,785 and RMB 50,943,916 (US$7,386,173), respectively.As of December 31, 2022, the total unrecognized compensation expense relating to unvested share options was RMB 5,265,997 (US$ 763,498). The expense isexpected to be recognized over a weighted-average period of 0.87 years.For the years ended December 31, 2020, 2021 and 2022, the Company allocated share-based compensation expense as follows:For the years ended December 31, 202020212022RMBRMBRMBUS$Sales and marketing 1,912,318 1,726,837 527,537 76,486General and administrative 40,894,564 29,684,217 21,102,104 3,059,517Research and development 2,826,938 3,933,566 2,424,119 351,464 45,633,820 35,344,620 24,053,760 3,487,46723. Commitments and contingenciesCapital CommitmentsThe Company’s capital commitments relate primarily to commitments in connection with its plan to build an office building and innovation center. The total capitalcommitments contracted but not yet reflected in the financial statements as of December 31, 2021 and 2022 amounted to RMB 545,978,654 andRMB 596,929,756 (US$ 86,546,679) respectively. All of the commitments relating to the construction will be settled in installments.24. Ordinary sharesThe rights of the holders of Class A and Class B ordinary shares are identical, except with respect to voting and conversion rights. Each share of Class A ordinaryshares is entitled to one vote per share and is not convertible into Class B ordinary shares under any circumstances. Each share of Class B ordinary shares is entitledto ten votes per share and is convertible into one Class A ordinary share at any time by the holder thereof. Upon any transfer of Class B ordinary shares by the holderthereof to any person or entity which is not an affiliate of such holder, such Class B ordinary shares would be automatically converted into a equal number of Class Aordinary shares.25. Treasury sharesOn January 16, 2020, the Board of Directors of the Company authorized to implement a share repurchase program to repurchase from time to time of up to US$400million worth of ADSs, each representing one Class A ordinary share, par value $0.0001 per share, of the Company over a period of 24 months starting from April2019.In 2020, the Company repurchased an aggregate of 1,495,291 ADSs, representing 1,495,291 Class A ordinary shares, at an average price of $1.510 per ADS, forUS$2,258,112 (RMB 15,528,092).Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-6325. Treasury shares - continuedThe amount of treasury shares as of December 31, 2020, 2021 and 2022 was 371,551,131, 346,320,584 and 486,954,953 shares, respectively.On June 11, 2022, the Board of Directors of the Company authorized to implement a share repurchase program to repurchase from time to time of up to US$200million worth of ADSs, each representing one Class A ordinary share, par value US$ 0.0001 per share, of the Company over a period of 24 months starting from July2022.As of December 31, 2022, the Company repurchased an aggregate of 105,309,388 ADSs, representing 105,309,388 Class A ordinary shares under the sharerepurchase program, at an average price of $5.654 per ADS, for US$ 595,447,163 (RMB 4,080,022,764). As of December 31, 2022, 71,645,824 shares werecanceled, and 1,113,837 shares were used for exercise of share options. The remaining balance of treasury shares represents 32,549,727 Class A ordinary shares, at anaverage price of US$2.154 per ADS, for US$ 69,775,108 (RMB 481,582,245). These shares were recorded at their purchase cost on the consolidated balance sheetsand have not been cancelled as of December 31, 2022.26. Restricted net assetsThe Company is a holding company with no material operations of its own and conducts the operations primarily through its PRC subsidiaries and the VIEs. As anoffshore holding company, the Company is permitted under PRC laws and regulations to provide funding from the proceeds of its offshore fundraising activities to itsPRC subsidiaries only through loans or capital contributions, and to its VIEs only through loans, in each case subject to the satisfaction of the applicable governmentregistration and approval requirements.The Company’s ability to pay dividends is primarily dependent on the Company receiving distributions of funds from its subsidiaries. Relevant PRC statutory lawsand regulations permit payments of dividends by the Company’s subsidiaries, VIEs and subsidiaries of the VIEs incorporated in the PRC only out of their retainedearnings, if any, as determined in accordance with PRC accounting standards and regulations. The consolidated results of operations reflected in the consolidatedfinancial statements prepared in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of the Company’s subsidiaries. TheCompany has not previously declared or paid any cash dividend or dividend in kind, and has no plan to declare or pay any dividends in the near future.Under PRC law, the Company’s subsidiaries, VIEs and the subsidiaries of the VIEs located in the PRC (collectively referred as the “PRC entities”) are required toprovide for certain statutory reserves, namely a general reserve, an enterprise expansion fund and a staff welfare and bonus fund. The PRC entities are required toallocate at least 10% of their after tax profits on an individual company basis as determined under PRC accounting standards to the statutory reserve and has the rightto discontinue allocations to the statutory reserve if such reserve has reached 50% of registered capital on an individual company basis. In addition, the registeredcapital of the PRC entities is also restricted.Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-6426. Restricted net assets - continuedUnder PRC regulations, the subsidiaries of the VIEs in the PRC with microloan license are required to provide a statutory reserve, which is appropriated from netincome as reported in the Company’s statutory accounts. The Company is required to allocate 1.5% of its balance of loan principal to the statutory reserve. Thestatutory reserve can only be used for specific purposes and not distributable as cash dividends.Under PRC regulations, the Company’s subsidiary in the PRC with a license to provide financing guarantee service is required to provide a statutory reserve, which isappropriated from net income as reported in the Company’s statutory accounts. The Company is required to allocate 10 % of its after tax profits to the statutoryreserve. The statutory reserve can only be used for specific purposes and not distributable as cash dividends.Appropriations to the enterprise expansion fund and staff welfare and bonus fund are at the discretion of the Board of Directors of the subsidiaries. The PRC entitiesare also subject to similar statutory reserve requirements. These reserves can only be used for specific purposes and are not transferable to the Company in the formof loans, advances or cash dividends.Amounts restricted that include paid-in capital and statutory reserve funds, as determined pursuant to PRC GAAP, were RMB 5,314 million and RMB 4,345 million(US$ 630 million) as of December 31, 2021 and 2022, respectively.Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-6527. Condensed financial information of the parent companyThe following is the condensed financial information of the Company on a parent company only basis.Condensed balance sheetsAs of December 31, 20212022 RMB RMB US$ASSETS:Current assets:Cash and cash equivalents 558,271,954 559,373,169 81,101,486Short-term investments 200,238,180 217,937,726 31,598,000Short-term amounts due from related parties 1,595,236,014 868,168,614 125,872,617Total current assets 2,353,746,148 1,645,479,509 238,572,103Non-current assets: — — —Investment in subsidiaries 769,404,888 635,715,140 92,170,031Contractual interests in VIEs and VIEs’ subsidiaries 10,081,286,481 9,770,421,610 1,416,577,976Total non-current assets 10,850,691,369 10,406,136,750 1,508,748,007TOTAL ASSETS 13,204,437,517 12,051,616,259 1,747,320,110As of December 31, 20212022RMBRMBUS$LIABILITIES AND SHAREHOLDERS’ EQUITY:Current liabilities:Accrued expenses and other current liabilities2,020,5865,024,052728,419Short-term amounts due to related parties4,329,9973,879,999562,548Total current liabilities6,350,5838,904,0511,290,967Non-current liabilities Convertible senior notes 681,400,553 — —Total non-current liabilities 681,400,553 — —TOTAL LIABILITIES 687,751,136 8,904,051 1,290,967Commitments and contingencies Shareholders’ equity Class A Ordinary shares (US$0.0001 par value; 656,508,828 shares authorized, 201,304,881shares issued and 190,243,651 shares outstanding, as of December 31, 2021; 656,508,828shares authorized, 201,304,881 shares issued and 168,755,154 shares outstanding, as ofDecember 31, 2022) 132,052 132,052 19,146Class B Ordinary shares (US$0.0001 par value; 63,491,172 shares authorized, 63,491,172shares issued and outstanding, as of December 31, 2021 and 2022) 43,836 43,836 6,355Treasury shares (346,320,584) (486,954,953) (70,601,832)Additional paid-in capital 4,017,374,973 4,036,197,237 585,193,592Accumulated other comprehensive loss (58,997,174) (45,960,186) (6,663,601)Retained earnings 8,904,453,278 8,539,254,222 1,238,075,483Total shareholders’ equity 12,516,686,381 12,042,712,208 1,746,029,143TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 13,204,437,517 12,051,616,259 1,747,320,110Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-6627. Condensed financial information of the parent company - continuedCondensed statements of comprehensive income/(loss)For the years ended December 31, 202020212022 RMB RMB RMB US$Share-based compensation expense (45,633,820) (35,344,620) (24,053,760) (3,487,467)General and administrative (38,512,789) (9,973,856) (26,199,820) (3,798,617)Interest and investment income, net (15,718,860) (22,506,569) (13,148,315) (1,906,326)Other non-interest income 19,633,391 4,979,926 11,548,297 1,674,346Foreign exchange loss, net 2,073,798 352,492 404,232 58,608Income from the repurchase of convertible senior notes 622,109,001 12,046,522 10,028,456 1,453,989Share of loss in subsidiaries (192,796,924) (292,443,982) (121,864,519) (17,668,694)Contractual interests in VIEs and VIEs’ subsidiaries 607,664,864 931,964,165 (198,678,694) (28,805,703)Net income/(loss) before income taxes 958,818,661 589,074,078 (361,964,123) (52,479,864)Income tax expense — — — —Net income/(loss) 958,818,661 589,074,078 (361,964,123) (52,479,864)Other comprehensive income/(loss) Foreign currency translation adjustment(38,454,600)(7,577,408)13,036,9881,890,186Total comprehensive income/(loss) 920,364,061 581,496,670 (348,927,135) (50,589,678)Condensed statements of cash flowsFor the years ended December 31, 202020212022RMBRMBRMBUS$Cash flows from operating activities: Net income/(loss) 958,818,661 589,074,078 (361,964,123) (52,479,864)Adjustments to reconcile net income/(loss) to net cash used in operating activities:Share of loss in subsidiaries 192,796,924 292,443,982 121,864,519 17,668,694Contractual interests in VIEs and VIEs’ subsidiaries (607,664,864) (931,964,165) 198,678,694 28,805,703Share-based compensation expense 45,633,820 35,344,620 24,053,760 3,487,467Income from the repurchase of convertible senior notes (622,109,001) (12,046,522) (10,028,456) (1,453,989)Accrued interest of convertible senior notes 27,107,232 15,982,460 1,732,915 251,249Unrealized investment income of short-term Investments — 4,264,330 67,907,228 9,845,623Foreign exchange loss net (2,073,798) (352,492) (404,232) (58,608)Changes in operating assets and liabilities: Receivables from related party (221,873,465) (97,924) — —Payable to employees (176,326) (762) 66,077 9,580Other current receivables618,772———Other current payables5,651,200(4,184,856)2,937,392425,882Net cash provided by/(used in) operating activities(223,270,845)(11,537,251)44,843,7746,501,737Net cash provided by/(used in) investing activities1,497,130,562(132,143,216)908,576,201131,731,166Net cash used in financing activities(1,522,314,300)(127,088,249)(834,990,790)(121,062,285)Effect of exchange rate changes on cash and cash equivalents 84,221,631 15,864,881 (117,327,970) (17,010,957)Net (decrease)/increase in cash and cash equivalents(164,232,952)(254,903,835)1,101,215159,661Cash and cash equivalents at beginning of the year977,408,741813,175,789558,271,95480,941,825Cash and cash equivalents at end of the year 813,175,789 558,271,954 559,373,169 81,101,486Table of ContentsQUDIAN INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continuedFOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022(Amounts in Renminbi (“RMB”) and US dollar (“US$”), except for number of shares and per share data)F-6727. Condensed financial information of the parent company – continuedCondensed statements of cash flows – continuedBasis of presentationCondensed financial information is used for the presentation of the Company, or the parent company. The condensed financial information of the parent company hasbeen prepared using the same accounting policies as set out in the Company’s consolidated financial statements except that the parent company used the equitymethod to account for investment in its subsidiaries and VIEs.The parent company records its investment in its subsidiaries and VIEs under the equity method of accounting as prescribed in ASC 323, Investments-Equity Methodand Joint Ventures. Such investments are presented on the condensed balance sheets as “Investment in subsidiaries and VIEs” and their respective profit or loss as“Equity in profits of subsidiaries and VIEs” on the condensed statements of comprehensive income/(loss). Equity method accounting ceases when the carryingamount of the investment, including any additional financial support, in a subsidiary and VIEs is reduced to zero unless the parent company has guaranteedobligations of the subsidiary and VIEs or is otherwise committed to provide further financial support. If the subsidiary and VIEs subsequently report net income, theparent company shall resume applying the equity method only after its share of that net income equals the share of net losses not recognized during the period theequity method was suspended.The parent company’s condensed financial statements should be read in conjunction with the Company’s consolidated financial statements.28. Subsequent eventsAs of April 21, 2023, the Company repurchased an aggregate of 8,854,900 ADSs, representing 8,854,900 Class A ordinary shares, at an average price of US$ 1.148per ADS, for US$ 10,162,922 (RMB 69,283,273). Exhibit 8.1LIST OF SIGNIFICANT SUBSIDIARIES AND CONSOLIDATED VARIABLE INTEREST ENTITIES OFQUDIAN INC.(as of December 31, 2022)Subsidiaries Jurisdiction of IncorporationQD Technology LimitedBritish Virgin IslandsQu Plus Plus Inc.Cayman IslandsQu Plus Plus LimitedBritish Virgin IslandsQufenqi (HK) LimitedHong KongQD Data LimitedHong KongQu Plus (HK) LimitedHong KongQufenqi (Ganzhou) Information Technology Co., Ltd.* 趣分期(赣州)信息技术有限公司 PRCXiamen Happy Time Technology Co., Ltd.* 厦门快乐时代科技有限公司PRCConsolidated Variable Interest Entities (“VIEs”) Jurisdiction of IncorporationBeijing Happy Time Technology Development Co., Ltd.* 北京快乐时代科技发展有限公司 PRCXiamen Qudian Technology Co., Ltd.* 厦门趣店科技有限公司 PRCGanzhou Qudian Technology Co., Ltd.* 赣州趣店科技有限公司 PRCSubsidiaries of Consolidated VIEs Jurisdiction of IncorporationGanzhou Happy Fenqi Network Service Co., Ltd.* 赣州快乐分期网络服务有限公司PRCXiamen Qudian Commercial Factoring Co., Ltd.* 厦门趣店商业保理有限公司 PRCXiamen Qudian Financial Lease Co., Ltd.* 厦门趣店融资租赁有限公司PRCXiamen Xincheng Youda Financing Guarantee Ltd.* 厦门信诚友达融资担保有限公司 PRC*The English name of this subsidiary, consolidated VIE or subsidiary of consolidated VIE, as applicable, has been translated from its Chinese name. Exhibit 12.1Certification by the Chief Executive OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002I, Min Luo, certify that:1.I have reviewed this annual report on Form 20-F of Qudian Inc. (the “Company”);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 statementsmade, 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 financialcondition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;4.The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for thecompany and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe 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 annualreport that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and5.The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theCompany’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 toadversely 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 overfinancial reporting.Date:April 28, 2023By:/s/ Min LuoName:Min LuoTitle:Chairman and Chief Executive Officer Exhibit 12.2Certification by the Principal Financial OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002I, Yan Gao, certify that:1.I have reviewed this annual report on Form 20-F of Qudian Inc. (the “Company”);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 statementsmade, 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 financialcondition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;4.The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for thecompany and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe 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 annualreport that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and5.The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theCompany’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 toadversely 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 overfinancial reporting.Date:April 28, 2023By:/s/ Yan GaoName:Yan GaoTitle:Vice President of Finance Exhibit 13.1Certification by the Chief Executive OfficerPursuant to Section 906 of the Sarbanes-Oxley Act of 2002In connection with the annual report of Qudian Inc. (the “Company”) on Form 20-F for the year ended December 31, 2022 as filed with the Securities andExchange Commission on the date hereof (the “Report”), I, Min Luo, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section1350, 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 28, 2023By:/s/ Min LuoName:Min LuoTitle:Chairman and Chief Executive Officer Exhibit 13.2Certification by the Principal Financial OfficerPursuant to Section 906 of the Sarbanes-Oxley Act of 2002In connection with the annual report of Qudian Inc. (the “Company”) on Form 20-F for the year ended December 31, 2022 as filed with the Securities andExchange Commission on the date hereof (the “Report”), I, Yan Gao, Vice President of Finance of the Company, certify, pursuant to 18 U.S.C. Section 1350, asadopted 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 28, 2023By:/s/ Yan GaoName:Yan GaoTitle:Vice President of Finance Exhibit 15.19/F, Office Tower C1, Oriental Plazza, 1 East Chang An Ave., DongCheng DistrictBeijing 100738, PRCTEL: +86 10 8525 5500 Fax: +86 10 8525 5511/8525 8822Beijing Shanghai Shenzhen Haikou Wuhan Hong Kongwww.hankunlaw.comApril 28, 2023Qudian Inc.Tower A, AVIC Zijin PlazaSiming District, XiamenFujian Province 361000People’s Republic of Chinaas the “Company”Dear Sirs,We consent to the references to our firm under the heading “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure— If thePRC government deems that the contractual arrangements in relation to the Group VIEs do not comply with PRC regulatory restrictions on foreign investment in therelevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced torelinquish our interests in those operations.” and “Item 4. Information on the Company—C. Organizational Structure—Our Contractual Arrangements with the GroupVIEs and Their Shareholders” in Qudian Inc.’s Annual Report on Form 20-F for the year ended December 31, 2022 (the “Annual Report”), which is to be filed withthe Securities and Exchange Commission (the “SEC”) on April 28, 2023. We also consent to the filing with the SEC of this consent letter as an exhibit to the AnnualReport.In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Actof 1933, or under the Securities Exchange Act of 1934, in each case, as amended, or the regulations promulgated thereunder.Yours faithfully,/s/ Han Kun Law OfficesHan Kun Law Offices Exhibit 15.2Consent of Independent Registered Public Accounting FirmWe consent to the incorporation by reference in the following Registration Statements:(1) Registration Statement (Form S-8 No. 333-224249) pertaining to the 2016 Equity Incentive Plan of Qudian Inc., and(2) Registration Statement (Form S-8 No. 333-249085) pertaining to the 2016 Equity Incentive Plan of Qudian Inc;of our reports dated April 28, 2023, with respect to the consolidated financial statements of Qudian Inc. and the effectiveness of internal control over financialreporting of Qudian Inc. included in this Annual Report (Form 20-F) of Qudian Inc. for the year ended December 31, 2022./s/ Ernst & Young Hua Ming LLPShanghai, The People’s Republic of ChinaApril 28, 2023 Exhibit 15.3Certification by the Chief Executive OfficerPursuant to Item 16I(a) of Form 20-FI, Min Luo, Chairman and Chief Executive Officer of Qudian Inc. (the “Company”), certify that to my knowledge following due inquiry:(1)As of the date hereof, the directors and officers of the Company consist of: Min Luo, Long Xu, Yingming Li, Shengwen Rong, Yifan Li and Yan Gao;(2)None of the Company’s directors or officers are representatives of any government entity in the People’s Republic China (the “PRC”);(3)As of the date hereof, the following shareholders beneficially own 10% or more of the total outstanding ordinary shares of the Company: Min Luo andQufenqi Holding Limited;(4)None of the shareholders that beneficially own 10% or more of the total outstanding ordinary shares of the Company are controlled by any governmententity in the PRC;(5)There are no voting, acting-in-concert or other agreements or arrangements, nomination, appointment, designation or other rights, or materialrelationships, in each case between the Company or any of the aforementioned directors, officers or shareholders on the one hand, and any person onthe other hand, that could result in such person being deemed to control the Company; and(6)Based on the above, the Company is not owned or controlled by a government entity in the PRC.Date:April 28, 2023By:/s/ Min LuoName:Min LuoTitle:Chairman and Chief Executive Officer

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