Secoo Holding Limited
Annual Report 2017

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 20-F (Mark One) ooREGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGEACT OF 1934 OR xxANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2017. OR ooTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934For the transition period from to OR ooSHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934 Date of event requiring this shell company report . . . . . . . . . . . . . . . . . . . Commission file number: 001-38201 Secoo Holding Limited(Exact Name of Registrant as Specified in Its Charter) Not Applicable(Translation of Registrant’s Name Into English) Cayman Islands(Jurisdiction of Incorporation or Organization) 15/F, Building C, Galaxy SOHOChaonei Street, Dongcheng DistrictBeijing 100000The People’s Republic of ChinaTelephone: +86 10 6588-0135 Email: chenshaojun@secoo.com(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person) Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of Each ClassName of Each Exchange On Which RegisteredAmerican depositary shares, two American depositary sharesrepresenting one Class A ordinary shareClass A ordinary shares, par value US$0.001 per share*The NASDAQ Global Market *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) of the Act: None(Title of Class) Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None(Title of Class) Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: As of December 31, 2017, there were 25,280,058 shares outstanding, par value $0.001 per share, being the sum of 18,708,629 Class A ordinary shares and6,571,429 Class B ordinary shares. Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.o Yes x No If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934. o Yes x No Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. x Yes o No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required tobe submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).x Yes o No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See thedefinitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer o Accelerated filer o Non-accelerated filer x Emerging growth company x If an emerging growth company that prepare its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not touse the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of theExchange Act. x †The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its AccountingStandards Codification after April 5, 2012. Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: U.S. GAAP x International Financial Reporting Standards as issuedby the International Accounting Standards Board o Other o If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.o Item 17 o Item 18 If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).o Yes x 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 ExchangeAct of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Table of Contents TABLE OF CONTENTS INTRODUCTION1FORWARD-LOOKING STATEMENTS2PART I.3ITEM 1 .IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS3ITEM 2 .OFFER STATISTICS AND EXPECTED TIMETABLE3ITEM 3 .KEY INFORMATION3ITEM 4 .INFORMATION ON THE COMPANY44ITEM 4A .UNRESOLVED STAFF COMMENTS71ITEM 5 .OPERATING AND FINANCIAL REVIEW AND PROSPECTS71ITEM 6 .DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES91ITEM 7 .MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS99ITEM 8 .FINANCIAL INFORMATION100ITEM 9 .THE OFFER AND LISTING101ITEM 10 .ADDITIONAL INFORMATION102ITEM 11 .QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK110ITEM 12 .DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES110PART II.113ITEM 13 .DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES113ITEM 14 .MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS113ITEM 15 .CONTROLS AND PROCEDURES113ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT114ITEM 16B .CODE OF ETHICS114ITEM 16C .PRINCIPAL ACCOUNT FEES AND SERVICES115ITEM 16D .EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES115ITEM 16E .PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS115ITEM 16F .CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT115ITEM 16G .CORPORATE GOVERNANCE115ITEM 16H .MINE SAFETY DISCLOSURE115PART III.116ITEM 17 .FINANCIAL STATEMENTS116ITEM 18 .FINANCIAL STATEMENTS116ITEM 19 .EXHIBITS116SIGNATURES118 iTable of Contents INTRODUCTION Unless otherwise indicated and except where the context otherwise requires, references in this annual report on Form 20-F to: · “ADSs” are to our American depositary shares, two of which represent one Class A ordinary share; · “ADRs” are to the American depositary receipts that evidence our ADSs; · “China” or the “PRC” is to the People’s Republic of China, excluding, for the purposes of this annual only, Hong Kong, Macau and Taiwan; · “Class A ordinary shares” are to our Class A ordinary shares, par value US$0.001 per share; · “Class B ordinary shares” are to our Class B ordinary shares, par value US$0.001 per share; · “ordinary shares” are to our Class A and Class B ordinary shares, par value US$0.001 per share; · “GMV” for a given period is to the total value of all orders of products and services, excluding the value of whole car sales, placed on ouronline platform and in our offline experience centers for such period, regardless of whether the products are delivered or returned or whether theservices are cancelled; · “RMB” and “Renminbi” are to the legal currency of China; · “Registered members” as of a specified date are to any consumer who has registered and created an account on our platform; · “Secoo,” “we,” “us,” “our company” and “our” are to Secoo Holding Limited, its subsidiaries and its consolidated variable interest entities; · “SKUs” for a given period are to stock keeping units offered on our online platform and in our offline experience centers. The number of SKUsdoes not represent the number of distinct products offered on our online platform and in our offline experience centers; · “Total orders” for a given period are to the total number of orders of products and services, excluding the number of whole car sales, placed onour online platform and in our offline experience centers for such period, regardless of whether the products are delivered or returned or whetherthe services are cancelled; and · “US$,” “U.S. dollars,” “$,” and “dollars” are to the legal currency of the United States. 1Table of Contents FORWARD-LOOKING STATEMENTS This annual report on Form 20-F contains forward-looking statements that reflect our current expectations and views of future events. The forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to bematerially different from those expressed or implied by the forward-looking statements. These statements are made under the “Safe Harbor” provisions of theU.S. Private Securities Litigations Reform A of 1995. You can identify some of these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,”“intend,” “plan,” “believe,” “is/are likely to,” “potential,” “continue” or other similar expressions. We have based these forward-looking statements largelyon our current expectations and projections about future events that we believe may affect our financial condition, results of operations, business strategy andfinancial needs. These forward-looking statements include statements relating to: · our goals and strategies; · our future business development, financial conditions and results of operations; · the expected growth of the online and offline retail markets of upscale products and services market in China; · our expectations regarding demand for and market acceptance of our products and services; · our expectations regarding our relationships with customers, suppliers and third-party sellers; · our plans to invest in our fulfillment infrastructure and technology platform; · competition in our industry; and · relevant government policies and regulations relating to our industry. These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Our actual results could be materially different from our expectations.Other sections of this annual report discuss factors which could adversely impact our business and financial performance. Moreover, we operate in anevolving environment. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess theimpact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from thosecontained in any forward-looking statements. You should thoroughly read this annual report and the documents that we refer to with the understanding thatour actual future results may be materially different from and worse than what we expect. We qualify all of our forward-looking statements by thesecautionary statements. This annual report on Form 20-F contains certain data and information that we obtained from various government and private publications.Statistical data in these publications also include projections based on a number of assumptions. The upscale product retail industry may not grow at the rateprojected by market data, or at all. Failure of this market to grow at the projected rate may have a material and adverse effect on our business and the marketprice of our ADSs. In addition, the rapidly changing nature of the upscale product retail industry results in significant uncertainties for any projections orestimates relating to the growth prospects or future condition of our market. Furthermore, if any one or more of the assumptions underlying the market dataare later found to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on theseforward-looking statements. 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 inthis annual report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result ofnew information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You shouldread this annual report and the documents that we refer to in this annual report and have filed as exhibits to the registration statement, completely and withthe understanding that our actual future results may be materially different from what we expect. 2Table of Contents PART I. ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Not applicable. ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable. ITEM 3. KEY INFORMATION A. Selected Financial Data Our Selected Consolidated Financial Data The following summary consolidated statements of comprehensive income/(loss) data (other than ADS data) for the years ended December 31, 2015,2016 and 2017, and summary consolidated balance sheets data as of December 31, 2016 and 2017 have been derived from our audited consolidated financialstatements included elsewhere in this annual report. The selected consolidated balance sheet as of December 31, 2015 has been derived from our auditedconsolidated financial statements not included in this annual report. Our consolidated financial statements are prepared and presented in accordance withU.S. GAAP. Our historical results are not necessarily indicative of results expected for future periods. You should read the summary consolidated financial data together with our consolidated financial statements and the related notes and “Item 5.Operating and Financial Review and Prospects” below. Our historical results are not necessarily indicative of our results expected for future periods. Year Ended December 31, 2015 2016 2017 RMB RMB RMB US$ (in thousands, except for share, per share and per ADS data)Summary Consolidated Statements of Comprehensive Income/(Loss) DataTotal net revenues1,743,1282,593,8223,740,455574,897Cost of revenues(1,526,047)(2,193,676)(3,128,441)(480,833)Gross profit217,081400,146612,01494,064Total operating expenses(428,869)(429,378)(517,193)(79,493)(Loss)/income from operations(211,788)(29,232)94,82114,571Net (loss)/income(222,003)(44,573)133,40920,503Net loss attributable to ordinary shareholders of Secoo Holding Limited(435,693)(640,359)(69,421)(10,669)Net loss per Class A and Class B Ordinary share — Basic and diluted(81.22)(89.06)(5.55)(0.85)Net loss per ADS — Basic and diluted(40.61)(44.53)(2.78)(0.43)Weighted average number of Class A and Class B Ordinary shares outstandingused in computing net loss per share — Basic and diluted5,364,5367,189,93312,500,82112,500,821 Note: (1) Two ADSs represent one Class A ordinary share. 3(1)Table of Contents As of December 31, 2015 2016 2017 RMB RMB RMB US$ (in thousands)Summary Consolidated Balance Sheets DataCash284,62255,555453,42569,690Time deposits——292,31844,929Restricted cash155,584155,792179,01427,514Accounts receivable7,51820,99254,2108,332Inventories464,488752,1031,189,885182,882Total assets983,1381,045,8162,337,708359,299Accounts payable289,061274,629318,41448,939Total liabilities665,466739,4351,047,314160,968Total mezzanine equity1,079,9391,754,5345,582858Total liabilities, mezzanine equity and shareholders’ equity983,1381,045,8162,337,708359,299 Exchange Rate Information Substantially all of our operations are conducted in China and most of our revenues and most of our expenses are denominated in RMB. This annualreport contains translations of RMB amounts into U.S. dollars at specific rates solely for the convenience of the reader. The conversion of RMB into U.S.dollars in this annual report is based on the exchange rate set forth in the H.10 statistical release of the Board of Governors of the Federal Reserve System.Unless otherwise noted, all translations from RMB to U.S. dollars in this annual report were made at a rate of RMB6.5063 to US$1.00, the exchange rate ineffect as of December 29, 2017. We make no representation that any RMB or U.S. dollar amounts could have been, or could be, converted into U.S. dollars orRMB, as the case may be, at any particular rate, at the rates stated below, or at all. The PRC government imposes control over its foreign currency reserves inpart through direct regulation of the conversion of RMB into foreign exchange and through restrictions on foreign trade. On April 13, 2018, the exchangerate was RMB6.2725 to US$1.00. The following table sets forth information concerning exchange rates between the RMB and the U.S. dollar for the periods indicated. Certified Exchange Rate Period End Average Low High (RMB per US$1.00)20126.23016.29906.38796.222120136.05376.14126.24386.053720146.20466.17046.25916.040220156.47786.28696.48966.187020166.94306.65496.95806.44802017October6.63286.62546.65336.5712November6.60906.62006.63856.6567December6.50636.59326.62106.50632018January6.28416.42336.52636.2841February6.32806.31836.34716.2649March6.27266.31746.35656.2685April (through April 13, 2018)6.27256.28896.30456.2665 Source: Federal Reserve Statistical Release (1) Annual averages are calculated by using the average of the exchange rates on the last day of each month during the relevant year. Monthly averages arecalculated using the average of the daily rates during the relevant period. B. Capitalization and Indebtedness Not applicable. 4(1)Table of Contents C. Reasons for the Offer and Use of Proceeds Not applicable. D. Risk Factors Risk Related to Our Business Any harm to our Secoo brand or reputation may materially and adversely affect our business and growth prospects. We believe that the recognition and reputation of our Secoo brand among our customers, suppliers, brands, third-party merchants and other serviceproviders have contributed significantly to the growth and success of our business. Maintaining and enhancing the recognition and reputation of our brandare critical to our business and competitiveness. Many factors, some of which are beyond our control, are important to maintaining and enhancing our brand.These factors include our ability to: · provide a good online shopping experience to customers; · maintain the popularity, diversity, quality and authenticity of the products we offer; · maintain the efficiency, reliability and quality of our fulfillment services; · maintain or improve customer satisfaction with our after-sales services; · increase brand awareness through advertising and brand promotion activities; and · preserve our reputation and goodwill in the event of any negative publicity on customer services, internet security, product quality, price orauthenticity, or other issues affecting us or the online retail industry in China in general. A public perception that unauthorized, non-authentic, counterfeit or defective goods are sold on our platform or that we or our third-party serviceproviders do not provide satisfactory customer service, regardless of veracity, could damage our reputation, diminish the value of our brand, undermine thetrust and credibility we have established and have a negative impact on our ability to attract new customers or retain our current customers. If we are unableto maintain our reputation, enhance our brand recognition or increase positive awareness of our website, mobile applications, offline experience center,products and services, it may be difficult to maintain and grow our customer base, and our business and growth prospects may be materially and adverselyaffected. If we are unable to manage our growth or execute our strategies effectively, our business and prospects may be materially and adversely affected. We have been growing rapidly since we commenced our current business operations in 2011. To accommodate our growth, we anticipate that wewill need to implement a variety of new and upgraded operational and financial systems, procedures and controls, including the improvement of ouraccounting and other internal management systems. We will also need to continue to expand, train, manage and motivate our workforce and manage ourrelationships with customers, suppliers, brand owners, third-party merchants and other service providers. As we selectively increase our product offerings, wewill need to work with different groups of new suppliers and third-party merchants efficiently and establish and maintain mutually beneficial relationshipswith our existing and new suppliers, brand owners and third-party merchants. All of these endeavors involve risks, and will require substantial managementeffort and significant additional expenditures. We cannot assure you that we will be able to manage our growth or execute our strategies effectively, and anyfailure to do so may have a material adverse effect on our business and prospects. 5Table of Contents We have incurred and in the future may continue to incur net losses and negative cash flow from operating activities. We have accumulated net losses since we commenced our current business operations in 2011. Our net losses were RMB222.0 million andRMB44.6 million in 2015 and 2016, respectively. Although we recorded a net income of RMB133.4 million (US$20.5 million) in 2017, we cannot assureyou that we will be able to continue to generate net income or positive cash flow from operating activities in the future. We anticipate that our profitabilitywill depend in large part on our ability to increase our gross margin by obtaining more favorable terms from our suppliers as our business further grows inscale, managing our product mix, expanding our online platform and our offline experience centers and services and offering value-added services withhigher margins. Accordingly, we intend to continue to invest heavily for the foreseeable future in our fulfillment infrastructure, website, mobile applications,offline experience centers and new technology to support an even larger selection of products and to offer additional value-added services. As a result of theforegoing, our net income margin may decline or we may incur net losses or negative cash flow in the future and may not be able to maintain profitability ona quarterly or annual basis. If we fail to manage and expand our relationships with suppliers, or otherwise fail to procure products at favorable terms, our business and growthprospects may suffer. We source products from third-party suppliers. Our suppliers include brands, brand authorized distributors and individual and corporate suppliers(including professional shoppers). Maintaining strong relationships with these suppliers is important to the growth of our business. In particular, we dependsignificantly on our ability to procure products from suppliers on favorable terms. We typically enter into one-year framework agreements with most of oursuppliers on an annual basis, and these framework agreements do not ensure availability of products, continuation of particular pricing practices or paymentterms beyond the end of the contractual term. We cannot assure you that our current suppliers will continue to sell products to us on commercially acceptableterms, or at all, after the expiration of their current contracts with us. Even if we maintain good relationships with our suppliers, their ability to supplyproducts to us in sufficient quantities and at competitive prices may be adversely affected by economic conditions, labor actions, regulatory or legaldecisions, natural disasters or other causes. Furthermore, as some of our suppliers source from brands with vertically integrated exclusive distributionchannels, if these brands synchronize their global pricing strategies, our suppliers might not be able to source products with competitive prices. In the eventthat we are not able to source products at favorable prices, our net revenues and gross profit as a percentage of net revenues may be materially and adverselyaffected. In addition, brand suppliers may restrict us from sourcing their brand products from other sources to protect their brand, which may adversely andmaterially affect our global supply chain system, and hence reduce our operation efficiency. In the event that any of our suppliers fail to obtain authorization from the relevant brands to sell certain products to us, they may be prevented fromselling products to us or selling vintage goods at our online platform, which may adversely affect our business and net revenues. In addition, if our supplierscease to grant us favorable payment terms, our working capital requirements may increase and our operations may be materially and adversely affected. Wewill also need to establish new supplier relationships to ensure that we have access to a steady supply of products on favorable commercial terms. If we areunable to develop and maintain good relationships with suppliers that would allow us to obtain a sufficient amount and variety of authentic and qualityproducts on acceptable commercial terms, we may be unable to meet customer demands for these products or to offer these products at attractive prices. Anynegative developments in our relationships with our existing suppliers or failure to attract new suppliers and third party merchants could materially andadversely affect our business and growth prospects. If we are unable to provide good customer experience, our business and reputation may be materially and adversely affected. The success of our business hinges on our ability to provide good customer experience, which in turn depends on a variety of factors. These factorsinclude our ability to continue to offer authentic products at competitive prices, source products to respond to evolving customer tastes and demands,maintain the quality of our products and services, and provide timely and reliable delivery, flexible payment options and good after-sales service. 6Table of Contents We rely on contracted third-party delivery service providers to deliver our products and under some circumstances, collect payment. Interruptions toor failures in the delivery services could prevent the timely or successful delivery of our products. These interruptions or failures may be due to unforeseenevents that are beyond our control or the control of our third-party delivery service providers, such as inclement weather, natural disasters, transportationdisruptions or labor unrest. If our products are not delivered on time or are delivered in a damaged state, customers may refuse to accept delivery and haveless confidence in our services. Furthermore, the delivery personnel of contracted third-party delivery service providers directly interact with our customerson our behalf. Any failure for these personnel to provide high-quality delivery and payment collection services to our customers may negatively impact theshopping experience of our customers, damage our reputation and cause us to lose customers. If our customer service representatives, sales representatives or maintenance engineers and technicians fail to provide satisfactory service, our brandand customer loyalty may be adversely affected. In addition, any negative publicity or poor feedback regarding our customer service may harm our brand andreputation and in turn cause us to lose customers and market share. If we are unable to offer products that attract new customers and new purchases from existing customers, our business, financial condition and results ofoperations may be materially and adversely affected. Our future growth depends on our ability to continue to attract new customers as well as new purchases from existing customers. Constantlychanging consumer preferences and product trends have affected and will continue to affect the online and offline upscale product retail industry in China.We must stay abreast of emerging consumer preferences and anticipate product trends that will appeal to existing and potential customers. Our platformmakes product recommendations to customers based on their purchases or browsing history, and we also send e-mails to our customers with productrecommendations tailored to their purchase profile. Our ability to make individually tailored recommendations is dependent on our business intelligencesystem, which tracks, collects and analyzes our users’ browsing and purchasing behaviors, to provide accurate and reliable information. In addition, ourcustomers choose to purchase authentic and quality products on our platform due in part to the attractive prices that we offer, and they may choose to shopelsewhere if we cannot match the prices offered by other websites or physical stores. If our customers cannot find their desired products on our website oroffline experience centers at attractive prices, our customers may lose interest in us and visit our platform less frequently or even stop visiting our platform,which in turn may materially and adversely affect our business, financial condition and results of operations. We plan to further expand our fulfillment infrastructure. If we are not able to manage such expansion successfully, or if we experience any interruption inthe operation of our fulfillment infrastructure, our growth potential, business and results of operations may be materially and adversely affected. We believe our fulfillment network, currently consisting of strategically located logistics centers in Beijing, Yichun, Hong Kong and Milan andsupported by our offline experience centers in Shanghai, Chengdu, Tianjin, Xiamen, Qingdao and Malaysia, which perform certain warehousing functions, isessential to our success. If any of the landlords terminates existing lease agreements with us, or materially alters any existing arrangements with us, we may beforced to leave the premises and may not be adequately compensated for our investment, or at all. We plan to establish more logistics centers to increase ourwarehouse capacity, accommodate more customer orders and provide better coverage of our target markets. As we continue to add logistics centers, ourfulfillment network becomes increasingly complex and challenging to operate. We cannot assure you that we will be able to lease new facilities suitable toour needs on commercially acceptable terms or at all. We may not be able to recruit a sufficient number of qualified employees with regards to the expansionof our fulfillment network. In addition, the expansion of our fulfillment infrastructure may strain our managerial, financial, operational and other resources. Ifwe fail to manage such expansion successfully, our growth potential, business and results of operations may be materially and adversely affected. Further, our ability to process and fulfill orders accurately and provide high quality customer service depends on the smooth operation of ourlogistics centers. Our fulfillment infrastructure may be vulnerable to damage caused by fire, flood, power outage, telecommunications failure, break-ins,earthquake, human error and other events. If any of our logistics centers or offline experience centers were rendered incapable of operations, then we may beunable to fulfill any orders in the relevant regions. In addition, natural disastrous events, such as fire and flood, could damage our fulfillment infrastructureand result in damages to our inventory stored in or delivered through our fulfillment infrastructure, which would cause losses in our operations. We do notcarry business interruption insurance, and the occurrence of any of the foregoing risks could have a material adverse effect on our business, prospects,financial condition and results of operations. 7Table of Contents We have invested and will continue to invest in upgrading our technology platform and expanding our offline experience centers and logisticscenters. We are likely to incur costs associated with these investments before receiving the anticipated return, and the actual return on these investments maybe lower, or may develop more slowly, than we expect. We may not be able to recover our capital expenditures or investments, in part or in full, or therecovery of these capital expenditures or investments may take longer than expected. As a result, the carrying value of the related assets may be subject to animpairment charge, which could adversely affect our business, prospects, financial condition and results of operations. We have a limited operating history with our current business model and business approach, which makes it difficult to predict our future prospects andfinancial performance. We have a limited operating history with our current business model. We commenced our current merchandising sales business model in 2011. Weopened our first offline experience centers in Beijing and launched our website in April in the same year. We launched our mobile application and began tosignificantly expand our marketplace services business in 2013 and 2014, respectively. We expanded direct cooperation with top-tier global brands andoffered omni-channel commerce solutions to physical boutiques and department stores in 2016. Under our current business model, we have generated limitedrevenues, and may not produce significant revenues in the near term which may harm our ability to obtain additional financing and may require us to reduceor discontinue our operations. The upscale product market in China is still in its early stage. You must consider our business and prospects in light of therisks and difficulties we will encounter as an early-stage operating company in a new and rapidly evolving industry. We may not be able to successfullyaddress these risks and difficulties, which could significantly harm our business, operating results and financial condition. We face intense competition. We may lose market share and customers if we fail to compete effectively. The retail market of upscale products in China is fragmented and highly competitive. We face competition from traditional offline upscale productretailers and their online platforms, domestic and global brand online platforms, major domestic e-commerce platforms and global online upscale productretailers, such as Net-A-Porter.com. See “Item 4.B. Business Overview—Competition.” Our current or future competitors may have longer operating histories,greater brand recognition, better supplier relationships, larger customer bases, more cost-effective fulfillment capabilities or greater financial, technical ormarketing resources than we do. Competitors may leverage their brand recognition, experience and resources to compete with us in a variety of ways,including investing more heavily in research and development and expanding of their product and service offerings through acquisition. Some of ourcompetitors may be able to secure more favorable terms from suppliers, devote greater resources to marketing and promotional campaigns, adopt moreaggressive pricing or inventory policies and devote substantially more resources to their websites and system development than us. In addition, new andenhanced technologies may increase the competition in the online retail market. Increased competition may reduce our revenues, market share, customer baseand brand recognition. There can be no assurance that we will be able to compete successfully against current or future competitors, and such competitivepressures may have a material and adverse effect on our business, financial condition and results of operations. We may incur liability or become subject to administrative penalties for counterfeit or unauthorized products sold on our platform, or for products sold onour platform that infringe on third-party intellectual property rights, or for other misconduct. We sourced our products from third-party suppliers. Although we have adopted measures to verify the authenticity and authorization of productssold on our platform and avoid potential infringement on third-party intellectual property rights in the course of sourcing and selling products, we may notalways be successful in these efforts. 8Table of Contents In the event that counterfeit, unauthorized or infringing products are sold on our platform, we could face claims for which we may be held liable. Wehave not in the past received claims alleging our infringement on third parties’ rights, and if we receive such claims in the future irrespective of their validity,we could incur significant costs and efforts in either defending against or settling such claims. If there is a successful claim against us, we might be required topay substantial damages or refrain from further sale of the relevant products. If we negligently participate or assist in infringement activities associated withcounterfeit goods, we may be subject to potential liability under PRC law including injunctions to cease infringing activities, rectification, compensation,administrative penalties and even criminal liability. Moreover, such third-party claims or administrative penalties could result in negative publicity and ourreputation could be severely damaged. Any of these events could have a material and adverse effect on our business, results of operations or financialcondition. In addition, we believe that, our suppliers include individuals who engaged in “parallel importing”, the importing of legally obtained branded orpatented products from one country or region into another country or region for sale without the consent of the intellectual property owner. Although oursuppliers are responsible for the products they source, we have offered and are still offering products on our platform which we believe to be parallelimported. We may be subject to claims alleging that some products sold on our online platform or at our offline experience centers have not been authorizedby the relevant brand owners, or may otherwise infringe upon third-party trademark rights. Our form supply agreement requires suppliers to indemnify us for any losses we suffer or any costs that we incur arising from the quality, validity andlegality of any products they supply to us. However, not all of our suppliers have entered into agreements with these terms, and for those suppliers enteringinto agreements with these terms, we may not be able to successfully enforce our contractual rights and may need to initiate costly and lengthy legalproceedings in China to protect our rights. See “Item 3.D. Risk Factors—Risks Related to Doing Business in China—We may be adversely affected by thecomplexity, uncertainties and changes in PRC regulation of internet-related business and companies.” Any lack of requisite approvals, licenses or permits applicable to our business may have a material and adverse impact on our business, financialcondition and results of operations. Our business is subject to governmental supervision and regulation by the relevant PRC governmental authorities, including the Ministry ofCommerce, and the Ministry of Industry and Information Technology, or MIIT. Together, these government authorities promulgate and enforce regulationsthat cover many aspects of the operation of online retailing and distribution of upscale products, including entry into these industries, the scope ofpermissible business activities, licenses and permits for various business activities, and foreign investment. We are required to hold a number of licenses andpermits in connection with our online platform operation, including the ICP license for Secoo.com and ICP license for online auction business and auctionbusiness permit. See “Item 4.B. Regulation—Regulations Relating to Foreign Investment.” and “Item 4.B. Business Overview—Regulation—Licenses andPermits.” As of the date of this annual report, we have not received any notice of warning or been subject to penalties or other disciplinary action from therelevant governmental authorities regarding improper use or lack of approvals, licenses and permits. However, we cannot assure you that we will not besubject to any penalties in the future. As online retailing is still evolving in China, new laws and regulations may be adopted from time to time to requireadditional approvals, licenses and permits other than those we currently have, and address new issues that arise from time to time. In addition, substantialuncertainties exist regarding the interpretation and implementation of current and any future PRC laws and regulations applicable to our businesses. Forexample, we offer mobile applications to mobile device users. It is uncertain if our variable interest entities will be required to obtain a separate operatinglicense in addition to the valued-added telecommunications business operating licenses for internet content provision service. Although we believe that weare not required to obtain such separate license, which is in line with the current market practice, there can be no assurance that we will not be required toapply for an operating license for our mobile applications in the future. If the PRC government considers that we were operating without the properapprovals, licenses or permits or promulgates new laws and regulations that require additional approvals or licenses or imposes additional restrictions on theoperation of any part of our business, it has the power, among other things, to levy fines, confiscate our income, revoke our business licenses, and require usto discontinue our relevant business or impose restrictions on the affected portion of our business. Any of these actions by the PRC government may have amaterial and adverse effect on our results of operations. 9Table of Contents We may be challenged by relevant government authorities for products sold on our platform sourced from suppliers who fail to comply with PRC customslaws and regulations. A large portion of products supplied by our suppliers are imported from countries or regions outside of China. Pursuant to relevant PRC customslaws and regulations, failure to complete proper import procedures or evading custom duties may lead to administrative or criminal sanctions imposed bycompetent PRC governmental or judicial authorities. Moreover, competent PRC governmental or judicial authorities may also impose sanctions on anybodywho has (i) directly purchased illegally imported goods with the knowledge that such goods were illegally imported into China, or (ii) intentionally financedor otherwise assisted in such activities. Thus, our standard purchase agreement requires our suppliers to warrant to us as to the legality of the importingprocedure of such products in either the purchase agreement with us or other written documents. According to our suppliers, for certain commercial andconfidential reasons, they did not provide us with complete customs declaration documents or documents evidencing due payment of import duties. Inaddition, we cannot assure you that all of our suppliers are aware of customs laws and regulations that they should follow. Therefore, although our supplierswarrant that such products are imported legally through the proper import procedures and with the payment of the requisite custom duties, we cannot fullyverify such statements ourselves. Despite our efforts to distinguish and reject products with questionable sources, we have not been able to have full knowledge of the customsclearance procedures that have been conducted for such products and we cannot rule out the possibility that we may be subject to investigations or sanctions.We adopted a new standard purchase agreement in the first quarter of 2015 which requires suppliers to indemnify us for any losses we suffer or any costs thatwe incur due to the illegal sourcing of their products. However, we may not be able to successfully enforce our contractual rights and may resort to costly andlengthy legal proceedings in China to protect our rights, which may cause us to incur significant costs and efforts and may divert our management’s attentionfrom day-to-day operations. See “Item 3.D. Risk Factors—Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal systemcould adversely affect us.” Although, we have not in the past been the subject of any regulatory investigations or any civil, administrative or criminal sanctions under PRCcustoms laws and regulations, and, as of the date of this annual report, we are not aware of any such claims or actions by government authorities against us,and have no reason to believe that any such claims or actions will be brought forth in the foreseeable future, due to uncertainties in the interpretation andenforcement of PRC customs laws and regulations, we may be determined by competent governmental or judicial authorities to be in violation of PRCcustoms laws and regulations as a result of purchasing goods from law-breaking suppliers. Starting from the first quarter of 2015, we further streamlined our supplier management including actively requesting our suppliers to producecomplete customs declaration documents and documents evidencing due payment of import duties for products sold to us. However, we cannot guaranteeyou that we will be able to effectively manage our suppliers. Any adverse developments in our relationship with suppliers could materially and adverselyaffect our business reputation and growth prospects. Our expansion into new product categories and new services may expose us to new challenges and more risks. Since we commenced our current business operations in 2011, we have focused on selling upscale products such as watches, handbags and jewelry.We have expanded our product offerings in recent years to include selected categories of upscale lifestyle products and services, such as reservation servicesfor luxury hotels or travel packages, and Secoo Check. Expansion into diverse new product categories and new services involves new business and legal risksand challenges. Our lack of familiarity with these products and services and lack of relevant customer data relating to these products and services may make itmore difficult for us to anticipate customer demand and preferences. We might also incur additional costs to ensure compliance of laws and regulations. Inaddition, regulatory requirements relations to these products and services may be still evolving. 10Table of Contents We may misjudge customer demand, resulting in excessive inventory and possible inventory write-down. It may also make it more difficult for us toinspect and control quality and ensure proper handling, storage and delivery of products. In addition, we may experience higher product returns on newcategories of products we offer, receive more customer complaints about them and face costly product liability claims, which would harm our brand andreputation as well as our financial performance. Furthermore, we may not be able to negotiate favorable terms with suppliers. We may need to priceaggressively to gain market share or remain competitive in new categories. It may be more difficult for us to achieve profitability in the new productcategories and our profit margin, if any, may be lower than we anticipate, which would adversely affect our overall profitability and results of operations. Wecannot assure you that we will be able to recoup our investments in introducing these new product categories. Changes in our customers, product mix and pricing strategy could cause our gross profit margin percentage to decline in the future. From time to time, we have experienced overall changes in the product mix demand of our customers. When our product mix changes, there can beno assurance that we will be able to maintain our historical gross profit margins. Changes in our customers, product mix, volume of orders or the pricescharged could cause our gross profit margin percentage to decline. Our gross profit margin percentage may also come under pressure in the future if weincrease the percentage of younger generations in our customer base, as sales to these customers are generally at lower margins. We have offered, and mightcontinue to offer, greater product discounts to promote our mobile platform or flash sales and auction sales format which could result in the decrease of ourgross profit margin percentage. If we fail to forecast customer demand or manage our inventory effectively, our results of operations, financial condition and liquidity may be materiallyand adversely affected. Our business requires us to manage a large volume of inventory effectively. We depend on our forecasts of demand for and popularity of variousproducts to make purchase decisions and to manage our inventory. Demand for upscale products, however, may change significantly between the time aproduct is ordered by us and the date of sale on our platform. Demand may be affected by seasonality, new product launches, rapid changes in product cyclesand pricing, product defects, changes in consumer spending patterns, changes in consumer tastes and other factors, and our customers may not order productsin the quantities that we expect. It may be difficult to accurately forecast customer demand, and determine the appropriate products to procure. If we fail to manage our inventory effectively, we may be subject to a heightened risk of inventory obsolescence, a decline in inventory values, andsignificant inventory write-downs or write-offs. In addition, we may be required to lower sale prices in order to reduce inventory level, which may lead tolower gross margins. High inventory levels may also require us to commit substantial working capital, preventing us from using that funding for otherbusiness purposes. Any of the above may materially and adversely affect our results of operations and financial condition. On the other hand, if we underestimate demand for our products, or if our suppliers fail to supply quality products in a timely manner, we mayexperience inventory shortages, which might result in lost sales, diminished brand loyalty and lost revenues, any of which could harm our business andreputation. If we are unable to conduct marketing and sales activities cost-effectively, or if our customer acquisition costs or costs associated with serving ourcustomers increase, our results of operations and financial condition may be materially and adversely affected. We have incurred significant expenses on a variety of advertising and brand promotion initiatives designed to enhance our brand recognition,acquire new customers and increase sales of our products. We incurred RMB243.6 million, RMB218.8 million and RMB246.0 million (US$37.8 million) ofmarketing expenses in 2015, 2016 and 2017, respectively. We expect to continue to spend significant amounts to acquire additional customers and retainexisting customers, primarily through advertising and brand promotion initiatives. Our decisions regarding investments in customer acquisition are basedupon our analysis of the revenue we have historically generated per customer over the expected lifetime value of the customer. Our analysis of the revenuethat we expect a customer to generate over his or her lifetime depends upon several estimates and assumptions, including the demographic groups of thecustomers, whether a customer will make a second order, whether a customer will make multiple orders in a month, average sales per order and thepredictability of a customer’s purchase pattern. Our experience in markets or customer demographic groups in which we presently have low penetration ratesmay differ from our more established markets. 11Table of Contents Our brand promotion and marketing activities may not be as effective as we anticipate. If our estimates and assumptions regarding the revenue wecan generate from customers prove incorrect, or if the revenue generated from new customers differs significantly from that of existing customers, we may beunable to recover our customer acquisition costs or generate profits from our investment in acquiring new customers. Moreover, if our customer acquisitioncosts or other operating costs increase, the return on our investment may be lower than we anticipate irrespective of the revenue generated from newcustomers. If we cannot generate profits from this investment, we may need to alter our growth strategy, and our growth rate and results of operations may beharmed. In addition, marketing approaches and tools in the upscale product retail market in China are evolving, which require us to keep pace with industrydevelopments and changing preferences. Failure to refine our existing marketing approaches or to introduce new marketing approaches in a cost-effectivemanner could reduce our market share, cause our net revenues to decline and negatively impact our profitability, if any. We use third-party delivery companies to deliver our products to customers. If these couriers fail to provide reliable delivery services, our business andreputation may be materially and adversely affected. We engage a number of third-party delivery companies to deliver our products to our customers. Interruptions to or failures in these third parties’delivery services could prevent the timely or proper delivery of our products to customers. These interruptions may be due to events that are beyond ourcontrol or the control of these delivery companies, such as inclement weather, natural disasters, transportation disruptions or labor unrest. In addition, if ourthird-party couriers fail to comply with applicable rules and regulations in China, our delivery services may be materially and adversely affected. We may notbe able to find replacement delivery companies to provide delivery services in a timely and reliable manner, or at all. Delivery of our products could also beaffected or interrupted by the merger, acquisition, insolvency or government shut-down of the delivery companies we engage, especially those localcompanies with relatively small business scales. If our products are not delivered in proper condition or on a timely basis, our business and reputation couldsuffer. Uncertainties relating to the growth and profitability of the upscale product retail industry in China in general, and the online upscale product retailindustry in particular, could adversely affect our revenues and business prospects. We generate a significant portion of our revenues from online retail, especially mobile applications. While online retail has existed in China sincethe 1990s, only recently have certain large online retail companies become profitable. The long-term viability and prospects of various online retail businessmodels in China remain relatively untested. Our future results of operations will depend on numerous factors affecting the development of the online retailindustry in China, which may be beyond our control. These factors include: · the growth of internet, broadband, personal computer and mobile penetration and usage in China, and the rate of any such growth; · the trust and confidence level of online retail consumers in China, as well as changes in customer demographics and consumer tastes andpreferences; · the selection, price and popularity of products that we and our competitors offer online; · whether alternative retail channels or business models that better address the needs of consumers emerge in China; and · the development of fulfillment, payment and other ancillary services associated with online purchases. 12Table of Contents A decline in the popularity of online shopping in general, or any failure by us to adapt our platform and improve the online shopping experience ofour customers in response to trends and consumer requirements, may adversely affect our net revenues and business prospects. Furthermore, the upscale product retail industry in China is very sensitive to macroeconomic changes, particularly changes in disposable income,and retail purchases tend to decline during recessionary periods. Substantially all of our net revenues are derived from retail sales in China. Many factorsoutside of our control, including inflation and deflation, volatility of stock and property markets, interest rates, tax rates and other government policies andunemployment rates can adversely affect disposable income level, consumer confidence and spending, which could in turn materially and adversely affectour growth and profitability, if any. Unfavorable developments in domestic and international politics, including military conflicts, political turmoil andsocial instability, may also adversely affect disposable income level, consumer confidence and reduce spending, which could in turn materially andadversely affect our growth and profitability, if any. Inability to obtain additional financing on commercially reasonable terms in the future may materially and adversely affect our business, results ofoperations and financial condition. The online retail industry in China is very competitive. Maintaining our competitiveness and implementing our growth strategies both require us toobtain sufficient funds to maintain and expand our online and offline upscale product retail platform. We believe that our current cash, together with ouranticipated cash from operations, is sufficient to meet our anticipated working capital requirements and capital expenditures. We may, however, requireadditional cash resources due to changed business conditions or other future developments, including any changes in our account payable policy, marketinginitiatives or investments we may decide to pursue. Such additional financing may not be available on commercially reasonable terms, or at all. If theseresources are insufficient to satisfy our cash requirements, we may seek to obtain a credit facility or sell additional equity or debt securities. To the extent thatwe raise additional financing by issuing equity securities or convertible debt securities, our shareholders may experience substantial dilution, and to theextent we engage in debt financing, we may become subject to restrictive covenants that could limit our flexibility in conducting future business activities.Financial institutions may request credit enhancement such as third-party guarantee and pledge of equity interest in order to extend loans to us. Our ability to obtain additional financing on acceptable terms is subject to a variety of uncertainties, including: · PRC governmental policies relating to bank loans and other credit facilities; · economic, political and other conditions in China; · investors’ perception of, and demand for, securities of online retail companies; · conditions of the United States and other capital markets in which we may seek to raise funds; and · our future results of operations, financial condition and cash flows. If additional financing is not available on acceptable terms or at all, we may not be able to fund our expansion, enhance our products and services,respond to competitive pressures or take advantage of investment or acquisition opportunities, all of which may adversely affect our results of operations andbusiness prospects. If we fail to implement and maintain an effective system of internal controls or fail to remediate the material weakness in our internal control overfinancial reporting that has been identified, we may be unable to accurately report our results of operations or prevent fraud, and investor confidence andthe market price of our ADSs may be materially and adversely affected. In connection with the audits of our consolidated financial statements as of and for the years ended December 31, 2015, 2016 and 2017, we and ourindependent registered public accounting firm identified a “material weakness” in our internal control over financial reporting, as defined in the standardsestablished by the Public Company Accounting Oversight Board of the United States. The material weakness identified related to the lack of sufficientfinancial reporting and accounting personnel with appropriate knowledge to implement key controls over period end financial reporting and to properlyprepare and review financial statements and related disclosures in accordance with U.S. GAAP and SEC reporting requirements. Our failure to correct thematerial weakness and control deficiencies or to discover and address any other material weakness or control deficiencies could result in inaccuracies in ourfinancial statements and could also impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timelybasis. As a result, our business, financial condition, results of operations and prospects, as well as the trading price of our ADSs, may be materially andadversely affected. Moreover, ineffective internal control over financial reporting significantly hinders our ability to prevent fraud. 13Table of Contents Furthermore, it is possible that, had our independent accountant conducted an audit of our internal control over financial reporting, such accountantmight have identified additional material weaknesses and deficiencies. We are subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-OxleyAct, or Section 404, requires that we include a report from management on the effectiveness of our internal control over financial reporting in our annualreport on Form 20-F beginning with our annual report for the fiscal year ending December 31, 2018. In addition, once we cease to be an “emerging growthcompany” as such term is defined in the JOBS Act, our independent accountant must attest to and report on the effectiveness of our internal control overfinancial reporting. Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our managementconcludes that our internal control over financial reporting is effective, after we cease to be an emerging growth company our independent accountant, afterconducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls aredocumented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, as we are a public company, ourreporting obligations may place a significant strain on our management, operational and financial resources and systems. We may be unable to timelycomplete our evaluation testing and any required remediation. During the course of documenting and testing our internal control procedures, in order to satisfy the requirements of Section 404, we may identifyother weaknesses and deficiencies in our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control overfinancial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that wehave effective internal control over financial reporting in accordance with Section 404. If we fail to achieve and maintain an effective internal controlenvironment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely causeinvestors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations, andlead to a decline in the trading price of our ADSs. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraudor misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminalsanctions. We may also be required to restate our financial statements from prior periods. If our senior management is unable to work together effectively or efficiently or if we lose their services, our business may be severely disrupted. Our success heavily depends upon the continued services of our management. In particular, we rely on the expertise and experience of Mr. RichardRixue Li, our founder, director and chief executive officer, and other executive officers. If they cannot work together effectively or efficiently, our businessmay be severely disrupted. If one or more of our senior management were unable or unwilling to continue in their present positions, we might not be able toreplace them easily or at all, and our business, financial condition and results of operations may be materially and adversely affected. If any of our seniormanagement joins a competitor or forms a competing business, we may lose customers, suppliers, know-how and key professionals and staff members. Each ofour senior management has entered into employment agreements and confidentiality and non-competition agreements with us. However, if any dispute arisesbetween our senior management and us, we may have to incur substantial costs and expenses in order to enforce such agreements in China or we may beunable to enforce them at all. 14Table of Contents If we are unable to recruit, train and retain qualified personnel or sufficient workforce while controlling our labor costs, our business may be materiallyand adversely affected. We intend to hire additional qualified employees to support our business operations and planned expansion. Our future success depends, to asignificant extent, on our ability to recruit, train and retain qualified personnel, particularly experienced engineers and technicians with expertise in upscaleproduct authentication. Our experienced mid-level managers are instrumental in implementing our business strategies, executing our business plans andsupporting our business operations and growth. The effective operation of our managerial and operating systems, fulfillment infrastructure, customer servicecenter and other back office functions also depends on the hard work and quality performance of our management and employees. Since our industry ischaracterized by high demand and intense competition for talent and labor, we can provide no assurance that we will be able to attract or retain qualified staffor other highly skilled employees that we will need to achieve our strategic objectives. Our fulfillment infrastructure is labor intensive and requires asubstantial number of blue-collar workers, and these positions tend to have higher than average turnover. Labor costs in China have increased with China’seconomic development, particularly in the large cities where we operate our logistics centers. Rising inflation in China, which has had a disproportionateimpact on everyday essentials such as food, is also putting pressure on wages. In addition, as we are still a company at an early stage of development, ourability to train and integrate new employees into our operations may also be limited and may not meet the demand for our business growth on a timelyfashion, or at all. If we are unable to attract, train and retain qualified personnel, our business may be materially and adversely affected. We may be the subject of anti-competitive, harassing, or other detrimental conduct by third parties including complaints to regulatory agencies, negativeblog postings, short seller reports and the public dissemination of malicious characterization of our business. We have been subject to negative postings and other media exposure in the past. We may become the target of anti-competitive, harassing, or otherdetrimental conduct by third parties. Such conduct includes complaints, anonymous or otherwise, to regulatory agencies and short seller reports. We may besubject to government or regulatory investigation as a result of such third-party conduct and may be required to expend significant time and incur substantialcosts to address such third-party conduct, and there is no assurance that we will be able to conclusively refute each of the allegations within a reasonableperiod of time, or at all. Additionally, allegations, directly or indirectly against us, may be posted in internet chat-rooms or on blogs or any websites byanyone, whether or not related to us, on an anonymous basis. Consumers value readily available information concerning retailers and the goods and servicesoffered by them and often act on such information without further investigation or authentication and without regard to its accuracy. Information on socialmedia platforms and devices is easily accessible, and any negative publicity on us or our founders and management can be quickly and widely disseminated.Social media platforms and devices immediately publish the content their subscribers and participants post, often without filtering or verification of thecontent posted. Information posted may be inaccurate and may harm our reputation, performance, prospects or business. The harm may be immediate withoutaffording us an opportunity for redress or correction. Our reputation may be negatively affected as a result of the public dissemination of anonymousallegations or malicious statements about our business, which in turn may cause us to lose market share, customers and net revenues and adversely affect theprice of our ADSs. We may be subject to product liability claims if people or properties are harmed by the products or services we sell. We sell products manufactured by third parties, some of which may be defectively designed or manufactured. As a result, sales of such productscould expose us to product liability claims relating to personal injury or property damage and may require product recalls or other actions. Third partiessubject to such injury or damage may bring claims or legal proceedings against us as the retailer of the product. Although we would have legal recourseagainst the manufacturer of such products under PRC law, enforcing our rights against the manufacturer may be expensive, time-consuming and ultimatelyfutile. In addition, we do not currently maintain any third-party liability insurance or product liability insurance in relation to products we sell. As a result,any material product liability claim or litigation could have a material and adverse effect on our business, financial condition and results of operations. Evenunsuccessful claims could result in the expenditure of funds and managerial efforts in defending them and could have a negative impact on our reputation. 15Table of Contents The proper functioning of our technology platform is essential to our business. Any failure to maintain the satisfactory performance of our website andsystems could materially and adversely affect our business and reputation. The satisfactory performance, reliability and availability of our technology platform are critical to our success and our ability to attract and retaincustomers and provide quality customer service. The majority of our sales are made online through our website and mobile applications. Any systeminterruptions caused by telecommunications failures, computer viruses, hacking or other attempts to harm our systems that result in the unavailability orslowdown of our website or reduced order fulfillment performance could reduce the volume of products sold and the attractiveness of product offerings onour platform. Our servers may also be vulnerable to computer viruses, physical or electronic break-ins and similar disruptions, which could lead to systeminterruptions, website slowdown or unavailability, delays or errors in transaction processing, loss of data or the inability to accept and fulfill customer orders.Security breaches, computer viruses and hacking attacks have become more prevalent in our industry. Because of our brand recognition in the online retailindustry in China, we believe we are a particularly attractive target for such attacks. We may experience such attacks and unexpected interruptions in thefuture. We can provide no assurance that our current security mechanisms will be sufficient to protect our IT systems from any third-party intrusions, virusesor hacker attacks, information or data theft or other similar activities. Any such future occurrences could reduce customer satisfaction, damage our reputationand result in a material decrease in our revenue. Additionally, we must continue to upgrade and improve our technology platform to support our business growth, especially our big datatechnology, to effectively utilize the large amount of user behavioral data generated through our website and mobile applications. Failure to do so couldimpede our growth. However, we cannot assure you that we will be successful in executing these system upgrades and improvement strategies. In particular,our systems may experience interruptions during upgrades, and the new technologies or infrastructures may not be fully integrated with the existing systemson a timely basis, or at all. In addition, we experience surges in online traffic and orders associated with promotional activities and holiday seasons, such asDouble 11 Singles Day Shopping Festival and December 17, which can put additional demands on our technology platform at specific times. If our existingor future technology platform does not function properly, we may experience system disruptions and slow response times, affecting data transmission, whichin turn could materially and adversely affect our business, financial condition and results of operations. Any deficiencies in China’s internet infrastructure could impair our ability to sell products over our website and mobile applications, which could cause usto lose customers and harm our operating results. The majority of our sales are made online through our website and mobile applications. Our business depends on the performance and reliability ofthe internet infrastructure in China. The availability of our website depends on telecommunications carriers and other third-party providers forcommunications and storage capacity, including bandwidth and server storage, among other things. If we are unable to enter into or renew agreements withthese providers on commercially acceptable terms, or if any of our existing agreements with such providers are terminated as a result of our breach orotherwise, our ability to provide our services to our customers could be adversely affected. Almost all access to the internet in China is maintained throughstate-owned telecommunication carriers under administrative control, and we obtain access to end-user networks operated by such telecommunicationscarriers and internet service providers to give customers access to our website. We have experienced service interruptions in the past, which were typicallycaused by service interruptions at the underlying external telecommunications service providers, such as the internet data centers and broadband carriers fromwhich we lease services. Service interruptions prevent consumers from accessing our website and mobile applications and placing orders, and frequentinterruptions could frustrate customers and discourage them from attempting to place orders, which could cause us to lose customers and harm our operatingresults. If we fail to adopt new technologies or adapt our website, mobile applications and systems to changing customer requirements or emerging industrystandards, our business may be materially and adversely affected. To remain competitive, we must continue to enhance and improve the responsiveness, functionality and features of our website and mobileapplications. The internet and the online retail industry are characterized by rapid technological evolution, changes in customer requirements andpreferences, frequent introductions of new products and services embodying new technologies and the emergence of new industry standards and practices,any of which could render our existing technologies and systems obsolete. Our success will depend, in part, on our ability to identify, develop, acquire orlicense leading technologies useful in our business, and respond to technological advances and emerging industry standards and practices, such as mobileinternet, in a cost-effective and timely way. The development of websites, mobile applications and other proprietary technology entails significant technicaland business risks. We cannot assure you that we will be able to use new technologies effectively or adapt our website, mobile applications, proprietarytechnologies and systems to meet evolving customer requirements or emerging industry standards. If we are unable to adapt in a cost-effective and timelymanner in response to changing market conditions or customer requirements, whether for technical, legal, financial or other reasons, our business, prospects,financial condition and results of operations may be materially and adversely affected. 16Table of Contents Customer growth and activity on mobile devices depends upon effective use of mobile operating systems, networks and standards that we do not control. Purchases using mobile devices by consumers generally, and by our customers specifically, have increased significantly in recent years, and weexpect this trend to continue. To optimize the mobile shopping experience, we are somewhat dependent on our customers downloading our specific mobileapplications for their particular devices as opposed to accessing our sites from an internet browser on their mobile device. As new mobile devices andplatforms are released, it is difficult to predict the problems we may encounter in developing applications for these alternative devices and platforms, and wemay need to devote significant resources to the development, support and maintenance of such applications. In addition, our future growth and our results ofoperations could suffer if we experience difficulties in the future in integrating our mobile applications into mobile devices, if problems arise with ourrelationships with providers of mobile operating systems or mobile application stores, if our applications receive unfavorable treatment compared tocompeting applications on the stores, or if we face increased costs to distribute or market our mobile applications. We are further dependent on theinteroperability of our sites with popular mobile operating systems that we do not control, such as iOS and Android, and any changes in such systems thatdegrade the functionality of our sites or mobile applications or give preferential treatment to competitive products could adversely affect the usage of oursites on mobile devices or mobile applications. In the event that it is more difficult for our customers to access and use our sites on their mobile devices ormobile applications, or if our customers choose not to access or to use our sites on their mobile devices or to use mobile products that do not offer access toour sites or incompatible with our mobile applications, our customer growth could be harmed and our business, financial condition and operating results maybe adversely affected. Failure to protect confidential information of our customers and network against security breaches could damage our reputation and brand andsubstantially harm our business and results of operations. A significant challenge to the online retail industry is the secure storage of confidential information and its secure transmission over publicnetworks. The majority of the orders and some of the payments for products we offer are made through our website and our mobile applications. In addition,some online payments for our products are settled through third-party online payment services providers. We also share certain non-sensitive personalinformation about our customers with contracted third-party couriers that are consented by our customers in advance, such as their names, addresses, phonenumbers and transaction records. Maintaining complete security for the storage and transmission of confidential information on our technology platform, such as customer names,personal information and billing addresses, is essential to maintaining customer confidence. We have adopted security policies and measures, includingencryption technology, to protect our proprietary data and customer information. However, advances in technology, hacking, new discoveries in the field ofcryptography or other events or developments could result in a compromise or breach of the technology that we use to protect confidential information. Wemay not be able to prevent third parties, especially hackers or other individuals or entities engaging in similar activities, from illegally obtaining suchconfidential or private information we hold as a result of customer visits to our website and use of our mobile applications. Such individuals or entitiesobtaining our customers’ confidential or private information may further engage in various other illegal activities using such information. In addition, wehave limited control or influence over the security policies or measures adopted by third-party providers of online payment services, through which some ofour customers may elect to make payment for purchases. Our contracted third-party delivery companies we use may also violate their confidentialityobligations and disclose or use information about our customers illegally. Any negative publicity on our website’s or mobile applications’ safety or privacyprotection mechanisms and policies, and any claims asserted against us or fines imposed upon us as a result of actual or perceived failures, could have amaterial and adverse effect on our public image, reputation, financial condition and results of operations. We cannot assure you that events of securitybreaches will not occur in the future. If we grant third parties greater access to our technology platform in the future as part of providing more technologyservices to third-party merchants and others, it may become more challenging for us to ensure the security of our systems. Any compromise of our informationsecurity or the information security measures of our contracted third-party couriers or third-party online payment service providers could have a material andadverse effect on our reputation, business, prospects, financial condition and results of operations. 17Table of Contents Practices regarding the collection, use, storage, transmission and security of personal information by companies operating over the internet andmobile platforms have recently been subject to increased public scrutiny. As online retail continues to evolve, we believe that there will likely be increasedregulation by the PRC government of data privacy on the internet. We may become subject to new laws and regulations on the solicitation, collection,processing or use of personal or consumer information that could affect how we store, process and share data with our customers, suppliers and third-partysellers. We generally comply with industry standards for data privacy and are subject to the terms of our own privacy policies. Compliance with anyadditional laws could be expensive, and may place restrictions on the conduct of our business and the manner in which we interact with our customers. Anyfailure to comply with applicable regulations could also result in regulatory enforcement actions against us. Significant capital and other resources may be required to protect against information security breaches or to alleviate problems caused by suchbreaches or to comply with our privacy policies or privacy-related legal obligations. The resources required may increase over time as the methods used byhackers and others engaged in online criminal activities are increasingly sophisticated and constantly evolving. Any failure or perceived failure by us toprevent information security breaches or to comply with privacy policies or privacy-related legal obligations, or any compromise of security that results inthe unauthorized release or transfer of personally identifiable information or other customer data, could cause our customers to lose trust in us and couldexpose us to legal claims. Any perception by the public that online transactions or the privacy of user information are becoming increasingly unsafe orvulnerable to attacks could inhibit the growth of online retail and other online services generally, which may reduce the number of orders we receive. The wide variety of payment methods that we accept subjects us to third-party payment processing-related risks. We provide our customers with a variety of payment options, including online payments with credit cards and debit cards issued by major banks inChina, payment through major third-party online payment platforms, such as Alipay, UnionPay and Wechat Pay, bank transfers, cash on delivery (forproducts with low purchase prices) and payment using our store credits. In 2016, we launched Secoo Check at our online platform, through which ourcustomers can make payments for our merchandise products in installments. For certain payment methods, including credit and debit cards, we payinterchange and other fees, which may increase over time and raise our operating costs and lower our profit margins. We may also be subject to fraud andother illegal activities in connection with the various payment methods we offer, including online payment and cash on delivery options. We also rely on third parties to provide payment processing services. Given that customers place their orders online but may choose the cash-on-delivery option, the delivery personnel of our contracted third-party delivery companies collect payments on our behalf, and we require the contracted third-party couriers to remit the payment collected to us on a weekly basis. If these companies fail to remit the payment collected to us in a timely fashion or at all,if they become unwilling or unable to provide these services to us, or if their service quality deteriorates, our business could be disrupted. We are also subjectto various rules, regulations and requirements, regulatory or otherwise, governing electronic funds transfers, which could change or be reinterpreted to makeit difficult or impossible for us to comply. If we fail to comply with these rules or requirements, we may be subject to fines and higher transaction fees andbecome unable to accept credit and debit card payments from our customers, process electronic funds transfers or facilitate other types of online payments,and our business, financial condition and results of operations could be materially and adversely affected. Our delivery, return and exchange policies may adversely affect our results of operations. We have adopted shipping policies that do not necessarily pass the full shipping cost on to our customers. We may also be required by laws andregulations to adopt new or amend existing return and exchange policies from time to time. For example, pursuant to the amended Consumer Protection Law,which became effective in March 2014, consumers are generally entitled to return products purchased within seven days upon receipt without giving anyreasons when they purchase the products from business operators on the internet. See “Item 4.B. Business Overview—Regulation—Regulations Relating toProduct Quality and Consumer Protection.” These policies improve customers’ shopping experience and promote customer loyalty, which in turn help usacquire and retain customers. However, these policies also subject us to additional costs and expenses which we may not recoup through increased revenue.Our ability to handle a large volume of returns is unproven. If our return and exchange policy is misused by a significant number of customers, our costs mayincrease significantly and our results of operations may be materially and adversely affected. If we revise these policies to reduce our costs and expenses, ourcustomers may be dissatisfied, which may result in loss of existing customers or failure to acquire new customers in a timely manner, which may materiallyand adversely affect our results of operations. 18Table of Contents Our use of some leased properties could be challenged by third parties or government authorities, which may cause interruptions to our businessoperations. As of the date of this annual report, we leased 41 properties for our offices, offline experience centers, logistics centers, and parking lots. The lessorsof some leased properties have not been able to provide proper ownership certificates for the properties that we lease or prove their rights to sublease theproperties to us or do not hold legal certificates to legally lease properties to us. If our lessors are not the owners of the properties and they have not obtainedconsents from the owners or their lessors or permits from the relevant government authorities, our leases could be invalidated. If this occurs, we may have torenegotiate the leases with the owners or the parties who have the right to lease the properties, and the terms of the new leases may be less favorable to us. As of the date of this annual report, we are not aware of any claims or actions being contemplated or initiated by government authorities, propertyowners or any other third parties with respect to our leasehold interests in or use of such properties. However, we cannot assure you that our use of such leasedproperties will not be challenged. In the event that our use of properties is successfully challenged, we may be subject to fines and forced to relocate theaffected operations. In addition, we may become involved in disputes with the property owners or third parties who otherwise have rights to or interests in ourleased properties. We can provide no assurance that we will be able to find suitable replacement sites on terms commercially acceptable to us on a timelybasis, or at all, or that we will not be subject to material liability resulting from third parties’ challenges on our use of such properties. As a result, ourbusiness, financial condition and results of operations may be materially and adversely affected. We have granted options, and may continue to grant options, restricted share units and other types of awards under our share incentive plans, which mayresult in increased share-based compensation expenses. We adopted a share incentive plan in December 2014, or the 2014 Plan. Under the 2014 Plan, we are authorized to grant options or share purchaserights to purchase up to 1,307,672 ordinary shares as of the date of this annual report. In 2017, we, adopted a 2017 Employee Stock Incentive Plan, or the2017 Plan, which has replaced all of the 2014 Plan in its entirety. The awards granted and outstanding under the 2014 Plan has survived the termination ofthe 2014 Plan and remains effective and binding under the 2014 Plan. As of December 31, 2017, options to purchase 1,094,413 ordinary shares are issued andoutstanding under the 2014 and 2017 Plan. As the performance condition was satisfied upon the completion of our IPO, we have recognized share-basedcompensation expense in the amount of RMB46.1 million (US$7.1 million) for the year ended December 31, 2017. We believe the granting of share-basedcompensation is of significant importance to our ability to attract and retain key personnel and employees, and we will continue to grant share-basedcompensation to employees in the future. As a result, our expenses associated with share-based compensation may increase, which may have an adverse effecton our results of operations. Our results of operations are subject to seasonal fluctuations. We experience seasonality in our business, reflecting a combination of traditional retail seasonality patterns and new patterns associated with onlineretail in particular. For example, we generally experience less user traffic and purchase orders during national holidays in China, particularly during theChinese New Year holiday season in the first quarter of each year. Furthermore, sales in the traditional retail industry are significantly higher in the fourthquarter of each calendar year than in the preceding three quarters. Many e-commerce companies in China hold special promotional campaigns on festivals ordays popular among young people, many of which fall in the fourth quarter. We also hold a special promotional campaign in December each year. Thesespecial promotional campaigns typically increase the net revenues in the relevant quarters. Our financial condition and results of operations for future periodsmay continue to fluctuate. As a result, the trading price of our ADSs may fluctuate from time to time due to seasonality. 19Table of Contents Future strategic alliances, investments or acquisitions may have a material and adverse effect on our business, reputation and results of operations. We may in the future enter into strategic alliances with various third parties to further our business purposes from time to time. Strategic allianceswith third parties could subject us to a number of risks, including risks associated with sharing proprietary information, non-performance by the counterparty,and an increase in expenses incurred in establishing new strategic alliances, any of which may materially and adversely affect our business. We may havelittle ability to control or monitor their actions. To the extent the third parties suffer negative publicity or harm to their reputations from events relating totheir business, we may also suffer negative publicity or harm to our reputation by virtue of our association with such third parties. In addition, if we are presented with appropriate opportunities, we may invest in or acquire additional assets, technologies or businesses that arecomplementary to our existing business. Future investments or acquisitions and the subsequent integration of new assets and businesses into our own wouldrequire significant attention from our management and could result in a diversion of resources from our existing business, which in turn could have anadverse effect on our business operations. The costs of identifying and consummating investments and acquisitions may be significant. We may also incursignificant expenses in obtaining necessary approvals from relevant government authorities in China and elsewhere in the world. Acquired assets orbusinesses may not generate the financial results we expect. In addition, investments and acquisitions could result in the use of substantial amounts of cash,potentially dilutive issuances of equity securities, the occurrence of significant goodwill impairment charges, amortization expenses for other intangibleassets and exposure to potential unknown liabilities of the acquired business. The cost and duration of integrating newly acquired businesses could alsomaterially exceed our expectations. Any such negative developments could have a material adverse effect on our business, financial condition and results ofoperations. We may not be able to prevent others from unauthorized use of our intellectual property, which could harm our business and competitive position. We regard our trademarks, copyrights, patents, domain names, know-how, proprietary technologies, and similar intellectual property as critical toour success, and we rely on a combination of intellectual property laws and contractual arrangements, including confidentiality, invention assignment andnon-compete agreements with our employees and others, to protect our proprietary rights. Although we are not aware of any copycat websites or platformsthat attempt to cause confusion or diversion of traffic from us at the moment, we may become an attractive target to such attacks in the future because of ourbrand recognition in the online retail industry in China. Despite these measures, any of our intellectual property rights could be challenged, invalidated,circumvented or misappropriated, or such intellectual property may not be sufficient to provide us with competitive advantages. Further, because of the rapidtechnological changes in our industry, parts of our business rely on technologies developed or licensed by third parties, and we may not be able to obtain orcontinue to obtain licenses and technologies from these third parties at all or on reasonable terms. It is often difficult to register, maintain and enforce intellectual property rights in China. Statutory laws and regulations are subject to judicialinterpretation and enforcement and may not be applied consistently due to the lack of clear guidance on statutory interpretation. Confidentiality and non-compete agreements may be breached by counterparties, and there may not be adequate remedies available to us for any such breach. Accordingly, we maynot be able to effectively protect our intellectual property rights or to enforce our contractual rights in China. Policing any unauthorized use of ourintellectual property is difficult and costly and the steps we take may be inadequate to prevent the infringement or misappropriation of our intellectualproperty. In the event that we resort to litigation to enforce our intellectual property rights, such litigation could result in substantial costs and a diversion ofour managerial and financial resources, and could put our intellectual property at risk of being invalidated or narrowed in scope. We can provide noassurance that we will prevail in such litigation, and even if we do prevail, we may not obtain a meaningful recovery. In addition, our trade secrets may beleaked or otherwise become available to, or be independently discovered by, our competitors. Any failure in maintaining, protecting or enforcing ourintellectual property rights could have a material adverse effect on our business, financial condition and results of operations. 20Table of Contents We may be subject to intellectual property infringement claims, which may be expensive to defend and may disrupt our business and operations. We cannot be certain that our operations or any aspects of our business do not or will not infringe upon or otherwise violate trademarks, patents,copyrights or other intellectual property rights held by third parties. We have been, and from time to time in the future may be, subject to legal proceedingsand claims relating to the intellectual property rights of others. In addition, there may be other third-party intellectual property that is infringed by ourproducts, services or other aspects of our business. We cannot assure you that holders of patents or trademarks purportedly relating to some aspect of ourtechnology platform or business, if any such holders exist, would not seek to enforce such patents against us in China, the United States or any otherjurisdictions. If we are found to have violated the intellectual property rights of others, we may be subject to liability for our infringement activities or may beprohibited from using such intellectual property, and we may incur licensing fees or be forced to develop alternatives of our own. In addition, we may incursignificant expenses, and may be forced to divert management’s time and other resources from our business and operations to defend against these third-partyinfringement claims, regardless of their merits. Successful infringement or licensing claims made against us may result in significant monetary liabilities andmay materially disrupt our business and operations by restricting or prohibiting our use of the intellectual property in question. Finally, we use open sourcesoftware in connection with our products and services. Companies that incorporate open source software into their products and services have, from time totime, faced claims challenging the ownership of open source software and compliance with open source license terms. As a result, we could be subject to suitsby parties claiming ownership of what we believe to be open source software or noncompliance with open source licensing terms. Some open source softwarelicenses require users who distribute open source software as part of their software to publicly disclose all or part of the source code to such software and makeavailable any derivative works of the open source code on unfavorable terms or at no cost. Any requirement to disclose our source code or pay damages forbreach of contract could be harmful to our business, results of operations and financial condition. We have limited insurance coverage which could expose us to significant costs and business disruption. We maintain various insurance policies to safeguard against risks and unexpected events. We have purchased property insurance covering our high-valued inventory in our logistics centers and our products sold under our cash on delivery payment method in transit. We also provide social security insurance including pension insurance, unemployment insurance, work-related injury insurance and medicalinsurance for our employees. However, as the insurance industry in China is still in an early stage of development, insurance companies in China currentlyoffer limited business-related insurance products. We do not maintain business interruption insurance or product liability insurance, nor do we maintain key-man life insurance. We cannot assure you that our insurance coverage is sufficient to prevent us from any loss or that we will be able to successfully claim ourlosses under our current insurance policy on a timely basis, or at all. If we incur any loss that is not covered by our insurance policies, or the compensatedamount is significantly less than our actual loss, our business, financial condition and results of operations could be materially and adversely affected. One of our existing shareholders has substantial influence over our company and his interests may not be aligned with the interests of our othershareholders and holders of our ADSs. Currently, Mr. Richard Rixue Li, our founder, director and chief executive officer beneficially owns 26.0% of our outstanding shares. As a result ofhis significant shareholding, Mr. Li has significant influence over our business, including decisions regarding mergers, consolidations and the sale of all orsubstantially all of our assets, election of directors and other significant corporate actions. He may take actions that are not in the best interests of us or ourother shareholders. This concentration of ownership may discourage, delay or prevent a change in control of our company, which could deprive ourshareholders of an opportunity to receive a premium for their shares as part of a sale of our company and might reduce the price of our ADSs. These actionsmay be taken even if they are opposed by our other shareholders, including those who hold ADSs. For more information regarding our principal shareholdersand their affiliated entities, see “Item 7.A. Major Shareholders.” 21Table of Contents Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of Class A ordinary shares are entitled to one voteper share in respect of matters requiring the votes of shareholders, while holders of Class B ordinary shares are entitled to twenty votes per share, subject tocertain exceptions. We issued Class A ordinary shares represented by our ADSs in our initial public offering. Our founder, director and chief executive officer,Mr. Richard Rixue Li, who acquired our shares prior to our initial public offering, beneficially holds our Class B ordinary shares. Each Class B ordinary shareis convertible into one Class A ordinary share at any time by the holder thereof, while Class A ordinary shares are not convertible into Class B ordinary sharesunder any circumstances. Each Class B ordinary share shall automatically be converted into one Class A ordinary share without any action being required bythe holders of Class B ordinary shares and whether or not the certificates representing such shares are surrendered to our company or our transfer agent, if atany time Mr. Li and his affiliates collectively hold less than 50% of the issued Class B ordinary shares in the capital of our company, and no Class B ordinaryshares shall be issued by our company thereafter. Due to the disparate voting powers associated with our two classes of ordinary shares, as of the date of this annual report, Mr. Li beneficially owns87.5% of the aggregate voting power of our company through Siku Holding Limited. As a result, Mr. Li will have control over matters such as electingdirectors and approving material mergers, acquisitions or other business combination transactions. This concentrated control will limit your ability toinfluence corporate matters and could also discourage others from pursuing any potential merger, takeover or other change of control transactions, whichcould have the effect of depriving the holders of our Class A ordinary shares and our ADSs of the opportunity to sell their shares at a premium over theprevailing market price. We face risks related to natural disasters, health epidemics and other outbreaks, which could significantly disrupt our operations. Our business could be adversely affected by natural disasters or the outbreak of avian influenza, severe acute respiratory syndrome, or SARS, theinfluenza A (H1N1), H7N9 or another epidemic. Any of such occurrences could cause severe disruption to our daily operations, and may even require atemporary closure of our facilities. Such closures may disrupt our business operations and adversely affect our results of operations. Our operation could alsobe disrupted if our suppliers, customers or business partners were affected by such natural disasters or health epidemics. Any financial or economic crisis, or perceived threat of such a crisis, including a significant decrease in consumer confidence, may materially andadversely affect our business, financial condition and results of operations. The global financial markets experienced significant disruptions in 2008 and the United States, European and other economies went into recession.The recovery from the lows of 2008 and 2009 was uneven and the global financial markets are facing new challenges, including the escalation of theEuropean sovereign debt crisis since 2011, the hostilities in the Ukraine and the economic slowdown in the Eurozone. It is unclear whether these challengeswill be contained and what effects they each may have. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscalpolicies that have been adopted by the central banks and financial authorities of some of the world’s leading economies, including China’s. Economicconditions in China are sensitive to global economic conditions. The rate of China’s economic growth has been declining. Any prolonged slowdown inChina’s economic development might lead to tighter credit markets, increased market volatility, sudden drops in business and consumer confidence anddramatic changes in business and consumer behaviors. In response to their perceived uncertainty in economic conditions, consumers might delay, reduce orcancel purchases of upscale products. To the extent any fluctuations in the Chinese economy significantly affect our customers’ demand for our services orchange their spending habits, our results of operations may be materially and adversely affected. 22Table of Contents Registered public accounting firms in China, including our independent registered public accounting firm, are not inspected by the U.S. Public CompanyAccounting Oversight Board, which deprives us and our investors of the benefits of such inspection. Auditors of companies whose shares are registered with the U.S. Securities and Exchange Commission, or the SEC, and traded publicly in the UnitedStates, including our independent registered public accounting firm, must be registered with the U.S. Public Company Accounting Oversight Board, or thePCAOB, and are required by the laws of the United States to undergo regular inspections by the PCAOB to assess their compliance with the laws of theUnited States and professional standards applicable to auditors. Our independent registered public accounting firm is located in, and organized under thelaws of, the PRC, which is a jurisdiction where the PCAOB, notwithstanding the requirements of U.S. law, is currently unable to conduct inspections withoutthe approval of the Chinese authorities. In May 2013, PCAOB announced that it had entered into a Memorandum of Understanding on EnforcementCooperation with the China Securities Regulatory Commission, or the CSRC, and the PRC Ministry of Finance, which establishes a cooperative frameworkbetween the parties for the production and exchange of audit documents relevant to investigations undertaken by PCAOB, the CSRC or the PRC Ministry ofFinance in the United States and the PRC, respectively. The PCAOB continues to be in discussions with the CSRC and the PRC Ministry of Finance to permitjoint inspections in the PRC of audit firms that are registered with the PCAOB and audit Chinese companies that trade on U.S. exchanges. This lack of PCAOB inspections in China prevents the PCAOB from fully evaluating audits and quality control procedures of our independentregistered public accounting firm. As a result, we and investors in our ADSs are deprived of the benefits of such PCAOB inspections. The inability of thePCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our independent registered public accountingfirm’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections, which could causeinvestors and potential investors in our ADSs to lose confidence in our audit procedures and reported financial information and the quality of our financialstatements. If additional remedial measures are imposed on the Big Four PRC-based accounting firms, including our independent registered public accounting firm,in administrative proceedings brought by the SEC alleging the firms’ failure to meet specific criteria set by the SEC, we could be unable to timely filefuture financial statements in compliance with the requirements of the Exchange Act. In December 2012, the SEC instituted administrative proceedings against the Big Four PRC-based accounting firms, including our independentregistered public accounting firm, alleging that these firms had violated U.S. securities laws and the SEC’s rules and regulations thereunder by failing toprovide to the SEC the firms’ audit work papers with respect to certain PRC-based companies that are publicly traded in the United States. On January 22,2014, the administrative law judge, or the ALJ, presiding over the matter rendered an initial decision that each of the firms had violated the SEC’s rules ofpractice by failing to produce audit workpapers to the SEC. The initial decision censured each of the firms and barred them from practicing before the SEC fora period of six months. The Big Four PRC-based accounting firms appealed the ALJ’s initial decision to the SEC. The ALJ’s decision does not take effectunless and until it is endorsed by the SEC. On February 6, 2015, the four China-based accounting firms each agreed to a censure and to pay a fine to the SECto settle the dispute and avoid suspension of their ability to practice before the SEC and audit U.S.-listed companies. The settlement required the firms tofollow detailed procedures and to seek to provide the SEC with access to Chinese firms’ audit documents via the CSRC in response to future documentrequests by the SEC made through the CSRC. If the Big Four PRC-based accounting firms, including our independent registered public accounting firm, failto comply with the documentation production procedures that are in the settlement agreement or if there is a failure of the process between the SEC and theCSRC, the SEC retains authority to impose a variety of additional remedial measures on the firms, such as imposing penalties on the firms and restarting theproceedings against the firms, depending on the nature of the failure. If the accounting firms are subject to additional remedial measures, our ability to fileour financial statements in compliance with SEC requirements could be impacted. A determination that we have not timely filed financial statements incompliance with SEC requirements could ultimately lead to the delisting of our ADSs from the NASDAQ Global Market or the termination of the registrationof our ADSs under the Exchange Act, or both, which would substantially reduce or effectively terminate the trading of our ADSs in the United States. 23Table of Contents Risks Related to Our Corporate Structure If the PRC government deems that the contractual arrangements in relation to Beijing Wo Mai Wo Pai Auction Co., Ltd (‘‘Beijing Auction’’) and BeijingSecoo Trading Ltd. (“Beijing Secoo”) do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if theseregulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interestsin those operations. Foreign ownership of certain internet related businesses is subject to restrictions under current PRC laws and regulations. For example, foreigninvestors are not allowed to own more than 50% of the equity interests in a value-added telecommunication service provider (subject to exceptions, such asplatform e-commerce) and any such foreign investors must have experience in providing value-added telecommunication services overseas and maintain agood track record in accordance with the Guidance Catalogue of Industries for Foreign Investment promulgated in 2007, as amended in 2011, 2015 and2017. The MIIT issued the Circular on Strengthening the Administration of Foreign Investment in and Operation of Value-added TelecommunicationsBusiness, or the MIIT Circular, in July 2006. The MIIT Circular reiterated the regulations on foreign investment in telecommunications businesses, whichrequire foreign investors to set up foreign invested enterprises and obtain business operating licenses for internet content provision to conduct any value-added telecommunications business in China. Under the MIIT Circular, a domestic company that holds an ICP license is prohibited from leasing, transferringor selling the license to foreign investors in any form, and from providing any assistance, including providing resources, sites or facilities, to foreign investorsthat conduct value-added telecommunication business illegally in China. We are a Cayman Islands company and our PRC subsidiaries are considered foreign-invested enterprises. Accordingly, none of these PRCsubsidiaries is eligible to provide value-added telecommunication services in China. As a result, we conduct such business activities through our affiliatedPRC entities Beijing Secoo and Beijing Auction, each of which holds an ICP license. Beijing Auction and Beijing Secoo are 90% owned by Mr. RichardRixue Li, our founder, director and chief executive officer, and 10% owned by Ms. Zhaohui Huang, our founder and director. Mr. Li and Ms. Huang are bothPRC citizens. We have entered into a series of contractual arrangements with Beijing Auction and Beijing Secoo and their respective shareholders, whichenable us to: · exercise effective control over Beijing Secoo and Beijing Auction; · receive substantially all of the economic benefits of Beijing Secoo and Beijing Auction; and · have an exclusive option to purchase all or part of the equity interests in Beijing Auction and Beijing Secoo when and to the extent permittedby PRC law. Because of these contractual arrangements, we are the primary beneficiary of Beijing Secoo and Beijing Auction and hence consolidate theirfinancial results as our variable interest entities. For a detailed discussion of these contractual arrangements, see “Item 4.C. Organizational Structure —Contractual Arrangements with our Variable Interests Entities and their Shareholders.” In the opinion of Han Kun Law Offices, our PRC legal counsel, (i) the ownership structures of Kutianxia Information, our PRC subsidiary, andBeijing Auction and Beijing Secoo, our variable interest entities in China, as of the date of this annual report, are not in violation of existing PRC laws andregulations; and (ii) the contractual arrangements between our PRC subsidiary, our variable interest entities, and their respective shareholders governed byPRC law are valid, binding and enforceable, and will not result in any violation of PRC laws or regulations currently in effect. However, our PRC legalcounsel has also advised us that there are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulationsand rules; accordingly, the PRC regulatory authorities may take a view that is contrary to the opinion of our PRC legal counsel. It is uncertain whether anynew PRC laws or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. If we or any of our variableinterest entities is found to be in violation of any existing or future PRC laws or regulations, or fails to obtain or maintain any of the required permits orapprovals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures, including: · revoking the business licenses of such entities; · discontinuing or restricting the conduct of any transactions between certain of our PRC subsidiaries and variable interest entities; 24Table of Contents · imposing fines, confiscating the income from our variable interest entities, or imposing other requirements with which we or our variableinterest entities may not be able to comply; · requiring us to restructure our ownership structure or operations, including terminating the contractual arrangements with our variable interestentities and deregistering the equity pledges of our variable interest entities, which in turn would affect our ability to consolidate, deriveeconomic interests from, or exert effective control over our variable interest entities; or · restricting or prohibiting our use of the proceeds of our initial public offering to finance our business and operations in China. The imposition of any of these penalties would result in a material and adverse effect on our ability to conduct our business. In addition, it is unclearwhat impact the PRC government actions would have on us and on our ability to consolidate the financial results of Beijing Auction and Beijing Secoo inour consolidated financial statements, if the PRC government authorities were to find our legal structure and contractual arrangements to be in violation ofPRC laws and regulations. If the imposition of any of these government actions causes us to lose our right to direct the activities of Beijing Secoo andBeijing Auction or our right to receive substantially all the economic benefits and residual returns from Beijing Secoo and Beijing Auction and we are notable to restructure our ownership structure and operations in a satisfactory manner, we would no longer be able to consolidate the financial results of BeijingSecoo and Beijing Auction in our consolidated financial statements. Either of these results, or any other significant penalties that might be imposed on us inthis event, would have a material adverse effect on our financial condition and results of operations. We rely on contractual arrangements with our variable interest entities and their shareholders for substantially all of our business operations, which maynot be as effective as direct ownership in providing operational control. Due to the restrictions on foreign ownership of internet-based businesses in China, we depend on contractual arrangements with our consolidatedvariable interest entities, Beijing Auction and Beijing Secoo, in which we have no ownership interest, to conduct certain aspects of our operation. We haverelied and expect to continue to rely on contractual arrangements with Beijing Auction and Beijing Secoo and their shareholders to hold our ICP license asan internet information provider and auction business, respectively. For a description of these contractual arrangements, see “Item 4.C. OrganizationalStructure—Contractual Arrangements with our Variable Interests Entities and their Shareholders.” These contractual arrangements may not be as effective asdirect ownership in providing us with control over our variable interest entities. For example, our variable interest entities and their respective shareholderscould breach their contractual arrangements with us by, among other things, failing to conduct their operations, including maintaining our website and usingthe domain names and trademarks, in an acceptable manner or taking other actions that are detrimental to our interests. If we had direct ownership of Beijing Auction and Beijing Secoo, we would be able to exercise our rights as a shareholder to effect changes in theboard of directors of Beijing Auction and Beijing Secoo, which in turn could effect changes, subject to any applicable fiduciary obligations, at themanagement level. However, under the current contractual arrangements, we rely on the performance by our variable interest entities and their respectiveshareholders of their obligations under the contracts to exercise control over our variable interest entities. However, the shareholders of our variable interestentities may not act in the best interests of our company or may not perform their obligations under these contracts. Such risks exist throughout the period inwhich we intend to operate our business through the contractual arrangements with our variable interest entities. We may replace the shareholders of ourvariable interest entities at any time pursuant to our contractual arrangements with them and their shareholders. However, if any dispute relating to thesecontracts remains unresolved, we will have to enforce our rights under these contracts through the operations of PRC law and courts and therefore will besubject to uncertainties in the PRC legal system. See “Item 3.D. Risk Factors—Risks Related to Our Corporate Structure—Any failure by our variable interestentities or their shareholders to perform their obligations under our contractual arrangements with them would have a material and adverse effect on ourbusiness.” Therefore, our contractual arrangements with our variable interest entities may not be as effective in ensuring our control over the relevant portionof our business operations as direct ownership would be. 25Table of Contents Substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation of draft PRC Foreign Investment Law and howit may impact the viability of our current corporate structure, corporate governance and business operations. The Ministry of Commerce published a discussion draft of the proposed Foreign Investment Law in January 2015 aiming to, upon its enactment,replace the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreignCooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law. The draft Foreign Investment Law embodies an expected PRCregulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify thecorporate legal requirements for both foreign and domestic investments. While the Ministry of Commerce solicited comments on this draft earlier in 2015,substantial uncertainties exist with respect to its enactment timetable, interpretation and implementation. The draft Foreign Investment Law, if enacted asproposed, may materially impact the viability of our current corporate structure, corporate governance and business operations in many aspects. Among other things, the draft Foreign Investment Law expands the definition of foreign investment and introduces the principle of “actual control”in determining whether a company is considered a foreign-invested enterprise, or an FIE. The draft Foreign Investment Law specifically provides that entitiesestablished in China but “controlled” by foreign investors will be treated as FIEs, whereas an entity set up in a foreign jurisdiction would nonetheless be,upon market entry clearance by the Ministry of Commerce, treated as a PRC domestic investor provided that the entity is “controlled” by PRC entities and/orcitizens. In this connection, “foreign investors” refers to the following subjects making investments within the PRC: (i) natural persons without PRCnationality; (ii) enterprises incorporated under the laws of countries or regions other than China; (iii) the governments of countries or regions other than thePRC and the departments or agencies thereunder; and (iv) international organizations. Domestic enterprises under the control of the subjects as mentioned inthe preceding sentence are deemed foreign investors, and “control” is broadly defined in the draft Foreign Investment Law to cover the following summarizedcategories: (i) holding, directly or indirectly, not less than 50% of shares, equities, share of voting rights or other similar rights of the subject entity;(ii) holding, directly or indirectly, less than 50% of the voting rights of the subject entity but having the power to secure at least 50% of the seats on theboard or other equivalent decision making bodies, or having the voting power to material influence on the board, the shareholders’ meeting or otherequivalent decision making bodies; or (iii) having the power to exert decisive influence, via contractual or trust arrangements, over the subject entity’soperations, financial matters or other key aspects of business operations. Once an entity is determined to be an FIE, it will be subject to the foreign investmentrestrictions or prohibitions set forth in a catalogue of special administrative measures,” which is classified into the “catalogue of prohibitions” and “thecatalogue of restrictions”, to be separately issued by the State Council later. Foreign investors are not allowed to invest in any sector set forth in the catalogueof prohibitions. However, unless the underlying business of the FIE falls within the catalogue of restrictions, which calls for market entry clearance by theMinistry of Commerce, prior approval from the government authorities as mandated by the previous foreign investment legal regime would no longer berequired for establishment of the FIE. The “variable interest entity” structure, or VIE structure, has been adopted by many PRC-based companies, including us, to obtain necessarylicenses and permits in the industries that are currently subject to foreign investment restrictions in China. See “Item 3.D. Risk Factors—Risks Related to OurCorporate Structure—If the PRC government deems that the contractual arrangements in relation to Beijing Auction and Beijing Secoo do not comply withPRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change in thefuture, we could be subject to severe penalties or be forced to relinquish our interests in those operations.” and “Item 4.C. Business Overview—Organizational Structure.” Under the draft Foreign Investment Law, variable interest entities that are controlled via contractual arrangement would also bedeemed as FIEs, if they are ultimately “controlled” by foreign investors. Therefore, for any companies with a VIE structure in an industry category that is onthe “catalogue of restrictions,” the VIE structure may be deemed a domestic investment only if the ultimate controlling person(s) is/are of PRC nationality(either PRC companies or PRC citizens). Conversely, if the actual controlling person(s) is/are of foreign nationalities, then the variable interest entities willbe treated as FIEs and any operation in the industry category on the “catalogue of restrictions” without market entry clearance may be considered as illegal. 26Table of Contents Our major shareholder, Mr. Richard Rixue Li, a PRC citizen, possesses and controls 87.5% of the voting power of our company as of the date of thisannual report. However, the draft Foreign Investment Law has not taken a position on what actions are required to be taken with respect to the existingcompanies with a VIE structure, whether or not these companies are controlled by Chinese parties, while the Ministry of Commerce is soliciting commentsfrom the public on this point. Moreover, it is uncertain whether the online retail and platform e-commerce/value-added telecommunication industry, in whichour variable interest entities operate, will be subject to the foreign investment restrictions or prohibitions set forth in the “catalogue of special administrativemeasures” to be issued. If the enacted version of the Foreign Investment Law and the final “catalogue of special administrative measures” mandate furtheractions, such as the Ministry of Commerce market entry clearance, to be completed by companies with an existing VIE structure like us, we face uncertaintiesas to whether such clearance can be timely obtained, or at all. The draft Foreign Investment Law, if enacted as proposed, may also materially impact our corporate governance practice and increase ourcompliance costs. For instance, the draft Foreign Investment Law imposes stringent ad hoc and periodic information reporting requirements on foreigninvestors and the applicable FIEs. Aside from an investment information report required at each investment, and investment amendment reports, which shallbe submitted upon alteration of investment specifics, it is mandatory for entities established by foreign investors to submit an annual report, and large foreigninvestors meeting certain criteria are required to report on a quarterly basis. Any company found to be non-compliant with these reporting obligations maypotentially be subject to fines and/or administrative or criminal liabilities, and the persons directly responsible may be subject to criminal liabilities. Any failure by our variable interest entities or their shareholders to perform their obligations under our contractual arrangements with them would have amaterial and adverse effect on our business. If our variable interest entities or their shareholders fail to perform their respective obligations under the contractual arrangements, we may have toincur substantial costs and expend additional resources to enforce such arrangements. We may also have to rely on legal remedies under PRC law, includingseeking specific performance or injunctive relief, and claiming damages, which we cannot assure you will be effective. For example, if the shareholders of ourvariable interest entities were to refuse to transfer their equity interest in Beijing Auction and Beijing Secoo to us or our designee when we exercise thepurchase option pursuant to these contractual arrangements, or if they were otherwise to act in bad faith toward us, we may have to take legal actions tocompel them to perform their contractual obligations. All the agreements under our contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration inChina. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legalprocedures. The legal system in the PRC is not as developed as in some other jurisdictions, such as the United States. See “Item 3.D. Risk Factors—RisksRelated to Doing Business in China—Uncertainties with respect to the PRC legal system could adversely affect us.” Meanwhile, 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 underPRC law, and as a result it may be difficult to predict how an arbitration panel would view such contractual arrangements. As a result, uncertainties in thePRC legal system could limit our ability to enforce these contractual arrangements. Additionally, under PRC law, rulings by arbitrators are final, partiescannot appeal the arbitration results in courts, and if the losing parties fail to carry out the arbitration awards within a prescribed time limit, the prevailingparties may only enforce the arbitration awards in PRC courts through arbitration award recognition proceedings, which would require additional expensesand delay. Furthermore, if Beijing Secoo, Beijing Auction or the shareholders of Beijing Secoo and Beijing Auction fail to perform their obligations underthese contractual arrangements, which allow us to maintain effective control over Beijing Secoo and Beijing Auction, we may not be able to continue toconsolidate the financial results and assets and liabilities of Beijing Secoo and Beijing Auction and their subsidiaries in our consolidated financialstatements in accordance with U.S. GAAP. Furthermore, our inability to exert effective control may negatively affect our ability to conduct our business,which could materially and adversely affect our results of operations and financial condition. Our variable interest entities hold our ICP license and auction business license and conduct our online sales and auctions businesses. In the event weare unable to enforce our contractual arrangements, we may not be able to exert effective control over our variable interest entities, and our ability to conductthese businesses may be negatively affected. We generate the majority of our revenues from products and services that are offered to customers through ourwebsite and mobile applications and any interruption in our ability to use our website and mobile applications may have a material and adverse effect on ourfinancial condition and results of operations. 27Table of Contents The shareholders of our variable interest entities may have potential conflicts of interest with us, which may materially and adversely affect our businessand financial condition. Mr. Richard Rixue Li and Ms. Zhaohui Huang are the shareholders of each of our variable interest entities, Beijing Auction and Beijing Secoo.Mr. Richard Rixue Li is our founder, director and chief executive officer, while Ms. Zhaohui Huang is our founder and director. The shareholders of BeijingAuction and Beijing Secoo may have potential conflicts of interest with us. These shareholders may breach, or cause our variable interest entities to breach,or refuse to renew, the existing contractual arrangements we have with them and our variable interest entities, which would have a material and adverse effecton our ability to effectively control our variable interest entities and receive substantially all the economic benefits from them. For example, the shareholdersmay be able to cause our agreements with Beijing Auction and Beijing Secoo to be performed in a manner adverse to us by, among other things, failing toremit payments due under the contractual arrangements to us on a timely basis. We cannot assure you that when conflicts of interest arise, any or all of theseshareholders will act in the best interests of our company or such conflicts will be resolved in our favor. Currently, we do not have any arrangements to address potential conflicts of interest between these shareholders and our company. Mr. RichardRixue Li is also a director and executive officer of our company. We rely on Mr. Li to abide by the laws of the Cayman Islands and the PRC, which providethat directors owe fiduciary duties to the company that require them to act in good faith and in what they believe to be the best interests of the company andnot to use their position for personal gains. If we cannot resolve any conflict of interest or dispute between us and the shareholders of Beijing Auction andBeijing Secoo, we would have to rely on legal proceedings, which could result in disruption of our business and subject us to substantial uncertainty as to theoutcome of any such legal proceedings. We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, andany limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct ourbusiness. We are a holding company, and we may rely on dividends and other distributions on equity paid by our PRC subsidiaries like Kutianxia for our cashand financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders and service any debt we mayincur. If these subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or makeother distributions to us. In addition, the PRC tax authorities may require Kutianxia to adjust its taxable income under the contractual arrangements itcurrently has in place with our variable interest entities in a manner that would materially and adversely affect its ability to pay dividends and otherdistributions to us. See “Item 3.D. Risk Factors—Risks Related to Our Corporate Structure—Contractual arrangements in relation to our variable interestentities may be subject to scrutiny by the PRC tax authorities and they may determine that we or our PRC variable interest entities owe additional taxes,which could negatively affected our financial condition and the value of your investment.” Under PRC laws and regulations, our wholly foreign-owned subsidiaries in China may pay dividends only out of their respective accumulatedprofits as determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise is required to set aside atleast 10% of its accumulated after-tax profits each year, if any, to fund certain statutory reserve fund, until the aggregate amount of such fund reaches 50% ofits registered capital. At its discretion, a wholly foreign-owned enterprise may allocate a portion of its after-tax profits based on PRC accounting standards toenterprise expansion fund and staff welfare and bonus fund. The statutory reserve fund, enterprise expansion fund and staff welfare and bonus fund are notdistributable as cash dividends. Any limitation on the ability of our PRC subsidiaries to pay dividends or make other distributions to us could materially and adversely limit ourability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business. Seealso “Item 3.D. Risk Factors—Risks Related to Doing Business in China—If we are classified as a PRC resident enterprise for PRC income tax purposes, suchclassification could result in unfavorable tax consequences to us and our non-PRC shareholders or ADS holders.” 28Table of Contents PRC regulation on loans to and direct investment in PRC entities by offshore holding companies and governmental control in currency conversion maydelay or prevent us from using the proceeds of our initial public offering to make loans to our PRC subsidiaries and consolidated variable interest entitiesor make additional capital contributions to our wholly foreign-owned subsidiaries in China, which could materially and adversely affect our liquidity andour ability to fund and expand our business. We are an offshore holding company conducting our operations in China through our PRC subsidiaries and consolidated variable interest entities.We may make loans to our PRC subsidiaries and consolidated variable interest entities subject to the approval from governmental authorities and limitationof amount, or we may make additional capital contributions to our wholly foreign-owned subsidiaries in China. Any loans to our wholly foreign-owned subsidiaries in China, which are treated as foreign-invested enterprises under PRC law, are subject to PRCregulations and foreign exchange loan registrations. For example, loans by us to our wholly foreign-owned subsidiaries in China to finance their activitiescannot exceed statutory limits and must be registered with the local counterpart of the State Administration of Foreign Exchange, or SAFE. The statutorylimit for the total amount of foreign debts of a foreign-invested company is the difference between the amount of total investment as approved by theMinistry of Commerce or its local counterpart and the amount of registered capital of such foreign-invested company. On June 15, 2016, the SAFE promulgated the Circular on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement ofCapital Accounts, or SAFE Circular No. 16. SAFE Circular No. 16 stipulates that the use of capital by foreign-invested enterprises, or FIEs shall follow “theprinciple of authenticity and self-use” within the business scope of such FIEs. The capital of an FIE and capital in RMB obtained by the FIE from foreignexchange settlement shall not be used for the following purposes: (i) directly or indirectly used for payment beyond the business scope of the enterprises orthe payment prohibited by relevant laws and regulations; (ii) directly or indirectly used for investment in securities or investments other than banks’principal-secured products unless otherwise provided by relevant laws and regulations; (iii) the granting of loans to non-affiliated enterprises, except where itis expressly permitted in the business license; and (iv) paying the expenses related to the purchase of real estate that is not for self-use (except for the foreign-invested real estate enterprises). In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holding companies,we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timelybasis, if at all, with respect to future loans by us to our PRC subsidiaries or variable interest entities or with respect to future capital contributions by us to ourPRC subsidiaries. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds from our initial public offering and tocapitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fundand expand our business. Contractual arrangements in relation to our variable interest entities may be subject to scrutiny by the PRC tax authorities and they may determine that weor our PRC variable interest entities owe additional taxes, which could negatively affected our financial condition and the value of your investment. Under applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRCtax authorities. We could face material and adverse tax consequences if the PRC tax authorities determine that the contractual arrangements betweenKutianxia, our wholly owned subsidiary in China, Beijing Auction and Beijing Secoo, our variable interest entities in China, and their respectiveshareholders were not entered into on an arm’s-length basis in such a way as to result in an impermissible reduction in taxes under applicable PRC laws,rules and regulations, and adjust Beijing Auction and Beijing Secoo’s income in the form of a transfer pricing adjustment. A transfer pricing adjustmentcould, among other things, result in a reduction of expense deductions recorded by Beijing Auction and Beijing Secoo for PRC tax purposes, which could inturn increase their tax liabilities. In addition, the PRC tax authorities may impose punitive interest on Beijing Auction and Beijing Secoo for the adjusted butunpaid taxes at the rate of 5% over the basic RMB lending rate published by the People’s Bank of China for a period according to the applicable regulations.Our financial position could be materially and adversely affected if our variable interest entities’ tax liabilities increase or if they are required to pay punitiveinterest. 29Table of Contents If Beijing Auction and Beijing Secoo become the subject of a bankruptcy or liquidation proceeding, we may lose the ability to use and enjoy substantiallyall of our assets, which could reduce the size of our operations and materially and adversely affect our business, ability to generate revenues and themarket price of our ADSs. As part of the contractual arrangements with Beijing Auction and Beijing Secoo, their shareholders and their subsidiaries, Beijing Auction andBeijing Secoo and their subsidiaries hold operating permits and licenses and substantially all of the assets that are important to the operation of our business,including our ICP license, auction license, domain names and trademarks. We expect to continue to be dependent on Beijing Auction and Beijing Secoo andits subsidiaries to operate our business in China. If Beijing Auction and Beijing Secoo go bankrupt and all or part of their assets become subject to liens orrights of third-party creditors, we may be unable to continue some or all of our business activities, which would materially and adversely affect our business,financial condition and results of operations. Under the contractual arrangements, Beijing Auction and Beijing Secoo may not, in any manner, sell, transfer,mortgage or dispose of their assets or legal or beneficial interests in their business without our prior consent. If Beijing Auction and Beijing Secoo undergo avoluntary or involuntary liquidation proceeding, their equity holders or unrelated third-party creditors may claim rights to some or all of these assets, therebyhindering our ability to operate our business, which would materially and adversely affect our business, our ability to generate revenues and the market priceof our ADSs. Risks Related to Doing Business in China Changes in China’s economic, political or social conditions or government policies could have a material and adverse effect on our business andoperations. Substantially all of our operations are located in China. Accordingly, our business, financial condition, results of operations and prospects may beinfluenced to a significant degree by political, economic and social conditions in China generally and by continued economic growth in China as a whole. The Chinese economy differs from the economies of most developed countries in many respects, including the level of government involvement,level of development, growth rate, control of foreign exchange and allocation of resources. Although the Chinese government has implemented measuresemphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of improvedcorporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, the Chinesegovernment continues to play a significant role in regulating industry development by imposing industrial policies. The Chinese government also exercisessignificant control over China’s economic growth through allocating resources, controlling payment of foreign currency-denominated obligations, settingmonetary policy, and providing preferential treatment to particular industries or companies. While the Chinese economy has experienced significant growth over the past decades, growth has been uneven, both geographically and amongvarious sectors of the economy, and the growth of the Chinese economy has slowed down since 2012. The Chinese government has implemented variousmeasures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy, but mayhave a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capitalinvestments or changes in tax regulations. In addition, in the past the Chinese government has implemented certain measures, including interest rateincreases, to control the pace of economic growth. These measures may cause decreased economic activity in China, which may adversely affect our businessand operating results. 30Table of Contents Uncertainties with respect to the PRC legal system could adversely affect us. We conduct our business primarily through our PRC subsidiaries and consolidated variable interest entities in China. Our operations in China aregoverned by PRC laws and regulations. Our PRC subsidiaries are subject to laws and regulations applicable to foreign investment in China. The PRC legalsystem is a civil law system based on written statutes. Unlike the common law system, prior court decisions may be cited for reference but have limitedprecedential value. In 1979, the PRC government began to promulgate a comprehensive system of laws 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 investments in China.However, China has not developed a fully integrated legal system, and recently enacted laws and regulations may not sufficiently cover all aspects ofeconomic activities in China. In particular, because these laws and regulations are relatively new, and because of the limited number of published decisionsand their nonbinding nature, the interpretation and enforcement of these laws and regulations involve uncertainties. In addition, the PRC legal system isbased in part on government policies and internal rules, some of which are not published on a timely basis or at all, and which may have a retroactive effect.As a result, we may not be aware of our violation of these policies and rules until sometime after the violation. Any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and managementattention. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it maybe more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legalsystems. These uncertainties may impede our ability to enforce the contracts we have entered into and could materially and adversely affect our business andresults of operations. We are subject to consumer protection laws that could require us to modify our current business practices and incur increased costs. We are subject to numerous PRC laws and regulations that regulate retailers generally or govern online retailers specifically, such as the ConsumerProtection Law. If these regulations were to change or if we, suppliers or third-party sellers on our marketplace were to violate them, the costs of certainproducts or services could increase, or we could be subject to fines or penalties or suffer reputational harm, which could reduce demand for the products orservices offered on our platform and hurt our business and results of operations. For example, the amended Consumer Protection Law, which became effectivein March 2014, further strengthens the protection of consumers and imposes more stringent requirements and obligations on business operators, especially onbusinesses that operate on the internet. Pursuant to the Consumer Protection Law, consumers are generally entitled to return goods purchased within sevendays upon receipt without giving any reasons if they purchased the goods over the internet. Consumers whose interests have been damaged due to theirpurchase of goods or acceptance of services on online marketplace platforms may claim damages from sellers or service providers. Where the operators of anonline marketplace platform are unable to provide the real names, addresses and valid contact details of the sellers or service providers, the consumers mayalso claim damages from the operators of the online marketplace platforms. Operators of online marketplace platforms that know or should have known thatsellers or service providers use their platforms to infringe upon the legitimate rights and interests of consumers but fail to take necessary measures must bearjoint and several liability with the sellers or service providers. Moreover, if business operators deceive consumers or knowingly sell substandard or defectiveproducts, they should not only compensate consumers for their losses, but also pay additional damages equal to three times the price of the goods or services.Legal requirements are frequently changed and subject to interpretation, and we are unable to predict the ultimate cost of compliance with these requirementsor their effect on our operations. We may be required to make significant expenditures or modify our business practices to comply with existing or future lawsand regulations, which may increase our costs and materially limit our ability to operate our business. We may be adversely affected by the complexity, uncertainties and changes in PRC regulation of internet-related business and companies. The PRC government extensively regulates the internet industry, including foreign ownership of, and the licensing and permit requirementspertaining to, companies in the internet industry. These internet related laws and regulations are relatively new and evolving, and their interpretation andenforcement involve significant uncertainties. As a result, in certain circumstances it may be difficult to determine what actions or omissions may be deemedto be in violation of applicable laws and regulations. Issues, risks and uncertainties relating to PRC government regulation of the internet industry include,but are not limited to, the following: 31Table of Contents We only have control over our website and mobile applications through contractual arrangements. We do not own the website in China due to therestriction of foreign investment in businesses providing value-added telecommunication services in China, including internet information provisionservices. This may significantly disrupt our business, subject us to sanctions, compromise enforceability of related contractual arrangements, or have otherharmful effects on us. The evolving PRC regulatory system for the internet industry may lead to the establishment of new regulatory agencies. For example, in May 2011,the State Council announced the establishment of a new department, the State Internet Information Office. The primary role of this new agency is to facilitatethe policy-making and legislative development in this field to direct and coordinate with the relevant departments in connection with online contentadministration and to deal with cross-ministry regulatory matters in relation to the internet industry. New laws and regulations may be promulgated that will regulate internet activities, including online retail. If these new laws and regulations arepromulgated, additional licenses may be required for our operations. If our operations do not comply with these new regulations at the time they becomeeffective, or if we fail to obtain any licenses required under these new laws and regulations, we could be subject to penalties. The Circular on Strengthening the Administration of Foreign Investment in and Operation of Value-added Telecommunications Business, issued bythe MIIT in July 2006, prohibits domestic telecommunication service providers from leasing, transferring or selling telecommunications business operatinglicenses to any foreign investor in any form, or providing any resources, sites or facilities to any foreign investor for their illegal operation of atelecommunications business in China. According to this circular, either the holder of a value-added telecommunication services operation permit or itsshareholders must directly own the domain names and trademarks used by such license holders in their provision of value-added telecommunication services.The circular also requires each license holder to have the necessary facilities, including servers, for its approved business operations and to maintain suchfacilities in the regions covered by its license. If an ICP license holder fails to comply with the requirements and also fails to remediate such non-compliancewithin a specified period of time, the MIIT or its local counterparts have the discretion to take administrative measures against such license holder, includingrevoking its ICP license. Currently, Beijing Secoo, one of our PRC consolidated variable interest entities, holds an ICP license and operates our Secoo.comwebsite. Beijing Secoo owns the relevant domain names and registered trademarks and has the necessary personnel to operate such website. The interpretation and application of existing PRC laws, regulations and policies and possible new laws, regulations or policies relating to theinternet industry have created substantial uncertainties regarding the legality of existing and future foreign investments in, and the businesses and activitiesof, internet businesses in China, including our business. We cannot assure you that we have obtained all the permits or licenses required for conducting ourbusiness in China or will be able to maintain our existing licenses or obtain new ones. Failure to make adequate contributions to various employee benefit plans as required by PRC regulations may subject us to penalties. Companies operating in China are required to participate in various government sponsored employee benefit plans, including certain socialinsurance, housing funds and other welfare-oriented payment obligations, and contribute to the plans in amounts equal to certain percentages of salaries,including bonuses and allowances, of employees up to a maximum amount specified by the local government from time to time at locations where theyoperate their businesses. The requirement of employee benefit plans has not been implemented consistently by the local governments in China given thedifferent levels of economic development in different locations. Our PRC operating entities incorporated in various locations in China have not madeadequate employee benefit payments and we have recorded accruals for estimated underpaid amounts of RMB9.2 million, RMB11.9 million and RMB8.8million (US$1.4 million) for the year ended December 31, 2015, 2016 and 2017, respectively, in our financial statements. Our failure in making contributionsto various employee benefit plans and in complying with applicable PRC labor-related laws may subject us to late payment penalties. We may be required tomake up the contributions for these plans as well as to pay late fees and fines. If we are subject to late fees or fines in relation to the underpaid employeebenefits, our financial condition and results of operations may be adversely affected. 32Table of Contents We may be required to register our operating offices outside of our registered addresses as branch offices under PRC law. Under PRC law, a company setting up premises for business operations outside its registered address must register them as branch offices with therelevant local industry and commerce bureau at the place where the premises are located and obtain business licenses for them as branch offices. We currentlyhave five branch offices across China. We may expand our business in the future to additional locations in China, and we may not be able to register branchoffices in a timely manner due to complex procedural requirements and relocation of branch offices from time to time. If the PRC regulatory authoritiesdetermine that we are in violation of the relevant laws and regulations, we may be subject to penalties, including fines, confiscation of income andsuspension of operation. If we become subject to these penalties, our business, results of operations, financial condition and prospects could be materiallyand adversely affected. Fluctuations in exchange rates could have a material and adverse effect on our results of operations and the value of your investment. Most of our revenues and most of our expenses are denominated in RMB. The value of the RMB against the U.S. dollar and other currencies isaffected by changes in China’s political and economic conditions and by China’s foreign exchange policies, among other things. The conversion of RMBinto foreign currencies, including U.S. dollars, is based on rates set by the People’s Bank of China. The PRC government allowed the RMB to appreciate bymore than 20% against the U.S. dollar between July 2005 and July 2008. Between July 2008 and June 2010, this appreciation halted and the exchange ratebetween the RMB and the U.S. dollar remained within a narrow band. Since June 2010, the RMB has fluctuated against the U.S. dollar, at times significantlyand unpredictably, and in recent years the RMB has depreciated significantly against the U.S. dollar. Since October 1, 2016, the RMB has joined theInternational Monetary Fund (IMF)’s basket of currencies that make up the Special Drawing Right (SDR), along with the U.S. dollar, the Euro, the Japaneseyen and the British pound. In the fourth quarter of 2016, the RMB has depreciated significantly in the backdrop of a surging U.S. dollar and persistent capitaloutflows of China. In the year of 2017, the RMB has appreciated significantly against U.S. dollar. With the development of the foreign exchange market andprogress towards interest rate liberalization and Renminbi internationalization, the PRC government may in the future announce further changes to theexchange rate system and there is no guarantee that the RMB will not appreciate or depreciate significantly in value against the U.S. dollar in the future. It isdifficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future. There remains significant international pressure on the PRC government to adopt a substantial liberalization of its currency policy, which couldresult in further depreciation in the value of the RMB against the U.S. dollar. To the extent that we need to convert U.S. dollars into RMB for capitalexpenditures and working capital and other business purposes, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMBamount we would receive from the conversion. Conversely, if we decide to convert RMB into U.S. dollars for the purpose of making payments for dividendson our Class A ordinary shares or ADSs, strategic acquisitions or investments or other business purposes, appreciation of the U.S. dollar against the RMBwould have a negative effect on the U.S. dollar amount available to us. Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into anyhedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in thefuture, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition, ourcurrency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currency. As a result,fluctuations in exchange rates may have a material adverse effect on your investment. 33Table of Contents Governmental control of currency conversion may limit our ability to utilize our revenues effectively and affect the value of your investment. The PRC government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency outof China. We receive substantially all of our revenues in RMB. Shortages in the availability of foreign currency may restrict the ability of our PRCsubsidiaries and variable interest entities to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreigncurrency denominated obligations. Under our current corporate structure, our company in the Cayman Islands may rely on dividend payments from our PRCsubsidiaries to fund any cash and financing requirements we may have. Under existing PRC foreign exchange regulations, payments of current account items,such as profit distributions and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from SAFEby complying with certain procedural requirements. Therefore, our wholly foreign-owned subsidiaries in China are able to pay dividends in foreigncurrencies to us without prior approval from SAFE, subject to the condition that the remittance of such dividends outside of the PRC complies with certainprocedures under PRC foreign exchange regulation, such as the overseas investment registrations by our shareholders or the ultimate shareholders of ourcorporate shareholders who are PRC residents. But approval from or registration with appropriate government authorities or authorized banks is requiredwhere RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreigncurrencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreignexchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to paydividends in foreign currencies to our shareholders, including holders of our ADSs. The approval of the CSRC may be required in connection with the listing and trading of our ADSs on the Nasdaq under a regulation adopted inAugust 2006, and, if required, we cannot predict whether we will be able to obtain such approval. The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatoryagencies in 2006 and amended in 2009, requires an overseas special purpose vehicle formed for listing purposes through acquisitions of PRC domesticcompanies and controlled by PRC companies or individuals to obtain the approval of the CSRC prior to the listing and trading of such special purposevehicle’s securities on an overseas stock exchange. In September 2006, the CSRC published a notice on its official website specifying documents andmaterials required to be submitted to it by a special purpose vehicle seeking CSRC approval of its overseas listings. The application of the M&ARules remains unclear. Currently, there is no consensus among leading PRC law firms regarding the scope and applicability of the CSRC approvalrequirement. Our PRC counsel, Han Kun Law Offices, has advised us based on their understanding of the current PRC laws, rules and regulations that the CSRC’sapproval is not required for the listing and trading of our ADSs on the NASDAQ Global Market in the context of our initial public offering, given that: · the CSRC currently has not issued any definitive rule or interpretation concerning whether offerings like ours under this annual report aresubject to this regulation; and · no provision in this regulation clearly classifies contractual arrangements as a type of transaction subject to its regulation. However, our PRC legal counsel has further advised us that there remains some uncertainty as to how the M&A Rules will be interpreted orimplemented in the context of an overseas offering and its opinions summarized above are subject to any new laws, rules and regulations or detailedimplementations and interpretations in any form relating to the M&A Rules. We cannot assure you that relevant PRC government agencies, including theCSRC, would reach the same conclusion as we do. If it is determined that CSRC approval is required for the listing and trading our ADSs on the Nasdaq, wemay face sanctions by the CSRC or other PRC regulatory agencies for failure to seek CSRC approval for the listing and trading. These sanctions may includefines and penalties on our operations in the PRC, limitations on our operating privileges in the PRC, delays in or restrictions on the repatriation of theproceeds from our initial public offering into the PRC, restrictions on or prohibition of the payments or remittance of dividends by our China subsidiary, orother actions that could have a material and adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as thetrading price of our ADSs. The CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable for us, to halt our initialpublic offering before the settlement and delivery of the ADSs that we are offering. 34Table of Contents The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, whichcould make it more difficult for us to pursue growth through acquisitions in China. The M&A Rules discussed in the preceding risk factor and recently adopted regulations and rules concerning mergers and acquisitions establishedadditional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex. Forexample, the M&A Rules require that the Ministry of Commerce be notified in advance of any change-of-control transaction in which a foreign investor takescontrol of a PRC domestic enterprise, if (i) any important industry is concerned, (ii) such transaction involves factors that have or may have impact on thenational economic security, or (iii) such transaction will lead to a change in control of a domestic enterprise which holds a famous trademark or PRC time-honored brand. Mergers, acquisitions or contractual arrangements that allow one market player to take control of or to exert decisive impact on anothermarket player must also be notified in advance to the Ministry of Commerce when the threshold under the Provisions on Thresholds for Prior Notification ofConcentrations of Undertakings, or the Prior Notification Rules, issued by the State Council in August 2008 is triggered. In addition, the security reviewrules issued by the Ministry of Commerce that became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise“national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domesticenterprises that raise “national security” concerns are subject to strict review by the Ministry of Commerce, and the rules prohibit any activities attempting tobypass a security review, including by structuring the transaction through a proxy or contractual control arrangement. In the future, we may grow ourbusiness by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to completesuch transactions could be time consuming, and any required approval processes (if any), including obtaining approval from the Ministry of Commerce or itslocal counterparts may delay or inhibit our ability to complete such transactions, which could affect our ability to further expand our business or maintainour market share. It is unclear whether our business would be deemed to be in an industry that raises “national defense and security” or “national security”concerns. However, the Ministry of Commerce or other government agencies may publish explanations in the future determining that our business is in anindustry subject to the security review, in which case our future acquisitions in the PRC, including those by way of entering into contractual controlarrangements with target entities, may be closely scrutinized or prohibited. Our ability to expand our business or maintain or expand our market sharethrough future acquisitions would as such be materially and adversely affected. PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident beneficial owners orour wholly foreign-owned subsidiaries in China to liability or penalties, limit our ability to inject capital into these subsidiaries, limit these subsidiaries’ability to increase their registered capital or distribute profits to us, or may otherwise adversely affect us. On July 4, 2014, SAFE promulgated the Notice on Relevant Issues Concerning Foreign Exchange Control of Domestic Residents’ OverseasInvestment and Financing and Roundtrip Investment through Offshore Special Purpose Vehicles, or SAFE Circular No. 37, which replaced the former Noticeon Relevant Issues Concerning Foreign Exchange Administration for PRC Residents to Engage in Financing and Inbound Investment via Overseas SpecialPurpose Vehicles (generally known as SAFE Circular No. 75) promulgated by SAFE on October 21, 2005. SAFE Circular No. 37 requires PRC residents to register with local branches of SAFE in connection with their direct establishment or indirect controlof an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domesticenterprises or offshore assets or interests, which is referred to in SAFE Circular No. 37 as a “special purpose vehicle.” The term “control” under SAFE CircularNo. 37 is broadly defined as the operation rights, beneficiary rights or decision-making rights acquired by the PRC residents in the offshore special purposevehicles or PRC companies by such means as acquisition, trust, proxy, voting rights, repurchase, convertible bonds or other arrangements. SAFE CircularNo. 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as an increaseor decrease of capital contributed by PRC residents, share transfer or exchange, merger, division or other material events. 35Table of Contents SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment, orSAFE Circular 13, in February 2015, which took effect on June 1, 2015. SAFE Circular 13 amended SAFE Circular 37 requiring PRC residents or entities toregister with qualified banks rather than SAFE or its local branch, in connection with their establishment or control of an offshore entity established for thepurpose of overseas investment or financing. In the event that a PRC resident holding interests in a special purpose vehicle fails to complete the requiredSAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and fromcarrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additionalcapital into its PRC subsidiaries. Furthermore, failure to comply with the various SAFE registration requirements described above could result in liabilityunder PRC law for evasion of foreign exchange controls. Currently, all of our founders who are PRC residents have registered with the competent local branch of SAFE with respect to their investments inour company as required by SAFE Circular No. 75 and SAFE Circular No. 37 and will further update their registration filings with SAFE under SAFE CircularNo. 37 when there are any changes that should be registered under SAFE Circular No. 37. However, we may not at all times be fully aware or informed of theidentities of all our shareholders or beneficial owners that are required to make such registrations, and we may not always be able to compel them to complywith SAFE Circular No. 37 requirements. As a result, we cannot assure you that all of our shareholders or beneficial owners who are PRC residents will at alltimes comply with, or in the future make or obtain any applicable registrations or approvals required by, SAFE Circular No. 37 or other related regulations.The failure or inability of such individuals to comply with the registration procedures set forth in these regulations may subject us to fines or legal sanctions,restrictions on our cross-border investment activities or our PRC subsidiaries’ ability to distribute dividends to, or obtain foreign-exchange-dominated loansfrom, our company, or prevent us from making distributions or paying dividends. As a result, our business operations and our ability to make distributions toyou could be materially and adversely affected. Furthermore, as these foreign exchange regulations are still relatively new and their interpretation and implementation has been constantlyevolving, it is unclear how these regulations, and any future regulation concerning offshore or cross-border transactions, will be interpreted, amended andimplemented by the relevant government authorities. We cannot predict how these regulations will affect our business operations or future strategy. Inaddition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such company, as the case may be, will be able toobtain the necessary approvals or complete the necessary filings and registrations required by the foreign exchange regulations. This may restrict our abilityto implement our acquisition strategy and could adversely affect our business and prospects. Any failure to comply with PRC regulations regarding the registration requirements for employee stock incentive plans may subject the PRC planparticipants or us to fines and other legal or administrative sanctions. Pursuant to the Notice on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan ofOverseas Publicly Listed Company, issued by SAFE in February 2012, employees, directors, supervisors and other senior management participating in anystock incentive plan of an overseas publicly listed company who are PRC citizens or who are non-PRC citizens residing in China for a continuous period ofnot less than one year, subject to a few exceptions, are required to register with SAFE through a domestic qualified agent, which could be a PRC subsidiary ofsuch overseas listed company, and complete certain other procedures. We and our directors, executive officers and other employees who are PRC citizens orwho reside in the PRC for a continuous period of not less than one year and who have been granted restricted shares, restricted share units or options aresubject to these regulations as our company has become an overseas listed company. Failure to complete the SAFE registrations may subject them to finesand legal sanctions and may also limit our ability to contribute additional capital into our wholly foreign-owned subsidiaries in China and limit thesesubsidiaries’ ability to distribute dividends to us. We also face regulatory uncertainties that could restrict our ability to adopt additional incentive plans forour directors and employees under PRC laws. In addition, the State Administration of Taxation, or the SAT, has issued certain circulars concerning employee share options or restricted shares.Under these circulars, the employees working in the PRC who exercise share options or are granted restricted shares will be subject to PRC individual incometax. The PRC subsidiaries of such overseas listed company have obligations to file documents related to employee share options or restricted shares withrelevant tax authorities and to withhold individual income taxes of those employees who exercise their share options. If the employees fail to pay or the PRCsubsidiaries fail to withhold their income taxes according to relevant laws and regulations, the PRC subsidiaries may face sanctions imposed by the taxauthorities or other PRC government authorities. 36Table of Contents If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us andour non-PRC shareholders or ADS holders. In addition, any noncompliance with PRC tax laws may adversely affect us. Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with “de facto managementbody” within the PRC is considered a resident enterprise and will be subject to the enterprise income tax on its global income at the rate of 25%. Theimplementation rules define the term “de facto management body” as the body that exercises full and substantial control and overall management over thebusiness, production, personnel, accounts and properties of an enterprise. In April 2009, the SAT issued a circular, known as Circular 82, which providescertain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located inChina. Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRCindividuals or foreigners like us, the criteria set forth in the circular may reflect the SAT’s general position on how the “de facto management body” textshould be applied in determining the tax resident status of all offshore enterprises. According to Circular 82, an offshore incorporated enterprise controlled bya PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China and will besubject to PRC enterprise income tax on its global income only if all of the following conditions are met: (i) the primary location of the day-to-dayoperational management is in the PRC; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval byorganizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholderresolutions, are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually reside in the PRC. We believe Secoo Holding Limited is not a PRC resident enterprise for PRC tax purposes. See “Item 5. Operating and Financial Review andProspects—Taxation—PRC.” However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remainwith respect to the interpretation of the term “de facto management body.” If the PRC tax authorities determine that Secoo Holding Limited is a PRC residententerprise for enterprise income tax purposes, we may be required to withhold a 10% withholding tax unless a reduced rate is available under an applicabletax treaty, from dividends we pay to our shareholders that are non-resident enterprises, including the holders of our ADSs. In addition, non-resident enterpriseshareholders (including our ADS holders) may be subject to PRC tax on gains realized on the sale or other disposition of ADSs or Class A ordinary shares, ifsuch income is treated as sourced from within the PRC. It is unclear whether our non-PRC individual shareholders (including our ADS holders) would besubject to any PRC tax on dividends or gains obtained by such non-PRC individual shareholders in the event we are determined to be a PRC residententerprise. If any PRC tax were to apply to such dividends or gains, it would generally apply at a rate of 20% unless a reduced rate is available under anapplicable tax treaty. However, it is also unclear whether non-PRC shareholders of Secoo Holding Limited would be able to claim the benefits of any taxtreaties between their country of tax residence and the PRC in the event that Secoo Holding Limited is treated as a PRC resident enterprise. In addition, over the years, we have accrued taxes payable including education surtax, individual income tax, value-added tax, urban constructiontax and stamp duty, the majority of which were unpaid value-added tax. For details, see note 11 to our audited consolidated financial statements includedelsewhere in this annual report. See “Item 4.B. Business Overview—Regulation—Regulations on Tax.” If we are subject to penalties in relation to the dueand unpaid taxes payable, our liquidity, financial condition and results of operations may be adversely affected. Enhanced scrutiny over acquisitions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in the future. The PRC tax authorities have enhanced their scrutiny over the direct or indirect transfer of equity interests in a PRC resident enterprise by a non-resident enterprise by promulgating and implementing the Notice on Issues Concerning Process of Enterprise Income Tax in Enterprise RestructuringBusiness, or SAT Circular 59, promulgated by PRC Ministry of Finance and SAT in April, 2009, the Announcement of the SAT on Several Issues Concerningthe Enterprise Income Tax on Indirect Property Transfer by Non-Resident Enterprises, or Public Notice 7, promulgated by the SAT in February 2015 and theBulletin of SAT on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, or the Bulletin 37, promulgated by the SAT inOctober, 2017. 37Table of Contents According to Public Notice 7, if a non-resident enterprise transfers the equity interests of a PRC resident enterprise indirectly by transfer of theequity interests of an offshore holding company (other than a purchase and sale of shares issued by a PRC resident enterprise in public securities market)without a reasonable commercial purpose, the PRC tax authorities have the power to reassess the nature of the transaction and the indirect equity transfer willbe treated as a direct transfer. As a result, the gain derived from such transfer, which means the equity transfer price less the cost of equity, will be subject toPRC withholding tax at a rate of up to 10%. Under the terms of Public Notice 7, the transfer which meets all of the following circumstances shall be directlydeemed as having no reasonable commercial purposes: (i) over 75% of the value of the equity interests of the offshore holding company are directly orindirectly derived from PRC taxable properties; (ii) at any time during the year before the indirect transfer, over 90% of the total properties of the offshoreholding company are investments within PRC territory, or in the year before the indirect transfer, over 90% of the offshore holding company’s revenue isdirectly or indirectly derived from PRC territory; (iii) the function performed and risks assumed by the offshore holding company are insufficient tosubstantiate its corporate existence; or (iv) the foreign income tax imposed on the indirect transfer is lower than the PRC tax imposed on the direct transfer ofthe PRC taxable properties. The Bulletin 37, which, among others, repeals the Notice on Strengthening the Administration of the Enterprise Income Tax concerning Proceedsfrom Equity Transfers by Non-resident Enterprises, or Circular 698, which became retroactively effective on January 1, 2008 and certain rules stipulated inPublic Notice 7 on December 1, 2017. The Bulletin 37 further details and clarifies the tax withholding methods in respect of income of non-residententerprises. There is little guidance and practical experience as to the application of Public Notice 7. Where non-resident investors were involved in our privateequity financing, if such transactions are determined by the tax authorities to be lacking of reasonable commercial purposes, we and our non-residentinvestors may be taxed under Public Notice 7 and may be required to expend valuable resources to comply with Public Notice 7 or to establish that weshould not be taxed under Public Notice 7, which may have a material adverse effect on our financial condition and results of operations or our non-residentinvestors’ investments in us. The PRC tax authorities have discretion under SAT Circular 59, Public Notice 7 and Bulletin 37 to make adjustments to the taxable capital gainsbased on the difference between the fair value of the equity interests transferred and the cost of investment. We may pursue acquisitions in the future thatinvolve complex corporate structures. If we are considered a non-resident enterprise under the PRC Enterprise Income Tax Law and if the PRC tax authoritiesmake adjustments to the taxable income of these transactions under SAT Circular 59, Public Notice 7 and Bulletin 37, our income tax expenses associatedwith such potential acquisitions will be increased, which may have an adverse effect on our financial condition and results of operations. The enforcement of the PRC Labor Contract Law and other labor-related regulations in the PRC may adversely affect our business and our results ofoperations. The PRC Labor Contract Law became effective and was implemented on January 1, 2008 and was further amended in 2012. It has reinforced theprotection of employees who, under the PRC Labor Contract Law, have the right, among others, to have written labor contracts, to enter into labor contractswith no fixed terms under certain circumstances, to receive overtime wages and to terminate or alter terms in labor contracts. According to the PRC SocialInsurance Law, which became effective on July 1, 2011, and the Administrative Regulations on the Housing Funds, which became effective on March 24,2002, employees are required to participate in pension insurance, work-related injury insurance, medical insurance, unemployment insurance, maternityinsurance and housing funds, and the employers must pay all or a portion of the social insurance premiums and housing funds for such employees. As a result of these laws and regulations designed to enhance labor protection, we expect our labor costs will continue to increase. In addition, as theinterpretation and implementation of these new laws and regulations are still evolving, our employment practice may not at all times be deemed incompliance with the new laws and regulations. If we are subject to severe penalties or incur significant liabilities in connection with labor disputes orinvestigations, our business and results of operations may be adversely affected. 38Table of Contents Risks Related to our American Depositary Shares The trading price of our ADSs may be volatile. The trading prices of our ADSs is likely to be volatile and could fluctuate widely due to factors beyond our control. This may happen because ofbroad market and industry factors, like the performance and fluctuation in the market prices or the underperformance or deteriorating financial results of otherlisted 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’ securitiesafter their offerings, including internet and e-commerce companies, may affect the attitudes of investors toward Chinese companies listed in the United States,which consequently may impact the trading performance of our ADSs, regardless of our actual operating performance. In addition, any negative news orperceptions about inadequate corporate governance practices or fraudulent accounting, corporate structure or matters of other Chinese companies may alsonegatively affect the attitudes of investors towards Chinese companies in general, including us, regardless of whether we have conducted any inappropriateactivities. In addition, securities markets may from time to time experience significant price and volume fluctuations that are not related to our operatingperformance, such as the large decline in share prices in the United States, China and other jurisdictions in late 2008, early 2009 and the second half of 2011,which may have a material and adverse effect on the trading price of our ADSs. In addition to the above factors, the price and trading volume of our ADSs may be highly volatile due to multiple factors, including the following: · regulatory developments affecting us or our industry, customers, suppliers or third-party sellers; · announcements of studies and reports relating to the quality of our product and service offerings or those of our competitors; · changes in the economic performance or market valuations of other online retail or e-commerce companies; · actual or anticipated fluctuations in our quarterly results of operations and changes or revisions of our expected results; · changes in financial estimates by securities research analysts; · conditions in the online and offline upscale retail market; · announcements by us or our competitors of new product and service offerings, acquisitions, strategic relationships, joint ventures, capitalraisings or capital commitments; · additions to or departures of our senior management; · fluctuations of exchange rates between the RMB 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. 39Table of Contents If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price for our ADSsand trading volume could decline. The trading market for our ADSs will depend in part on the research and reports that securities or industry analysts publish about us or our business.If research analysts do not establish and maintain adequate research coverage or if one or more of the analysts who covers us downgrades our ADSs orpublishes inaccurate or unfavorable research about our business, the market price for our ADSs would likely decline. If one or more of these analysts ceasecoverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which, in turn, could cause the marketprice or trading volume for 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 our 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 anyfuture dividend income. Our board of directors has discretion as to whether to distribute dividends subject to applicable laws. In addition, our shareholders may by ordinaryresolution declare a dividend, but no dividend may exceed the amount recommended by our directors. Under Cayman Islands law, a Cayman Islandscompany may pay a dividend on its shares out of either profit or share premium amount, provided that in no circumstances may a dividend be paid if thiswould result in the company being unable to pay its debts due in the ordinary course of business. Even if our board of directors decides to declare and paydividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow, ourcapital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions andother factors deemed relevant by our board of directors. Accordingly, the return on your investment in our ADSs will likely depend entirely upon any futureprice appreciation of our ADSs. There is no guarantee that our ADSs will appreciate in value in the future or even maintain the price at which you purchasedthe ADSs. You may not realize a return on your investment in our ADSs and you may even lose your entire investment in our ADSs. Substantial future sales or perceived potential sales of our ADSs in the public market could cause the price of our ADSs to decline. Sales of our ADSs in the public market could cause the market price of our ADSs to decline. Such sales also might make it more difficult for us to sellequity or equity-related securities in the future at a time and price that we deem appropriate. If any existing shareholder or shareholders sell a substantialamount of ADSs, the prevailing market price for our ADSs could be adversely affected. In addition, if we pay for our future acquisitions in whole or in partwith additionally issued ordinary shares, your ownership interests in our company would be diluted and this, in turn, could have a material and adverse effecton the price of our ADSs. You, as holders of ADSs, may have fewer rights than holders of our Class A ordinary shares and must act through the depositary to exercise those rights. Holders of ADSs do not have the same rights as our registered shareholders. As a holder of our ADSs, you will not have any direct right to attendgeneral meetings of our shareholders or to cast any votes at such meetings. You will only be able to exercise the voting rights which attach to the Class Aordinary shares underlying your ADSs indirectly by giving voting instructions to the depositary in accordance with the provisions of the deposit agreement.Upon receipt of your voting instructions, the depositary will try, as far as it is practicable, to vote the Class A ordinary shares underlying your ADSs inaccordance with your instructions. You will not be able to exercise directly any right to vote with respect to the underlying Class A ordinary shares unlessyou withdraw the shares and become the registered holder of such shares prior to the record date for the general meeting. Under our current memorandum andarticles of association, the minimum notice period required to be given by our company to our registered shareholders to convene a general meeting will beten calendar days. When a general meeting is convened, you may not receive sufficient notice of the meeting to enable you to withdraw the Class A ordinaryshares underlying your ADSs and become the registered holder of such shares to allow you to attend the general meeting or to cast your vote directly withrespect to any specific matter or resolution to be considered and voted upon at the general meeting. In addition, under our current memorandum and articlesof association, for the purposes of determining those shareholders who are entitled to attend and vote at any general meeting, our directors may close ourregister of members and/or fix in advance a record date for such meeting, and such closure of our register of members or the setting of such a record date mayprevent you from withdrawing the Class A ordinary shares underlying your ADSs and becoming the registered holder of such shares prior to the record date,so that you would not be able to attend the general meeting or to vote directly. Where any matter is to be put to a vote at a general meeting, we will make allreasonable efforts to cause the depositary to notify you of the upcoming vote and to deliver our voting materials to you in a timely manner, but there can beno assurance that you will receive the voting materials in time to ensure that you can instruct the depositary to vote the Class A ordinary shares underlyingyour ADSs. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which anyvote is cast or for the effect of any such vote. As a result, you may not be able to exercise your right to direct how the Class A ordinary shares underlying yourADSs are voted, and you may lack recourse if the underlying Class A ordinary shares are not voted as you requested. In addition, in your capacity as an ADSholder, you will not be able to call a shareholders’ meeting. 40Table of Contents Except in limited circumstances, the depositary for our ADSs will give us a discretionary proxy to vote the Class A ordinary shares underlying your ADSs ifyou do not give voting instructions to the depositary to direct how the Class A ordinary shares underlying your ADSs are voted, which could adverselyaffect your interests. Under the deposit agreement for the ADSs, if you do not give voting instructions to the depositary to direct how the Class A ordinary sharesunderlying your ADSs are voted, the depositary will give us a discretionary proxy to vote the Class A ordinary shares underlying your ADSs at shareholders’meetings unless: · we have instructed the depositary that we do not wish a discretionary proxy to be given; · we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting; · a matter to be voted on at the meeting would have a material adverse impact on shareholders; or · the voting at the meeting is to be made on a show of hands. The effect of this discretionary proxy is that you cannot prevent our Class A ordinary shares underlying your ADSs from being voted, except underthe circumstances described above. This may make it more difficult for shareholders to influence the management of our company. Holders of our Class Aordinary shares are not subject to this discretionary proxy. 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 availableto you in the United States unless we register both the rights and the securities to which the rights relate under the Securities Act or an exemption from theregistration requirements is available. Under the deposit agreement, the depositary will not make rights available to you unless both the rights and theunderlying securities to be distributed to ADS holders are either registered under the Securities Act or exempt from registration under the Securities Act. Weare under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to bedeclared effective and we may not be able to establish a necessary exemption from registration under the Securities Act. Accordingly, you may be unable toparticipate in our rights offerings and may experience dilution in your holdings. You 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 on our Class A ordinary shares in the foreseeable future. To the extentthat our company pays any cash dividends or other distributions to our shareholders, we will pay such distributions which are payable in respect of ourClass A ordinary shares (or other deposited securities) represented by ADSs to the depositary of our ADSs or the custodian (as the registered holder of suchClass A ordinary shares or other deposited securities), and the depositary has agreed to pay the cash dividends or other distributions it or the custodianreceives on our Class A ordinary shares or other deposited securities, after deducting its fees and expenses, to the holders of the ADSs. You will receive thesedistributions in proportion to the number of Class A ordinary shares your ADSs represent. However, the depositary may, at its discretion, decide that it isinequitable or impractical to make a distribution available to any holders of ADSs. For example, the depositary may determine that it is not practicable todistribute certain property through the mail, or that the value of certain distributions may be less than the cost of mailing them. In these cases, the depositarymay decide not to distribute such property to you. 41Table of Contents 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 timewhen it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers ofADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of anyrequirement of law or of any 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 a company incorporated under the laws of the Cayman Islands. We conduct our operations in China and substantially all of our assets arelocated in China. In addition, our directors and executive officers, and some of the experts named in this annual report, reside within China, and most of theassets of these persons are located within China. As a result, it may be difficult or impossible for you to bring an action against us or against these individualsin the United States in the event that you believe that your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you aresuccessful in bringing an action of this kind, the laws of the Cayman Islands and of the PRC may render you unable to enforce a judgment against our assetsor the assets of our directors and officers. Since we are a Cayman Islands company, the rights of our shareholders may be more limited than those of shareholders of a company organized in theUnited States. Under the laws of some jurisdictions in the United States, majority and controlling shareholders generally have certain fiduciary responsibilities tothe minority shareholders. Shareholder action must be taken in good faith, and actions by controlling shareholders which are obviously unreasonable may bedeclared null and void. Cayman Islands law protecting the interests of minority shareholders may not be as protective in all circumstances as the lawprotecting minority shareholders in some U.S. jurisdictions. In addition, the circumstances in which a shareholder of a Cayman Islands company may sue thecompany derivatively, and the procedures and defenses that may be available to the company, may result in the rights of shareholders of a Cayman Islandscompany being more limited than those of shareholders of a company organized in the United States. Furthermore, our directors have the power to take certain actions without shareholder approval which would require shareholder approval under thelaws of most U.S. jurisdictions. For example, the directors of a Cayman Islands company, without shareholder approval, may implement a sale of any assets,property, part of the business, or securities of the company. Our ability to create and issue new classes or series of shares without shareholder approval couldhave the effect of delaying, deterring or preventing a change in control without any further action by our shareholders, including a tender offer to purchaseour ordinary shares at a premium over then current market prices. 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 toU.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 regulationsin the United States that are applicable to U.S. domestic issuers, including: 42Table of Contents · 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 theExchange Act; · the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiderswho profit from trades made in a short period of time; and · the selective disclosure rules by issuers of material nonpublic information under Regulation FD. We will be 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 ourresults on a quarterly basis as press releases, distributed pursuant to the rules and regulations of the Nasdaq Global Market. Press releases relating to financialresults and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will beless extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the sameprotections or information that would be made available to you were you investing in a U.S. domestic issuer. As a company incorporated in the Cayman Islands, we will be permitted to adopt certain home country practices in relation to corporate governancematters that differ significantly from the Nasdaq Global Market corporate governance listing standards; these practices may afford less protection toshareholders than they would enjoy if we complied fully with the Nasdaq Global Market corporate governance listing standards. Our ADSs have been approved for listing on the Nasdaq Global Market. As a Cayman Islands company listed on the Nasdaq Global Market, we willbe subject to the Nasdaq Global Market corporate governance listing standards. However, the Nasdaq Global Market rules permit a foreign private issuer likeus to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our homecountry, may differ significantly from the Nasdaq Global Market corporate governance listing standards. Currently, we do not plan to rely on home countrypractice with respect to our corporate governance. However, if we choose to follow home country practice in the future, our shareholders may be afforded lessprotection than they otherwise would under the Nasdaq Global Market corporate governance listing standards applicable to U.S. domestic issuers. We may be classified as a passive foreign investment company for U.S. federal income tax purposes, which could result in materially adverse taxconsequences to U.S. Holders of our ADSs or ordinary shares. A non-U.S. corporation, such as our company, will be classified as a passive foreign investment company (a “PFIC”) for U.S. federal income taxpurposes for any taxable year, if either (i) 75% or more of its gross income for such year consists of certain types of “passive” income or (ii) 50% or more ofthe value of its assets (determined on the basis of a quarterly average) during such year produce or are held for the production of passive income. Passiveincome generally includes dividends, interest, royalties, rents, annuities, net gains from the sale or exchange of property producing such income and netforeign currency gains. For this purpose, cash and assets readily convertible into cash are categorized as passive asset assets and the company’s unbookedintangibles associated with active business activity are taken into account as non-passive assets. In addition, we will be treated as owning a proportionate share of the assets and earning a proportionate share of the income of any other corporationin which we own, directly or indirectly, more than 25% (by value) of the stock. Although the law in this regard is unclear, we treat our variable interestentities as being beneficially owned by us for U.S. federal income tax purposes because we control their management decisions, we are entitled tosubstantially all of the economic benefits associated with these entities, and, as a result, we consolidate their results of operations in our U.S. GAAP financialstatements. Based on our current income and assets and the value of our ADSs, we do not believe that we were a PFIC for our previous taxable year and we donot expect to be classified as a PFIC for our taxable year ending December 31, 2017 or in the foreseeable future. While we do not anticipate becoming a PFIC,changes in the nature of our income or assets, or fluctuations in the market price of our ADSs or ordinary shares, may cause us to become a PFIC for futuretaxable years. In estimating the value of our goodwill and other unbooked intangibles, we have taken into account our market capitalization, which mayfluctuate over time. Among other factors, if our market capitalization declines, we may be or become classified as a PFIC for the current or future taxableyears. In addition, if it were determined that that we are not the beneficial owner of our variable interest entities for U.S. federal income tax purposes, we maybe treated as a PFIC for our current taxable year and in future taxable years. 43Table of Contents If we are classified as a PFIC for any year during which a U.S. Holder (as defined below) holds our ADSs or ordinary shares, such U.S. Holder mayincur significantly increased U.S. federal income tax on gain recognized on the sale or other disposition of our ADSs or ordinary shares and on the receipt ofdistributions on our ADSs or ordinary shares to the extent such gain or distribution is treated as an “excess distribution” under the U.S. federal income taxrules. If we are so classified during a U.S. Holder’s holding period, our ADSs or ordinary shares will generally continue to be treated as shares in a PFIC for allsucceeding years during which such U.S. Holder holds our ADSs or ordinary shares, even if we cease to be a PFIC, unless certain elections are made. See thediscussion under “Item 10.E. Additional Information—Taxation—United States Federal Income Tax Considerations—Passive Foreign Investment CompanyRules” concerning the U.S. federal income tax consequences of an investment in our ADSs or ordinary shares if we are or become classified as a PFIC,including the possibility of making certain elections. ITEM 4. INFORMATION ON THE COMPANY A. History and Development of the Company In February 2008, Mr. Richard Rixue Li and Ms. Zhaohui Huang, our Founders, formed Hong Kong Secoo Investment Group Limited, or Hong KongSecoo, in Hong Kong as a holding company. Our Founders also formed Beijing Secoo Trading Limited, or Beijing Secoo, in Beijing, China in April 2009.We commenced our current upscale product retail business under our Secoo brand through Beijing Secoo in 2011. We opened our first offline experiencecenter in Beijing in January 2011 and launched our website in April in the same year. Our mobile application was launched in December 2013. In 2015 and2016, we opened four offline experience centers located in Shanghai, Chengdu, Hong Kong and Malaysia. In 2017, we opened five offline experience centersand pop-up stores located in Qingdao, Xiamen, Tianjin, Changsha and Hangzhou. We launched Secoo Check in April 2016, which allows customers to makepayments for our merchandise products in installments. In 2016 and 2017, we achieved success in expanding supply arrangements with top global brands.For example, in 2016, we began collaboration with Tod’s, under which Tod’s makes customized products exclusively for us. In July 2016, we became GentleMonster’s first online retail platform for eyewear products in China. We became an authorized online retailer for Versace and Salvatore Ferragamo in China inNovember 2016 and February 2017, respectively. During 2017, we expanded our cooperation with brands, including Armani. In July 2017, we expanded ourstrategic cooperation relationship with Country Garden, one of China’s largest real estate developers, planning to build themed villages and physical Secoostores as well as in the areas of hotel operation and real estate marketing. In January 2018, we formed a strategic alliance with Parkson Group, one of China’slargest department stores, aiming to integrate both respective resources and build an integrated new retail business model. In January 2011, we incorporated Secoo Holding Limited in the Cayman Islands as our offshore holding company in order to facilitate internationalfinancing and acquired 100% of the equity interests in Hong Kong Secoo in February 2011. In May 2011, we established, through Hong Kong Secoo, awholly owned PRC subsidiary, Kutianxia (Beijing) Information Technology Limited, or Kutianxia, which in turn established Beijing Zhiyi Heng ShengTechnology Service Co., Ltd in Beijing, China to conduct our after-sales repair and maintenance services in September 2012. 44Table of Contents In September 2013, we incorporated Shanghai Secoo E-commerce Limited in Shanghai, China. Shanghai Secoo E-commerce Limited is whollyowned by Beijing Secoo and primarily operates our e-commerce business in China. In September 2014, our Founders formed Beijing Wo Mai Wo Pai Auction Co., Ltd, or Beijing Auction, in Beijing, China, to operate the auctionbusiness and provide an online marketplace for auction sales of upscale products of Beijing Secoo and third-party vendors. In January 2014, we incorporated Secoo Inc. in the United States. In March 2015, we incorporated Secoo Italia SRL in Italy. These two subsidiariesconduct business development in those regions. Through Kutianxia, we obtained control over Beijing Secoo and Beijing Auction in May 2011 and September 2014, respectively, by entering into aseries of contractual arrangements with Beijing Secoo and Beijing Auction and their respective shareholders. Beijing Secoo holds our ICP license as aninternet information provider and operates our secoo.com website and Beijing Auction holds our license for auction businesses. In December 2015, we incorporated Kuxin Tianxia (Tianjin) E-commerce Limited in Tianjin, China. Kuxin Tianxia (Tianjin) E-commerce Limited iswholly owned by Hong Kong Secoo and currently has no operation. These contractual arrangements allow us to: (a) exercise effective control over Beijing Secoo and Beijing Auction; (b) receive substantially all of the economic benefits of Beijing Secoo and Beijing Auction; and (c) have an exclusive option to purchase all or part of the equity interests in Beijing Secoo and Beijing Auction when and to the extent permittedby PRC law. As a result of these contractual arrangements, we are the primary beneficiary of Beijing Secoo and Beijing Auction, and we treat them as our variableinterest entities under U.S. GAAP. We have consolidated the financial results of Beijing Secoo and Beijing Auction and their subsidiaries in our consolidatedfinancial statements in accordance with U.S. GAAP. If Beijing Secoo, Beijing Auction or the shareholders of Beijing Secoo and Beijing Auction fail toperform their obligations under these contractual arrangements, which allow us to maintain effective control over Beijing Secoo and Beijing Auction, wemay not be able to continue to consolidate the financial results and assets and liabilities of Beijing Secoo and Beijing Auction and their subsidiaries in ourconsolidated financial statements in accordance with U.S. GAAP. Furthermore, our inability to exert effective control over Beijing Secoo and BeijingAuction may negatively affect our ability to conduct our business, which could materially and adversely affect our results of operations and financialcondition. See “Item 3.D. Risk Factors — Risks Related to Our Corporate Structure — Any failure by our variable interest entities or their shareholders toperform their obligations under our contractual arrangements with them would have a material and adverse effect on our business.” B. Business Overview We are Asia’s leading online integrated upscale products and services platform. We value our customers and members as our greatest asset. We offerthem a wide selection of authentic upscale products and lifestyle services to satisfy different needs of the modern lifestyle. We offer an integrated online andoffline shopping platform, which consists of our Secoo.com website, mobile applications and offline experience centers. Our online platform facilitates easyproduct selection, order processing and convenient payment methods, such as our Secoo Check, which allows customers to make payments for ourmerchandise products in installments on our online platform directly. We complement our online platform with offline experience centers to provide superiorcustomer and membership services and experience. We have strategically opened ten offline experience centers (including three pop-up stores) as of the dateof this annual report in popular shopping destinations and central business districts in China and Malaysia which have strengthened our Secoo brandcreditability and enhanced our brand presence. In addition, we are cooperating with brand boutiques such as Versace boutiques for our customers to pick upproducts ordered on our online platform in their stores. 45Table of Contents Our Business Model Our business model focuses on an integrated online and offline platform offering a full range of high-end lifestyle products and services to betterserve our customers and members. Our integrated platform consists of our Secoo.com website, mobile applications and offline experience centers. Our onlineplatform facilitates easy product selection, order processing and convenient payments for our customers. We have opened ten offline experience centers(including three pop-up stores) in popular shopping destinations and central business districts in China and Malaysia to provide in-store shoppingexperience and comprehensive customer services, which we believe bolstered our customer satisfaction, strengthened our Secoo brand creditability andenhanced our brand presence. We offer an extensive selection of upscale products for everyone’s needs on our platform, including watches, bags, clothing, footwear, jewelry andaccessories. In addition, we have expanded our offerings of high-end lifestyle services to satisfy the needs of modern lifestyle since 2014. We believe thatexpanding our product offerings helps optimize customers’ shopping experience, diversify our revenue sources and further improve our economies of scale.With our extensive network of suppliers, we are able to obtain a wide selection of product categories and services at favorable terms. Our “Coo Sir” channelalso serves as a forum for users for information related to fashion trends and lifestyle news. Our user-generated contents covers a variety of topics, such assartorial tips for various occasions and product reviews. We thrive to enhance our reputation as the destination for luxury products and lifestyle in China. Ourbusiness model creates significant value to our business partners, including third-party sellers and suppliers, cooperation brands, and ultimately benefit ourbusiness and customers. Our Platform Our platform consists of both online and office platforms. Our online platforms includes Secoo.com website and mobile applications. Our offlineexperience centers complement our online platforms to provide superior customer services and experience. Online Platform We offer a full range of upscale products and services through our online platform. We generated 78.7%, 89.7% and 94.1% of our total GMVthrough our online platform in 2015, 2016 and 2017, respectively. Integrating convenience, aesthetics and functionality, our online platform aims toactively drive consumer spending by featuring a strategically selected catalog of popular items. We focus on creating an enjoyable online shoppingexperience for our customers whereby their purchase decisions are guided by detailed product descriptions, multi-angle picture illustrations and educationalfashion literature. Our online platform interface is fully integrated with our warehouse management system, or WMS, enabling us to track order and deliverystatus of each individual product on a real-time basis. Our websites and mobile applications feature the following user-friendly functionalities that enhance customer experience and convenience: · Comprehensive product information: Each product page contains product pictures, price, discount from the suggested retail price, detailedproduct parameters, customer reviews and payment and delivery options. Depending on the product, we provide additional information such asbrand story and product condition to help customers make informed purchase decisions (to steer customers towards additional products inwhich they may be interested. · Product recommendations: Our business intelligence system generates recommendations of additional products in which our customers may beinterested. These recommendations come in two forms: each product page typically includes recommendations for complimentary products thatare often purchased together; and our website offers tailored product recommendations to customers based on their browsing and purchasehistories. On our mobile application, we carefully select products that we believe are better suited for mobile commerce to cater to the fasterpurchase decision-making speed of mobile users. We periodically notify our mobile application users of sales events and promotions throughtext messages and mobile push notifications. 46Table of Contents · Sales Functionalities: Our customers can conveniently leave their reviews of the products at the end of the product page based on theirfeedback of the products. Our customers can also share their shopping experiences with us on various social media platforms and networkingwebsites through links on the product page. We have launched some of our sales events a few hours earlier on our mobile applications andoffered selected products and sales events exclusively on our mobile applications to further boost mobile traffic and purchases. To enhancecustomer loyalty, increase cross-selling opportunities and help customers make informed purchase decisions, our online platform also featuresliterature on fashion trends, wardrobe tips and product recommendations, such as Tiaoli. · Personalized Services: We offer personalized services via our account management system, which allows our customers to customize theirpayment and delivery preferences. To facilitate the ease of the checkout process for our repeat customers, our database keeps track of theirpreferred delivery address, shipping method and payment option based on information they previously provided. Additionally, the direct dialfeature on our mobile applications allows our mobile application users to call our customer service representatives with a single click. To satisfy our existing customers’ shopping preferences and attract new customers with more unique shopping experience, we offer a variety ofonline sales formats, including customization, flash sales and auction. · Through customization, we offer our customers with custom-made products that are specially made according to our customers’ needs andtastes. Our personalized customization services is a testament of our dedication to serve our customers. · Our flash sales embody value, quality and convenience that are well-suited to brand-conscious consumers in China seeking upscale products atcompetitive price. Through our flash sales, we offer limited quantities of deeply discounted upscale products for limited periods of time. Inaddition to being an effective sales channel, our flash sales are also a key entry point for attracting online user traffic and allow us to efficientlygauge the marketability of different products by analyzing sales data. · Through auction, we offer a mix of new and used upscale products, watches, using auction sales to provide our customers with a more variedand exciting shopping experience. Our auction sales have been proven an effective channel for our SKUs management. Offline Experience Centers Our offline experience centers complement our online platform to provide superior customer and membership services and experience. We generated21.3%, 10.3% and 5.9% of our total GMV through our offline experience centers in 2015, 2016 and 2017, respectively. With our experienced customer service team and latest technologies, our offline experience centers provide one-stop service that addressescustomers’ varying needs for luxury products. Our offline experience centers feature a comprehensive suite of customer services, including product curation,pick-up, return, authentication and maintenance. Assisted by our sales representatives, customers may purchase products on display directly or makepurchases on our website seamlessly using our tablets. Our sales representatives establish close relationships with our customers and provide them withcontinuing after-sales service. Furthermore, our offline experience centers serve warehousing functions, allowing customers to pick-up or return products theyordered online. Owners may also bring their new or used products to our offline experience centers for auction on our platform. We currently have ten offline experience centers (including three pop-up stores) located in Beijing, Shanghai, Chengdu, Tianjin, Xiamen, Qingdao,Hangzhou, Changsha and Malaysia. As of December 31, 2017, our ten offline experience centers occupied a total of approximately 6, 600 square meters inarea and were staffed with over 88 sales representatives. To enhance our customer experience and to further broaden our brand awareness, we intend toselectively launch new offline experience centers in popular shopping destinations, domestic cities with significant consumption demand for luxury productsand third- and fourth-tier cities with potential market for luxury products. We intend to expand our customers services in overseas offline experience centers,such as free concierge services to our members when they travel to these cities. In addition, we also collaborated with major players in other industries toexpand offline experience centers and our brand reach. For example, in June 2016, we entered into strategic cooperation partnership with one of China’slargest real estate developers, Country Garden, and jointly incorporated Secoo Garden Tradings Sdn. Bhd., or Secoo Garden, and opened our offlineexperience center in Malaysia to tap into southeast Asian market. Pursuant to the joint venture agreement between Country Garden and us, Country Gardenholds 15% of the equity share capital of Secoo Garden, whereas we hold 85%. We provide technical knowledge, operate the duty free business, bring in high-end brand products, and agree to operate the business for at least three years. Country Garden is responsible for obtaining necessary approvals for theoperation of the duty free business in Malaysia. 47Table of Contents Omni-Channel Commerce Solutions Our omni-channel commerce solutions connect our customers and offline retailers in China, through which physical stores offer their products onour online platform and our customers have the options to either receive their orders sending directly from our partner stores or pick up their orders at thephysical stores conveniently located in the shopping destinations of these cities, such as Versace boutiques. We are currently cooperating with brandphysical stores by integrating our online shopping services by capitalizing on our strong online presence and our established fulfillment infrastructure. Our Customers Since our inception in 2011, we have built a large and loyal customer base with high purchasing power. We have accumulated more than18.7 million registered members as of December 31, 2017 and approximately 5.6 million registered members in 2017. We believe that the majority of ourcustomers are well-educated professionals belonging to middle and high income population in China. Customer Services and Membership Program Customer Services Customer service representatives. We believe our strong emphasis on customer service enhances our brand image and customer trust and loyalty.Our customer service center provides real-time and butler-style assistance to our customers. Leveraging insight into customer behavior, our customer servicerepresentatives provide targeted product recommendations, product purchasing and sourcing assistance, as well as reminders to customers for routine productmaintenance. Our sales representatives at our offline experience centers establish close relationships with our customers and provide customers withcontinuing after-sales service, such as paid cleaning and maintenance services. We recruit customer service representatives with substantial experience in theluxury retail product industry. Each representative is required to complete mandatory training on product knowledge, complaint handling andcommunication skills. We regularly monitor and evaluate the performance of each representative to ensure superior quality. Product after-sales maintenance service. We believe our after-sales maintenance service is among the best in the e-commerce industry in China.Different from brand after-sales services, our after-sales services have the advantage of shorter service time, and integrate domestic and multi-brandmaintenance services. We currently provide such service for three categories of products, namely watches, leather products and jewelry, at our offlineexperience centers. Return policy. We generally allow customers to return or exchange unopened products within seven days upon receipt of the product bysubmitting a return request online. Our customer service representatives will review and process the request and contact the customer by e-mail or by phone ifthere are any follow-up questions. Customers have the option to mail the products to our logistics center or bring them to one of our offline experiencecenters. Upon receipt of the returned or to-be-exchanged product, we credit the customer’s member or payment account with the purchase price or deliver thereplacement product to customers after inspection. 48Table of Contents Membership Program We have established a membership system to cultivate customer loyalty and encourage additional purchases by offering a variety of exclusivemembership benefits and awards. Our membership program features five membership levels, i.e., regular, silver, gold, diamond and black, and customers willbe automatically upgraded to higher levels based on their total spending with us annually. Our members receive a variety of exclusive benefits according totheir membership levels, such as product coupons and discounts, Secoo Check installment payments services, free gift packing and domestic delivery,cleaning and maintenance services, fast return and refund services and customized ordering of brand products. Our premier members, i.e., diamond and blackmembers, enjoy a variety of premium services, such as exclusive birthday presents, priority ordering of our new, rare and popular products, tryout-first-and-buy-later privilege, exclusive use of our offline experience centers for personal events and expanded access to offline experience center lounges anddedicated one-to-one customer representative services, who are familiar with their shopping tastes and preferences. We also select and offer premier membersexclusive access to brand collaboration and art events hosted by us. In addition, we provide personalized customization services for our customers throughour online platform. In addition, we refine our award membership program in October 2017, which our members can earn loyalty points when purchase on ourSecoo platforms. Members can redeem their membership loyalty points into credits towards their future purchases. Payment We provide our customers with a variety of payment options on our online platform, including Secoo Check, online payments with credit cards anddebit cards issued by major banks in China, payment through major third-party online payment platforms, such as Alipay, UnionPay and Wechat Pay, banktransfers, cash on delivery (for products with low purchase prices) and payment using our store credits. Recognizing our brand reputation as an upscaleproducts and services platform, Wechat Pay allows our platform to process up to RMB30,000 per order, which we believe is higher than that allowed for mostother e-commerce platforms. In 2016, we launched Secoo Check at our online platform, through which our customers can make payments for our merchandise products in one,three, six or twelve monthly installments. Currently, the Company does not charge installment service fees or interests to our customers. Secoo Check givesour customers more convenience and faster approval speed. Product Offerings Product Categories We offer a full range of upscale products and services on our platform. Since we commenced our current business operations in 2011, we have soldover 300,000SKUs of upscale products, and we currently offer over 300,000 SKUs of such products on our platform. In 2017, sales of watches, bags,clothing/footwear/accessories and jewelries accounted for 25.2%,23.0%, 26.4% and 16.0% of our total GMV, respectively. The following table illustrates thecategories of upscale lifestyle products we offer: Product categoryProduct description BagsTop-handle bags, shoulder bags, cross-body bags, evening bags, purses, clutches, wristlets, wallets, cosmeticsbags, satchels, rucksacks, luggage and waist bags WatchesAutomatic self-wind, mechanical hand-wind and quartz wrist watches for men and women with leather ormetal bands for social, outdoors and various other occasions, as well as watch accessories WomenswearA variety of apparel and styles, including gowns, dresses, coats, casual wear, jeans, outerwear, swimsuits andlingerie MenswearA variety of apparel and styles, including formal suits, coats, casual and smart-casual T-shirts, polo shirts,jackets, pants and underwear 49Table of Contents FootwearDesigner shoes for women and men for both casual and formal occasions Children’s wearApparel and footwear for boys, girls, infants and toddlers SportswearSports apparel, gear and footwear Cosmetics and skin careLip gloss, nail polish, perfume, makeup remover, cosmetic applicators, facial cleansers, moisturizers, facialmasks, lotions, toners, shampoos, conditioners and body washes JewelryFashion jewelry in a variety of styles and materials, including ear-rings, brooches, necklaces and pendants,bracelets, charms, rings, gold bullions and gold derivative products for investment purpose AccessoriesBelts, scarfs, eyewear, gloves, ties, hats and umbrella AutomobileLuxury sedans, sports cars, SUVs, MPVs, trucks and jeeps Home goodsHome furnishings, including bedding and bath products, home decor, dining and tabletop items, kitchenware,electronics and small household appliances, lighting, maternity products, toys and games, musicalinstruments and wine Fine food and beverageHigh-end chocolate, tea, coffee, soft drinks, soda water and wine Lifestyle servicesFine dining, vacation packages, hotel stays, chartered flights, private jet rentals and drones ArtPaintings, drawings and sculptures, and related services, such as customization, authentication andcertification High-end Chinese original productsHandcraft, Chinese designer apparel, furniture, tea, and famous Chinese brand products General Pricing Policy We set our prices based on the retail prices set by brands and distributors to be competitive with those on other major online retail websites and inphysical stores in China. Benefiting from our economies of scale, we are able to negotiate with our suppliers for prices that are competitive with those theyoffer to other sales channels. Authentication and Quality Control Procedures We believe we have one of the most stringent authentication and quality control procedures in the Chinese e-commerce industry. Almost allproducts sold on our platform are subject to our ISO-9001 certified authentication process. We are the first online upscale products and services platform thatwas authorized to jointly establish a work station with the Chinese National Leather Products Quality Supervision and Examination Center to authenticateleather products in Beijing, China. Product sourcing. We diligently examine the product sourcing channels and qualification of our suppliers. Our form supply agreement requiressuppliers to represent that the products they supply are authentic, are from legitimate sources and do not infringe upon rights of third parties, and toindemnify us for any damages resulting from any breach of such representations. Inspection. After the products arrive at our logistics centers, we carefully inspect the exterior of the products and immediately reject or returnproducts that do not meet the purchase order specifications or our quality standards, such as products with broken or otherwise compromised packaging. 50Table of Contents Authentication. After the products have been inspected, they generally undergo our standard authentication procedures. For our first-level authentication, our experienced authentication professionals carefully examine the physical traits of products according to ourstandard authentication protocols to ensure their authenticity. Our authentication professionals, a number of whom hold senior engineer titles andgovernmental certifications, have an average of 15 years of work experience in the luxury retail product industry. Our authentication professional team is oneof the largest full-time authentication teams in Asia among online upscale products retail platforms. Our second-level authentication leverages oursophisticated laboratory equipment to examine the chemical characteristics of the products. Additionally, products that have been determined to be authenticby the first two levels of authentication remain subject to our random selection for further testing in order to ensure the genuineness of the products we offer. Proprietary database. Leveraging our rich experience in the luxury product retail industry, we have built a comprehensive database featuringdetailed product information covering a wide range of brands, which, as of December 31, 2017, contained detailed product information covering over 3,000domestic and international brands. Our proprietary database guides every step of our authentication procedures. We continuously update our database bygathering information on the latest products debuted by luxury brands. Online authentication. Building on our big data technology and proprietary database, we are able to provide online authentication services ofluxury products to our customers and customs offices throughout China. Online authentication services are used as a preliminary authentication checkagainst our authentication standards and additional physical authentication will be conducted before we accepted the products or send the products to ourcustomers. Fulfillment We have established a logistics and delivery network with nationwide coverage. We engage reputable global and domestic third-party deliverycompanies to ensure reliable and timely delivery. We offer free shipping on all products fulfilled domestically. Customers also have the option to pick upproducts at one of our offline experience centers or partnered brand stores. For overseas direct sales, we incentivize customers to pick up the products at ouroverseas offline experience center by offering special discounts or perks. Logistics Network and Warehouse Management System Our logistics network consists of logistics centers strategically located in Beijing, Yichun, Hong Kong and Milan. Our Beijing logistics centerhandles essentially all products sold through our online shopping mall, flash sales and auction formats. Our Hong Kong logistics center processes all ordersplaced through our overseas direct sales format. Our offline experience centers also perform certain warehousing functions. Our WMS enables us to closely monitor each step of the fulfillment process from the time a purchase order is confirmed and the product arrives inone of our logistics centers to the time the product is packaged and picked up by delivery service providers for delivery to a customer. Shipments fromsuppliers generally first arrive at or are first directed to one of our logistics centers. At each logistics center, each product is bar-coded and tracked through ourWMS, allowing real-time monitoring of inventory levels across our logistics network and item tracking at each logistics center. We repackage all products toour standardized boxes before the products are shipped to our customers. Delivery Services We believe that timely and convenient delivery is essential towards customer satisfaction. We deliver orders placed on our online platform acrossChina through reputable third-party delivery companies with global and nationwide coverage, including S.F. Express, DHL, YTO Express and China PostEMS. For higher-priced products, we offer customers with delivery addresses within the urban areas of Beijing, Shanghai and Chengdu the option to havetheir products delivered by our own employees in order to ensure product safety and to provide product introductions upon delivery. Alternatively, ourcustomers, who prefer to pick up their order themselves, can also pick up products they ordered online at our conveniently located offline experience centers.Also, they may pick up certain products from collaborated branded store. 51Table of Contents We typically negotiate and enter into service agreements with delivery service providers on an annual basis. We regularly monitor and evaluate theperformance of our delivery partners and their compliance with our contractual terms. Suppliers We have built a trusted global supply chain for upscale products and services, for which we provide a variety of technological and service support.Since we commenced our current business operation, we have attracted a broad group and large base of suppliers of upscale products, including brands, brandauthorized distributors and individual and corporate suppliers. We believe our ability to generate significant sales and to provide high-quality after-salescustomer service helps us attract new suppliers and build stronger relationship with our existing ones. Our comprehensive global supply system is designedto meet the diverse purchase preferences and needs of our customers, varying from in-season luxury products to highly sought-after classic styles and vintageand rare products. We have established direct product sourcing relationships with a broad range of brands around the world, including Europe, the United States, Japanand South Korea, as well as Hong Kong. Leveraging our scale in China, we have also become the first e-commerce partner with a number of global brands inorder to help such brands establish a presence in the China market. Our overseas direct sourcing offer Chinese consumers convenient access to luxuryproducts sourced at attractive prices and fulfilled directly from overseas, without the need to travel abroad, and allow our consumers to make payments inRenminbi. We synchronize our order and logistics information with the local customs bureau in China, which together with our expertise in overseas directproducts sourcing and logistics, enable us to provide fast and convenient delivery and customs clearance services for our customers. Maintaining strong relationships with our suppliers is important to the growth of our business. Any negative developments in our relationships withour existing suppliers could materially and adversely affect our business and growth prospects. If we fail to attract new suppliers and third-party merchants,our business and growth prospects may be materially and adversely affected. See “Item 3.D. Risk Factors — Risks Related to Our Business — If we fail tomanage and expand our relationships with suppliers, or otherwise fail to procure products at favorable terms, our business and growth prospects may suffer.” Supplier Selection Our merchandizing team is responsible for identifying potential suppliers based on our supplier selection guidelines. For brand suppliers, weconsider their industry positions since we aim to prioritize selling top brands, whereas for brand authorized distributor suppliers, we favor level onedistributors because level one distributors usually guarantee the authenticity of their products. Additionally, we follow an internal suppliers selection systemthat considers pricing, profits, credibility, services and potential long-term collaboration. Once a potential supplier is identified, we conduct regular duediligence reviews on its qualifications based on our selection criteria. For other individual and corporate suppliers who apply to have their products on our online platform, our merchandizing team first determineswhether to accept the application based on the marketability of such products and their compatibility with our auction sales format. For approvedapplications, we require the owners to deliver the products to us for authentication. Once the products have been authenticated, we determine the initialbidding prices in consultation with the owners based on a number of factors such as marketability, the initial purchase price, brand and wear and tear. Supply Arrangements For products fulfilled domestically, we generally enter into standard supply agreements with suppliers. We stock the products at our warehousesbefore orders are placed on such products by our customers. Our suppliers can monitor the inventory level of the products they supplied using our system andtimely respond to our sales demands. In anticipation of major sales events, we provide advance notice to the relevant suppliers so that they can reservesufficient stock to meet potential surge in demand. 52Table of Contents For products fulfilled overseas and sold through our overseas direct sales format, we only purchase a product from our supplier when an order hasbeen placed and paid for by a customer. Product Selection Our merchandizing team possesses insights and deep understanding of our existing and potential customers’ evolving needs and preferences. Beforeselecting a product to be offered on our platform, we consider and analyze historical sales data, latest fashion trends, seasonality and customer reviews andfeedbacks to estimate the quantity sales format for a particular product. We carefully plan our product mix to achieve a balanced and complementary productoffering across different upscale product categories. Inventory Management While we pay for products fulfilled from overseas at the time we purchase them, we generally do not pay in advance for other upscale products thatwe purchase or source from our domestic suppliers. For some of our suppliers, we only have to settle payment after the products we sourced from suchsuppliers are sold. Our WMS allows us to efficiently manage our inventories, track products, and deliver products to our customers on a timely basis. We use an ERPsystem to monitor and actively track sales data. This system helps us make timely adjustments to our procurement plan and minimize excess inventory. Marketing We believe that the most effective form of marketing is to continuously enhance our customer experience, as customer satisfaction leads to word-of-mouth referrals and recurring purchases. We have been able to build a large and loyal customer base primarily through comprehensive customer services anda variety of advertising and brand promotion activities. For our most loyal customers and members, we host periodic online and offline events, including seminars, aimed at providing them with usefulinformation about fashion trends and wardrobe tips, which serve as cross-selling opportunities for us. We provide various incentives to our customers andmembers to increase their spending and loyalty, and we send targeted e-mails and text messages to our customers periodically with product recommendationsand promotions based on their online shopping habits and behavior. For example, we offer a selection of deeply discounted products on special occasions,such as our annual Luxury Festival beginning on December 17 of each year and Secoo anniversary sales on July 7 each year and Double 11 singles dayshopping festival, and on major holidays, such as Thanksgiving, Christmas and Chinese New Year. We also hold daily sales events for selected brands andproducts for a limited period of time through our flash sales. We have continued to realize cross-selling opportunities from our existing customer base bycreating more diversified sales formats and increasing our product offerings. Leveraging our sophisticated business intelligence system and big data technology, we are able to generate a deep understanding of thecharacteristics of our target customer group. With this knowledge, we precisely direct our marketing efforts through both online and offline channels in orderto efficiently reach our new customers. We also collaborate with other major online platforms in China to innovate current online marketing model. Forexample, in December 2016, we began to cooperate with a leading internet company in China to through which we exchanged non-sensitive customerinformation to further enhance understanding of our consumers’ online behavior and patterns. Through our collaboration, we are able to backtrack ourcustomers’ online habits and behavior in addition to their online shopping preferences. We work with prestigious brands, to use our innovative marketingmodel. If this innovative marketing model proves to be successful, we will not only be able to more precisely improve and upgrade our marketing model, butalso transfer ourselves into a marketing data and model provider and generate revenues through feeding valuable marketing data to brands and othercompanies. We intend to further apply our big data technology to explore upscale products and services consumers’ online behavior and patterns so that wecan expand our advertising, marketing and promotion cooperation with other major online platforms and brands. 53Table of Contents Building on our foundation as a reputable and trusted brand, we continue to use cost-effective and expanded branding initiatives nationwide toreinforce our reputation in the online luxury consumption industry. We believe that our China Luxury E-commerce Whitebook published in 2016 has beenrecognized as an authority in luxury product retail industry in China. We conduct online marketing activities through major social networks, social mediaportals, online video, search engines and other major websites in China. To enhance our brand awareness, we have also engaged in brand promotion activitiessuch as advertising on national television networks and on billboards in residential and commercial complexes in major cities in China. Additionally, ourcooperation with luxury brands, omni-channel commerce solutions, entertainment stars and other major industry players also greatly enhanced our brandcredibility and reputation in the market. Technology We have built our technology platform relying primarily on software and systems that we have developed in-house and to a lesser extent on third-party software that we have modified and incorporated. Our strong technology platform is vital in supporting our pursuit of a continually improving customerexperience, including the customer experience of our mobile users. From our website, the primary customer interface, to the back end management systems,our technology platform supports smooth and accurate operational execution as well as seamless information flow, data consistency and analytics. We haveadopted a service-oriented architecture supported by big data technology, which consist of front-end and back-end modules. Our network infrastructure isbuilt on self-owned servers located in data centers operated by a major PRC internet data center provider. We are implementing enhanced cloud architectureand infrastructure for our core data processing system to augment our existing virtual private network as we continue to expand our operations, enabling us toachieve significant operational efficiency through a virtual and centralized network platform. The principal components of our technology platform include: Website and mobile applications. Our website, together with our mobile applications, is our primary customer interface, which mainly includeproduct display, account management, category browsing, shopping cart, order processing and payment functions. Our website and mobile applications aresupported by our proprietary content distribution network, dynamic and distributed cluster and two core databases on merchandise and customers, providingour customers with quicker access to the product display in which they are interested, and facilitating faster check outs. We have designed our systems tocope with our maximum peak concurrent visitors at all times. As a result, we are able to provide our customers constantly smooth online shoppingexperience. Business intelligence system. Our business intelligence systems enable us to effectively collect, analyze and make use of internally generatedcustomer behavioral and transaction data. We use this information for merchandizing, product sourcing, customer profiling, recommendation and marketing.Our business intelligence system is built with the proprietary cloud computing infrastructure, providing decision-making intelligence such as dashboardoperation, operational analysis, market analysis, sales forecasts and products such as anti-fraud filters, precision marketing, and other application-orientedintelligent products that facilitate data-driven decision-making and increase our product sales. We will continue to develop and upgrade our sophisticatedbusiness intelligence system to effectively utilize the large amount of user behavioral data generated through our website and mobile applications. Big data technology. We have developed our consumer behavior data analysis capabilities, which enable us to conduct customer profiling toenhance segmentation and personalization. Leveraging our big data technology, we are able to create customized product recommendations to support pushand targeted marketing, allowing us to efficiently attract new customers as well as new purchases from existing customers. We have collaborated with otheronline platform to further apply our big data technology to precise and targeted marketing in the luxury product retail industry. Leveraging this consumerbehavior data, we are able to more precisely target our potential customers through online marketing. CRM, ERP and WMS. Our customer service system mainly consists of our CRM and our customer data analysis and membership managementsystem. Our customer relationship management system tracks customer information, including customers’ outstanding orders, order and payment history, andsettings and preferences, as well as all interaction between our customer service representatives and our customers, to ensure consistent and high qualitycustomer service. Through our membership management system, we are able to increase our customers’ loyalty and fully utilize our platform to fulfil their allhigh-end lifestyle needs. Our ERP system integrates our management of suppliers, accounting and product distribution information. We use our ERP systemto monitor and actively track sales and inventory data. This system helps us make timely adjustments to our procurement plan and minimize excessinventory. Our WMS allows us to efficiently manage our inventories, track products, and deliver products to our customers on a timely basis. Our WMSallows us to efficiently manage our inventories, track products, and deliver products to our customers on a timely basis. 54Table of Contents We have developed most of the key business platform through our in-house IT department. We also license certain software from reputable third-party providers and work closely with them to customize the software for our operations. We have implemented a number of measures to protect againstsystem failure and data loss. We have developed a disaster tolerant system for our key business modules which includes real-time data mirroring, daily off-line data back-up and redundancy and load balancing. We believe that our module-based systems are highly scalable, which enable us to quickly expand system capacity and add new features andfunctionality to our systems in response to evolving business needs and customer demands without affecting the operation of existing modules. We have alsoadopted rigorous security policies and measures, including encryption technology, to safeguard our proprietary data and customer information. For our offline experience centers, we have developed a suite of smart and innovative technology that enhances shopping experience and ourcustomer service. Our Bluetooth smart devices track customer locations and behavior throughout the offline experience centers. When a customer scans theQR code of a product with our mobile application or simply moves a smart phone close to the product, it will show up in the online shopping cart of thecustomer. This facilitates one-click check-outs later on. Intellectual Property We consider our patents, trademarks, software copyrights, service marks, domain names, trade secrets, proprietary technologies and similarintellectual property rights as critical to our success, and we rely on patents, trademark, copyright and trade secret protection laws in the PRC and overseas, aswell as confidentiality procedures and contractual provisions with our employees, service providers, suppliers and others to protect our intellectualproprietary rights. As of December 31, 2017, we owned 9 patents, 250 registered trademarks, copyrights to 18 software programs developed by us relating tovarious aspects of our operations and 51 registered domain names, including secoo.com. Of the 250 registered trademarks, 220 are registered in the PRC,16 are registered in Hong Kong, 4 are registered in the US, 4 are registered in Spain, and 6 are registered in Europe. We are in the process of applying for14 patents in the PRC. Competition We face competition from traditional offline upscale product retailers and their online platforms, domestic and global brand online platforms, majordomestic e-commerce platforms and global online upscale product retailers, such as Net-A-Porter.com. We anticipate that the retail market of upscale products will continually evolve and will continue to experience rapid technological change,evolving industry standards, shifting customer requirements, and frequent innovation. We must continually innovate to remain competitive. We believe thatwe compete primarily on the basis of large and loyal customer base with high purchasing power, proprietary business intelligence system and big datatechnology, global supply chain, authentication, quality control and after-sales services capabilities and our brand reputation. 55Table of Contents Employees As of December 31, 2015, 2016 and 2017, we had 738, 544 and 829 full-time employees, respectively. The following table sets forth the number ofour full-time employees categorized by areas of operations as of December 31, 2017: Function Number of employeesBusiness development, sales and marketing455Technology support218Fulfillment 49Administration and management107Total829 Our success depends to a large extent on our ability to attract, train, motivate and retain qualified personnel. We believe we offer our employeescompetitive compensation packages and an environment that encourages self-development and, as a result, have generally been able to attract and retainqualified personnel and maintain a stable core management team. As required by laws and regulations in China, we participate in various employee social security plans that are organized by municipal andprovincial governments, including pension, unemployment insurance, childbirth insurance, work-related injury insurance, medical insurance and housinginsurance. We are required under PRC law to make contributions to employee benefit plans at specified percentages of the salaries, bonuses and certainallowances of our employees, up to a maximum amount specified by the local government from time to time. To date, we have not been involved in anysignificant labor disputes. Insurance We maintain certain insurance policies to safeguard against risks and unexpected events. We have purchased property insurance covering our high-valued inventory in our logistics centers. We also purchased property insurance to cover our products sold under our cash-on-delivery payment method whilein transit. We also provide social security insurance including pension insurance, unemployment insurance, work-related injury insurance and medicalinsurance for our employees. We consider our insurance coverage to be sufficient for our business operations in China. Regulations Regulations Relating to Foreign Investment Industry Catalog Relating to Foreign Investment. Investment activities in the PRC by foreign investors are principally governed by the GuidanceCatalog of Industries for Foreign Investment, or the Catalog, which was promulgated and is amended from time to time by the Ministry of Commerce and theNational Development and Reform Commission. The Catalog divides industries into three categories: encouraged, restricted and prohibited. Industries notlisted in the Catalog are generally open to foreign investment unless specifically restricted by other PRC regulations. Establishment of wholly foreign-owned enterprises is generally permitted in encouraged industries. Some restricted industries are limited to equityor contractual joint ventures, and in some cases the Chinese partners are required to hold the majority interests in such joint ventures. In addition, industriesin the restricted category of the Catalog are subject to higher-level government approvals. Foreign investors are not allowed to invest in industries in theprohibited category. The latest amended Catalog, which took effect on July 28, 2017, further relaxes market access through regulatory reforms such asallowing foreign investors to have complete ownership of equity interest in e-commerce businesses. On October 8, 2016, the Ministry of Commerce issued the Interim Measures for Record-filing Administration of the Establishment and Change ofForeign-invested Enterprises, or FIE Record-filing Interim Measures, which became effective on the same day and was further amended in July 2017. Pursuantto FIE Record-filing Interim Measures, the establishment and change of FIEs are subject to record filing procedures, instead of prior approval requirements,provided that the establishment or change does not involve special entry administration measures. If the establishment or change of FIE matters is subject tothe special entry administration measures, the approval of the Ministry of Commerce or its local counterparts is still required. Pursuant to the Announcement(2016) No. 22 of the National Development and Reform Commission and the Ministry of Commerce issued on October 8, 2016, the special entryadministration measures for foreign investment apply to restricted and prohibited categories specified in the Catalog and the encouraged categories which aresubject to certain requirements relating to equity ownership and senior management. 56Table of Contents Currently, the business scope of our wholly-owned subsidiary in the PRC, Kutianxia contains the business of development of computer software andtechnology, which falls within the encouraged category under the Catalog. Foreign Investment in Value-Added Telecommunications Businesses. The Regulations for Administration of Foreign-investedTelecommunications Enterprises, which was promulgated by the PRC State Council in December 2001 and subsequently amended in September 2008 andFebruary 2016, respectively, set forth detailed requirements with respect to capitalization, investor qualifications and application procedures in connectionwith the establishment of a foreign-invested telecommunications enterprise. Subject to several exceptions, these regulations prohibit a foreign entity fromowning more than 50% of the total equity interest in any value-added telecommunications service business in China and require the major foreign investor inany value-added telecommunications service business in China to have a good and profitable record and operating experience in this industry. In July 2006, the Ministry of Information Industry, the predecessor of the MIIT, issued the Circular on Strengthening the Administration of ForeignInvestment in the Operation of Value-added Telecommunications Business, pursuant to which a domestic PRC company that holds an ICP License isprohibited from leasing, transferring or selling the ICP License to foreign investors in any form and from providing any assistance, including resources, sitesor facilities, to foreign investors that conduct a value-added telecommunications business illegally in China. Further, the domain names and registeredtrademarks used by an operating company providing value-added telecommunications services must be legally owned by that company or its shareholders.In addition, the company’s operational premises and equipment must comply with the approved coverage region on its ICP License, and the company mustestablish and improve its internal internet and information security policies and standards and emergency management procedures. If an ICP License holderfails to comply with the above requirements and also fails to remediate such non-compliance within a specified period of time, the MIIT or its localcounterparts have the discretion to impose administrative measures on such license holder, including revoking its ICP license. To comply with the PRC regulations discussed above, we operate our website and commercial value-added telecommunications services throughBeijing Secoo and Beijing Auction, our PRC consolidated variable interest entities, each of which holds an ICP License. Beijing Secoo and Beijing Auction,the operator of our website, secoo.com, secoo.cn, siku.cn, secooing.com and etc., also owns the relevant domain names and trademarks used in our value-added telecommunications businesses. On June 19, 2015, the MIIT issued the Circular on Lifting the Restriction to Foreign Shareholding Percentage in Online Data Processing andTransaction Processing Business (Operational E-commerce), or the New E-commerce Circular, pursuant to which, foreign investors are allowed to hold up to100% equity interest of an entity operating online data processing and transaction processing business (operational e-commerce) in China. Although the NewE-commerce Circular relieved shareholding percentage restriction for foreign investors in the online data processing and transaction processing business(operational e-commerce), such “operational e-commerce” is not defined in either the New E-commerce Circular or other relevant laws and regulations, andmeanwhile relevant requirements provided by the Regulations for Administration of Foreign-invested Telecommunications Enterprises shall still apply. Forexample, the requirement that the major foreign investor needs to have a good track record and operating experience in the value-added telecommunicationsservice industry will still apply when applying for the license for online data processing and transaction processing business (operational e-commerce). Sofar, there remain significant uncertainties with respect to the interpretation and implementation of the New E-commerce Circular by the competent authoritiesand the application for the license regarding online data processing and transaction processing business (operational e-commerce) by a wholly owned foreigninvested enterprise in practice. 57Table of Contents Considering the uncertainty of the implementation of the New E-Commerce Circular, we have kept on operating our website and commercial value-added telecommunications services through Beijing Secoo. Licenses and Permits We are required to hold a variety of licenses and permits in connection with various aspects of our business, including the following: ICP License. The Telecommunications Regulations promulgated by the State Council and its related implementation rules, including the Catalogof Classification of Telecommunications Business issued by the MIIT, categorize various types of telecommunications and telecommunications-relatedactivities into basic or value-added telecommunications services, and internet information services, or ICP services, are classified as value-addedtelecommunications businesses. Under the Telecommunications Regulations, commercial operators of value-added telecommunications services must firstobtain an ICP License from the MIIT or its provincial level counterparts. In September 2000, the State Council also issued the Administrative Measures onInternet Information Services, which was amended in January 2011. According to these measures, a commercial ICP service operator must obtain an ICPLicense from the relevant government authorities before engaging in any commercial ICP service in China. When the ICP service involves areas of news,publication, education, pharmaceuticals and medical equipment, and if required by law or relevant regulations, specific approval from the respectiveregulatory authorities must be obtained prior to applying for the ICP License from the MIIT or its provincial level counterpart. In March 2009, the MIITpromulgated the Administrative Measures on Telecommunications Business Operating Licenses (“Administrative Measures on TelecommunicationsBusiness Operating Licenses (2009 version)”), which set forth the specific types of licenses required to operate value-added telecommunications services, thequalifications and procedures for obtaining such licenses and the administration and supervision of such licenses. In June 2017, the MIIT promulgated a newversion of the Administrative Measures on Telecommunications Business Operating Licenses, which took effect and superseded the Administrative Measureson Telecommunications Business Operating Licenses (2009 version). The new Administrative Measures on Telecommunications Business OperatingLicenses simplifies the procedures to apply for telecommunications business operating license and strengthen the supervision of daily operation oftelecommunications business. Each of Beijing Secoo and Beijing Auction, as our ICP operator, holds an ICP License issued by the BeijingTelecommunications Administration for the operation of our telecommunication business. See “Item 3.D. Risk Factors — Any lack of requisite approvals,licenses or permits applicable to our business may have a material and adverse impact on our business, financial condition and results of operations.” Auction License. Pursuant to the Auction Law of the PRC, an enterprise engaging in the bidding and auction of various products as permitted byauction-related laws of the PRC other than cultural relics shall satisfy various criteria, such as having registered capital of at least RMB 1 million and havingsufficient number of professionals among whom at least one should be the auction master. The auction activities shall be carried out by the auctioneer withqualification certificate. To engage in the bidding and auction business, domestic auctioneers shall first be verified and authorized by the auctionadministration department of the provincial government, and subsequently registered with the local counterparts of the State Administration of Industry andCommerce, or SAIC, while the foreign-invested auctioneers, whose business does not involve auction of cultural relics, shall directly register with the localcounterparts of SAIC and make after-registration filing with competent local counterparts of the Ministry of Commerce, and also obtain auction businesspermit from the competent local counterparts of the Ministry of Commerce before the operation of their auction business. Entities engaging in auctionbusiness without approval and registration may be ordered to cease business and face monetary penalties. Beijing Auction has obtained an auction licensefrom Beijing Municipal Commission of Commerce for our auction business. Food Distribution Permit. China has adopted a licensing system for food supply operations under the Food Safety Law and its implementationrules. Entities or individuals that intend to engage in food production, food distribution or food service businesses must obtain licenses or permits for suchbusinesses. Under the Food Safety Law of the PRC, as amended and effective in October, 2015, the sale of food or beverages must be licensed in advance.Pursuant to the Administrative Measures on Food Operation Licensing as amended and effective on November 17, 2017, an enterprise needs to obtain a FoodOperation Permit from the local food and drug administration, and the permits already obtained by food business operators prior to the effective date of thesenew measures will remain valid for their originally approved validity period. Beijing Secoo holds a food distribution permit issued by the Xicheng Branch ofBeijing Food and Drug Administration for our food distribution business, including distribution of health care food and baby and infant formula milkpowder. 58Table of Contents Publication Operation Permit. Pursuant to the Administrative Measures for the Publication Market which were promulgated by the GeneralAdministration of Press and Publication, Radio, Film and Television and the Ministry of Commerce and became effective in June 2016, any entity orindividual engaging in the distribution of publications, including books, newspapers, magazines and audio-video products, must obtain an approval from thecompetent press and publication administrative authority and receive the Publication Operation Permit. Beijing Secoo has obtained a Publication OperationPermit for the retail sale and online sale of books, magazines, periodicals, electronic publications and audiovisual products. Medical Device Operation Record-filing. The Regulations on Supervision and Administration of Medical Devices, issued by the State Council in2000 and further amended in March 2014 and November 2017, divide medical devices into three types. Enterprises engaging in the sale of (i) Type I medicaldevices do not need any license or recording-filing, (ii) Type II medical devices must file with the relevant drug supervision and administration authority,and (iii) Type III medical devices must obtain a Medical Device Operation Enterprise Permit from the relevant drug supervision and administrative authority.Beijing Secoo has completed the Medical Device Operation Record-filing with Beijing Food and Drug Administration for the sale of several types of Type IImedical devices. Regulations Relating to E-Commerce, Internet Content and Information Security and Privacy China’s e-commerce industry is at an early stage of development and there are few PRC laws or regulations specifically regulating this industry. InMay 2010, the SAIC adopted the Interim Measures for the Administration of Online Commodities Trading and Relevant Services, which took effective inJuly 2010. Under these measures, enterprises or other operators which engage in online commodities trading and other services and have been registered withSAIC or its local branches must make the information stated in their business licenses available to the public or provide links to their business licenses ontheir websites. Online distributors must adopt measures to ensure the safety of online transactions, protect online shoppers’ rights and prevent the sale ofcounterfeit goods. Information on products and transactions released by online distributors must be authentic, accurate, complete and sufficient. The abovemeasures were replaced by the Measures for the Administration of Online Commodities Trading issued by the SAIC on January 26, 2014 which becameeffective on March 15, 2014. These newly issued measures further impose more stringent requirements and obligations on the online trading or serviceoperators. Where the online distributors also act as marketplace platforms that provide service to third-party merchants, the online distributors are obligatedto examine the legal status of the third-party merchants and make the information stated in the business licenses of such third-party merchants available tothe public or provide a link to their business licenses on the website, as well as make clear distinction between their online direct sales and sales of third-partymerchant products on the marketplace platform. We are subject to such rules as a result of our online merchandised sales and online marketplace business. InJanuary 2017, the SAIC adopted the Interim Measures for Seven-day Unconditional Return of Online Purchased Goods, which took effective in March 2017,pursuant to which, customers are entitled to return goods without a cause, except for customized goods, fresh and perishable goods, audio-visual products,computer software and other digital products, which are downloaded online or of which the packages have been opened by customers, and deliverednewspapers or periodicals. The Administrative Measures on Internet Information Services specify that internet information services regarding news,publication, education, pharmacy and medical appliances, among others, are to be examined, approved and regulated by the relevant authorities. Internetinformation providers are prohibited from providing services beyond those included in the scope of their ICP Licenses or filings. We issued prepaid cardswhich can be used to buy products on our websites. Pursuant to the Administrative Measures for Single-purpose Commercial Prepaid Cards, which waspromulgated by the PRC Ministry of Commerce in September 2012, and subsequently amended in August 2016, card issuers shall go through record-filingprocedures in relation to their single-pay or prepaid cards service. Beijing Secoo has completed the record-filing procedures in relation to the single-payprepaid cards service. Furthermore, the Administrative Measures on Internet Information Services clearly specify a list of prohibited content. Internet information providersare prohibited from producing, copying, publishing or distributing information that is humiliating or defamatory to others or that infringes the lawful rightsand interests of others. Internet information providers that violate the prohibition may face criminal charges or administrative sanctions by the PRCauthorities. Internet information providers must monitor and control the information posted on their websites. If any prohibited content is found, they mustremove such content immediately, keep a record of it and report it to the relevant authorities. 59Table of Contents Internet information in China is also regulated and restricted from a national security standpoint. The Standing Committee of the National People’sCongress, China’s national legislative body, has enacted the Decisions on Maintaining Internet Security, which may subject violators to criminal punishmentin China for any effort 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 of third parties. The Ministry of Public Security haspromulgated measures that prohibit use of the internet in ways which, among other things, result in a leakage of state secrets or a spread of sociallydestabilizing content. In recent years, PRC government authorities have enacted laws and regulations on internet use to protect personal information from anyunauthorized disclosure. The Administrative Measures on Internet Information Services prohibit ICP service operators from insulting or slandering a thirdparty or infringing upon the lawful rights and interests of a third party. Under the Several Provisions on Regulating the Market Order of Internet InformationServices, issued by the MIIT in 2011, an ICP service operator may not collect any personal information of its users or provide any such information to thirdparties without the consent of such users. An ICP service operator must expressly inform the users of the method, content and purpose of the collection andprocessing of their personal information and may only collect such information necessary for the provision of its services. An ICP service operator is alsorequired to properly keep user’s personal information confidential, and in case of any leakage or potential leakage of the information of its users, the ICPservice operator must take immediate remedial measures and, in severe circumstances, make an immediate report to the telecommunications regulatoryauthority. In addition, pursuant to the Decision on Strengthening the Protection of Online Information issued by the Standing Committee of the NationalPeople’s Congress in December 2012 and the Order for the Protection of Telecommunication and Internet User Personal Information issued by the MIIT inJuly 2013, any collection and use of personal information must be subject to the consent of the relevant user, abide by the principles of legality, rationalityand necessity and be within the specified purposes, methods and scopes. An ICP service operator must also keep such information strictly confidential, and isfurther prohibited from divulging, tampering or destroying of any such information, or selling or providing such information to other parties. Any violationof the above regulation may subject the ICP service operator to warnings, fines, confiscation of illegal gains, revocation of licenses, cancellation of filings,closedown of websites or even criminal liabilities. We have required our users to consent to our collection and use of their personal information, and haveestablished information security systems to protect user’s privacy. Pursuant to the PRC Cyber Security Law, which was promulgated by the StandingCommittee of the National People’s Congress on November 7, 2016 and took effect on June 1, 2017, network operators shall take technical and othernecessary measures pursuant to the laws, regulations and compulsory national requirements to safeguard the safe and stable operation of the networks,respond to network security incident effectively, prevent illegal and criminal activities and maintain the integrity, confidentiality and usability of networkdata. The Cyber Security Law sets forth various security protection obligations for network operators, which are defined as “owners and administrators ofnetworks and network service providers”, including, among others, complying with a series of requirements of tiered cyber protection systems, verifyingusers’ real identity, localizing the personal information and important data gathered and produced by key information infrastructure operators duringoperations within the PRC, and providing assistance and support to government authorities where necessary for protecting national security andinvestigating crimes. Regulations Relating to Product Quality and Consumer Protection The PRC Product Quality Law applies to all production and sale activities in China. Pursuant to this law, products offered for sale must satisfy therelevant quality and safety standards. Enterprises may not produce or sell counterfeit products in any fashion, including forging brand labels or giving falseinformation regarding a product’s manufacturer. Violations of state or industrial standards for health and safety and any other related violations may result incivil liabilities and administrative penalties, such as compensation for damages, fines, suspension or shutdown of business, as well as confiscation of productsillegally produced and sold and the proceeds from such sales. Severe violations may subject the responsible individual or enterprise to criminal liabilities.Where a defective product causes physical injury to a person or damage to another person’s property, the victim may claim compensation from themanufacturer or from the seller of the product. If the seller pays compensation and it is the manufacturer that should bear the liability, the seller has a right ofrecourse against the manufacturer. Similarly, if the manufacturer pays compensation and it is the seller that should bear the liability, the manufacturer has aright of recourse against the seller. 60Table of Contents The PRC Consumer Protection Law, as amended on October 25, 2013 and effective on March 15, 2014, sets out the obligations of business operatorsand the rights and interests of the consumers. Pursuant to this law, business operators must guarantee that the commodities they sell satisfy the requirementsfor personal or property safety, provide consumers with authentic information about the commodities, and guarantee the quality, function, usage and term ofvalidity of the commodities. Failure to comply with the Consumer Protection Law may subject business operators to civil liabilities such as refundingpurchase prices, exchange of commodities, repairing, ceasing damages, compensation, and restoring reputation, and even subject the business operators orthe responsible individuals to criminal penalties if business operators commit crimes by infringing the legitimate rights and interests of consumers. Theamended PRC Consumer. Protection Law further strengthens the protection of consumers and imposes more stringent requirements and obligations on business operators,especially on the business operators through the internet. For example, the consumers are entitled to return the goods (except for certain specific goods)within seven days upon receipt without any reasons when they purchase the goods from business operators via the internet. The consumers whose interestsare harmed due to their purchase of goods or acceptance of services on online marketplace platforms may claim damages from the sellers or service providers.As to legal liabilities of the online marketplace platform operator, the PRC Consumer Protection Law and the Regulations of Several Issues on theApplication of Laws in the Trial of Food and Drugs Cases issued by the Supreme People’s Court of the PRC on December 23, 2013 set forth that, where aconsumer purchases products or accepts services via an online trading platform and his or her interests are prejudiced, if the online trading platform operatorfails to provide the name, address and valid contact information of the seller, the manufacturer or the service provider, the consumer is entitled to demandcompensation from the online trading platform operator. If the online trading platform operator gives an undertaking that is more favorable to consumers, itshall perform such undertaking. Once the online trading platform operator has paid compensation, it shall have a right of recourse against the seller, themanufacturer or the service provider. If an online trading platform operator is aware or ought to have been aware that a seller, manufacturer or service provideris using the online platform to infringe upon the lawful rights and interests of consumers and it fails to take necessary measures, it shall bear joint and severalliabilities with the seller, the manufacturer or service provider for such infringement. The Tort Liability Law of the PRC, which was enacted by the Standing Committee of the National People’s Congress on December 26, 2009, alsoprovides that if an online service provider is aware that an online user is committing infringing activities, such as selling counterfeit products, through itsinternet services and fails to take necessary measures, it shall be jointly liable with the said online user for such infringement. If the online service providerreceives any notice from the infringed party on any infringing activities, the online service provider shall take necessary measures, including deleting,blocking and unlinking the infringing content, in a timely manner. Otherwise, it will be jointly liable with the relevant online user for the extended damages. We are subject to the above laws and regulations as an online retailer of commodities and a marketplace service provider and believe that we arecurrently in compliance with these regulations in all material aspects. Regulations Relating to Pricing In China, the prices of a very small number of products and services are guided or fixed by the government. According to the Pricing Law, businessoperators must, as required by the government departments in charge of pricing, mark the prices explicitly and indicate the name, origin of production,specifications and other related particulars clearly. Business operators may not sell products at a premium or charge any fees that are not explicitly indicated.Business operators must not commit the specified unlawful pricing activities, such as colluding with others to manipulate the market price, using false ormisleading prices to deceive consumers to transact, or conducting price discrimination against other business operators. Failure to comply with the PricingLaw may subject business operators to administrative sanctions such as warning, ceasing unlawful activities, compensation, confiscating illegal gains andfines. The business operators may be ordered to suspend business for rectification or have their business licenses revoked under severe circumstances. We aresubject to the Pricing Law as an online retailer and believe that our pricing activities are currently in compliance with the law in all material aspects. 61Table of Contents Regulation on Leasing Pursuant to the Law on Administration of Urban Real Estate, when leasing premises, the lessor and lessee are required to enter into a written leasecontract, containing such provisions as the leasing term, use of the premises, rental and repair liabilities, and other rights and obligations of both parties. Bothlessor and lessee are also required to register the lease with the real estate administration department. If the lessor and lessee fail to go through the registrationprocedures, both lessor and lessee may be subject to fines. According to the PRC Contract Law, the lessee may sublease the leased premises to a third party, subject to the consent of the lessor. Where thelessee subleases the premises, the lease contract between the lessee and the lessor remains valid. The lessor is entitled to terminate the lease contract if thelessee subleases the premises without the consent of the lessor. In addition, if the lessor transfers the premises, the lease contract between the lessee and thelessor will still remain valid. Regulation on Intellectual Property Rights The PRC has adopted comprehensive legislation governing intellectual property rights, including trademarks, domain names and copyrights. Trademark. The PRC Trademark Law and its implementation rules protect registered trademarks. The PRC Trademark Office of StateAdministration of Industry and Commerce is responsible for the registration and administration of trademarks throughout the PRC. The Trademark Law hasadopted a “first-to-file” principle with respect to trademark registration. As of December 31, 2017, we owned 250 registered trademarks in different applicabletrademark categories and were in the process of applying to register 129 trademarks in China. In addition, pursuant to the PRC Trademark Law, counterfeit or unauthorized production of the label of another person’s registered trademark, orsale of any label that is counterfeited or produced without authorization will be deemed as an infringement to the exclusive right to use a registeredtrademark. The infringing party will be ordered to stop the infringement immediately, a fine may be imposed and the counterfeit goods will be confiscated.The infringing party may also be held liable for the right holder’s damages, which will be equal to the gains obtained by the infringing party or the lossessuffered by the right holder as a result of the infringement, including reasonable expenses incurred by the right holder for stopping the infringement. If thegains or losses are difficult to determine, the court may render a judgment awarding damages of no more than RMB3 million. Domain Name. Domain names are protected under the Administrative Measures on the Internet Domain Names promulgated by the MIIT onAugust 24, 2017 and as amended on November 1, 2017. The MIIT is the major regulatory body responsible for the administration of the PRC internet domainnames, under supervision of which the China Internet Network Information Center, or CNNIC, is responsible for the daily administration of .cn domain namesand Chinese domain names. CNNIC adopts the “first to file” principle with respect to the registration of domain names. We have registered a number ofdomain names including secoo.com. Copyright. Pursuant to the PRC Copyright Law and its implementation rules, creators of protected works enjoy personal and property rights,including, among others, the right of disseminating the works through information network. Pursuant to the relevant PRC regulations, rules andinterpretations, internet service providers will be jointly liable with the infringer if they (i) participate in, assist in or abet infringing activities committed byany other person through the internet, (ii) are or should be aware of the infringing activities committed by their website users through the internet, or (iii) failto remove infringing content or take other action to eliminate infringing consequences after receiving a warning with evidence of such infringing activitiesfrom the copyright holder. In addition, where an ICP service operator is clearly aware of the infringement on certain content against another’s copyrightthrough the internet, or fails to take measures to remove relevant contents upon receipt of the copyright owner’s notice, and as a result, it damages the publicinterest, the ICP service operator could be ordered to stop the tortious act and be subject to other administrative penalties such as confiscation of illegalincome and fines. To comply with these laws and regulations, we have implemented internal procedures to monitor and review the content we have licensedfrom content providers before they are released on our platform and remove any infringing content promptly after we receive notice of infringement from thelegitimate rights holder. 62Table of Contents Software Copyrights. In order to further implement the Computer Software Protection Regulations promulgated by the State Council inDecember 2001 and amended subsequently, the State Copyright Bureau issued the Computer Software Copyright Registration Procedures in February 2002and amended subsequently, which apply to software copyright registration, license contract registration and transfer contract registration. We have registered18 computer software copyrights in China as of December 31, 2017. Regulation on Employment The PRC Labor Contract Law and its implementation rules provide requirements concerning employment contracts between an employer and itsemployees. If an employer fails to enter into a written employment contract with an employee within one year from the date on which the employmentrelationship is established, the employer must rectify the situation by entering into a written employment contract with the employee and pay the employeetwice the employee’s salary for the period from the day following the lapse of one month from the date of establishment of the employment relationship tothe day prior to the execution of the written employment contract. The Labor Contract Law and its implementation rules also require compensation to be paidupon certain terminations. In addition, if an employer intends to enforce a non-compete provision in an employment contract or non-competition agreementwith an employee, it has to compensate the employee on a monthly basis during the term of the restriction period after the termination or expiry of the laborcontract. Employers in most cases are also required to provide severance payment to their employees after their employment relationships are terminated. Enterprises in China are required by PRC laws and regulations to participate in certain employee benefit plans, including social insurance funds,namely a pension plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan and a maternity insurance plan, anda housing provident fund, and contribute to the plans or funds in amounts equal to certain percentages of salaries, including bonuses and allowances, of theemployees as specified by the local government from time to time at locations where they operate their businesses or where they are located. On December 28, 2012, the PRC Labor Contract Law was amended to impose more stringent requirements on labor dispatch which became effectiveon July 1, 2013. Pursuant to amended PRC Labor Contract Law, the dispatched contract workers shall be entitled to equal pay for equal work as a fulltimeemployee of an employer, and they shall only be engaged to perform temporary, ancillary or substitute works, and an employer shall strictly control thenumber of dispatched contract workers so that they do not exceed certain percentage of total number of employees. “Temporary work” means a position witha term of less than six months; “auxiliary work” means a non-core business position that provides services for the core business of the employer; and“substitute worker” means a position that can be temporarily replaced with a dispatched contract worker for the period that a regular employee is away fromwork for vacation, study or for other reasons. According to the Interim Provisions on Labor Dispatch, or the Labor Dispatch Provisions, promulgated by theMinistry of Human Resources and Social Security on January 24, 2014, which became effective on March 1, 2014, (i) the number of dispatched contractworkers hired by an employer should not exceed 10% of the total number of its employees (including both directly hired employees and dispatched contractworkers); (ii) in the case that the number of dispatched contract workers exceeds 10% of the total number of its employees at the time when the LaborDispatch Provisions became effective (i.e., March 1, 2014), the employer shall formulate a plan to reduce the number of its dispatched contract workers tobelow the statutory cap prior to March 1, 2016, and (iii) such plan shall be filed with the local bureau of human resources and social security. Nevertheless,the Labor Dispatch Provisions do not invalidate the labor contracts and dispatch agreements entered into prior to December 28, 2012. In addition, theemployer shall not hire any new dispatched contract worker before the number of its dispatched contract workers is reduced to below 10% of the total numberof its employees. Regulations on Tax The PRC Enterprise Income Tax Law imposes a uniform enterprise income tax rate of 25% on all PRC resident enterprises, including foreign-invested enterprises, unless they qualify for certain exceptions. The enterprise income tax is calculated based on the PRC resident enterprise’s global incomeas determined under PRC tax laws and accounting standards. If a non-resident enterprise sets up an organization or establishment in the PRC, it will besubject to enterprise income tax for the income derived from such organization or establishment in the PRC and for the income derived from outside the PRCbut with an actual connection with such organization or establishment in the PRC. 63Table of Contents The PRC Enterprise Income Tax Law and its implementation rules permit certain “high and new technology enterprises strongly supported by thestate” that independently own core intellectual property and meet statutory criteria, to enjoy a reduced 15% enterprise income tax rate. In January 2016, theSAT, the Ministry of Science and Technology and the Ministry of Finance jointly issued the Administrative Rules for the Certification of High and NewTechnology Enterprises specifying the criteria and procedures for the certification of High and New Technology Enterprises. Pursuant to the PRC Provisional Regulations on Value-Added Tax and their implementation regulations, unless otherwise specified by relevant lawsand regulations, any entity or individual engaged in the sale of goods, provision of processing, repairs and replacement services and importation of goodsinto China is generally required to pay a value-added tax, or VAT, at the rate of 17% on revenues generated from sales of goods, less any deductible VATalready paid or borne by such entity. On April 4, 2018, the Ministry of Finance and the SAT jointly issued the Circular on Adjusting Value-added Tax Rates,or Circular 32. Under Circular 32, which will become effective on May 1, 2018, the VAT rate of 17% will be reduced to 16%. Prior to January 1, 2012, pursuant to the PRC Provisional Regulations on Business Tax and its implementing rules, taxpayers providing taxableservices that fall under the category of service industry in China are required to pay a business tax at a normal tax rate of 5% of their revenues with certainexceptions. Our PRC subsidiaries and consolidated variable interest entities were subject to business tax at the rate of 5% for their marketplace services. SinceJanuary 1, 2012, the PRC Ministry of Finance and the SAT have been implementing the VAT pilot program, which imposes VAT in lieu of business tax forcertain industries in Shanghai, and since September 1, 2012, such pilot program has been expanded to eight other provinces or municipalities in the PRC.Since August 2013, this tax pilot program has been expanded to other areas on the nationwide basis in the PRC. Under the current tax rules, sales of usedgoods by our PRC subsidiaries and consolidated variable interest entities shall be subject to VAT at effective rate of 2%, while VAT is applicable at a rate of3% for the sale of consigned goods by our PRC subsidiaries and consolidated variable interest entities. Pursuant to the PRC Enterprise Income Tax Law and its implementation rules, if a non-resident enterprise has not set up an organization orestablishment in the PRC, or has set up an organization or establishment but the income derived has no actual connection with such organization orestablishment, it will be subject to a withholding tax on its PRC-sourced income at a rate of 10%. Pursuant to the Arrangement between the Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxationand Tax Evasion on Income, the withholding tax rate in respect to the payment of dividends by a PRC enterprise to a Hong Kong enterprise is reduced to 5%from a standard rate of 10% if the Hong Kong enterprise directly holds at least 25% of the PRC enterprise. Pursuant to the Notice of the SAT on the Issuesconcerning the Application of the Dividend Clauses of Tax Agreements, or Circular 81, a Hong Kong resident enterprise must meet the following conditions,among others, in order to enjoy the reduced withholding tax: (i) it must directly own the required percentage of equity interests and voting rights in the PRCresident enterprise; and (ii) it must have directly owned such percentage in the PRC resident enterprise throughout the 12 months prior to receiving thedividends. Furthermore, the Administrative Measures for Tax Convention Treatment for Non-resident Taxpayers, which became effective in November 2015and replaced Administrative Measures for Non-Resident Enterprises to Enjoy Treatments under Tax Treaties (For Trial Implementation), provide that anynon-resident enterprise meeting conditions for enjoying the convention treatment may be entitled to the convention treatment itself when filing a tax returnor making a withholding declaration through a withholding agent, subject to the subsequent administration by the tax authorities. Pursuant to the Law on the Administration of Tax Collection of the PRC which was enacted by the Standing Committee of the National People’sCongress on September 4, 1992 and amended in April 2015, if a taxpayer fails to pay tax within the time limit pursuant to applicable tax laws or regulations,the tax authorities may, subject to the specific circumstances in each case, impose penalties on such taxpayer, including without limitation, imposingsurcharge or imposing a fine of not more than five times the amount of the underpaid tax. 64Table of Contents Regulations Relating to Foreign Exchange The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations, most recentlyamended in August 2008. Under the PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from SAFE by complying with certain proceduralrequirements. By contrast, approval from or registration with appropriate government authorities or banks designated by SAFE is required where RMB is tobe converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of foreign currency-denominated loans. In November 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on ForeignDirect Investment which substantially amends and simplifies the current foreign exchange procedure. Pursuant to this circular, the SAFE improves foreignexchange administration in direct investment by repealing or adjusting certain approval items for foreign exchange administration in direct investment. On March 30, 2015, SAFE promulgated Circular on Reforming the Management Approach regarding the Settlement of Foreign Exchange Capital ofForeign-invested Enterprises, or SAFE Circular No. 19, which came into effect on June 1, 2015. According to SAFE Circular No. 19, the foreign currencycapital contribution to a foreign invested enterprise, or an FIE, in its capital account may be converted into RMB on a discretional basis. Furthermore, onJune 15, 2016, SAFE promulgated Circular on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts, orSAFE Circular No. 16. SAFE Circular No 16 provides, in addition to foreign currency capital, enterprises registered in the PRC may also convert their foreigndebts, as well as repatriated funds raised through overseas listing, from foreign currency to RMB on a discretional basis. SAFE Circular No. 16 also reiteratesthat the use of capital so converted shall follow “the principle of authenticity and self-use” within the business scope of the enterprise. According to SAFECircular No. 16, the RMB funds so converted shall not be used for the purposes of, whether directly or indirectly, (i) paying expenditures beyond the businessscope of the enterprises or prohibited by laws and regulations; (ii) making securities investment or other investments (except for banks’ principal-securedproducts); (iii) granting loans to non-affiliated enterprises, except as expressly permitted in the business license; and (iv) purchasing non-self-used real estate(except for the foreign-invested real estate enterprises). Regulations Relating to Dividend Distribution Wholly foreign-owned companies in the PRC may pay dividends only out of their accumulated profits after tax as determined in accordance withPRC accounting standards. Remittance of dividends by a wholly foreign-owned company out of China is subject to examination by the banks designated bySAFE. Wholly foreign-owned companies may not pay dividends unless they set aside at least 10% of their respective accumulated profits after tax each year,if any, to fund certain reserve funds, until such time as the accumulative amount of such fund reaches 50% of the wholly foreign-owned company’s registeredcapital. In addition, these companies also may allocate a portion of their after-tax profits based on PRC accounting standards to employee welfare and bonusfunds at their discretion. These reserve funds and employee welfare and bonus funds are not distributable as cash dividends. Our PRC subsidiaries are whollyforeign-owned enterprises subject to the described regulations. SAFE and NDRC Regulations on Offshore Special Purpose Companies Held by PRC Residents SAFE Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment through Special PurposeVehicles, or SAFE Circular No. 37, issued by SAFE and effective in July 2014, regulates foreign exchange matters in relation to the use of special purposevehicles, or SPVs, by PRC residents or entities to seek offshore investment and financing and conduct round trip investment in China. Under SAFE CircularNo. 37, a SPV refers to an offshore entity established or controlled, directly or indirectly, by PRC residents or entities for the purpose of seeking offshorefinancing or making offshore investment, using legitimate domestic or offshore assets or interests, while “round trip investment” refers to the directinvestment in China by PRC residents or entities through SPVs, namely, establishing foreign-invested enterprises to obtain the ownership, control rights andmanagement rights. SAFE Circular No. 37 requires that, before making contribution into an SPV, PRC residents or entities are required to complete foreignexchange registration with the SAFE or its local branch. SAFE Circular No. 37 further provides that option or share-based incentive tool holders of a non-listed SPV can exercise the options or share incentive tools to become a shareholder of such non-listed SPV, subject to registration with SAFE or its localbranch. SAFE Circular No. 37 was issued to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC ResidentsEngaging in Financing and Roundtrip Investments via Overseas Special Purpose Vehicles, or SAFE Circular No. 75. SAFE promulgated the Notice on FurtherSimplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment, or SAFE Circular No. 13, in February 2015, whichtook effect on June 1, 2015. SAFE Circular No. 13 has amended SAFE Circular No. 37 by requiring PRC residents or entities to register with qualified banksinstead of SAFE or its local branch in connection with their establishment of an SPV. 65Table of Contents PRC residents who have contributed legitimate domestic or offshore interests or assets to SPVs but have yet to obtain SAFE registration before theimplementation of SAFE Circular No. 37 shall register their ownership interests or control in such SPVs with SAFE or its local branch. An amendment to theregistration is required if there is a material change involving the SPV registered, such as any change of basic information (including change of such PRCresidents, change of name and operation term of the SPV), increases or decreases in investment amount, transfers or exchanges of shares, or mergers ordivisions. Failure to comply with the registration procedures set forth in SAFE Circular No. 37 and SAFE Circular No. 13, misrepresent on or failure todisclose controllers of foreign-invested enterprise that is established through round-trip investment, may result in restrictions on the foreign exchangeactivities of the relevant foreign-invested enterprises, including payment of dividends and other distributions, such as proceeds from any reduction in capital,share transfer or liquidation, to its offshore parent company or affiliates and the capital inflow from the offshore parent company, and may also subject therelevant PRC residents or entities to penalties under PRC foreign exchange administration regulations. Mr. Richard Rixue Li and Ms. Zhaohui Huang, our founders, have completed required registrations with the local counterpart of SAFE in relation toour financing and restructuring and the subsequent changes to our shareholding structure. Administrative Measures for Outbound Investment by Enterprises, or NDRC Measures No. 11, promulgated by NDRC on December 26, 2017 and tobe effective on March 1, 2018, regulates that the NDRC Measures No. 11 shall be implemented by reference to PRC citizens residing in mainland China whoseek offshore investments via overseas enterprises under their control. Under the NDRC Measures No. 11, such PRC citizens’ overseas investments shall besubject to administration by record-filing with NDRC or its local counterparts or shall be subject to approval of NDRC if such overseas investments aresensitive projects, such as projects in sensitive countries and regions or involving sensitive industries. As the NDRC Measures No. 11 has not yet becomeeffective so far, there remains significant uncertainties on its interpretation and implementation by the competent authorities in practice with respect towhether our founders’ current investments in us via their offshore holding company or their future transaction with our shares will be subject to theadministration or approval. SAFE Regulations on Employee Stock Incentive Plan In February 2012, SAFE promulgated the Notices on Issues concerning the Foreign Exchange Administration for Domestic Individuals Participatingin Stock Incentive Plan of Overseas Publicly-Listed Company, replacing earlier rules promulgated in March 2007, to regulate the foreign exchangeadministration of PRC citizens and non-PRC citizens who reside in the PRC for a continuous period of not less than one year, with a few exceptions, whoparticipate in stock incentive plans of overseas publicly-listed companies. Pursuant to these rules, these individuals who participate in any stock incentiveplan of an overseas publicly-listed company, are required to register with SAFE through a domestic qualified agent, which could be the PRC subsidiaries ofsuch overseas listed company, and complete certain other procedures. We and our executive officers and other employees who are PRC citizens or non-PRCcitizens who reside in the PRC for a continuous period of not less than one year and have been granted options are subject to these regulations upon thecompletion of our initial public offering. Failure of our PRC option holders or restricted shareholders to complete their SAFE registrations may subject us andthese employees to fines and other legal sanctions. The SAT has issued certain circulars concerning employee share options or restricted shares. Under these circulars, our employees working in the PRC whoexercise share options or are granted restricted shares will be subject to PRC individual income tax. Our PRC subsidiaries have obligations to file documentsrelated to employee share options or restricted shares with relevant tax authorities and to withhold individual income taxes of those employees who exercisetheir share options. If our employees fail to pay or we fail to withhold their income taxes according to relevant laws and regulations, we may face sanctionsimposed by the tax authorities or other PRC government authorities. 66Table of Contents C. Organizational Structure Corporate Structure The following diagram illustrates our corporate structure, including our major subsidiaries and variable interest entities, as of the date of this annualreport: Contractual Arrangements with our Variable Interest Entities and Their Shareholders The following is a summary of the currently effective contractual arrangements by and among our wholly owned subsidiary, Kutianxia, our variableinterest entities, Beijing Secoo and Beijing Auction, and the shareholders of Beijing Secoo and Beijing Auction. 67Table of Contents Agreements that provide us with effective control over Beijing Secoo and Beijing Auction Equity Pledge Agreements. On May 24, 2011, Kutianxia, Beijing Secoo and the shareholders of Beijing Secoo entered into equity pledgeagreements which was renewed on May 8, 2017. Pursuant to these equity pledge agreements, each of the shareholders of Beijing Secoo pledges all of theirequity interests in Beijing Secoo to guarantee Beijing Secoo’s performance of its obligations under the exclusive business cooperation agreement. If BeijingSecoo breaches its contractual obligations under the exclusive business cooperation agreement, Kutianxia, as pledgee, will have the right to dispose of thepledged equity interests. The shareholders of Beijing Secoo agree that, during the term of the equity pledge agreements, they will not dispose the pledgedequity interests or create or allow any encumbrance on the pledged equity interests, and they also agree that Kutianxia’s rights relating to the equity pledgeshall not be prejudiced by the legal actions of the shareholders, their successors or their designees. During the term of the equity pledge agreements,Kutianxia is entitled to all of the dividends and profits distributed on the pledged equity interests. The equity pledge agreements have a term of ten yearswhich will be automatically extended corresponding to the extension of the exclusive business cooperation agreement, where applicable. The pledge onBeijing Secoo’s equity interests contemplated in the equity pledge agreements became effective on January 11, 2012 when it was registered with BeijingAdministration for Industry and Commerce, and the equity pledge registration was subsequently renewed on June 12, 2017. The equity pledge agreementsshall be terminated as and when the exclusive business cooperation agreement terminates. On September 15, 2014, Kutianxia, Beijing Auction and the shareholders of Beijing Auction entered into equity interest pledge agreements.Pursuant to these equity interest pledge agreements, each of the shareholders of Beijing Auction pledges all of their equity interests in Beijing Auction toguarantee their and Beijing Auction’s performance of obligations under the exclusive business cooperation agreement and the loan agreements. If BeijingAuction or their shareholders breach their contractual obligations under these agreements, Kutianxia, as pledgee, will have the right to dispose of the pledgedequity interests. The shareholders of Beijing Auction agree that, during the term of the equity interest pledge agreements, they will not dispose of the pledgedequity interests or create or allow any encumbrance on the pledged equity interests without prior written consent of Kutianxia, and they will notify Kutianxiaif its rights relating to the equity interest pledge might be prejudiced by any events. During the term of the equity interest pledge agreements, Kutianxia hasthe right to receive all of the dividends and profits distributed on the pledged equity interests. The pledge on Beijing Auction’s equity interests contemplatedin the equity pledge agreements became effective on February 15, 2015 when it was registered with Beijing Administration for Industry and Commerce inaccordance with the PRC Property Rights Law, and will remain effective until Beijing Auction and its shareholders discharge all their obligations under theexclusive business cooperation agreement and the loan agreements. Exclusive Option to Purchase Agreements. On May 24, 2011, Kutianxia, Beijing Secoo and the shareholders of Beijing Secoo entered intoexclusive option to purchase agreements. Pursuant to these exclusive option to purchase agreements, each of the shareholders of Beijing Secoo irrevocablygrants Kutianxia an exclusive option to purchase, or have its designated person to purchase, at its discretion, to the extent permitted under PRC law, all orpart of the shareholders’ equity interests in Beijing Secoo at the lowest price permitted by applicable PRC law. Beijing Secoo and its shareholders agree notto undertake any acts which may adversely affect the interests and rights of Kutianxia in Beijing Secoo without the prior consent of Kutianxia. Theshareholders of Beijing Secoo commit that without the prior written consent of Kutianxia, they will not sell, pledge or dispose of their equity interests inBeijing Secoo to any other parties. Beijing Secoo commits that without the prior written consent of Kutianxia, it will not increase or decrease its registeredcapital, amend its articles of association, sell, pledge, dispose of or permit a lien to be created on its assets, commit to any debts or liabilities not arising in theordinary course of business, grant any loans or credit to any person, enter into any material contracts not in the ordinary course of business, enter into anyinvestments, business acquisitions or combinations, dissolving Beijing Secoo, or distribute dividends to the shareholders. Beijing Secoo and theshareholders of Beijing Secoo shall procure that individuals recommended by Kutianxia will be appointed as directors of the company. Beijing Secoo shallprovide financial information to Kutianxia at the request of Kutianxia and ensure the continuance of the business. The Agreement has an initial term of tenyears and is renewable at the election of Kutianxia. 68Table of Contents On September 15, 2014, Kutianxia, Beijing Auction and the shareholders of Beijing Auction entered into exclusive option agreements. Pursuant tothese exclusive option agreements, each of the shareholders of Beijing Auction irrevocably grants Kutianxia an exclusive option to purchase, or have itsdesignated person to purchase, at its discretion, to the extent permitted under PRC law, all or part of the shareholders’ equity interests in Beijing Auction. Inaddition, the purchase price shall be RMB 1 million in aggregate, which equals the amount that the shareholders contributed to Beijing Auction as registeredcapital for the equity interests to be purchased, or if the PRC law requires a minimum price higher than the aforesaid price, be the lowest price permitted byapplicable PRC law. Beijing Auction and its shareholders agree not to undertake any acts which may adversely affect the interests and rights of Kutianxia inBeijing Secoo without the prior written consent of Kutianxia and must guarantee Beijing Auction’s continuance. Without the prior written consent ofKutianxia, Beijing Auction may not increase or decrease the registered capital, dispose of its material assets, enter into any material contract, engage inmerger and acquisitions, invest in third parties, distribute dividends to the shareholder, amend its articles of association and provide any loans or credits toany third parties. The shareholders of Beijing Auction agree that, without the prior written consent of Kutianxia, they will not transfer or otherwise dispose oftheir equity interests in Beijing Auction or create or allow any encumbrance on the equity interests. The exclusive purchase option agreement will remaineffective until all equity interests in Beijing Auction held by its shareholders are transferred or assigned to Kutianxia or its designees. Powers of Attorney. Pursuant to the powers of attorney, each of the shareholders of Beijing Secoo irrevocably appoints Kutianxia as its attorney-in-fact to exercise on its behalf any and all rights that such shareholders have in respect of their equity interests in Beijing Secoo conferred by relevant lawsand regulations and the articles of associate of Beijing Secoo. The power of attorney became effective on May 24, 2011 and will remain effective as long aslong as these shareholders remain as shareholders of Beijing Secoo. Pursuant to the powers of attorney, the shareholders of Beijing Auction each irrevocably appointed Kutianxia as their attorney-in-fact in respect oftheir shareholdings, including voting on their behalf on all matters of Beijing Auction that requires shareholder approval under PRC laws and regulations aswell as Beijing Auction’s articles of association. The power of attorney became effective on September 15, 2014 and will remain effective until the date theshareholders of Beijing Auction cease to hold any equity interest in Beijing Auction. Loan Agreements. Under the loan agreements between Kutianxia and each of the shareholders of Beijing Auction dated as of September 15, 2014,Kutianxia made interest-free loans in an aggregate amount of RMB1 million to the shareholders of Beijing Auction exclusively for the purpose of the initialcapitalization of Beijing Auction. The loans can only be repaid with the proceeds derived from the sale of all of the equity interests in Beijing Auction toKutianxia or its designated representatives pursuant to the exclusive option agreements. The term of the loan agreement is ten years from the date of the loanagreement and may be extended upon mutual consent of the parties. Agreements that allows us to receive economic benefits from Beijing Secoo and Beijing Auction Exclusive Business Cooperation Agreement. Under the exclusive business cooperation agreement between Kutianxia and Beijing Secoo datedMay 24, 2011, and as amended on March 26, 2015 with a retrospective effect, Kutianxia is appointed as the exclusive service provider for the provision ofbusiness support and technology and consulting services to Beijing Secoo. The service fees payable by Beijing Secoo to Kutianxia depend on the amount ofservices provided and the market value for those services. Beijing Secoo is required to provide its financial statements and all the related records ofoperations, business contracts and financial information to Kutianxia within a stipulated period of time subsequent to the financial year end. Kutianxia shallexclusively own the intellectual property rights created by Kutianxia or Beijing Secoo, as a result of the performance of this agreement. The agreement has aninitial term of ten years and can be extended at the sole election of Kutianxia. Beijing Secoo is not permitted to terminate the agreement unless Kutianxiacommits gross negligence or fraud. Under the exclusive business cooperation agreement between Kutianxia and Beijing Auction dated September 15, 2014, and as amended on March 26, 2015with a retrospective effect, Kutianxia is appointed as the exclusive service provider for the provision of business support and technology and consultingservices to Beijing Auction. The service fees payable by Beijing Auction to Kutianxia depend on the amount of services provided and the market value forthose services. Beijing Auction is required to provide its financial statements and all the related records of operations, business contracts and financialinformation to Kutianxia within a stipulated period of time subsequent to the financial year end. Kutianxia shall exclusively own the intellectual property.The agreement shall remain effective unless terminated by Kutianxia pursuant to the provisions of the agreement. 69Table of Contents Exclusive Option Agreement to Purchase Intellectual Properties. On May 24, 2011, Kutianxia and Beijing Secoo entered into an exclusiveoption agreement to purchase intellectual properties, pursuant to which Beijing Secoo granted to Kutianxia or its designees an exclusive and irrevocableright to purchase, to the extent permitted by the PRC law, a list of specified intellectual properties at any time Kutianxia would desire. The intellectualproperties comprise domain names, copyright of the design or content of the websites, trademarks owned by Beijing Secoo and all intellectual propertiespurchased or developed by Beijing Secoo during the term of the Agreement, including but not limited to trademarks, trademark applications, patents, patentapplications, software copyright, domain names, websites and technology knowhow. The agreement has a term of ten years and is renewable at the option ofKutianxia for another ten years. In the opinion of Han Kun Law Offices, our PRC legal counsel: · the ownership structures of Kutianxia Information, our PRC Subsidiary, and our variable interest entities and Beijing Secoo and BeijingAuction will not result in any violation of PRC laws or regulations currently in effect; and · the contractual arrangements among our PRC Subsidiary, our variable interest entities and their respective shareholders governed by PRC laware valid, binding and enforceable, and will not result in any violation of PRC laws or regulations currently in effect. However, there are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules.Accordingly, the PRC regulatory authorities may in the future take a view that is contrary to the above opinion of our PRC legal counsel. If the PRCgovernment finds that the agreements that establish the structure for operating our online retail or auction businesses do not comply with PRC governmentrestrictions on foreign investment in e-commerce and related businesses, including but not limited to online retail or auction businesses, we could be subjectto severe penalties including being prohibited from continuing operations. See “Item 3.D. Risk Factors—Risks Related to Our Corporate Structure—If thePRC government deems that the contractual arrangements in relation to Beijing Auction and Beijing Secoo do not comply with PRC regulatory restrictionson foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subjectto severe penalties or be forced to relinquish our interests in those operations.” and “Item 3.D. Risk Factors—Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system could adversely affect us.” D. Property, Plant and Equipment As of the date of this report, we are headquartered in Beijing, where we have leased an aggregate of approximately 9,100 square meters of office,offline experience centers, customer service center and logistics center space. As of the date of this annual report, we have also leased an aggregate ofapproximately 12,440 square meters of offline experience centers, office and logistics center space in Chengdu, Shanghai, Shenzhen, Tianjin, Yichun,Xiamen, Qingdao, Hong Kong, Milan, Malaysia and New York. A summary of our leased properties as of the date of this annual report is shown below: Location Space (insquaremeters)UseLease Term(years)Beijing9,100Office, offline experience center, customer service center and logistics center space1 - 6Chengdu1,100Offline experience center and office3Shanghai2,100Offline experience center and office2 – 10Shenzhen300Office1 - 2Tianjin550Offline experience center and office2-5Yichun4,700Office and logistics center space4Hong Kong400Office and logistics center space1 – 2Milan1,000Office and logistics center space4-6Malaysia800Offline experience center3New York50Office1Xiamen800Offline experience center5Qingdao640Offline experience center5 70Table of Contents We typically enter into leasing agreements renewable every one or five years with independent third parties. We believe our existing facilities aresufficient for our near-term needs. ITEM 4A. UNRESOLVED STAFF COMMENTS None. ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidatedfinancial 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. Our actual results may differ materially from those anticipated in these forward-lookingstatements as a result of various factors, including those set forth under “Item 3.D. Risk Factors” or in other parts of this annual report. A. Operating Results Overview We have experienced significant growth since we commenced our business operations in 2011. Key Factors Affecting Our Results of Operations Our business and operating results are affected by general factors affecting the online retail market in China, including China’s overall economicgrowth, the increase in per capita disposable income, the expansion of the urbanization, the growth of middle and high income classes, the growth inconsumer spending and retail industry, governmental policies towards the cross-border e-commerce industry and the expansion of internet and mobilepenetration. Unfavorable changes in any of these general factors could affect the demand for the products offered by us and could materially and adverselyaffect our results of operations. While our business is influenced by general factors affecting our industry, our operating results are more directly affected by certain company-specific factors, including: · our ability to attract and retain customers at reasonable cost; · our ability to establish and maintain strong and long-term relationships with suppliers, including top-tier brands, and procure products atfavorable terms; · our ability to manage our mix of product categories and high-end lifestyle services; · our ability to sustain growth and increase revenues while improving operating efficiency; · our ability to control marketing and sales expenses through precise and targeted marketing leveraging business intelligence system and bigdata technology capabilities, while promoting our brand and platform cost effectively; and · our ability to compete effectively and to execute our strategies successfully. 71Table of Contents Net Revenues We derive revenues from the sale of upscale products and services offered on our online platforms and in our offline experience centers. Wecommenced our current merchandising sales business model in 2011. We currently generate substantially all of our revenues from merchandise sales,whereby we act as principal for the direct sale of upscale products to customers. Merchandise sales revenues are recorded on a gross basis, net of discount,sales return, surcharges and taxes. We also generate marketplace services revenues, whereby we act as a service provider to third-party merchants and charge fees for the sales ofupscale products and services on our online platform. We began to expand our marketplace services business in 2014. Our marketplace services revenues arerecorded on a net basis. Further, we also generate other service revenue from providing repair and maintenance services and advertising service. Other servicerevenue is recognized upon provision of the service. The following table sets forth the key factors that directly affect our net revenues for the periods indicated: Year Ended December 31, 2015 20162017 RMB % RMB%RMBUS$% GMV (in RMB millions)Online GMVMobile applications1,379.553.62,600.174.94,396.8675.883.5Web645.525.1514.814.8556.385.510.6Total online GMV2,025.078.73,114.989.74,953.1761.394.1Offline GMV547.621.3355.310.3309.347.55.9Total GMV (in RMBmillions)2,572.6100.03,470.2100.05,262.4808.8100.0Total orders (in thousands)623.8953.71,437.0 Year Ended December 31, 2015 20162017 RMB % RMB%RMBUS$% Revenue (in RMB thousands)Online RevenueMobile applications879,99450.51,826,31270.42,973,116456,95979.5Web396,85022.8446,38917.2483,99574,38912.9Total online revenue1,276,84473.32,272,70187.63,457,111531,34892.4Offline revenue466,28426.7321,12112.4283,34443,5497.6Total revenue1,743,128100.02,593,822100.03,740,455574,897100.0 We monitor and strive to improve the following key business metrics to generate higher revenues: Total number of orders. Our total number of orders were 623.8 thousand in 2015, 953.7 thousand in 2016 and 1,437.0 thousand in 2017,respectively. The increases are contributed by our marketing strategy, more direct brand collaborations, the expansion of our product categories andpromotions that increases the number of our new customers and active customers’ purchase frequency. Total GMV. We define GMV as the total value of all orders of products and services, excluding the value of whole car sales, placed on our onlineplatform and in our offline experience centers, regardless of whether the products or services are delivered, returned or cancelled, as applicable. We considerGMV an important indicator of our growth and business performance as it measures the volume of transactions through our merchandise sales as well asmarketplace services. Our GMV grew by 34.9% from RMB2,572.6 million in 2015 to RMB3,470.2 million in 2016 and grew by 51.6% fromRMB3,470.2 million in 2016 to RMB5,262.4 million (US$808.8 million) in 2017, which is in line with our growth of total number of orders. Our total onlineGMV increased by 53.8% from RMB2,025.0 million in 2015 to RMB3,114.9 million in 2016 and increased by 59.0% from RMB3,114.9 million in 2016 toRMB4,953.1 million (US$761.3 million) due to the change of customer’s preference to shop online. Our offline GMV decreased by 35.1% fromRMB547.6 million in 2015 to RMB355.3 million in 2016, and decreased by 13.0% from RMB355.3 million in 2016 to RMB309.3 million (US$47.5million) in 2017. 72Table of Contents Our revenue generated from mobile application, which contributed the majority of our revenue, increased from RMB880.0 million in 2015 toRMB1,826.3 million in 2016, and to RMB2,973.1 million (US$457.0 million). We generated 73.3%, 87.6% and 92.4% of our total revenue through ouronline platform in 2015, 2016 and 2017, respectively. The table below sets forth a breakdown of our revenues from our merchandise sales, and marketplace and other services for the periods indicated: Year Ended December 31,2015 2016 2017RMB RMB RMB US$(in thousands)Merchandise sales1,724,7392,566,8723,680,795565,727Marketplace and other services18,38926,95059,6609,170Total1,743,1282,593,8223,740,455574,897 In 2017, we generated approximately 98.4% and 1.6% of our revenue from our merchandise sales, and marketplace and other services, respectively.Other services mainly include advertising and maintenance services and amounted to RMB7.8 million, RMB11.2 million and RMB17.5 million(US$2.7 million) in 2015, 2016 and 2017, respectively. We expect revenue contribution from our marketplace and other services to increase in the nearfuture. The table below sets forth the respective revenue contributions of (i) our company and our subsidiaries and (ii) our consolidated variable interestentities and their subsidiaries for the periods indicated as a percentage of total net revenues: Year Ended December 31,2015 2016 2017Our company and our subsidiaries10%8%6%Our variable interest entities and their subsidiaries90%92%94%Total net revenues100%100%100% We expect to continue to generate a substantial majority of our revenues from our consolidated variable interest entities in the near future. Cost of revenues Our cost of revenues consists of primarily cost of merchandise sold and inventory write-downs, repair and maintenance staff payroll and relatedequipment depreciation. Our cost of goods sold does not include payment processing, packaging material and product delivery costs. Therefore, our cost ofrevenues may not be comparable to other companies which include such expenses in their cost of revenues. Operating expenses Our operating expenses consist of (i) fulfillment expenses, (ii) marketing expenses, (iii) technology and content development expenses, and(iv) general and administrative expenses. The following table sets forth the components of our operating expenses both in absolute amount and as apercentage of total net revenues for the periods indicated: 73Table of Contents Year Ended December 31,20152016 2017RMB%RMB % RMB US$ %(in thousands, except percentages)Fulfillment66,5463.882,0473.299,06415,2262.6Marketing243,55814.0218,7598.4245,98937,8086.6Technology and content development40,9042.354,2622.162,0819,5421.7General and administrative77,8614.574,3102.9110,05916,9172.9Total operating expenses428,86924.6429,37816.6517,19379,49313.8 Fulfillment expenses. Fulfillment expenses consist primarily of packaging material costs, shipping costs and costs incurred in operating andstaffing our fulfillment/logistics and customer service centers, including costs attributable to receiving, inspecting and warehousing inventories; picking,packaging, and preparing customer orders for shipment; third-party payment platform charges and responding to customer inquiries. Fulfillment expensesalso include amounts charged by third parties that assist us in product deliveries and payment collections. Expenses related to our product authenticationprocedures, including personnel and equipment expenses, are recorded also under fulfillment expenses. We will continue to invest in our fulfillment anddelivery network to support our long-term growth and in the meantime seek to achieve lower delivery cost by establishing further cooperation with thirdparty couriers as our bargaining power increases. We expect that our fulfillment expenses will continue to increase in absolute amount with per orderfulfillment expenses decreasing as a result of our continued business growth. Marketing expenses. Marketing expenses consist primarily of advertising expenses, rental charges, public relation costs, office expenses,depreciation costs, brand fee, payroll and related expenses for personnel engaged in marketing activities. Advertising expenses take up the biggest portion inmarketing expenses. We continue to enhance our ability to conduct precise and targeted marketing leveraging our business intelligence system and big datatechnology in order to reduce our advertising expenses. Technology and content development expenses. Technology and content development expenses consist primarily of technology infrastructureexpenses, payroll and related costs for employees involved in application development, category expansion, editorial content production on our onlineplatform and system support expenses, as well as costs associated with computation, storage and telecommunication infrastructures. As we continue toexpand our technological capabilities to support our anticipated growth and enhance customer experience, we expect our technology and content expensesto continue to increase in absolute amount in the foreseeable future. General and administrative expenses. General and administrative expenses consist primarily of payroll and related costs for employees involved ingeneral corporate functions, including accounting, finance, tax, legal and human resources, professional fees for third parties and other general corporatecosts, as well as costs associated with the use of facilities and equipment for these general corporate functions, such as depreciation and rental expenses. Asour business further grows, we expect our general and administrative expenses to continue to increase in absolute amount in the foreseeable future. Other expenses / (income) Other expenses consist of (i) interest expense, net (ii) foreign currency exchange losses/(gains), and (iii) others. The following table sets forth thecomponents of other expenses both in absolute amount and as a percentage of total net revenues for the periods indicated: Year Ended December 31,20152016 2017RMB%RMB % RMB US$ %(in thousands, except percentages)Interest expense, net2,7900.23,9230.26,5621,0090.2Foreign currency exchange losses/(gains)7,4250.411,4180.4(9,477)(1,458)(0.3)Others————(4,148)(637)(0.1)Total other expenses/(income)10,2150.615,3410.6(7,063)(1,086)(0.2) 74Table of Contents Interest expense, net. Our interest expense is comprised of interest costs and incidental charges associated with our bank borrowings net off byinterest income. Foreign currency exchange losses/(gains). Foreign currency exchange losses/(gains) are primarily due to the foreign currency exchangelosses/(gains) in association with cash, time deposits and restricted cash held by our Hong Kong subsidiary. Taxation Cayman Islands We are incorporated in the Cayman Islands. Under the current law of the Cayman Islands, we are not subject to income or capital gains tax in theCayman Islands. In addition, our payment of dividends to our shareholders, if any, is not subject to withholding tax in the Cayman Islands. Hong Kong Our subsidiary incorporated in Hong Kong is subject to the uniform tax rate of 16.5%. Under the Hong Kong tax laws, it is exempted from the HongKong income tax on its foreign-derived income and there are no withholding taxes in Hong Kong on the remittance of dividends. PRC Our PRC subsidiaries and consolidated variable interest entities are companies incorporated under PRC law and, as such, are subject to PRCenterprise income tax on their taxable income in accordance with the relevant PRC income tax laws. Under the PRC Enterprise Income Tax Law whichbecame effective on January 1, 2008 and was further amended on February 24, 2017, and its implementation rules, which became effective on January 1,2008, a uniform 25% enterprise income tax rate is generally applicable to both foreign-invested enterprises and domestic enterprises, unless they qualify forcertain exceptions. Our PRC subsidiaries and consolidated variable interest entities are all subject to the tax rate of 25% for the periods presented in theconsolidated financial statements included elsewhere in this annual report. Under the PRC Enterprise Income Tax Law and its implementation rules, dividends from our PRC subsidiaries paid out of profits generated afterJanuary 1, 2008, are subject to a withholding tax of 10%, unless there is a tax treaty with China that provides for a different withholding tax rate.Distributions of profits generated before January 1, 2008 are exempt from PRC withholding tax. Pursuant to the Arrangement between Mainland China andthe Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, the withholding tax rate with respect tothe payment of dividends by a PRC enterprise to a Hong Kong enterprise is reduced to 5% from a standard rate of 10%, if such Hong Kong enterprise directlyholds at least 25% equity interest in the PRC enterprise. Pursuant to the Notice of the State Administration of Taxation on the Issues concerning theApplication of the Dividend Clauses of Tax Agreements, or Circular 81, a Hong Kong resident enterprise must meet the following conditions, among others,in order to enjoy the reduced withholding tax rate: (i) it must be a company; (ii) it must directly own the required percentage of equity interest and votingrights in the PRC resident enterprise; and (iii) it must have directly owned such required percentage in the PRC resident enterprise throughout the 12 monthsprior to receiving the dividends. Furthermore, the Administrative Measures for Tax Convention Treatment for Non-resident Taxpayers, which becameeffective in November 2015 and replaced the Administrative Measures for Non-Resident Enterprises to Enjoy Treatments under Tax Treaties (For TrialImplementation), provide that any non-resident enterprise meeting conditions for enjoying the convention treatment may be entitled to the conventiontreatment itself when filing a tax return or making a withholding declaration through a withholding agent, subject to the subsequent administration by thetax authorities. There are also other conditions for enjoying the reduced withholding tax rate according to other relevant tax rules and regulations.Accordingly, Hong Kong Secoo may be able to benefit from the 5% withholding tax rate for the dividends it receives from Kutianxia, if it satisfies theconditions prescribed under Circular 81 and other relevant tax rules and regulations, and obtains the approvals as required. However, according to Circular81, if the relevant tax authorities consider the transactions or arrangements we have are for the primary purpose of enjoying a favorable tax treatment, therelevant tax authorities may adjust the favorable withholding tax. Under the PRC Enterprise Income Tax Law, an enterprise established outside of the PRCwith “de facto management bodies” within the PRC is considered a resident enterprise and will be subject to the enterprise income tax at the rate of 25% onits global income. The implementation rules define the term “de facto management bodies” as the body that exercises full and substantial control and overallmanagement over the business, production, personnel, accounts and properties of an enterprise. Circular 82 provides certain specific criteria for determiningwhether the “de facto management body” of a Chinese-controlled offshore-incorporated enterprise is located in China. Although Circular 82 only applies tooffshore enterprises controlled by PRC enterprises, not those controlled by PRC individuals, the determining criteria set forth in Circular 82 may reflect theSAT’s general position on how the “de facto management body” test should be applied in determining the tax resident status of offshore enterprises,regardless of whether they are controlled by PRC enterprises, non-PRC enterprises, or individuals. Although we do not believe that our legal entitiesorganized outside of the PRC constitute PRC resident enterprises, it is possible that the PRC tax authorities could reach a different conclusion. However, ifone or more of our legal entities organized outside of the PRC were characterized as PRC resident enterprises, it would be subject to enterprise income tax onits worldwide income at a rate of 25%. See also “Item 3.D. Risk Factors—Risks Related to Doing Business in China—If we are classified as a PRC residententerprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders or ADSholders.” 75Table of Contents Critical Accounting Policies and Estimates We prepare our consolidated financial statements in conformity with U.S. GAAP, which requires us to make estimates and assumptions that affect ourreported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the end of each reporting period, and the reported amounts ofrevenues and expenses during each reporting period. We continually evaluate estimates and assumptions based on the most recently available information,our historical experiences and various other assumptions that we believe to be reasonable under the circumstances. Use of estimates is an integral componentof the financial reporting process, actual results could differ from our expectations as a result of changes in facts and circumstances leading to a change in ourestimates. The following are descriptions of our critical accounting policies and estimates. They should be read in conjunction with our consolidated financialstatements and other disclosures included in this annual report. Consolidation of Variable Interest Entities We operate a website through which we distribute products and communicate with our customers. In order to ensure our internet operation complieswith PRC laws and regulations, the necessary PRC operating license which we require for operating our website is held by Beijing Secoo, our affiliated PRCentity. The equity interests of Beijing Secoo are held by our founders, who are PRC individuals. A series of contractual arrangements have been entered intobetween our PRC subsidiary, Kutianxia, Beijing Secoo and the shareholders of Beijing Secoo. As a result of the contractual agreements, which includepowers of attorney, an exclusive business cooperation agreement, an equity pledge agreement and exclusive option agreements, we have the ability toexercise control over Beijing Secoo and the subsidiaries of Beijing Secoo, direct their activities, receive substantially all of their economic benefits and havean option to purchase all of the equity interests and assets in Beijing Secoo when and to the extent permitted by PRC law at a minimum price. We considerthat we are the primary beneficiary of Beijing Secoo and its subsidiaries, and accordingly these entities are our variable interest entities under U.S. GAAP. Assuch, we consolidate the results and financial position of Beijing Secoo and its subsidiaries in our consolidated financial statements. We launched our online auction sales format in July 2014. The current PRC laws and regulations also restrict foreign ownership in auction salesbusiness. In order to comply with the PRC laws and regulations, the necessary PRC license for our auction business is held by Beijing Auction, our PRCaffiliated entity. The equity interests of Beijing Auction are held by our founders. A series of contractual arrangements have been entered into between ourPRC subsidiary, Kutianxia, Beijing Auction and its shareholders. Through the contractual arrangements which include powers of attorney, an exclusivebusiness cooperation agreement, an equity pledge agreement, exclusive option agreement and loan agreements, we consider we are able to exercise effectivecontrol over, bear the risks of, enjoy substantially all of the economic benefits of Beijing Auction, and have an exclusive option to purchase all or part of theequity interests in Beijing Auction when and to the extent permitted by PRC law at the minimum price possible. We conclude that we are the primarybeneficiary of Beijing Auction, and accordingly Beijing Auction is our variable interest entity under U.S. GAAP. As such, we consolidate the results andfinancial position of Beijing Auction in our consolidated financial statements with effect from September 15, 2014, the date on which the series ofcontractual agreements between Kutianxia, Beijing Auction and the shareholders of Beijing Auction become effective. 76Table of Contents Any changes in PRC laws and regulations that affect our ability to control Beijing Secoo and/or Beijing Auction might preclude us fromconsolidating the two entities and their subsidiaries in the future. We will continuously evaluate whether we are the primary beneficiary of our variableinterest entities as facts and circumstances change. Revenue Recognition Our revenues are generated primarily from merchandise sales, marketplace services and other services. Revenues are recognized when the following four criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred orservices have been rendered; (3) the selling price is fixed or determinable; and (4) collectability is reasonably assured. Sales allowances for returns, which reduce revenues, are estimated based on historical experience. Revenues are recorded net of value-added taxes,business taxes and surcharges. In accordance with ASC 605-45, Revenue Recognition: Principal Agent Considerations, we consider several factors in determining whether we actas the principal or as an agent in the arrangement of merchandise sales and provision of various related services and thus whether it is appropriate to recordthe revenue and the related cost of sales on a gross basis or record the net amount earned as service fees. Merchandise Sales Revenues are from merchandise sales when we act as principal for the sales of brand products to end customers online through our own internetplatforms and offline at the offline experience centers. Online sales include sales through our online shopping mall, flash sales, auction and overseas sales. We consider ourselves as a principal for the following reasons: (1) we are the primary obligor and are responsible for the acceptability of theproducts and the fulfillment of the delivery services; (2) we are responsible to compensate end customers if the products are counterfeit or defective goods;(3) we are also responsible for the loyalty program benefits offered in conjunction with the merchandise sales to the buyers; (4) we have latitude inestablishing selling prices and selecting suppliers; (5) we assume credit risks on receivables; and (6) we have legal ownership of the inventory and havesignificant inventory risks even for those inventory with payment deferred until the following month after the inventory is sold as it has physical loss riskafter acceptance of all the goods purchased from suppliers. Accordingly, we consider ourselves as the principal in the arrangement with the end customers andrecord revenue earned from merchandise sales on a gross basis. With respect to proceeds from merchandise sales, before determining the timing of revenue recognition, we allocate proceeds from merchandise salesamong sales of the products and customer loyalty program benefits based on relative fair value of each deliverable. Proceeds allocated to sales of goods arerecognized as merchandise sales upon acceptance of delivery of products by buyers. Proceeds allocated to customer loyalty program benefits are recorded asdeferred revenues. We collect cash from end customers before or upon deliveries of products mainly through banks, third party online payment platforms or deliverycompanies. Cash collected from end customers before product delivery is recognized as advances from customers. 77Table of Contents Marketplace and other services Service revenues include marketplace service revenue and other services revenue through the internet platform. Marketplace service revenue refersto the commission fee earned by us when we acts as an agent for sales of vendors’ goods and lifestyle services. Vendor’s goods can be sold through auction oronline ordering and lifestyle services can be sold through online ordering. In addition, the other services revenue primarily consists of 1) advertising service revenue and 2) service fees from the provision of repair andmaintenance services to products such as handbags and watches. With respect to the marketplace service revenue, we do not have general inventory risk or latitude in establishing prices. Accordingly, we record thenet amount as marketplace service fees earned. We recognize other service revenue when the services are rendered. We recognize marketplace service revenue at the time that we have provided theservice and are entitled to payment. Fair Value of Our Ordinary Shares Prior to our initial public offering, we were a private company with no quoted market prices for our ordinary shares. We therefore needed to makeestimates of the fair value of our ordinary shares at various dates for the purposes of (i) determining the fair value of our ordinary shares at the date of issuanceof convertible instruments as one of the inputs into determining the intrinsic value of the beneficial conversion features, if any; (ii) determining the fair valueof preferred shares and ordinary shares at the respective issuance date and period end; and (iii) determining the fair value of our ordinary shares at the date ofgrant of a share-based compensation award to our employees as one of the inputs into determining the grant date fair value of the award. The following table sets forth the fair value of our ordinary shares estimated at different times with the assistance from an independent valuationfirm. DateFair Value perShare (US$)Discount Rate DLOM Type of ValuationMarch 31, 201512.319.5%10.0%RetrospectiveJuly 8, 201514.418.5%10.0%RetrospectiveSeptember 30, 201517.818.5%5.0%RetrospectiveDecember 31, 201514.119.0%15.0%RetrospectiveMarch 31, 201615.019.0%15.0%RetrospectiveJune 30, 201617.019.0%10.0%RetrospectiveSeptember 30, 201618.618.5%10.0%RetrospectiveDecember 31, 201619.618.5%10.0%RetrospectiveMarch 31, 201721.618.0%5.0%ContemporaryJune 30, 201724.718.0%5.0%ContemporarySeptember 22, 201726.0—N/AContemporary In determining the fair value of our ordinary shares, we applied the income approach/discounted cash flow analysis based on our projected cash flowusing our best estimate as of the valuation date. The determination of the fair value of our ordinary shares requires complex and subjective judgments to bemade regarding our projected financial and operating results, our unique business risks, the liquidity of our shares and our operating history and prospects atthe time of valuation. The major assumptions used in calculating the fair value of ordinary shares include: Discount rates. The discount rates listed out in the table above were based on the weighted average cost of capital, which was determined based ona consideration of the factors including risk-free rate, comparative industry risk, equity risk premium, company size and non-systematic risk factors. 78Table of Contents Comparable companies. In deriving the weighted average cost of capital used as the discount rates under the income approach, twelve publiclytraded companies were selected for reference as our guideline companies. The guideline companies were selected based on the following criteria: (i) theyeither operate in the e-commerce industry or engage in the buy and sale of luxury products; and (ii) their shares are publicly traded in developed capitalmarkets, including the United States, Hong Kong, UK and Italy. Discount for lack of marketability, or DLOM. DLOM was quantified by the Finnerty’s (2012) Average-Strike Put Option model. This modelestimates a discount for lack of marketability (DLOM) as a function of restricted transferability, using the value of an average-strike put option. This optionpricing method is one of the methods commonly used in estimating DLOM as it can take into consideration factors like timing of a liquidity event, such as aninitial public offering, and estimated volatility of our shares. The farther the valuation date is from an expected liquidity event, the higher the put optionvalue and thus the higher the implied DLOM. The lower DLOM is used for the valuation, the higher is the determined fair value of the ordinary shares. The income approach involves applying appropriate discount rates to estimated cash flows that are based on earnings forecasts. Our revenues andearnings growth rates, as well as major milestones that we have achieved, contributed to the increase in the fair value of our ordinary shares from March 2015to June 2017. However, these fair values are inherently uncertain and highly subjective. The assumptions used in deriving the fair values are consistent withour business plan. These assumptions include: no material changes in the existing political, legal and economic conditions in the PRC; our ability to retainor recruit competent management, key personnel and staff to support our ongoing operations; and no material deviation in market conditions from economicforecasts. These assumptions are inherently uncertain. Option pricing method was used to allocate the total equity value to preferred and ordinary shares, taking into account the guideline prescribed bythe AICPA Audit and Accounting Practice Aid, “Valuation of Privately-Held Company Equity Securities Issued as Compensation.” The method treatscommon stock and preferred stock as call options on the company’s total equity value, with exercise prices based on the liquidation preference of thepreferred stock. The option pricing method involves making estimates of the anticipated timing of a potential liquidity event, such as a sale of our company or aninitial public offering, and estimates of the volatility of our equity securities. The anticipated timing is based on the plans of our board of directors andmanagement. Estimating the volatility of the share price of a privately held company is complex because there is no readily available market for the shares.We estimated the volatility of our shares to range from 33% to 53% based on the historical volatilities of comparable publicly traded companies engaged insimilar lines of business. Had we used different estimates of volatility, the allocations between preferred and ordinary shares would have been different. The fair value of our ordinary shares increased from US$12.3 per share as of March 31, 2015 to US$17.8 per share as of September 30, 2015. Weexpanded our cross border e-commerce in early 2015. We increased direct sourcing from an increased number of European brand vendors to offer moreproduct choices to our China customers; and revenue contribution from cross border e-commerce increased. We completed our fifth round of privateplacement in July 2015, issuing Series E preferred shares at the price of approximately US$18.80 per share, raising new funds to support our growth. Discountrate used for valuation of our equity decreased as our initial public offering process progressed and we expected to complete our initial public offering by theend of 2015. The fair value of our ordinary shares decreased from US$17.8 per share as of September 30, 2015 to US$14.1 per share as of December 31, 2015. Atthe end of 2015, we voluntarily suspended our initial public offering process as our board of directors decided to wait for a more favorable marketenvironment. As a result of the delay in initial public offering, DLOM increased from 5% to 15%. The fair value of our ordinary shares increased from US$14.1 per share as of December 31, 2015 to US$19.6 per share as of December 31, 2016. Wecontinued our significant growth during the period that our total net revenues in 2016 increased by approximately 49% to RMB2,594 million fromRMB1,743 million in 2015. The increase in the fair value of ordinary shares in 2016 was mainly attributable to (i) our fast expansion in offering new productcategories; (ii) entering into direct cooperation with global top-tier brands; (iii) established new cooperation model for our offline experience centers;(iv) enhanced our big data technology providing efficient and target marketing; and (v) upgraded warehouse and finance backstage support. Our loss fromoperations narrowed to RMB29 million in 2016 from RMB212 million in 2015. We sourced and offered more upscale products and lifestyle services to ourcustomers. Our board of directors decided to relaunch our initial public offering process in October 2016. 79Table of Contents The fair value of our ordinary shares increased from US$19.6 per share as of December 31, 2016 to US$24.7 per share as of June 30, 2017. Weentered into direct cooperation with additional global top-tier brands. We hired our Chief Operating Officer to strengthen the Company’s operation functions.We recorded four consecutive profitable quarter that our profit from operations reached RMB6.6 million, RMB35.6 million, RMB23.9 million andRMB27.7 million in the third quarter and fourth quarter in 2016 and the first and second quarter in 2017, respectively. The fair value of our ordinary shares on September 22, 2017 was US$26.0 per share, which was based on our initial public offering price. Income taxes Current income taxes are provided on the basis of net income/loss for financial reporting purposes, adjusted for income and expense items which arenot assessable or deductible for income tax purposes, in accordance with the regulations of the relevant tax jurisdictions. We follow the liability method inaccounting for income taxes. Under this method, deferred tax assets and liabilities are recognized on temporary differences between financial statementscarrying amounts and tax bases of assets and liabilities by applying enacted statutory rates that will be in effect in the period in which the temporarydifferences are expected to reverse. The effect on deferred taxes as a result of a change in tax rate is recognized in the consolidated statement ofcomprehensive loss in the period of change. A valuation allowance is recorded to reduce the amount of deferred tax assets if based on the weight of availableevidence, it is considered more likely than not that some portion of, or all of the deferred tax assets will not be realized. In assessing the recoverability of its deferred tax assets, we consider whether some portion or all of the deferred tax assets will not be realized. Theultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differencesbecome deductible. We consider the cumulative earnings and projected future taxable income in making this assessment. Recovery of substantially all of ourdeferred tax assets is dependent upon the generation of future income, exclusive of reversing taxable temporary differences. As of December 31, 2015 and 2016, we incurred accumulated net operating losses. We believes that it is more likely than not that the accumulatednet operating losses and other deferred tax assets will not be utilized in the foreseeable future. Accordingly, we have provided full valuation allowance for thedeferred tax assets as of December 31, 2015 and 2016. We made profit for the year ended December 31, 2017. For some entities, we believe that it is morelikely than not that the accumulated net operating losses of those entities will be utilized in the foreseeable future, therefore no valuation allowance wasprovided for the deferred tax assets in the amount of RMB 44.0 million. As of December 31, 2017, the valuation allowance of RMB15.0 million was providedfor us and some subsidiaries. For those entities, we believe that it is more likely than not that the accumulated net operating losses of those entities will not beutilized in the foreseeable future. As of December 31, 2017, we had net operating loss carry forwards of approximately RMB26.2 million attributable to the Hong Kong subsidiary,RMB1.9 million attributable to the Malaysia subsidiary, RMB1.6 million attributable to the Italian subsidiary and of approximately RMB160.7 millionattributable to the PRC subsidiaries, VIEs and VIEs’ subsidiaries. The loss carried forward by the Hong Kong, Malaysia, and Italian subsidiaries can be carriedforward to net against future taxable income without a time limit; while the loss carried forward by the PRC companies will expire during the period fromyear 2018 to year 2022. Results of Operations The following table sets forth a summary of our consolidated results of operations for the periods indicated, both in absolute amounts and aspercentages of total net revenues. This information should be read together with our consolidated financial statements and related notes included elsewherein this annual report. The results of operations in any period are not necessarily indicative of the results that may be expected for any future period. 80Table of Contents Year Ended December 31, 2015 20162017 RMB % RMB %RMBUS$% (in thousands, except percentages)Net revenuesMerchandise sales1,724,73998.92,566,87299.03,680,795565,72798. 4Marketplace and other services18,3891.126,9501.059,6609,1701. 6Total net revenues1,743,128100.02,593,822100.03,740,455574,897100.0Cost of revenues(1,526,047)(87.5)(2,193,676)(84.6)(3,128,441)(480,833)(83.6)Gross profit217,08112.5400,14615.4612,01494,064,16.4Operating expensesFulfillment expenses(66,546)(3.8)(82,047)(3.2)(99,064)(15,226)(2.6)Marketing expenses(243,558)(14.0)(218,759)(8.4)(245,989)(37,808)(6.6)Technology and content developmentexpenses(40,904)(2.3)(54,262)(2.1)(62,081)(9,542)(1.7)General and administrative expenses(77,861)(4.5)(74,310)(2.9)(110,059)(16,917)(2.9)Total operating expenses(428,869)(24.6)(429,378)(16.6)(517,193)(79,493)(13.8)(Loss)/income from operations(211,788)(12.1)(29,232)(1.1)94,82114,5712.6Other income/ (expenses)Interest expense, net(2,790)(0.2)(3,923)(0.2)(6,562)(1,009)(0.2)Foreign currency exchange gains/(losses)(7,425)(0.4)(11,418)(0.4)9,4771,4580.3Others————4,1486370.1(Loss)/income before income tax(222,003)(12.7)(44,573)(1.7)101,88415,6572.8Income tax benefit————31,5254,8460.8Net (loss)/income(222,003)(12.7)(44,573)(1.7)133,40920,5033.6 Year Ended December 31, 2017 Compared to Year Ended December 31, 2016 Net revenues Our total net revenues increased by 44.2% from RMB2,593.8 million in 2016 to RMB3,740.5 million (US$574.9 million) in 2017. The increase innet revenues primarily driven by the increase in the total number of orders and merchandise sales. The total number of orders increased by approximately50.7% from approximately 953.7 thousand in 2016 to approximately 1,437.0 thousand in 2017. Our GMV grew from RMB3,470.2 million in 2016 toRMB5,262.4 million (US$808.8 million) in 2017. Cost of revenues Our cost of revenues increased by 42.6% from RMB2,193.7 million in 2016 to RMB3,128.4 million (US$480.8 million) in 2017, primarilyattributable to the growth of our merchandising sales. 81Table of Contents Gross profit As a result of the foregoing, our gross profit increased by 53. 0% from RMB400.1 million in 2016 to RMB612.0 million (US$94.1 million) in 2017.Our gross margin increased from 15.4% in 2016 to 16.4% in 2017. The increase in our gross margin was primarily due to (i) our improved product mix withhigher margin, and (ii) our improved of product sources by cooperating directly with brands. Operating expenses Our operating expenses increased by 20.4% from RMB429.4 million in 2016 to RMB517.2 million (US$79.5 million) in 2017. Fulfillment expenses. Our fulfillment expenses increased by 20.9% from RMB82.0 million in 2016 to RMB99.1 million (US$15.2 million) in2017. The increase was primarily attributable to (i) the significant increase in delivery expenses paid to third-party delivery companies as well as third-partypayment platform charges, and (ii) the increase in staff compensation and benefits expenses. The increase was offset by the decrease in warehouse rentalexpenses. Delivery expenses paid to third-party delivery companies increased from RMB28.2 million in 2016 to RMB32.3 million (US$5.0 million) in2017. Third-party payment platform charges increased from RMB14.4 million in 2016 to RMB24. 0 million (US$3.7 million) in 2017. These increases wereresulted from the significant increase in our total number of orders. Staff compensation and benefits expense for our fulfillment personnel increased fromRMB23.4 million in 2016 to RMB28.3 million (US$4. 3 million) in 2017, including share based compensation RMB nil in 2016 and RMB5.1 million(US$0.8 million) in 2017. Warehouse rental expense decreased slightly from RMB7.3 million in 2016 to RMB6.4 million (US$1.0 million) in 2017. Marketing expenses. Our marketing expenses increased by 12.4% from RMB218.8 million in 2016 to RMB246.0 million (US$37.8 million) in2017. The increase was primarily due to the increase in our staff compensation and benefit expenses, and offset by the slight decrease in advertisingexpenditure. Staff compensation and benefits expense increased from RMB66.6 million in 2016 to RMB87. 1 million (US$13.4 million) in 2017, includingshare based compensation of RMB nil in 2016 and RMB23.8 million (US$3.7 million) in 2017. Our advertising expenses decreased slightly fromRMB113.7 million in 2016 to RMB111. 2 million (US$17.1 million) in 2017. Technology and content development expenses. Our technology and content development expenses increased by 14.4% from RMB54.3 million in2016 to RMB62.1 million (US$9.5 million) in 2017. The increase was primarily attributable to the increase in the compensation and benefit on ourtechnology and content development personnel. Staff compensation and benefits expense increased from RMB44.4 million in 2016 to RMB52.1 million(US$8.0 million) in 2017, including share based compensation of RMB nil in 2016 and RMB4.0 million (US$0.6 million) in 2017. General and administrative expenses. Our general and administrative expenses increased by 48.2% from RMB74.3 million in 2016 to RMB110.1million (US$16.9 million) in 2017. The increase in our general and administrative expenses was primarily attributable to the increase staff compensation andbenefit, our staff headcounts as well as professional consulting expenses incurred during 2017. Staff compensation and benefits expense increased fromRMB27.4 million in 2016 to RMB44.3 million (US$6.8 million) in 2017, including share based compensation of RMB0.3 million in 2016 and RMB13.2million (US$2.0 million) in 2017. Professional consulting expenses increased from RMB9.6 million in 2016 to RMB19.7 million (US$3.0 million) in 2017. Other income/(expenses) We had other income of RMB7.1 million (US$1.1 million) in 2017, compared to our other expenses of RMB15.3 million in 2016. Interest expenses, net. Our interest expenses increased by 69. 2% from RMB3.9 million in 2016 to RMB6.6 million (US$1.0 million) in 2017. The increasein interest expenses was mainly due to the increase in bank and other borrowings in 2017. 82Table of Contents Foreign currency exchange (losses)/gains. We recorded a gain in foreign currency exchange of RMB9.5 million (US$1.5 million) in 2017, as compared to aloss of RMB11.4 million in 2016. The change in foreign currency exchange gains/(losses) was mainly due to the appreciation of RMB against US$ in 2017,compared to depreciation of RMB against US$ in 2016. Net (loss)/income We recorded a net income of RMB133.4 million (US$20.5 million) in 2017, as compared to a net loss of RMB44.6 million in 2016. Year Ended December 31, 2016 Compared to Year Ended December 31, 2015 Net revenues Our total net revenues increased by 48.8% from RMB1,743.1 million in 2015 to RMB2,593.8 million in 2016. The increase in net revenuesprimarily reflected the increase in the total orders. The total orders increased by 52.9% from approximately 623.8 thousand in 2015 to approximately953.7 thousand in 2016. Our GMV increased by 34.9% from RMB2,572.6 million in 2015 to RMB3,470.2 million in 2016. Cost of revenues Our cost of revenues increased by 43.8% from RMB1,526.0 million in 2015 to RMB2,193.7 million in 2016, primarily attributable to the increase inour volume of merchandise sales, which is in line with our revenue growth. Gross profit As a result of the foregoing, our gross profit increased by 84.3% from RMB217.1 million in 2015 to RMB400.1 million in 2016. Our gross marginincreased from 12.5% in 2015 to 15.4% in 2016. The increase in our gross margin was primarily due to (i) our improved product mix with higher margin,including a greater proportion of sales of apparel, accessories and jewelry, (ii) our ability to source the products at a lower price due to the scale andreputation of our platform, (iii) reduced discount and promotion scale. Operating expenses Our operating expenses increased by 0.1% from RMB428.9 million in 2015 to RMB429.4 million in 2016. Fulfillment expenses. Our fulfillment expenses increased by 23.3% from RMB66.5 million in 2015 to RMB82.0 million in 2016. The increase wasprimarily attributable to the significant increase in the number of orders fulfilled resulting in higher delivery expenses paid to third-party delivery companies,partially offset by our choice of cost-effective third-party delivery companies, higher third-party payment platform charges, higher warehouse rental expense,as well as higher staff compensation and benefits due to average headcount increase. Delivery expenses paid to third-party delivery companies increased fromRMB25.8 million in 2015 to RMB28.2 million in 2016. Third-party payment platform charges increased from RMB10.7 million in 2015 toRMB14.4 million in 2016. Warehouse rental expense increased from RMB3.9 million in 2015 to RMB7.3 million in 2016. Staff compensation and benefitsexpense for our fulfillment personnel increased from RMB20.6 million in 2015 to RMB23.4 million in 2016. Marketing expenses. Our marketing expenses decreased by 10.2% from RMB243.6 million in 2015 to RMB218.8 million in 2016. This decreasewas primarily due to a decrease in our advertising expenditures because we were able to conduct precise and targeted marketing leveraging our businessintelligence system and data analytic capabilities, and because we were able to leverage the results of our branding effort in the past years. The decrease waspartially offset by the increase in the staff compensation and benefit expense. Our advertising expenses decreased from RMB149.5 million in 2015 toRMB113.7 million in 2016. Staff compensation and benefits expense increased from RMB49.5 million in 2015 to RMB66.6 million in 2016. 83Table of Contents Technology and content development expenses. Our technology and content expenses increased by 32.8% from RMB40.9 million in 2015 toRMB54.3 million in 2016. The increase in our technology and content development expenses was primarily attributable to higher compensation andbenefits for our technology and content development personnel due to average headcount increase and increase in average salary. Staff compensation andbenefits expense increased from RMB32.7 million in 2015 to RMB44.4 million in 2016. General and administrative expenses. Our general and administrative expenses decreased by 4.6% from RMB77.9 million in 2015 to RMB74.3million in 2016. The decrease in our general and administrative expenses was primarily attributable to the expenses of our proposed initial public offeringand related costs of RMB19.4 million which were expensed when our previously proposed IPO was suspended in 2015. Staff compensation and benefitsexpense increased from RMB15.4 million in 2015 to RMB27. 1 million in 2016. Other expenses Other expenses increased by 50.0% from RMB10.2 million in 2015 to RMB15.3 million in 2016. Interest expense. Our interest expense increased by 39.3% from RMB2.8 million in 2015 to RMB3.9 million in 2016. The increase in interestexpense was mainly due to interest cost in association with a new bank loan in the amount of RMB50.0 million from SPD Silicon Valley Bank Co., Ltd. in2016. Foreign currency exchange losses. Total foreign currency exchange losses increased by 54.1% from RMB7.4 million in 2015 to RMB11.4 millionin 2016, respectively. The increase in foreign currency exchange losses were mainly due to the continued depreciation of RMB against US$ in 2016. Foreigncurrency exchange losses were primarily due to the restricted cash in the amount of RMB155.3 million held by our Hong Kong subsidiary. Net loss We recorded a net loss of RMB44.6 million in 2016, as compared to RMB222.0 million in 2015. Inflation Since we commenced our current business operations, inflation in China has not materially impacted our results of operations. According to theNational Bureau of Statistics of China, the year-over-year percent in the consumer price index for December 2015, 2016 and 2017 increased by 1.4%, 2.0%and 1.8%, respectively. Although we have not in the past been materially affected by inflation since we commenced our current business operations, we canprovide no assurance that we will not be affected in the future by higher rates of inflation in China. B. Liquidity and Capital Resources Liquidity and Capital Resources Our principal source of liquidity has been cash generated from our financing activities primarily through the issuance of preferred shares throughprivate placements, as well as from proceeds of our initial public offering and borrowings. As of December 31, 2015, 2016 and 2017, we had RMB284.6 million, RMB55.6 million and RMB453.4 million (US$69.7 million) in cash, respectively. Our cash consists of cash on hand and time deposits, whichhave original maturities of three months or less and are readily convertible to decidable amounts of cash. As of December 31, 2017, we had RMB292.3million (US$44.9 million) in time deposits, which have original maturities of more than three months but less than one year and RMB179.0 million (US$27.5million) in restricted cash, which consisted of cash deposits associated with two bank loans with principal amounts of RMB170.0 million (US$26.1 million).The use of cash deposit and its interest is restricted by the bank until the corresponding loan is fully repaid. 84Table of Contents In September 2015, Xiamen International Bank granted a two-year credit line of RMB150.0 million to us at a fixed interest of 1.62% and 1.68% perannum each year. In relation to this facility, we placed a cash deposit of RMB155.3 million in Xiamen International Bank, the use of which and the relatedinterest is restricted by Xiamen International Bank until the loan was fully repaid. As of December 31, 2017, all loan amounts were settled and the cashdeposit amounting to RMB155.3 million became unrestricted following the loan settlement. In May 2016, SPD Silicon Valley Bank Co., Ltd., or SPD, granted us a one-year bank facility in the amount of RMB50.0 million, which matured inMay 2017. In May 2017, we entered into an amendment to the facility agreement with SPD. Pursuant to the amendment, the facility in the amount ofRMB50.0 million was extended for one year with an interest rate of 7.35% per annum and will mature in May 2018. SPD granted us another facility in theamount of RMB20.0 million with an interest rate of 6.75% per annum with a monthly payment from August 2017 to May 2019. In addition, RMB250.1million of inventories and RMB11.8 million of equipment were pledged to SPD as collateral and a guarantee provided by us. We drew down RMB70.0million under the amended facility agreement and repaid RMB4.6 million during 2017. Both of the original facility and amended facility agreementscontain certain financial and nonfinancial covenants. We received waivers from the bank for the financial covenants that were not met as of December 31,2016 and June 30, 2017. As of December 31, 2017, we met the financial covenants and the outstanding balances of the short-term and long-term portion ofthe facility were RMB61.1 million (US$9.4 million) and RMB4.3 million (US$0.7 million), respectively. In May 2017, we entered into a short-term borrowing agreement to borrow RMB45.0 million at an interest rate of 9.35% per annum. The borrowingis payable in five monthly installments starting in May 2017. The borrowing is guaranteed by Beijing Secoo. During 2017, RMB14.0 million was repaid andRMB31.0 million (US$4.8 million) was outstanding as of December 31, 2017. The remaining balance were paid off in April 2018. In November 2017, we entered into a two-and-half year loan agreement with National Trust Co., Ltd. in the amount of RMB150.0 million, whichwould mature in May 2020 and bears a fixed interest rate of 3.38% per annum. The loan is collateralized with a cash deposits of RMB 123.8 million withXiamen International Bank, which was the consignor in the loan agreement. As of December 31, 2017, RMB120.0 million (US$18.4 million) wasoutstanding for this loan. In December 2017, we entered into a loan agreement with Shanghai Pudong Development Bank Co., Ltd. for an amount of RMB50.0 million(US$7.7 million) with an interest rate of 4.35% per annum, a maturing term of one year and pledged by a restricted cash deposit of RMB55.2 million (US$8.5million). During 2017, we entered into an agreement with a third party non-financial institution that permits us to borrow short-term borrowings at the interestrates from 9% to 10%. For the year ended December 31, 2017, the Company borrowed RMB78.4 million under this agreement, among which, RMB35.2million (US$5.4 million) is outstanding as of December 31, 2017 with the accounts receivable of RMB35.2 million (US$5.4 million) pledged to the thirdparty as collateral. We believe that our current cash will be sufficient to meet our anticipated working capital requirements and capital expenditures for next 12 months.We may, however, need additional cash resources in the future if we experience changes in business conditions or other developments. We may also needadditional cash resources in the future if we wish to pursue opportunities for investment, acquisition, capital expenditure or similar actions. If we determinethat our cash requirements exceed the amount of cash we have on hand, we may seek to obtain additional credit facilities or issue debt or equity securities.See “Item 3.D. Risk Factors — Risks Related to Our Business — Inability to obtain additional financing on commercially reasonable terms in the future maymaterially and adversely affect our business, results of operations and financial condition.” In the future, we may rely significantly on dividends and other distributions paid by our PRC subsidiaries for our cash and financing requirements.There may be restrictions on the dividends and other distributions by our PRC subsidiaries. The PRC tax authorities may require us to adjust our taxableincome under the contractual arrangements that our PRC subsidiary currently has in place with our variable interest entities in a way that could materiallyand adversely affect the ability of our PRC subsidiary to pay dividends and make other distributions to us. In addition, under PRC laws and regulations, ourPRC subsidiaries may pay dividends only out of their accumulated profits as determined in accordance with PRC accounting standards and regulations. OurPRC subsidiaries are required to set aside at least 10% of their after-tax profits each year, if any, to fund a statutory reserve fund, until the aggregate amount ofsuch fund reaches 50% of their respective registered capital. At their discretion, our PRC subsidiaries may allocate a portion of their after-tax profits based onPRC accounting standards to staff welfare and bonus funds. The reserve fund and the staff welfare and bonus funds cannot be distributed as cash dividends.See “Item 3.D. Risk Factors — Risks Related to Our Corporate Structure — We may rely on dividends and other distributions on equity paid by our PRCsubsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to uscould have a material and adverse effect on our ability to conduct our business.” Furthermore, our investments made as registered capital and additional paid-in capital in our PRC subsidiaries, variable interest entities and their subsidiaries are also subject to restrictions on their distribution and transfer according toPRC laws and regulations. 85Table of Contents As an offshore holding company, we are permitted under PRC laws and regulations to provide funding from the proceeds of our offshore fund raisingactivities to our PRC subsidiaries only through loans or capital contributions, and to our variable interest entities and their subsidiaries only through loans,in each case subject to the satisfaction of the applicable government registration and approval requirements. See “Item 3.D. Risk Factors—Risks Related toDoing Business in China—PRC regulation on loans to and direct investment in PRC entities by offshore holding companies and government control incurrency conversion may delay or prevent us from using the proceeds of our initial public offering to make loans to our PRC subsidiaries and consolidatedvariable interest entities or make additional capital contributions to our wholly foreign-owned subsidiaries in China, which could materially and adverselyaffect our liquidity and our ability to fund and expand our business.” As a result, there is uncertainty with respect to our ability to provide prompt financialsupport to our PRC subsidiaries and variable interest entities when needed. Notwithstanding the forgoing, our PRC subsidiaries may use their own retainedearnings (rather than RMB converted from foreign currency denominated capital) to provide financial support to our variable interest entities either throughentrusted loans from our PRC subsidiaries to our variable interest entities or direct loans to such variable interest entities’ nominee shareholders, which wouldbe contributed to the consolidated variable entities as capital injections. Such direct loans to the nominee shareholders would be eliminated in ourconsolidated financial statements against the variable interest entities’ share capital. As of December 31, 2017, cash, time deposits, and restricted cash in an aggregate amount of RMB156.6 million, HK$0.3 million and MYR2.9million were held by Secoo Holding Limited and its non-PRC subsidiaries in Hong Kong and overseas. As of December 31, 2017, our subsidiaries in Chinaheld cash in the amount of RMB20.7 million (US$3.2 million), and our variable interest entities and their subsidiaries held cash in the amount of RMB116.2million (US$17.9 million). We would need to accrue and pay withholding taxes if we were to distribute funds from our subsidiaries in China to our offshoresubsidiaries. We do not intend to repatriate such funds in the foreseeable future, as we plan to use existing cash balance in China for general corporatepurposes. The following table sets forth a summary of our cash flows for the periods indicated: Year Ended December 31,2015 2016 2017RMB RMB RMB US$(in thousands)Net cash used in operating activities(126,759)(250,668)(177,019)(27,208)Net cash used in investing activities(15,386)(11,666)(311,581)(47,890)Net cash provided by financing activities365,17944,269898,343138,074Cash at the beginning of the year71,783284,62255,5558,539Cash at the end of the year284,62255,555453,42569,690 Operating activities Net cash used in operating activities amounted to RMB177.0 million (US$27.2 million) in 2017, primarily resulted from RMB 4,252.1 million(US$653.5 million) of cash from the sale of upscale brand products and offering of marketplace and other services, other general operating income ofRMB4.7 million (US$0.7 million), offset by cash payment to suppliers of RMB4,200.8 million (US$645.6 million), our employee salaries and welfarepayment of RMB183.8 million (US$28.2 million) and our payments for taxes of RMB49.2 million (US$7.6 million). 86Table of Contents Net cash used in operating activities amounted to RMB250.7 million in 2016, primarily resulted from RMB2,798.6 million of cash from the sale ofupscale brand products and offering of marketplace and other services, offset by cash payment to suppliers of RMB2,865.0 million, our employee salaries andwelfare payment of RMB154.3 million, our payments for taxes of RMB13.4 million and other general operating costs of RMB16.6 million. Net cash used in operating activities amounted to RMB126.8 million in 2015, primarily resulted from RMB2,046.9 million of cash we received fromthe sale of upscale brand products and offering of marketplace and other services, offset by cash payment to suppliers of RMB2,023.5 million, our employeesalaries and welfare payment of RMB104.9 million, our payments for taxes of RMB40.8 million and other general operating costs of RMB4.5 million. Investing activities Net cash used in investing activities for the purchase of property and equipment amounted to RMB15.4 million, RMB11.7 million and RMB19.3million (US$3.0 million) in 2015, 2016 and 2017, respectively. Net cash used in investing activities for the purchase of time deposits amounted to RMB292.3 million (US$44.9 million) in 2017. We did notpurchase any time deposits in 2015 and 2016. Financing activities Net cash provided by financing activities amounted to RMB898.3 million (US$138.1 million) in 2017, primarily attributable to the proceeds fromour initial public offering, amounting to RMB862.2 million (US$132.5 million). Net cash provided by financing activities amounted to RMB44.3 million in 2016, which was attributable to net proceeds from short-term borrowingand other borrowings of RMB25.2 million and capital contributions from non-controlling interest in the amount of RMB19.4 million. Net cash provided by financing activities amounted to RMB365.2 million in 2015, which was attributable to proceeds from our issuance of preferredshares to investors in the amount of RMB338.8 million and net short-term borrowings. Capital Expenditures Our capital expenditures amounted to RMB15.4 million in 2015, RMB11.7 million in 2016 and RMB19.3 million (US$3.0 million) in 2017.Between January 1, 2015 and December 31, 2017, our capital expenditures were principally used for our leasehold improvements, as well as purchases ofoffice and other operating equipment and motor vehicles. Recent Accounting Pronouncements In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (Topic 606). This guidance supersedes currentguidance on revenue recognition in Topic 605, Revenue Recognition. In addition, there are disclosure requirements related to the nature, amount, timing,and uncertainty of revenue recognition. In August 2015, the FASB issued ASU No. 2015-14 to defer the effective date of ASU No. 2014-09 for all entities byone year. For public business entities that follow U.S. GAAP, the deferral results in the new revenue standard are being effective for fiscal years, and interimperiods within those fiscal years, beginning after December 15, 2017, with early adoption permitted for interim and annual periods beginning afterDecember 15, 2016. The new revenue standard may be applied retrospectively to each prior period presented (“full retrospective method”) or retrospectivelywith the cumulative effect recognized as of the date of adoption (“modified retrospective method”). 87Table of Contents The Group conducted a review and evaluation over all the contracts that are not completed on January 1, 2018 and concluded that there is nomaterial impact on our retained earnings as of January 1, 2018 and consolidated financial statements in fiscal year 2018 as a result of the new adoption of theguidance. In February 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”), Leases. ASU 2016-02 specifies the accounting for leases. For operatingleases, ASU 2016-02 requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in itsbalance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on agenerally straight-line basis. ASU 2016-02 is effective for public companies for annual reporting periods, and interim periods within those years beginningafter December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact of adopting this standard on its consolidated financialstatements. In November, 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This Update requires that a statement ofcash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cashequivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalentswhen reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this Update apply to allentities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows under Topic 230. The amendments in thisUpdate are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all otherentities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning afterDecember 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, anyadjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company evaluated the impact of ASU No. 2016-18 and determined to fully adopt the new standards starting from January 1, 2018 and will apply a retrospective transition method to each period presented. In May 2017, the FASB issued ASU No. 2017-09, “Compensation — Stock compensation (Topic 718): Scope of modification accounting” (“ASU2017-09”), which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. ASU 2017-09 iseffective prospectively for all companies for annual periods beginning on or after December 15, 2017, and early adoption is permitted. Management does notexpect that the adoption of this guidance will have a material effect on the consolidated financial statements, and will adopt this ASU from January 1, 2018. In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives andHedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features and II. Replacement of the Indefinite Deferral forMandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a ScopeException. Part I of this update addresses public entities that issue warrants, convertible debt or convertible preferred stock that contain down round features.Part II of this update re-characterizes the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification,to a scope exception. Those amendments do not have an accounting effect. This ASU is effective for fiscal years beginning after December 15, 2019, andinterim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact ofadopting this standard on its consolidated financial statements. C. Research and Development, Patents and Licenses Research and Development We have built our technology platform relying primarily on software and systems that we have developed in-house and to a lesser extent on third-party software that we have modified and incorporated. Our strong technology platform is vital in supporting our pursuit of a continually improving customerexperience, including the customer experience of our mobile users. From our website, the primary customer interface, to the back end management systems,our technology platform supports smooth and accurate operational execution as well as seamless information flow, data consistency and analytics. We haveadopted a service-oriented architecture supported by big data technology, which consist of front-end and back-end modules. Our network infrastructure isbuilt on self-owned servers located in data centers operated by a major PRC internet data center provider. We are implementing enhanced cloud architectureand infrastructure for our core data processing system to augment our existing virtual private network as we continue to expand our operations, enabling us toachieve significant operational efficiency through a virtual and centralized network platform. 88Table of Contents Intellectual Property We consider our patents, trademarks, software copyrights, service marks, domain names, trade secrets, proprietary technologies and similarintellectual property rights as critical to our success, and we rely on patents, trademark, copyright and trade secret protection laws in the PRC and overseas, aswell as confidentiality procedures and contractual provisions with our employees, service providers, suppliers and others to protect our intellectualproprietary rights. As of December 31, 2017, we owned 9 patents, 250 registered trademarks, copyrights to 18 software programs developed by us relating tovarious aspects of our operations and 51 registered domain names, including secoo.com. Of the 250 registered trademarks, 220 are registered in the PRC,16 are registered in Hong Kong,4 are registered in the US, 4 are registered in Spain, and 6 are registered in Europe. We are in the process of applying for14 patents in the PRC. D. Trend Information Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the year2017 that are reasonably likely to have a material adverse effect on our total net revenues, income, profitability, liquidity or capital resources, or that causedthe disclosed financial information to be not necessarily indicative of future operating results or financial conditions. E. Off-Balance Sheet Arrangements We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have notentered into any derivative contracts that are indexed to our shares and classified as shareholders’ equity, or that are not reflected in our consolidatedfinancial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit,liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, marketrisk or credit support to us or engages in leasing, hedging or research and development services with us. F. Tabular Disclosure of Contractual Obligation The following table sets forth our contractual obligations as of December 31, 2017: Payment due by periodTotal Less than1 year 1 - 3 years 3 - 5 years More than5 years(in RMB thousands)Operating lease obligations80,99732,36736,36512,265—Borrowings320,394189,801130,593——Total401,391222,168166,95812,265— Notes: (1) We lease logistics centers, offline experience centers and office space under non-cancelable operating lease agreements that expire at various datesthrough 2021. These lease agreements provide for periodic rental increases based on both contractually agreed upon incremental rates and on the generalinflation rate as agreed upon by us and our lessors. We incurred rental expenses of RMB28.5 million in 2015, RMB35.8 million in 2016 and RMB34.1million (US$5.2 million) in 2017, respectively. (2) Includes of RMB 18.8 million accrued at the interest rate under the borrowing agreements. This annual report on Form 20-F contains forward-looking statements that reflect our current expectations and views of future events. The forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to bematerially different from those expressed or implied by the forward-looking statements. 89(1)(2)Table of Contents You can identify some of these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,”“intend,” “plan,” “believe,” “is/are likely to,” “potential,” “continue” or other similar expressions. We have based these forward-looking statements largelyon our current expectations and projections about future events that we believe may affect our financial condition, results of operations, business strategy andfinancial needs. These forward-looking statements include statements relating to: · our goals and strategies; · our future business development, financial conditions and results of operations; · the expected growth of the online and offline retail markets of upscale products and services market in China; · our expectations regarding demand for and market acceptance of our products and services; · our expectations regarding our relationships with customers, suppliers and third-party sellers; · our plans to invest in our fulfillment infrastructure and technology platform; · competition in our industry; and · relevant government policies and regulations relating to our industry. These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Our actual results could be materially different from our expectations.Other sections of this annual report discuss factors which could adversely impact our business and financial performance. Moreover, we operate in anevolving environment. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess theimpact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from thosecontained in any forward-looking statements. You should thoroughly read this annual report and the documents that we refer to with the understanding thatour actual future results may be materially different from and worse than what we expect. We qualify all of our forward-looking statements by thesecautionary statements. This annual report on Form 20-F contains certain data and information that we obtained from various government and private publications.Statistical data in these publications also include projections based on a number of assumptions. The upscale product retail industry may not grow at the rateprojected by market data, or at all. Failure of this market to grow at the projected rate may have a material and adverse effect on our business and the marketprice of our ADSs. In addition, the rapidly changing nature of the upscale product retail industry results in significant uncertainties for any projections orestimates relating to the growth prospects or future condition of our market. Furthermore, if any one or more of the assumptions underlying the market dataare later found to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on theseforward-looking statements. 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 inthis annual report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result ofnew information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You shouldread this annual report and the documents that we refer to in this annual report and have filed as exhibits to the registration statement, completely and withthe understanding that our actual future results may be materially different from what we expect. 90Table of Contents ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A. Directors and Senior Management The following table sets forth information regarding our directors and executive officers as of the date of this annual report. Directors and Executive Officers Age Position/TitleRichard Rixue Li42Chairman of the Board and Chief Executive OfficerZhaohui Huang42DirectorJeacy Jisheng Yan37DirectorPing Xu46DirectorXian Chen35DirectorLe Yu39DirectorZhaoxian Lin54DirectorJun Wang46Independent DirectorXiaoquan Zhang44Independent DirectorJian Wang44Independent DirectorShaojun Chen43Chief Financial OfficerEric Chan48Chief Operating Officer Mr. Richard Rixue Li is our founder and has served as our Chairman of the Board and chief executive officer since our inception. Prior to foundingour company, Mr. Li had been engaged in the retail and recycling business of home appliances in China since 1997. Mr. Li is currently attending the EMBAprogram at Tsinghua University in Beijing, China. Mr. Li graduated from Nanchang University in Nanchang, China in 1996. Ms. Zhaohui Huang is our founder and has served as our director since March 2012. Prior to founding our Company, Ms. Huang had been engagedin the retail business of upscale home appliances in China since 1997. Ms. Huang received her bachelor’s degree in business management from JiangxiUniversity of Finance and Economics in Nanchang, China in 1997. Ms. Zhaohui Huang is Mr. Richard Rixue Li’s wife. Ms. Jeacy Jisheng Yan has served as our director since May 2011. Ms. Yan is a partner of IDG Capital and focuses on investment in consumer goodsand services, e-commerce and online-to-offline businesses. Prior to joining IDG Capital in 2008, Ms. Yan worked at the investment banking department ofDeutsche Bank Hong Kong Branch from 2005 to 2007 and as bond trader at investment bank department of WestLB New York from 2004 to 2005. Ms. Yanreceived her dual master degrees in industrial engineering & management science and electrical engineering from Northwestern University in 2004, and dualbachelor’s degrees in electrical engineering and economics from Peking University in Beijing, China in 2001. Ms. Ping Xu has served as our director since July 2013. She is the founding partner of Vangoo Capital Partners and has served as its chairman andchief executive officer since 2008. Ms. Xu worked as a managing director of Ant Capital Partners in Tokyo from 2005 to 2008 and the chief economic analystof DSK Inc. in Tokyo from 1999 to 2005. Ms. Xu has also served as the deputy director of Finance Department of Chinese Chamber of Commerce in Japansince 2010. She has over 15 years of experience in providing international financial and investment services. Ms. Xu received an EMBA degree from PekingUniversity in Beijing, China in 2013, and a bachelor’s degree in economics from Keio University in Tokyo, Japan in 1999. Mr. Xian Chen has served as our director since July 2014. He has also served as a managing director of CMC Capital Partners since May 2013.Mr. Chen worked at Providence Equity Asia Limited where he was a director from 2009 to 2013. Prior to that, Mr. Chen worked at Morgan Stanley PrivateEquity Asia Division from 2004 to 2009. Mr. Chen has also been a director of Ourgame International Holdings Limited, a company listed on the StockExchange of Hong Kong, since March 7, 2014. Mr. Chen received his bachelor’s degree in electronics engineering from Tsinghua University in Beijing,China in 2003. 91Table of Contents Mr. Le Yu has served as our director since July 2015. He is the founder of Ping An Ventures and has served as its managing director since 2012. He isin charge of fund management and investment in the digital consumer segment. Before founding Ping An Ventures, Mr. Yu was a senior consultant atMcKinsey & Company from 2010 to 2012, where he advised various private equity funds and multinational corporations on minority investment and mergerand acquisition transactions. Mr. Yu started his investment career as an investment manager at Kleiner Perkins Caufield & Byers China from 2009 to 2010.Prior to that, Mr. Yu worked as a consulting manager at the consulting department of Hewlett-Packard China from 2004 to 2007 and a senior technicalconsultant at the software department of Hewlett-Packard China from 1999 to 2004. He worked as a mainframe computing system engineer at IBM Chinafrom 1998 to 1999. Mr. Yu received his MBA degree from Harvard Business School in 2009 and dual bachelor’s degrees in communication engineering andinternational finance from Shanghai Jiao Tong University in Shanghai, China in 1998. Mr. Zhaoxian Lin has served as our director since January 2018. Mr. Lin currently serves as chief strategy officer at Country Garden Group (SEHKstock code: 2007), one of the largest real estate developers in the world. Mr. Lin has more than twenty-one years of experience in investments and strategicconsultancy. Prior to joining Country Garden Group in 2015, Mr. Lin held senior positions in various international consultancies and corporations, includingdirector of greater China region at Boston Consulting Group, assistant brand manager at Procter & Gamble (USA and Taiwan), strategy principal at BoozAllen Hamilton, global partner and vice president of PRC region at Roland Berger Strategy Consultants, president of greater China region at OC&C StrategyConsultants, and president at Strategic Bang Group. Mr. Lin received a bachelor’s degree in law from National Taiwan University and an MBA from theUniversity of Chicago. Mr. Jun Wang has served as our independent director since September 2017. Mr. Wang is a partner at Z-Park Fund, a private equity fund focusing oninvesting in leading Chinese technology, healthcare and consumer companies. Mr. Wang served as Chief Financial Officer for 11 years, and remains as amember of the Board, at China Finance Online Company Limited, which is listed on NASDAQ Global Select Market. Prior to that, Mr. Wang was SeniorManager at Deloitte Beijing Office from May 2015 to May 2016. Mr. Wang received a bachelor’s degree from Shandong University in 1992, a master’sdegree in business administration from New York University’s Leonard N. Stern School of Business in 2002 and another master’s degree in economics andaccounting from Beijing Technology and Business University in 1995. Mr. Wang is a member of the U.S. Certified Management Accountants and has aprofessional designation of Chartered Financial Analyst. Mr. Xiaoquan Zhang has served as our independent director since September 2017. Mr. Zhang is a tenured professor at the business school ofChinese University of Hong Kong. Mr. Zhang specializes in pricing of information goods, internet finance, online word-of-mouth, online advertising,incentives of creation in open source and open content projects, and use of information in financial markets. Before joining the academia, he worked as ananalyst for an investment bank, and an international marketing manager for a high-tech company from September 1998 to July 2000. He also works as anadvisor to Hong Kong Cyberport Entrepreneurship Center, JD Financial, China Mobile, Huawei, China Merchants Securities, and Radica Systems. Hereceived a bachelor’s degree in computer science and English and a master’s degree in management from Tsinghua University in 1996 and 1999,respectively. He received a doctor’s degree in management from MIT Sloan School of Management in 2006. Mr. Jian Wang has served as our independent director since December 2017. Mr. Wang has more than twenty years of management experience in theretail sector and has served since August 2013 as the chairman and chief executive officer of Five Star Holdings Group Co., Ltd., a company engaged in retailchain store operation and supply chain management with notable franchise brands. Prior to that, Mr. Wang served as the senior vice president of Best BuyCo., Inc. and the chief executive officer of Jiangsu Five-Star Electric Appliances Co. Ltd. Mr. Wang received a master’s degree in administrative managementfrom Nanjing University in 2000 and EMBA degrees from CEIBS and Tsinghua PBCSF in 2009 and 2016, respectively. Mr. Shaojun Chen has served as chief financial officer since 2015. Previously, Mr. Chen has also served as our vice president of finance fromApril 2012 to 2015. Prior to joining our Company, Mr. Chen worked as the financial controller at China Dongxiang Group, a company listed on the StockExchange of Hong Kong, from 2008 to 2011. He worked as finance manager at Li Ning Company Limited, a company listed on the Stock Exchange of HongKong, from 2005 to 2008 in charge of budget, financial control and financial disclosure. Mr. Chen was an accounting manager focusing on public offeringprojects at Grant Thornton International Ltd. (formerly known as Beijing JingDu Certified Public Accountants Co., Ltd.), where he worked from 1997 to2004. Mr. Chen is a Chinese Certified Public Accountant. Mr. Chen received a master degree in accounting from Capital University of Economics andBusiness in Beijing, China in 2002, and a bachelor’s degree in accounting from Beijing Technology and Business University in Beijing, China in 1997. 92Table of Contents Mr. Eric Chan has served as our chief operating officer since 2017. Prior to joining our company, Mr. Chan worked as the director of leasing andoperations at K11 Concepts affiliated with the New World Development Group from 2010 to 2017. Prior to that, he worked as the general manager ofoperations at Wharf Group from 2008 to 2010, senior director of asset services at CB Richard Ellis from 2007 to 2008, senior property manager of premiermanagement services at MTR Corporation Ltd. from 2000 to 2007, and training and development manager at Regent Hotel under Four Seasons Hotels andResort Group from 1998 to 2000. Mr. Chan received a bachelor’s degree in hotel management from Hong Kong Polytechnic University in Hong Kong in1996. Employment Agreements and Indemnification Agreements We have entered into employment agreements with each of our executive officers. Under these agreements, each of our executive officers isemployed for a specified time period. We may terminate employment for cause, at any time, without advance notice or remuneration, for certain acts of theexecutive officer, such as conviction or plea of guilty to a felony or any crime involving moral turpitude, negligent or dishonest acts to our detriment, ormisconduct or a failure to perform agreed duties. We may also terminate an executive officer’s employment without cause upon three-month advance writtennotice. In such case of termination by us, we will provide severance payments to the executive officer as expressly required by applicable law of thejurisdiction where the executive officer is based. The executive officer may resign at any time with a three-month advance written notice. Each executive officer has agreed to hold, both during and after the termination or expiry of his or her employment agreement, in strict confidenceand 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 clients or prospective clients, or the confidential or proprietaryinformation of any third party received by us and for which we have confidential obligations. The executive officers have also agreed to disclose inconfidence to us all inventions, designs and trade secrets which they conceive, develop or reduce to practice during the executive officer’s employment withus and to assign all right, title and interest in them to us, and assist us in obtaining and enforcing patents, copyrights and other legal rights for theseinventions, 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 heremployment and typically for one year following the last date of employment. Specifically, each executive officer has agreed not to (i) approach oursuppliers, clients, customers or contacts or other persons or entities introduced to the executive officer in his or her capacity as a representative of us for thepurpose of doing business with such persons or entities that will harm our business relationships with these persons or entities; (ii) assume employment withor provide services to any of our competitors, or engage, whether as principal, partner, licensor or otherwise, any of our competitors, without our expressconsent; or (iii) seek directly or indirectly, to solicit the services of any of our employees who is employed by us on or after the date of the executive officer’stermination, or in the year preceding such termination, without our express consent. We have also entered into indemnification agreements with each of our directors and executive officers. Under these agreements, we agree toindemnify our directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason oftheir being a director or officer of our company. B. Compensation In 2017, we paid an aggregate of approximately RMB4.0 million (US$0.6 million) in cash to our executive officers, and we paid approximatelyRMB0.1 million (US$0.02 million) in cash to our non-executive directors. We have not set aside or accrued any amount to provide pension, retirement orother similar benefits to our executive officers and directors. Our PRC subsidiaries and variable interest entities are required by law to make contributionsequal 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. 93Table of Contents 2017 Employee Stock Incentive Plan On December 31, 2014, we adopted a 2014 Employee Stock Incentive Plan, or the 2014 Plan, to attract and retain the best available personnel,provide additional incentives to employees, directors and consultants and promote the success of our business. We have adopted a 2017 Employee Stock Incentive Plan, or the 2017 Plan, which has replaced all of the 2014 Plan in its entirety. The awardsgranted and outstanding under the 2014 Plan has survived the termination of the 2014 Plan and remains effective and binding under the 2014 Plan. Themaximum aggregate number of our shares which may be issued pursuant to all awards under the 2017 Plan is 1,307,672 Class A ordinary shares as ofDecember 31, 2017. The following paragraphs describe the principal terms of the 2017 Plan. Types of Awards. The 2017 Plan permits the awards of options, share appreciation rights and share purchase rights. Plan Administration. Our board of directors or a committee designated by the Board will administer the 2017 Plan. The committee or the full boardof directors, as applicable, will determine the participants to receive awards, the type and number of awards to be granted to each participant, and the termsand conditions of each award grant. Award Agreement. Awards granted under the 2017 Plan are evidenced by an award agreement that sets forth terms, conditions and limitations foreach award, which may include the term of the award, the provisions applicable in the event of the grantee’s employment or service terminates, and ourauthority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind the award. Eligibility. We may grant awards to our employees and consultants. However, we may grant options that are intended to qualify as incentive shareoptions only to our employees and employees of our subsidiaries. Vesting Schedule. In general, the awards are subject to the vesting schedule of a minimum of four years, except for specified in the relevant awardagreement. Exercise of Options. The plan administrator determines the exercise price for each award, which is stated in the award agreement. The vestedportion of option will expire if not exercised prior to the time as the plan administrator determines at the time of its grant. Transfer Restrictions. Awards are transferable (i) by will or the laws of descent and (ii) to the extent and manner authorized by the planadministrator. Termination and amendment. Our board of directors has the authority to amend or terminate the plan. However, no such action may adverselyaffect in any material way any awards previously granted unless agreed by the recipient. The following table summarizes, as of December 31, 2017, the options granted under our 2017 Plan to several of our executive officers and directors,excluding awards that were forfeited or cancelled after the relevant grant dates. NameClass A Ordinary SharesUnderlying Options Awarded Exercise Price(US$/Share) Date of Grant Date of ExpirationShaojun Chen*0.001December 31, 2014December 31, 2024Eric Chan*0.001March 6, 2017March 6, 2027Total*——— * Less than 1% of our total outstanding share capital 94Table of Contents As of December 31, 2017, other individuals as a group held options to purchase 954,413 Class A ordinary shares of our company with an exerciseprice of US$0.001 per Class A ordinary share. C. Board Practice Board of Directors Our board of directors consists of ten directors. A director is not required to hold any shares in our company by way of qualification. A director whois in any way, whether directly or indirectly, interested in a contract or proposed contract with our company is required to declare the nature of his interest at ameeting of our directors. A director may vote in respect of any contract, proposed contract, or arrangement notwithstanding that he may be interested therein,and if he does so his vote shall be counted and he may be counted in the quorum at any meeting of our directors at which any such contract or proposedcontract or arrangement is considered. Our directors may exercise all the powers of our company to borrow money, and to mortgage or charge its undertaking,property and uncalled capital, and issue debentures, debenture stock or other securities whenever money is borrowed or as security for any debt, liability orobligation of the company or of any third party. None of our non-executive directors has a service contract with us that provides for benefits upontermination of service. Committees of the Board of Directors We have established three committees an audit committee, a compensation committee and a nominating and corporate governance committee. Wehave adopted a charter for each of the three committees. Each committee’s members and functions are described below. Audit Committee. Our audit committee consists of Jun Wang, Jian Wang and Xiaoquan Zhang. Jun Wang is the chairman of our audit committee.We have determined that Jun Wang and Xiaoquan Zhang satisfy the “independence” requirements of NASDAQ and Rule 10A-3 under the SecuritiesExchange Act of 1934. The audit committee will oversee our accounting and financial reporting processes and the audits of the financial statements of ourcompany. The audit committee will be responsible for, among other things: (a) appointing the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independentauditors; (b) reviewing with the independent auditors any audit problems or difficulties and management’s response; (c) discussing the annual audited financial statements with management and the independent auditors; (d) reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps taken to monitor andcontrol major financial risk exposures; (e) reviewing and approving all proposed related party transactions; (f) meeting separately and periodically with management and the independent auditors; and (g) monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures toensure proper compliance. Compensation Committee. Our compensation committee consists of Jun Wang, Jian Wang and Rixue Li. Jian Wang is the chairman of ourcompensation committee. We have determined that Jun Wang and Jian Wang satisfy the “independence” requirements of NASDAQ. The compensationcommittee will assist the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors andexecutive officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated. The compensationcommittee will be responsible for, among other things: 95Table of Contents (a) reviewing and approving, or recommending to the board for its approval, the compensation for our chief executive officer and other executiveofficers; (b) reviewing and recommending to the board for determination with respect to the compensation of our non-employee directors; (c) reviewing periodically and approving any incentive compensation or equity plans, programs or similar arrangements; and (d) selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors relevant to that person’sindependence from management. Nominating and Corporate Governance Committee. Our nominating and corporate governance committee consists of Xiaoquan Zhang, Jian Wangand Zhaohui Huang. Xiaoquan Zhang is the chairperson of our nominating and corporate governance committee. We have determined that Xiaoquan Zhangand Jian Wang satisfy the “independence” requirements of NASDAQ. The nominating and corporate governance committee will assist the board of directorsin selecting individuals qualified to become our directors and in determining the composition of the board and its committees. The nominating and corporategovernance committee will be responsible for, among other things: (a) selecting and recommending to the board nominees for election by the shareholders or appointment by the board; (b) reviewing annually with the board the current composition of the board with regards to characteristics such as independence, knowledge, skills,experience and diversity; (c) making recommendations on the frequency and structure of board meetings and monitoring the functioning of the committees of the board; and (d) advising the board periodically with regards to significant developments in the law and practice of corporate governance as well as ourcompliance with applicable laws and regulations, and making recommendations to the board on all matters of corporate governance and on anyremedial action to be taken. Duties of Directors Under Cayman Islands law, all of our directors owe fiduciary duties to our company, including a duty of loyalty, a duty to act honestly and a duty toact in what they believe in good faith to be in our best interests. Our directors must also exercise their powers only for a proper purpose. Our directors alsohave a duty to act with skill and care. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of skillthan may reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth courts have moved towards anobjective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands. In fulfilling their duty ofcare to us, our directors must ensure compliance with our memorandum and articles of association, as amended and restated from time to time, and the classrights vested thereunder in the holders of the shares. Our company has the right to seek damages if a duty owed by our directors is breached. In limitedexceptional circumstances, a shareholder may have the right to seek damages in our name if a duty owed by our directors is breached. Our board of directors has all the powers necessary for managing, and for directing and supervising, our business affairs. The functions and powers ofour board of directors include, among others: (a) convening shareholders’ general meetings; (b) declaring dividends and distributions; 96Table of Contents (c) appointing officers and determining the term of office of the officers; (d) exercising the borrowing powers of our company and mortgaging the property of our company; and (e) approving the transfer of shares in our company, including the registration of such shares in our share register. Terms of Directors and Officers Our officers are elected by and serve at the discretion of the board of directors. Our directors are generally not subject to a term of office and holdoffice until such time as they are removed from office by ordinary resolution of the shareholders or by the unanimous written resolution of all theshareholders. A director will be removed from office automatically if, among other things, the director (i) becomes bankrupt or makes any arrangement orcomposition with his creditors; (ii) is found to be or becomes of unsound mind; or (iii) without special leave of absence from the board of directors, is absentfrom meetings of the board of directors for three consecutive meetings and the board of directors resolves that his office be vacated. D. Employees As of December 31, 2015, 2016 and 2017, we had 738, 544 and 829 full-time employees, respectively. The following table sets forth the number ofour full-time employees categorized by areas of operations as of December 31, 2017: Function Number of employeesBusiness development, sales and marketing455Technology support218Fulfillment49Administration and management107Total829 Our success depends to a large extent on our ability to attract, train, motivate and retain qualified personnel. We believe we offer our employeescompetitive compensation packages and an environment that encourages self-development and, as a result, have generally been able to attract and retainqualified personnel and maintain a stable core management team. As required by laws and regulations in China, we participate in various employee social security plans that are organized by municipal andprovincial governments, including pension, unemployment insurance, childbirth insurance, work-related injury insurance, medical insurance and housinginsurance. We are required under PRC law to make contributions to employee benefit plans at specified percentages of the salaries, bonuses and certainallowances of our employees, up to a maximum amount specified by the local government from time to time. To date, we have not been involved in anysignificant labor disputes. E. Share Ownership Except as specifically noted, the following table sets forth information with respect to the beneficial ownership of our ordinary shares as of the dateof this annual report by: (a) each of our directors and executive officers; and (b) each person known to us to own beneficially more than 5% of our ordinary shares. The calculations in the table below are based on 25,280,058 ordinary shares outstanding as of the date of this annual report on an as-converted basis,consisting of 18,708,629 Class A ordinary shares and 6,571,429 Class B ordinary shares outstanding, excluding 213,259 ordinary shares reserved for futuregrants under our 2017 Employee Stock Incentive Plans. 97Table of Contents Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially ownedby 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 throughthe exercise of any option, warrant or other right or the conversion of any other security. These shares, however, are not included in the computation of thepercentage ownership of any other person. Class AOrdinaryShares Class BOrdinaryShares Total OrdinaryShares on anAs-convertedBasis % of TotalOrdinary Shareson an As-converted Basis % of AggregateVoting Power††Directors and Executive Officers:Richard Rixue Li—6,571,4296,571,42926.087.5Zhaohui Huang730,158—730,1582.90.5Jeacy Jisheng Yan—————Jian Wang—————Ping Xu—————Xian Chen—————Le Yu—————Shaojun Chen*—***Eric Chan—————Jun Wang—————Xiaoquan Zhang—————Zhaoxian Lin—————All Directors and Executive Officers as a Group870,1586,571,4297,441,58729.188.0Principal Shareholders:Siku Holding Limited—6,571,4296,571,42926.087.5IDG Funds4,964,889—4,964,88919.63.3CMC Galaxy Holdings Ltd2,376,854—2,376,8549.41.6Pingan entities1,861,782—1,861,7827.41.2Ventech China II SICAR1,459,107—1,459,1075.81.0 * Less than 1% of our total outstanding shares. ** Except for Ms. Jeacy Jisheng Yan, Ms. Cindy Jia Guo, Ms. Ping Xu, Mr. Xian Chen and Mr. Le Yu, the business address for our directors and executiveofficers is 15/F, Building C, Galaxy SOHO, Chaonei Street, Dongcheng District, Beijing, 100000, The People’s Republic of China. † For each person and group included in this column, percentage ownership is calculated by dividing the number of shares beneficially owned by suchperson or group (including voting rights granted by other shareholders who retain the economic interest in the shares being voted) by the sum of the totalnumber of shares outstanding, which is 25,280,058 as of the date of this annual report, and the number of shares such person or group has the right toacquire upon exercise of option, warrant or other right within 60 days after the date of this annual report. †† For each person and group included in this column, percentage of voting power is calculated by dividing the voting power beneficially owned by suchperson or group by the voting power of all of our Class A and Class B ordinary shares as a single class. Each holder of Class A ordinary shares is entitledto one vote per share and each holder of our Class B ordinary shares is entitled to twenty votes per share on all matters submitted to them for a vote. OurClass A ordinary shares and Class B ordinary shares vote together as a single class on all matters submitted to a vote of our shareholders, except as mayotherwise be required by law. Our Class B ordinary shares are convertible at any time by the holder thereof into Class A ordinary shares on a one-for-onebasis. (1) Represents 6,571,429 Class B ordinary shares beneficially owned by Mr. Li through Siku Holding Limited, a BVI company, as described in footnote(8) below. Siku Holding Limited is 99% beneficially owned by Mr. Li. (2) Represents 730,158 Class A ordinary shares beneficially owned by Ms. Huang through Kuzhifu Holding Limited, a BVI company. The registered addressof Kuzhifu Holding Limited is P.O. Box 3321, Drake Chambers, Road Town, Tortola, British Virgin Islands. Ms. Huang is the sole shareholder ofKuzhifu Holding Limited. (3) The business address of Ms. Yan is Floor 6, Tower A, COFCO Plaza, 8 Jianguomennei Avenue, Beijing, China, 100005. (4) The business address of Ms. Xu is 22-23B, Level 36, China World Tower 3, No. 1 Jianguomenwai Avenue, Chaoyang District, Beijing, China, 100020. (5) The business address of Mr. Chen is Unit 3607-3608, The Center, 989 Changle Road, Shanghai, China, 200031. (6) The business address of Mr. Yu is 18/F, Ping An Finance Tower, No. 1333 Lujiazui Ring Road, Pudong New District, Shanghai, China. (7) Represents 6,571,429 Class B ordinary shares directly held by Siku Holding Limited, a British Virgin Islands company 99% beneficially owned byMr. Richard Rixue Li and 1% beneficially owned by Ms. Zhaohui Huang. The registered address of Siku Holding Limited is P.O. Box 3321, DrakeChambers, Road Town, Tortola, British Virgin Islands. 98(1)(2)(3)(4)(5)(6)(1)(2)(7)(8)(9)(10)(11)Table of Contents (8) Represents (i) 99,206 Class A ordinary shares directly held by IDG Technology Venture Investment IV, L.P., (ii) 92,639 Class A ordinary shares directlyheld by IDG-Accel China Growth Fund III L.P., (iii) 6,568 Class A ordinary shares directly held by IDG-Accel China III Investors L.P., (iv) 1,250,000Class A ordinary shares directly held by IDG Technology Venture Investment IV, L.P., (v) 758,929 Class A ordinary shares directly held by IDGTechnology Venture Investment IV, L.P., (vi) 625,313 ordinary shares directly held by IDG-Accel China Growth Fund III L.P., (vii) 44,330 Class Aordinary shares directly held by IDG-Accel China III Investors L.P., (viii) 396,825 Class A ordinary shares directly held by IDG Technology VentureInvestment IV, L.P., (ix) 370,556 Class A ordinary shares directly held by IDG-Accel China Growth Fund III L.P., (x) 26,270 Class A ordinary sharesdirectly held by IDG-Accel China III Investors L.P., (xi) 220,315 Class A ordinary shares directly held by IDG Technology Venture Investment IV, L.P.,(xii) 205,729 Class A ordinary shares directly held by IDG-Accel China Growth Fund III L.P., (xiii) 14,585 ordinary shares directly held by IDG-AccelChina III Investors L.P., (xiv) 548,752 Class A ordinary shares directly held by IDG-Accel China Growth Fund III L.P., (xv) 38,903 Class A ordinaryshares directly held by IDG-Accel China III Investors L.P., (xvi) 248,362 Class A ordinary shares directly held by IDG-Accel China Growth Fund III L.P.,and (xvii) 17,607 Class A ordinary shares directly held by IDG-Accel China III Investors L.P. IDG Technology Venture Investment IV, L.P. is a Delawarelimited partnership which is controlled by its sole general partner, IDG Technology Venture Investment IV, LLC, which is controlled by its twomanaging members, Mr. Quan Zhou and Mr. Chi Sing Ho. IDG-Accel China Growth Fund III L.P.is a Cayman Islands limited partnership which iscontrolled by its immediate general partner IDG-Accel China Growth Fund III Associates L.P., or IDG-Accel III Associates L.P., a Cayman Islands limitedpartnership. IDG-Accel III Associates L.P. is controlled by its general partner IDG-Accel China Growth Fund GP III Associates Ltd., or IDG-Accel IIIAssociates Ltd., a Cayman Islands limited company. IDG-Accel China III Investors L.P. is a Cayman Islands limited partnership which is controlled by itssole general partner, IDG-Accel III Associates Ltd. Mr. Quan Zhou and Mr. Chi Sing Ho are currently serving as members of board of directors of IDG-Accel III Associates Ltd. IDG Technology Venture Investment IV, L.P., IDG-Accel China Growth Fund III L.P., IDG-Accel China III Investors L.P. arecollectively referred to as the IDG Funds. (9) Represents 2,376,854 Class A ordinary shares directly held by CMC Galaxy Holdings Ltd. CMC Galaxy Holdings Ltd is a Cayman Islands companywholly owned by CMC Capital Partners L.P., a Cayman Islands exempted limited partnership acting by its general partner, CMC CapitalPartners GP, L.P., a Cayman Islands exempted limited partnership activity by its general partner, CMC Capital Partners GP, Ltd., a Company incorporatedwith limited liability in the Cayman Islands. CMC Capital Partners GP, Ltd. is ultimately controlled indirectly by Mr. Ruigang Li. The registered addressof CMC Galaxy Holdings Ltd is Harneys Services (Cayman) Limited at 4th Floor, Harbour Place, 103 South Church Street, George Town,P.O. Box 10240, Grand Cayman KY1-1002, Cayman Islands. (10) Represents (i) 1,063,875 Class A ordinary shares directly held by Pingan eCommerce Limited Partnership and (ii)797,907 Class A ordinary sharesdirectly held by Rhythm Way Limited. Pingan eCommerce Limited Partnership is a Cayman Islands limited partnership which is ultimately controlledby Ping An Insurance (Group) Company of China, Ltd. The registered address of Pingan eCommerce Limited Partnership is Floor 4, Willow House,Cricket Square, PO Box 268, Grand Cayman KY1-1104, Cayman Islands. Rhythm Way Limited is a British Virgin Islands company beneficially ownedby Pingan eCommerce Limited Partnership. The registered address of Rhythm Way Limited is PO Box 957, Road Town, Torrola, British Virgin Islands.Pingan eCommerce Limited Partnership and Rhythm Way Limited are collectively referred as PingAn Entities. (11) Represents 1,459,107 Class A ordinary shares directly held by Ventech China II SICAR, a company incorporated in Luxembourg. Ventech China IISICAR is controlled by COFIBRED which is held by French Bank BPCE, IMPALA Investments SPRL which is directly held by Jacques Veyrat, andNPEI Lux SA SICAR which is held indirectly by French Bank Natixis, a public company traded on the Paris Stock Exchange. The registered address ofVentech China II SICAR is 47, Avenue John F. Kennedy L-1885, Luxembourg. ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS A. Major Shareholders Please refer to “Item 6. Directors, Senior Management and Employees—E. Share Ownership.” B. Related Party Transactions Transactions with Shareholders and Affiliates During the years ended December 31, 2015, 2016 and 2017, the Group paid on behalf of Jiangxi Tiangong Hi Tech Co., Ltd.(“Jiangxi Tiangong”), arelated party that the Group’s subsidiary can exercise significant influence for nil, nil and RMB287.0 thousands (US$44.1 thousands). Jiangxi Tiangongpaid off RMB249 thousands in 2017. The Group has amount due from Jiangxi Tiangong for nil, nil and RMB38.0 thousands (US$5.8 thousands) as ofDecember 31, 2015, 2016 and 2017, respectively. During the years ended December 31, 2015, 2016 and 2017, the Group borrowed RMB18 million, nil and nil, respectively from Mr. Richard RixueLi, the Group’s chairman and chief exercise officer, to fund working capital, among which RMB15.4 million, RMB0.3 million and RMB1.0 million (US$0.1million) were repaid during the years ended December 31, 2015, 2016 and 2017, respectively. The Group has an amount due to Mr. Richard Rixue Li forRMB 2.6 million, RMB2.3 million and RMB1.3 million (US$0.2 million) as of December 31, 2015, 2016 and 2017, respectively. The amounts wereunsecured, non-interest bearing and have no defined repayment term. 99Table of Contents During the years ended December 31, 2015, 2016 and 2017, Yichun Chuaichuai Information Technology Co., Ltd (“Yichun Chuaichuai”), a relatedparty that the Group’s subsidiary can exercise significant influence, purchased products in the amount of nil, nil and RMB1.7 million (US$0.3 million),respectively from the Group. Yichun Chuaichuai made a prepayment of RMB2.9 million to the Group for the purchase and the balance of amount due toYichun Chuaichuai was RMB1.2 million (US$0.2 million) as of December 31, 2017. Contractual Arrangements with Our Variable Interest Entities and Their Shareholders PRC laws and regulations currently limit foreign ownership of companies that engage in value-added telecommunications service or auctionbusinesses in China. As a result, we operate our relevant businesses through contractual arrangements between Kutianxia, our PRC subsidiary, and BeijingAuction and Beijing Secoo, our variable interest entities, and their respective shareholders. For a description of these contractual arrangements, see “Item 4.C.Organizational Structure — Contractual Arrangements with Our Variable Interest Entities and Their Shareholders.” Employment Agreements and Indemnification Agreements See “Item 6. Directors, Senior Management and Employees—A. Employment Agreements and Indemnification Agreements.” Share Incentive Plan See “Item 6. Directors, Senior Management and Employees—B. Compensation—2017 Employee Stock Incentive Plan.” C. Interests of Experts and Counsel Not applicable. ITEM 8. FINANCIAL INFORMATION A. Consolidated Statements and Other Financial Information We have appended consolidated financial statements filed as part of this annual report. Legal Proceedings From time to time, we may in the future become a party to various legal or administrative proceedings arising in the ordinary course of our business,including actions with respect to intellectual property infringement, violation of third-party licenses or other rights, breach of contract, labor andemployment claims. We are currently not a party to, and we are not aware of any threat of, any legal or administrative proceedings that, in the opinion of ourmanagement, are likely to have any material and adverse effect on our business, financial condition, cash-flow or results of operations. Dividend Policy Our board of directors has discretion on whether to distribute dividends, subject to applicable laws. In addition, our shareholders may by ordinaryresolution declare a dividend, but no dividend may exceed the amount recommended by our directors. Under Cayman Islands law, a Cayman Islandscompany may pay a dividend on its shares out of either profit or share premium amount, provided that in no circumstances may a dividend be paid if thiswould result in the company being unable to pay its debts due in the ordinary course of business. Even if our board of directors decides to pay dividends, theform, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractualrestrictions and other factors that the board of directors may deem relevant. 100Table of Contents We do not have any present plan to pay any cash dividends on our ordinary shares in the foreseeable future after our initial public offering. Wecurrently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business. We are a holding company incorporated in the Cayman Islands. We may rely on dividends from our subsidiaries in China for our cash requirements,including any payment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC subsidiaries to pay dividends to us. See “Item4.B. Business Overview—Regulation—Regulations Relating to Dividend Distribution.” If we pay any dividends on our ordinary shares, we will pay those dividends which are payable in respect of the Class A ordinary shares underlyingour ADSs to the depositary, as the registered holder of such Class A ordinary shares, and the depositary then will pay such amounts to our ADS holders inproportion to the Class A ordinary shares underlying the ADSs held by such ADS holders, subject to the terms of the deposit agreement, including the feesand expenses payable thereunder. Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars. B. Significant Changes Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidatedfinancial statements included in this annual report. ITEM 9. THE OFFER AND LISTING A. Offering and Listing Details Our ADSs have been listed on the Nasdaq Global Market since September 22, 2017. Our ADSs are traded under the symbol “SECO.” The following table provides the high and low trading prices for our ADSs on the Nasdaq Global Market for the periods presented. Trading Price High Low US$ US$ Annual Highs and Lows2017 (since September 22, 2017)12.706.61 Quarterly Highs and LowsFourth Quarter 2017 (since September 22, 2017)12.706.61First Quarter 201814.759.07 Monthly Highs and LowsSeptember 2017 (since September 22, 2017)12.707.81October 20179.586.61November 20179.187.02December 20179.988.20January 201814.759.07February 201814.5011.37March 201812.809.88April 2018 (through April 20, 2017)11.5911.14 B. Plan of Distribution Not applicable. C. Markets Our ADSs have been listed on the Nasdaq Global Market since September 2017 under the symbol “SECO”. 101Table of Contents D. Selling Shareholders Not applicable. E. Dilution Not applicable. F. Expenses of the Issue Note applicable. ITEM 10. ADDITIONAL INFORMATION A. Share Capital Not applicable. B. Memorandum and Articles of Association The following are summaries of material provisions of our amended and restated memorandum and articles of association, insofar as they relate tothe material terms of our ordinary shares. Ordinary Shares General. All of our outstanding ordinary shares are fully paid and non-assessable. Our ordinary shares are issued in registered form, and are issuedwhen entered in our register of members. Our shareholders who are nonresidents of the Cayman Islands may freely hold and vote their shares. Voting Rights. Our Class A ordinary shares and Class B ordinary shares vote together as a single class on all matters submitted to a vote of ourshareholders, except as may otherwise be required by law or provided for in our post-offering amended and restated memorandum and articles of association.In respect of matters requiring shareholders’ vote, each Class A ordinary share is entitled to one vote, and each Class B ordinary share is entitled to twentyvotes. At any shareholders’ meeting, a resolution put to the vote of the meeting shall be decided on a poll. An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the votes attaching to theordinary shares cast at a meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes attaching to the ordinaryshares cast at a meeting. Both ordinary resolutions and special resolutions may also be passed by a unanimous written resolution signed by all theshareholders of our company, as permitted by the Companies Law and our post-offering amended and restated memorandum and articles of association. Aspecial resolution will be required for important matters such as a change of name or making changes to our post-offering amended and restated memorandumand articles of association. Holders of the ordinary shares may, among other things, divide or combine their shares by ordinary resolution. Liquidation. On a return of capital on winding up or otherwise (other than on conversion, redemption or purchase of ordinary shares), assetsavailable for distribution among the holders of ordinary shares shall be distributed among the holders of the ordinary shares on a pro rata basis. If our assetsavailable for distribution are insufficient to repay all of the paid-up capital, the assets will be distributed so that the losses are borne by our shareholdersproportionately. Calls on Ordinary Shares and Forfeiture of Ordinary Shares. Our board of directors may from time to time make calls upon shareholders for anyamounts unpaid on their ordinary shares in a notice served to such shareholders at least 14 days prior to the specified time and place of payment. Theordinary shares that have been called upon and remain unpaid are subject to forfeiture. 102Table of Contents Redemption, Repurchase and Surrender of Ordinary Shares. We may issue shares on terms that such shares are subject to redemption, at our optionor at the option of the holders thereof, on such terms and in such manner as may be determined, before the issue of such shares, by our board of directors or byour shareholders by special resolution. Our company may also repurchase any of our shares provided that the manner and terms of such purchase have beenapproved by our board of directors or by ordinary resolution of our shareholders, or are otherwise authorized by our memorandum and articles of association.Under the Companies Law, the redemption or repurchase of any share may be paid out of our company’s profits or out of the proceeds of a fresh issue ofshares made for the purpose of such redemption or repurchase, or out of capital (including share premium account and capital redemption reserve) if thecompany can, immediately following such payment, pay its debts as they fall due in the ordinary course of business. In addition, under the Companies Lawno such share may be redeemed or repurchased (a) unless it is fully paid up, (b) if such redemption or repurchase would result in there being no sharesoutstanding, or (c) if the company has commenced liquidation. In addition, our company may accept the surrender of any fully paid share for noconsideration. Variations of Rights of Shares. If at any time the share capital is divided into different classes of shares, the rights attached to any class of sharesmay, unless otherwise provided by the terms of issue of the shares of that class, be materially adversely varied with the written consent of the holders of three-fourths of the issued shares of that class or with the sanction of a special resolution passed at a separate meeting of the holders of the shares of that class. Therights conferred upon the holders of the shares of any class issued shall not, unless otherwise expressly provided by the terms of issue of the shares of thatclass, be deemed to be varied by the creation or issue of further shares ranking pari passu with such existing class of shares. Registered Office and Objects Our registered office in the Cayman Islands is located at P.O. Box 613 GT, 3rd Floor Harbour Centre, George Town, Grand Cayman KY1-1107,Cayman Islands. The objects for which our company is established are unrestricted and we have full power and authority to carry out any object notprohibited by the Companies Law or any other law of the Cayman Islands. For details of our board committees, see “Item 6.C. Directors, Senior Management and Employees — Board Practices — Board of Directors.” C. Material Contracts We have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item 4. Informationon the Company,” “Item 7. Major Shareholders and Related Party Transactions,” or elsewhere in this annual report on Form 20-F. D. Exchange Controls See “Item 4.B. Business Overview—PRC Government Regulations—Regulations of Foreign Currency Exchange and Dividend Distribution.” E. Taxation The following summary of the material Cayman Islands, PRC and U.S. federal income tax consequences of an investment in our ADSs or ordinaryshares is based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to change. This summarydoes not deal with all possible tax consequences relating to an investment in our ADSs or ordinary shares, such as the tax consequences under state, local andother tax laws not addressed herein. Cayman Islands The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is notaxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman Islandsexcept for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of the Cayman Islands. TheCayman Islands is not party to any double tax treaties that are applicable to any payments made to or by our company. There are no exchange controlregulations or currency restrictions in the Cayman Islands. 103Table of Contents Hong Kong Our subsidiary incorporated in Hong Kong is subject to the uniform tax rate of 16.5%. Under the Hong Kong tax laws, it is exempted from the HongKong income tax on its foreign-derived income and there are no withholding taxes in Hong Kong on the remittance of dividends. PRC Our PRC subsidiaries and consolidated variable interest entities are companies incorporated under PRC law and, as such, are subject to PRCenterprise income tax on their taxable income in accordance with the relevant PRC income tax laws. Under the PRC Enterprise Income Tax Law, whichbecame effective on January 1, 2008 and was further amended on February 24, 2017 and its implementation rules, which became effective on January 1,2008, a uniform 25% enterprise income tax rate is generally applicable to both foreign-invested enterprises and domestic enterprises, unless they qualify forcertain exceptions. Our PRC subsidiaries and consolidated variable interest entities are all subject to the tax rate of 25% for the periods presented in theconsolidated financial statements included elsewhere in this annual report. Under the PRC Enterprise Income Tax Law and its implementation rules, dividends from our PRC subsidiaries paid out of profits generated afterJanuary 1, 2008, are subject to a withholding tax of 10%, unless there is a tax treaty with China that provides for a different withholding tax rate.Distributions of profits generated before January 1, 2008 are exempt from PRC withholding tax. Pursuant to the Arrangement between Mainland China andthe Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, the withholding tax rate with respect tothe payment of dividends by a PRC enterprise to a Hong Kong enterprise is reduced to 5% from a standard rate of 10%, if such Hong Kong enterprise directlyholds at least 25% equity interest in the PRC enterprise. Pursuant to the Notice of the State Administration of Taxation on the Issues concerning theApplication of the Dividend Clauses of Tax Agreements, or Circular 81, a Hong Kong resident enterprise must meet the following conditions, among others,in order to enjoy the reduced withholding tax rate: (i) it must be a company; (ii) it must directly own the required percentage of equity interest and votingrights in the PRC resident enterprise; and (iii) it must have directly owned such required percentage in the PRC resident enterprise throughout the 12 monthsprior to receiving the dividends. Furthermore, the Administrative Measures for Tax Convention Treatment for Non-resident Taxpayers, which becameeffective in November 2015 and replaced the Administrative Measures for Non-Resident Enterprises to Enjoy Treatments under Tax Treaties (For TrialImplementation), provide that any non-resident enterprise meeting conditions for enjoying the convention treatment may be entitled to the conventiontreatment itself when filing a tax return or making a withholding declaration through a withholding agent, subject to the subsequent administration by thetax authorities. There are also other conditions for enjoying the reduced withholding tax rate according to other relevant tax rules and regulations. Accordingly,Hong Kong Secoo may be able to benefit from the 5% withholding tax rate for the dividends it receives from Kutianxia, if it satisfies the conditionsprescribed under Circular 81 and other relevant tax rules and regulations, and obtains the approvals as required. However, according to Circular 81, if therelevant tax authorities consider the transactions or arrangements we have are for the primary purpose of enjoying a favorable tax treatment, the relevant taxauthorities may adjust the favorable withholding tax. Under the PRC Enterprise Income Tax Law, an enterprise established outside of the PRC with “de factomanagement bodies” within the PRC is considered a resident enterprise and will be subject to the enterprise income tax at the rate of 25% on its globalincome. The implementation rules define the term “de facto management bodies” as the body that exercises full and substantial control and overallmanagement over the business, production, personnel, accounts and properties of an enterprise. Circular 82 provides certain specific criteria for determiningwhether the “de facto management body” of a Chinese-controlled offshore-incorporated enterprise is located in China. Although Circular 82 only applies tooffshore enterprises controlled by PRC enterprises, not those controlled by PRC individuals, the determining criteria set forth in Circular 82 may reflect theSAT’s general position on how the “de facto management body” test should be applied in determining the tax resident status of offshore enterprises,regardless of whether they are controlled by PRC enterprises, non-PRC enterprises, or individuals. 104Table of Contents Although we do not believe that our legal entities organized outside of the PRC constitute PRC resident enterprises, it is possible that the PRC taxauthorities could reach a different conclusion. However, if one or more of our legal entities organized outside of the PRC were characterized as PRC residententerprises, it would be subject to enterprise income tax on its worldwide income at a rate of 25%. See also “Item 3.D. Risk Factors—Risks Related to DoingBusiness in China—If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable taxconsequences to us and our non-PRC shareholders or ADS holders.” United States Federal Income Tax Considerations The following is a discussion of U.S. federal income tax considerations relating to the acquisition, ownership and disposition of our ADSs orordinary shares by a U.S. Holder that holds our ADSs or ordinary shares as “capital assets” (generally, property held for investment) under the U.S. InternalRevenue Code of 1986, as amended (the “Code”). This discussion does not address all aspects of U.S. federal income taxation that may be important toparticular investors in light of their individual investment circumstances, including investors subject to special tax rules (for example, certain financialinstitutions, insurance companies, broker-dealers, traders in securities that elect mark-to-market treatment, tax-exempt organizations (including privatefoundations), investors who own (directly, indirectly, or constructively) 10% or more of our stock (by vote or value), investors that will hold their ADSs orordinary shares as part of a straddle, hedge, conversion, constructive sale, or other integrated transaction for U.S. federal income tax purposes, or investors thathave a functional currency other than the U.S. dollar), all of whom may be subject to tax rules that differ significantly from those summarized below. This discussion is based on the Code, administrative pronouncements, judicial decisions and final, temporary and proposed U.S. Treasuryregulations (“Regulations”), in each case as in effect and available on the date hereof. All of the foregoing are subject to change (possibly on a retroactivebasis), or differing interpretations, which could affect the U.S. federal income tax considerations described herein. There can be no assurance that the InternalRevenue Service (the “IRS”), or a court will not take a contrary position with respect to any U.S. federal income tax considerations described below. In addition, this discussion does not address the alternative minimum tax or Medicare net investment income tax, or any U.S. federal estate or gift,state, local or non-U.S. tax considerations. U.S. Holders should consult their own tax advisors regarding the U.S. federal, state, local, and non-U.S. income andother tax considerations of an investment in our ADSs or ordinary shares. General For purposes of this discussion, a “U.S. Holder” is a beneficial owner of our ADSs or ordinary shares that is, for U.S. federal income tax purposes,(i) an individual who is a citizen or resident of the United States, (ii) a corporation (or other entity treated as a corporation for U.S. federal income taxpurposes) created in or organized under the law of the United States, or any state thereof or the District of Columbia, (iii) an estate the income of which isincludible in gross income for U.S. federal income tax purposes regardless of its source, or (iv) a trust (A) the administration of which is subject to the primarysupervision of a U.S. court and which has one or more U.S. persons who have the authority to control all substantial decisions of the trust or (B) that hasotherwise elected to be treated as a U.S. person under the applicable Regulations. If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) owns our ADSs or ordinary shares, the tax treatment of apartner in the partnership will generally depend upon the status of the partner and the activities of the partnership. Partnerships holding our ADSs or ordinaryshares and their partners should consult their own tax advisors regarding an investment in our ADSs or ordinary shares. The discussion below assumes that the representations contained in the deposit agreement are and will continue to be true and that the obligationsin the deposit agreement and any related agreement have been and will be complied with in accordance with the terms. For U.S. federal income tax purposes,a U.S. Holder of our ADSs will be treated as a beneficial owner of the underlying shares represented by such ADSs. Accordingly, deposits or withdrawals ofordinary shares for ADSs will not be subject to U.S. federal income tax. 105Table of Contents Passive Foreign Investment Company Considerations A non-U.S. corporation, such as our company, will be classified as a PFIC for U.S. federal income tax purposes for any taxable year, if either (i) 75%or more of its gross income for such year consists of certain types of “passive” income or (ii) 50% or more of the value of its assets (determined on the basis ofa quarterly average) during such year produce or are held for the production of passive income. Passive income generally includes dividends, interest,royalties, rents, annuities, net gains from the sale or exchange of property producing such income and net foreign currency gains. For this purpose, cash andassets readily convertible into cash are categorized as passive assets and the company’s unbooked intangibles associated with active business activity aretaken into account as non-passive assets. In addition, a non-U.S. corporation will be treated as owning its proportionate share of the assets and earning its proportionate share of the income ofany other corporation in which it owns, directly or indirectly, more than 25% (by value) of the stock. Although the law in this regard is unclear, we treat ourvariable interest entities as being beneficially owned by us for U.S. federal income tax purposes because we control their management decisions, we areentitled to substantially all of the economic benefits associated with these entities, and, as a result, we consolidate their results of operations in ourU.S. GAAP financial statements. Based on our current income and assets and the value of our ADSs, we do not believe that we were a PFIC for our previous taxable year and we donot expect to be classified as a PFIC for our taxable year ending December 31, 2017 or in the foreseeable future. While we do not anticipate becoming a PFIC,changes in the nature of our income or assets, or fluctuations in the market price of our ADSs, may cause us to become a PFIC for future taxable years. Inestimating the value of our goodwill and other unbooked intangibles, we have taken into account our market capitalization, which may fluctuate over time.Among other factors, if our market capitalization declines, we may be or become classified as a PFIC for the current or future taxable years. Undercircumstances where revenues from activities that produce passive income significantly increase relative to our revenues from activities that produce non-passive income or where we determine not to expend significant amounts of cash for working capital or other purposes, our risk of becoming classified as aPFIC may substantially increase. In addition, if it were determined that that we are not the owner of our variable interest entities for U.S. federal income taxpurposes, we may be treated as a PFIC for our current taxable year and in future taxable years. If we are classified as a PFIC for any taxable year during which a U.S. Holder holds our ADSs or ordinary shares, the PFIC tax rules discussed belowunder “— Passive Foreign Investment Company Rules” will generally apply to such U.S. Holder for such taxable year and, unless the U.S. Holder makescertain elections, will apply in future years even if we cease to be a PFIC. The discussion below under “— Dividends” and “— Sale or Other TaxableDisposition of our ADSs or Ordinary Shares” assumes that we will not be classified as a PFIC for U.S. federal income tax purposes. Dividends Any cash distributions (including any amount of any PRC tax withheld) paid on our ADSs or ordinary shares out of our current or accumulatedearnings and profits, as determined under U.S. federal income tax principles, will generally be includible in the gross income of a U.S. Holder as dividendincome on the day actually or constructively received by the U.S. Holder, in the case of ordinary shares, or by the depositary, in the case of ADSs. Because wedo not intend to determine our earnings and profits on the basis of U.S. federal income tax principles, any distribution we pay will generally be reported asdividend income for U.S. federal income tax purposes. Dividends received on our ADSs or ordinary shares will not be eligible for the dividends receiveddeduction allowed to corporations under the Code. Individuals and certain other non-corporate U.S. Holders will be subject to tax at the lower capital gain tax rate applicable to “qualified dividendincome” on dividends paid on our ADSs, provided that certain conditions are satisfied, including that (i) our ADSs are readily tradable on an establishedsecurities market in the United States, or, in the event that we are deemed to be a PRC resident enterprise under the PRC tax law, we are eligible for thebenefits of the U.S. — PRC income tax treaty (the “Treaty”), (ii) we are neither a PFIC nor treated as such with respect to a U.S. Holder (as discussed below) forthe taxable year in which the dividend was paid and the preceding taxable year, and (iii) certain holding period requirements are met. Our ADSs are listed onthe NASDAQ Global Market, which is an established securities market in the United States, and we anticipate that our ADSs should qualify as readilytradable, although there can be no assurances in this regard. Because our ordinary shares are not listed on an established securities market, we do not expectthat the dividends we pay on our ordinary shares that are not represented by ADSs will meet the conditions required for such reduced tax rates, unless we aredeemed to be a PRC resident enterprise (as described above). We expect, however, to be eligible for the benefits of the Treaty. Assuming we deemed to be aPRC resident enterprise and we are eligible for such benefits, dividends we pay on our ordinary shares, regardless of whether such shares are represented bythe ADSs, would be eligible for the reduced rates of taxation described this paragraph. 106Table of Contents For U.S. foreign tax credit purposes, dividends will generally be treated as income from foreign sources and will generally constitute passivecategory income. In the event that we are deemed to be a PRC resident enterprise under the PRC Enterprise Income Tax Law, a U.S. Holder may be subject toPRC taxes on dividends paid on our ADSs or ordinary shares. A U.S. Holder may be eligible, subject to a number of complex limitations, to claim a foreigntax credit not in excess of any applicable treaty rate in respect of any nonrefundable foreign withholding taxes imposed on dividends received on our ADSsor ordinary shares. A U.S. Holder who does not elect to claim a foreign tax credit on foreign tax withheld may instead claim a deduction, for U.S. federalincome tax purposes, in respect of such withholding, but only for a year in which such U.S. Holder elects to do so for all creditable foreign income taxes. Therules governing the foreign tax credit are complex. U.S. Holders should consult their own tax advisors regarding the availability of the foreign tax creditunder their particular circumstances. Sale or Other Taxable Disposition of our ADSs or Ordinary Shares A U.S. Holder will generally recognize capital gain or loss upon the sale or other taxable disposition of our ADSs or ordinary shares in an amountequal to the difference, if any, between the amount realized upon the sale or other taxable disposition and the U.S. Holder’s adjusted tax basis in such ADSsor ordinary shares. Any capital gain or loss will be long-term if the ADSs or ordinary shares have been held for more than one year and will generally be U.S.-source gain or loss for U.S. foreign tax credit purposes. The deductibility of a capital loss may be subject to limitations. In the event that gain from thedisposition of the ADSs or ordinary shares is subject to tax in the PRC because we are deemed to be a PRC resident enterprise, and such gain is deemed to beUnited States-source gain, U.S. Holders may not be able to credit such tax against their U.S. federal income tax liability unless U.S. Holder has other incomefrom foreign sources in the appropriate category for purposes of the foreign tax credit rules. However, a U.S. Holder that is eligible for the benefits of theTreaty may be able to elect to treat such gain as PRC-source gain. U.S. Holders should consult their own tax advisors regarding the tax consequences if aforeign tax is imposed on a disposition of our ADSs or ordinary shares, including the availability of the foreign tax credit under their particularcircumstances. Passive Foreign Investment Company Rules If we are classified as a PFIC for any taxable year during which a U.S. Holder owns our ADSs or ordinary shares, and unless the U.S. Holder makes a“mark-to-market” election (as described below), the U.S. Holder will generally be subject to special tax rules that have a generally penalizing effect,regardless of whether we remain a PFIC, on (i) any excess distribution that we make to the U.S. Holder (which generally means any distribution paid during ataxable year to a U.S. Holder that is greater than 125% of the average annual distributions paid in the three preceding taxable years or, if shorter, the U.S.Holder’s holding period for our ADSs or ordinary shares), and (ii) any gain realized on the sale or other disposition, including a pledge, of our ADSs orordinary shares. Under the PFIC rules: · the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for the ADSs or ordinary shares; 107Table of Contents · amounts allocated to the current taxable year and any taxable years in a U.S. Holder’s holding period prior to the first taxable year in which weare classified as a PFIC will be taxable as ordinary income; and · amounts allocated to each of the other taxable years will be subject to tax at the highest tax rate in effect applicable to such U.S. Holder for thatyear, and such amounts will be increased by an additional tax equal to interest on the resulting tax deemed deferred with respect to such years. If we are a PFIC for any taxable year during which a U.S. Holder holds our ADSs or ordinary shares and any of our subsidiaries (including anyvariable interest entity) is also a PFIC, such U.S. Holder will be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC andwould be subject to the rules described above on certain distributions by a lower-tier PFIC and a disposition of shares of a lower-tier PFIC even though suchU.S. Holder may not receive the proceeds of those distributions or dispositions. U.S. Holders should consult their own tax advisors regarding the applicationof the PFIC rules to any of our subsidiaries. If a company that is a PFIC provides certain information to U.S. Holders, a U.S. Holder can then avoid certain adverse tax consequences describedabove by making a “qualified electing fund” election to be taxed currently on its proportionate share of the PFIC’s ordinary income and net capital gains.However, because we do not intend to prepare or provide the information necessary for a U.S. Holder to make a qualified electing fund election, such electionwill not be available to U.S. Holders. Alternatively, a U.S. Holder of “marketable stock” in a PFIC may make a mark-to-market election with respect to such stock. Marketable stock isstock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter (“regularly traded”), on a qualified exchange (such asthe NASDAQ Global Market or other market as defined in applicable Regulations. We believe that a U.S. Holder may make a mark-to-market election withrespect to our ADSs, but not our ordinary shares, provided that our ADSs remain listed on the NASDAQ Global Market and that our ADSs are regularly traded.We anticipate that our ADSs should qualify as being regularly traded, but no assurances may be given in this regard. If a U.S. Holder makes this election, suchholder will generally (i) include as ordinary income for each taxable year that we are a PFIC the excess, if any, of the fair market value of our ADSs held at theend of the taxable year over the adjusted tax basis of such ADSs and (ii) deduct as an ordinary loss the excess, if any, of the adjusted tax basis of our ADSsover the fair market value of such ADSs held at the end of the taxable year, but only to the extent of the net amount previously included in income as a resultof the mark-to-market election. The U.S. Holder’s adjusted tax basis in our ADSs would be adjusted to reflect any income or loss resulting from the mark-to-market election. If a U.S. Holder makes a mark-to-market election in respect of our ADSs and we cease to be a PFIC, such holder will not be required to takeinto account the gain or loss described above during any period that we are not classified as a PFIC. If a U.S. Holder makes a mark-to-market election, anygain such U.S. Holder recognizes upon the sale or other disposition of our ADSs in a year when we are a PFIC will be treated as ordinary income and any losswill be treated as ordinary loss, but such loss will only be treated as ordinary loss to the extent of the net amount previously included in income as a result ofthe mark-to-market election. Because, as a technical matter, a mark-to-market election cannot be made for any lower-tier PFICs that we may own, a U.S. Holder generally wouldcontinue to be subject to the general PFIC rules described above with respect to such U.S. Holder’s indirect interest in any investments held by us that aretreated as an equity interest in a PFIC for U.S. federal income tax purposes. A U.S. Holder that holds our ADSs or ordinary shares in any year in which we are classified as a PFIC may make a “deemed sale” election withrespect to such ADSs or ordinary shares in a subsequent taxable year in which we are not classified as a PFIC. If a U.S. Holder makes a valid deemed saleelection with respect to such ADSs or ordinary shares, such U.S. Holder will be treated as having sold all of its ADSs or ordinary shares for their fair marketvalue on the last day of the last taxable year in which we were a PFIC and such ADSs or ordinary shares will no longer be treated as PFIC stock. A U.S. Holderwill recognize gain (but not loss), which will be subject to tax as an ‘excess distribution’ received on the last day of the last taxable year in which we were aPFIC. A U.S. Holder’s basis in the ADSs or ordinary shares would be increased to reflect gain recognized, and such U.S. Holder’s holding period would beginon the day after we ceased to be a PFIC. The deemed sale election is only relevant to U.S. Holders that hold our ADSs or ordinary shares during a taxable yearin which we cease to be a PFIC. 108Table of Contents If a U.S. Holder holds our ADSs or ordinary shares in any year in which we are treated as a PFIC with respect to such U.S. Holder, such U.S. Holderwill be required to file IRS Form 8621 and such other forms as may be required the U.S. Treasury Department. U.S. Holders should consult their own tax advisors concerning each U.S. federal income tax consequences of purchasing, owning, and disposing ofour ADSs or ordinary shares if we are or become classified as a PFIC, including the possibility of making either a deemed sale or a mark-to-market election,and the unavailability of the qualified electing fund election. F. Dividends and Paying Agents Not applicable. G. Statement by Experts Not applicable. H. Documents on Display We have filed with SEC a registration statement on Form F-1, including relevant exhibits and securities under the Securities Act with respect tounderlying ordinary shares represented by the ADSs. We have also filed with SEC a related registration statement on Form F-6 (File No.: 333-220174) toregister the ADSs. We are subject to periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers. Accordingly,we are required to file reports, including annual reports on Form 20-F, and other information with SEC. All information filed with SEC can be obtained overthe Internet at SEC’s website at www.sec.gov or inspected and copied at the public reference facilities maintained by SEC at 100 F Street, N.E., Washington,D.C. 20549. You can request copies of these documents, upon payment of a duplicating fee, by writing to the SEC. Please call SEC at 1-800-SEC-0330 orvisit the SEC website for further information on the operation of the public reference rooms. As a foreign private issuer, we are exempt from the rules of the Exchange Act prescribing the furnishing and content of proxy statements toshareholders, and our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisionscontained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file periodic reports and financial statementswith SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we intend to furnish thedepositary with our annual reports, which will include a review of operations and annual audited consolidated financial statements prepared in conformitywith U.S. GAAP, and all notices of shareholders’ meeting and other reports and communications that are made generally available to our shareholders. Thedepositary will make such notices, reports and communications available to holders of ADSs and, upon our written request, will mail to all record holders ofADSs the information contained in any notice of a shareholders’ meeting received by the depositary from us. I. Subsidiary Information Not applicable. 109Table of Contents ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Foreign Exchange Risk We earn most of our revenues and incur most of our expenses in RMB. As the impact of foreign currency risk on our operations was not material inthe past, we have not used any forward contracts, currency borrowings or derivative instruments to hedge our exposure to foreign currency exchange risk. The value of the RMB against the U.S. dollar and other currencies is affected by changes in China’s political and economic conditions and China’sforeign exchange policies, among other things. The conversion of RMB into foreign currencies, including U.S. dollars, is based on rates set by the People’sBank of China. The PRC government allowed the RMB to appreciate by more than 20% against the U.S. dollar between July 2005 and July 2008. BetweenJuly 2008 and June 2010, this appreciation halted and the exchange rate between the RMB and the U.S. dollar remained within a narrow band. SinceJune 2010, the RMB has fluctuated against the U.S. dollar, at times significantly and unpredictably, and in recent years the RMB has depreciatedsignificantly against the U.S. dollar. Since October 1, 2016, the RMB has joined the International Monetary Fund (IMF)’s basket of currencies that make upthe Special Drawing Right (SDR), along with the U.S. dollar, the Euro, the Japanese yen and the British pound. In the fourth quarter of 2016, the RMB hasdepreciated significantly in the backdrop of a surging U.S. dollar and persistent capital outflows of China. With the development of the foreign exchangemarket and progress towards interest rate liberalization and Renminbi internationalization, the PRC government may in the future announce further changesto the exchange rate system and there is no guarantee that the RMB will not appreciate or depreciate significantly in value against the U.S. dollar in thefuture. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in thefuture. To the extent that we need to convert U.S. dollars we receive from our initial public offering into RMB for our operations, appreciation of the RMBagainst the U.S. dollar would have an adverse effect on the RMB amount we receive from the conversion. Conversely, if we decide to convert RMB into U.S.dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollaragainst the RMB would have a negative effect on the U.S. dollar amounts available to us. Interest Rate Risk Our exposure to interest rate risk primarily relates to interest income generated by excess cash, which is mostly held in interest-bearing bankdeposits. Interest-earning instruments carry a degree of interest rate risk. We obtain borrowings from commercial banks and third parties from time to time tomeet our working capital expenditure requirements. All of our bank and third parties borrowings as of December 31, 2017 bear fixed interest rates and havematurity terms less than three years. If we were to renew any of these borrowings, we might be subject to interest rate risk. We have not used derivative financial instruments to hedge the interest rate risk. We have not been exposed to material risks due to changes inmarket interest rates. However, we cannot provide assurance that we will not be exposed to material risks due to changes in market interest rate in the future. ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES A. Debt Securities Not applicable. B. Warrants and Rights Not applicable. C. Other Securities Not applicable. 110Table of Contents D. American Depositary Shares Fees and Expenses As an ADS holder, you will be required to pay the following service fees to the depositary bank and certain taxes and governmental charges (inaddition to any applicable fees, expenses, taxes and other governmental charges payable on the deposited securities represented by any of your ADSs): Service FeesTo any person to which ADSs are issued or to any person to which a distribution is made inrespect of ADS distributions pursuant to stock dividends or other free distributions ofstock, bonus distributions, stock splits or other distributions (except where converted tocash)Up to US$0.05 per ADS issued Cancellation of ADSs, including the case of termination of the deposit agreementUp to US$0.05 per ADS cancelled Distribution of cash dividendsUp to US$0.05 per ADS held Distribution of cash entitlements (other than cash dividends) and/or cash proceeds from thesale of rights, securities and other entitlementsUp 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 additional ADSsUp to US$0.05 per ADS held Depositary servicesUp to US$0.05 per ADS held on the applicable recorddate(s) established by the depositary bank As an ADS holder, you will also be responsible to pay certain fees and expenses incurred by the depositary bank and certain taxes and governmentalcharges (in addition to any applicable fees, expenses, taxes and other governmental charges payable on the deposited securities represented by any of yourADSs) such as: (a) Fees for the transfer and registration of Class A ordinary shares charged by the registrar and transfer agent for the Class A ordinary shares in theCayman Islands (i.e., upon deposit and withdrawal of Class A ordinary shares). (b) Expenses incurred for converting foreign currency into U.S. dollars. (c) Expenses for cable, telex and fax transmissions and for delivery of securities. (d) 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). (e) Fees and expenses incurred in connection with the delivery or servicing of ordinary shares on deposit. (f) Fees and expenses incurred in connection with complying with exchange control regulations and other regulatory requirements applicable toClass A ordinary shares, deposited securities, ADSs and ADRs. (g) Any applicable fees and penalties thereon. 111Table of Contents The depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary bank by the brokers (on behalf of theirclients) receiving the newly issued ADSs from the depositary bank and by the brokers (on behalf of their clients) delivering the ADSs to the depositary bankfor cancellation. The brokers in turn charge these fees to their clients. Depositary fees payable in connection with distributions of cash or securities to ADSholders and the depositary services fee are charged by the depositary bank 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 distributableproperty to pay the fees. In the case of distributions other than cash (i.e., share dividends, rights), the depositary bank charges the applicable fee to the ADSrecord date holders concurrent with the distribution. In the case of ADSs registered in the name of the investor (whether certificated or uncertificated in directregistration), the depositary bank sends invoices to the applicable record date ADS holders. In the case of ADSs held in brokerage and custodian accounts(via DTC), the depositary bank generally collects its fees through the systems provided by DTC (whose nominee is the registered holder of the ADSs held inDTC) from the brokers and custodians holding ADSs in their DTC accounts. The brokers and custodians who hold their clients’ ADSs in DTC accounts inturn charge their clients’ accounts the amount of the fees paid to the depositary banks. In the event of refusal to pay the depositary fees, the depositary bank may, under the terms of the deposit agreement, refuse the requested serviceuntil payment is received 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 pay certain amounts to us in exchange for its appointment as depositary. We may use these funds towards our expensesrelating to the establishment and maintenance of the ADR program, including investor relations expenses, or otherwise as we see fit. The depositary may payus a fixed amount, it may pay us a portion of the fees collected by the depositary from holders of ADSs, and it may pay specific expenses incurred by us inconnection with the ADR program. Neither the depositary nor we may be able to determine the aggregate amount to be paid to us because (i) the number ofADSs that will be issued and outstanding and the level of dividend and/or servicing fees to be charged may vary, and (ii) our expenses related to the programmay not be known at this time. 112Table of Contents PART II. ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES None. ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS Material Modifications to the Rights of Security Holders See “Item 10. Additional Information—B. Memorandum and Articles of Association—Ordinary Shares” for a description of the rights of securitiesholders, which remain unchanged. Use of Proceeds The following “Use of Proceeds” information relates to the registration statement on Form F-1, as amended (File Number 333-220174) (the “F-1Registration Statement”) in relation to our initial public offering of 8,500,000 ADSs representing 4,250,000 Class A ordinary shares, at an initial offeringprice of US$13.00 per ADS. Our initial public offering closed in September 2017. Jefferies LLC and BNP Paribas Securities Corp. were the representatives ofthe underwriters for our initial public offering. The F-1 Registration Statement was declared effective by the SEC on September 19, 2017. For the period from the effective date of the F-1Registration Statement to December 31, 2017, the total expenses incurred for our company’s account in connection with our initial public offering wasapproximately US$10.4 million, which included US$7.7 million in underwriting discounts and commissions for the initial public offering and approximatelyUS$2.7 million in other costs and expenses for our initial public offering. We received net proceeds of approximately US$100.1 million from our initialpublic offering. None of the transaction expenses included payments to directors or officers of our company or their associates, persons owning more than10% or more of our equity securities or our affiliates. None of the net proceeds from the initial public offering were paid, directly or indirectly, to any of ourdirectors or officers or their associates, persons owning 10% or more of our equity securities or our affiliates. For the period from September 19, 2017, the date that the Form F-1 was declared effective by the SEC, to December 31, 2017, we used US$22.9 million of the net proceeds from our initial public offering for general corporate purposes. We still intend to use the remainder of the proceeds from our initial public offering, as disclosed in our registration statements on Form F-1. ITEM 15. CONTROLS AND PROCEDURES Disclosure Controls and Procedures We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filedunder the Exchange Act is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to ourmanagement, including our principal executive officer and principal accounting officer, as appropriate, to allow timely decisions regarding requireddisclosure. Our management, under the supervision and with the participation of our principal executive officer and our principal accounting officer, evaluatedthe effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) or 15d-15(e) promulgated under the Exchange Act, as ofDecember 31, 2017. Based on that evaluation, our principal executive officer and principal accounting officer have concluded that our disclosure controlsand procedures are not effective in ensuring that material information required to be disclosed in this annual report is recorded, processed, summarized andreported to them for assessment, and required disclosure is made within the time period specified in the rules and forms of the Commission. 113Table of Contents Management’s Report on Internal Control over Financial Reporting This annual report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation reportby our independent registered public accounting firm due to a transition period established by rules of the SEC for newly listed public companies. Internal Control Over Financial Reporting We identified one material weakness in our internal control over financial reporting, as defined in the standards established by the Public CompanyAccounting Oversight Board of the United States. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financialreporting such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be preventedor detected on a timely basis. The material weakness identified related to the lack of sufficient financial reporting and accounting personnel with appropriateknowledge to implement key controls over period end financial reporting and to properly prepare and review financial statements and related disclosures inaccordance with U.S. GAAP and SEC reporting requirements. We have implemented a number of measures to address the material weakness that has beenidentified, including (i) hiring additional professional staff, including a finance director who is a certified public accountant in the United States and amember of the American Institution of Certified Public Accountants with more than ten years of financial planning, analysis and reporting experience withUS-listed public companies, a senior reporting manager who is a member of the Chinese Institution of Certified Public Accountants with over six years ofexperience in an international accounting firm and (ii) designating more resources to perform period-end closing procedures to ensure sales data generatedand maintained by various business applications are complete and accurate and can be reconciled with the financial reporting system on time. In addition, wewill continue to take other steps to strengthen our internal control over financial reporting, including (i) establishing a formal and regular training programfor accounting personnel, including attending external U.S. GAAP training and (ii) implementing and formalizing comprehensive internal controls overfinancial reporting, including developing a comprehensive policy and procedure manual, to allow for prevention, early detection and resolution of potentialcompliance issues. We will continue to recruit experienced personnel to build a strong accounting and finance team. However, we cannot assure you that wewill complete such implementation in a timely manner. See “Item 3.D. Risk Factors—Risks Related to Our Business—If we fail to implement and maintain aneffective system of internal controls or fail to remediate the material weakness in our internal control over financial reporting that has been identified, we maybe unable to accurately report our results of operations or prevent fraud, and investor confidence and the market price of our ADSs may be materially andadversely affected.” Changes in Internal Control over Financial Reporting Other than as described above, there were no changes in our internal controls over financial reporting that occurred during the period covered by thisannual report on Form 20-F that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT See “Item 6.C. Directors, Senior Management and Employees—Board Practices.” ITEM 16B. CODE OF ETHICS Our board of directors has adopted a code of ethics that applies to all of the directors, officers and employees of us and our subsidiaries, whether theywork for us on a full-time, part-time, consultative, or temporary basis. In addition, we expect those who do business with us, such as consultants, suppliers andcollaborators, to also adhere to the principles outlined in the code of ethics. Certain provisions of the code of ethics apply specifically to our chief executiveofficer, chief financial officer, senior finance officer, controller, vice presidents and any other persons who perform similar functions for us. We have filed ourcode of business conduct and ethics as an exhibit to our registration statement on Form F-1 (No. 333-220174) in connection with our initial public offering inSeptember 2017, which was incorporated by reference thereto in this annual report. 114Table of Contents ITEM 16C. PRINCIPAL ACCOUNT FEES AND SERVICES The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by KPMGHuazhen LLP, our principal accountant, for the periods indicated. For the Year Ended December 31,2016 2017(in thousands of RMB)Audit fees2,479.19,292.1Other service fee—— The policy of our audit committee is to pre-approve all audit and other service provided by KPMG Huazhen LLP as described above, other thanthose for de minimis services which are approved by the Audit Committee prior to the completion of the audit. ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES None. ITEM 16E. PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS Not applicable. ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT Not applicable. ITEM 16G. CORPORATE GOVERNANCE Rule 5635(c) of the Nasdaq Rules requires a Nasdaq-listed company to obtain its shareholders’ approval of all equity compensation plans, includingstock plans, and any material amendments to such plans. Rule 5615 of the Nasdaq Rules permits a foreign private issuer like our company to follow homecountry practice in certain corporate governance matters. Currently, we do not plan to rely on home country practice with respect to our corporate governancematters. However, if we choose to follow home country practice in the future, our shareholders may be afforded less protection than they otherwise wouldunder the NASDAQ Global Market corporate governance listing standards applicable to U.S. domestic issuers. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our American Depositary Shares—As a company incorporated in the Cayman Islands, we will be permitted to adopt certain home countrypractices in relation to corporate governance matters that differ significantly from the Nasdaq Global Market corporate governance listing standards; thesepractices may afford less protection to shareholders than they would enjoy if we complied fully with the Nasdaq Global Market corporate governance listingstandards.” ITEM 16H. MINE SAFETY DISCLOSURE Not applicable. 115(1)Table of Contents PART III. ITEM 17. FINANCIAL STATEMENTS We have elected to provide financial statements pursuant to Item 18. ITEM 18. FINANCIAL STATEMENTS The consolidated financial statements for Secoo Holding Limited and its subsidiaries are included at the end of this annual report. ITEM 19. EXHIBITS Exhibit Number Description of Document1.1Amended and Restated Memorandum and Articles of Association of the Registrant, effective September 21, 2017 (incorporated hereinby reference to Exhibit 3.2 to the Form F-1/A filed on September 11, 2017 (File No. 333-220174))2.1Registrant’s Specimen American Depositary Receipt (included in Exhibit 4.3) (incorporated herein by reference to Exhibit 4.3 to theForm F-1/A filed on September 11, 2017 (File No. 333-220174))2.2Registrant’s Specimen Certificate for Class A Ordinary Shares (incorporated herein by reference to Exhibit 4.2 to the Form F-1/A filed onSeptember 11, 2017 (File No. 333-220174))2.3Form of Deposit Agreement, among the Registrant, the depositary and holder of the American Depositary Receipts (incorporated hereinby reference to Exhibit 4.3 to the Form F-1/A filed on September 11, 2017 (File No. 333-220174))2.4Amended and Restated Shareholders Agreement between the Registrant and other parties thereto dated July 8, 2015 (incorporated hereinby reference to Exhibit 4.4 to the Form F-1 filed on August 25, 2017 (File No. 333-220174))4.12014 Employee Stock Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the Form F-1 filed on August 25, 2017 (FileNo. 333-220174))4.22017 Employee Stock Incentive Plan (incorporated herein by reference to Exhibit 10.2 to the Form F-1/A filed on September 11, 2017(File No. 333-220174))4.3Form of Indemnification Agreement between the Registrant and its directors and executive officers (incorporated herein by reference toExhibit 10.3 to the Form F-1 filed on August 25, 2017 (File No. 333-220174))4.4Form of Employment Agreement between the Registrant and its executive officers (incorporated herein by reference to Exhibit 10.4 tothe Form F-1 filed on August 25, 2017 (File No. 333-220174))4.5English translation of the Share Pledge Agreement between Kutianxia, Beijing Secoo and the shareholders of Beijing Secoo datedMay 8, 2017 (incorporated herein by reference to Exhibit 10.5 to the Form F-1 filed on August 25, 2017 (File No. 333-220174))4.6English translation of the Exclusive Option Agreement between Kutianxia, Beijing Secoo and the shareholders of Beijing Secoo datedMay 24, 2011 (incorporated herein by reference to Exhibit 10.6 to the Form F-1 filed on August 25, 2017 (File No. 333-220174))4.7English translation of the Powers of Attorney between Kutianxia and the shareholders of Beijing Secoo taking effect from May 24, 2011(incorporated herein by reference to Exhibit 10.7 to the Form F-1 filed on August 25, 2017 (File No. 333-220174))4.8English translation of the Exclusive Intellectual Property Purchase Agreement between Kutianxia and Beijing Secoo dated May 24,2011 (incorporated herein by reference to Exhibit 10.8 to the Form F-1 filed on August 25, 2017 (File No. 333-220174))4.9English translation of the Exclusive Business Cooperation Agreement between Kutianxia and Beijing Secoo dated May 24, 2011(incorporated herein by reference to Exhibit 10.9 to the Form F-1 filed on August 25, 2017 (File No. 333-220174))4.10The Equity Interest Pledge Agreement between Kutianxia, Beijing Auction and the shareholders of Beijing Auction dated September 15,2014 (incorporated herein by reference to Exhibit 10.10 to the Form F-1 filed on August 25, 2017 (File No. 333-220174)) 116Table of Contents Exhibit Number Description of Document4.11The Exclusive Option Agreement between Kutianxia, Beijing Auction and the shareholders of Beijing Auction dated September 15,2014 (incorporated herein by reference to Exhibit 10.11 to the Form F-1 filed on August 25, 2017 (File No. 333-220174))4.12The Powers of Attorney between Kutianxia and the shareholders of Beijing Auction taking effect from September 15, 2014 (incorporatedherein by reference to Exhibit 10.12 to the Form F-1 filed on August 25, 2017 (File No. 333-220174))4.13The Loan Agreement between Kutianxia and the shareholders of Beijing Auction dated September 15, 2014 (incorporated herein byreference to Exhibit 10.13 to the Form F-1 filed on August 25, 2017 (File No. 333-220174))4.14The Exclusive Business Cooperation Agreement between Kutianxia and Beijing Auction dated September 15, 2014 (incorporated hereinby reference to Exhibit 10.14 to the Form F-1 filed on August 25, 2017 (File No. 333-220174))4.15English translation of the Supplemental Agreement to Exclusive Business Cooperation Agreement between Kutianxia and BeijingSecoo dated March 26, 2015 (incorporated herein by reference to Exhibit 10.15 to the Form F-1 filed on August 25, 2017 (File No. 333-220174))4.16The Supplement Agreement to the Exclusive Business Cooperation Agreement between Kutianxia and Beijing Auction dated March 26,2015 (incorporated herein by reference to Exhibit 10.16 to the Form F-1 filed on August 25, 2017 (File No. 333-220174))4.17*Loan Agreement between Beijing Secoo and National Trust Co., Ltd. dated December 20, 20174.18*Deposit Pledge Agreements between Hong Kong Secoo and National Trust Co., Ltd. dated December 20, 20178.1*List of Principal Subsidiaries and Variable Interest Entities of the Registrant11.1Code of Business Conduct and Ethics of the Registrant (incorporated herein by reference to Exhibit 99.1 to the Form F-1 filed onAugust 25, 2017 (File No. 333-220174))12.1*CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200212.2*CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200213.1**CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 200213.2**CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 200215.1*Consent of Han Kun Law Offices101.INS*XBRL Instance Document101.SCH*XBRL Taxonomy Extension Scheme Document101.CAL*XBRL Taxonomy Extension Calculation Linkbase Document101.DEF*XBRL Taxonomy Extension Definition Linkbase Document101.LAB*XBRL Taxonomy Extension Label Linkbase Document101.PRE*XBRL Taxonomy Extension Presentation Linkbase Document*Filed with this Annual Report on Form 20-F.**Furnished with this Annual Report on Form 20-F. 117Table of Contents SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersignedto sign this annual report on its behalf. Secoo Holding Limited By:/s/ Richard Rixue LiName:Richard Rixue LiTitle:Director and Chief Executive Officer Date: April 26, 2018 118Table of Contents SECOO HOLDING LIMITED INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageReport of Independent Registered Public Accounting FirmF-2 Consolidated Balance Sheets as of December 31, 2016 and 2017F-3 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2015, 2016 and 2017F-7 Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2015, 2016 and 2017F-9 Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2016 and 2017F-12 Notes to the Consolidated Financial StatementsF-14 F-1Table of Contents Report of Independent Registered Public Accounting Firm To the Shareholders and Board of DirectorsSecoo Holding Limited: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Secoo Holding Limited and subsidiaries (the Company) as of December 31, 2016 and2017, the related consolidated statements of comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financialstatements present fairly, in all material respects, the financial position of the Company as of December 31, 2016 and 2017, and the results of its operationsand its cash flows for each of the years in the three-year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on theseconsolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board(United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable 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 reasonableassurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performingprocedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures thatrespond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financialstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating theoverall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. We have served as the Company’s auditor since 2016. /s/ KPMG Huazhen LLPBeijing ChinaApril 26, 2018 F-2Table of Contents SECOO HOLDING LIMITEDCONSOLIDATED BALANCE SHEETS(All amounts in thousands, except for share data) As of December 31,2016 2017RMB RMB US$ (Note2(e))AssetsCurrent assetsCash55,555453,42569,690Time deposits—292,31844,929Restricted cash155,79255,2148,486Accounts receivable20,99254,2108,332Inventories752,1031,189,885182,882Advances to suppliers4,10853,0168,148Prepayments and other current assets19,88722,9433,526Amount due from related parties—386Total current assets1,008,4372,121,049325,999 Non-current assetsProperty and equipment, net35,19640,7936,270Restricted cash—123,80019,028Deferred tax assets—43,9816,760Other non-current assets2,1838,0851,242Total non-current assets37,379216,65933,300 Total assets1,045,8162,337,708359,299 LIABILITIESCurrent liabilitiesShort-term borrowings and current portion of long-term borrowings (including short-term borrowings and current portion of long-term borrowings of consolidated VIEswithout recourse to the Company of RMB200,000 and RMB177,274 as ofDecember 31, 2016 and 2017, respectively. Note 1)200,000177,27427,246Accounts payable (including accounts payable of consolidated VIEs without recourseto the Company of RMB254,537 and RMB262,576 as of December 31, 2016 and2017, respectively. Note 1)274,629318,41448,939Amount due to related parties (including amount due to Founder of consolidated VIEswithout recourse to the Company of RMB2,319 and RMB2,451 as of December 31,2016 and 2017, respectively. Note 1)2,3192,467379 F-3Table of Contents SECOO HOLDING LIMITEDCONSOLIDATED BALANCE SHEETS (Continued)(All amounts in thousands, except for share data) As of December 31,2016 2017RMB RMB US$ (Note 2(e))Advances from customers (including advances from customers of consolidated VIEswithout recourse to the Company of RMB40,891 and RMB67,604 as ofDecember 31, 2016 and 2017, respectively. Note 1)42,01368,84810,582Accrued expenses and other current liabilities (including accrued expenses and othercurrent liabilities of consolidated VIEs without recourse to the Company ofRMB194,266 and RMB313,574 as of December 31, 2016 and 2017, respectively.Note 1)214,966343,93652,862Deferred revenue (including deferred revenue of consolidated VIEs without recourse tothe Company of RMB5,254 and RMB12,051 as of December 31, 2016 and 2017,respectively. Note 1)5,50812,0511,852Total current liabilities739,435922,990141,860 Non-current liabilitiesLong-term borrowings, excluding current portion (including long-term borrowings,excluding current portion, of consolidated VIEs without recourse to the Company ofnil and RMB124,324 as of December 31, 2016 and 2017, respectively. Note 1)—124,32419,108—124,32419,108 Total liabilities739,4351,047,314160,968 Commitments and contingencies (Note 20) The accompanying notes are an integral part of these consolidated financial statements. F-4Table of Contents SECOO HOLDING LIMITEDCONSOLIDATED BALANCE SHEETS (Continued)(All amounts in thousands, except for share data) As of December 31,2016 2017RMB RMB US$ (Note 2(e))Mezzanine Equity Series A-1 Redeemable Convertible Preferred Shares (US$0.001 par value, 1,250,000shares and nil authorized, issued and outstanding as of December 31, 2016 and 2017.Redemption value of RMB180,216 and nil as of December 31, 2016 and 2017;Liquidation value of RMB125,060 and nil as of December 31, 2016 and 2017)134,719—— Series A-2 Redeemable Convertible Preferred Shares (US$0.001 par value, 1,428,572shares and nil authorized, issued and outstanding as of December 31, 2016 and 2017.Redemption value of RMB205,966 and nil as of December 31, 2016 and 2017;Liquidation value of RMB142,923 and nil as of December 31, 2016 and 2017)152,097—— Series B Redeemable Convertible Preferred Shares (US$0.001 par value, 2,380,952shares and nil authorized, issued and outstanding as of December 31, 2016 and 2017.Redemption value of RMB343,409 and nil as of December 31, 2016 and 2017;Liquidation value of RMB323,077 and nil as of December 31, 2016 and 2017)293,455—— Series C Redeemable Convertible Preferred Shares (US$0.001 par value, 1,571,973shares and nil authorized, issued and outstanding as of December 31, 2016 and 2017.Redemption value of RMB227,596 and nil as of December 31, 2016 and 2017;Liquidation value of RMB263,065 and nil as of December 31, 2016 and 2017)197,987—— Series D Redeemable Convertible Preferred Shares (US$0.001 par value, 3,178,652shares and nil authorized, issued and outstanding as of December 31, 2016 and 2017.Redemption value of RMB495,579 and nil as of December 31, 2016 and 2017;Liquidation value of RMB655,720 and nil as of December 31, 2016 and 2017)438,683—— F-5Table of Contents SECOO HOLDING LIMITEDCONSOLIDATED BALANCE SHEETS (Continued)(All amounts in thousands, except for share data) As of December 31,2016 2017RMB RMB US$ (Note 2(e))Series E Redeemable Convertible Preferred Shares (US$0.001 par value, 2,925,658shares and nil authorized, issued and outstanding as of December 31, 2016 and 2017.Redemption value of RMB598,531 and nil as of December 31, 2016 and 2017;Liquidation value of RMB839,363 and nil as of December 31, 2016 and 2017)532,511—— Redeemable non-controlling interest5,0825,582858Total mezzanine equity1,754,5345,582858 Shareholders’ Equity Class A Ordinary shares (US$0.001 par value, 150,000,000 shares authorized includingclass A shares and class B shares, 7,500,000 and 19,068,224 shares issued, 7,500,000and 18,708,629 shares outstanding as of December 31, 2016 and 2017, respectively)4712619Class B Ordinary shares (US$0.001 par value, 150,000,000 shares authorized includingclass A shares and class B shares, nil and 6,571,429 shares issued, nil and 6,571,429shares outstanding as of December 31, 2016 and 2017, respectively)—416Treasury stock (nil and 359,595 Class A ordinary shares as of December 31, 2016 and2017, respectively, at cost)—(42,606)(6,548)Additional paid-in capital—2,763,387424,725Accumulated losses(1,363,165)(1,432,586)(220,184)Accumulated other comprehensive loss(87,072)(5,304)(815)Total (deficit)/equity attributable to ordinary shareholders(1,450,190)1,283,058197,203Non-redeemable non-controlling interest2,0371,754270Total (deficit)/equity(1,448,153)1,284,812197,473 Total liabilities, mezzanine equity and shareholders’ (deficit)/equity1,045,8162,337,708359,299 The accompanying notes are an integral part of these consolidated financial statements. F-6Table of Contents SECOO HOLDING LIMITEDCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)(All amounts in thousands, except for share data) For the Year Ended December 31,2015 2016 2017RMB RMB RMB US$ (Note 2(e))Net revenues:Merchandise sales1,724,7392,566,8723,680,795565,727Marketplace and other services18,38926,95059,6609,170Total net revenues1,743,1282,593,8223,740,455574,897 Cost of revenues(1,526,047)(2,193,676)(3,128,441)(480,833)Gross profit217,081400,146612,01494,064 Operating expenses:Fulfillment expenses(66,546)(82,047)(99,064)(15,226)Marketing expenses(243,558)(218,759)(245,989)(37,808)Technology and content development expenses(40,904)(54,262)(62,081)(9,542)General and administrative expenses(77,861)(74,310)(110,059)(16,917)Total operating expenses(428,869)(429,378)(517,193)(79,493) (Loss)/income from operations(211,788)(29,232)94,82114,571 Other income/(expenses):Interest expense, net(2,790)(3,923)(6,562)(1,009)Foreign currency exchange (losses)/gains(7,425)(11,418)9,4771,458Others——4,148637(Loss)/income before income tax(222,003)(44,573)101,88415,657Income tax benefits——31,5254,846Net (loss)/income(222,003)(44,573)133,40920,503Loss attributable to redeemable non-controlling interest—(82)(298)(46)Loss attributable to non-redeemable non-controlling interest—(38)(349)(54)Net (loss)/income attributable to Secoo Holding Limited(222,003)(44,453)134,05620,603Accretion to redeemable non-controlling interest redemptionvalue—(164)(798)(124)Accretion to preferred share redemption value(213,690)(595,742)(202,679)(31,148)Net loss attributable to ordinary shareholders of SecooHolding Limited(435,693)(640,359)(69,421)(10,669) F-7Table of Contents SECOO HOLDING LIMITEDCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Continued)(All amounts in thousands, except for share data) For the Year Ended December 31,2015 2016 2017RMB RMB RMB US$ (Note 2(e))Net (loss)/income(222,003)(44,573)133,40920,503Other comprehensive (loss)/incomeForeign currency translation adjustment, net of nil income taxes(29,345)(60,138)81,83412,576Total other comprehensive (loss)/income, net of income taxes(29,345)(60,138)81,83412,576Comprehensive (loss)/income(251,348)(104,711)215,24333,079Comprehensive loss attributable to redeemable non-controllinginterest—(82)(298)(48)Comprehensive loss attributable to non-redeemable non-controlling interest—(123)(283)(46)Comprehensive (loss)/income attributable to ordinaryshareholders of Secoo Holding Limited(251,348)(104,506)215,82433,173 Net loss per Class A and Class B Ordinary share—Basic and diluted(81.22)(89.06)(5.55)(0.85) Weighted average number of Class A and Class B Ordinaryshares outstanding used in computing net loss per share—Basic and diluted5,364,5367,189,93312,500,82112,500,821 The accompanying notes are an integral part of these consolidated financial statements. F-8Table of Contents SECOO HOLDING LIMITEDCONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY(All amounts in thousands, except for share and per share data) Class A Ordinary sharesClass B Ordinary sharesTreasury StockAdditionalpaid-incapital Accumulatedlosses Accumulatedothercomprehensiveincome/(loss) Totalshareholder’s(deficit)/equity Non-redeemablenon-controllinginterest Total(deficit)/equity SharesRMBSharesRMBSharesRMBRMB RMB RMB RMB RMB RMB Balance as of January 1,20157,500,00047—————(300,980)2,326(298,607)—(298,607)Net loss for the year———————(222,003)—(222,003)—(222,003)Share-based compensationresulting from vestingof Founders’ restrictedshares——————1,378——1,378—1,378Redeemable ConvertiblePreferred Sharesredemption valueaccretion——————(1,378)(212,312)—(213,690)—(213,690)Foreign currencytranslation adjustments,net of nil tax————————(29,345)(29,345)—(29,345)Balance as ofDecember 31, 20157,500,00047—————(735,295)(27,019)(762,267)—(762,267)Net loss for the year———————(44,453)—(44,453)(38)(44,491)Capital contributed bynon-redeemable non-controlling interest——————12,240——12,2402,16014,400Share-based compensationresulting from vestingof Founders’ restrictedshares——————249——249—249 F-9Table of Contents SECOO HOLDING LIMITEDCONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Continued)(All amounts in thousands, except for share data) Redeemable non-controlling interestredemption valueaccretion———————(164)—(164)—(164)Redeemable ConvertiblePreferred Sharesredemption valueaccretion——————(12,489)(583,253)—(595,742)—(595,742)Foreign currency translationadjustments, net of nil tax————————(60,053)(60,053)(85)(60,138)Balance as ofDecember 31, 20167,500,00047—————(1,363,165)(87,072)(1,450,190)2,037(1,448,153)Net income for the year———————134,056—134,056(349)133,707Issuance of Class A ordinaryshares upon initial publicoffering (“IPO”), net ofissuance cost5,403,84636————862,125——862,161—862,161Re-designating Class Aordinary shares to Class Bordinary shares(6,571,429)(41)6,571,42941Conversion of preferredshares to Class A ordinaryshares12,735,80784————1,855,185——1,855,269—1,855,269Share-based compensation——————46,077——46,077—46,077Repurchase of Class Aordinary shares————(359,595)(42,606)———(42,606)—(42,606)Redeemable non-controlling interestredemption valueaccretion———————(798)—(798)—(798)Redeemable ConvertiblePreferred Sharesredemption valueaccretion———————(202,679)—(202,679)—(202,679) F-10Table of Contents SECOO HOLDING LIMITEDCONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Continued)(All amounts in thousands, except for share data) Foreign currency translationadjustments, net of nil tax————————81,76881,7686681,834 Balance as ofDecember 31, 201719,068,2241266,571,42941(359,595)(42,606)2,763,387(1,432,586)(5,304)1,283,0581,7541,284,812 US$ (Note 2(e))19,068,224196,571,4296(359,595)(6,548)424,725(220,184)(815)197,203270197,473 The accompanying notes are an integral part of these consolidated financial statements. F-11Table of Contents SECOO HOLDING LIMITEDCONSOLIDATED STATEMENTS OF CASH FLOWS(All amounts in thousands, except for share data and per share data) For the Year Ended December 31,201520162017RMBRMBRMBUS$ (Note 2(e))Cash flows from operating activities:Net (loss)/income(222,003)(44,573)133,40920,503Adjustments to reconcile net loss to net cash used in operating activitiesShare-based compensation1,37824946,0777,082Inventory write-down1,7533,5841,328204Depreciation expenses11,06813,38813,4242,063Loss on disposal of property and equipment2,5101,2041,540238Foreign currency exchange loss/(gain)10,37411,330(3,154)(485)Deferred tax assets——(43,981)(6,760)Changes in operating assets and liabilities:Accounts receivable2,259(13,474)(33,218)(5,106)Inventories(180,657)(277,139)(439,110)(67,490)Advance to suppliers7,06011,039(48,908)(7,517)Amount due from related parties3,421—(38)(6)Amount due to related parties——1,173180Prepayments and other assets3,206(7,409)(8,943)(1,374)Restricted Cash——49276Accounts payable199,663(15,857)43,7856,730Advance from customers(13,706)3,42126,8354,124Accrued expenses and other current liabilities49,74960,914125,72719,324Deferred revenue(2,834)2,6556,5431,006Net cash used in operating activities(126,759)(250,668)(177,019)(27,208) Cash flows from investing activities:Cash received from disposal of property and equipment——457Purchase of property and equipment(15,386)(11,666)(19,308)(2,968)Purchase of time deposits——(292,318)(44,929)Net cash used in investing activities(15,386)(11,666)(311,581)(47,890) F-12Table of Contents SECOO HOLDING LIMITEDCONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)(All amounts in thousands, except for share data) For the Year Ended December 31,201520162017RMBRMBRMBUS$ (Note 2(e))Cash flows from financing activities:Issuance of Series E Redeemable Convertible Preferred Shares, net of cash issuance costs paid ofRMB4,130338,750———Proceeds from issuance of Class A ordinary shares upon IPO, net of issuance cost——862,161132,512Capital contribution from non-redeemable non-controlling interest—14,400——Capital contribution from redeemable non-controlling interest—5,000——Repurchase of Class A ordinary shares——(40,677)(6,252)Restricted cash served as collateral for borrowings(62,184)—(179,014)(27,514)Restricted cash released as collateral for borrowings——155,30023,869Borrowing from related parties18,000———Repayment to related parties(15,361)(321)(1,025)(158)Proceeds from short-term borrowings175,97450,000115,67617,779Proceeds from long-term borrowings——124,32419,108Repayment of short-term borrowings(90,000)(25,974)(204,611)(31,448)Proceeds from other borrowings—5,285123,40918,968Repayment for other borrowings—(4,121)(57,200)(8,790)Net cash provided by financing activities365,17944,269898,343138,074Net increase/(decrease) in Cash223,034(218,065)409,74362,976Cash at the beginning of the year71,783284,62255,5558,539 Effect of exchange rate changes on Cash(10,195)(11,002)(11,873)(1,825) Cash at the end of the year284,62255,555453,42569,690 Supplemental informationInterest paid2,2843,13610,7961,659Income tax paid——777119Accrual for purchase of property and equipment—2,1211,313202Receivable from disposal of property and equipment——152Payable for repurchase of ordinary shares——1,929296 The accompanying notes are an integral part of these consolidated financial statements. F-13Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(All amounts in thousands, except for share and per share data) 1. Organization and Principal Activities Secoo Holding Limited (‘‘Secoo’’ or the ‘‘Company’’) was incorporated in the Cayman Islands on January 4, 2011. Secoo, through its consolidatedsubsidiaries, variable interest entities and variable interest entities’ subsidiaries (collectively referred to as the ‘‘Group’’) is primarily engaged in the sale ofupscale brand products including handbags, watches, jewelry and other premium lifestyle products through its own internet platforms and offline experiencecenters. Secoo also offers its website as a marketplace to third party merchants to facilitate their sales of upscale products and services. The Group’s principaloperations and geographic markets are mainly in the People’s Republic of China (‘‘PRC’’ or “China”). The accompanying consolidated financial statements include the financial statements of the Company, its subsidiaries, variable interest entities and variableinterest entities’ subsidiaries. Variable interest entities The Group operates its website in the PRC through Beijing Secoo Trading Ltd. (“Beijing Secoo”), a limited liability company established under the laws ofthe PRC on April 30, 2009, and Beijing Wo Mai Wo Pai Auction Co., Ltd (‘‘Beijing Auction’’), a limited liability company established under the laws of thePRC on September 15, 2014. Beijing Secoo holds the necessary PRC operating licenses for the online business, and Beijing Auction holds the necessaryPRC operating license for the auction business. The equity interests of Beijing Secoo and Beijing Auction (collectively referred to as the ‘‘VIEs’’) are legallyheld by individuals who act as nominee equity holders of the VIEs on behalf of Kutianxia (Beijing) Information Technology Ltd. (“Kutianxia”). BeijingSecoo entered into a series of contractual agreements with Kutianxia and its legal shareholders, including Powers of Attorney, an Exclusive BusinessCooperation Agreement, Equity Pledge Agreements, Exclusive Option to Purchase Agreements, and an Exclusive Option to Purchase Intellectual PropertiesAgreement (collectively, the “Beijing Secoo VIE Agreements”). Beijing Auction entered into a series of contractual agreements with Kutianxia and its legalshareholders, including Powers of Attorney, an Exclusive Business Cooperation Agreement, Equity Pledge Agreements, Exclusive Option to PurchaseAgreements and Loan Agreements (collectively, the “Bejing Auction VIE Agreements’’, and together with the Beijing Secoo VIE Agreements, the “VIEAgreements”). Pursuant to the VIE Agreements, the Group, through Kutianxia, is able to exercise effective control over, bears the risks of, enjoys substantially all of theeconomic benefits of VIEs, and has an exclusive option to purchase all or part of the equity interests in VIEs when and to the extent permitted by PRC law atthe minimum price possible. The Company’s management concluded that Beijing Secoo and Beijing Auction are variable interest entities of the Group andKutianxia is the primary beneficiary of Beijing Secoo and Beijing Auction. As such, the financial statements of the VIEs are included in the consolidatedfinancial statements of the Company. The principal terms of the agreements entered into among the VIEs, their nominee equity holders and Kutianxia, the primary beneficiary, are further describedbelow. F-14Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) · Powers of Attorney Kutianxia and each of the shareholders of Beijing Secoo entered into a Powers of Attorney. Pursuant to the Powers of Attorney, the shareholders ofBeijing Secoo irrevocably appointed Kutianxia as their attorney-in-fact to exercise all shareholder rights, including, but not limited to, participation inthe shareholders’ meeting, appointing or removing directors, executive officers and senior management, disposing of all or part of the shareholder’sequity interests in Beijing Secoo, casting shareholder’s vote on matters requiring shareholders’ approval and doing all other acts in the capacity ofshareholder as permitted by Beijing Secoo’s Memorandum and Articles of Association. In addition, Kutianxia has a right to assign its rights andbenefits under the Powers of Attorney to any other parties without an advance notice to the shareholders of Beijing Secoo. The Powers of Attorneyshall continue in force and be irrevocable as long as the shareholders of Beijing Secoo remain as the registered legal shareholders of Beijing Secoo. The Powers of Attorney between Kutianxia and the shareholders of Beijing Auction contains the same terms as those described above. The Powers ofAttorney will be in effect for as long as the shareholders of Beijing Auction hold any equity interests in Beijing Auction. · Exclusive Business Cooperation Agreement Kutianxia and Beijing Secoo entered into an Exclusive Business Cooperation Agreement, whereby Kutianxia is appointed as the exclusive serviceprovider for the provision of business support, technology and consulting services to Beijing Secoo. Unless a written consent is given by Kutianxia,Beijing Secoo is not allowed to engage a third party to provide such services, while Kutianxia is able to designate another party to render such servicesto Beijing Secoo. Beijing Secoo shall pay Kutianxia on a quarterly basis a service fee, which shall be an amount that is determined by Kutianxia basedon the amount of services provided, and the market value for those services, and Kutianxia has the sole discretion to adjust the basis of calculation ofthe service fee amount according to service provided to Beijing Secoo. Kutianxia owns the exclusive intellectual property rights, whether created byKutianxia or Beijing Secoo, as a result of the performance of the Exclusive Business Cooperation Agreement. The Exclusive Business CooperationAgreement has an initial term of ten years and can be indefinitely extended at the sole discretion of Kutianxia. Beijing Secoo is not permitted toterminate the agreement except if Kutianxia commits gross negligence or fraud. The Exclusive Business Cooperation Agreement between Kutianxia and Beijing Auction contains the same terms as those described above, exceptthat Beijing Auction shall pay Kutianxia a monthly service fee determined at the sole discretion of Kutianxia on the basis of the scope and complexityof the work, the experience of staff personnel and their time spent and the market price of such work. The Exclusive Business Cooperation Agreementwill be in effect for an unlimited term, unless terminated in writing by Kutianxia, or the Exclusive Business Cooperation Agreement shall beterminated as of the expiration date of the business term of either Kutianxia or Beijing Auction if the renewal of the business term of the respectivecompanies is not approved by the relevant government authorities. Beijing Auction is not permitted to terminate the Exclusive Business CooperationAgreement. F-15Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) · Equity Pledge Agreement An Equity Pledge Agreement was entered into by and among Kutianxia, Beijing Secoo and the shareholders of Beijing Secoo. To guarantee paymentfrom Beijing Secoo for services rendered pursuant to the Exclusive Business Cooperation Agreement, the shareholders of Beijing Secoo pledged theirrespective shares in Beijing Secoo under the Equity Pledge Agreement to Kutianxia as collateral for Beijing Secoo’s service fee payment. In the eventBeijing Secoo fails to pay Kutianxia its service fee, Kutianxia will have the right to sell the pledged shares and apply the proceeds received to pay anyoutstanding service fees due by Beijing Secoo to Kutianxia. The shareholders of Beijing Secoo agree that, during the term of the Equity PledgeAgreement, they will not dispose of the pledged shares or create or allow any encumbrance on the pledged shares, and they also agree that Kutianxia’srights relating to the equity pledges shall not be prejudiced by any legal actions of the shareholders of Beijing Secoo, their successors or theirdesignees. The equity pledges have been registered with the relevant registration authority and became effective and enforceable since registration.During the term of the Equity Pledge Agreement, Kutianxia is entitled to receive dividends attributable to the pledged Beijing Secoo shares. TheEquity Pledge Agreement has a term of ten years which shall be automatically extended corresponding to the extension of the Exclusive BusinessCooperation Agreement. The Equity Pledge Agreement shall be terminated as and when the Exclusive Business Cooperation Agreement terminates. Pursuant to the Equity Pledge Agreement entered into among Kutianxia, Beijing Auction, and the nominee shareholders, the shareholders of BeijingAuction pledge all of their equity interests in Beijing Auction to guarantee their and Beijng Auction’s performance of their obligations under thecontractual arrangements including, but not limited to, the Exclusive Business Cooperation Agreement, Exclusive Option to Purchase Agreement,Loan Agreement and Powers of Attorney. If Beijing Auction or its shareholders breach their contractual obligations under these agreements, Kutianxia,as pledgee, will have the right to dispose of the pledged equity interests of Beijing Auction. The shareholders of Beijng Auction agree that, during theterm of the Equity Pledge Agreement, they will not dispose of the pledged equity interests or create or allow any encumbrance on the pledged equityinterests without the prior written consent of Kutianxia, and they also agree that Kutianxia’s rights relating to the pledged equity interests shall not beprejudiced by the legal actions of the shareholders, their successors or their designees. The shareholders of Beijing Auction shall subscribe foradditional equity in Beijing Auction only upon the written consent of Kutianxia and the additional equity shall thereon deemed to be pledged equityinterests subject to the terms of the Equity Pledge Agreement. During the term of the Equity Pledge Agreement, Kutianxia has the right to receive all ofthe dividends and profits distributed on the pledged equity interests. F-16Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) In the event of liquidation of Beijing Auction, any distribution from the liquidation proceeds of Beijing Auction received by the shareholders ofBeijing Auction shall be deposited into an account designated by Kutianxia and subject to the supervision of Kutianxia or the funds in the accountshall be unconditionally transferred to Kutianxia to the extent permitted by PRC law. The Equity Pledge Agreement became effective and enforceableon the date when the pledge of equity interests were registered with the relevant office of the Administration for Industry and Commerce in accordancewith the PRC Property Rights Law and remain effective until Beijing Auction and its shareholders discharge all their obligations under the EquityPledge Agreement. Kutianxia has a right to terminate the Agreement if Beijing Auction or its shareholders have any material breach of the terms of theAgreement, and may assign its rights and obligations under the Beijing Auction Agreements to any designated parties. Beijing Auction, and itsshareholders shall not have any right to terminate the Agreement. · Exclusive Option to Purchase Agreement Each of the shareholders of Beijing Secoo entered into an Exclusive Option to Purchase Agreement with Kutianxia and Beijing Secoo, pursuant towhich the shareholders of Beijing Secoo granted Kutianxia or its designated person an irrevocable and exclusive option to purchase, at its discretionand to the extent permitted under the PRC law, all or part of the shareholders’ equity interests in Beijing Secoo at the minimum price that the PRC lawpermits at the time unless a valuation of the shares is required by the PRC law. Beijing Secoo and its shareholders agree that without the prior writtenconsent of Kutianxia, they will not undertake any acts which may adversely affect the interests and rights of Kutianxia in Beijing Secoo. Theshareholders of Beijing Secoo commit that without the prior written consent of Kutianxia, they will not sell, pledge or dispose of their equity interestsin Beijing Secoo to any other parties. Beijing Secoo commits that without the prior written consent of Kutianxia, it will not increase or decrease itsregistered capital, amend its Articles of Association, sell, pledge, dispose of or permit a lien to be created on its assets, commit to any debts orliabilities not arising in the ordinary course of business, grant any loans or credit to any person, enter into any material contracts not in the ordinarycourse of business, enter into any investments, business acquisitions or combinations, dissolving Beijing Secoo, or distribute dividends to theshareholders. Beijing Secoo and its shareholders shall appoint those individuals recommended by Kutianxia as directors of the company. BeijingSecoo shall provide operating and financial information to Kutianxia at the request of Kutianxia and ensure the continuance of the business. TheExclusive Option to Purchase Agreement has an initial term of ten years and can be extended indefinitely at the discretion of Kutianxia. F-17Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) The Exclusive Option to Purchase Agreement entered into among Kutianxia, Beijing Auction and its nominee shareholders contains the same terms asthose described above, except that the purchase price for the equity interests shall equal the amount that the shareholders contributed to BeijingAuction as its registered capital or a pro-rata amount if only portion of the equity interests is purchased, or the minimum price permitted by applicablePRC law, whichever is higher. The Exclusive Option to Purchase Agreement will remain effective until all equity interests in Beijing Auction held byits shareholders are transferred or assigned to Kutianxia or its designees. The shareholders of Beijing Auction shall not have any right to terminate theExclusive Option to Purchase Agreement. · Exclusive Option to Purchase Intellectual Properties Agreement Kutianxia and Beijing Secoo entered into an Exclusive Option to Purchase Intellectual Properties Agreement, pursuant to which Beijing Secoogranted to Kutianxia or its designees an exclusive and irrevocable right to purchase, to the extent permitted by the PRC law, a list of specifiedintellectual properties at any time Kutianxia would desire. The intellectual properties comprise domain names, copyright of the design or content ofthe websites, trademarks owned by Beijing Secoo and all intellectual properties purchased or developed by Beijing Secoo during the term of theExclusive Option to Purchase Intellectual Properties Agreement, including but not limited to trademarks, trademark applications, patents, patentapplications, software copyright, domain names, websites and technology knowhow. The Exclusive Option to Purchase Intellectual PropertiesAgreement has a term of ten years and is renewable at the option of Kutianxia for another ten years. · Loan Agreements Loan Agreements were entered into between Kutianxia and each of the shareholders of Beijing Auction. Under these Loan Agreements, Kutianxiamade interest-free loans in an aggregate amount of RMB1 million to the shareholders of Beijing Auction exclusively for the purpose of the initialcapitalization and the subsequent financial needs of Beijing Auction. The loans shall be repaid in full if the shareholders of Beijing Auction cease tobe employees of Kutianxia, Beijing Auction or their affiliates; and can only be repaid with the proceeds derived from the sale of all of the equityinterests in Beijing Auction to Kutianxia or its designated representatives pursuant to the Exclusive Option to Purchase Agreements. The term of theloans is ten years from the date of the Loan Agreements and may be extended upon mutual written consent of Kutianxia and the shareholders ofBeijing Auction. The revenue producing assets that are held by the VIEs primarily comprise of network equipment, purchased software and the website. Substantially all ofsuch assets are recognized in the Company’s consolidated financial statements, except for certain internally developed software, which were not recorded onthe Company’s consolidated balance sheets as they do not meet all the capitalization criteria. The VIEs also have assembled work force for sales, marketingand operations. F-18Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) Risks in relation to the VIE structure In the opinion of the Company’s management, the contractual arrangements have resulted in Kutianxia having the power to direct activities that mostsignificantly impact the VIEs and the VIEs’ subsidiaries, including appointing key management, setting up operating policies, exerting financial controlsand transferring profit or assets out of the VIEs and the VIEs’ subsidiaries at its discretion. Kutianxia considers that it has the right to receive all the benefitsand assets of the VIEs and the VIEs’ subsidiaries. As the VIEs and the VIEs’ subsidiaries were established as limited liability companies under the PRC law,their creditors do not have recourse to the general credit of Kutianxia for the liabilities of the VIEs and VIEs’ subsidiaries, and Kutianxia does not have theobligation to assume the liabilities of the VIEs and VIEs’ subsidiaries. The Group has determined that the VIE agreements are in compliance with PRC laws and are legally enforceable. However, uncertainties in the PRC legalsystem could limit the Group’s ability to enforce the VIE Agreements; and if the shareholders of the VIEs were to reduce their interest in the Group, theirinterests may diverge from that of the Group and that may potentially increase the risk that they would seek to act contrary to the contractual terms. The Group’s ability to control the VIEs and the VIEs’ subsidiaries also depends on the rights provided to Kutianxia under the Powers of Attorney to vote onall matters requiring shareholders’ approval in the respective VIEs. As noted above, the Group believes these Powers of Attorney are legally enforceable butyet they may not be as effective as direct equity ownership. In addition, if the corporate structure of the Group or the contractual arrangements betweenKutianxia, the VIEs and their respective shareholders were found to be in violation of any existing PRC laws and regulations, the relevant PRC regulatoryauthorities could: · revoke the Group’s business and operating licenses; · require the Group to discontinue or restrict its operations; · restrict the Group’s right to collect revenues; · block the Group’s websites; · require the Group to restructure the operations, re-apply for the necessary licenses or relocate its businesses, staff and assets; · impose additional conditions or requirements with which the Group may not be able to comply; or · take other regulatory or enforcement actions against the Group that could be harmful to the Group’s business. F-19Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) The imposition of any of the above restrictions or actions may result in a material and adverse effect on the Group’s ability to conduct its business. Inaddition, if the imposition of any of these restrictions causes the Group to lose the right to direct the activities of the VIEs and the VIEs’ subsidiaries or theright to receive their economic benefits, the Group would no longer be able to consolidate the VIEs and the VIEs’ subsidiaries. The Group believes thelikelihood to lose the Group’s current ownership structure or the contractual arrangements with the VIEs and the VIEs’ subsidiaries is remote based on thecurrent facts and circumstances. There is no VIE in which the Group has a variable interest but is not the primary beneficiary. Currently there is no contractual arrangement that could requirethe Group to provide additional financial support to the VIEs. The following consolidated assets and liabilities information of the Group’s VIEs and VIEs’ subsidiaries as of December 31, 2016 and 2017, and consolidatedoperating results and cash flows information for the years ended December 31, 2015, 2016 and 2017, have been included in the accompanying consolidatedfinancial statements: F-20Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) As of December 31, 2016 2017 RMB RMBCash46,398116,222Restricted cash200—Accounts receivable20,46254,093Inventories, net735,2231,178,507Advances to suppliers2,0504,815Prepayments and other current assets16,35215,463Amounts due from related parties—20Total current assets820,6851,369,120 Property and equipment, net24,94028,941Other non-current assets1,3203,500Deferred tax assets—18,654Total assets846,9451,420,215 Short-term borrowings and current portion of long-term borrowings200,000177,274Accounts payable254,537262,576Amount due to holding company and subsidiaries*426,762531,867Amount due to related parties2,3192,451Advances from customers40,89167,604Accrued expenses and other current liabilities194,266313,574Deferred revenue5,25412,051Total current liabilities1,124,0291,367,397 Long-term borrowings , excluding current portion—124,324Total liabilities1,124,0291,491,721 *Amounts due to holding company and subsidiaries represent the amounts due to Secoo Holding Limited and its subsidiaries, which are eliminated uponconsolidation. F-21Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) For the Year Ended December 31,2015 2016 2017RMB RMB RMBTotal net revenues1,589,4002,378,8373,504,055Net (loss)/income(160,836)(10,160)169,851Net cash (used in)/ provided by operating activities2,772(98,799)(19,779)Net cash used in investing activities(9,754)(5,845)(11,996)Net cash provided by financing activities58,79055,000101,599Net (decrease)/ increase in Cash51,808(49,644)69,824Cash at the beginning of the year44,23496,04246,398Cash at the end of the year96,04246,398116,222 F-22Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) 2. Summary of Significant Accounting Policies (a) Basis of Presentation The consolidated financial statements of the Group have been prepared in accordance with accounting principles generally accepted in the United States ofAmerica (‘‘U.S. GAAP’’). (b) Principles of Consolidation The consolidated financial statements include the financial statements of the Company, its subsidiaries, the VIEs for which the Company or its subsidiary isthe primary beneficiary and the VIEs’ subsidiaries. Subsidiaries are those entities in which the Company, directly or indirectly, controls more than one half of the voting power or has the power to govern thefinancial and operating policies, to appoint or remove the majority of the members of the board of directors, or to cast a majority of votes at the meeting ofdirectors. A VIE is an entity in which the Company, or its subsidiary, through contractual arrangements, exercises effective control over the activities thatmost impact the economic performance, bears the risks of, and enjoys the rewards normally associated with ownership of the entity, and therefore theCompany or its subsidiary is the primary beneficiary of the entity. All intercompany transactions and balances among the Company, its subsidiaries, the VIEs and the VIEs’ subsidiaries have been eliminated uponconsolidation. (c) Use of Estimates The preparation of the consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities, related disclosures of contingent assets and liabilities at the balance sheet date, and the reported revenues andexpenses during the reported period in the consolidated financial statements and accompanying notes. Significant accounting estimates include, but notlimited to, sales returns, customer incentives, inventory write-downs for excess and obsolete inventories, realization of deferred income tax assets, share-basedcompensation and redemption value of the redeemable preferred shares. Actual results may differ materially from those estimates. (d) Foreign Currency The Group’s reporting currency is Renminbi (‘‘RMB’’). The functional currency of the Company and the Group’s entities incorporated in the British VirginIslands (‘‘BVI’’), United States of America and Hong Kong Special Administrative Region (‘‘HK’’ or “Hong Kong”) is the United States dollars (‘‘US$’’). Thefunctional currency of the Group’s entity incorporated in Italy and Malaysia is the Euro dollars and the Ringgit Malaysia, respectively. The functionalcurrency of the Group’s PRC subsidiaries, VIEs and VIEs’ subsidiaries is the RMB. Transactions denominated in currencies other than the functional currency are remeasured into the functional currency at the exchange rates prevailing at thedates of the transactions. Monetary assets and liabilities denominated in a foreign currency are remeasured into the functional currency using the applicableexchange rate at the balance sheet date. The resulting exchange differences are recorded as foreign currency exchange losses in the Consolidated Statementsof Comprehensive Income (Loss). Total exchange differences were a loss of RMB7,425 and RMB11,418 for the years ended December 31, 2015 and 2016,respectively, and a gain of RMB9,477 for the year ended December 31, 2017. F-23Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) The financial statements of the non PRC Group’s entities are translated from the functional currency into RMB. Assets and liabilities are translated into RMBusing the applicable exchange rates at the balance sheet date. Equity accounts other than earnings generated in the current period are translated into RMBusing the appropriate historical rates. Revenues, expenses, gains and losses are translated into RMB using the average exchange rates for the relevant period.The resulting foreign currency translation adjustments are recorded as a component of other comprehensive income or loss in the Consolidated Statements ofComprehensive Income (Loss), and the accumulated foreign currency translation adjustments are recorded as a component of accumulated othercomprehensive income or loss in the Consolidated Statements of Shareholders’ Equity. Total foreign currency translation differences were a loss ofRMB29,345 and RMB60,138 for the years ended December 31, 2015 and 2016, respectively, and a gain of RMB81,834 for the year ended December 31,2017. (e) Convenience Translation Translations of balances in the Consolidated Balance Sheets, Consolidated Statements of Comprehensive Income (Loss), Consolidated Statements ofShareholders’ Equity and Consolidated Statements of Cash Flows from RMB into US$ as of and for the year ended December 31, 2017 are solely for theconvenience of the readers and were calculated at the rate of US$1.00=RMB6.5063, representing the noon buying rate in The City of New York for cabletransfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York on December 29, 2017. No representation is made that the RMBamounts could have been, or could be, converted, realized or settled into US$ at that rate on December 29, 2017, or at any other rate. (f) Commitments and Contingencies In the normal course of business, the Group is subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a widerange of matters, including, among others, government investigations, shareholder lawsuits, and non-income tax matters. An accrual for a loss contingency isrecognized when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. If a potential material loss contingencyis not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of therange of possible loss if determinable and material, is disclosed. (g) Cash and Time Deposits Cash consist of cash on hand, cash at bank and time deposits, which have original maturities of three months or less and are readily convertible to knownamounts of cash. Time deposits represent certificates of deposit placed with banks with original maturities of more than three months but less than one year. F-24Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) (h) Restricted Cash Restricted cash is an amount of cash deposited with a bank in conjunction with a borrowing from the bank. Restriction on the use of such cash and theinterest earned thereon is imposed by the bank and remains effective throughout the term of the bank borrowing. The cash restricted for use longer than oneyear is classified as non-current assets in the consolidated balance sheets. (i) Accounts Receivable Accounts receivable mainly represent amounts due from online payment channels, delivery companies and installment payment by end customers withpayment period within one year. Accounts receivables are recorded net of an allowance for doubtful accounts, if any. The Group considers many factors inassessing the collectability of its accounts receivable, such as the age of the amounts due, the payment history, credit-worthiness and the financial conditionof the debtor. An allowance for doubtful accounts is recorded in the period in which a loss is determined to be probable. The Group also makes a specificallowance if there is strong evidence indicating that an accounts receivable is likely to be unrecoverable. Accounts receivable are charged off against theallowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers. No allowance for accounts receivable was provided as of December 31, 2016 and 2017 as the Companybelieves that it is probable the accounts receivable will be fully collected. Approximately 4% of the Company’s accounts receivable represent output VATamounts, which are excluded from the Company’s merchandise sales revenues. (j) Inventories, net Inventories, consisting of products available for sale, are stated at the lower of cost or net realizable value. The cost of inventory is determined using theidentified cost of the specific item. The Group takes ownership, risks and rewards of the products purchased. Inventory is written down for damaged goodsand slow-moving merchandise, which is dependent upon factors such as historical and forecasted consumer demand, and the sales promotion. Whenappropriate, write downs to inventory are recorded to write down the cost of inventories to their net realizable value. Write downs are recorded in cost ofrevenues in the Consolidated Statements of Comprehensive Income (Loss). (k) Property and Equipment, net Property and equipment are stated at cost less accumulated depreciation and impairment. Property and equipment are depreciated at rates sufficient to writeoff their costs less impairment and residual value (estimated at 5% of cost) over their estimated useful lives on a straight-line basis. Leasehold improvementsare depreciated on a straight-line basis over the period of the lease or their estimated useful lives, if shorter. The estimated useful lives are as follows: F-25Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) Category Estimated useful livesElectronic equipment3-5 yearsTransportation equipment4 yearsOffice equipment3-5 yearsLeasehold improvementShorter of 5 years or lease term Expenditures for repairs and maintenance are expensed as incurred, whereas the costs of renewals and betterment that extends the useful lives of property andequipment are capitalized as additions to the related assets. Retirements, sales and disposals of assets are recorded by removing the costs, accumulateddepreciation and impairment with any resulting gain or loss recognized in the Consolidated Statements of Comprehensive Income (Loss). (l) Impairment of Long-lived Assets Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be fullyrecoverable or that the useful life is shorter than the Group had originally estimated. When these events occur, the Group evaluates the impairment for thelong-lived assets by comparing the carrying value of the assets to an estimate of future undiscounted cash flows expected to be generated from the use of theassets and their eventual disposition. If the sum of the expected future undiscounted cash flows is less than the carrying value of the assets, the Grouprecognizes an impairment loss based on the excess of the carrying value of the assets over the fair value of the assets. No impairment of long-lived assets wasrecognized for the years ended December 31, 2015, 2016 and 2017. (m) Value Added Taxes The Company’s PRC subsidiaries are subject to value added tax (“VAT”). Revenue from sales of second-hand merchandise purchased from individualvendors is subject to VAT at the concession rate of 2% or 3% depending on the sales term. Revenue from sales of brand new merchandise purchased fromentities is generally subject to VAT at the rate of 17%. Service revenue is subject to VAT at the rate of 6%. The VAT balance is recorded in Accrued Expensesand Other Current Liabilities in the consolidated balance sheets. (n) Fair Value Fair value represents the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participantsat the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants woulduse in pricing an asset or a liability. Accounting guidance defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Accountingguidance establishes a three-level fair value hierarchy and requires an entity to maximize the use of observable inputs and minimize the use of unobservableinputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that issignificant to the fair value measurement. The three levels of inputs are: F-26Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2—Include other inputs that are directly or indirectly observable in the marketplace. Level 3—Unobservable inputs which are supported by little or no market activity. Accounting guidance also describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach and(3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparableassets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based onthe value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required toreplace an asset. Short-term financial assets and liabilities of the Group primarily consist of cash, time deposits, restricted cash, accounts receivable, advances to suppliers,prepayments and other current assets, short-term borrowings, accounts payable, amount due to Founder, advance from customers, accrued expenses and othercurrent liabilities. As of December 31, 2016 and 2017, the carrying values of these financial instruments approximated to their fair values due to the short-term maturity of these instruments. Long-term financial asset of the Group is restricted cash recognized in non-current assets. As of December 31, 2016 and 2017, the carrying values of restrictedcash recognized in non-current assets approximated to their fair values as the interest rates approximate the rates in the market. Long-term financial liabilities of the Group are long-term borrowings. As of December 31, 2016 and 2017, the carrying values of long-term borrowingsapproximated to their fair values as the interest rates of the Group’s long-term borrowings approximate the rates currently offered by the banks for similarloans. (o) Revenue Revenues are generated primarily from merchandise sales, marketplace services and other services. Revenues are recognized when the following four criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services havebeen rendered; (3) the selling price is fixed or determinable; and (4) collectability is reasonably assured. Sales allowances for returns, which reduce revenues, are estimated based on historical experience. Revenues are recorded net of value-added taxes, businesstaxes and surcharges. F-27Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) In accordance with ASC 605-45, Revenue Recognition: Principal Agent Considerations, the Group considers several factors in determining whether it acts asthe principal or as an agent in the arrangement of merchandise sales and provision of various related services and thus whether it is appropriate to record therevenue and the related cost of sales on a gross basis or record the net amount earned as service fees. Merchandise Sales The Group generates revenues mainly from merchandise sales when the Group acts as principal for the sales of brand products to end customers onlinethrough its own internet platforms and offline at the offline experience centers. Online sales include sales through the Company’s online shopping mall, flashsales, auction and overseas sales. The Group is considered as a principal for the following reasons: (1) The Group is the primary obligor and is responsible for the acceptability of the productsand the fulfillment of the delivery services; (2) The Group is responsible to compensate end customers if the products are counterfeit or defective goods;(3) The Group is also responsible for the loyalty program benefits offered in conjunction with the merchandise sales to the buyers; (4) The Group has latitudein establishing selling prices and selecting suppliers; (5) The Group assumes credit risks on receivables; and (6) The Group has legal ownership of theinventory and has significant inventory risks even for those inventory with payment deferred until the following month after the inventory is sold as it hasphysical loss risk after acceptance of all the goods purchased from suppliers. Accordingly, the Group considers itself as the principal in the arrangement withthe end customers and records revenue earned from merchandise sales on a gross basis. With respect to proceeds from merchandise sales, before determining the timing of revenue recognition, the Group allocates proceeds from merchandise salesamong sales of the products and customer loyalty program benefits based on relative fair value of each deliverable. Proceeds allocated to sales of goods arerecognized as merchandise sales upon acceptance of delivery of products by buyers. Proceeds allocated to customer loyalty program benefits are recorded asdeferred revenues. The Group collects cash from end customers before or upon deliveries of products mainly through banks, third party online payment platforms or deliverycompanies. Cash collected from end customers before product delivery is recognized as advances from customers. Marketplace and other services Service revenues include marketplace service revenue and other services revenue through the internet platform. Marketplace service revenue refers to thecommission fee earned by the Group when the Group acts as an agent for sales of vendors’ goods and lifestyle services. Vendor’s goods can be sold throughauction or online ordering and lifestyle services can be sold through online ordering. In addition, the other services revenue primarily consists of 1) advertising service revenue, and 2) service fees from the provision of repair and maintenanceservices to products such as handbags and watches. F-28Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) With respect to the marketplace service revenue, the Group does not have general inventory risk or latitude in establishing prices. Accordingly, the Grouprecords the net amount as marketplace service fees earned. The Group recognizes other service revenue when the services are rendered. The Group recognizes marketplace service revenue at the time that the Group hasprovided the service and is entitled to payment. (p) Customer Loyalty Program Customers earn loyalty program points from qualified purchases from the Group. The loyalty program points may be redeemed and applied for payment forfuture purchases from the Group. The loyalty program points have no expiry date, and there is no condition stipulated for application of the loyalty programpoints. Loyalty program points are considered a separate deliverable in a merchandise sales arrangement. A portion of the sales price is allocated to thisrevenue generating unit using vendor-specific objective evidence, and such amount is accounted for as deferred revenue in the Consolidated Balance Sheets.Deferred revenue is recognized as merchandise revenue at the time the customer redeems the loyalty program points in a future purchase, or when the Groupis legally released from its obligation. The Group gives out coupons in promotion events or at the time a customer signs up as a registered member. Customers may enjoy certain discount or pricereduction on a future purchase from the Group upon satisfying the conditions stipulated in such coupons. The coupons given out are not related to anytransaction that has generated revenue. Accordingly, the Group does not attribute any value to these types of coupons. In the event the customer applies thecoupon in a purchase, a reduced price will be recorded as sales revenue. (q) Cost of Revenues Cost of revenues consists of cost of merchandise sold and inventory write-down, repair and maintenance staff payroll and related equipment depreciation.Payment processing, packaging material and product delivery costs are classified as fulfillment expenses in the Consolidated Statements of ComprehensiveIncome (Loss). (r) Fulfillment Expenses Fulfillment expenses represent packaging material costs and those costs incurred in shipping and operating and staffing the Group’s fulfillment and customerservice centers, including costs attributable to receiving, inspecting, and warehousing inventories; picking, packaging, and preparing customer orders forshipment; collecting payments from customers and responding to inquiries from customers. Fulfillment expenses also include amounts payable to thirdparties that assist the Group in payment collections and product deliveries. Shipping costs included in fulfillment expenses were RMB25,830, RMB28,206and RMB32,277 for the years ended December 31, 2015, 2016 and 2017, respectively. F-29Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) (s) Marketing Expenses Marketing expenses mainly consist of advertising costs, promotion expenses, payroll and related expenses for personnel engaged in marketing activities.Advertising costs, which consist primarily of online and offline advertisements, are expensed when the services are received. The advertising expenses wereRMB149,545, RMB113,663 and RMB111,154 for the years ended December 31, 2015, 2016 and 2017, respectively. (t) Technology and Content Development Expenses Technology and content development expenses mainly consist of technology infrastructure expenses and payroll and related costs for employees involved inapplication development, category expansion, editorial content production and system support, as well as costs associated with computation, storage andtelecommunication infrastructures. Technology and content development expenses which include software development costs are expensed as incurred, asthe costs qualifying for capitalization have been immaterial. (u) General and Administrative Expenses General and administrative expenses mainly consist of payroll and related costs for employees involved in general corporate functions, includingaccounting, finance, tax, legal and human resources, professional fees and other general corporate expenses as well as costs associated with the use by thesefunctions of facilities and equipment, such as depreciation and rental expenses. (v) Share-based Compensation The Company periodically grants share-based awards, including but not limited to, restricted shares and share options to eligible employees and directors.The shares held by Founder Mr. Richard Rixue Li who is also the Chief Executive Officer and a director of the Company, and Founder Ms. Zhaohui Huangwho is a director of the Company became restricted and subject to service conditions in conjunction with the issuance of preferred shares. Share-based awards granted to the Founders in the form of restricted shares are measured at the grant date fair value of the awards, and are recognized ascompensation expense using the straight line method, net of estimated forfeitures, over the requisite service period, which is generally the vesting period.Forfeitures are estimated at the time of grant and revised in the subsequent periods if actual forfeitures differ from those estimates. Share-based awards granted to the employees before the Group’s IPO are subject to service and performance conditions, and share-based awards granted to theemployees after the Group’s IPO are subject to service conditions. They are measured at the grant date fair value of the awards, and are recognized ascompensation expense using the graded vesting method, net of estimated forfeitures, if and when the Company considers that it is probable that theperformance condition will be achieved. F-30Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) A change in any of the terms or conditions of share-based awards is accounted for as a modification of the awards. The Group calculates incrementalcompensation cost of a modification as the excess of the fair value of the modified awards over the fair value of the original awards immediately before itsterms are modified at the modification date. For vested awards, the Group recognizes incremental compensation cost in the period the modification occurs.For awards not being fully vested, the Group recognizes the sum of the incremental compensation cost and the remaining unrecognized compensation costfor the original awards over the remaining requisite service period after modification. Share-based compensation in relation to the restricted shares is measured based on the fair market value of the Company’s ordinary shares at the grant date ofthe award. Prior to IPO, estimation of the fair value of the Company’s ordinary shares involves significant assumptions that might not be observable in themarket, and a number of complex and subjective variables, including discount rate, and subjective judgments regarding the Company’s projected financialand operating results, its unique business risks, the liquidity of its ordinary shares and its operating history and prospects at the time the grants are made.Share-based compensation in relation to the share options is estimated using the Binominal Option Pricing Model. The determination of the fair value ofshare options is affected by the share price of the Company’s ordinary shares as well as the assumptions regarding a number of complex and subjectivevariables, including the expected share price volatility, risk-free interest rate, exercise multiple and expected dividend yield. The fair value of these awardswas determined with the assistance from a valuation report prepared by an independent valuation firm using management’s estimates and assumptions. (w) Employee Benefits The Company’s subsidiaries, the VIEs and the VIEs’ subsidiaries in China participate in a government mandated, multiemployer, defined contribution plan,pursuant to which certain retirement, medical, housing and other welfare benefits are provided to employees. PRC labor laws require the entities incorporatedin China to pay to the local labor bureau a monthly contribution calculated at a stated contribution rate on the monthly basic compensation of qualifiedemployees. The Group has no further commitments beyond its monthly contribution. The fair value of the employee benefits liabilities approximates theircarrying value due to the short-term nature of these liabilities. Employee social benefits included as expenses in the accompanying Consolidated Statementsof Comprehensive Income (Loss) amounted to RMB28,908, RMB33,980 and RMB32,606 for the years ended December 31, 2015, 2016 and 2017,respectively. F-31Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) (x) Income Tax Current income taxes are provided on the basis of net income/ (loss) for financial reporting purposes, and adjusted for income and expense items which arenot assessable or deductible for income tax purposes, in accordance with the regulations of the relevant tax jurisdictions. Deferred income taxes are providedusing the liability method. Under this method, deferred tax assets and liabilities are recognized for the tax effects of temporary differences and are determinedby applying enacted statutory tax rates that will be in effect in the period in which the temporary differences are expected to reverse to the temporarydifferences between the financial statements’ carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to reduce theamount of deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets willnot be realized. The effect on deferred taxes arising from a change in tax rates is recognized in the Consolidated Statements of Comprehensive Income (Loss)in the period of change. The Group applies a ‘‘more likely than not’’ recognition threshold in the evaluation of uncertain tax positions. The Group recognizes the benefit of a taxposition in its consolidated financial statements if the tax position is ‘‘more likely than not’’ to prevail based on the facts and technical merits of the position.Tax positions that meet the ‘‘more likely than not’’ recognition threshold are measured at the largest amount of tax benefit that has a greater than fifty percentlikelihood of being realized upon settlement. Unrecognized tax benefits may be affected by changes in interpretation of laws, rulings of tax authorities, taxaudits, and expiry of statutory limitations. In addition, changes in facts, circumstances and new information may require the Group to adjust the recognitionand measurement estimates with regard to individual tax positions. Accordingly, unrecognized tax benefits are periodically reviewed and re-assessed.Adjustments, if required, are recorded in the Group’s consolidated financial statements in the period in which the change that necessities the adjustmentsoccurs. The ultimate outcome for a particular tax position may not be determined with certainty prior to the conclusion of a tax audit and, in certaincircumstances, a tax appeal or litigation process. As of December 31, 2016 and 2017, the Group did not have any significant unrecognized uncertain taxpositions. (y) Leases A lease is classified at the inception date as either a capital lease or an operating lease. A lease is a capital lease if any of the following conditions exist: a)ownership is transferred to the lessee by the end of the lease term, b) there is a bargain purchase option, c) the lease term is at least 75% of the property’sestimated remaining economic life or d) the present value of the minimum lease payments at the beginning of the lease term is 90% or more of the fair valueof the leased property at the inception date. A capital lease is accounted for as if there was an acquisition of an asset and an incurrence of an obligation at theinception of the lease. All other leases are accounted for as operating leases. Payments made under operating leases are charged to the ConsolidatedStatements of Comprehensive Income (Loss) on a straight-line basis over the lease term. The Group had no capital leases as of December 31, 2016 and 2017. F-32Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) (z) Earnings (Loss) per Share Basic earnings/(loss) per Class A and Class B share is computed by dividing net income/(loss) attributable to holders of Class A and Class B ordinary shares,considering the accretions to redemption value of the preferred shares and accretions to redemption value of the redeemable non-controlling interest, by theweighted average number of Class A and Class B ordinary shares outstanding during the year using the two-class method. Under the two-class method, anynet income is allocated between Class A and Class B ordinary shares and other participating securities based on their participating rights. Dilutedearnings/(loss) per share is calculated by dividing net income/(loss) attributable to Class A and Class B ordinary shareholders, as adjusted for the accretionand allocation of net income related to the preferred shares and accretion related to redeemable non-controlling interest, if any, by the weighted averagenumber of Class A and Class B ordinary and dilutive ordinary equivalent shares outstanding during the year. Ordinary equivalent shares consist of sharesissuable upon the conversion of the preferred shares using the if-converted method, unvested restricted shares and Class A ordinary shares issuable upon theexercise of outstanding share option (using the treasury stock method). Ordinary equivalent shares are not included in the denominator of the dilutedearnings per share calculation when inclusion of such shares would be anti-dilutive. (aa) Treasury Stock Treasury stock represents ordinary shares repurchased by the Group that are no longer outstanding and are held by the Group. The repurchase of ordinaryshares is accounted for under the cost method whereby the entire cost of the acquired stock is recorded as treasury stock. (bb) Segment Reporting The Group’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews consolidated results when making decisionsabout allocating resources and assessing performance of the Group. For the purpose of internal reporting and management’s operation review, the Company’sChief Executive Officer and management personnel do not segregate the Company’s business by product or service lines. All product and service categoriesare viewed as in one and the only operating segment. F-33Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) (cc) Statutory Reserves The Group’s subsidiaries, VIEs and VIEs’ subsidiaries established in the PRC are required to make appropriations to certain non-distributable reserve funds. In accordance with the laws applicable to the Foreign Investment Enterprises established in the PRC, the Group’s subsidiaries registered as wholly foreignowned enterprise have to make appropriations from their after-tax profits (as determined under generally accepted accounting principles in the PRC (‘‘PRCGAAP’’)) to non-distributable reserve funds including general reserve fund, enterprise expansion fund and staff bonus and welfare fund. The appropriation tothe general reserve fund must be at least 10% of the after-tax profits calculated in accordance with PRC GAAP. Appropriation is not required if the generalreserve fund has reached 50% of the registered capital of the company. Appropriations to the enterprise expansion fund and staff bonus and welfare fund aremade at the respective company’s discretion. In addition, in accordance with the PRC Company Laws, the Group’s VIE and VIE’s subsidiaries, registered as Chinese domestic companies, must makeappropriations from their after-tax profits as determined under the PRC GAAP to non-distributable reserve funds including statutory surplus fund anddiscretionary surplus fund. The appropriation to the statutory surplus fund must be 10% of the after-tax profits as determined under PRC GAAP.Appropriation is not required if the statutory surplus fund has reached 50% of the registered capital of the company. Appropriation to the discretionarysurplus fund is made at the discretion of the company. The general reserve fund, enterprise expansion fund, statutory surplus fund and discretionary surplus fund are restricted for use. They may only be applied tooffset losses or increase the registered capital of the respective company. The staff bonus and welfare fund is liability in nature and is restricted to makepayment of special bonuses to employees and for the collective welfare of employees. None of these reserves is allowed to be transferred to the Company byway of cash dividends, loans or advances, nor can they be distributed except under liquidation. For the years ended December 31, 2015, 2016 and 2017, no appropriation was made to the general reserve fund by the Group’s wholly foreign owned PRCsubsidiaries, and no appropriation was made to the statutory surplus fund by the Group’s PRC VIEs and VIEs’ subsidiaries as these PRC companies were stillin accumulated losses . In addition, these PRC companies had not made any appropriation to discretionary funds. F-34Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) (dd) Recent Accounting Pronouncements In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (Topic 606). This guidance supersedes current guidance onrevenue recognition in Topic 605, Revenue Recognition. In addition, there are disclosure requirements related to the nature, amount, timing, and uncertaintyof revenue recognition. In August 2015, the FASB issued ASU No. 2015-14 to defer the effective date of ASU No. 2014-09 for all entities by one year. Forpublic business entities that follow U.S. GAAP, the deferral results in the new revenue standard are being effective for fiscal years, and interim periods withinthose fiscal years, beginning after December 15, 2017, with early adoption permitted for interim and annual periods beginning after December 15, 2016. Thenew revenue standard may be applied retrospectively to each prior period presented (“full retrospective method”) or retrospectively with the cumulativeeffect recognized as of the date of adoption (“modified retrospective method”). The Company plans to apply the modified retrospective method starting from January 1, 2018. The Company conducted a review and evaluation over all thecontracts that are not completed on January 1, 2018 and concluded that there is no material impact on our retained earnings as of January 1, 2018 andconsolidated financial statements in fiscal year 2018 as a result of the new adoption of the guidance. In February 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”), Leases. ASU 2016-02 specifies the accounting for leases. For operating leases, ASU2016-02 requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balancesheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on agenerally straight-line basis. ASU 2016-02 is effective for public companies for annual reporting periods, and interim periods within those years beginningafter December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact of adopting this standard on its consolidated financialstatements. F-35Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) In November, 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This Update requires that a statement of cashflows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cashequivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalentswhen reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this Update apply to allentities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows under Topic 230. The amendments in thisUpdate are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all otherentities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning afterDecember 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, anyadjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company evaluated the impact of ASU No. 2016-18 and determined to fully adopt the new standards starting from January 1, 2018 and will apply a retrospective transition method to each period presented. In May 2017, the FASB issued ASU No. 2017-09, “Compensation — Stock compensation (Topic 718): Scope of modification accounting” (“ASU 2017-09”),which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. ASU 2017-09 is effectiveprospectively for all companies for annual periods beginning on or after December 15, 2017, and early adoption is permitted. Management does not expectthat the adoption of this guidance will have a material effect on the consolidated financial statements, and will adopt this ASU from January 1, 2018. In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging(Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features and II. Replacement of the Indefinite Deferral for MandatorilyRedeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception.Part I of this update addresses public entities that issue warrants, convertible debt or convertible preferred stock that contain down round features. Part II ofthis update re-characterizes the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scopeexception. Those amendments do not have an accounting effect. This ASU is effective for fiscal years beginning after December 15, 2019, and interim periodswithin fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact of adopting thisstandard on its consolidated financial statements. F-36Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) 3. Concentration and Risk Concentration of customers and suppliers There are no customers or suppliers from whom revenue or purchases individually represent greater than 10% of the total revenues or the total purchases ofthe Group for the years ended December 31, 2015, 2016 and 2017. Concentration of credit risk Assets that potentially subject the Group to significant concentrations of credit risk primarily consist of cash, restricted cash and accounts receivable. As ofDecember 31, 2016 and 2017, substantial all of the Group’s cash and restricted cash were held by reputable financial institutions located in the PRC andHong Kong which management believes are of high credit quality and financially sound based on public available information. The majority of the customers are required to pay in full before or upon taking delivery of the merchandise either through the online payment processingfinancial institutions or companies or the Group’s appointed cash collection delivery companies. To a lesser extent, a portion of the customers pay byinstallments within a period from 3 to 12 months. Accounts receivable are receivables from the payment processing agents, delivery companies andinstallment receivable from customers. The risk with respect to accounts receivable is mitigated by credit evaluations the Group performs on these collectionagents and customers and its ongoing monitoring process of their outstanding balances. Although accounts receivable are generally unsecured, the Groupconsiders the credit risk of accounts receivable is low. Currency risk The Group’s operational transactions and its assets and liabilities are primarily denominated in RMB, which is not freely convertible into foreign currencies.The Group’s cash and time deposits denominated in RMB are subject to such government controls and amounted to RMB55,555 and RMB166,076 as ofDecember 31, 2016 and 2017. The value of the RMB is subject to changes in the central government policies and international economic and politicaldevelopments that affect the supply and demand of RMB in the foreign exchange market. In the PRC, certain foreign exchange transactions are required bylaw to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (the ‘‘PBOC’’). Remittances from China incurrencies other than RMB by the Group must be processed through the PBOC or other China foreign exchange regulatory bodies which require certainsupporting documentation in order to effect the remittance. Interest rate risk The Group’s short-term borrowings and long-term borrowing bear interests at fixed rates. If the Group were to renew these loans, the Group might be subjectto interest rate risk. F-37Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) 4. Fair Value Measurement As of December 31, 2016 and 2017, the Group did not have assets or liabilities measured at fair value on a recurring basis in periods subsequent to theirinitial recognition. 5. Inventories As of December 31, 2016 and 2017, inventories represented products, of which amounting to RMB220,683 and RMB250,889, respectively, were pledged toa domestic bank for bank loans (see note 9 and note 10) 6. Prepayments and Other Current Assets As of December 31, 2016 2017 RMB RMBDeposits7,3386,275Prepaid advertising expense2,2231,392Staff advances2,1873,560Prepaid rent1,7702,496Others6,3699,220Prepayments and Other Current Assets19,88722,943 F-38Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) 7. Property and Equipment, net As of December 31, 2016 2017 RMB RMBElectronic equipment26,19932,324Transportation equipment2,6504,625Office equipment10,4809,493Leasehold improvements32,38440,092Total Property and Equipment71,71386,534Less: Accumulated depreciation(36,517)(45,741)Total Property and Equipment, net35,19640,793 Depreciation expenses were RMB11,068, RMB13,388 and RMB13,424 for the years ended December 31, 2015, 2016 and 2017, respectively. As of December 31, 2016 and 2017, property and equipment amounting to nil and RMB11,753, respectively, were pledged to a domestic bank for bank loans(see note 9 and note 10). 8. Other Non-current Assets As of December31, 2016 2017 RMB RMBRental and other deposits1,9323,955Prepaid insurance—3,955Others251175Other Non-current Assets2,1838,085 9. Short-term Borrowings and Current Portion of Long-term Borrowings As of December 31, 2016 2017 RMB RMBBank loans200,000100,000Other borrowings—66,209Current portion of long-term borrowings (Note 10)—11,065200,000177,274 F-39Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) In September 2015, a subsidiary of the Group entered into loan agreement with Xiamen International Bank to finance its working capital. The loan amountas of December 31, 2016 was RMB150,000 with an interest rate of 1.62% and 1.68% per annum for the first and second year respectively. The loan is due intwo years with a restricted cash deposits of RMB155,300 as of December 31, 2016 in Xiamen International Bank. The loan was repaid in September 2017 andthe cash deposit amounting to RMB155,300 became unrestricted following the loan settlement. In May 2016, a subsidiary of the Group entered into a facility agreement with SPD Silicon Valley Bank Co., Ltd (“SPD”) and borrowed RMB50,000 for oneyear. In May 2017, the subsidiary repaid RMB50,000 under this facility, and concurrently entered into an amended facility agreement with SPD to extend thefacility of RMB70,000. In addition, RMB250,889 of inventories and RMB11,753 of equipment were pledged to SPD as collateral and a guarantee isprovided to SPD by Hong Kong Secoo Investment Group Limited (Hong Kong Secoo) and the Company. Both of the original facility and amended facilityagreements contain certain financial and nonfinancial covenants. The subsidiary received waivers from the bank for the financial covenants that were not metas of December 31, 2016. In May 2017, the subsidiary borrowed RMB50,000 under the facility agreement for one year with an interest of 7.35% per annumand a maturity date in May 2018. As of December 31, 2017, the subsidiary met the financial covenants and the outstanding balances was RMB50,000. In December 2017, a subsidiary of the Group entered into loan agreement with Shanghai Pudong Development Bank Co., Ltd. to finance its working capital. The loan amounts was RMB50,000 with an interest rate of 4.35% per annum and a maturity term of one year. A restricted cash deposit of RMB55,214 wasdeposited to the bank for this borrowing. In May 2017, a subsidiary of the Company’s VIE entered into a short-term borrowing agreement to borrow RMB45,000 from a non-financial institution at aninterest rate of 9.35% per annum. The borrowing is payable in five monthly instalments starting in May 2017. The borrowing is guaranteed by theCompany’s VIE. In August 2017, the agreement was extended. During 2017, RMB14,000 was repaid and RMB31,000 was outstanding as of December 31,2017. The remaining balance were paid off in April 2018. During 2017, one of the Group’s subsidiaries entered into an agreement with a third party non-financial institution that permits the subsidiary to borrowshort-term borrowings at the interest rates from 9% to 10%. For the year ended December 31, 2017, the Company borrowed RMB78,409 under thisagreement, among which, RMB35,209 is outstanding as of December 31, 2017 with the accounts receivable of RMB35,209 pledged to the third party ascollateral. F-40Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) 10. Long-term Borrowings, excluding Current Portion As of December 31, 2016 2017 RMB RMB Long-term borrowings—135,389Less: current portion (Note 9)—(11,065)—124,324 Pursuant to the amended agreement with SPD stated in note 9, a subsidiary of the Group drew down RMB20,000 with a monthly payment from August 2017to May 2019 at an interest rate of 6.75%. During 2017, RMB4,611 was repaid. As of December 31, 2017, the subsidiary met the financial covenants and theoutstanding balances of current portion and non-current portion of the facility were RMB11,065 and RMB4,324, respectively. In November 2017, a subsidiary of the Group entered into borrowing agreement with National Trust Co., Ltd (“NTC”) to finance its working capital. Theborrowing amount was RMB150,000 with an interest rate of 3.38% per annum and a maturity term of two and a half years. A restricted cash deposits ofRMB123,800 pledged by the subsidiary in Xiamen International Bank, which was a consignor of NTC in the borrowing agreement. As of December 31, 2017,the subsidiary received RMB120,000 from NTC for this borrowing. The remaining amount of the borrowing was received by the subsidiary in January 2018. As of December 31, 2017, the future principal payments for the Group’s long-term borrowings will be due according to the following payment schedule: Principal amounts RMB201811,06520194,3242020120,000Total135,389 F-41Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) 11. Accrued Expenses and Other Current Liabilities As of December 31, 20162017 RMBRMB Accrual for salary and bonus15,60325,536Accrual for employee benefits34,12643,667Advertising fees payable19,39745,859Taxes payable107,090169,524Office expenses10,39512,821Deposits from merchants9,48912,789Others18,86633,740Accrued Expenses and Other Current Liabilities214,966343,936 Others mainly consist of professional fees payable, delivery cost payable and rent payable. 12. Income Tax a) Income tax Cayman Islands Under the current laws of the Cayman Islands, the Company is not subject to tax on income or capital gain. Additionally, the Cayman Islands does notimpose a withholding tax on payments of dividends to shareholders. Hong Kong Under the current Hong Kong Inland Revenue Ordinance, the Company’s Hong Kong subsidiary is subject to Hong Kong profits tax at the rate of 16.5% onits taxable income generated from the operations in Hong Kong. Payments of dividends by the Hong Kong subsidiary to the Company is not subject towithholding tax in Hong Kong. PRC The Group’s PRC subsidiaries, VIEs and VIEs’ subsidiaries are subject to the PRC Corporate Income Tax Law (‘‘CIT Law’’) and are taxed at the statutoryincome tax rate of 25%. The CIT Law also provides that an enterprise established under the laws of a foreign country or region but whose ‘‘de facto management body’’ is located inthe PRC be treated as a resident enterprise for PRC tax purposes and consequently be subject to the PRC income tax at the rate of 25% for its global income.The Implementing Rules of the CIT Law define the location of the ‘‘de facto management body’’ as ‘‘the place where the exercising, in substance, of theoverall management and control of the production and business operation, personnel, accounting, property, etc., of a non-PRC company is located.’’ Basedon a review of surrounding facts and circumstances, the Group does not believe that it is likely that its operations outside the PRC should be considered aresident enterprise for PRC tax purposes. F-42Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) The components of (loss)/income before income taxes are as follows: For the year ended December 31,2015 2016 2017RMB RMB RMBThe Cayman Islands(22,964)(11,880)(14,109)Hong Kong(14,588)(16,629)14,951PRC, excluding Hong Kong(183,295)(15,864)103,864Other(1,156)(200)(2,822)(222,003)(44,573)101,884 Withholding tax on undistributed dividends The CIT Law also imposes a withholding income tax of 10% on dividends distributed by a foreign investment enterprise (‘‘FIE’’) to its immediate holdingcompany outside of China, if such immediate holding company is considered as a non-resident enterprise without any establishment or place within China orif the received dividends have no connection with the establishment or place of such immediate holding company within China, unless such immediateholding company’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. The Cayman Islands,where the Company is incorporated, does not have such tax treaty with China. According to the arrangement between Mainland China and Hong Kong onthe Avoidance of Double Taxation and Prevention of Fiscal Evasion in August 2006, dividends paid by an FIE in China to its immediate holding companyin Hong Kong will be subject to withholding tax at a rate of no more than 5% (if the foreign investor owns directly at least 25% of the shares of the FIE). TheGroup did not record any dividend withholding tax, as the Group’s PRC entities have no retained earnings in any of the periods presented. The current and deferred portions of income tax expenses (benefits) included in the Consolidated Statements of Comprehensive Income (Loss), which wereattributable to the Group’s PRC subsidiaries and VIE entities, are as follows: For the Year Ended December 31,2015 2016 2017RMB RMB RMBCurrent tax expenses——12,456Deferred tax benefits——(43,981)Income tax benefits——31,525 F-43Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) Reconciliation of the differences between PRC statutory income tax rate and the Group’s effective income tax rate for the years ended December 31, 2015,2016 and 2017 are as follows: For the Year Ended December 31, 2015 2016 2017 RMB RMB RMB Statutory income tax rate25%25%25%Increase (decrease) in effective income tax rate resulting fromTax rate differential not subject to PRC income tax3.14%9.85%2.29%Share-based compensation—(0.56)%11.31%Non-deductive expense without tax invoice(2.24)%(12.98)%13.02%Others(2.13)%(1.50)%1.89%Change in valuation allowance(23.77)%(19.81)%(84.45)%Effective tax rate0%0%(30.94)% b) Deferred tax assets As of December 31, 2016 2017 RMB RMBPayroll and other accrued expenses12,0799,460Inventory write-down1,3801,569Net operating loss carry forwards80,64445,284Advertisement expenses6,9332,667Less: Valuation allowance(101,036)(14,999)Total deferred tax assets—43,981 In assessing the recoverability of its deferred tax assets, the Group considers whether some portion or all of the deferred tax assets will not be realized. Theultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differencesbecome deductible. The Group considers the cumulative earnings and projected future taxable income in making this assessment. Recovery of substantiallyall of the Group’s deferred tax assets is dependent upon the generation of future income, exclusive of reversing taxable temporary differences. As of December 31, 2015 and 2016, the Group incurred accumulated net operating losses. The management believes that it is more likely than not that theaccumulated net operating losses and other deferred tax assets will not be utilized in the foreseeable future. Accordingly, the Group has provided fullvaluation allowance for the deferred tax assets as of December 31, 2015 and 2016. F-44Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) The Group made profit for the year ended December 31, 2017. For some entities, the management believes that it is more likely than not that the accumulatednet operating losses of those entities will be utilized in the foreseeable future, therefore no valuation allowance was provided for the deferred tax assets in theamount of RMB 43,981. As of December 31, 2017, the valuation allowance of RMB14,999 was provided for the Company and some subsidiaries. For thoseentities, the management believes that it is more likely than not that the accumulated net operating losses of those entities will not be utilized in theforeseeable future. As of December 31, 2017, the Group had net operating loss carry forwards of approximately RMB26,189 attributable to the Hong Kong subsidiary,RMB1,900 attributable to the Malaysia subsidiary, RMB1,561 attributable to the Italian subsidiary and of approximately RMB160,653 attributable to thePRC subsidiaries, VIEs and VIEs’ subsidiaries. The loss carried forward by the Hong Kong, Malaysia and Italian subsidiaries can be carried forward to netagainst future taxable income without a time limit; while the loss carried forward by the PRC companies will expire during the period from year 2018 to year2022. The changes in valuation allowance for the years ended December 31, 2015, 2016 and 2017 are as follows: For the Year Ended December 31,2015 2016 2017RMB RMB RMBBalance at the beginning of the year39,43292,204101,036Additions52,7728,8322,842Reversals——(88,879)Balance at the end of the year92,204101,03614,999 According to the PRC Tax Administration and Collection Law, the statute of limitation is three years if the underpayment of taxes is due to computationalerrors made by the taxpayer or the withholding agent. The statute of limitation is extended to five years under special circumstances where the underpaymentof taxes is more than RMB100,000. In the case of transfer pricing issues, the statute of limitation is 10 years. There is no statute of limitation in the case of taxevasion. The income tax returns of the Company’s PRC subsidiaries, consolidated VIEs, and the subsidiaries of the VIEs for the years from 2013 to 2017 areopen to examination by the PRC tax authorities. F-45Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share and per share data) 13. Redeemable Convertible Preferred Shares Redeemable convertible preferred shares consist of the following: Series A-1PreferredShares Series A-2PreferredShares Series BPreferredShares Series CPreferredShares Series DPreferredShares Series EPreferredShares TotalBalance as of January 1, 201531,33134,398100,78384,925232,381—483,818Issuance for cash—————342,880342,880Issuance costs paid—————(4,130)(4,130)Redemption value accretion19,35921,50548,14128,41159,50736,767213,690Foreign currency translation adjustment1,8272,0016,1825,19914,21014,26243,681Balance as of December 31, 201552,51757,904155,106118,535306,098389,7791,079,939Redemption value accretion78,60890,231127,74671,359111,684116,114595,742Foreign currency translation adjustment3,5943,96210,6038,09320,90126,61873,771Balance as of December 31, 2016134,719152,097293,455197,987438,683532,5111,749,452Redemption value accretion26,35629,61960,28940,16457,988(11,737)202,679Foreign currency translation adjustment(7,651)(8,632)(16,763)(11,297)(24,341)(28,178)(96,862)Conversion of preferred shares to ordinaryshares(153,424)(173,084)(336,981)(226,854)(472,330)(492,596)(1,855,269)Balance as of December 31, 2017——————— F-46Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share and per share data) On September 23, 2011, the Company entered into a shares purchase agreement with certain investors, pursuant to which 1,250,000 Redeemable ConvertibleSeries A-1 Preferred Shares (‘‘Series A-1 Preferred Shares’’) and 1,250,000 Redeemable Convertible Series A-2 Preferred Shares (‘‘Series A-2 PreferredShares’’) were issued on September 23, 2011, and 178,572 Series A-2 Preferred Shares were issued on February 7, 2012 for an aggregated consideration ofUS$2,000 (equivalent of RMB13,153). On September 23, 2011, the Company also issued certain Convertible Promissory Notes (‘‘Convertible Promissory Notes’’) amounting to US$3,333(equivalent of RMB20,973), which were subsequently converted into Redeemable Convertible Series B Preferred Shares upon the issuance of theRedeemable Convertible Series B Preferred Shares in March 2012. On February 28, 2012, the Company entered into a shares purchase agreement with certain investors, pursuant to which a total of 2,380,952 RedeemableConvertible Series B Preferred Shares (‘‘Series B Preferred Shares’’) were issued partly for an aggregated cash consideration of US$6,666 (equivalent ofRMB41,946) and partly through the conversion of the Convertible Promissory Notes between March 4, 2012 to March 29, 2012. On July 9, 2013, the Company entered into a shares purchase agreement with certain investors and pursuant to the agreement, on July 11, 2013, the Companyissued 1,571,973 Redeemable Convertible Series C Preferred Shares (‘‘Series C Preferred Shares’’) for an aggregated consideration of US$11,404 (equivalentof RMB70,462). On July 2, 2014, the Company entered into a shares purchase agreement with certain investors and pursuant to the agreement, on July 11, 2014, the Companyissued 3,178,652 Redeemable Convertible Series D Preferred Shares (‘‘Series D Preferred Shares’’, together with Series C Preferred Shares, Series B PreferredShares, Series A-1 Preferred Shares and Series A-2 Preferred Shares, ‘‘Preferred Shares’’) for an aggregated consideration of US$35,000 (equivalent ofRMB215,863). On July 7, 2015, the Company entered into a shares purchase agreement with certain investors and Pingan eCommerce Limited Partnership (‘‘Ping An’’) andpursuant to the agreement, the Company issued 2,925,658 Redeemable Convertible Series E Preferred Shares (‘‘Series E Preferred Shares’’) for an aggregatedconsideration of US$55,000 (equivalent of RMB342,880). The Group had classified the Preferred Shares as mezzanine equity in the consolidated balance sheets since they were contingently redeemable at the optionof the holders after a specified time period. The Group had determined that conversion and redemption features embedded in the Preferred Shares were notrequired to be bifurcated and accounted for as a derivative, as the economic characteristics and risks of the embedded conversion and redemption featureswere clearly and closely related to that of the Preferred Shares. The Preferred Shares were not readily convertible into cash as there is not a market mechanismin place for trading of the Company’s shares. The Group had determined that there was no beneficial conversion feature attributable to any of the Preferred Shares because the initial effective conversionprices of these Preferred Shares were higher than the fair value of the Company’s ordinary shares at the relevant commitment dates. F-47Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) In addition, the carrying values of the Preferred Shares were accreted from the share issuance dates to the redemption value on the earliest redemption dates.The accretions were recorded against retained earnings, or in the absence of retained earnings, by charges against additional paid-in capital. Once additionalpaid-in capital had been exhausted, additional charges were recorded by increasing the accumulated deficit. The rights, preferences and privileges of the Preferred Shares were as follows: Redemption Rights At any time commencing on a date specified in the agreement of the Preferred Shares (the ‘‘Redemption Start Date’’), holders of more than 50% of the thenoutstanding Series A-1, A-2, B , D and E Preferred Shares and 75% of the Series C Preferred Shares may request a redemption of the Preferred Shares of suchseries. In addition, prior to the Redemption Start Date but following the occurrence of certain early redemption events, holders of more than 50% of theSeries D Preferred Shares or Ping An may request a redemption. On receipt of a redemption request from the holders, the Company shall redeem all or part, asrequested, of the outstanding Preferred Shares of such series. The Redemption Start Date was originally July 2, 2016 for Series A-1 Preferred Shares, Series A-2 Preferred Shares, Series B Preferred Shares, Series CPreferred Shares and Series D Preferred Shares, which was subsequently modified on July 8, 2015 to July 8, 2017.The Redemption Start Date was July 8, 2017for Series E Preferred Shares. In April 2017, the Redemption Start Date for all of the Preferred Shares was extended to May 10, 2018. If any holder of any series of Preferred Shares exercises its redemption right, any holder of other series of Preferred Shares shall have the right to exercise theredemption of its series at the same time. The price at which each Preferred Share shall be redeemed shall equal to the higher of (i) and (ii) below: i. The original Preferred Shares issue price for such series plus R% interest per annum (calculated from the issuance dates of the respective series of PreferredShares), and declared but unpaid dividends, where R is 8 for Series C, Series B, Series A-1 and Series A-2 Preferred Shares and 15 for Series D and Series EPreferred Shares. ii. The fair market value of the relevant series of Preferred Shares on the date of redemption. The Group accretes changes in the redemption value over the period from the date of issuance to the earliest redemption date of the Preferred Shares usingeffective interest method. Changes in the redemption value are considered to be changes in accounting estimates. F-48Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) Conversion Rights Each Preferred Share is convertible, at the option of the holder, at any time after the date of issuance of such Preferred Shares according to a conversion ratio,subject to adjustments for dilution, including but not limited to stock splits, stock dividends and capitalization and certain other events. Each Preferred Shareis convertible into a number of ordinary shares determined by dividing the applicable original issuance price by the conversion price. The conversion priceof each Preferred Share is the same as its original issuance price and no adjustments to conversion price have occurred. At December 31, 2015 and 2016, eachPreferred Share is convertible into one ordinary share. Each Preferred Share shall automatically be converted into ordinary shares, at the then applicable preferred share conversion price upon (i) closing of aQualified Initial Public Offering (‘‘Qualified IPO’’) or (ii) the written approval of the holders of a majority of each series of Preferred Shares (calculated andvoting separately in their respective single class on an as-converted basis), and particularly for the Series C Preferred Shares, approval by the holders of morethan 75% of the Series C Preferred Shares. Prior to the Series E Preferred Shares issuance on July 8, 2015, a ‘‘Qualified IPO’’ was defined as an initial public offering with net offering proceeds no lessthan US$61,500 and implied market capitalization of the Company of no less than US$410,000 prior to such initial public offering. Upon the issuance of theSeries E Preferred Shares, the net offering proceeds and market capitalization criteria for a ‘‘Qualified IPO’’ was increased to US$130,000 and US$550,000respectively. Voting Rights Each Preferred Share shall be entitled to that number of votes corresponding to the number of ordinary shares on an as-converted basis. Preferred Shares shallvote separately as a class with respect to certain specified matters. Otherwise, the holders of Preferred Shares and ordinary shares shall vote together as a singleclass. Dividend Rights Series A-1 Preferred Shares and Series A-2 Preferred Shares were originally entitled to receive a like amount of dividends before any dividend is paid onordinary shares. After a modification on the rights of the preferred shares effective from February 28, 2012, Preferred Shares holders are entitled to receivedividends if declared by the Board of Directors, in an amount equal to 10% of the original preferred share issue price of the respective series of PreferredShares per annum accruing cumulative from the issuance date of the respective Preferred Shares. The remaining undistributed earnings of the Company after full payment of the above amounts on the Preferred Shares, shall be distributed on a pro rata basisto the holders of ordinary shares and Preferred Shares on an as-converted basis. F-49Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) Liquidation Preferences In the event of any liquidation including deemed liquidation, dissolution or winding up of the Company, holders of the Preferred Shares shall be entitled toreceive a per share amount equal to 150% of the original preferred share issue price of the respective series of Preferred Shares, as adjusted for share dividends,share splits, combinations, recapitalizations or similar events, plus all accrued and declared but unpaid dividends thereon, in the sequence of Series EPreferred Shares, Series D Preferred Shares, Series C Preferred Shares, Series B Preferred Shares and Series A-1 and Series A-2 Preferred Shares. After suchliquidation amounts have been paid in full, any remaining funds or assets of the Company legally available for distribution to shareholders shall bedistributed on a pro rata, pari passu basis among the holders of the Preferred Shares, on an as-converted basis, together with the holders of the ordinary shares.The modifications of the rights, preferences and privileges of the Preferred Shares are not considered substantial, and are thus accounted for as a modificationrather than an extinguishment of the Preferred Shares. Where there is a transfer of value between ordinary shareholders and Preferred Shares holders as a resultof such modifications, the transfer of value is accounted for as deemed dividends, recorded as additions/reductions in accumulated deficit andreductions/additions in the Preferred Shares carrying amounts. All of the preference shares were converted to ordinary shares immediately upon the completion of the company’s initial public offering on September 22,2017. Prior to their automatic conversion to ordinary shares upon the Company’s initial public offering on September 22, 2017, the preferred shares wereentitled to certain preferences with respect to conversion, redemption, dividends and liquidation. The holders of preferred shares were entitled to votetogether with the holders of ordinary shares on an as-if-converted basis, except for certain specified matters that preferred shares would be voted separately asa class. 14. Redeemable Non-controlling Interest For the Year Ended December 31,2015 2016 2017RMB RMB RMBBalance as of January 1——Capital contribution—5,0005,082Loss—(82)(298)Accretion of redeemable non-controlling interest—164798Balance as of December 31—5,0825,582 F-50Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) In October of 2016, a third party investor acquired 15% of the equity interest of the Company’s wholly owned PRC subsidiary at a consideration ofRMB5,000. The newly issued shares could be redeemed by the non-controlling shareholder from the redemption start date (i.e. three years from the closing ofthe financing), the redemption value is equal to RMB5,000 plus 10% of interest and 15% of the net profit attributable to the PRC subsidiary if any for theperiod beginning October of 2016 to the date of redemption. The redeemable non-controlling interest was recorded outside of permanent equity on theconsolidated balance sheet and initially recorded at the carrying value of RMB5,000. The redeemable non-controlling interest is carried at the higher of(1) the initial carrying amount, increased or decreased for the redeemable non-controlling interest’s share of net income or loss or (2) the expected redemptionvalue. 15. Ordinary Shares On September 22, 2017, the Group completed its initial public offering of 4,250,000 Class A ordinary shares, at a public offering price of US$26 per share. The net proceeds received were US$100,844 (or RMB664,464). Concurrently upon the completion of the Company’s IPO, the Company issued 769,231 and 384,615 Class A ordinary shares to Gold Ease Global Limitedand YTL Cayman Limited, respectively, in a private placement at a price of US$26 per share. Proceeds from such issuance of ordinary shares were US$30,000(or RMB197,697), Following the completion of the Group’s IPO, the Company’s authorized share capital was reclassified and re-designated into Class A ordinary shares andClass B ordinary shares, with each Class A ordinary share being entitled to one vote and each Class B ordinary share being entitled to twenty votes on allmatters that are subject to shareholder vote. Each Class B ordinary share is convertible into one Class A ordinary share at any time. Class A ordinary sharesare not convertible into Class B ordinary shares under any circumstances. Both Class A ordinary shares and Class B ordinary shares are entitled to the samedividend right. The holders of the Group’s ordinary shares are entitled to such dividends as may be declared by the board of directors subject to theCompanies Law. As of December 31, 2017, all Class B ordinary shares were held by the Chairman and CEO of the Group. F-51Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) 16. Share Repurchase Program In November 2017, the Board of Directors of the Company approved a share repurchase program whereby the Company is authorized to repurchase its ownClass A ordinary shares in the form of American Depositary Shares with an aggregate value of up to US$20,000 over the following 12 months. The sharerepurchases may be made on the open market at prevailing market prices and/or in negotiated transactions off the market from time to time as marketconditions warrant in accordance with applicable laws and regulation. During the year ended December 31, 2017, the Company repurchased 359,595 shares for US$6,459 (RMB42,606) on the open market, at a weighted averageprice of US$17.96 per share. The Company accounts for repurchased ordinary shares under the cost method and includes such cost as a component of theshareholders’ equity. 17. Share-based Compensation (a) Restricted Ordinary Shares In May 2011, the Founders entered into an arrangement with other investors of the Company, whereby all of their 7,500,000 ordinary shares becamerestricted and subject to service vesting conditions. 25% of the restricted shares vested and were released from restriction after twelve months on May 26,2012, and the remaining 75% of the restricted shares vested annually in equal instalments over the next three years. In addition, the restricted shares weresubject to repurchase for cancellation by the Company upon termination of Mr. Richard Rixue Li’s employment. The repurchase price was the par value ofthe ordinary shares. Deferred share compensation was measured for the restricted shares using the estimated fair value of the Company’s ordinary shares of US$0.151 at the date ofimposition of the restriction in May 2011, and was amortized to the consolidated statements of comprehensive income (loss) on a straight line basis over thevesting term of 4 years. In March 2012, 198,413 of the restricted ordinary shares owned by the Founders were transferred to a consultant who provided services to the Company tofacilitate the completion of Series B Redeemable Convertible Preferred Shares issuance which were cliff vested in full on the grant date and the compensationcost attributable to these shares was measured at fair value and recognized immediately as the preferred share issuance cost and a deduction in the preferredshares balance. The remaining 7,301,587 restricted ordinary shares owned by the Founders became subject to a revised four-year vesting restrictionarrangement commencing from March 4, 2012, and the compensation cost for the restricted shares was amortized to the consolidated statements ofcomprehensive income (loss) on a straight line basis over the new 4-year vesting term from March 4, 2012. All the restricted ordinary shares were vested as of December 31, 2016. The amounts of stock compensation expense in relation to the restricted ordinaryshares recognized in the years ended December 31, 2015, 2016 and 2017 were RMB1,378, RMB249 and nil, respectively. F-52Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) (b) Stock Option Plan On December 31, 2014, the Company adopted the 2014 Stock Incentive Plan (‘‘2014 Plan’’). Under the 2014 Plan, the Company’s Board of Directors hasapproved that a maximum aggregate number of shares that may be issued pursuant to all awards granted under the 2014 Plan shall be 1,307,672 shares. Stockoptions granted to an employee under the 2014 Plan will vest only upon the Company completes a Qualified IPO and the employee renders service to theCompany in accordance with a stipulated service schedule starting from the employee’s date of employment. Employees are generally subject to a four-yearservice schedule, under which an employee earns an entitlement to vest in 25% of his option grants at the end of each year of completed service. Prior to theCompany completes a Qualified IPO, all stock options granted to an employee shall be forfeited at the time the employee terminates his employment with theGroup. After the Company completes a Qualified IPO, vested options not exercised by an employee shall be forfeited three months after termination ofemployment of the employee. In addition, the employees who have been granted options irrevocably grant a power of attorney to the board of directors of theCompany to exercise voting rights of the shares on their behalf. In 2017, the Company adopted a 2017 Employee Stock Incentive Plan (“2017 Plan”), which has replaced all of the 2014 Plan in its entirety. The awardsgranted and outstanding under the 2014 Plan has survived the termination of the 2014 Plan and remains effective and binding under the 2014 Plan. Themaximum aggregate number of ordinary shares which may be issued pursuant to all awards under the 2017 Plan is 1,307,672 Class A ordinary shares as ofDecember 31, 2017. Stock options granted to an employee under the 2017 Plan will vest upon the employee renders service to the Company in accordancewith a stipulated service schedule starting from the employee’s date of employment. Employees are generally subject to a four-year service schedule, underwhich an employee earns an entitlement to vest in 25% of his option grants at the end of each year of completed service. F-53Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) The following table sets forth the stock options activity for the years ended December 31, 2015, 2016 and 2017, respectively: Number ofshares WeightedaverageexercisepriceUS$ Weightedaverageremainingcontractualterm Aggregateintrinsicvalue000’US$Outstanding as of January 1, 20151,111,2130.001Granted136,5120.001Exercised—Forfeited(357,137)0.001Expired—Outstanding as of December 31, 2015890,5880.0018.9712,554Granted63,4500.001Exercised—Forfeited(220,282)0.001Expired—Outstanding as of December 31, 2016733,7560.0017.9814,384Granted670,2010.001Exercised—Forfeited(309,544)0.001Expired—Outstanding as of December 31, 20171,094,4130.0018.5521,142Vested and expected to vest as of December 31, 20171,065,9500.0018.5320,592Exercisable as of December 31, 2017863,0160.0017.8416,672 F-54Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) Options granted to employees were measured at fair value on the dates of grant using the Binomial Option Pricing Model with the following assumptions: 2015 2016 2017 RMB RMB RMB Expected volatility55%~58% 54.00%~55.00% 47.40%~50.00%Risk-free interest rate (per annum)1.94%~2.27% 1.49%~1.78% 2.37%~2.40%Exercise multiple2.2~2.8 2.2~2.8 2.2~2.8Expected dividend yield0% 0% 0%Expected term (in years)10 10 10Fair value of the underlying shares on the date of option grants (pershare)US$12.280~17.838 US$15.020~16.987 US$14.379~21.573 The expected volatility was estimated based on the historical volatility of comparable peer public companies with a time horizon close to the expected termof the Company’s options. The risk-free interest rate was estimated based on the yield to maturity of U.S. treasury bonds denominated in USD for a termconsistent with the expected term of the Company’s options in effect at the option valuation date. The expected exercise multiple was estimated as theaverage ratio of the stock price to the exercise price of when employees would decide to voluntarily exercise their vested options. As the Company did nothave sufficient information of past employee exercise history, it was estimated by referencing to a widely-accepted academic research publication. Expecteddividend yield is zero as the Company has never declared or paid any cash dividends on its shares, and the Company does not anticipate any dividendpayments in the foreseeable future. Expected term is the contract life of the option. The fair value of options granted to employees for the years ended December 31, 2015, 2016 and 2017 amounted to RMB11,065, RMB6,888 andRMB72,137, respectively. For the options granted to the employees before the Group’s IPO, the exercisability was dependent upon the Company’s IPO, andit was not probable that this performance condition could be achieved until the IPO was effective, no compensation expense relating to the options wasrecorded for the years ended December 31, 2015 and 2016. For the year ended 2017, the Company recognized RMB46,077 as share based compensationexpenses relating to the stock option plan. As of December 31, 2017, RMB 40,485 of total unrecognized compensation expense related to non-vested share options is expected to be recognized over aweighted average period of approximately 2.56 years. F-55Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) 18. Segment Information Revenues from different product groups and services are as follows: For the Year Ended December 31,2015 2016 2017RMB RMB RMBMerchandise salesWatches833,208863,3821,122,756Bags519,841691,474837,516Clothing, Footwear and Accessories189,267403,722833,102Jewelleries152,739531,533703,216Other products29,68476,761184,205Total merchandise sales1,724,7392,566,8723,680,795 Marketplace and other services:Marketplace services10,44115,70742,114Other services7,94811,24317,546Total marketplace and other services:18,38926,95059,660 Total net revenues1,743,1282,593,8223,740,455 The following summarizes the Group’s net revenues from the following geographic areas: For the Year Ended December 31,2015 2016 2017RMB RMB RMBMainland China1,590,2182,379,0623,435,661Hong Kong145,461201,559286,807Others7,44913,20117,987Total net revenues1,743,1282,593,8223,740,455 The following summarizes the Group’s long-lived assets (including property and equipment, net and other non-current assets) from the following geographicareas: As of December 31,2016 2017RMB RMBMainland China29,23038,366Hong Kong1,9611,629Others6,1888,883Total long-lived assets37,37948,878 F-56Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) 19. Net Loss per Share The following table sets forth the basic and diluted net loss per share computation and provides a reconciliation of the numerator and denominator for theperiods presented: For the Year Ended December 31,2015 2016 2017RMB RMB RMBNumerator:Net (loss)/income(222,003)(44,453)134,056Accretion to redeemable non-controlling interest redemption value—(164)(798)Accretion to preferred share redemption value(213,690)(595,742)(202,679)Numerator for basic and diluted net loss per share calculation(435,693)(640,359)(69,421)Denominator:Weighted average number of ordinary shares5,364,5367,189,93312,500,821Denominator for basic and diluted net loss per share calculation5,364,5367,189,93312,500,821Net loss per ordinary share— Basic and diluted(81.22)(89.06)(5.55) The potentially dilutive securities that have not been included in the calculation of diluted net loss per share as their inclusion would be anti-dilutive are asfollows: For the Year Ended December 31,2015 2016 2017Restricted shares and stock options2,715,984733,7561,094,413Redeemable Convertible Preferred Shares12,735,80712,735,807— F-57Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) 20. Commitments and Contingencies Commitments The Group leases its offices and facilities under non-cancelable operating lease agreements. Rental expenses were RMB28,515, RMB35,788 andRMB34,090 for the years ended December 31, 2015, 2016 and 2017, respectively. As of December 31, 2017, future minimum lease commitments, all under office and facilities non-cancelable operating lease agreements, were as follows: Office and facilities RMB 201832,367201921,200202015,165202110,61420221,651Total80,997 Except for those disclosed above, the Group did not have any significant capital or other commitments or guarantees as of December 31, 2016 and 2017. 21. Related Party Transactions (a) Amount due from related parties During the years ended December 31, 2015, 2016 and 2017, the Group paid on behalf of Jiangxi Tiangong Hi Tech Co., Ltd.(“Jiangxi Tiangong”), arelated party that the Group’s subsidiary can exercise significant influence for nil, nil and RMB287. Jiangxi Tiangong paid off RMB249 in 2017. TheGroup has amount due from Jiangxi Tiangong for nil, nil and RMB38 as of December 31, 2015, 2016 and 2017, respectively. (b) Amount due to related parties During the years ended December 31, 2015, 2016 and 2017, the Group borrowed RMB18,000, nil and nil, respectively from Mr. Richard Rixue Li, theGroup’s chairman and chief exercise officer, to fund working capital, among which RMB15,361, RMB320 and RMB1,025 were repaid during the yearsended December 31, 2015, 2016 and 2017, respectively. The Group has an amount due to Mr. Richard Rixue Li for RMB 2,639, RMB2,319 andRMB1,294 as of December 31,2015, 2016 and 2017, respectively. The amounts were unsecured, non-interest bearing and have no defined repaymentterm. During the years ended December 31, 2015, 2016 and 2017, Yichun Chuaichuai Information Technology Co., Ltd (“Yichun Chuaichuai”), a relatedparty that the Group’s subsidiary can exercise significant influence, purchased products in the amount of nil, nil and RMB1,712, respectively from theGroup. Yichun made a prepayment of RMB2,885 to the Group for the purchase and the balance of the prepayment from Yichun Chuaichuai wasRMB1,173 as of December 31, 2017. F-58Exhibit 4.17 English Translation National Trust ·· Jialong No.40 Single Fund Trust LOAN AGREEMENT Contract Number: NT TUO ZI 17-004-40-02 The Borrower (the “Party A”): Beijing Secoo Trading Limited Postcode: 100037 Domicile: Suite 2405, Building 31, No.25, North Yuetan Street, Xicheng District, Beijing Legal Representatives: Li Rixue Fax: *** Tel: *** The Lender (the “Party B”): National Trust Co., Ltd. Postcode: 100011 Domicile: No.1, Block 18, Anwai Xibinhe Road, Doncgheng District, Beijing Legal Representatives: Yang Xiaoyang Fax: *** Tel: *** Whereas, National Trust Co., Ltd. and Xiamen International Co., Ltd Company (the “Client”) entered into the National Trust · Jialong No. 40 Single Fund TrustAgreement (the “Trust Agreement”), numbered (NT TUO ZI 17-004-40-02) on October 27, 2017. In accordance with the Trust Agreement, funds legitimatelypossessed by the Client shall be under management, utilization and disposal of Party B and Party B shall issue loans to Party A through the trust fund. Pursuant to Contract Law of People’s Republic of China and relevant laws and regulations, based on mutual consent of providing loan to Party A by Party B,Party A and Party B conclude this Agreement (the “Agreement”). Article 1 Amount of Loan 1.1 The loan under this Agreement is from the trust fund managed by Party B in accordance with the Trust Agreement. 1.2 The total amount of the loan to Party A by Party B is RMB150,000,000. The loan can be provided in installment. The amount of each installment loanshall be decided by the confirmation letter annexed hereto (The example of the confirmation letter can be referred to the Schedule). The actual amount ofloan under this Agreement shall be subject to the amount of issued loan. Article 2 Loan Purpose The loan issued to Party A shall be only used for its circulation of floating funds, which means procurement of products. The loan under this Agreement shallnot be used for equity investment, fixed-asset investment (including first-level development of land, construction of infrastructure project and so on) andshall not be used for repayment of other banks’ or other financial institutions’ loan for the above-mentioned purposes. Without written consent of Party B,Party A shall not dispose the loan for other purposes. The loan shall not be used for sectors and purposes where production and operation are prohibited bythe State. Party A are not allowed for arbitrarily change the purpose of the loan. Party B are entitled to supervise and inspect utilization of any loan under thisAgreement relying on its own or third party. However, Party B shall take no responsibility for any legal consequences incurred by utilizing the loan underthis Agreement.  Article 3 Loan Period 3.1 The loan period under this Agreement is 912 days, from November 9, 2017 to May 9, 2020. The period of each installment loan shall be decided by theconfirmation letter annexed hereto (The example of the confirmation letter can be referred to the Schedule). Provided discrepancies between the agreedissuing date and the actual issuing date, the actual issuing date shall prevail. 3.2 The period of the loan under this Agreement shall not be extended without prior written consent of Party B. Article 4 Loan Disbursement 4.1 Once the loan under this Agreement is transferred to the designated loan account as stipulated in Term 2 of this Article, it is deemed that Party B fulfillsits obligations of disburse the loan and Party A withdraws the loan under this Agreement. The loan interests shall be calculated since the exactwithdrawal date of Party B. 4.2 Party A shall establish a specialized loan bank account (the “loan account”) for the trust fund. The information of the account is listed below:Username: ***Account Bank: ***Account No.:*** 4.3 The above-mentioned bank account shall be exclusively used for receiving, repaying and other relevant matters of the loan. Article 5 Calculation, Settlement of Lending Interest and Default Interest 5.1 Lending Interest The lending interest under this Agreement is an annual rate, which is specified under (1), (1) a fixed rate of 3.38%, which shall remain the same during the loan period; (2) a floating rate: a floating rate period is every full-year period upon the issuance day of the loan. The floating rate shall be determined on the issuanceday, and every full year upon the issuance day (the “Rate Determination Day”). The lending rate of every loan under this Agreement from theissuance day of the loan to the next Rate Determination Day (not included), shall be decided by the __/__% of __/__ year RMB benchmark annualinterest rate plus __/__ year RMB benchmark annual interest rate published by People’s Bank of China on the issuance day of the loan. The lendinginterest of every floating rate period shall be determined by the fixed rate on the Rate Determination Day, which is __/__% of __/__ year RMBbenchmark annual interest rate plus __/__ year RMB benchmark annual interest rate published by People’s Bank of China on the RateDetermination Day. Even if the RMB benchmark annual interest rate is adjusted by People’s Bank of China on a floating rate period, the lendinginterest shall remain. (3) Others: ___________________________/____________________________ 5.2 Default Interest (1) Provided that Party A disobeys the set purposes of the loan, the default interest of the loan shall be 100% of the lending interest plus the lendinginterest. The default interest shall be correspondingly altered if the lending interest is altered according to Term.1 ___/__of this Article. (2) Provided the loan is overdue repaid, the default interest of the loan shall be 30% of the lending interest an overdue loan. The default interest shall becorrespondingly altered if the lending interest is altered according to Term.1 ___/__of this Article.  (3) Provided that Party A disobeys the set purposes of the loan and a loan is overdue repaid, the way mentioned above with a higher default interestshall be adopted for calculated the default interest and compound interest. 5.3 The lending interest shall be calculated daily. The daily lending interest = monthly lending interest /30 = annual lending interest/360. If Party A fails topay the lending interest, the compound interest shall be calculated next day. 5.4 Settlement of the lending (1) The lending interest of the loan adopting a fixed rate shall be settled according to the agreed rate. The lending interest of the loan adopting afloating rate shall be settled according to the specified rate of each floating rate period. Provided several alterations of floating rate in a settlementperiod, the interests of the floating rate period shall be calculated first; the interests of all floating rate periods shall be added up on the finalsettlement day. (2) The lending interests shall be settled in accordance with (ii): (i) Monthly settlement: the settlement day is the 21st day of every natural month;(ii) Quarterly settlement: the settlement day is the 21st day of the last month of every natural quarter; (iii)Others:______________________________/____________________________. Article 6 The Granting and Use of the Loan 6.1 Preconditions for granting the loan. Except for Party B’s giving up in whole or in part in written form, Party B is only obliged to issue the loan to Party A only if all the following conditionsare met: (1) This Agreement has been signed comes into force; (2) The trust established in the capital trust agreement is established and effective, and the trustor has fully delivered the trust funds for the trust loanunder this Agreement; (3) Party A has completed the approval, registration, delivery, insurance and other legal procedures related to the trust loan under this Agreement; (4) If this Agreement has a guarantee, the relevant guarantee documents (if any) have been effectively signed and all the registration procedures forensuring the validity of the guarantee have been completed and continue to be valid; (5) Party A has opened a loan account according to the requirements of Party B for withdrawal and repayment; (6) As of the granting date of the loan, Party A does not have any breach of this Agreement or any situation that may jeopardize the security of Party B’screditor’s rights; (7) The laws, regulations, rules or the competent authority shall not prohibit or restrict the Party B from granting the loan under this Agreement; (8) Other reasonable conditions proposed by Party B. 6.2 If Party A’s actual withdrawal date exceeds 90 days from the date of signing of this Agreement, Party B has the right to refuse to grant and cancel allloans, and it is not considered that Party B has breached this Agreement. Article 7 Repayment 7.1 Repayment Principles The repayment of Party A under this Agreement shall be in accordance with the following principles: Party B has the right to use Party A’s repayment first to repay the expenses paid by Party B that shall be borne by Party A according to this Agreementand Party B’s cost of realizing the creditor’s rights. In the event that Party A defaults on the loan principal and interest at the same time, Party B has theright to determine the order of repayment; In the case of repayment by installments, if there are multiple due loans and overdue loans under thisAgreement, Party B has the right to determine the repayment order of a certain amount of repayment by Party A; If there are multiple expired loanagreements between Party A and Party B, Party B has the right to determine the order of the agreements executed by Party A for each repayment.  The deposit or fund so increased in the preceding paragraph shall be pledged as security in favor of the Pledgee for repayment of the debts providedunder the Principal Contract. 7.2 Interest payment Party A shall pay Party B the due interest on the interest payment date. The first interest payment date is the first settlement date after the issuance of theloan. In the last repayment, interest is clear with Principal. 7.3 The repayment of principal shall be determined in accordance with subsection (1): (1) Pay interest on time and pay off the principal once: the date of repayment of principal is the due date of the loan, and the interest payment date is thedate of the settlement date stipulated in this Agreement, Party A shall pay the interest on the loan on schedule and repay the principal and remaininginterest of the loan in a lump sum. (2) Interest is clear with Principal: the date of repayment of principal and the interest payment date are the maturity date of the loan, Party A shall repaythe principal and interest of the loan in a lump sum. (3) Equal diminishing method: Party A shall pay the loan principal in installments in equal amount, the date of repayment of principal and the interestpayment date are the date of the settlement date stipulated in this Agreement. The first date of repayment of principal and the payment of interest is / , the last installment is the maturity date of the loan, Party A pays the remaining principal and interest. Calculation formula: The amount of principal and interest paid for each installment= Loan principal/ Total repayment periods+ Loan balance*Annual interest rate* Number ofdays of the interest period/360. (4) The equality corpus modes: The loan principal and interest of party A shall be returned in installments, the date of repayment of principal and theinterest payment date are the date of the settlement date stipulated in this Agreement, Party A pays the principal and interest of one period. The firstdate of repayment of principal and the payment of interest is / , the last installment is the maturity date of the loan, Party A pays the remainingprincipal and interest. Calculation formula: The amount of principal and interest paid for each installment= Loan pricipla * (1 + Interest rate)* Interest rate(1 + Interest rate) – 1 (5) Others: / . 7.4 Repayment method Party A shall pay the loan principal and interest to the designated trust property account on time and in full in accordance with the above stipulations: Name: ***Opening bank: ***Account number: *** 7.5 Pre-payment (1) When Party A repays the principal and interest in advance, Party A must notify Party B and the trustor under the capital trust agreement in advanceand obtain the written consent of Party B and the trustor. (2) Party B has the right to require Party A to repay the loan ahead of time in accordance with this Agreement. (3) If Party A repays in advance, Party A shall pay Party B corresponding compensation in accordance with / . Repayment periods Repayment periods (4) In the event of prepayment, Party A shall pay off the principal, interest and all other expenses (if any) of the loan under this Agreement to the date ofthe prepayment at the same time. 7.6 Party A shall pay the principal and interest of the loan in full and on time as stipulated in this Agreement, Party A authorizes Party B to unilaterallyinstruct Xiamen International Bank Co., Ltd. to take initiative to collect loan principal, interest, penalty interest, compound interest, default penalty andother expenses as agreed under this Agreement from the account funds opened by Party A at Xiamen International Bank Co., Ltd. Beijing Branch. Suchpayment may be the original currency of the loan or other currency used to convert into the equivalent of the loan currency. Article 8 Guarantee of the Loan 8.1 The method of guarantee under this Agreement shall be (5) of the below: (1) Providing mortgage guarantee with ____/____ located at ____/____ which is owned by ____/____ to secure the repayment of all the debts owedby Party A to Party B under this Agreement and giving Party B the first priority for claim (the mortgage contract is otherwise attached). (2) Providing individual joint liability guarantee by ____/____ to secure the repayment of all the debts owed by Party A to Party B under thisAgreement Guarantee (the guarantee contract is otherwise attached). (3) Providing corporate joint liability guarantee by ____/____ to secure the repayment of all the debts owed by Party A to Party B under this AgreementGuarantee (the share pledge contract is otherwise attached). (4) Providing pledge guarantee with ____/____% shares of ____/____ and the interest thereof owned by ____/____ to secure the repayment of all thedebts owed by Party A to Party B under this Agreement and giving Party B the first priority for claim (the mortgage contract is otherwise attached). (5) Providing pledge guarantee with the term deposit in the amount no less than RMB154,639,175.25 deposited by Hong Kong Secoo InvestmentGroup Limited at Xiamen International Bank Co., Ltd. Beijing Branch and the interest thereof to secure the repayment of all the debts owed by PartyA to Party B under this Agreement and giving Party B the first priority for claim (the deposit account pledge agreement is otherwise attached). (6) Other: ____/____. Party B will sign guarantee contract with the guarantor separately and has the right to request the guarantor to complete relevant registration formalities. 8.2 If the guarantor provides a mortgage or pledge in physical assets, if required by Party B, Party A shall acquire insurance for such physical assets anddesignate Party B as the first beneficiary. The insurance period shall not be shorter than the term of the mortgage or the pledge, and the originals of therelated insurance documents shall be kept by Party B. During the insurance period, Party A shall not change, revoke or terminate the insurance or carryout other acts that are harmful to the insurance interests of Party B without the prior written consent of Party B. 8.3 In the event that Party A is in default or other cases in which the security rights will be realized occur, Party B has the right to select one or more of all theguarantee methods to realize its creditor’s rights, and also has the right to take other legal measures other than the above guarantee methods to realize itscreditor’s rights. Article 9 Party A’s Representations and Warranties 9.1 Party A is a corporate legal person which is legally established and validly existing in accordance with the law of the People’s Republic of China, hasindependent and complete civil capacity to act, and is legally qualified to sign and perform this Agreement. The signing and performance of thisAgreement by Party A has obtained its shareholders’ or board of directors’ or other competent authority’s full authorization and does not conflict withany other contracts that have been signed or are being performed by it. 9.2 Party A has fully understood all the terms and contents of this Agreement. This loan is the true and effective declaration of intention by Party A.  9.3 Party A guarantees the authenticity, accuracy and integrity of all the information provided to Party B, which does not contain any major mistake not inconformity with the facts, false records, or omission of any important facts. 9.4 The signing of this Agreement and performance of the obligations under this Agreement by Party A are in conformity with the laws, administrativeregulations, regulations, and Party A’s articles of association or other internal constitutional documents. 9.5 Other: Party A has legitimate business operations, good credit, no credit default, evasion of bank debts and other bad records and has soundorganizational and financial management systems. There is no major violation of rules and regulations in the process of its production and managementin the last year. There is no significant bad record for its current senior managers. Party A undertakes that the use of proceeds under this Agreement isdecent and legitimate. Party A does not conceal from Party B any events that have occurred or are occurring and may affect its financial situation and theability to repay the debt, such as mediation, arbitration, litigation, compulsory enforcement and illegal events that may jeopardize Party B’s rights andinterests. There is no ongoing lawsuit, arbitration, other administrative proceeding or claim that may affect Party A’s signing or performance of thisAgreement and its repayment of the debts hereunder. Article 10 Rights and Obligations of Party A 10.1 Rights of Party A (1) Party A has the right to require Party B to provide the loan in accordance with this Agreement. (2) Party A has the right to use the loan for the purposes specified in this Agreement. (3) The right to request Party B to keep confidential with the relevant financial information and the business secrets in production and operationprovided by Party A, unless otherwise provided for by laws, regulations and rules or otherwise specified in this Agreement. (4) Other rights in accordance with the Laws and regulations or this Agreement. 10.2 Obligations of Party A (1) Party A agrees to cooperate with Party B in the management of the loan. Party A shall, in accordance with the requirements of Party B, provide PartyB with relevant information on the financial and accounting data, production and business status, and relevant written instructions on a quarterlybasis. (2) Party A shall cooperate and accept the inspection and supervision of Party B on its production and operation, financial activities and the use of theloan. Party B’s expenses incurred due to Party A’s refuse shall be borne by Party A. (3) Party A shall use the loan in accordance with the purpose specified in this Agreement and inform Party B the use of the loan. Party A shall not divert,misappropriate, or invest the loan funds into the stock market, futures market, real estate market and other industries and areas prohibited by lawsand regulations directly or indirectly, and shall not violate other legal restrictions or prohibitions on the use of the loan. (4) Without the prior written consent of Party B, Party A shall not transfer the debt liability under this Agreement directly or indirectly. (5) Party A shall return the principal and interest of the loan in full amount and on schedule according to the provisions of this Agreement. (6) Party A and its investors shall not withdraw funds or transfer assets to evade the debt to Party B. (7) Unless Party A pays off the principal and interest of the loan of Party B, Party A shall not provide any guarantee using the funds or assets from theloan under this Agreement.  (8) During the term of this Agreement, Party A shall notify Party B in writing and obtain the consent of Party B if Party A provide guarantees, mortgages,pledges or other forms of guarantees for the debts of others, which may affect its repayment ability under this Agreement. (9) Party A shall promptly notify Party B and provide Party B with other guarantees on time in accordance with the requirements of Party B when theguarantor ceases operations, cancels registration, revokes its business license, bankrupt, and suffers losses and affect its guarantee capacity related tothe loan, or the value of the collateral or pledged property of the loan is reduced, accidentally destroyed or lost, frozen, seized, requisitioned,expropriated or subject to dispute of ownership, etc. (10) During the term of this Agreement, Party A shall notify Party B in writing within 3 working days before the change and 7 working days after thechange, and submit the business registration certificate to Party B if Party A changes the company’s articles of incorporation, name, legalrepresentative (responsible person), residence, business scope, registered capital, shareholders, etc. In addition, Party A shall implement theliquidation and guarantee of the loan in accordance with the requirements of Party B. (11) During the term of this Agreement, Party A shall notify Party B in writing 30 working days in advance and obtain the consent of Party B if Party Areduces the registered capital, contracting, leasing, joint-stock reform, joint venture, merger, division, suspension of business, dissolution, filed forbankruptcy, and other situation may affect the realization of Party B’s credit rights. In addition, Party A shall implement the liquidation andguarantee of the loan in accordance with the requirements of Party B. (12) During the term of this Agreement, Party A shall promptly notify Party B in writing and implement the liquidation and guarantee of the loan inaccordance with the requirements of Party B if Party A ceases operations, dissolves, liquidates, suspends reorganization, revoked, filed forbankruptcy, deregistered, business license revoked, involved in litigation activities, has serious difficulties in its production and operation, or has adeteriorating financial condition, or the legal representative, principal responsible person or member of the board of directors, current seniormanagement personnel engaged in illegal activities or suspected major cases or economic disputes or administrative punishments, and has amaterial adverse effect on the performance of the repayment obligations of Party A under this Agreement. (13) Party A shall bear the costs of lawyer services, insurance, assessment, registration, custody, appraisal, notarization, and auditing related to the loanor the guarantees. (14) When Party B transfers the creditor’s rights under this Agreement to the principal or a third party, Party A is obliged to continue to perform therepayment obligations under this Agreement to the contractor’s successor. (15) When Party B transfers the creditor’s right under this Agreement to the principal or a third party, which causes the transfer of the security rightarising from the transfer of the principal creditor’s rights, Party A shall cooperate unconditionally in accordance with the requirements of Party Band/or the successor. (16) Party A may not transfer any rights under this Agreement without Party B’s prior written consent. (17) Party A shall notify Party B and follow Party B’s requirements to implement the settlement and guarantee of the debt, if Party A has one of thefollowing circumstances, including involves or may be involved in major economic disputes, lawsuits, arbitrations, or the property is seized, frozen,detained, or supervised according to law; violates laws and regulations related to food safety, production safety, and environmental protection, andhas caused a liability accident, which has or may adversely affect the performance of its obligations under this Agreement; or other events thatadverse effect its ability to repay the loan. (18) Party B has the right to inspect Party A’s management and application of the loan, and has the right to monitor the relevant accounts of Party A;Party A shall cooperate with Party B’s inspections, account monitoring, etc. (19) Other obligations under the laws and regulations and this Agreement.  Article 11 Rights and Obligations of Party B 11.1 Rights of Party B (1) Without obtaining any written consent of Party A or otherwise noticing Party A, Party B can assign or transfer the creditor’s right to a trustee(beneficiary) or a third party in accordance with the Fund Trust Contract. (2) To timely receive or receive in advance any payment of the loan principal, interest, late charge, default interest, compound interest and otherexpenses payable by Party A. (3) Party B has the right to obtain security in the form of guarantee and/or other forms from a third party to secure the trust loan under this Agreement,and to execute a separate guarantee contract or receive other guarantee documents as an attachment of this Agreement. (4) Party B has the right to carry out regular management over the loan provided by Party B, either by itself or through a third party entrusted by it. Suchregular management includes but not limited to getting to know the production and operation as well as financial activities of Party A, and requireParty A to provide materials regarding plan and statistics and financial reports, etc. 11.2 Obligations of Party B (1) Provide the loan in time and in full in accordance with this Agreement, except that the delay is caused by Party A. (2) Except as otherwise provided in the laws and regulations, keep confidential business secret in relation with financial information and productionand operation provided by Party B. Article 12 Liability for Breach of the Agreement 12.1. Breach of Contract 12.1.1. Party A’s Breach of Contract (1) Party A’s breach of Representation and Warranties set forth in Article 9 in this Agreement. (2) Fail to provide real, complete and effective financial accounting, production and operation status and other related information as required by PartyB, Or any issue that has been or may affect the performance of Party A’s obligations under this Agreement, including but not limited to: a) any other debt that cannot be repaid after expiration (including the announcement of early expiration)., or nonperformance or violation its dutiesunder other contracts; b) deterioration of financial indicators such as profitability, solvency, operating capacity and cash flow, which may have or has had adverse effectto Party A’s performance of obligations under this Agreement; c) major adverse changes in the brand, the customer, the market channel, or the equity structure, production and operation, or foreign investment; d) the assets are seized, frozen, distrained, or enforced e) the involvement or potential involvement in major economic disputes, lawsuits, and arbitrations; f) to be investigated or punished by the judicial organs, the administrative organ of law enforcement such as the tax authority and the industry andcommerce department, or the administrative authorities; g) the legal representative, the actual controller, the main individual investor, or the key manager is/are abnormally changed or get involved withmajor cases, be suspected to do criminal acts and be investigated or be restricted from freedom by the judicial authority, or the main assets ofsuch person is taken by property preservation, or any other events that lead to their inability to perform their duties normally; h) go out of business, dissolve, liquidate, suspend business, be revoked of business license, be revoked or applied for bankruptcy; i) the happening of accident out of negligence due to the violation of relevant laws and regulations, governing rules, or industry standards of foodsafety, safety production, environmental protection and so on;  j) other circumstances that may lead to the adverse effect of Party B’s claims under this Agreement. (3) The loan is not used in accordance with the agreed uses of the Parties. (4) Fail to fully return the principal and interest of the debt on time. (5) Refusing or obstructing Party B to carry out supervision and inspection on the use of the loan. (6) To transfer assets, or to withdraw contributed capital to escape debt. (7) The deterioration of the business and financial situation, which leads to the inability to liquidate the expired debt, or to involve in or be involved inmajor proceedings or arbitral proceedings and other legal disputes, which have affected or impair Party B’s rights and interests under this Agreement. (8) Any other debt of Party A has caused or may cause negative effect to its performance of obligations under this Agreement. (9) During the period of validity of the contract, to change the operation method or to transfer the operating mechanism by contract, lease, merger,acquisition, joint venture, separation, joint operation, and shareholding reform, and such actions has affected or impaired Party B’s rights andinterests under this Agreement. (10) Any breach of contract by the guarantor under the relevant guarantee agreements. (11) Other events that endanger, damage, or may jeopardize or damage the rights and interests of Party B. (12) Party A has not fulfilled any of the obligations agreed under this Agreement or Party A has any other breach of contract under this Agreement. 12.1.2. In case that the guarantee contract or other forms of guarantee (including but not limited to guarantee, mortgage, pledge) becomes invalid,ineffective, or be revoked, or the guarantor partly or totally lose the ability to provide guarantee, or any other adverse change to Party B, or theguarantor reject to perform its duty, if Party A fails to fulfil the new guarantee as required by Party B, it shall be considered as a breach of contract. 12.2. Remedies for breach of contract Party B has the right to exercise the following one or several rights when breach of contract set forth in 12.1 occurs: 12.2.1. Stop issuing the loan, declare the loan to expire immediately, and require Party A to immediately repay all due and undue principal, interest, andexpenses of the debt under this Agreement. 12.2.2. If Party A fail to use the loan as the way agreed by the Parties under this Agreement, Party B shall have the right to charge interest and compoundinterest to the diverted part, calculating from the day Party A divert the loan to the day that all principal and interests is paid in full, in accordance tothe penalty interest rate and interest settlement method under this Agreement. 12.2.3. If Party A fail to pay off on time (including all or part of the early expired interest, penalty interest, compound interest and all interest that shall bepaid to Party B), besides to charge interest according to loan interest and interest settlement method set forth in Article 5, in respect of the portion ofinterest that has not been repaid overdue, the additional compound interest should be paid to Party B at the penalty interest rate set forth in Article 5from the date of the interest payment date. 12.2.4. After the loan is expired, the principal (including the principal of the loan announced by Party B to be fully or partially due in advance), from thedate of overdue to the date of full settlement of principal and interest, the interest shall be charged according to loan interest and interest settlementmethod set forth in Article 5. The overdue of the loan is the behavior that Party A fails to pay off the loan on schedule or exceed the time limit of therepayment plan agreed in the contract. 12.2.5. To require Party A to provide new guarantees that meet the requirements of Party B for all the debts under this Agreement.  12.2.6. All the expenses incurred by Party B for the realization of the creditor’s rights (including but not limited to the charges of litigation, the travelexpense, the lawyer’s fee, etc.) shall be borne by Party A. 12.2.7. Exercise the right of security. 12.2.8. To rescind or terminate this Agreement. 12.2.9. other relief measures stipulated in the laws and regulations Article 13 Continuity of Obligations All the obligations of Party B are continuous, and are binding upon Party B’s successors, agencies, receivers, transferors, and the relevant entities after anymerger, reorganization or change of name by Party B. Article 14 Dispute Resolution 14.1 The formation, effectiveness, explanation, fulfillment and dispute resolution of this Agreement shall be construed in accordance with the laws ofChina (excluding laws of Hong Kong, Macao, and Taiwan). 14.2 Any dispute arising from fulfillment of this Agreement shall be resolved by negotiation. Any dispute that cannot be so resolved shall be referred tothe people’s court located in the place where this Agreement is executed. Articles of this Agreement that are not in dispute shall be performed duringthe law suit. Article 15 Effectiveness 15.1 This Agreement takes effect when it is sealed by Party A and signed by Party A’s legal representative or authorized signatory as well as sealed byParty B and signed by Party B’s legal representative or authorized signatory. 15.2 Except as otherwise prescribed in this Agreement, any party shall not change or terminate this Agreement after this Agreement takes effect. If there isa need to change or terminate this Agreement, the Parties shall mutually negotiate and reach a written consensus. Article 16 Miscellaneous 16.1 Any matter that is not provided herein shall be reached by a written Contract between Party A and Party B separately, as a schedule of thisAgreement. Any schedule or amendment or supplement of this Agreement constitutes an integral part, which has the same legal effect as thisAgreement. 16.2 If, at any time, any provision of this Agreement is or becomes invalid in any respect, neither the validity of the remaining provisions nor the validityof this Agreement will in any way be affected or impaired. 16.3 Party A agrees Party B to seek information of Party A on the credit status from the credit database established by People’s Bank of China and creditreference agencies, or the relevant units and departments, and agrees Party B to use Party A and the borrowing information in accordance with thePeople’s Bank of China and credit information authorities. The information is entered into the credit database it approved for establishment 16.4 This Agreement was signed in Xicheng District, Beijing. 16.5 This Agreement is made in six originals, two for Party A, two for Party B and two for other applicants, and each of originals shall be equallyeffective. 16.6 The guarantee documents and specific business vouchers (including but not limited to loan confirmation letters, relevant business vouchers issuedby Party B, etc.) and other legal documents related to this Agreement are integral parts of the contract. 16.7 Party B’s Failure to exercise or partial exercise or delayed exercise of any right under this Agreement will not constitute the waiver or the alterationof the right or any other right, nor does it affect further exercise of the right or any other rights.  16.8 If, any provision of this Agreement is or becomes invalid or unenforceable in any respect, neither the validity or enforceability of the remainingprovisions nor the validity or enforceability of this Agreement will in any way be affected or impaired. 16.9 If, any provision of this Agreement be or become invalid in whole or in part, the validity of the Warranty Clauses shall not be affected thereby Article 17 Other Matters Agreed by the Parties 17.1 If Party A apply for withdrawal for the purpose of Section 2 hereof, it shall provide the relevant directional payment documents required by Party Bbefore the withdrawal to Party B. Party B shall be entitled to review the relevant documents above, and determine the issuance and transfer of thefacility according to the result of the review. 17.2 During the term of this Agreement, the pledgor may provide deposit of RMB deposits in installments in compliance with this Agreement, Party Amay apply for withdrawal in installments compliance with this Agreement, each instalment of withdrawal shall not exceed 1 year. 17.3 During the term of this Agreement, without the written consent of Party B and trust settlor under the fund trust contract, Party A shall not borrow newforeign debt or accept new overseas guarantee, otherwise Party A shall be considered as a default, Party B shall be entitled to adopt the breachtreatment measures stipulated in this Agreement. 17.4 The Party A and the pledgor hereby undertake the source of the pledge deposits set forth in Section 8 Paragraph 1(5) hereof, is legitimate, reasonableand compliant, and commit to bear all the responsibilities arising therefrom otherwise. 17.5 During the term of this Agreement, Party A undertakes to repay the principles and interests on time with its own capital, and shall not conductBorrowing for Repaying, otherwise Party A shall be considered as a default, Party B shall be entitled to adopt the breach treatment measuresstipulated in this Agreement, including recall the loan ahead of timeline. 17.6 Any time during the term of this Agreement, the ratio between RMB principal balance of the loan and the RMB principal balance of the deposit ofpledgor to Party B (the rate of pledge) shall not be higher than 97%. 17.7 Party A and Party B has reached the following agreements in respect of delivery address for the various types of notifications, agreements, and otherdocuments under this Agreement and for the relevant documents and legal documents in the event of a dispute and their corresponding legalconsequences: (1) Party A confirms its valid delivery address as: Room 1503, Building C, Galaxy SOHO, Chaonei Street, Dongcheng District, Beijing. (2) The scope of application of the delivery address includes all types of notifications, agreements and other documents when both parties have notin dispute, the delivery of relevant documents and legal documents in the case of disputes in this Agreement, and all relevant legal procedures,such as the first instance, the second instance, the retrial and the execution procedure after the procedure when such dispute enters into a civilprocedure.  (3) Should the above delivery address of Party A need to be changed, it shall notify to Party B by the means of signing a supplementary agreementby both parties. In the process of civil proceedings, the change of delivery address of Party A shall also be notified to the court. If Party A fails toperform the notification obligation in the foregoing manner, the delivery address confirmed by both parties in this Agreement shall still beregarded as the effective delivery address. If due to reasons including the delivery address provided or confirmed by Party A being not accurate,the change of delivery address failing to be timely informed to Party B and the court pursuant to the relevant procedure, and Party A or itsdesignated recipient refusing to sign, the legal instruments fail to be received in effect by Party A, (i) when delivered by mailing, the servicedate shall be the third day from the date of mailing; (ii) when directly delivered, the service date shall be on the day of delivery when the courierrecords the situation on the service return receipt on site. If the notification obligation has been performed in respect of the change of deliveryaddress, the changed delivery address shall be the effective delivery address. With respect to the delivery address of Party A that has beenexpressly confirmed by parties in this Agreement, the court may directly send to such address by mailing; even if Party A fails to receive thedocuments sent by the court by mailing, such documents shall be deemed to have been serviced due to the confirmation in this Agreement. Party A has fully read all the terms of this Agreement and the relevant guarantee documents. At the request of Party A, Party B has already made thecorresponding explanation to the provisions of this Agreement and the relevant guarantee documents. Party A is fully aware and completely understand themeaning and the legal consequences of the provisions of this Agreement and the relevant guarantee documents, and is signing voluntarily as follows. [Remainder of Page Intentionally Left Blank]  [Signature page to National Trust * Jialong No. 40 Single Fund Trust Loan Agreement (No. NT TUO ZI 17-004-40-02)] Borrower (Official or Contract Seal): Beijing Secoo Trading Limited (北京寺库商贸有限公司) Legal Representative/Authorized Person (Signature/Seal): /s/ Beijing Secoo Trading Limited Signing Date: (Day) (Month), (Year) Lender (Official or Contract Seal): National Trust Co., Ltd. (国民信托有限公司) Legal Representative/Authorized Person (Signature/Seal): /s/ National Trust Co., Ltd. Signing Date:27 (Day) 10 (Month), 2017 (Year)  Schedule National Trust ·· Jialong No. 40 Single Fund Trust Confirmation Letter of the No. i Loan The Borrower Beijing Secoo Trading Limited (北京寺库商贸有限公司) and the Lender National Trust Co., Ltd. (国民信托有限公司) entered into the “LoanAgreement of the National Trust · Jialong No. 40 Single Fund Trust (No. NT Tuo Zi 17-004-40-02)” on (Day) (Month), (Year) (the“Agreement”), and the Lender makes the No. i Loan available to the Borrower on (Day) (Month), (Year), and the Parties hereby agree that theelements with respect to the No. i Loan are as follows:. (1) Amount of No. i Loan: (amount in words) ; (amount in figure) ; (2) Term of No. i Loan: Days, from (Day) (Month), (Year) to (Day) (Month), (Year), and if the commencing date of the term isinconsistent with the actual date when the No. i Loan is made, such actual date when the No. i Loan is made shall prevail; (3) Repayment manner of No. i Loan: ; (4) Others: ; As for any matters not stipulated herein, the Loan Agreement shall prevail. Borrower: Beijing Secoo Trading Limited (北京寺库商贸有限公司) Legal Representative/Authorized Person (Signature/Seal): Lender: National Trust Co., Ltd. (国民信托有限公司) Legal Representative/Authorized Person (Signature/Seal): Signing Date: (Day) (Month), (Year) Exhibit 4.18 English Translation National Trust ·· Jialong No. 40 Single Fund Trust Deposit Account Pledge Agreement Contract No.NT Tuo Zi 17-004-40-05-01 Pledgor: Hong Kong Secoo Investment Group Limited And Pledgee: National Trust Co., Ltd. Instructions: This Agreement is concluded by the parties hereto on the basis of equality and free will in accordance with the relevant laws and regulations,and all the clauses hereof are expression of true intention of the parties. In order to sufficiently protect the lawful rights of the Pledgor, the Pledgee requeststhe Pledgor to carefully read the clauses of this Agreement, especially those in bold herein and take the contents thereof into full consideration. If there is anyquestion or ambiguity, please promptly consult the Pledgee or professional agency or personnel. In order to guarantee the performance of the National Trust · Jialong No. 40 Single Fund Trust Loan Agreement (hereinafter referred to as the PrincipalContract) with the number NT Tuo Zi 17-004-40-02 concluded between Beijing Secoo Trading Limited (hereinafter referred to as the Debtor) and thePledgee, and to ensure the realization of the creditor’s right of the Pledgee, the Pledgor is willing to provide the Pledgee with the term deposit deposited bythe Pledgor at Xiamen International Bank Co., Ltd. Beijing Branch and the interest thereof as security in favor of the Pledgee (hereinafter referred to as theCollateral). Now therefore, in accordance with the relevant laws, regulations and rules and on the basis of consensus through negotiation, the parties heretoagree as follows and intend to be bound hereby: Article 1 Collateral 1.1 Pledged Certificate of Term Deposit Name: o Individual term deposit certificate x Corporate term deposit certificate Issuing Institution: Xiamen International Bank Co., Ltd. Beijing Branch Deposit Number: 10000076 Account Number: *** Account Name: Hong Kong Secoo Investment Group Limited Amount and Currency: RMB30,950,000.00 Deposit term: from December 26, 2017 to December 26, 2018 Confirmation of certificate of term deposit: The certificate of the term deposit has been confirmed by its issuing bank. 1.2 The redeposit or any change in account number of the above-mentioned pledged deposit will not affect the validity of the pledge. The certificate of theterm deposit upon its redeposit and the certificate with changed account number will continue to be the document of entitlement to the Collateral underthis Agreement. 1.3 The pledge provided under this Agreement shall be applicable to any interest arising from the Collateral. Article 2 Coverage of Pledge Guarantee The security provided by the Collateral hereunder shall cover the principal of RMB60,000,000.00 and the interest (including any penalty interest andcompound interest), penalty, damages, expenses of custody (if any), any and all expenses of realization of its creditor’s rights and pledge by the Pledgee(including, without limitation, litigation fee, arbitration fee, lawyer’s fee, property preservation fee, business travel expenses, enforcement fee, evaluation fee,and auction fee) provided in the Principal Contract. Article 3 Disposal of Collateral 3.1 Within the term of the pledge, the Pledgor may not assign, re-pledge, or otherwise dispose of the Collateral without the prior written consent of thePledgee.  3.2 The Pledgor shall ensure that the Collateral be free from any freeze, seizure, attachment or any other litigation, or the Pledgee may immediately enforcethe pledge and claim its creditor’s rights thereunder, and the Pledgor shall warrant that the Pledgee has the first priority of compensation. 3.3 If the Debtor fails to perform its obligations under the Principal Contract, or the Debtor or the Pledgor fails to comply any other provision under thePrincipal Contract or this Agreement or any other agreement with the Pledgee, whereby the Pledgee accelerates realizing its creditor’s right or thePrincipal Contact is held invalid after occurrence of the borrower-lender relationship contemplated thereunder, the Pledgee shall have sole discretion todispose of the Collateral without prior disposal of or recovery of any other security provided by the Debtor or provided under the Principal Contract, ifany (including, without limitation, any warranty, mortgage, pledge, letter of guarantee, or stand-by letter of credit), and the Pledgor may not object tosuch disposal by the Pledgee. The Pledgee may enforce its rights under the pledge by cashing out the certificate of deposit, and any proceeds from suchenforcement shall be first applied to repay all debts owed by the Debtor to the Pledgee under the Principal Contract secured by the Pledgor, regardless ofwhether or not certificate of deposit becomes due and payable. 3.4 If the Pledgor fails to disclose the existence of any joint ownership, title dispute, seizure or attachment of the Collateral and cause any damage to thePledgee, the Pledgor shall make full indemnity to the Pledge; if any of such circumstances which is adverse to the Pledgee’s realization of its rights failsto be effectively eliminated within reasonable period of time requested by the Pledgee, the Pledgee may accelerate realizing its rights under the pledge orrequire the Pledgor to provide new security acceptable to the Pledgee. 3.5 If the Pledgor breaches any provision in this Agreement or any representation or warranty made by the Pledgor in this Agreement becomes inaccurate ormisleading, the Pledgee shall have the right to accelerate realizing its rights under the pledge and hold the Pledgor liable for any loss incurred by thePledge arising therefrom. 3.6 The Pledgor is under obligation to cooperate with the Pledgee in disposal of the Collateral and use the proceeds from the disposal to repay the debtssecured under this Agreement. 3.7 The Pledgor agrees that the Pledgee have the right to use the proceeds from the disposal of the Collateral to repay the principal and interests and relevantexpenses (if any) of the debt provided the Principal Contract. Article 4 Amendment of Principal Contract The Pledgor acknowledges that the Debtor and the Pledgee may amend the Principal Contract through agreement without consent of the Pledgor or anyimpact upon the pledge provided by the Pledgor; provided, however, that written consent of the Pledgor is required if the term of debt is extended or theprincipal amount of the Creditor’s right is increased. Article 5 Cashing out of the Deposit Certificate 5.1 If the pledged certificate of deposit is cashable with signature consistent with the signature specimen left with applicable bank, the Pledgor shall endorsethe consistent signature on the back of the pledged certificate of deposit (if the pledged certificate of deposit is in the name of entity, the seal of suchentity shall also be endorsed thereon); if the certificate of deposit is cashable with password or valid ID certificate, the Pledgor shall change it so that it iscashable signature consistent with the signature specimen left with bank; if the Pledgor fails to endorse the consistent signature or change the cashablemethod of the certificate of deposit as provided in this Section 5.1, it will not affect the Pledgee’s right to take action against default provided hereunder. 5.2 Before the debts provided under the Principal Contract are fully repaid and without written consent from the Pledgee, the Pledgor may not use or cashout the pledged deposit or any interest thereof, or retrieve the certificate of deposit or apply for registered loss of the certificate, or change the signaturespecimen or password left with the applicable bank. The pledged certificate of deposit is subject to freeze by the Pledgee. 5.3 The Pledgor authorizes the Pledgee to cash out the certificate of term deposit or dispose of the certificate of term deposit in any other matter permitted bylaw (including, without limitation, cashing out the certificate of term deposit prior to its maturity) so as to repay the debts under the Principal Contract. Article 6 Representation and Warranty by the Pledgor 6.1 The Pledgor warrants that it has lawful ownership of and the right to dispose of the Collateral, and the Collateral are free from any dispute, attachment orseizure. The Pledgor warrants that, as of the date of this Agreement, the Collateral is not subject to any security interest or assigned, granted or otherwisedisposed. 6.2 The Pledgor represents that no third party has any right of offset against the Collateral. 6.3 The Pledgor has lawfully completed any and all consideration, approval, resolution, consent, registration, announcement or any other proceduresrequired for execution of this Agreement and perfection of the pledge provided hereunder, and the Pledgor has full right to provide external guaranteefree from any encumbrance.  6.4 Any and all documents and materials provided by the Pledgor to the Pledgee are authentic, accurate and complete. 6.5 Within the term of the Principal Contract, the Pledgor may not waive, re-pledge, or transfer to any third party or otherwise dispose of the Collateralwithout written consent of the Pledgee. 6.6 If the Pledgor changes its address or contact information, it shall notify the Pledgee thereof in writing. The above representations and warranties shall continue to be valid during the term of this Agreement. Article 7 Additional Collateral (Applicable to the circumstance in which the currency of the pledged deposit is different from that of the credit line offered under the Principal Contract) Ifthe total of the principal and interest of the loan exceeds the sum of the pledged certificate of deposit due to fluctuation of the applicable exchange rate, thePledgor shall, within three business days, increase the pledged deposit or pay additional fund to an account designated by the Pledgee, or provide any othersecurity acceptable to the Pledgee, or pre-pay part of the principal amount under the credit line, so as to cover the deficiency of the pledge due to fluctuationof the applicable exchange rate. If the Pledgor fails to do so, the Pledgee shall have the right to accelerate repayment of the applicable loan and dispose of theCollateral as provided in this Agreement. The deposit or fund so increased in the preceding paragraph shall be pledged as security in favor of the Pledgee for repayment of the debts provided under thePrincipal Contract. If the currency of the deposit is different from currency under the Principal Contract, the principal provided under the credit line and the principal of thedeposit shall be calculated into RMB at the real-time exchange rate published by the Pledgee. Article 8 Dispute Resolution Any dispute arising from or in connection with this Agreement shall be settled through negotiation and, if the negotiation fails, be submitted to the people’scourt having jurisdiction over the place where the Plegee is located for litigation. During the litigation, this Agreement shall continue to be performed withexception of any term under dispute. Article 9 Miscellaneous 9.1 The Pledgor shall urge the Debtor to strictly perform its duties and obligations to the Pledgee under the Principal Contract and the legal requirementsrelating thereto. 9.2 If the Pledgor is involved in any criminal offense, litigation, arbitration or dispute, or the Collateral is seized, frozen or detained or involved in any titledispute which has adverse effect on the Pledgor’s performance of its security obligations, the Pledgor shall immediately notify the Pledgee. 9.3 Neither party hereto may change or terminate this Agreement unilaterally. Any change or termination of this Agreement shall be agreement of the partieshereto in writing. 9.4 If the Pledgor fails to perform this Agreement due to death, loss of capacity for civil conduct, wind-up, dissolution or bankruptcy, or serious worsening ofits economic conditions, it shall be deemed as event of default. 9.5 Any other matters not covered hereunder are governed by the Principal Contract. 9.6 If the Pledgee assigns its all or partial rights provided under the Principal Contract to any third party, the assignee shall have the rights of the pledgerelating to the applicable creditor’s right provided under this Agreement. 9.7 The validity of each clause of this Agreement will not affect that of the remainder hereof. 9.8 If the Principal Contract is held invalid, the Pledgor shall also be liable for any debt of the Debtor arising from return of applicable assets or indemnity ofapplicable loss to the extent of the Collateral. 9.9 The document evidencing entitlement to the Collateral and any other legal documents related to this Agreement constitute an integral part of thisAgreement. The Pledgor shall deliver the document evidencing entitlement to the pledged deposit to the Pledgee on the effective date of this Agreement. 9.10 The Pledgee’s failure to exercise any of its rights under the Principal Contract or this Agreement, or grant of any grace, concession, exception ortolerance relating thereto, will not operate as waiver of any of its rights provided hereunder; waiver of any of its rights provided hereunder by thePledgee, including the pledge provided in this Agreement, shall not be valid unless it is expressly made in writing.  9.11 This Agreement is made in five originals, one held by the Pledgor, two held by the Pledgee and the other two held by other applicants. All of theoriginals have the same effect. 9.12 The Pledgor and the Pledgee has reached the following agreements in respect of delivery address for the various types of notifications, agreements, andother documents under this Agreement and for the relevant documents and legal documents in the event of a dispute and their corresponding legalconsequences: 9.12.1 The Pledgor confirms its valid delivery address as: Room 1503, Building C, Galaxy SOHO, Chaonei Street, Dongcheng District, Beijing. 9.12.2 The scope of application of the delivery address includes all types of notifications, agreements and other documents when both parties have not indispute, the delivery of relevant documents and legal documents in the case of disputes in this Agreement, and all relevant legal procedures, such asthe first instance, the second instance, the retrial and the execution procedure after the procedure when such dispute enters into a civil procedure. 9.12.3 Should the above delivery address need to be changed, the Pledgee shall be notified by the means of signing a supplementary agreement by bothparties. In the process of civil proceedings, the change of delivery address of the Pledgor shall also be notified to the court. If the Pledgor fails toperform the notification obligation in the foregoing manner, the delivery address confirmed by both parties in this Agreement shall still be regarded asthe effective delivery address. If due to reasons including the delivery address provided or confirmed by the Pledgor being not accurate, the change ofdelivery address failing to be timely informed to the Pledgee and the court pursuant to the relevant procedure, and the Pledgor or its designatedrecipient refusing to sign, the legal instruments fail to be received in effect by the Pledgee, (i) when delivered by mailing, the service date shall be thethird day from the date of mailing; (ii) when directly delivered, the service date shall be on the day of delivery when the courier records the situationon the service return receipt on site. If the Pledgor has performed the notification obligation in respect of its change of delivery address, the changeddelivery address shall be the effective delivery address. With respect to the delivery address of the Pledgor that has been expressly confirmed by theparties in this Agreement, the court may directly send to such address by mailing; even if the Pledgor fails to receive the documents sent by the courtby mailing, such documents shall be deemed to have been served due to the confirmation in this Agreement. 9.13 The Pledgee and the Pledgor agree to apply to __/__ notary office to notarize the enforceability of this Agreement. When the Pledgor or the Debtor failsto perform or does not fully fulfill the obligations under the Principal Contract and this Agreement, the Pledgee has the right to apply to __/__ notaryoffice for the enforcement certificate and apply to the competent people’s court for compulsory enforcement by notarization of this Agreement and theenforcement certificate. In such case, the Pledgor agrees to accept the compulsory enforcement by the people’s court by law and to voluntarily abandonits right of defense. The scope that the Pledgor voluntarily accepts compulsory enforcement covers all of the principal and the interest (including anyoverdue charge, compound interest, liquidated damages and other fees) under the Principal Contract, and any and all expenses of realization of itscreditor’s rights and pledge by the Pledgee (including, without limitation, litigation fee, arbitration fee, lawyer’s fee, property preservation fee, businesstravel expenses, enforcement fee, evaluation fee, and auction fee). The validity of this clause is superior to the other dispute settlement provisions of thisAgreement. Article 10 Effectiveness of Agreement This Agreement shall be effective upon, if the party hereto is an individual, signature by such party or, if the party hereto is an entity, signature of its legal orauthorized representative or affixture of its corporate seal and signature of its legal or authorized representative. This Agreement shall remain valid until thedebts owed by the Debtor to the Pledgee under the Principal Contract are fully repaid. Article 11 Acknowledgement Each of the parties hereto has read all the clauses of this Agreement, and paid special attention to the terms in bold herein. At the request of the Pledgor, thePledgee has provided corresponding notes to the terms of this Agreement. The Pledgor has full knowledge and understanding of the terms hereof and theirlegal consequence, and signed this Agreement voluntarily. Pledgor: Hong Kong Secoo Investment Group Limited /s/ Authorized Signatory Pledgee: National Trust Co., Ltd. /seal/ National Trust Co., Ltd. Signing date: December 26, 2017 Signing location: Xicheng District, Beijing Witness: /s/ Witnesses  Appendix to Deposit Account Pledge Agreement Consent Letter(applicable if the Pledgor is a corporate entity) National Trust Co., Ltd.: The undersigned is willing to provide the term deposit pledge for Beijing Secoo Trading Limited (hereinafter referred to as the Debtor) for the repayment ofall the debts under your National Trust · Jialong No. 40 Single Fund Trust Loan Agreement with the number NT Tuo Zi 17-004-40-02, and the undersignedagrees that the Debtor to use our term deposit account opening certificate for the purpose of providing pledge for the trust loan. Signed by: Hong Kong Secoo Investment Group Limited /s/ Authorized Signatory Signing date: December 26, 2017 Witness: /s/ Witnesses National Trust ·· Jialong No. 40 Single Fund Trust Deposit Account Pledge Agreement Contract No.NT Tuo Zi 17-004-40-05-02 Pledgor: Hong Kong Secoo Investment Group Limited And Pledgee: National Trust Co., Ltd. Instructions: This Agreement is concluded by the parties hereto on the basis of equality and free will in accordance with the relevant laws and regulations,and all the clauses hereof are expression of true intention of the parties. In order to sufficiently protect the lawful rights of the Pledgor, the Pledgee requeststhe Pledgor to carefully read the clauses of this Agreement, especially those in bold herein and take the contents thereof into full consideration. If there is anyquestion or ambiguity, please promptly consult the Pledgee or professional agency or personnel. In order to guarantee the performance of the National Trust · Jialong No. 40 Single Fund Trust Loan Agreement (hereinafter referred to as the PrincipalContract) with the number NT Tuo Zi 17-004-40-02 concluded between Beijing Secoo Trading Limited (hereinafter referred to as the Debtor) and thePledgee, and to ensure the realization of the creditor’s right of the Pledgee, the Pledgor is willing to provide the Pledgee with the term deposit deposited bythe Pledgor at Xiamen International Bank Co., Ltd. Beijing Branch and the interest thereof as security in favor of the Pledgee (hereinafter referred to as theCollateral). Now therefore, in accordance with the relevant laws, regulations and rules and on the basis of consensus through negotiation, the parties heretoagree as follows and intend to be bound hereby: Article 1 Collateral 1.4 Pledged Certificate of Term Deposit Name: o Individual term deposit certificate x Corporate term deposit certificate Issuing Institution: Xiamen International Bank Co., Ltd. Beijing Branch Deposit Number: 10000076 Account Number: *** Account Name: Hong Kong Secoo Investment Group Limited Amount and Currency: RMB30,950,000.00 Deposit term: from December 26, 2017 to December 26, 2018 Confirmation of certificate of term deposit: The certificate of the term deposit has been confirmed by its issuing bank.  1.5 The redeposit or any change in account number of the above-mentioned pledged deposit will not affect the validity of the pledge. The certificate of theterm deposit upon its redeposit and the certificate with changed account number will continue to be the document of entitlement to the Collateral underthis Agreement. 1.6 The pledge provided under this Agreement shall be applicable to any interest arising from the Collateral. Article 2 Coverage of Pledge Guarantee The security provided by the Collateral hereunder shall cover the principal of RMB60,000,000.00 and the interest (including any penalty interest andcompound interest), penalty, damages, expenses of custody (if any), any and all expenses of realization of its creditor’s rights and pledge by the Pledgee(including, without limitation, litigation fee, arbitration fee, lawyer’s fee, property preservation fee, business travel expenses, enforcement fee, evaluation fee,and auction fee) provided in the Principal Contract. Article 3 Disposal of Collateral 3.8 Within the term of the pledge, the Pledgor may not assign, re-pledge, or otherwise dispose of the Collateral without the prior written consent of thePledgee. 3.9 The Pledgor shall ensure that the Collateral be free from any freeze, seizure, attachment or any other litigation, or the Pledgee may immediately enforcethe pledge and claim its creditor’s rights thereunder, and the Pledgor shall warrant that the Pledgee has the first priority of compensation. 3.10 If the Debtor fails to perform its obligations under the Principal Contract, or the Debtor or the Pledgor fails to comply any other provision under thePrincipal Contract or this Agreement or any other agreement with the Pledgee, whereby the Pledgee accelerates realizing its creditor’s right or thePrincipal Contact is held invalid after occurrence of the borrower-lender relationship contemplated thereunder, the Pledgee shall have sole discretion todispose of the Collateral without prior disposal of or recovery of any other security provided by the Debtor or provided under the Principal Contract, ifany (including, without limitation, any warranty, mortgage, pledge, letter of guarantee, or stand-by letter of credit), and the Pledgor may not object tosuch disposal by the Pledgee. The Pledgee may enforce its rights under the pledge by cashing out the certificate of deposit, and any proceeds from suchenforcement shall be first applied to repay all debts owed by the Debtor to the Pledgee under the Principal Contract secured by the Pledgor, regardless ofwhether or not certificate of deposit becomes due and payable. 3.11 If the Pledgor fails to disclose the existence of any joint ownership, title dispute, seizure or attachment of the Collateral and cause any damage to thePledgee, the Pledgor shall make full indemnity to the Pledge; if any of such circumstances which is adverse to the Pledgee’s realization of its rights failsto be effectively eliminated within reasonable period of time requested by the Pledgee, the Pledgee may accelerate realizing its rights under the pledgeor require the Pledgor to provide new security acceptable to the Pledgee. 3.12 If the Pledgor breaches any provision in this Agreement or any representation or warranty made by the Pledgor in this Agreement becomes inaccurate ormisleading, the Pledgee shall have the right to accelerate realizing its rights under the pledge and hold the Pledgor liable for any loss incurred by thePledge arising therefrom. 3.13 The Pledgor is under obligation to cooperate with the Pledgee in disposal of the Collateral and use the proceeds from the disposal to repay the debtssecured under this Agreement. 3.14 The Pledgor agrees that the Pledgee have the right to use the proceeds from the disposal of the Collateral to repay the principal and interests andrelevant expenses (if any) of the debt provided the Principal Contract. Article 4 Amendment of Principal Contract The Pledgor acknowledges that the Debtor and the Pledgee may amend the Principal Contract through agreement without consent of the Pledgor or anyimpact upon the pledge provided by the Pledgor; provided, however, that written consent of the Pledgor is required if the term of debt is extended or theprincipal amount of the Creditor’s right is increased.  Article 5 Cashing out of the Deposit Certificate 5.4 If the pledged certificate of deposit is cashable with signature consistent with the signature specimen left with applicable bank, the Pledgor shall endorsethe consistent signature on the back of the pledged certificate of deposit (if the pledged certificate of deposit is in the name of entity, the seal of suchentity shall also be endorsed thereon); if the certificate of deposit is cashable with password or valid ID certificate, the Pledgor shall change it so that it iscashable signature consistent with the signature specimen left with bank; if the Pledgor fails to endorse the consistent signature or change the cashablemethod of the certificate of deposit as provided in this Section 5.1, it will not affect the Pledgee’s right to take action against default provided hereunder. 5.5 Before the debts provided under the Principal Contract are fully repaid and without written consent from the Pledgee, the Pledgor may not use or cashout the pledged deposit or any interest thereof, or retrieve the certificate of deposit or apply for registered loss of the certificate, or change the signaturespecimen or password left with the applicable bank. The pledged certificate of deposit is subject to freeze by the Pledgee. 5.6 The Pledgor authorizes the Pledgee to cash out the certificate of term deposit or dispose of the certificate of term deposit in any other matter permitted bylaw (including, without limitation, cashing out the certificate of term deposit prior to its maturity) so as to repay the debts under the Principal Contract. Article 6 Representation and Warranty by the Pledgor 6.7 The Pledgor warrants that it has lawful ownership of and the right to dispose of the Collateral, and the Collateral are free from any dispute, attachment orseizure. The Pledgor warrants that, as of the date of this Agreement, the Collateral is not subject to any security interest or assigned, granted or otherwisedisposed. 6.8 The Pledgor represents that no third party has any right of offset against the Collateral. 6.9 The Pledgor has lawfully completed any and all consideration, approval, resolution, consent, registration, announcement or any other proceduresrequired for execution of this Agreement and perfection of the pledge provided hereunder, and the Pledgor has full right to provide external guaranteefree from any encumbrance. 6.10 Any and all documents and materials provided by the Pledgor to the Pledgee are authentic, accurate and complete. 6.11 Within the term of the Principal Contract, the Pledgor may not waive, re-pledge, or transfer to any third party or otherwise dispose of the Collateralwithout written consent of the Pledgee. 6.12 If the Pledgor changes its address or contact information, it shall notify the Pledgee thereof in writing. The above representations and warranties shallcontinue to be valid during the term of this Agreement. Article 7 Additional Collateral (Applicable to the circumstance in which the currency of the pledged deposit is different from that of the credit line offered under the Principal Contract) Ifthe total of the principal and interest of the loan exceeds the sum of the pledged certificate of deposit due to fluctuation of the applicable exchange rate, thePledgor shall, within three business days, increase the pledged deposit or pay additional fund to an account designated by the Pledgee, or provide any othersecurity acceptable to the Pledgee, or pre-pay part of the principal amount under the credit line, so as to cover the deficiency of the pledge due to fluctuationof the applicable exchange rate. If the Pledgor fails to do so, the Pledgee shall have the right to accelerate repayment of the applicable loan and dispose of theCollateral as provided in this Agreement. The deposit or fund so increased in the preceding paragraph shall be pledged as security in favor of the Pledgee for repayment of the debts provided under thePrincipal Contract. If the currency of the deposit is different from currency under the Principal Contract, the principal provided under the credit line and the principal of thedeposit shall be calculated into RMB at the real-time exchange rate published by the Pledgee. Article 8 Dispute Resolution Any dispute arising from or in connection with this Agreement shall be settled through negotiation and, if the negotiation fails, be submitted to the people’scourt having jurisdiction over the place where the Plegee is located for litigation. During the litigation, this Agreement shall continue to be performed withexception of any term under dispute.  Article 9 Miscellaneous 9.14 The Pledgor shall urge the Debtor to strictly perform its duties and obligations to the Pledgee under the Principal Contract and the legal requirementsrelating thereto. 9.15 If the Pledgor is involved in any criminal offense, litigation, arbitration or dispute, or the Collateral is seized, frozen or detained or involved in any titledispute which has adverse effect on the Pledgor’s performance of its security obligations, the Pledgor shall immediately notify the Pledgee. 9.16 Neither party hereto may change or terminate this Agreement unilaterally. Any change or termination of this Agreement shall be agreement of theparties hereto in writing. 9.17 If the Pledgor fails to perform this Agreement due to death, loss of capacity for civil conduct, wind-up, dissolution or bankruptcy, or serious worseningof its economic conditions, it shall be deemed as event of default. 9.18 Any other matters not covered hereunder are governed by the Principal Contract. 9.19 If the Pledgee assigns its all or partial rights provided under the Principal Contract to any third party, the assignee shall have the rights of the pledgerelating to the applicable creditor’s right provided under this Agreement. 9.20 The validity of each clause of this Agreement will not affect that of the remainder hereof. 9.21 If the Principal Contract is held invalid, the Pledgor shall also be liable for any debt of the Debtor arising from return of applicable assets or indemnityof applicable loss to the extent of the Collateral. 9.22 The document evidencing entitlement to the Collateral and any other legal documents related to this Agreement constitute an integral part of thisAgreement. The Pledgor shall deliver the document evidencing entitlement to the pledged deposit to the Pledgee on the effective date of thisAgreement. 9.23 The Pledgee’s failure to exercise any of its rights under the Principal Contract or this Agreement, or grant of any grace, concession, exception ortolerance relating thereto, will not operate as waiver of any of its rights provided hereunder; waiver of any of its rights provided hereunder by thePledgee, including the pledge provided in this Agreement, shall not be valid unless it is expressly made in writing. 9.24 This Agreement is made in five originals, one held by the Pledgor, two held by the Pledgee and the other two held by other applicants. All of theoriginals have the same effect. 9.25 The Pledgor and the Pledgee has reached the following agreements in respect of delivery address for the various types of notifications, agreements, andother documents under this Agreement and for the relevant documents and legal documents in the event of a dispute and their corresponding legalconsequences: 9.12.4 The Pledgor confirms its valid delivery address as: Room 1503, Building C, Galaxy SOHO, Chaonei Street, Dongcheng District, Beijing. 9.12.5 The scope of application of the delivery address includes all types of notifications, agreements and other documents when both parties have not indispute, the delivery of relevant documents and legal documents in the case of disputes in this Agreement, and all relevant legal procedures, such as thefirst instance, the second instance, the retrial and the execution procedure after the procedure when such dispute enters into a civil procedure. 9.12.6 Should the above delivery address need to be changed, the Pledgee shall be notified by the means of signing a supplementary agreement by bothparties. In the process of civil proceedings, the change of delivery address of the Pledgor shall also be notified to the court. If the Pledgor fails toperform the notification obligation in the foregoing manner, the delivery address confirmed by both parties in this Agreement shall still be regarded asthe effective delivery address. If due to reasons including the delivery address provided or confirmed by the Pledgor being not accurate, the change ofdelivery address failing to be timely informed to the Pledgee and the court pursuant to the relevant procedure, and the Pledgor or its designatedrecipient refusing to sign, the legal instruments fail to be received in effect by the Pledgee, (i) when delivered by mailing, the service date shall be thethird day from the date of mailing; (ii) when directly delivered, the service date shall be on the day of delivery when the courier records the situation onthe service return receipt on site. If the Pledgor has performed the notification obligation in respect of its change of delivery address, the changeddelivery address shall be the effective delivery address. With respect to the delivery address of the Pledgor that has been expressly confirmed by theparties in this Agreement, the court may directly send to such address by mailing; even if the Pledgor fails to receive the documents sent by the courtby mailing, such documents shall be deemed to have been served due to the confirmation in this Agreement. 9.26 The Pledgee and the Pledgor agree to apply to __/__ notary office to notarize the enforceability of this Agreement. When the Pledgor or the Debtor failsto perform or does not fully fulfill the obligations under the Principal Contract and this Agreement, the Pledgee has the right to apply to __/__ notaryoffice for the enforcement certificate and apply to the competent people’s court for compulsory enforcement by notarization of this Agreement and theenforcement certificate. In such case, the Pledgor agrees to accept the compulsory enforcement by the people’s court by law and to voluntarily abandonits right of defense. The scope that the Pledgor voluntarily accepts compulsory enforcement covers all of the principal and the interest (including anyoverdue charge, compound interest, liquidated damages and other fees) under the Principal Contract, and any and all expenses of realization of itscreditor’s rights and pledge by the Pledgee (including, without limitation, litigation fee, arbitration fee, lawyer’s fee, property preservation fee, businesstravel expenses, enforcement fee, evaluation fee, and auction fee). The validity of this clause is superior to the other dispute settlement provisions of thisAgreement.  Article 10 Effectiveness of Agreement This Agreement shall be effective upon, if the party hereto is an individual, signature by such party or, if the party hereto is an entity, signature of its legal orauthorized representative or affixture of its corporate seal and signature of its legal or authorized representative. This Agreement shall remain valid until thedebts owed by the Debtor to the Pledgee under the Principal Contract are fully repaid. Article 11 Acknowledgement Each of the parties hereto has read all the clauses of this Agreement, and paid special attention to the terms in bold herein. At the request of the Pledgor, thePledgee has provided corresponding notes to the terms of this Agreement. The Pledgor has full knowledge and understanding of the terms hereof and theirlegal consequence, and signed this Agreement voluntarily. Pledgor: Hong Kong Secoo Investment Group Limited /s/ Authorized Signatory Pledgee: National Trust Co., Ltd. /seal/ Pledgee: National Trust Co., Ltd. Signing date: December 26, 2017 Signing location: Xicheng District, Beijing Witness: /s/ Witnesses Appendix to Deposit Account Pledge Agreement Consent Letter(applicable if the Pledgor is a corporate entity) National Trust Co., Ltd.: The undersigned is willing to provide the term deposit pledge for Beijing Secoo Trading Limited (hereinafter referred to as the Debtor) for the repayment ofall the debts under your National Trust · Jialong No. 40 Single Fund Trust Loan Agreement with the number NT Tuo Zi 17-004-40-02, and the undersignedagrees that the Debtor to use our term deposit account opening certificate for the purpose of providing pledge for the trust loan. Signed by: Hong Kong Secoo Investment Group Limited /s/ Authorized Signatory Signing date: December 26, 2017 Witness:/s/ Witnesses  National Trust ·· Jialong No. 40 Single Fund Trust Deposit Account Pledge Agreement Contract No.NT Tuo Zi 17-004-40-05-03 Pledgor: Hong Kong Secoo Investment Group Limited And Pledgee: National Trust Co., Ltd. Instructions: This Agreement is concluded by the parties hereto on the basis of equality and free will in accordance with the relevant laws and regulations,and all the clauses hereof are expression of true intention of the parties. In order to sufficiently protect the lawful rights of the Pledgor, the Pledgee requeststhe Pledgor to carefully read the clauses of this Agreement, especially those in bold herein and take the contents thereof into full consideration. If there is anyquestion or ambiguity, please promptly consult the Pledgee or professional agency or personnel. In order to guarantee the performance of the National Trust · Jialong No. 40 Single Fund Trust Loan Agreement (hereinafter referred to as the PrincipalContract) with the number NT Tuo Zi 17-004-40-02 concluded between Beijing Secoo Trading Limited (hereinafter referred to as the Debtor) and thePledgee, and to ensure the realization of the creditor’s right of the Pledgee, the Pledgor is willing to provide the Pledgee with the term deposit deposited bythe Pledgor at Xiamen International Bank Co., Ltd. Beijing Branch and the interest thereof as security in favor of the Pledgee (hereinafter referred to as theCollateral). Now therefore, in accordance with the relevant laws, regulations and rules and on the basis of consensus through negotiation, the parties heretoagree as follows and intend to be bound hereby: Article 1 Collateral 1.7 Pledged Certificate of Term Deposit Name: o Individual term deposit certificate x Corporate term deposit certificate Issuing Institution: Xiamen International Bank Co., Ltd. Beijing Branch Deposit Number: 10000076 Account Number: *** Account Name: Hong Kong Secoo Investment Group Limited Amount and Currency: RMB30,950,000.00 Deposit term: from December 26, 2017 to December 26, 2018 Confirmation of certificate of term deposit: The certificate of the term deposit has been confirmed by its issuing bank. 1.8 The redeposit or any change in account number of the above-mentioned pledged deposit will not affect the validity of the pledge. The certificate of theterm deposit upon its redeposit and the certificate with changed account number will continue to be the document of entitlement to the Collateral underthis Agreement. 1.9 The pledge provided under this Agreement shall be applicable to any interest arising from the Collateral. Article 2 Coverage of Pledge Guarantee The security provided by the Collateral hereunder shall cover the principal of RMB60,000,000.00 and the interest (including any penalty interest andcompound interest), penalty, damages, expenses of custody (if any), any and all expenses of realization of its creditor’s rights and pledge by the Pledgee(including, without limitation, litigation fee, arbitration fee, lawyer’s fee, property preservation fee, business travel expenses, enforcement fee, evaluation fee,and auction fee) provided in the Principal Contract. Article 3 Disposal of Collateral 3.15 Within the term of the pledge, the Pledgor may not assign, re-pledge, or otherwise dispose of the Collateral without the prior written consent of thePledgee. 3.16 The Pledgor shall ensure that the Collateral be free from any freeze, seizure, attachment or any other litigation, or the Pledgee may immediately enforcethe pledge and claim its creditor’s rights thereunder, and the Pledgor shall warrant that the Pledgee has the first priority of compensation.  3.17 If the Debtor fails to perform its obligations under the Principal Contract, or the Debtor or the Pledgor fails to comply any other provision under thePrincipal Contract or this Agreement or any other agreement with the Pledgee, whereby the Pledgee accelerates realizing its creditor’s right or thePrincipal Contact is held invalid after occurrence of the borrower-lender relationship contemplated thereunder, the Pledgee shall have sole discretion todispose of the Collateral without prior disposal of or recovery of any other security provided by the Debtor or provided under the Principal Contract, ifany (including, without limitation, any warranty, mortgage, pledge, letter of guarantee, or stand-by letter of credit), and the Pledgor may not object tosuch disposal by the Pledgee. The Pledgee may enforce its rights under the pledge by cashing out the certificate of deposit, and any proceeds from suchenforcement shall be first applied to repay all debts owed by the Debtor to the Pledgee under the Principal Contract secured by the Pledgor, regardless ofwhether or not certificate of deposit becomes due and payable. 3.18 If the Pledgor fails to disclose the existence of any joint ownership, title dispute, seizure or attachment of the Collateral and cause any damage to thePledgee, the Pledgor shall make full indemnity to the Pledge; if any of such circumstances which is adverse to the Pledgee’s realization of its rights failsto be effectively eliminated within reasonable period of time requested by the Pledgee, the Pledgee may accelerate realizing its rights under the pledgeor require the Pledgor to provide new security acceptable to the Pledgee. 3.19 If the Pledgor breaches any provision in this Agreement or any representation or warranty made by the Pledgor in this Agreement becomes inaccurate ormisleading, the Pledgee shall have the right to accelerate realizing its rights under the pledge and hold the Pledgor liable for any loss incurred by thePledge arising therefrom. 3.20 The Pledgor is under obligation to cooperate with the Pledgee in disposal of the Collateral and use the proceeds from the disposal to repay the debtssecured under this Agreement. 3.21 The Pledgor agrees that the Pledgee have the right to use the proceeds from the disposal of the Collateral to repay the principal and interests andrelevant expenses (if any) of the debt provided the Principal Contract. Article 4 Amendment of Principal Contract The Pledgor acknowledges that the Debtor and the Pledgee may amend the Principal Contract through agreement without consent of the Pledgor or anyimpact upon the pledge provided by the Pledgor; provided, however, that written consent of the Pledgor is required if the term of debt is extended or theprincipal amount of the Creditor’s right is increased. Article 5 Cashing out of the Deposit Certificate 5.7 If the pledged certificate of deposit is cashable with signature consistent with the signature specimen left with applicable bank, the Pledgor shallendorse the consistent signature on the back of the pledged certificate of deposit (if the pledged certificate of deposit is in the name of entity, the seal ofsuch entity shall also be endorsed thereon); if the certificate of deposit is cashable with password or valid ID certificate, the Pledgor shall change it sothat it is cashable signature consistent with the signature specimen left with bank; if the Pledgor fails to endorse the consistent signature or change thecashable method of the certificate of deposit as provided in this Section 5.1, it will not affect the Pledgee’s right to take action against default providedhereunder. 5.8 Before the debts provided under the Principal Contract are fully repaid and without written consent from the Pledgee, the Pledgor may not use or cashout the pledged deposit or any interest thereof, or retrieve the certificate of deposit or apply for registered loss of the certificate, or change the signaturespecimen or password left with the applicable bank. The pledged certificate of deposit is subject to freeze by the Pledgee. 5.9 The Pledgor authorizes the Pledgee to cash out the certificate of term deposit or dispose of the certificate of term deposit in any other matter permittedby law (including, without limitation, cashing out the certificate of term deposit prior to its maturity) so as to repay the debts under the PrincipalContract. Article 6 Representation and Warranty by the Pledgor 6.13 The Pledgor warrants that it has lawful ownership of and the right to dispose of the Collateral, and the Collateral are free from any dispute, attachment orseizure. The Pledgor warrants that, as of the date of this Agreement, the Collateral is not subject to any security interest or assigned, granted or otherwisedisposed. 6.14 The Pledgor represents that no third party has any right of offset against the Collateral. 6.15 The Pledgor has lawfully completed any and all consideration, approval, resolution, consent, registration, announcement or any other proceduresrequired for execution of this Agreement and perfection of the pledge provided hereunder, and the Pledgor has full right to provide external guaranteefree from any encumbrance. 6.16 Any and all documents and materials provided by the Pledgor to the Pledgee are authentic, accurate and complete. 6.17 Within the term of the Principal Contract, the Pledgor may not waive, re-pledge, or transfer to any third party or otherwise dispose of the Collateralwithout written consent of the Pledgee.  6.18 If the Pledgor changes its address or contact information, it shall notify the Pledgee thereof in writing. The above representations and warranties shall continue to be valid during the term of this Agreement. Article 7 Additional Collateral (Applicable to the circumstance in which the currency of the pledged deposit is different from that of the credit line offered under the Principal Contract) Ifthe total of the principal and interest of the loan exceeds the sum of the pledged certificate of deposit due to fluctuation of the applicable exchange rate, thePledgor shall, within three business days, increase the pledged deposit or pay additional fund to an account designated by the Pledgee, or provide any othersecurity acceptable to the Pledgee, or pre-pay part of the principal amount under the credit line, so as to cover the deficiency of the pledge due to fluctuationof the applicable exchange rate. If the Pledgor fails to do so, the Pledgee shall have the right to accelerate repayment of the applicable loan and dispose of theCollateral as provided in this Agreement. The deposit or fund so increased in the preceding paragraph shall be pledged as security in favor of the Pledgee for repayment of the debts provided under thePrincipal Contract. If the currency of the deposit is different from currency under the Principal Contract, the principal provided under the credit line and the principal of thedeposit shall be calculated into RMB at the real-time exchange rate published by the Pledgee. Article 8 Dispute Resolution Any dispute arising from or in connection with this Agreement shall be settled through negotiation and, if the negotiation fails, be submitted to the people’scourt having jurisdiction over the place where the Plegee is located for litigation. During the litigation, this Agreement shall continue to be performed withexception of any term under dispute. Article 9 Miscellaneous 9.27 The Pledgor shall urge the Debtor to strictly perform its duties and obligations to the Pledgee under the Principal Contract and the legal requirementsrelating thereto. 9.28 If the Pledgor is involved in any criminal offense, litigation, arbitration or dispute, or the Collateral is seized, frozen or detained or involved in any titledispute which has adverse effect on the Pledgor’s performance of its security obligations, the Pledgor shall immediately notify the Pledgee. 9.29 Neither party hereto may change or terminate this Agreement unilaterally. Any change or termination of this Agreement shall be agreement of theparties hereto in writing. 9.30 If the Pledgor fails to perform this Agreement due to death, loss of capacity for civil conduct, wind-up, dissolution or bankruptcy, or serious worseningof its economic conditions, it shall be deemed as event of default. 9.31 Any other matters not covered hereunder are governed by the Principal Contract. 9.32 If the Pledgee assigns its all or partial rights provided under the Principal Contract to any third party, the assignee shall have the rights of the pledgerelating to the applicable creditor’s right provided under this Agreement. 9.33 The validity of each clause of this Agreement will not affect that of the remainder hereof. 9.34 If the Principal Contract is held invalid, the Pledgor shall also be liable for any debt of the Debtor arising from return of applicable assets or indemnityof applicable loss to the extent of the Collateral. 9.35 The document evidencing entitlement to the Collateral and any other legal documents related to this Agreement constitute an integral part of thisAgreement. The Pledgor shall deliver the document evidencing entitlement to the pledged deposit to the Pledgee on the effective date of thisAgreement. 9.36 The Pledgee’s failure to exercise any of its rights under the Principal Contract or this Agreement, or grant of any grace, concession, exception ortolerance relating thereto, will not operate as waiver of any of its rights provided hereunder; waiver of any of its rights provided hereunder by thePledgee, including the pledge provided in this Agreement, shall not be valid unless it is expressly made in writing. 9.37 This Agreement is made in five originals, one held by the Pledgor, two held by the Pledgee and the other two held by other applicants. All of theoriginals have the same effect. 9.38 The Pledgor and the Pledgee has reached the following agreements in respect of delivery address for the various types of notifications, agreements, andother documents under this Agreement and for the relevant documents and legal documents in the event of a dispute and their corresponding legalconsequences:  9.12.7 The Pledgor confirms its valid delivery address as: Room 1503, Building C, Galaxy SOHO, Chaonei Street, Dongcheng District, Beijing. 9.12.8 The scope of application of the delivery address includes all types of notifications, agreements and other documents when both parties have not indispute, the delivery of relevant documents and legal documents in the case of disputes in this Agreement, and all relevant legal procedures, such as thefirst instance, the second instance, the retrial and the execution procedure after the procedure when such dispute enters into a civil procedure. 9.12.9 Should the above delivery address need to be changed, the Pledgee shall be notified by the means of signing a supplementary agreement by bothparties. In the process of civil proceedings, the change of delivery address of the Pledgor shall also be notified to the court. If the Pledgor fails toperform the notification obligation in the foregoing manner, the delivery address confirmed by both parties in this Agreement shall still be regarded asthe effective delivery address. If due to reasons including the delivery address provided or confirmed by the Pledgor being not accurate, the change ofdelivery address failing to be timely informed to the Pledgee and the court pursuant to the relevant procedure, and the Pledgor or its designatedrecipient refusing to sign, the legal instruments fail to be received in effect by the Pledgee, (i) when delivered by mailing, the service date shall be thethird day from the date of mailing; (ii) when directly delivered, the service date shall be on the day of delivery when the courier records the situation onthe service return receipt on site. If the Pledgor has performed the notification obligation in respect of its change of delivery address, the changeddelivery address shall be the effective delivery address. With respect to the delivery address of the Pledgor that has been expressly confirmed by theparties in this Agreement, the court may directly send to such address by mailing; even if the Pledgor fails to receive the documents sent by the courtby mailing, such documents shall be deemed to have been served due to the confirmation in this Agreement. 9.39 The Pledgee and the Pledgor agree to apply to __/__ notary office to notarize the enforceability of this Agreement. When the Pledgor or the Debtor failsto perform or does not fully fulfill the obligations under the Principal Contract and this Agreement, the Pledgee has the right to apply to __/__ notaryoffice for the enforcement certificate and apply to the competent people’s court for compulsory enforcement by notarization of this Agreement and theenforcement certificate. In such case, the Pledgor agrees to accept the compulsory enforcement by the people’s court by law and to voluntarily abandonits right of defense. The scope that the Pledgor voluntarily accepts compulsory enforcement covers all of the principal and the interest (including anyoverdue charge, compound interest, liquidated damages and other fees) under the Principal Contract, and any and all expenses of realization of itscreditor’s rights and pledge by the Pledgee (including, without limitation, litigation fee, arbitration fee, lawyer’s fee, property preservation fee, businesstravel expenses, enforcement fee, evaluation fee, and auction fee). The validity of this clause is superior to the other dispute settlement provisions of thisAgreement. Article 10 Effectiveness of Agreement This Agreement shall be effective upon, if the party hereto is an individual, signature by such party or, if the party hereto is an entity, signature of its legal orauthorized representative or affixture of its corporate seal and signature of its legal or authorized representative. This Agreement shall remain valid until thedebts owed by the Debtor to the Pledgee under the Principal Contract are fully repaid. Article 11 Acknowledgement Each of the parties hereto has read all the clauses of this Agreement, and paid special attention to the terms in bold herein. At the request of the Pledgor, thePledgee has provided corresponding notes to the terms of this Agreement. The Pledgor has full knowledge and understanding of the terms hereof and theirlegal consequence, and signed this Agreement voluntarily. Pledgor: Hong Kong Secoo Investment Group Limited /s/ Authorized Signatory Pledgee: National Trust Co., Ltd. /seal/ National Trust Co., Ltd. Signing date: December 26, 2017 Signing location: Xicheng District, Beijing Witness: /s/ Witnesses  Appendix to Deposit Account Pledge Agreement Consent Letter(applicable if the Pledgor is a corporate entity) National Trust Co., Ltd.: The undersigned is willing to provide the term deposit pledge for Beijing Secoo Trading Limited (hereinafter referred to as the Debtor) for the repayment ofall the debts under your National Trust · Jialong No. 40 Single Fund Trust Loan Agreement with the number NT Tuo Zi 17-004-40-02, and the undersignedagrees that the Debtor to use our term deposit account opening certificate for the purpose of providing pledge for the trust loan. Signed by: Hong Kong Secoo Investment Group Limited /s/ Authorized Signatory Signing date: December 26, 2017 Witness: /s/ Witnesses National Trust ·· Jialong No. 40 Single Fund Trust Deposit Account Pledge Agreement Contract No.NT Tuo Zi 17-004-40-05-04 Pledgor: Hong Kong Secoo Investment Group Limited And Pledgee: National Trust Co., Ltd. Instructions: This Agreement is concluded by the parties hereto on the basis of equality and free will in accordance with the relevant laws and regulations,and all the clauses hereof are expression of true intention of the parties. In order to sufficiently protect the lawful rights of the Pledgor, the Pledgee requeststhe Pledgor to carefully read the clauses of this Agreement, especially those in bold herein and take the contents thereof into full consideration. If there is anyquestion or ambiguity, please promptly consult the Pledgee or professional agency or personnel. In order to guarantee the performance of the National Trust · Jialong No. 40 Single Fund Trust Loan Agreement (hereinafter referred to as the PrincipalContract) with the number NT Tuo Zi 17-004-40-02 concluded between Beijing Secoo Trading Limited (hereinafter referred to as the Debtor) and thePledgee, and to ensure the realization of the creditor’s right of the Pledgee, the Pledgor is willing to provide the Pledgee with the term deposit deposited bythe Pledgor at Xiamen International Bank Co., Ltd. Beijing Branch and the interest thereof as security in favor of the Pledgee (hereinafter referred to as theCollateral). Now therefore, in accordance with the relevant laws, regulations and rules and on the basis of consensus through negotiation, the parties heretoagree as follows and intend to be bound hereby: Article 1 Collateral 1.10 Pledged Certificate of Term Deposit Name: o Individual term deposit certificate x Corporate term deposit certificate Issuing Institution: Xiamen International Bank Co., Ltd. Beijing Branch Deposit Number: 10000076 Account Number: *** Account Name: Hong Kong Secoo Investment Group Limited Amount and Currency: RMB30,950,000.00 Deposit term: from December 26, 2017 to December 26, 2018  Confirmation of certificate of term deposit: The certificate of the term deposit has been confirmed by its issuing bank. 1.11 The redeposit or any change in account number of the above-mentioned pledged deposit will not affect the validity of the pledge. The certificate of theterm deposit upon its redeposit and the certificate with changed account number will continue to be the document of entitlement to the Collateral underthis Agreement. 1.12 The pledge provided under this Agreement shall be applicable to any interest arising from the Collateral. Article 2 Coverage of Pledge Guarantee The security provided by the Collateral hereunder shall cover the principal of RMB60,000,000.00 and the interest (including any penalty interest andcompound interest), penalty, damages, expenses of custody (if any), any and all expenses of realization of its creditor’s rights and pledge by the Pledgee(including, without limitation, litigation fee, arbitration fee, lawyer’s fee, property preservation fee, business travel expenses, enforcement fee, evaluation fee,and auction fee) provided in the Principal Contract. Article 3 Disposal of Collateral 3.22 Within the term of the pledge, the Pledgor may not assign, re-pledge, or otherwise dispose of the Collateral without the prior written consent of thePledgee. 3.23 The Pledgor shall ensure that the Collateral be free from any freeze, seizure, attachment or any other litigation, or the Pledgee may immediately enforcethe pledge and claim its creditor’s rights thereunder, and the Pledgor shall warrant that the Pledgee has the first priority of compensation. 3.24 If the Debtor fails to perform its obligations under the Principal Contract, or the Debtor or the Pledgor fails to comply any other provision under thePrincipal Contract or this Agreement or any other agreement with the Pledgee, whereby the Pledgee accelerates realizing its creditor’s right or thePrincipal Contact is held invalid after occurrence of the borrower-lender relationship contemplated thereunder, the Pledgee shall have sole discretion todispose of the Collateral without prior disposal of or recovery of any other security provided by the Debtor or provided under the Principal Contract, ifany (including, without limitation, any warranty, mortgage, pledge, letter of guarantee, or stand-by letter of credit), and the Pledgor may not object tosuch disposal by the Pledgee. The Pledgee may enforce its rights under the pledge by cashing out the certificate of deposit, and any proceeds from suchenforcement shall be first applied to repay all debts owed by the Debtor to the Pledgee under the Principal Contract secured by the Pledgor, regardless ofwhether or not certificate of deposit becomes due and payable. 3.25 If the Pledgor fails to disclose the existence of any joint ownership, title dispute, seizure or attachment of the Collateral and cause any damage to thePledgee, the Pledgor shall make full indemnity to the Pledge; if any of such circumstances which is adverse to the Pledgee’s realization of its rights failsto be effectively eliminated within reasonable period of time requested by the Pledgee, the Pledgee may accelerate realizing its rights under the pledgeor require the Pledgor to provide new security acceptable to the Pledgee. 3.26 If the Pledgor breaches any provision in this Agreement or any representation or warranty made by the Pledgor in this Agreement becomes inaccurate ormisleading, the Pledgee shall have the right to accelerate realizing its rights under the pledge and hold the Pledgor liable for any loss incurred by thePledge arising therefrom. 3.27 The Pledgor is under obligation to cooperate with the Pledgee in disposal of the Collateral and use the proceeds from the disposal to repay the debtssecured under this Agreement. 3.28 The Pledgor agrees that the Pledgee have the right to use the proceeds from the disposal of the Collateral to repay the principal and interests andrelevant expenses (if any) of the debt provided the Principal Contract. Article 4 Amendment of Principal Contract The Pledgor acknowledges that the Debtor and the Pledgee may amend the Principal Contract through agreement without consent of the Pledgor or anyimpact upon the pledge provided by the Pledgor; provided, however, that written consent of the Pledgor is required if the term of debt is extended or theprincipal amount of the Creditor’s right is increased.  Article 5 Cashing out of the Deposit Certificate 5.10 If the pledged certificate of deposit is cashable with signature consistent with the signature specimen left with applicable bank, the Pledgor shallendorse the consistent signature on the back of the pledged certificate of deposit (if the pledged certificate of deposit is in the name of entity, the seal ofsuch entity shall also be endorsed thereon); if the certificate of deposit is cashable with password or valid ID certificate, the Pledgor shall change it sothat it is cashable signature consistent with the signature specimen left with bank; if the Pledgor fails to endorse the consistent signature or change thecashable method of the certificate of deposit as provided in this Section 5.1, it will not affect the Pledgee’s right to take action against default providedhereunder. 5.11 Before the debts provided under the Principal Contract are fully repaid and without written consent from the Pledgee, the Pledgor may not use or cashout the pledged deposit or any interest thereof, or retrieve the certificate of deposit or apply for registered loss of the certificate, or change the signaturespecimen or password left with the applicable bank. The pledged certificate of deposit is subject to freeze by the Pledgee. 5.12 The Pledgor authorizes the Pledgee to cash out the certificate of term deposit or dispose of the certificate of term deposit in any other matter permittedby law (including, without limitation, cashing out the certificate of term deposit prior to its maturity) so as to repay the debts under the PrincipalContract. Article 6 Representation and Warranty by the Pledgor 6.19 The Pledgor warrants that it has lawful ownership of and the right to dispose of the Collateral, and the Collateral are free from any dispute, attachment orseizure. The Pledgor warrants that, as of the date of this Agreement, the Collateral is not subject to any security interest or assigned, granted or otherwisedisposed. 6.20 The Pledgor represents that no third party has any right of offset against the Collateral. 6.21 The Pledgor has lawfully completed any and all consideration, approval, resolution, consent, registration, announcement or any other proceduresrequired for execution of this Agreement and perfection of the pledge provided hereunder, and the Pledgor has full right to provide external guaranteefree from any encumbrance. 6.22 Any and all documents and materials provided by the Pledgor to the Pledgee are authentic, accurate and complete. 6.23 Within the term of the Principal Contract, the Pledgor may not waive, re-pledge, or transfer to any third party or otherwise dispose of the Collateralwithout written consent of the Pledgee. 6.24 If the Pledgor changes its address or contact information, it shall notify the Pledgee thereof in writing. The above representations and warranties shall continue to be valid during the term of this Agreement. Article 7 Additional Collateral (Applicable to the circumstance in which the currency of the pledged deposit is different from that of the credit line offered under the Principal Contract) Ifthe total of the principal and interest of the loan exceeds the sum of the pledged certificate of deposit due to fluctuation of the applicable exchange rate, thePledgor shall, within three business days, increase the pledged deposit or pay additional fund to an account designated by the Pledgee, or provide any othersecurity acceptable to the Pledgee, or pre-pay part of the principal amount under the credit line, so as to cover the deficiency of the pledge due to fluctuationof the applicable exchange rate. If the Pledgor fails to do so, the Pledgee shall have the right to accelerate repayment of the applicable loan and dispose of theCollateral as provided in this Agreement. The deposit or fund so increased in the preceding paragraph shall be pledged as security in favor of the Pledgee for repayment of the debts provided under thePrincipal Contract. If the currency of the deposit is different from currency under the Principal Contract, the principal provided under the credit line and the principal of thedeposit shall be calculated into RMB at the real-time exchange rate published by the Pledgee. Article 8 Dispute Resolution Any dispute arising from or in connection with this Agreement shall be settled through negotiation and, if the negotiation fails, be submitted to the people’scourt having jurisdiction over the place where the Plegee is located for litigation. During the litigation, this Agreement shall continue to be performed withexception of any term under dispute. Article 9 Miscellaneous 9.40 The Pledgor shall urge the Debtor to strictly perform its duties and obligations to the Pledgee under the Principal Contract and the legal requirementsrelating thereto. 9.41 If the Pledgor is involved in any criminal offense, litigation, arbitration or dispute, or the Collateral is seized, frozen or detained or involved in any titledispute which has adverse effect on the Pledgor’s performance of its security obligations, the Pledgor shall immediately notify the Pledgee.  9.42 Neither party hereto may change or terminate this Agreement unilaterally. Any change or termination of this Agreement shall be agreement of theparties hereto in writing. 9.43 If the Pledgor fails to perform this Agreement due to death, loss of capacity for civil conduct, wind-up, dissolution or bankruptcy, or serious worseningof its economic conditions, it shall be deemed as event of default. 9.44 Any other matters not covered hereunder are governed by the Principal Contract. 9.45 If the Pledgee assigns its all or partial rights provided under the Principal Contract to any third party, the assignee shall have the rights of the pledgerelating to the applicable creditor’s right provided under this Agreement. 9.46 The validity of each clause of this Agreement will not affect that of the remainder hereof. 9.47 If the Principal Contract is held invalid, the Pledgor shall also be liable for any debt of the Debtor arising from return of applicable assets or indemnityof applicable loss to the extent of the Collateral. 9.48 The document evidencing entitlement to the Collateral and any other legal documents related to this Agreement constitute an integral part of thisAgreement. The Pledgor shall deliver the document evidencing entitlement to the pledged deposit to the Pledgee on the effective date of thisAgreement. 9.49 The Pledgee’s failure to exercise any of its rights under the Principal Contract or this Agreement, or grant of any grace, concession, exception ortolerance relating thereto, will not operate as waiver of any of its rights provided hereunder; waiver of any of its rights provided hereunder by thePledgee, including the pledge provided in this Agreement, shall not be valid unless it is expressly made in writing. 9.50 This Agreement is made in five originals, one held by the Pledgor, two held by the Pledgee and the other two held by other applicants. All of theoriginals have the same effect. 9.51 The Pledgor and the Pledgee has reached the following agreements in respect of delivery address for the various types of notifications, agreements, andother documents under this Agreement and for the relevant documents and legal documents in the event of a dispute and their corresponding legalconsequences: 9.12.10 The Pledgor confirms its valid delivery address as: Room 1503, Building C, Galaxy SOHO, Chaonei Street, Dongcheng District, Beijing. 9.12.11 The scope of application of the delivery address includes all types of notifications, agreements and other documents when both parties have not indispute, the delivery of relevant documents and legal documents in the case of disputes in this Agreement, and all relevant legal procedures, such asthe first instance, the second instance, the retrial and the execution procedure after the procedure when such dispute enters into a civil procedure. 9.12.12 Should the above delivery address need to be changed, the Pledgee shall be notified by the means of signing a supplementary agreement by bothparties. In the process of civil proceedings, the change of delivery address of the Pledgor shall also be notified to the court. If the Pledgor fails toperform the notification obligation in the foregoing manner, the delivery address confirmed by both parties in this Agreement shall still be regardedas the effective delivery address. If due to reasons including the delivery address provided or confirmed by the Pledgor being not accurate, thechange of delivery address failing to be timely informed to the Pledgee and the court pursuant to the relevant procedure, and the Pledgor or itsdesignated recipient refusing to sign, the legal instruments fail to be received in effect by the Pledgee, (i) when delivered by mailing, the servicedate shall be the third day from the date of mailing; (ii) when directly delivered, the service date shall be on the day of delivery when the courierrecords the situation on the service return receipt on site. If the Pledgor has performed the notification obligation in respect of its change of deliveryaddress, the changed delivery address shall be the effective delivery address. With respect to the delivery address of the Pledgor that has beenexpressly confirmed by the parties in this Agreement, the court may directly send to such address by mailing; even if the Pledgor fails to receive thedocuments sent by the court by mailing, such documents shall be deemed to have been served due to the confirmation in this Agreement. 9.52 The Pledgee and the Pledgor agree to apply to __/__ notary office to notarize the enforceability of this Agreement. When the Pledgor or the Debtor failsto perform or does not fully fulfill the obligations under the Principal Contract and this Agreement, the Pledgee has the right to apply to __/__ notaryoffice for the enforcement certificate and apply to the competent people’s court for compulsory enforcement by notarization of this Agreement and theenforcement certificate. In such case, the Pledgor agrees to accept the compulsory enforcement by the people’s court by law and to voluntarily abandonits right of defense. The scope that the Pledgor voluntarily accepts compulsory enforcement covers all of the principal and the interest (including anyoverdue charge, compound interest, liquidated damages and other fees) under the Principal Contract, and any and all expenses of realization of itscreditor’s rights and pledge by the Pledgee (including, without limitation, litigation fee, arbitration fee, lawyer’s fee, property preservation fee, businesstravel expenses, enforcement fee, evaluation fee, and auction fee). The validity of this clause is superior to the other dispute settlement provisions of thisAgreement.  Article 10 Effectiveness of Agreement This Agreement shall be effective upon, if the party hereto is an individual, signature by such party or, if the party hereto is an entity, signature of its legal orauthorized representative or affixture of its corporate seal and signature of its legal or authorized representative. This Agreement shall remain valid until thedebts owed by the Debtor to the Pledgee under the Principal Contract are fully repaid. Article 11 Acknowledgement Each of the parties hereto has read all the clauses of this Agreement, and paid special attention to the terms in bold herein. At the request of the Pledgor, thePledgee has provided corresponding notes to the terms of this Agreement. The Pledgor has full knowledge and understanding of the terms hereof and theirlegal consequence, and signed this Agreement voluntarily. Pledgor: Hong Kong Secoo Investment Group Limited /s/ Authorized Signatory Pledgee: National Trust Co., Ltd. /s/ National Trust Co., Ltd. Signing date: December 26, 2017 Signing location: Xicheng District, Beijing Witness: /s/ Witnesses Appendix to Deposit Account Pledge Agreement Consent Letter(applicable if the Pledgor is a corporate entity) National Trust Co., Ltd.: The undersigned is willing to provide the term deposit pledge for Beijing Secoo Trading Limited (hereinafter referred to as the Debtor) for the repayment ofall the debts under your National Trust · Jialong No. 40 Single Fund Trust Loan Agreement with the number NT Tuo Zi 17-004-40-02, and the undersignedagrees that the Debtor to use our term deposit account opening certificate for the purpose of providing pledge for the trust loan. Signed by: Hong Kong Secoo Investment Group Limited /s/ Authorized Signatory Signing date: December 26, 2017 Witness: /s/ Witnesses  National Trust ·· Jialong No. 40 Single Fund Trust Deposit Account Pledge Agreement Contract No.NT Tuo Zi 17-004-40-05-05 Pledgor: Hong Kong Secoo Investment Group Limited And Pledgee: National Trust Co., Ltd. Instructions: This Agreement is concluded by the parties hereto on the basis of equality and free will in accordance with the relevant laws and regulations,and all the clauses hereof are expression of true intention of the parties. In order to sufficiently protect the lawful rights of the Pledgor, the Pledgee requeststhe Pledgor to carefully read the clauses of this Agreement, especially those in bold herein and take the contents thereof into full consideration. If there is anyquestion or ambiguity, please promptly consult the Pledgee or professional agency or personnel. In order to guarantee the performance of the National Trust · Jialong No. 40 Single Fund Trust Loan Agreement (hereinafter referred to as the PrincipalContract) with the number NT Tuo Zi 17-004-40-02 concluded between Beijing Secoo Trading Limited (hereinafter referred to as the Debtor) and thePledgee, and to ensure the realization of the creditor’s right of the Pledgee, the Pledgor is willing to provide the Pledgee with the term deposit deposited bythe Pledgor at Xiamen International Bank Co., Ltd. Beijing Branch and the interest thereof as security in favor of the Pledgee (hereinafter referred to as theCollateral). Now therefore, in accordance with the relevant laws, regulations and rules and on the basis of consensus through negotiation, the parties heretoagree as follows and intend to be bound hereby: Article 1 Collateral 1.13 Pledged Certificate of Term Deposit Name: o Individual term deposit certificate x Corporate term deposit certificate Issuing Institution: Xiamen International Bank Co., Ltd. Beijing Branch Deposit Number: 10000081 Account Number: *** Account Name: Hong Kong Secoo Investment Group Limited Amount and Currency: RMB30,950,000.00 Deposit term: from December 26, 2017 to December 26, 2018 Confirmation of certificate of term deposit: The certificate of the term deposit has been confirmed by its issuing bank. 1.14 The redeposit or any change in account number of the above-mentioned pledged deposit will not affect the validity of the pledge. The certificate ofthe term deposit upon its redeposit and the certificate with changed account number will continue to be the document of entitlement to the Collateralunder this Agreement. 1.15 The pledge provided under this Agreement shall be applicable to any interest arising from the Collateral. Article 2 Coverage of Pledge Guarantee The security provided by the Collateral hereunder shall cover the principal of RMB30,000,000.00 and the interest (including any penalty interest andcompound interest), penalty, damages, expenses of custody (if any), any and all expenses of realization of its creditor’s rights and pledge by the Pledgee(including, without limitation, litigation fee, arbitration fee, lawyer’s fee, property preservation fee, business travel expenses, enforcement fee, evaluation fee,and auction fee) provided in the Principal Contract. Article 3 Disposal of Collateral 3.29 Within the term of the pledge, the Pledgor may not assign, re-pledge, or otherwise dispose of the Collateral without the prior written consent of thePledgee. 3.30 The Pledgor shall ensure that the Collateral be free from any freeze, seizure, attachment or any other litigation, or the Pledgee may immediately enforcethe pledge and claim its creditor’s rights thereunder, and the Pledgor shall warrant that the Pledgee has the first priority of compensation. 3.31 If the Debtor fails to perform its obligations under the Principal Contract, or the Debtor or the Pledgor fails to comply any other provision under thePrincipal Contract or this Agreement or any other agreement with the Pledgee, whereby the Pledgee accelerates realizing its creditor’s right or thePrincipal Contact is held invalid after occurrence of the borrower-lender relationship contemplated thereunder, the Pledgee shall have sole discretion todispose of the Collateral without prior disposal of or recovery of any other security provided by the Debtor or provided under the Principal Contract, ifany (including, without limitation, any warranty, mortgage, pledge, letter of guarantee, or stand-by letter of credit), and the Pledgor may not object tosuch disposal by the Pledgee. The Pledgee may enforce its rights under the pledge by cashing out the certificate of deposit, and any proceeds from suchenforcement shall be first applied to repay all debts owed by the Debtor to the Pledgee under the Principal Contract secured by the Pledgor, regardless ofwhether or not certificate of deposit becomes due and payable.  3.32 If the Pledgor fails to disclose the existence of any joint ownership, title dispute, seizure or attachment of the Collateral and cause any damage to thePledgee, the Pledgor shall make full indemnity to the Pledge; if any of such circumstances which is adverse to the Pledgee’s realization of its rights failsto be effectively eliminated within reasonable period of time requested by the Pledgee, the Pledgee may accelerate realizing its rights under the pledgeor require the Pledgor to provide new security acceptable to the Pledgee. 3.33 If the Pledgor breaches any provision in this Agreement or any representation or warranty made by the Pledgor in this Agreement becomes inaccurate ormisleading, the Pledgee shall have the right to accelerate realizing its rights under the pledge and hold the Pledgor liable for any loss incurred by thePledge arising therefrom. 3.34 The Pledgor is under obligation to cooperate with the Pledgee in disposal of the Collateral and use the proceeds from the disposal to repay the debtssecured under this Agreement. 3.35 The Pledgor agrees that the Pledgee have the right to use the proceeds from the disposal of the Collateral to repay the principal and interests andrelevant expenses (if any) of the debt provided the Principal Contract. Article 4 Amendment of Principal Contract The Pledgor acknowledges that the Debtor and the Pledgee may amend the Principal Contract through agreement without consent of the Pledgor or anyimpact upon the pledge provided by the Pledgor; provided, however, that written consent of the Pledgor is required if the term of debt is extended or theprincipal amount of the Creditor’s right is increased. Article 5 Cashing out of the Deposit Certificate 5.13 If the pledged certificate of deposit is cashable with signature consistent with the signature specimen left with applicable bank, the Pledgor shallendorse the consistent signature on the back of the pledged certificate of deposit (if the pledged certificate of deposit is in the name of entity, the seal ofsuch entity shall also be endorsed thereon); if the certificate of deposit is cashable with password or valid ID certificate, the Pledgor shall change it sothat it is cashable signature consistent with the signature specimen left with bank; if the Pledgor fails to endorse the consistent signature or change thecashable method of the certificate of deposit as provided in this Section 5.1, it will not affect the Pledgee’s right to take action against default providedhereunder. 5.14 Before the debts provided under the Principal Contract are fully repaid and without written consent from the Pledgee, the Pledgor may not use or cashout the pledged deposit or any interest thereof, or retrieve the certificate of deposit or apply for registered loss of the certificate, or change the signaturespecimen or password left with the applicable bank. The pledged certificate of deposit is subject to freeze by the Pledgee. 5.15 The Pledgor authorizes the Pledgee to cash out the certificate of term deposit or dispose of the certificate of term deposit in any other matter permittedby law (including, without limitation, cashing out the certificate of term deposit prior to its maturity) so as to repay the debts under the PrincipalContract. Article 6 Representation and Warranty by the Pledgor 6.25 The Pledgor warrants that it has lawful ownership of and the right to dispose of the Collateral, and the Collateral are free from any dispute, attachment orseizure. The Pledgor warrants that, as of the date of this Agreement, the Collateral is not subject to any security interest or assigned, granted or otherwisedisposed. 6.26 The Pledgor represents that no third party has any right of offset against the Collateral. 6.27 The Pledgor has lawfully completed any and all consideration, approval, resolution, consent, registration, announcement or any other proceduresrequired for execution of this Agreement and perfection of the pledge provided hereunder, and the Pledgor has full right to provide external guaranteefree from any encumbrance. 6.28 Any and all documents and materials provided by the Pledgor to the Pledgee are authentic, accurate and complete. 6.29 Within the term of the Principal Contract, the Pledgor may not waive, re-pledge, or transfer to any third party or otherwise dispose of the Collateralwithout written consent of the Pledgee. 6.30 If the Pledgor changes its address or contact information, it shall notify the Pledgee thereof in writing. The above representations and warranties shall continue to be valid during the term of this Agreement.  Article 7 Additional Collateral (Applicable to the circumstance in which the currency of the pledged deposit is different from that of the credit line offered under the Principal Contract) Ifthe total of the principal and interest of the loan exceeds the sum of the pledged certificate of deposit due to fluctuation of the applicable exchange rate, thePledgor shall, within three business days, increase the pledged deposit or pay additional fund to an account designated by the Pledgee, or provide any othersecurity acceptable to the Pledgee, or pre-pay part of the principal amount under the credit line, so as to cover the deficiency of the pledge due to fluctuationof the applicable exchange rate. If the Pledgor fails to do so, the Pledgee shall have the right to accelerate repayment of the applicable loan and dispose of theCollateral as provided in this Agreement. The deposit or fund so increased in the preceding paragraph shall be pledged as security in favor of the Pledgee for repayment of the debts provided under thePrincipal Contract. If the currency of the deposit is different from currency under the Principal Contract, the principal provided under the credit line and the principal of thedeposit shall be calculated into RMB at the real-time exchange rate published by the Pledgee. Article 8 Dispute Resolution Any dispute arising from or in connection with this Agreement shall be settled through negotiation and, if the negotiation fails, be submitted to the people’scourt having jurisdiction over the place where the Plegee is located for litigation. During the litigation, this Agreement shall continue to be performed withexception of any term under dispute. Article 9 Miscellaneous 9.53 The Pledgor shall urge the Debtor to strictly perform its duties and obligations to the Pledgee under the Principal Contract and the legal requirementsrelating thereto. 9.54 If the Pledgor is involved in any criminal offense, litigation, arbitration or dispute, or the Collateral is seized, frozen or detained or involved in any titledispute which has adverse effect on the Pledgor’s performance of its security obligations, the Pledgor shall immediately notify the Pledgee. 9.55 Neither party hereto may change or terminate this Agreement unilaterally. Any change or termination of this Agreement shall be agreement of theparties hereto in writing. 9.56 If the Pledgor fails to perform this Agreement due to death, loss of capacity for civil conduct, wind-up, dissolution or bankruptcy, or serious worseningof its economic conditions, it shall be deemed as event of default. 9.57 Any other matters not covered hereunder are governed by the Principal Contract. 9.58 If the Pledgee assigns its all or partial rights provided under the Principal Contract to any third party, the assignee shall have the rights of the pledgerelating to the applicable creditor’s right provided under this Agreement. 9.59 The validity of each clause of this Agreement will not affect that of the remainder hereof. 9.60 If the Principal Contract is held invalid, the Pledgor shall also be liable for any debt of the Debtor arising from return of applicable assets or indemnityof applicable loss to the extent of the Collateral. 9.61 The document evidencing entitlement to the Collateral and any other legal documents related to this Agreement constitute an integral part of thisAgreement. The Pledgor shall deliver the document evidencing entitlement to the pledged deposit to the Pledgee on the effective date of thisAgreement. 9.62 The Pledgee’s failure to exercise any of its rights under the Principal Contract or this Agreement, or grant of any grace, concession, exception ortolerance relating thereto, will not operate as waiver of any of its rights provided hereunder; waiver of any of its rights provided hereunder by thePledgee, including the pledge provided in this Agreement, shall not be valid unless it is expressly made in writing. 9.63 This Agreement is made in five originals, one held by the Pledgor, two held by the Pledgee and the other two held by other applicants. All of theoriginals have the same effect. 9.64 The Pledgor and the Pledgee has reached the following agreements in respect of delivery address for the various types of notifications, agreements, andother documents under this Agreement and for the relevant documents and legal documents in the event of a dispute and their corresponding legalconsequences: 9.12.13 The Pledgor confirms its valid delivery address as: Room 1503, Building C, Galaxy SOHO, Chaonei Street, Dongcheng District, Beijing.  9.12.14 The scope of application of the delivery address includes all types of notifications, agreements and other documents when both parties have not indispute, the delivery of relevant documents and legal documents in the case of disputes in this Agreement, and all relevant legal procedures, such asthe first instance, the second instance, the retrial and the execution procedure after the procedure when such dispute enters into a civil procedure. 9.12.15 Should the above delivery address need to be changed, the Pledgee shall be notified by the means of signing a supplementary agreement by bothparties. In the process of civil proceedings, the change of delivery address of the Pledgor shall also be notified to the court. If the Pledgor fails toperform the notification obligation in the foregoing manner, the delivery address confirmed by both parties in this Agreement shall still be regardedas the effective delivery address. If due to reasons including the delivery address provided or confirmed by the Pledgor being not accurate, thechange of delivery address failing to be timely informed to the Pledgee and the court pursuant to the relevant procedure, and the Pledgor or itsdesignated recipient refusing to sign, the legal instruments fail to be received in effect by the Pledgee, (i) when delivered by mailing, the servicedate shall be the third day from the date of mailing; (ii) when directly delivered, the service date shall be on the day of delivery when the courierrecords the situation on the service return receipt on site. If the Pledgor has performed the notification obligation in respect of its change of deliveryaddress, the changed delivery address shall be the effective delivery address. With respect to the delivery address of the Pledgor that has beenexpressly confirmed by the parties in this Agreement, the court may directly send to such address by mailing; even if the Pledgor fails to receive thedocuments sent by the court by mailing, such documents shall be deemed to have been served due to the confirmation in this Agreement. 9.65 The Pledgee and the Pledgor agree to apply to __/__ notary office to notarize the enforceability of this Agreement. When the Pledgor or the Debtor failsto perform or does not fully fulfill the obligations under the Principal Contract and this Agreement, the Pledgee has the right to apply to __/__ notaryoffice for the enforcement certificate and apply to the competent people’s court for compulsory enforcement by notarization of this Agreement and theenforcement certificate. In such case, the Pledgor agrees to accept the compulsory enforcement by the people’s court by law and to voluntarily abandonits right of defense. The scope that the Pledgor voluntarily accepts compulsory enforcement covers all of the principal and the interest (including anyoverdue charge, compound interest, liquidated damages and other fees) under the Principal Contract, and any and all expenses of realization of itscreditor’s rights and pledge by the Pledgee (including, without limitation, litigation fee, arbitration fee, lawyer’s fee, property preservation fee, businesstravel expenses, enforcement fee, evaluation fee, and auction fee). The validity of this clause is superior to the other dispute settlement provisions of thisAgreement. Article 10 Effectiveness of Agreement This Agreement shall be effective upon, if the party hereto is an individual, signature by such party or, if the party hereto is an entity, signature of its legal orauthorized representative or affixture of its corporate seal and signature of its legal or authorized representative. This Agreement shall remain valid until thedebts owed by the Debtor to the Pledgee under the Principal Contract are fully repaid. Article 11 Acknowledgement Each of the parties hereto has read all the clauses of this Agreement, and paid special attention to the terms in bold herein. At the request of the Pledgor, thePledgee has provided corresponding notes to the terms of this Agreement. The Pledgor has full knowledge and understanding of the terms hereof and theirlegal consequence, and signed this Agreement voluntarily. Pledgor: Hong Kong Secoo Investment Group Limited /s/ Authorized Signatory Pledgee: National Trust Co., Ltd. /seal/ National Trust Co., Ltd. Signing date: December 26, 2017 Signing location: Xicheng District, Beijing Witness: /s/ Witnesses  Appendix to Deposit Account Pledge Agreement Consent Letter(applicable if the Pledgor is a corporate entity) National Trust Co., Ltd.: The undersigned is willing to provide the term deposit pledge for Beijing Secoo Trading Limited (hereinafter referred to as the Debtor) for the repayment ofall the debts under your National Trust · Jialong No. 40 Single Fund Trust Loan Agreement with the number NT Tuo Zi 17-004-40-02, and the undersignedagrees that the Debtor to use our term deposit account opening certificate for the purpose of providing pledge for the trust loan. Signed by: Hong Kong Secoo Investment Group Limited /s/ Authorized Signatory Signing date: December 26, 2017 Witness: /s/ Witnesses Exhibit 8.1 List of Principal Subsidiaries Subsidiaries Place of IncorporationHong Kong Secoo Investment Group LimitedHong KongSecoo Inc.United StatesSecoo Italia SRLItalySecoo Garden Tradings Sdn. Bhd.MalaysiaKutianxia (Beijing) Information Technology LimitedPeople’s Republic of ChinaBeijing Zhiyi Heng Sheng Technology Service Co., Ltd.People’s Republic of ChinaKuxin Tianxia (Tianjin) E-commerce LimitedPeople’s Republic of ChinaVariable Interest Entities:Beijing Wo Mai Wo Pai Auction Co., LtdPeople’s Republic of ChinaBeijing Secoo Trading LimitedPeople’s Republic of ChinaShanghai Secoo E-commerce LimitedPeople’s Republic of China Exhibit 12.1 Certification by the Principal Executive OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Richard Rixue Li, certify that: 1. I have reviewed this annual report on Form 20-F of Secoo Holding Limited; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for thecompany and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared; (b) [Intentionally omitted]; (c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by theannual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and 5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the company’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal controlover financial reporting. Date: April 26, 2018 By:/s/ Richard Rixue LiName:Richard Rixue LiTitle:Chief Executive Officer Exhibit 12.2 Certification by the Principal Financial OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Shaojun Chen, certify that: 1. I have reviewed this annual report on Form 20-F of Secoo Holding Limited; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for thecompany and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared; (b) [Intentionally omitted]; (c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by theannual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and 5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the company’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal controlover financial reporting. Date: April 26, 2018 By:/s/ Shaojun ChenName:Shaojun ChenTitle:Chief Financial Officer Exhibit 13.1 Certification by the Principal Executive OfficerPursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Annual Report of Secoo Holding Limited (the “Company”) on Form 20-F for the year ended December 31, 2017 as filed withthe Securities and Exchange Commission on the date hereof (the “Report”), I, Richard Rixue Li, Chief Executive Officer of the Company, hereby certify,pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: April 26, 2018 By:/s/ Richard Rixue LiName:Richard Rixue LiTitle:Chief Executive Office Exhibit 13.2 Certification by the Principal Financial OfficerPursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Annual Report of Secoo Holding Limited (the “Company”) on Form 20-F for the year ended December 31, 2017 as filed withthe Securities and Exchange Commission on the date hereof (the “Report”), I, Shaojun Chen, Chief Financial Officer of the Company, hereby certify,pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: April 26, 2018 By:/s/ Shaojun ChenName:Shaojun ChenTitle:Chief Financial Officer Exhibit 15.1 HAN KUN LAW OFFICES9/F, Office Tower C1, Oriental Plaza, 1 East Chang An Avenue, Beijing 100738, P. R. ChinaTEL: (86 10) 8525-5500 ; FAX: (86 10) 852 5-5511/ 5522 Date: April 26, 2018 Secoo Holding Limited15/F, Building C, Galaxy SOHO,Chaonei Street, Dongcheng District,Beijing 10000People’s Republic of China Dear Sir/Madam: We hereby consent to the reference to our firm in Secoo Holding Limited’s annual report on Form 20-F for the fiscal year ended December 31, 2017, whichwill be filed by Secoo Holding Limited on April 26, 2018 with the Securities and Exchange Commission pursuant to Section 13(a) or 15(d) of the SecuritiesExchange Act of 1934. 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 Sincerely, /s/ Han Kun Law OfficesHAN KUN LAW OFFICES 

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