Secoo Holding Limited
Annual Report 2018

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, 2018. OR ooTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934 For 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 depositaryshares representing 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 NASDAQ Global Market of American depositary shares. Securities registered or to be registered pursuant to Section 12(g) of the Act: None(Title of Class) Table of Contents 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, 2018, there were 25,122,199 shares outstanding, par value $0.001 per share, being the sum of 18,550,770 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 Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934from their obligations under those Sections. Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 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 every Interactive Data File required to be submitted pursuant to Rule 405 ofRegulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).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 x Non-accelerated filer o 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 ReportingStandards as issuedby the International AccountingStandards 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. o Yes o No Table of Contents TABLE OF CONTENTS INTRODUCTION1FORWARD-LOOKING STATEMENTS1PART I.2ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS2ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE2ITEM 3.KEY INFORMATION3ITEM 4.INFORMATION ON THE COMPANY42ITEM 4A.UNRESOLVED STAFF COMMENTS70ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS71ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES89ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS97ITEM 8.FINANCIAL INFORMATION98ITEM 9.THE OFFER AND LISTING99ITEM 10.ADDITIONAL INFORMATION99ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK107ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES108PART II.110ITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES110ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS110ITEM 15.CONTROLS AND PROCEDURES111ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT112ITEM 16B.CODE OF ETHICS112ITEM 16C.PRINCIPAL ACCOUNT FEES AND SERVICES112ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES112ITEM 16E.PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS112ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT113ITEM 16G.CORPORATE GOVERNANCE113ITEM 16H.MINE SAFETY DISCLOSURE113PART III.113ITEM 17.FINANCIAL STATEMENTS113ITEM 18.FINANCIAL STATEMENTS113ITEM 19.EXHIBITS113SIGNATURES116 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: · “ADRs” are to the American depositary receipts that evidence our ADSs; · “ADSs” are to our American depositary shares, two of which represent one Class A ordinary share; · “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. 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: 1Table of Contents · 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. PART I. ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Not applicable. ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable. 2Table of Contents 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, 2016,2017 and 2018, and summary consolidated balance sheets data as of December 31, 2017 and 2018 have been derived from our audited consolidated financialstatements included elsewhere in this annual report. The selected consolidated balance sheet as of December 31, 2016 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 31,2016 2017 2018RMB RMB RMB US$(in thousands, except for share, per share and per ADS data)Selected Consolidated Statements of ComprehensiveIncome/(Loss) DataTotal revenues2,593,8223,740,4555,387,577783,590Cost of revenues(2,193,676)(3,128,441)(4,427,844)(644,003)Gross profit400,146612,014959,733139,587Total operating expenses(429,378)(517,193)(740,458)(107,695)(Loss)/income from operations(29,232)94,821219,27531,892Net (loss)/income(44,573)133,409155,54622,623Net (loss)/income attributable to ordinary shareholders of SecooHolding Limited(640,359)(69,421)151,83322,083Net (loss)/income per Class A and Class B Ordinary share— Basic(89.06)(5.55)6.020.88— Diluted(89.06)(5.55)5.800.84Net (loss)/income per ADS(1)— Basic(44.53)(2.78)3.010.44— Diluted(44.53)(2.78)2.900.42Weighted average number of Class A and Class B Ordinaryshares outstanding used in computing net (loss)/income pershare— Basic7,189,93312,500,82125,235,40425,235,404— Diluted7,189,93312,500,82126,182,92226,182,922 Note: (1) Two ADSs represent one Class A ordinary share. 3Table of Contents As of December 31,2016 2017 2018RMB RMB RMB US$(in thousands)Selected Consolidated Balance Sheets DataCash55,555453,4251,034,385150,445Time deposits—292,31868,6329,982Restricted cash155,792179,01492,02213,384Investment in equity security——26,0323,786Accounts receivable20,99254,210119,58017,392Inventories752,1031,189,8851,712,740249,108Total assets1,045,8162,337,7083,791,926551,512Accounts payable274,629318,414498,57972,515Total liabilities739,4351,047,3142,282,413331,962Total mezzanine equity1,754,5345,5827,5871,103Total liabilities, mezzanine equity and shareholders’ equity1,045,8162,337,7083,791,926551,512 We present our financial results in RMB. We make no representation that any RMB or U.S. dollar amounts could have been, or could be, convertedinto U.S. dollars or RMB, as the case may be, at any particular rate, or at all. The PRC government imposes control over its foreign currency reserves in partthrough direct regulation of the conversion of RMB into foreign exchange and through restrictions on foreign trade. Translations of balances from RMB into US$ as of and for the year ended December 31, 2018 are solely for the convenience of the readers and werecalculated at the rate of US$1.00=RMB6.8755, representing the noon buying rate in The City of New York for cable transfers of RMB as certified for customspurposes by the Federal Reserve Bank of New York on December 31, 2018. B. Capitalization and Indebtedness Not applicable. 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; 4Table of Contents · 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. 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 RMB44.6 million in 2016.Although we recorded a net income of RMB133.4 million and RMB155.5 million (US$22.6 million) in 2017 and 2018, respectively, we cannot assure youthat we will be able to continue to generate net income or positive cash flow from operating activities in the future. We anticipate that our profitability willdepend in large part on our ability to increase our gross margin by obtaining more favorable terms from our suppliers as our business further grows in scale,managing our product mix, expanding our online platform and our offline experience centers and services and offering value-added services with highermargins. Accordingly, we intend to continue to invest heavily for the foreseeable future in our fulfillment infrastructure, website, mobile applications, offlineexperience 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 revenues and gross profit as a percentage of revenues may be materially and adversely affected.In addition, brand suppliers may restrict us from sourcing their brand products from other sources to protect their brand, which may adversely and materiallyaffect our global supply chain system, and hence reduce our operation efficiency. 5Table of Contents 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 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. 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. 6Table of Contents 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 Beijing, Shanghai, Chengdu, Tianjin, Xiamen, Qingdao and Malaysia, which perform certain warehousingfunctions, is essential to our success. If any of the landlords terminates existing lease agreements with us, or materially alters any existing arrangements withus, we may be forced to leave the premises and may not be adequately compensated for our investment, or at all. We plan to establish more logistics centers toincrease our warehouse capacity, accommodate more customer orders and provide better coverage of our target markets. As we continue to add logisticscenters, our fulfillment network becomes increasingly complex and challenging to operate. We cannot assure you that we will be able to lease new facilitiessuitable to our needs on commercially acceptable terms or at all. We may not be able to recruit a sufficient number of qualified employees with regards to theexpansion of our fulfillment network. In addition, the expansion of our fulfillment infrastructure may strain our managerial, financial, operational and otherresources. If we 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. 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 center 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. 7Table of Contents 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. 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.” 8Table of Contents 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 but not limited to theMinistry of Commerce, the Ministry of Industry and Information Technology, or MIIT, and the Cyberspace Administration of China. Together, thesegovernment authorities promulgate and enforce regulations that cover many aspects of the operation of online retailing and distribution of upscale products,including entry into these industries, the scope of permissible business activities, licenses and permits for various business activities, and foreign investment.We are required to hold a number of licenses and permits in connection with our online platform operation, including the ICP license and the license foronline data processing and transaction processing services, or the EDI license for Secoo.com and the ICP license and auction business permit for onlineauction business. 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. In August 2018, the Standing Committee of the National People’s Congress promulgated the E-Commerce Law, which became effective onJanuary 1, 2019. The E-Commerce Law imposes a number of new requirements and obligations on e-commerce platform operators. As no detailedinterpretation and implementation rules have been promulgated, it remains uncertain how the newly adopted E-Commerce Law will be interpreted andimplemented. We cannot assure you, however, that our current business operations meet the requirements under the E-Commerce Law in all respects. If thePRC governmental authorities determine that we are not in compliance with all the requirements under the E-Commerce Law and other applicable laws andrules, we may be subject to fines and/or other sanctions. 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. 9Table of Contents 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. 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. 10Table of Contents 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 RMB218.8 million, RMB246.0 million and RMB410.5 million (US$59.7 million) ofmarketing expenses in 2016, 2017 and 2018, 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. 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 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. 11Table of Contents 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. 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 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 revenues are derived from retail sales in China. Many factors outsideof 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. 12Table of Contents 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 December 31, 2017 and 2018 and for the years ended December 31,2016, 2017 and 2018, we and our independent registered public accounting firm identified a “material weakness” in our internal control over financialreporting, as defined in the standards established by the Public Company Accounting Oversight Board of the United States. The material weakness identifiedrelated to the lack of sufficient financial reporting and accounting personnel with appropriate knowledge to implement key controls over period endfinancial reporting and to properly prepare and review financial statements and related disclosures in accordance with U.S. GAAP and SEC reportingrequirements. Our failure to correct the material weakness and control deficiencies or to discover and address any other material weakness or controldeficiencies could result in inaccuracies in our financial statements and could also impair our ability to comply with applicable financial reportingrequirements and related regulatory filings on a timely basis. As a result, our business, financial condition, results of operations and prospects, as well as thetrading price of our ADSs, may be materially and adversely affected. Moreover, ineffective internal control over financial reporting significantly hinders ourability to prevent fraud. 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. 13Table of Contents 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. 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 revenues and adversely affect theprice of our ADSs. 14Table of Contents 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. 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. 15Table of Contents 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. 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. 16Table of Contents 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. 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. 17Table of Contents 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. 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 45 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. 18Table of Contents 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, 2018, options to purchase 1,235,873 ordinary shares are issued andoutstanding under the 2014 and 2017 Plan. We have recognized share-based compensation expense in the amount of RMB23.7 million (US$3.4 million) forthe year ended December 31, 2018. We believe the granting of share-based compensation is of significant importance to our ability to attract and retain keypersonnel and employees, and we will continue to grant share-based compensation to employees in the future. As a result, our expenses associated with share-based compensation may increase, which may have an adverse effect on 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 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. 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. 19Table of Contents 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. 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. 20Table of Contents 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 26.2% 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.” 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 owns87.6% 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. 21Table of Contents 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. 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. On December 7,2018, the SEC and the PCAOB issued a joint statement highlighting continued challenges faced by the U.S. regulators in their oversight of financialstatement audits of U.S.-listed companies with significant operations in China. The joint statement reflects a heightened interest in an issue that has vexedU.S. regulators in recent years. However, it remains unclear what further actions the SEC and PCAOB will take to address the problem. 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. 22Table of Contents 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 work papers to the SEC. The initial decision censured each of the firms and barred them from practicing before the SECfor a 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. 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 Special Management Measures (Negative List) for the Access of Foreign Investment, or the 2018 Negative List. TheMIIT issued the Circular on Strengthening the Administration of Foreign Investment in and Operation of Value-added Telecommunications Business, or theMIIT Circular, in July 2006. The MIIT Circular reiterated the regulations on foreign investment in telecommunications businesses, which require foreigninvestors to set up foreign invested enterprises and obtain business operating licenses for internet content provision to conduct any value-addedtelecommunications business in China. Under the MIIT Circular, a domestic company that holds an ICP license or EDI license is prohibited from leasing,transferring or selling the license to foreign investors in any form, and from providing any assistance, including providing resources, sites or facilities, toforeign investors that 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 and Beijing Secoo also holds an EDI license. Beijing Auction andBeijing Secoo are 90% owned by Mr. Richard Rixue Li, our founder, director and chief executive officer, and 10% owned by Ms. Zhaohui Huang, ourfounder. Mr. Li and Ms. Huang are both PRC citizens. We have entered into a series of contractual arrangements with Beijing Auction and Beijing Secoo andtheir respective shareholders, which enable us to: 23Table of Contents · 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; · 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. 24Table of Contents 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, our EDI license as an e-commerce transaction platform and our auction business permit, respectively. For a description ofthese contractual arrangements, see “Item 4.C. Organizational Structure—Contractual Arrangements with our Variable Interests Entities and theirShareholders.” These contractual arrangements may not be as effective as direct ownership in providing us with control over our variable interest entities. Forexample, our variable interest entities and their respective shareholders could breach their contractual arrangements with us by, among other things, failing toconduct their operations, including maintaining our website and using the domain names and trademarks, in an acceptable manner or taking other actionsthat 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. Uncertainties exist with respect to the interpretation and implementation of the newly enacted PRC Foreign Investment Law and how it may impact theviability of our current corporate structure, corporate governance and business operations. On March 15, 2019, the National People’s Congress approved the Foreign Investment Law, which will come into effect on January 1, 2020 andreplace 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, together with their implementation rules and ancillaryregulations. The Foreign Investment Law embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line withprevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments. However,since it is relatively new, uncertainties still exist in relation to its interpretation and implementation. For instance, under the Foreign Investment Law,“foreign investment” refers to the investment activities directly or indirectly conducted by foreign individuals, enterprises or other entities in China. Thoughit does not explicitly classify contractual arrangements as a form of foreign investment, there is no assurance that foreign investment via contractualarrangement would not be interpreted as a type of indirect foreign investment activities under the definition in the future. In addition, the definition containsa catch-all provision which includes investments made by foreign investors through means stipulated in laws or administrative regulations or other methodsprescribed by the State Council. Therefore, it still leaves leeway for future laws, administrative regulations or provisions promulgated by the Stale Council toprovide for contractual arrangements as a form of foreign investment. In any of these cases, it will be uncertain whether our contractual arrangements will bedeemed to be in violation of the market access requirements for foreign investment under the PRC laws and regulations. The “variable interest entity”structure, or VIE structure, has been adopted by many PRC-based companies, including us, to obtain necessary licenses and permits in the industries that arecurrently subject to foreign investment restrictions in China. See “—Risks Related to Our Corporate Structure” and Item 4.C “—Organizational Structure.” 25Table of Contents In addition, the Foreign Investment Law further specifies that foreign investments shall be conducted in line with the negative list issued by orapproved to be issued by the State Council. If a foreign investment enterprise, or FIE, proposes to conduct business in an industry subject to foreigninvestment “restrictions” in the “negative list,” the FIE must meet certain conditions under the “negative list” before being established. If an FIE proposes toconduct business in an industry subject to foreign investment “prohibitions” in the “negative list,” it must not engage in the business. It is uncertain whetherthe value-added telecommunication services, in which our variable interest entities operate, will be subject to the foreign investment restrictions orprohibitions under the “negative list” to be issued. Furthermore, if future laws, administrative regulations or provisions prescribed by the State Councilmandate further actions to be taken by companies with respect to existing contractual arrangements, we may face substantial uncertainties as to whether wecan complete such actions in a timely manner, or at all. Failure to take timely and appropriate measures to cope with any of these or similar regulatorycompliance challenges could materially and adversely affect our current corporate structure, corporate governance and business operations. 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, EDI license and auction business license and conduct our online sales and auctions businesses. Inthe event we are unable to enforce our contractual arrangements, we may not be able to exert effective control over our variable interest entities, and ourability to conduct these businesses may be negatively affected. We generate the majority of our revenues from products and services that are offered tocustomers through our website and mobile applications and any interruption in our ability to use our website and mobile applications may have a materialand adverse effect on our financial condition and results of operations. 26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. Mr. Richard Rixue Li and Ms. ZhaohuiHuang holds 87.6% and 0.4% of the total voting rights of our company as of December 31, 2018, respectively, assuming the exercise of all outstandingoptions held by Mr. Richard Rixue Li and Ms. Zhaohui Huang as of such date. The equity interests of variable interest entities are legally held byMr. Richard Rixue Li and Ms. Zhaohui Huang as nominee equity holders on behalf of us. The shareholders of Beijing Auction and Beijing Secoo may havepotential conflicts of interest with us. We cannot assure that when conflicts of interest arise, either of the nominee equity holders will act in the best interestsof the Group or such conflicts will be resolved in the Group’s favor. These shareholders may breach, or cause our variable interest entities to breach, or refuseto renew, the existing contractual arrangements we have with them and our variable interest entities, which would have a material and adverse effect on ourability to effectively control our variable interest entities and receive substantially all the economic benefits from them. For example, the shareholders maybe 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 to remitpayments 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, except that wecould exercise the purchase option under the exclusive option agreement with the nominee equity holders to request them to transfer all of their equityownership in VIEs to a PRC entity or individual designated by us. Mr. Richard Rixue Li is also a director and executive officer of our company. We rely onMr. Li to abide by the laws of the Cayman Islands and the PRC, which provide that directors owe fiduciary duties to the company that require them to act ingood faith and in what they believe to be the best interests of the company and not to use their position for personal gains. If we cannot resolve any conflictof interest or dispute between us and the shareholders of Beijing Auction and Beijing Secoo, we would have to rely on legal proceedings, which could resultin disruption of our business and subject us to substantial uncertainty as to the outcome 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. 27Table of Contents 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.” 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 making loans to our PRC subsidiaries and consolidated variable interest entities or making additional capital contributions toour wholly foreign-owned subsidiaries in China, which could materially and adversely affect our liquidity and our 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 or record-filed with the Ministry of Commerce or its local counterpart and the amount of registered capital of such foreign-invested company. SAFE issued SAFE Circular No. 19, which took effect on June 1, 2015. SAFE Circular No. 19 allows for the use of RMB converted from the foreigncurrency-denominated capital for equity investments in the PRC. Foreign-invested enterprises’ use of the converted RMB for purposes beyond the businessscope, for entrusted loans or for inter-company RMB loans, however, are subject to SAFE restrictions under SAFE Circular No. 19. On June 9, 2016, the SAFEpromulgated the Circular on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts, or SAFE CircularNo. 16. SAFE Circular No. 16 stipulates that the use of capital by foreign-invested enterprises, or FIEs shall follow “the principle 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 foreign exchange settlement shall not be used forthe following purposes: (i) directly or indirectly used for payment beyond the business scope of the enterprises or the payment prohibited by relevant lawsand regulations; (ii) directly or indirectly used for investment in securities or investments other than banks’ principal-secured products unless otherwiseprovided by relevant laws and regulations; (iii) the granting of loans to non-affiliated enterprises, except where it is expressly permitted in the businesslicense; 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). Dueto the restrictions imposed on loans in foreign currencies extended to any PRC domestic companies, we are not likely to make such loans to our consolidatedvariable interest entities. Meanwhile, we are not likely to finance the activities of our consolidated variable interest entities by means of capital contributionsgiven the restrictions on foreign investment in the businesses that are currently conducted by our consolidated variable interest entities. 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 foreign currency, including the proceeds from ourinitial public offering, and to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect ourliquidity and our ability to fund and expand our business. 28Table of Contents 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 affect our financial condition and the value of your investment. Under applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the 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. 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, EDI license, auction license, domain names and trademarks. We expect to continue to be dependent on Beijing Auction andBeijing Secoo and its subsidiaries to operate our business in China. If Beijing Auction and Beijing Secoo go bankrupt and all or part of their assets becomesubject to liens or rights of third-party creditors, we may be unable to continue some or all of our business activities, which would materially and adverselyaffect our business, financial condition and results of operations. Under the contractual arrangements, Beijing Auction and Beijing Secoo may not, in anymanner, sell, transfer, mortgage or dispose of their assets or legal or beneficial interests in their business without our prior consent. If Beijing Auction andBeijing Secoo undergo a voluntary or involuntary liquidation proceeding, their equity holders or unrelated third-party creditors may claim rights to some orall of these assets, thereby hindering our ability to operate our business, which would materially and adversely affect our business, our ability to generaterevenues and the market price of 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. 29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. 30Table of Contents 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: 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 and online data processing and transaction processing services. This may significantly disrupt our business, subject us to sanctions, compromiseenforceability of related contractual arrangements, or have other harmful 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 Cyberspace Administration of China. The primary role of this new agency is tofacilitate the policy-making and legislative development in this field to direct and coordinate with the relevant departments in connection with onlinecontent administration 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 or EDI license holder fails to comply with the requirements and also fails to remediate suchnon-compliance within a specified period of time, the MIIT or its local counterparts have the discretion to take administrative measures against such licenseholder, including revoking its ICP license or EDI license. Currently, Beijing Secoo, one of our PRC consolidated variable interest entities, holds an ICPlicense and an EDI license and operates our Secoo.com website. Beijing Secoo owns the relevant domain names and registered trademarks and has thenecessary 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. 31Table of Contents 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. If we fail to make contributions to various employee benefit plans and comply withapplicable PRC labor-related laws, we may be subject to late payment penalties and required to make up the contributions for these plans. If we are subject tolate fees or fines in relation to the underpaid employee benefits, our financial condition and results of operations may be adversely affected. 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 market regulation bureau at the place where the premises are located and obtain business licenses for them as branch offices. We currently havefive 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 branch officesin a timely manner due to complex procedural requirements and relocation of branch offices from time to time. If the PRC regulatory authorities determinethat we are in violation of the relevant laws and regulations, we may be subject to penalties, including fines, confiscation of income and suspension ofoperation. If we become subject to these penalties, our business, results of operations, financial condition and prospects could be materially and adverselyaffected. 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 2018, the RMB has depreciated significantly in the backdrop of a surging U.S. dollar and persistent capital outflows of China.With the development of the foreign exchange market and progress towards interest rate liberalization and Renminbi internationalization, the PRCgovernment may in the future announce further changes to the exchange rate system and there is no guarantee that the RMB will not appreciate or depreciatesignificantly in value against the U.S. dollar in the future. It is difficult to predict how market forces or PRC or U.S. government policy may impact theexchange 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. 32Table of Contents 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. 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 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. 33Table of Contents 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. 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. 34Table of Contents 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. 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. 35Table of Contents 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. If we are subject to penalties in relation to the due and unpaid taxes payable, ourliquidity, 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. 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. 36Table of Contents 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 was further amended on December 29, 2018, and the Administrative Regulations on the HousingFunds, which became effective on March 24, 2002, employees are required to participate in pension insurance, work-related injury insurance, medicalinsurance, unemployment insurance, maternity insurance and housing funds, and the employers must pay all or a portion of the social insurance premiumsand 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. 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; 37Table of Contents · 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. 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. 38Table of Contents 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. 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. 39Table of Contents 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. 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. 40Table of Contents 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: · 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 are required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish our resultson a quarterly basis as press releases, distributed pursuant to the rules and regulations of the Nasdaq Global Market. Press releases relating to financial resultsand material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be lessextensive 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 are permitted to adopt certain home country practices in relation to corporate governance mattersthat differ significantly from the Nasdaq Global Market corporate governance listing standards; these practices may afford less protection to shareholdersthan 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 aresubject to the Nasdaq Global Market corporate governance listing standards. However, the Nasdaq Global Market rules permit a foreign private issuer like usto follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country,may differ significantly from the Nasdaq Global Market corporate governance listing standards. Currently, we do not plan to rely on home country practicewith 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. 41Table of Contents 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 taxable year ending December 31,2018 and we do not expect to be classified as a PFIC or in the foreseeable future. While we do not anticipate becoming a PFIC, changes in the nature of ourincome or assets, or fluctuations in the market price of our ADSs, may cause us to become a PFIC for future taxable years. In estimating the value of ourgoodwill and other unbooked intangibles, we have taken into account our market capitalization, which may fluctuate over time. Among other factors, if ourmarket capitalization declines, we may be or become classified as a PFIC for the current or future taxable years. In addition, if it were determined that that weare not the beneficial owner of our variable interest entities for U.S. federal income tax purposes, we may be treated as a PFIC for our current taxable year andin future taxable years. 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 considerations 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 three offline experiencecenters located in Qingdao, Xiamen and Tianjin. We launched Secoo Check in April 2016, which allows customers to make payments for our merchandiseproducts in installments. In 2016, 2017 and 2018, we successfully expanded our supply arrangements with top global brands. For example, in 2016, webegan collaboration with Tod’s, under which Tod’s makes customized products exclusively for us. We became an authorized online retailer for Versace andSalvatore Ferragamo in China in November 2016 and February 2017, respectively. During 2017 and 2018, we expanded our collaboration with top brands,such as Armani, Mulberry and Stella McCartney. In July 2017, we expanded our strategic cooperation relationship with Country Garden, one of China’slargest real estate developers, planning to build themed villages and physical Secoo stores as well as in the areas of hotel operation and collaborate in realestate marketing. 42Table of Contents In January 2018, we formed a strategic alliance with Parkson Group, one of China’s largest department stores, aiming to integrate both respectiveresources and build an integrated new retail business model. In August 2018, we issued convertible notes and warrants to Great World Lux Pte. Ltd and itsaffiliates, or Great World, in an aggregate principal amount of up to US$175.0 million. The principal amount outstanding under the convertible notes bearsinterest at an aggregate compounded rate of 8% per annum until August 8, 2021, or such earlier time as the notes are repurchased or converted subject to theterms specified therein. The initial conversion price is US$13.00 per ADS. The holders of the warrants are entitled to purchase 500,000 ADSs from us at anexercise price of US$18.00 per ADS. We also formed strategic partnerships with L Catterton Asia, the Asian unit of the largest and most global consumer-focused private equity firm in the world, and JD.com, China’s largest retailer, aiming to boost Secoo’s presence and network in the luxury industry. InMarch 2018, we formed a strategic partnership with Caissa Travel to jointly develop luxurious tourism products. In September 2018, we entered into astrategic partnership agreement with SASSEUR Group, an operator of outlet malls, to leverage respective resources and expertise to develop omni-channelretail networks, increase our market presence. In October 2018, we signed cooperation agreement with British department store brand Liberty London tolaunch an online shop in China for Liberty London’s luxury goods. 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. 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 and EDIlicense as an internet information provider and an e-commerce transaction platform and operates our secoo.com website and Beijing Auction holds ourlicense 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. In February 2017, we incorporated Yichun Secoo E-commerce Limited in Jiangxi, China. Yichun Secoo E-commerce Limited is wholly owned byShanghai Secoo E-commerce Limited and primarily operates e-commerce business in China. 43Table of Contents 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 assets. 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 seven offline experience centers as of the date of this annual report inpopular shopping destinations and central business districts in China and Malaysia which have strengthened our Secoo brand creditability and enhanced ourbrand presence. In addition, we are cooperating with brand boutiques such as Versace boutiques for our customers to pick up products ordered on our onlineplatform in their stores. 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 seven offline experience centers inpopular shopping destinations and central business districts in China and Malaysia to provide in-store shopping experience and comprehensive customerservices, which we believe bolstered our customer satisfaction, strengthened our Secoo brand creditability and enhanced 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, cosmetics and skincare, 3C products, and home accessories. In addition, we have expanded our offerings of high-end lifestyle services to satisfythe needs of modern lifestyle since 2014, such as tourism and sports events. We believe that expanding our product offerings helps optimize customers’shopping experience, diversify our revenue sources and further improve our economies of scale. The continuous expansion of our strategic alliances withleading partners in the consumer luxury goods and lifestyle spaces is our core strategy that helps to increase our brand awareness and to further diversify ourportfolios of merchandise and lifestyle services. With our extensive network of suppliers, we are able to obtain a wide selection of product categories andservices at favorable terms. Our “Coo Sir” channel also serves as a forum for users for information related to fashion trends and lifestyle news. Our user-generated contents cover a variety of topics, such as sartorial tips for various occasions and product reviews. Leveraging these user-generated data and big-data technology, we analyze consumer habits, preferences and demand of our upscale customers in order to provide a great luxury shopping experience to ourcustomers. We thrive to enhance our reputation as the destination for luxury products and lifestyle in China. Our business model creates significant value toour business partners, including third-party sellers and suppliers, cooperation brands, and ultimately benefit our business and customers. 44Table of Contents Our Platform Our platform consists of both online and offline platforms. Our online platforms include 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 comprehensive range of upscale products and services through our online platform. We generated 89.7%, 94.1% and 96.0% of our totalGMV through our online platform in 2016, 2017 and 2018, 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. · 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. 45Table of Contents 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 are a testament to 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 generated10.3%, 5.9% and 4.0% of our total GMV through our offline experience centers in 2016, 2017 and 2018, 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 seven offline experience centers located in Beijing, Shanghai, Chengdu, Tianjin, Xiamen, Qingdao and Malaysia. As ofDecember 31, 2018, our seven offline experience centers occupied a total of approximately 6,292 square meters in area and were staffed with over 79 salesrepresentatives. To enhance our customer experience and to further broaden our brand awareness, we intend to selectively launch new offline experiencecenters in popular shopping destinations, domestic cities with significant consumption demand for luxury products and third- and fourth-tier cities withpotential market for luxury products. We intend to expand our customers services in overseas offline experience centers, such as free concierge services to ourmembers when they travel to these cities. In addition, we also collaborated with major players in other industries to expand offline experience centers and ourbrand reach. For example, in June 2016, we entered into strategic cooperation partnership with one of China’s largest real estate developers, Country Garden,and jointly incorporated Secoo Garden Tradings Sdn. Bhd., or Secoo Garden, and opened our offline experience center in Malaysia to tap into southeastAsian market. Pursuant to the joint venture agreement between Country Garden and us, Country Garden holds 15% of the equity share capital of SecooGarden, whereas we hold 85%. We provide technical knowledge, operate the duty free business, bring in high-end brand products, and agree to operate thebusiness for at least three years. Country Garden is responsible for obtaining necessary approvals for the operation of the duty free business in Malaysia. 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 being delivered directly from our partnering stores or pick up their ordersat the physical stores conveniently located in the shopping destinations of the cities they stay, such as Versace boutiques. We are currently expanding ourcooperation with physical stores and shopping malls to build up online and offline omni-channel sales service network by capitalizing on our strong onlinepresence and our established fulfillment infrastructure. 46Table of Contents Our Customers Since our inception in 2011, we have built a large and loyal customer base with high purchasing power. We have accumulated more than 27.0million registered members as of December 31, 2018 and approximately 8.3 million registered members in 2018. 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. 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 featured five membership levels before November 2018, i.e., regular, silver, gold, diamond andblack, and customers were automatically upgraded to higher levels based on their total spending with us annually. Our members received a variety ofexclusive benefits according to their membership levels, such as product coupons and discounts, Secoo Check installment payments services, free giftpacking and domestic delivery, cleaning and maintenance services, fast return and refund services and customized ordering of brand products. Our premiermembers, i.e., diamond and black members, enjoyed a variety of premium services, such as exclusive birthday presents, priority ordering of our new, rare andpopular products, tryout-first-and-buy-later privilege, exclusive use of our offline experience centers for personal events and expanded access to offlineexperience center lounges and dedicated one-to-one customer representative services, who are familiar with their shopping tastes and preferences. We alsoselect and offer premier members exclusive access to brand collaboration and art events hosted by us. In November 2018, we implemented a new paidmembership program, which is divided into monthly membership, quarterly membership and annual membership, in a effort to enhance the stickiness ofmembers. Membership rights include membership discount, bonus points, freight subsidy, tax subsidy, luxury maintenance and other perks. Our previousmembership levels and benefits still apply to our old members. In addition, we refined our award membership program in October 2017, after which ourmembers can now earn loyalty points when making purchase on our Secoo platforms. Members can redeem their membership loyalty points into creditstowards their future purchases. 47Table of Contents 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 400,000 SKUs of upscale products, and we currently offer over 400,000 SKUs of such products on our platform. In 2018, sales of watches, bags,clothing/footwear/accessories and jewelries accounted for 24.3%, 14.8%, 31.3% and 12.3% of our total GMV, respectively. The following table illustrates thecategories of upscale lifestyle products we offer: Product category Product description BagsTop-handle bags, shoulder bags, cross-body bags, evening bags, purses, clutches, wristlets, wallets, cosmetics bags,satchels, rucksacks, luggage and waist bags WatchesAutomatic self-wind, mechanical hand-wind and quartz wrist watches for men and women with leather or metal bands forsocial, 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 and lingerie MenswearA variety of apparel and styles, including formal suits, coats, casual and smart-casual T-shirts, polo shirts, jackets, pantsand underwearFootwearDesigner 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, facial masks, 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 Home goodsHome furnishings, including bedding and bath products, home decor, dining and tabletop items, kitchenware, electronicsand small household appliances, lighting, maternity products, toys and games, musical instruments and wine Fine food and beverageHigh-end chocolate, tea, coffee, soft drinks, soda water and wine 3C electronic devicesHigh-end laptop, tablet, smartphone and smart consumer electronics 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 and certification High-end Chinese originalproductsHandcraft, Chinese designer apparel, furniture, tea, and famous Chinese brand products 48Table of Contents 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. 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, 2018, contained detailed product information covering over 3,800domestic 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. 49Table of Contents 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, Yunda Expressand China Post EMS. For higher-priced products, we offer customers with delivery addresses within the urban areas of Beijing, Shanghai and Chengdu theoption to have their products delivered by our own employees in order to ensure product safety and to provide product introductions upon delivery.Alternatively, our customers, who prefer to pick up their order themselves, can also pick up products they ordered online at our conveniently located offlineexperience centers. Also, they may pick up certain products from collaborated branded store. 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 and services, includingbrands, brand authorized distributors and individual and corporate suppliers. We believe our ability to generate significant sales and to provide high-qualityafter-sales customer service helps us attract new suppliers and build stronger relationship with our existing ones. Our comprehensive global supply system isdesigned to meet the diverse purchase preferences and needs of our customers, varying from in-season luxury products to highly sought-after classic stylesand vintage and rare products. 50Table of Contents We have established direct product sourcing relationships with a broad range of brands around the world, including Europe, the United States,Australia, Japan, South Korea, as well as Hong Kong. Leveraging our scale in China, we have also become the first e-commerce partner with a number ofglobal brands in order to help such brands establish a presence in the China market. Our overseas direct sourcing offers Chinese consumers convenient accessto luxury products sourced at attractive prices and fulfilled directly from overseas, without the need to travel abroad, and allow our consumers to makepayments in Renminbi. We synchronize our order and logistics information with the local customs bureau in China, which together with our expertise inoverseas direct products 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. 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. 51Table of Contents 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. In addition to sales events, we also joined hands with a number of popularentertainers and artists to improve Secoo’s brand awareness and deepen customer insights in the high-end consumption market, especially among theyounger generation. For example, we engaged NEXT7, a young Chinese idol group, to endorse our 2018 anniversary sales event as celebrity spokesmen. 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. 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 Whitebooks published since 2016 havebeen recognized as an authority in luxury product retail industry in China. We conduct online marketing activities through major social networks, socialmedia portals, online video, search engines and other major websites in China. To enhance our brand awareness, we have also engaged in brand promotionactivities such as advertising on national television networks and on billboards in residential and commercial complexes in major cities in China.Additionally, our cooperation with luxury brands, omni-channel commerce solutions, entertainment stars and other major industry players also greatlyenhanced our brand credibility 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 cloud-based big data technology, which consist of front-end and back-end modules. Our networkinfrastructure is built on self-owned servers located in data centers operated by a major PRC internet data center provider. We are implementing enhancedcloud architecture and infrastructure for our core data processing system to augment our existing virtual private network as we continue to expand ouroperations, enabling us to achieve significant operational efficiency through a virtual and centralized network platform. The principal components of ourtechnology platform include: 52Table of Contents 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. 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. 53Table of Contents 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, 2018, 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. Employees As of December 31, 2016, 2017 and 2018, we had 544, 829 and 1,329 full-time employees, respectively. The following table sets forth the number ofour full-time employees categorized by areas of operations as of December 31, 2018: FunctionNumber of employeesBusiness development, sales and marketing857 Technology support205 Fulfillment99 Administration and management168 Total1,329 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. 54Table of Contents 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; the 2018 Negative List. Investment activities in the PRC by foreign investors are principallygoverned by the Guidance Catalog of Industries for Foreign Investment, or the Catalog, which was promulgated and is amended from time to time by theMinistry of Commerce and the National Development and Reform Commission, and the 2018 Negative List, which became effective on July 28, 2018 andpartially amended the Catalog. The Catalog divides industries into three categories: encouraged, restricted and prohibited. Industries not listed in theCatalog are generally open to foreign investment unless specifically restricted by other PRC regulations. The 2018 Negative List replaced the Catalog inrespect of the restricted and prohibited industries, which lists, in a unified manner, the special management measures for the market entry of foreigninvestment, such as equity requirements and senior manager requirements. 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 2018 Negative List are subject to higher-level government approvals. Foreign investors are not allowed to invest inindustries in the prohibited category. The latest amended Catalog, which took effect on July 28, 2017 and the 2018 Negative List, further relaxes marketaccess through regulatory reforms such as allowing 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 under the 2018 Negative List, the approval of the Ministry of Commerce or its local counterparts is still required. 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 Law. On March 15, 2019, the National People’s Congress promulgated the Foreign Investment Law, which will come into effecton January 1, 2020 and replace the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture EnterpriseLaw, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementationrules and ancillary regulations. The Foreign Investment Law embodies an expected regulatory trend in PRC to rationalize its foreign investment regulatoryregime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domesticinvestments. The Foreign Investment Law, by means of legislation, establishes the basic framework for the access, promotion, protection and administrationof foreign investment in view of investment protection and fair competition. According to the Foreign Investment Law, foreign investment shall enjoy pre-entry national treatment, except for those foreign invested entities thatoperate in industries deemed to be either “restricted” or “prohibited” in the “negative list.” The Foreign Investment Law provides that foreign investedentities operating in foreign “restricted” or “prohibited” industries will require entry clearance and other approvals. However, it is unclear whether the“negative list” will differ from the 2018 Negative List. In addition, the Foreign Investment Law does not comment on the concept of “de facto control” orcontractual arrangements with variable interest entities, however, it has a catch-all provision under definition of “foreign investment” to include investmentsmade by foreign investors in China through means stipulated by laws or administrative regulations or other methods prescribed by the State Council.Therefore, it still leaves leeway for future laws, administrative regulations or provisions to provide for contractual arrangements as a form of foreigninvestment. 55Table of Contents Furthermore, the Foreign Investment Law provides that foreign invested enterprises established according to the existing laws regulating foreigninvestment may maintain their structure and corporate governance within five years after the implementing of the Foreign Investment Law, which means thatforeign invested enterprises may be required to adjust the structure and corporate governance in accordance with the current PRC Company Law and otherlaws and regulations governing the corporate governance. 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 or an EDIlicense is prohibited from leasing, transferring or selling the ICP License or EDI license to foreign investors in any form and from providing any assistance,including resources, sites or facilities, to foreign investors that conduct a value-added telecommunications business illegally in China. Further, the domainnames and registered trademarks used by an operating company providing value-added telecommunications services must be legally owned by that companyor its shareholders. In addition, the company’s operational premises and equipment must comply with the approved coverage region on its ICP License orEDI license, and the company must establish and improve its internal internet and information security policies and standards and emergency managementprocedures. If an ICP License or an EDI license holder fails to comply with the above requirements and also fails to remediate such non-compliance within aspecified period of time, the MIIT or its local counterparts have the discretion to impose administrative measures on such license holder, including revokingits ICP license or EDI 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 and Beijing Secoo also holds an EDIlicense. Beijing Secoo and Beijing Auction, the operator of our website, secoo.com, secoo.cn, siku.cn, secooing.com and etc., also owns the relevant domainnames 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. 56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: Value-added Telecommunication Licenses. The Telecommunications Regulations promulgated by the State Council and its relatedimplementation rules, including the Catalog of Classification of Telecommunications Business issued by the MIIT, categorize various types oftelecommunications and telecommunications-related activities into basic or value-added telecommunications services, and internet information services, orICP services, and online data processing and transaction processing services, or EDI services, are classified as value-added telecommunications businesses.Under the Telecommunications Regulations, commercial operators of Internet information services must first obtain an ICP License from the MIIT or itsprovincial level counterparts. In September 2000, the State Council also issued the Administrative Measures on Internet Information Services, which wasamended in January 2011. According to these measures, a commercial ICP service operator must obtain an ICP License from the relevant governmentauthorities before engaging in any commercial ICP service in China. When the ICP service involves areas of news, publication, education, pharmaceuticalsand medical equipment, and if required by law or relevant regulations, specific approval from the respective regulatory authorities must be obtained prior toapplying for the ICP License from the MIIT or its provincial level counterpart. In March 2009, the MIIT promulgated the Administrative Measures onTelecommunications Business Operating Licenses, or the Administrative Measures on Telecommunications Business Operating Licenses (2009 version),which set forth the specific types of licenses required to operate value-added telecommunications services, the qualifications and procedures for obtainingsuch licenses and the administration and supervision of such licenses. In June 2017, the MIIT promulgated a new version of the Administrative Measures onTelecommunications Business Operating Licenses, which took effect and superseded the Administrative Measures on Telecommunications BusinessOperating Licenses (2009 version). The new Administrative Measures on Telecommunications Business Operating Licenses simplifies the procedures toapply for telecommunications business operating license and strengthen the supervision of daily operation of telecommunications business. Each of BeijingSecoo and Beijing Auction, as our ICP operator, holds an ICP License issued by the Beijing Telecommunications Administration for the operation of ourInternet information business. Beijing Secoo also holds an EDI License issued by the Beijing Telecommunications Administration for the operation as an e-commerce transaction platform. See “Item 3.D. Risk Factors — Any lack of requisite approvals, licenses or permits applicable to our business may have amaterial 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 for MarketRegulation, or SAMR, while the foreign-invested auctioneers, whose business does not involve auction of cultural relics, shall directly register with the localcounterparts of SAMR 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 December 29, 2018, the sale of food or beverages must be licensed inadvance. Pursuant to the Administrative Measures on Food Operation Licensing as amended and effective on November 17, 2017, an enterprise needs toobtain a Food Operation Permit from the local food and drug administration, and the permits already obtained by food business operators prior to theeffective date of these new measures will remain valid for their originally approved validity period. Beijing Secoo holds a food distribution permit issued bythe Xicheng Branch of Beijing Food and Drug Administration for our food distribution business, including distribution of health care food and baby andinfant formula milk powder. 57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. Travel Agency License. Pursuant to the Regulation on Travel Agencies, issued by the PRC State Council in February 2009, and amended inFebruary 2016, July 2016, and March 2017, a travel agency must obtain a license from the Ministry of Culture and Tourism to conduct cross-border travelbusiness and a license from the provincial-level cultural and tourism administration to conduct domestic travel company business. Beijing GuandaInternational Travel Agency Co., Ltd., a subsidiary of Beijing Secoo has obtained a Travel Agency License from the Ministry of Culture and Tourism. 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 SAMR 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 withSAMR 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 SAMR 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 SAMR adopted the Interim Measures for Seven-day Unconditional Return of Online Purchased Goods, which took effective inMarch 2017, pursuant to which, customers are entitled to return goods without a cause, except for customized goods, fresh and perishable goods, audio-visualproducts, computer software and other digital products, which are downloaded online or of which the packages have been opened by customers, anddelivered newspapers or periodicals. On August 31, 2018, the Standing Committee of the National People’s Congress promulgated the E-Commerce Law, which became effective onJanuary 1, 2019. The E-commerce Law strengthens the regulation on E-commerce operators relating to consumer protection, personal data protection andintellectual property rights protection. As an e-commerce operator, we are required under the E-commerce Law, (1) to refrain from conducting false ormisleading commercial promotion by fabricating transactions, making up user comments or otherwise, to defraud or mislead consumers, (2) to allowconsumer to opt out of search results targeting his or her personally characteristics such as hobbies and shopping patterns and simultaneously show theconsumers with options not targeting his or her personally characteristics, (3) to alert consumers of tie-in sale of commodities or services, and shall not set thetied-in commodities or services as a default option, (4) to obtain and maintain business license and other applicable licenses as required, and discloseinformation of such license at our front-page, (5) to clearly detail the refund procedure for the deposit we received from customers, and not set anyunreasonable conditions to refund, (6) to take the risks and responsibilities in the transportation of the products, unless the consumer chooses a courierlogistics service provider other than the default service provider, etc. We are subject to the provisions of the E-Commerce Law as a result of our online directsales and online marketplace businesses. 58Table of Contents 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. Internet information providers areprohibited from providing services beyond those included in the scope of their ICP Licenses or filings. We issued prepaid cards which can be used to buyproducts on our websites. Pursuant to the Administrative Measures for Single-purpose Commercial Prepaid Cards, which was promulgated by thePRC Ministry of Commerce in September 2012, and subsequently amended in August 2016, card issuers shall go through record-filing procedures in relationto their single-pay or prepaid cards service. Beijing Secoo has completed the record-filing procedures in relation to the single-pay prepaid 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. 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. Furthermore, in June 2016, the Cyberspace Administration of China issued the Administrative Provisions on Mobile InternetApplications Information Services, which became effect on August 1, 2016, to further strengthen the regulation of the mobile app information services 59Table of Contents 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. 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. The Consumer Protection Law further strengthens the protection of consumers and imposes more stringent requirements and obligations on businessoperators, especially on the business operators through the internet. For example, the consumers are entitled to return the goods (except for certain specificgoods) within seven days upon receipt without any reasons when they purchase the goods from business operators via the internet. The consumers whoseinterests are harmed due to their purchase of goods or acceptance of services on online marketplace platforms may claim damages from the sellers or serviceproviders. 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. 60Table of Contents 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. 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 NationalIntellectual Property Administration 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, 2018, we owned 250 registered trademarks in different applicabletrademark categories and were in the process of applying to register 98 trademarks in China. 61Table of Contents 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. The MIIT is the major regulatory body responsible for the administration of the PRC internet domain names and the China Internet NetworkInformation Center, or CNNIC, is responsible for the daily administration of .cn domain names and Chinese domain names. CNNIC adopts the “first to file”principle with respect to the registration of domain names. We have registered a number of domain 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. 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, 2018. 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. 62Table of Contents 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. 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 became effective on May 1, 2018, the VAT rate of 17% were reduced to 16%. On March 20, 2019, the Ministry ofFinance, the SAT and the General Administration of Customs issued the Circular on Relevant Policies for Deepening Value-added Tax Reform, which furtherreduced the VAT rate to 13%, effective as April 1, 2019. 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. Sales of brand new merchandise purchased fromentities is generally subject to VAT at the rate of 17% prior to May 1, 2018 and 16% since May 1, 2018 to March 30, 2019 and 13% since April 1, 2019.Service revenue for value-added telecommunications business is subject to VAT at the rate of 6%. 63Table of Contents 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. 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). 64Table of Contents 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. 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. 65Table of Contents Administrative Measures for Outbound Investment by Enterprises, or NDRC Measures No. 11, promulgated by NDRC on December 26, 2017 andeffective as of 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. Currently there remains significant uncertainties onthe interpretation and implementation of the NDRC Measures No. 11 by the competent authorities in practice with respect to whether our founders’ currentinvestments in us via their offshore holding company or their future transaction with our shares will be subject to the administration or approval of NDRC. 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. We have completed the filing procedures with respect to our employee stock incentive plan in 2018. The SAT has issued certain circulars concerning employee share options or restricted shares. Under these circulars, our employees working in thePRC who exercise share options or are granted restricted shares will be subject to PRC individual income tax. Our PRC subsidiaries have obligations to filedocuments related to employee share options or restricted shares with relevant tax authorities and to withhold individual income taxes of those employeeswho exercise their share options. If our employees fail to pay or we fail to withhold their income taxes according to relevant laws and regulations, we mayface sanctions imposed by the tax authorities or other PRC government authorities. 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: 66Table of Contents 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. 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 (currently known as Beijing Administration for Market Regulations), and the equity pledge registration wassubsequently renewed on June 12, 2017. The equity pledge agreements shall be terminated as and when the exclusive business cooperation agreementterminates. 67Table of Contents 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(currently known as Beijing Administration for Market Regulations) in accordance with the PRC Property Rights Law, and will remain effective until BeijingAuction and its shareholders discharge all their obligations under the exclusive 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 options 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. 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. 68Table of Contents 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 onMarch 26, 2015 with a retrospective effect, Kutianxia is appointed as the exclusive service provider for the provision of business support and technology andconsulting services to Beijing Auction. The service fees payable by Beijing Auction to Kutianxia depend on the amount of services provided and the marketvalue for those services. Beijing Auction is required to provide its financial statements and all the related records of operations, business contracts andfinancial information to Kutianxia within a stipulated period of time subsequent to the financial year end. Kutianxia shall exclusively own the intellectualproperty. The agreement shall remain effective unless terminated by Kutianxia pursuant to the provisions of the agreement. 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: 69Table of Contents · 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 13,023 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 12,620 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: LocationSpace (insquaremeters)UseLease Term(years)Beijing13,023Office, offline experience center, customer service center and logistics center space1 - 6Chengdu1,172Offline experience center and office3Shanghai1,635Offline experience center and office2 — 10Shenzhen971Office1 - 2Tianjin482Offline experience center and office2-5Yichun4,700Office and logistics center space4Hong Kong420Office and logistics center space1 — 2Milan950Office and logistics center space4-6Malaysia800Offline experience center3New York50Office1Xiamen800Offline experience center5Qingdao640Offline experience center5 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. 70Table of Contents 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. 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. We recognizeother service revenue when the services are rendered. The following table sets forth the key factors that directly affect our revenues for the periods indicated: 71Table of Contents Year Ended December 31, 2016 2017 2018 RMB % RMB % RMBUS$% GMV (in RMB millions)Online GMVMobile applications2,600.174.94,396.883.56,621.3963.082.3Web514.814.8556.310.61,108.2161.213.7Total online GMV3,114.989.74,953.194.17,729.51,124.296.0Offline GMV355.310.3309.35.9318.746.44.0Total GMV (in RMB millions)3,470.2100.05,262.4100.08,048.21,170.6100.0Total orders (in thousands)953.71,437.02,301.5 Year Ended December 31, 2016 2017 2018 RMB % RMB % RMBUS$% Revenue (in RMB thousands)Online RevenueMobile applications1,826,31270.42,973,11679.54,406,244640,86281.8Web446,38917.2483,99512.9699,485101,73613.0Total online revenue2,272,70187.63,457,11192.45,105,729742,59894.8Offline revenue321,12112.4283,3447.6281,84840,9925.2Total revenue2,593,822100.03,740,455100.05,387,577783,590100.0 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 953.7 thousand in 2016, 1,437.0 thousand in 2017 and 2,301.5 thousand in 2018,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 51.6% from RMB3,470.2 million in 2016 to RMB5,262.4 million in 2017 and grew by 52.9% fromRMB5,262.4 million in 2017 to RMB8,048.2 million (US$1,170.6 million) in 2018, which is in line with our growth of total number of orders. Our totalonline GMV increased by 59.0% from RMB3,114.9 million in 2016 to RMB4,953.1 million in 2017 and increased by 56.1% from RMB4,953.1 million in2017 to RMB7,729.5 million (US$1,124.2 million) in 2018 due to the change of customer’s preference to shop online. Our offline GMV decreased by 12.9%from RMB355.3 million in 2016 to RMB309.3 million in 2017, and increased by 3.0% from RMB309.3 million in 2017 to RMB318.7 million (US$46.4million) in 2018. Our revenue generated from mobile application, which contributed the majority of our revenue, increased from RMB1,826.3 million in 2016 toRMB2,973.1 million in 2017, and to RMB4,406.2 million (US$640.9 million) in 2018. We generated 87.6%, 92.4% and 94.8% of our total revenue throughour online platform in 2016, 2017 and 2018, respectively. The table below sets forth a breakdown of our revenues from our merchandise sales, and marketplace and other services for the periods indicated: 72Table of Contents Year Ended December 31,2016 2017 2018RMB RMB RMB US$(in thousands)Merchandise sales2,566,8723,680,7955,244,446762,773Marketplace and other services26,95059,660143,13120,817Total2,593,8223,740,4555,387,577783,590 In 2018, we generated approximately 97.3% and 2.7% of our revenue from our merchandise sales, and marketplace and other services, respectively.Other services mainly include advertising and maintenance services and amounted to RMB11.2 million, RMB17.5 million and RMB56.4 million(US$8.2 million) in 2016, 2017 and 2018, respectively. We expect revenue contribution from our marketplace and other services to increase in the nearfuture. The table below sets forth the respective revenue contributions of (i) our company and our subsidiaries and (ii) our consolidated variable interestentities and their subsidiaries for the periods indicated as a percentage of total net revenues: Year Ended December 31, 2016 2017 2018 Our company and our subsidiaries8%6%7%Our variable interest entities and their subsidiaries92%94%93%Total revenues100%100%100% We expect to continue to generate a substantial majority of our revenues from our consolidated variable interest entities in the near future. Cost of revenues Our cost of revenues consists of primarily cost of merchandise sold and inventory write-downs, repair and maintenance staff payroll and relatedequipment depreciation. Our cost of goods sold does not include payment processing, packaging material and product delivery costs. Therefore, our cost ofrevenues may not be comparable to other companies which include such expenses in their cost of revenues. Operating expenses Our operating expenses consist of (i) fulfillment expenses, (ii) marketing expenses, (iii) technology and content development expenses, and(iv) general and administrative expenses. The following table sets forth the components of our operating expenses both in absolute amount and as apercentage of total revenues for the periods indicated: Year Ended December 31, 2016 20172018 RMB % RMB%RMBUS$% (in thousands, except percentages)Fulfillment82,0473.299,0642.6138,71020,1752.6Marketing218,7598.4245,9896.6410,54859,7127.6Technology and content development54,2622.162,0811.780,39811,6931.5General and administrative74,3102.9110,0592.9110,80216,1152.1Total operating expenses429,37816.6517,19313.8740,458107,69513.8 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. 73Table of Contents 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 improve our advertising efficiency. 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 revenues for the periods indicated: Year Ended December 31, 2016 2017 2018 RMB % RMB % RMBUS$% (in thousands, except percentages)Interest expense, net3,9230.26,5620.242,5336,1860.8Foreign currency exchangelosses/(gains)11,4180.4(9,477)(0.3)11,7371,7070.2Others——(4,148)(0.1)(31,269)(4,548)(0.6)Total other expenses/(income)15,3410.6(7,063)(0.2)23,0013,3450.4 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. Total other expenses/(income). Our total other expenses/(income) primarily comprised of net interest expenses, gains and losses from foreigncurrency exchange and subsidy income granted by local government authorities. 74Table of Contents 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 Before 2018, our subsidiary incorporated in Hong Kong was subject to the uniform tax rate of 16.5% on taxable income generated from theoperations in Hong Kong. Hong Kong’s two-tier income tax system was officially implemented on April 1, 2018. For the first HK$2.0 million, the company’sincome tax rate is 8.25%, and the subsequent profits are taxed at 16.5%. There is an anti-fragmentation measure where each group will have to nominate onlyone company in the group to benefit from the progressive rates. Under the Hong Kong tax laws, it is exempted from the Hong Kong 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 December 29, 2018, respectively, 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 anddomestic enterprises, unless they qualify for certain exceptions. Our PRC subsidiaries and consolidated variable interest entities are all subject to the tax rateof 25% for the periods presented in the consolidated 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. In addition, any noncompliance with PRC tax laws may adversely affect us.” 75Table of Contents Critical Accounting Policies and Estimates An accounting policy is considered critical if it requires an accounting estimate to be made based on assumptions about matters that are highlyuncertain at the time such estimate is made, and if different accounting estimates that reasonably could have been used, or changes in the accountingestimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements. 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. Periods prior to January 1, 2018 Prior to January 1, 2018, revenues are recognized when the following four criteria are met: (1) persuasive evidence of an arrangement exists;(2) delivery has occurred or services 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 We generate revenues mainly from merchandise sales when we act as principal for the sales of brand products to end customers online through ourown internet platforms and offline at the offline experience centers. Online sales include sales through our online shopping mall, flash sales, auction andoverseas 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 act 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 services revenue when the services are rendered. We recognize marketplace service revenue at the time that we have providedthe services and are entitled to payment. Period commencing January 1, 2018 Since the adoption of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”) starting from January 1,2018, we recognize revenues upon the satisfaction of our performance obligation (upon transfer of control of promised goods or services to customers) in anamount that reflects the consideration to which we expect to be entitled to in exchange for those goods or services, excluding amounts collected on behalf ofthird parties. The adoption of new revenue standard did not impact retained earnings as of January 1, 2018. We have updated significant accounting policiesand relevant disclosures hereinafter. To achieve that core principle, we apply the five steps defined under Topic 606: (i) identify the contract(s) with a customer, (ii) identify theperformance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract,and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We assess our revenue arrangements against specific criteria in order todetermine if we are acting as principal or agent. Revenue arrangements with multiple performance obligations are divided into separate distinct goods orservices. We allocate the transaction price to each performance obligation based on the relative standalone selling price of the goods or services provided.Revenue is recognized upon the transfer of control of promised goods or services to a customer. Revenue recognition policies for each type of revenue steam are as follows: Merchandise Sales We present the revenue generated from our sales of merchandise on a gross basis as we have control of the goods and have the ability to direct theuse of goods to obtain substantially all the benefits. In making this determination, we also assess whether we are primarily obligated in these transactions, aresubject to inventory risk, have latitude in establishing prices, or have met several but not all of these indicators. Revenues are measured as the amount of consideration we expect to receive in exchange for transferring products to consumers. Consideration frommerchandise sales is recorded net of value-added tax, discounts and return allowances. Return allowances which reduce revenue, are estimated based utilizingthe most likely amount method based on historical data and updated at the end of each reporting period. With respect to considerations from merchandise sales, we allocate proceeds from merchandise sales among sales of the products, customer loyaltyprogram benefits and coupons with material rights based on relative standalone selling price. Proceeds allocated to sales of goods are recognized as revenuefrom merchandise sales when the receipt of merchandise is confirmed by the customer, which is the point that the control of the merchandise is transferred tothe customer. Proceeds allocated to customer loyalty program benefits and coupons are recorded as Deferred revenues. We utilize delivery service providers to deliver products to our consumers (“shipping activities”) but the delivery service is not considered as aseparate obligation as the shipping activities are performed before the consumers obtain control of the products. Therefore, shipping activities are notconsidered a separate promised service to the consumers but rather are activities to fulfill our promise to transfer the products and are recorded as fulfillmentexpenses. 78Table of Contents Marketplace and other services With respect to the marketplace service revenue, we do not consider we control the products before they are transferred to the customer or have theability to direct the use of the goods and obtain substantially all of their benefits. We bear no physical and general inventory risk and have no discretion inestablishing price, so we have determined that revenue from our sales of products under these arrangements are marketplace service fees in nature. Revenue isrecognized when we have fulfilled our selling performance obligations on behalf of the principal in the transaction, which is when the products are acceptedby the customer. We recognize other service revenue when the services are rendered. 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 income / (loss) in the period of change. A valuation allowance is recorded to reduce the amount of deferred tax assets if based on the weight ofavailable evidence, 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, 2016, we incurred accumulated net operating losses. We believe that it is more likely than not that the accumulated netoperating 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 2016. We made profit for the year ended December 31, 2017 and 2018. As of December 31, 2017 and 2018, thevaluation allowance of RMB15.0 million and RMB19.9 million were provided for us and some subsidiaries, respectively. For those entities, we believe thatit is more likely than not that the accumulated net operating losses of those entities will not be utilized in the foreseeable future. As of December 31, 2018, we had net operating loss carry forwards of approximately RMB0.2 million attributable to the Hong Kong subsidiary,RMB0.3 attributable to the American subsidiary, RMB2.1 million attributable to the Malaysia subsidiary, RMB1.3 million attributable to the Italiansubsidiary and of approximately RMB216.1 million attributable to the PRC subsidiaries, VIEs and VIEs’ subsidiaries. The loss carried forward by the HongKong, Malaysia, and Italian subsidiaries can be carried forward to net against future taxable income without a time limit; while the loss carried forward by thePRC companies will expire during the period from year 2019 to year 2023. 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 revenues. This information should be read together with our consolidated financial statements and related notes included elsewhere inthis annual report. The results of operations in any period are not necessarily indicative of the results that may be expected for any future period. 79Table of Contents Year Ended December 31,2016 2017 2018RMB % RMB % RMB US$ %(in thousands, except percentages)RevenuesMerchandise sales2,566,87299.03,680,79598.45,244,446762,77397.3Marketplace and other services26,9501.059,6601.6143,13120,8172.7Total revenues2,593,822100.03,740,455100.05,387,577783,590100.0Cost of revenues(2,193,676)(84.6)(3,128,441)(83.6)(4,427,844)(644,003)(82.2)Gross profit400,14615.4612,01416.4959,733139,58717.8Operating expensesFulfillment expenses(82,047)(3.2)(99,064)(2.6)(138,710)(20.175)(2.6)Marketing expenses(218,759)(8.4)(245,989)(6.6)(410,548)(59.712)(7.6)Technology and content developmentexpenses(54,262)(2.1)(62,081)(1.7)(80,398)(11.693)(1.5)General and administrative expenses(74,310)(2.9)(110,059)(2.9)(110,802)(16.115)(2.1)Total operating expenses(429,378)(16.6)(517,193)(13.8)(740,458)(107,695)(13.8)(Loss)/income from operations(29,232)(1.1)94,8212.6219,27531,8924.0Other income/ (expenses)Interest expense, net(3,923)(0.2)(6,562)(0.2)(42,533)(6,186)(0.8)Foreign currency exchange (losses)/gains(11,418)(0.4)9,4770.3(11,737)(1,707)(0.2)Others——4,1480.131,2694,5480.6(Loss)/income before income tax(44,573)(1.7)101,8842.8196,27428,5473.6Income tax benefits/(expenses)——31,5250.8(40,728)(5,924)(0.8)Net (loss)/income(44,573)(1.7)133,4093.6155,54622,6232.8 Year Ended December 31, 2018 Compared to Year Ended December 31, 2017 Revenues Our total revenues increased by 44.0% from RMB3,740.5 million in 2017 to RMB5,387.6 million (US$783.6 million) in 2018. The increase inrevenues primarily driven by the increase in the total number of orders and merchandise sales. The total number of orders increased by approximately 60.2%from approximately 1,437.0 thousand in 2017 to approximately 2,301.5 thousand in 2018. Our GMV grew from RMB5,262.4 million in 2017 toRMB8,048.2 million (US$1,170.6 million) in 2018. Cost of revenues Our cost of revenues increased by 41.5% from RMB3,128.4 million in 2017 to RMB4,427.8 million (US$644.0 million) in 2018, primarilyattributable to the growth of our merchandising sales. 80Table of Contents Gross profit As a result of the foregoing, our gross profit increased by 56.8% from RMB612.0 million in 2017 to RMB959.7 million (US$139.6 million) in 2018.Our gross margin increased from 16.4% in 2017 to 17.8% in 2018. 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 43.2% from RMB517.2 million in 2017 to RMB740.5 million (US$107.7 million) in 2018. Fulfillment expenses. Our fulfillment expenses increased by 40.0% from RMB99.1 million in 2017 to RMB138.7 million (US$20.2 million) in2018. The increase was primarily attributable to (i) the increase of sales volume and total number of orders fulfilled which resulted in increased deliveryexpenses, and third-party payment commissions, and (ii) the increase in staff compensation and benefits expenses. Delivery expenses paid to third-partydelivery companies increased from RMB32.3 million in 2017 to RMB47.0 million (US$6.8 million) in 2018. Third-party payment platform chargesincreased from RMB24.0 million in 2017 to RMB42.5 million (US$6.2 million) in 2018. These increases were resulted from the significant increase in ourtotal number of orders. Staff compensation and benefits expenses for our fulfillment personnel increased from RMB28.3 million in 2017 to RMB30.9 million(US$4.5 million) in 2018, including share based compensation RMB5.1 million in 2017 and RMB1.1 million (US$0.2 million) in 2018. Marketing expenses. Our marketing expenses increased by 66.9% from RMB246.0 million in 2017 to RMB410.5 million (US$59.7 million) in2018. The increase was primarily due to the continuous investment in our marketing and brand awareness promotions as well as the compensation andbenefits expenses for our sales related staff. Our advertising expenses increased from RMB111.2 million in 2017 to RMB191.5 million (US$27.9 million) in2018. Staff compensation and benefits expenses increased from RMB87.1 million in 2017 to RMB132.9 million (US$19.3 million) in 2018, including sharebased compensation of RMB23.8 million in 2017 and RMB11.7 million (US$1.7 million) in 2018. Technology and content development expenses. Our technology and content development expenses increased by 29.5% from RMB62.1 million in2017 to RMB80.4 million (US$11.7 million) in 2018. The increase was primarily due to the continuous investment in our technology department.Compensation and benefits expenses for technology department increased from RMB52.3 million in 2017 to RMB63.3 million (US$9.2 million) in 2018,including share based compensation of RMB4.0 million in 2017 and RMB3.0 million (US$0.4 million) in 2018. General and administrative expenses. Our general and administrative expenses increased by 0.6% from RMB110.1 million in 2017 to RMB110.8million (US$16.1 million) in 2018. Other income/(expenses) We had other expenses of RMB23.0 million (US$3.3 million) in 2018, compared to our other income of RMB7.1 million in 2017. Interest expenses, net. Our interest expenses increased significantly from RMB6.6 million in 2017 to RMB42.5 million (US$6.2 million) in 2018.The increase in interest expenses was mainly due to the increase in bank and other borrowings in 2018. Foreign currency exchange (losses)/gains. We recorded a loss in foreign currency exchange of RMB11.7 million (US$1.7 million) in 2018, ascompared to a gain of RMB9.5 million in 2017. The change in foreign currency exchange (losses)/gains was mainly due to the depreciation of RMB againstUS$ in 2018, compared to appreciation of RMB against US$ in 2017. Others. Others increased significantly from RMB4.1 million in 2017 to RMB31.3 million (US$4.5 million) in 2018. The increase was mainly dueto the increase in subsidy income granted by local authorities from RMB4.1 million in 2017 to RMB28.0 million (US$4.1 million) in 2018. 81Table of Contents Net income Our net income increased by 16.6% from RMB133.4 million in 2017 to RMB155.5 million (US$22.6 million) in 2018. Year Ended December 31, 2017 Compared to Year Ended December 31, 2016 Revenues Our total 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 inrevenues primarily driven by the increase in the total number of orders and merchandise sales. The total number of orders increased by approximately 50.7%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 to RMB5,262.4million (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. 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 expenses 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 expenses 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 from RMB113.7million 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. 82Table of Contents 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. Theincrease in interest expenses was mainly due to the increase in bank and other borrowings in 2017. Foreign currency exchange (losses)/gains. We recorded a gain in foreign currency exchange of RMB9.5 million (US$1.5 million) in 2017, ascompared to a loss of RMB11.4 million in 2016. The change in foreign currency exchange gains/(losses) was mainly due to the appreciation of RMB againstUS$ 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. 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 2016, 2017 and 2018 increased by 2.1%, 1.8%and 1.9%, 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, convertible notes and warrants, as well as from proceeds of our initial public offering and borrowings. As of December 31, 2016, 2017 and2018, we had RMB55.6 million, RMB453.4 million and RMB1,034.4 million (US$150.4 million) in cash, respectively. Our cash consists of cash on handand time deposits, which have original maturities of three months or less and are readily convertible to decidable amounts of cash. As of December 31, 2018,we had RMB68.6 million (US$10.0 million) in time deposits, which have original maturities of more than three months but less than one year and RMB89.2million (US$13.0 million) in the current portion of restricted cash, which consisted of cash deposits associated with one bank loan with principal amounts ofRMB80.0 million (US$11.6 million). The use of cash deposit and its interest is restricted by the bank until the corresponding loan is fully repaid. In May 2017, we entered into an amendment to the facility agreement with SPD Silicon Valley Bank Co., Ltd., or SPD. Pursuant to the amendment,the facility in the amount of RMB50.0 million was extended for one year with an interest rate of 7.35% per annum and matured in May 2018. In May 2018,we repaid RMB50.0 million under this facility, and concurrently entered into an amended facility agreement with SPD to extend the facility to August 2018.In August 2018, we repaid RMB50.0 million under this facility, and concurrently entered into an amended facility agreement with SPD to extend the facilityfor one year. In addition, RMB250.9 million (US$36.5 million) of inventories and RMB14.1 million (US$2.1 million) of equipment in 2018 compared toRMB250.9 million of inventories and RMB11.8 million of equipment in 2017 were pledged to SPD as collateral and a guarantee provided by us. Both of theoriginal facility and amended facility agreements contain certain financial and nonfinancial covenants. As of December 31, 2017 and 2018, we met thefinancial covenants. As of December 31, 2017 and 2018, the outstanding balances of the short-term portion of the facilities were both RMB50.0 million(US$7.3 million). 83Table of Contents 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. In August 2017, the agreement was extended to2018. During 2017, RMB14.0 million was repaid and 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 deposit of RMB 123.8 million withXiamen International Bank, which was the consignor in the loan agreement. As of December 31, 2018, all loan amounts were settled and the cash depositamounting to RMB123.8 million became unrestricted following the loan settlement. 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). As of December 31, 2018, all loan amounts were settled and the cash deposit amounting to RMB55.2 million (US$8.5 million) became unrestrictedfollowing the loan settlement. 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, we borrowed RMB78.4 million under this agreement, among which, RMB35.2 million wasoutstanding as of December 31, 2017 with the accounts receivable of RMB35.2 million pledged to the third party as collateral. In February 2018, we repaidthe RMB35.2 million. During 2018, we entered into two more agreements with the third party non-financial institution that permits us to borrow short-term borrowings atthe interest rate of 10%. We received RMB15.0 million (US$2.2 million) and RMB20.4 million (US$3.0 million) in June 2018 and August 2018,respectively. The accounts receivables of RMB15.0 million (US$2.2 million) and RMB20.4 million (US$3.0 million) were pledged to the third party ascollaterals, we repaid these borrowings in August 2018 and October 2018, respectively. No balance is outstanding as of December 31, 2018. In August 2018, we issued convertible notes and warrants to Great World Lux Pte. Ltd and its affiliates, or Great World, in an aggregate principalamount of up to US$175.0 million. The principal amount outstanding under the convertible notes bears interest at an aggregate compounded rate of 8% perannum until August 8, 2021, or such earlier time as the notes are repurchased or converted subject to the terms specified therein. The initial conversion priceis US$13.00 per ADS. The holders of the warrants are entitled to purchase 500,000 ADSs from us at an exercise price of US$18.00 per ADS. We also formedstrategic partnerships with L Catterton Asia, the Asian unit of the largest and most global consumer-focused private equity firm in the world, and JD.com,China’s largest retailer, aiming to boost Secoo’s presence and network in the luxury industry. In December 2018, we entered into a loan agreement with Shanghai Pudong Development Bank Co., Ltd. for an amount of RMB80.0 million(US$11.6 million) with an interest rate of 4.35% per annum, a maturing term of one year and pledged a restricted cash deposit of RMB89.2 million (US$13.0million). 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.” 84Table of Contents 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. 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, 2018, cash, time deposits, and restricted cash in an aggregate amount of US$95.0 million, RMB2.8 million, HK$10.3 million,MYR2.2 million and EUR0.2 million were held by Secoo Holding Limited and its non-PRC subsidiaries in Hong Kong and overseas. As of December 31,2018, our subsidiaries in China held cash in the amount of RMB5.9 million (US$0.9 million), and our variable interest entities and their subsidiaries heldcash in the amount of RMB520.7 million (US$75.7 million). We would need to accrue and pay withholding taxes if we were to distribute funds from oursubsidiaries in China to our offshore subsidiaries. We do not intend to repatriate such funds in the foreseeable future, as we plan to use existing cash balancein China for general corporate purposes. The following table sets forth a summary of our cash flows for the periods indicated: Year Ended December 31,2016 Asadjusted 2017 Asadjusted 2018RMB RMB RMB US$(in thousands)Net cash used in operating activities(250,668)(177,511)(651,462)(94,750)Net cash (used in)/provided by investing activities(11,666)(311,581)146,10221,250Net cash provided by financing activities44,269922,057995,948144,853Cash and Restricted cash at the beginning of the year440,414211,347632,43991,984Cash and Restricted cash at the end of the year211,347632,4391,126,407163,829 85Table of Contents Operating activities Net cash used in operating activities amounted to RMB651.5 million (US$94.8 million) in 2018, primarily resulted from cash payment to suppliersof RMB6,057.4 million (US$881.0 million), our employee salaries and welfare payment of RMB329.3 million (US$47.9 million) and our payments for taxesof RMB150.6 million (US$21.9 million), offset by RMB5,688.8 million (US$827.4 million) of cash from the sale of upscale brand products and offering ofmarketplace and other services, other general operating income of RMB197.0 million (US$28.6 million). Net cash used in operating activities amounted to RMB177.5 million in 2017, primarily resulted from cash payment to suppliers of RMB4,200.8million, our employee salaries and welfare payment of RMB183.8 million and our payments for taxes of RMB49.2 million, offset by RMB 4,252.1 million ofcash from the sale of upscale brand products and offering of marketplace and other services, other general operating income of RMB4.2 million. Net cash used in operating activities amounted to RMB250.7 million in 2016, primarily resulted from cash payment to suppliers ofRMB2,865.0 million, our employee salaries and welfare payment of RMB154.3 million, our payments for taxes of RMB13.4 million and other generaloperating costs of RMB16.6 million, offset by RMB2,798.6 million of cash from the sale of upscale brand products and offering of marketplace and otherservices. Investing activities Net cash provided by investing activities amounted to RMB146.1 million (US$21.3 million) in 2018, primarily attributable to the proceeds frommaturity of time deposits of RMB292.3 million (US$42.5 million), offset by purchase of time deposits of RMB68.6 million (US$10.0 million), purchase ofequity security and put option of RMB31.4 million (US$4.6 million) and purchase of property and equipment of RMB44.8 million (US$6.5 million). Net cash used in investing activities amounted to RMB311.6 million in 2017, primarily attributable to the purchase of time deposits amounted toRMB292.3 million and the purchase of property and equipment of RMB19.3 million. Net cash used in investing activities amounted to RMB11.7 million in 2016, which was attributable to the purchase of property and equipmentamounted RMB11.7 million. Financing activities Net cash provided by financing activities amounted to RMB995.9 million (US$144.9 million) in 2018, primarily attributable to the proceeds fromissuance of convertible notes, amounting to RMB1,195.5 million (US$173.9 million) and proceeds from short-term borrowings of RMB180.0 (US$26.2million), offset by repayment of short-term borrowings of RMB161.1 million (US$23.4 million) and repayment of long-term borrowings of RMB150.0million (US$21.8 million). Net cash provided by financing activities amounted to RMB922.1 million in 2017, primarily attributable to the proceeds from our initial publicoffering, amounting to RMB862.2 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. Capital Expenditures Our capital expenditures amounted to RMB11.7 million in 2016, RMB19.3 million in 2017 and RMB44.8 million (US$6.7 million) in 2018.Between January 1, 2016 and December 31, 2018, our capital expenditures were principally used for our leasehold improvements, as well as purchases ofoffice and other operating equipment and motor vehicles. 86Table of Contents Recent Accounting Pronouncements In February 2016, the Financial Accounting Standards Board (“FASB”) established Topic 842, Lease, by issuing Accounting Standards UpdateNo. 2016-02 (“ASU 2016-02”), which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, CodificationImprovements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use model (ROU) that requires alessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance oroperating, with classification affecting the pattern and classification of expense recognition in the income statement. The new standard is effective for public business entities for annual periods beginning after December 15, 2018, and interim periods therein. For allother entities, the standard is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning afterDecember 15, 2020. Early adoption is permitted. A modified retrospective transition approach is required, applying the new standard to all leases existing atthe date of initial application. We have adopted the new standard on January 1, 2019 and decided to use the effective date as the date of initial application.Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periodsbefore January 1, 2019. The new standard provides a number of optional practical expedients in transition. We plan to elect the ‘package of practical expedients’, whichpermits the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. While the Company continues to assess all of the effects of adoption, the Company expected that this standard will have a material effect on thecombined balance sheet. Leases currently designated as operating leases in Note 24 to our audited consolidated financial statements will be reported on theconsolidated balance sheet upon adoption at their net present value, which will increase total assets and liabilities. The Company plans to use its estimatedincremental borrowing rate based on information available at the date of adoption in calculating the present value of its existing lease payments. Theincremental borrowing rate will be determined using the U.S. Treasury rate adjusted to account for the Company’s credit rating and the collateralized natureof operating leases. We estimate approximately RMB45.0 million to RMB46.0 million would be recognized as total right-of-use assets and total leaseliabilities on our consolidated balance sheet as of January 1, 2019. Other than disclosed, we do not expect the new standard to have a material impact on itsremaining consolidated financial statements. In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on FinancialStatements. This ASU requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected tobe collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the netcarrying value at the amount expected to be collected on the financial asset. The standard is effective for us from calendar 2020, with early adoptionpermitted for calendar 2019. We are evaluating the impact of the adoption of this standard on its consolidated financial statements. In January 2017, the FASB issued ASU 2017-04: Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. Tosimplify the subsequent measurement of goodwill, the Board eliminated Step 2 from the goodwill impairment test. Under the amendments in this Update, anentity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entityshould recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognizedshould not exceed the total amount of goodwill allocated to that reporting unit. An entity should apply the amendments in this Update on a prospectivebasis. An entity is required to disclose the nature of and reason for the change in accounting principle upon transition. A public business entity that is a U.S.Securities and Exchange Commission (SEC) filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests infiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates afterJanuary 1, 2017. We are in the process of evaluating the impact of the Update on its consolidated financial statements. 87Table of Contents 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. 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, 2018, 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 for 14patents 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 year2018 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, 2018: Payment due by periodTotal Less than1 year 1 - 3 years 3 - 5 years More than5 years(in RMB thousands)Operating lease obligations68,82733,74032,0613,026—Borrowings1,628,470187,1981,441,272——Total1,697,297220,9381,473,3333,026— 88(1)(2)Table of Contents Notes: (1) We lease logistics centers, offline experience centers and office space under non-cancelable operating lease agreements that expire at various datesthrough 2023. 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 RMB35.8 million in 2016, RMB34.1 million in 2017 and RMB39.6million (US$5.8 million) in 2018, respectively. (2) Includes RMB293.1 million accrued at the interest rate under the borrowing agreements. G. Safe Harbor See “Forward-Looking Statements.” 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 OfficersAgePosition/TitleRichard Rixue Li44Chairman of the Board and Chief Executive OfficerJeacy Jisheng Yan39DirectorRavi Thakran56DirectorJun Wang48Independent DirectorXiaoquan Zhang45Independent DirectorJian Wang46Independent DirectorWenning Xing44Independent DirectorShaojun Chen45Chief Financial 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. 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. Mr. Ravi Thakran has served as our director since August 2018. Mr. Thakran currently serves as Chairman and Managing Partner of L Catterton Asiaand has served as the Group Chairman of LVMH South Asia and South East Asia, Middle East and Australia and New Zealand since September 2007. Prior tojoining LVMH, Mr. Thakran held senior management positions at the Swatch Group, Nike and Tata Group, based in various global locations. Mr. Thakranholds an MBA from the India Institute of Management, Ahmedabad. 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. 89Table of Contents 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. Wenning Xing has served as our independent director since September 2018. Mr. Xing serves as the China Managing Director of Hearst, anoperator of several international magazine and digital media brands such as ELLE, Harper’s Bazaar and Cosmopolitan, Hearst Media China, Trends MediaGroup, Fitch China, A&E Networks, ESPN, VICE, Hearst Ventures, and a media-focused investment fund. Under his tenure, Hearst made investments such asLegendary Pictures, Impression Creative, Kunlun Fight, Bilibili, Liulishuo, Atzuche and Zcool. Wenning is also in charge of handling government andpublic relations, strategic business development, and mergers & acquisitions at Hearst. Before joining Hearst, Wenning held several senior executivepositions, including Chief Strategy Officer at a subsidiary of People’s Daily, the biggest newspaper group in China, founder and Chief Representative atFremantle Media China and Executive Director at Bertelsmann China and held key posts at Time Warner and China Central Television (CCTV). Wenning isa member of the International Academy of Television Arts & Sciences, and currently serves as a juror for the International Emmy Awards. Wenning has beenfeatured in a number of high profile news articles, including the NY Times in 2012. Wenning is a graduate of Harvard University and Columbia University. 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. 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. 90Table of Contents 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 2018, we paid an aggregate of approximately RMB2.2 million (US$0.3 million) in cash to our executive officers, and we paid approximatelyRMB0.7 million (US$0.1 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. 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, 2018. 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. 91Table of Contents 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, 2018, the options granted under our 2017 Plan to our executive officer, excluding awards thatwere 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, 2024Total*——— * Less than 1% of our total outstanding share capital As of December 31, 2018, other individuals as a group held options to purchase 1,165,873 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 seven directors. A director is not required to hold any shares in our company by way of qualification. A directorwho is in any way, whether directly or indirectly, interested in a contract or proposed contract with our company is required to declare the nature of hisinterest at a meeting of our directors. A director may vote in respect of any contract, proposed contract, or arrangement notwithstanding that he may beinterested 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 contractor proposed contract or arrangement is considered. Our directors may exercise all the powers of our company to borrow money, and to mortgage or charge itsundertaking, property and uncalled capital, and issue debentures, debenture stock or other securities whenever money is borrowed or as security for any debt,liability or obligation of the company or of any third party. None of our non-executive directors has a service 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. 92Table of Contents 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, Jian Wang and Xiaoquan Zhang satisfy the “independence” requirements of NASDAQ and Rule 10A-3 under theSecurities Exchange Act of 1934. The audit committee will oversee our accounting and financial reporting processes and the audits of the financialstatements of our company. 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 and Jian Wang. Jian Wang is the chairman of our compensationcommittee. We have determined that Jun Wang and Jian Wang satisfy the “independence” requirements of NASDAQ. The compensation committee willassist the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers.Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated. The compensation committee will beresponsible for, among other things: (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 and JianWang. Xiaoquan Zhang is the chairperson of our nominating and corporate governance committee. We have determined that Xiaoquan Zhang and Jian Wangsatisfy the “independence” requirements of NASDAQ. The nominating and corporate governance committee will assist the board of directors in selectingindividuals qualified to become our directors and in determining the composition of the board and its committees. The nominating and corporate governancecommittee 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; 93Table of Contents (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 current memorandum and articles of association, and the class rights vested thereunder in theholders of the shares. Our company has the right to seek damages if a duty owed by our directors is breached. In limited exceptional circumstances, ashareholder 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; (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, 2016, 2017 and 2018, we had 544, 829 and 1,329 full-time employees, respectively. The following table sets forth the number ofour full-time employees categorized by areas of operations as of December 31, 2018: FunctionNumber of employeesBusiness development, sales and marketing857 Technology support205 Fulfillment99 Administration and management168 Total1,329 94Table of Contents 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 25,122,199 ordinary shares outstanding as of the date of this annual report on an as-converted basis,consisting of 18,550,770 Class A ordinary shares and 6,571,429 Class B ordinary shares outstanding, excluding 517,454 Class A ordinary shares reserved astreasury stock. 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*6,571,4296,572,92926.287.6Jeacy Jisheng Yan—————Ravi Thakran—————Jun Wang—————Xiaoquan Zhang—————Jian Wang—————Wenning Xing—————Shaojun Chen*—***All Directors and Executive Officers as aGroup*6,571,4296,645,93926.587.7Principal Shareholders:Siku Holding Limited—6,571,4296,571,42926.287.6IDG Funds4,964,889—4,964,88919.83.3CMC Galaxy Holdings Ltd2,376,854—2,376,8549.51.6Pingan entities1,861,782—1,861,7827.41.2 * Less than 1%. ** Except for Ms. Jeacy Jisheng Yan, the business address for our directors and executive officers is 15/F, Building C, Galaxy SOHO, Chaonei Street,Dongcheng District, Beijing, 100000, The People’s Republic of China. 95(1)(2) (3)(4)(5)(6)Table of Contents † 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 25,122,199 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 (i) 1,500 Class A ordinary shares in the form of ADSs held by Mr. Li and (ii) 6,571,429 Class B ordinary shares beneficially owned by Mr. Lithrough Siku Holding Limited, a BVI company, as described in footnote (3) below. Siku Holding Limited is 99% beneficially owned by Mr. Li. (2) The business address of Ms. Yan is Floor 6, Tower A, COFCO Plaza, 8 Jianguomennei Avenue, Beijing, China, 100005. (3) 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. (4) 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 Class A ordinary shares directly held by IDG-Accel China Growth Fund III L.P., (vii) 44,330Class A ordinary shares directly held by IDG-Accel China III Investors L.P., (viii) 396,825 Class A ordinary shares directly held by IDG TechnologyVenture Investment 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 ordinaryshares directly held by IDG-Accel China III Investors L.P., (xi) 220,315 Class A ordinary shares directly held by IDG Technology VentureInvestment 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 directlyheld by IDG-Accel China III Investors L.P., (xiv) 548,752 Class A ordinary shares directly held by IDG-Accel China Growth Fund III L.P., (xv) 38,903Class A ordinary shares directly held by IDG-Accel China III Investors L.P., (xvi) 248,362 Class A ordinary shares directly held by IDG-Accel ChinaGrowth Fund III L.P., and (xvii) 17,607 Class A ordinary shares directly held by IDG-Accel China III Investors L.P. IDG Technology VentureInvestment IV, L.P. is a Delaware limited partnership which is controlled by its sole general partner, IDG Technology Venture Investment IV, LLC, whichis controlled by its two managing members, Mr. Quan Zhou and Mr. Chi Sing Ho. IDG-Accel China Growth Fund III L.P.is a Cayman Islands limitedpartnership which is controlled by its immediate general partner IDG-Accel China Growth Fund III Associates L.P., or IDG-Accel III Associates L.P., aCayman Islands limited partnership. IDG-Accel III Associates L.P. is controlled by its general partner IDG-Accel China Growth Fund GP IIIAssociates Ltd., or IDG-Accel III Associates Ltd., a Cayman Islands limited company. IDG-Accel China III Investors L.P. is a Cayman Islands limitedpartnership which is controlled by its sole general partner, IDG-Accel III Associates Ltd. Mr. Quan Zhou and Mr. Chi Sing Ho are currently serving asmembers 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. are collectively referred to as the IDG Funds. (5) 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. 96Table of Contents (6) 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. 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, 2016, 2017 and 2018, we paid on behalf of Jiangxi Tiangong Hi Tech Co., Ltd. (“Jiangxi Tiangong”), arelated party that our subsidiary can exercise significant influence for nil, RMB0.3 million and nil. Jiangxi Tiangong paid off RMB0.2 million in 2017. Wehave amount due from Jiangxi Tiangong for nil, RMB0.04 million and RMB0.04 million (US$0.01 million) as of December 31, 2016, 2017 and 2018,respectively. During the years ended December 31, 2016, 2017 and 2018, Yichun Chuaichuai Information Technology Co., Ltd (“Yichun Chuaichuai”), a relatedparty that our subsidiary can exercise significant influence, purchased products in the amount of nil, RMB1.7 million and RMB9.6 million (US$1.4 million),respectively from us. Yichun Chuaichuai paid off nil, RMB1.7 million and RMB4.4 million (US$0.6 million) in 2016, 2017 and 2018, respectively. We haveamount due to Yichun Chuaichuai for nil, RMB1.2 million and RMB0.4 million (US$0.1 million) as of December 31, 2016, 2017 and 2018, and haveamount due from Yichun Chuaichuai for nil, nil and RMB11.1 million (US$1.6 million) as of December 31, 2016, 2017 and 2018. During the years ended December 31, 2016, 2017 and 2018, we paid on behalf of Yichun Guangyao Technology Co., Ltd., a related party that oursubsidiary can exercise significant influence for nil, nil and RMB2.1 million (US$0.3 million). During the years ended December 31, 2016, 2017 and 2018, we paid on behalf of Shikonglian (Beijing) Technology Co., Ltd (“Shikonglian”), arelated party that our subsidiary can exercise significant influence for nil, nil and RMB25 thousand. During the years ended December 31, 2016, 2017 and 2018, we did not borrow from Mr. Richard Rixue Li, our chairman and chief exercise officer,and repaid RMB0.3 million, RMB1.0 million and RMB0.5 million (US$0.07 million), respectively, to Mr. Richard Rixue Li. We have an amount due toMr. Richard Rixue Li for RMB2.3 million, RMB1.3 million and RMB0.8 million (US$0.1 million) as of December 31, 2016, 2017 and 2018, respectively.The amounts were unsecured, non-interest bearing and have no defined repayment term. In December 31, 2018, we borrowed RMB4.5 million (US$0.7 million) from Mr. Rimei Li, CEO of our one of our subsidiary, to fund working capital,among which RMB4.1 million (US$0.6 million) was repaid in the same year. We have an amount due to Mr. Rimei Li for RMB0.4 million (US$0.06 million)as of December 31, 2018. The amounts were unsecured, non-interest bearing and have no defined repayment term 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.” 97Table of Contents 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. 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. 98Table of Contents 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 See “—C. Markets.” 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”. D. Selling Shareholders Not applicable. E. Dilution Not applicable. F. Expenses of the Issue Not applicable. ITEM 10. ADDITIONAL INFORMATION A. Share Capital Not applicable. B. Memorandum and Articles of Association The following are summaries of material provisions of our current memorandum and articles of association, insofar as they relate to the materialterms 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 current memorandum and articles of association. In respect of mattersrequiring shareholders’ vote, each Class A ordinary share is entitled to one vote, and each Class B ordinary share is entitled to twenty votes. At anyshareholders’ 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 current memorandum and articles of association. A special resolution will berequired for important matters such as a change of name or making changes to our current memorandum and articles of association. Holders of the ordinaryshares may, among other things, divide or combine their shares by ordinary resolution. 99Table of Contents 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. 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 current memorandum and articles ofassociation. 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 freshissue of shares made for the purpose of such redemption or repurchase, or out of capital (including share premium account and capital redemption reserve) ifthe company can, immediately following such payment, pay its debts as they fall due in the ordinary course of business. In addition, under the CompaniesLaw no such share may be redeemed or repurchased (a) unless it is fully paid up, (b) if such redemption or repurchase would result in there being no 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. Changes in Capital. Our shareholders may from time to time by ordinary resolution: · increase our share capital by new shares of such amount as our shareholders think expedient;· consolidate and divide all or any of our share capital into shares of a larger amount than our existing Shares;· subdivide our shares, or any of them, into shares of an amount smaller than that fixed by our current memorandum and articles ofassociation, provided that in the subdivision the proportion between the amount paid and the amount, if any, unpaid on each reduced shareshall be the same as it was in case of the share from which the reduced Share is derived; and· cancel any shares that, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person, and diminishthe amount of its share capital by the amount of the shares so cancelled. Our shareholders may, by special resolution, amongst other things, reduce our share capital and any capital redemption reserve in any mannerauthorized by law. 100Table of Contents Issuance of Additional Shares. Our current memorandum and articles of association authorizes our board of directors to issue additional ordinaryshares from time to time as our board of directors shall determine, to the extent there are available authorized but unissued shares. Our current memorandum and articles of association authorizes our board of directors to establish from time to time one or more series of redeemablepreferred shares and to determine, with respect to any series of redeemable preferred shares, the terms and rights of that series, including: · designation of the series;· the number of shares of the series;· the dividend rights, conversion rights and voting rights; and· the rights and terms of redemption and liquidation preferences. Anti-Takeover Provisions. Some provisions of our current memorandum and articles of association may discourage, delay or prevent a change ofcontrol of our company or management that shareholders may consider favorable, including provisions that: · authorize our board of directors to issue preferred shares in one or more series and to designate the price, rights, preferences, privileges andrestrictions of such preferred shares without any further vote or action by our shareholders; and· limit the ability of shareholders to requisition and convene general meetings of shareholders. However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our current memorandum andarticles of association for a proper purpose and for what they believe in good faith to be in the best interests of our company. 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” 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. 101Table of Contents 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. Hong Kong Before 2018, our subsidiary incorporated in Hong Kong is subject to the uniform tax rate of 16.5% on taxable income generated from the operationsin Hong Kong. Hong Kong’s two-tier income tax system was officially implemented on April 1, 2018. For the first HK$2.0 million of assessable profits, weare subject to profits tax rate of 8.25%, and the subsequent profits are taxed at 16.5%. There is an anti-fragmentation measure where each group will have tonominate only one company in the group to benefit from the progressive rates. Under the Hong Kong tax laws, we are exempted from the Hong Kong incometax on our 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 December 29, 2018, respectively, 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 anddomestic enterprises, unless they qualify for certain exceptions. Our PRC subsidiaries and consolidated variable interest entities are all subject to the tax rateof 25% for the periods presented in the consolidated 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. 102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 ownership and disposition of our ADSs or ordinary shares by aU.S. Holder that holds our ADSs or ordinary shares as “capital assets” (generally, property held for investment) under the U.S. Internal Revenue Code of 1986,as amended (the “Code”). This discussion does not address all aspects of U.S. federal income taxation that may be important to particular investors in light oftheir individual investment circumstances, including investors subject to special tax rules (for example, certain financial institutions, insurance companies,broker-dealers, traders in securities that elect mark-to-market treatment, tax-exempt organizations (including private foundations), investors who own(directly, indirectly, or constructively) 10% or more of our stock (by vote or value), investors that will hold their ADSs or ordinary shares as part of a straddle,hedge, conversion, constructive sale, or other integrated transaction for U.S. federal income tax purposes, or investors that have a functional currency otherthan 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 tax advisors regarding an investment in our ADSs or ordinary shares. 103Table of Contents 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. 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 taxable year ending December 31,2018 and we do not expect to be classified as a PFIC in the foreseeable future. While we do not anticipate becoming a PFIC, changes in the nature of ourincome or assets, or fluctuations in the market price of our ADSs, may cause us to become a PFIC for future taxable years. In estimating the value of ourgoodwill and other unbooked intangibles, we have taken into account our market capitalization, which may fluctuate over time. Among other factors, if ourmarket capitalization declines, we may be or become classified as a PFIC for the current or future taxable years. Under circumstances where revenues fromactivities that produce passive income significantly increase relative to our revenues from activities that produce non-passive income or where we determinenot to expend significant amounts of cash for working capital or other purposes, our risk of becoming classified as a PFIC may substantially increase. Inaddition, if it were determined that that we are not the owner of our variable interest entities for U.S. federal income tax purposes, we may be treated as a PFICfor 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 are deemed to bea PRC 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 in this paragraph. 104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 tax advisors regarding the availability of the foreign tax credit undertheir 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 beU.S. source gain, a U.S. Holder may not be able to credit such tax against their U.S. federal income tax liability unless such U.S. Holder has other income fromforeign 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 the Treatymay be able to elect to treat such gain as PRC-source gain. U.S. Holders should consult their tax advisors regarding the tax consequences if a foreign tax isimposed on a disposition of our ADSs or ordinary shares, including the availability of the foreign tax credit under their particular circumstances. 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; 105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 tax advisors regarding the application of thePFIC 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 would generallycontinue 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. 106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 tax advisors concerning the U.S. federal income tax considerations of owning and disposing of our ADSs orordinary 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 theunavailability 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. 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. 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 2018, the RMB has depreciatedsignificantly in the backdrop of a surging U.S. dollar and persistent capital outflows of China. 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. 107Table of Contents To the extent that we need to convert U.S. dollars into RMB for our operations, appreciation of the RMB against the U.S. dollar would have anadverse 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 makingpayments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negativeeffect 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, 2018 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. 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): 108Table of Contents Service FeesTo any person to which ADSs are issued or to any person to which a distribution ismade in respect of ADS distributions pursuant to stock dividends or other freedistributions of stock, bonus distributions, stock splits or other distributions (exceptwhere converted to cash)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 proceedsfrom the sale 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., when ordinary 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. 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. 109Table of Contents 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. For the year ended December 31, 2018, we received reimbursement in the amount of US$1.1 million from the depositary. 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, 2018, 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, 2018, we had used a portionof the net proceeds received from our initial public offering, which consisted of US$35.3 million invested in our marketing and branding efforts, US$8.0million used in strengthening our IT infrastructure and technology capabilities, US$13.9 million used to expand our logistic network, and US$22.9 millionused 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. 110Table of Contents 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, 2018. 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. 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 designating more resources to perform period-end closing procedures to ensure sales data generated and maintained by various businessapplications are complete and accurate and can be reconciled with the financial reporting system on time. In addition, we will continue to take other steps tostrengthen our internal control over financial reporting, including (i) establishing a formal and regular training program for accounting personnel, includingattending external U.S. GAAP training and (ii) implementing and formalizing comprehensive internal controls over financial reporting, including developinga comprehensive policy and procedure manual, to allow for prevention, early detection and resolution of potential compliance issues. We will continue torecruit experienced personnel to build a strong accounting and finance team. However, we cannot assure you that we will complete such implementation in atimely manner. See “Item 3.D. Risk Factors—Risks Related to Our Business—If we fail to implement and maintain an effective system of internal controls orfail to remediate the material weakness in our internal control over financial reporting that has been identified, we may be unable to accurately report ourresults of operations or prevent fraud, and investor confidence and the market price of our ADSs may be materially and adversely 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. 111Table of Contents ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT Our board of directors has determined that Mr. Jun Wang, an independent director and member of our audit committee, is an audit committeefinancial expert. 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. 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, 2017 2018 (in thousands of RMB)Audit fees9,292.18,061.5Other service fees—— (1) “Audit fees” means the aggregate fees billed or payable for professional services rendered by our principal accountant for the audit of our consolidatedfinancial statements. The policy of our audit committee is to pre-approve all audit and other service provided by KPMG Huazhen LLP as described above, other than thosefor 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 On November 16, 2017, our board of directors authorized a share repurchase program, under which we may repurchase our Class A ordinary shares inthe form of ADSs with an aggregate value of up to US$20 million during the next 12-month period. The following table sets forth a summary of our repurchase of our ADSs made in 2018 under the share repurchase program described in the paragraphabove. All shares were repurchased in the open market pursuant to the share repurchase program announced on November 16, 2017. 112(1)Table of Contents Period TotalNumber ofADSsPurchased Average PricePaid Per ADS TotalNumber ofADSsPurchased asPart of thePubliclyAnnouncedPlan Approximate DollarValue of ADSs that MayYet Be Purchased Underthe PlanSeptember 10 — September 28, 2018315,719US$13.14315,719US$9,391,923Total315,719US$13.14315,719US$9,391,923 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. 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 ExhibitNumber 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 filedon September 11, 2017 (File No. 333-220174)) 113Table of Contents ExhibitNumber Description of Document2.3Form 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 (incorporatedherein by 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 datedSeptember 15, 2014 (incorporated herein by reference to Exhibit 10.10 to the Form F-1 filed on August 25, 2017 (File No. 333-220174))4.11The 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(incorporated herein 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 (incorporatedherein by 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 (FileNo. 333-220174))4.16The Supplement Agreement to the Exclusive Business Cooperation Agreement between Kutianxia and Beijing Auction datedMarch 26, 2015 (incorporated herein by reference to Exhibit 10.16 to the Form F-1 filed on August 25, 2017 (File No. 333-220174)) 114Table of Contents ExhibitNumber Description of Document4.17Loan Agreement between Beijing Secoo and National Trust Co., Ltd. dated December 20, 2017 (incorporated herein by reference toExhibit 10.17 to the Form 20-F filed on April 26, 2018 (File No. 001-38201))4.18Deposit Pledge Agreements between Hong Kong Secoo and National Trust Co., Ltd. dated December 20, 2017 (incorporated herein byreference to Exhibit 10.18 to the Form 20-F filed on April 26, 2018 (File No. 001-38201))4.19*Convertible Note and Warrant Subscription Agreement between Secoo and Great World Lux Pte. Ltd dated July 9, 20188.1*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. 115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 29, 2019 116Table of Contents SECOO HOLDING LIMITED INDEX TO CONSOLIDATED FINANCIAL STATEMENTS [Note: KPMG to provide] PageReport of Independent Registered Public Accounting FirmF-2 Consolidated Balance Sheets as of December 31, 2017 and 2018F-3 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2016, 2017 and 2018F-6 Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2016, 2017 and 2018F-8 Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2017 and 2018F-9 Notes to the Consolidated Financial StatementsF-12 F-1Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders 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, 2017 and2018, 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, 2018, 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, 2017 and 2018, and the results of its operationsand its cash flows for each of the years in the three-year period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles. Change in Accounting Principle As discussed in note 2 to the consolidated financial statements, the Company has changed its method of accounting for revenue recognition in 2018 due tothe adoption of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers. 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. The Company is not required tohave, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain anunderstanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internalcontrol over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud,and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosuresin the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. We have served as the Company’s auditor since 2016. /s/ KPMG Huazhen LLPBeijing, ChinaApril 29, 2019 F-2Table of Contents SECOO HOLDING LIMITEDCONSOLIDATED BALANCE SHEETS(All amounts in thousands, except for share data) As of December 31,2017 2018RMB RMB US$ (Note2(e))AssetsCurrent assetsCash453,4251,034,385150,445Time deposits292,31868,6329,982Restricted cash55,21489,22212,977Investment in equity security—26,0323,786Accounts receivable54,210119,58017,392Inventories1,189,8851,712,740249,108Advances to suppliers53,016429,21962,427Prepayments and other current assets22,943133,55119,424Amounts due from related parties3813,2841,932Total current assets2,121,0493,626,645527,473 Non-current assetsProperty and equipment, net40,79356,6988,246Intangible Assets, net—12,2671,784Restricted cash123,8002,800407Investment in equity investees—2,859416Deferred tax assets43,98151,2147,449Goodwill—20,4132,969Other non-current assets8,08519,0302,768Total non-current assets216,659165,28124,039 Total assets2,337,7083,791,926551,512 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 RMB177,274 and RMB134,324 as ofDecember 31, 2017 and 2018, respectively. Note 1)177,274134,32419,537Accounts payable (including accounts payable of consolidated VIEs without recourseto the Company of RMB262,576 and RMB384,280 as of December 31, 2017 and2018, respectively. Note 1)318,414498,57972,515 F-3Table of Contents SECOO HOLDING LIMITEDCONSOLIDATED BALANCE SHEETS (Continued)(All amounts in thousands, except for share data) As of December 31,2017 2018RMB RMB US$ (Note 2(e))Amounts due to related parties (including amount due to Founder of consolidated VIEswithout recourse to the Company of RMB2,451 and RMB1,561 as of December 31,2017 and 2018, respectively. Note 1)2,4671,564227Advances from customers (including advances from customers of consolidated VIEswithout recourse to the Company of RMB67,604 and RMB63,684 as ofDecember 31, 2017 and 2018, respectively. Note 1)68,84866,9549,738Accrued expenses and other current liabilities (including accrued expenses and othercurrent liabilities of consolidated VIEs without recourse to the Company ofRMB313,574 and RMB278,160 as of December 31, 2017 and 2018, respectively.Note 1)343,936352,71451,300Deferred revenue (including deferred revenue of consolidated VIEs without recourse tothe Company of RMB12,051 and RMB62,372 as of December 31, 2017 and 2018,respectively. Note 1)12,05162,4789,086Total current liabilities922,9901,116,613162,403 Non-current liabilitiesLong-term borrowings, excluding current portion (including long-term borrowings,excluding current portion, of consolidated VIEs without recourse to the Company ofRMB124,324 and nil as of December 31, 2017 and 2018, respectively. Note 1)124,3241,151,560167,488Long-term liabilities (including long-term liabilities of consolidated VIEs withoutrecourse to the Company of nil and RMB14,240 as of December 31, 2017 and 2018,respectively. Note 1)—14,2402,071124,3241,165,800169,559 Total liabilities1,047,3142,282,413331,962 Commitments and contingencies (Note 24) 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 31,2017 2018RMB RMB US$ (Note 2(e))Redeemable non-controlling interest5,5827,5871,103Total mezzanine equity5,5827,5871,103 Shareholders’ Equity Class A Ordinary shares (US$0.001 par value, 150,000,000 shares authorized includingclass A shares and class B shares, 19,068,224 and 19,068,224 shares issued,18,708,629 and 18,550,770 shares outstanding as of December 31, 2017 and 2018,respectively)12612619Class B Ordinary shares (US$0.001 par value, 150,000,000 shares authorized includingclass A shares and class B shares, 6,571,429 shares issued and outstanding as ofDecember 31, 2017 and 2018, respectively)41416Treasury stock (359,595 and 517,454 Class A ordinary shares as of December 31, 2017and 2018, respectively, at cost)(42,606)(71,018)(10,329)Additional paid-in capital2,763,3872,839,342412,965Accumulated losses(1,432,586)(1,280,753)(186,278)Accumulated other comprehensive loss(5,304)(6,373)(927)Total equity attributable to ordinary shareholders1,283,0581,481,365215,456Non-redeemable non-controlling interest1,75420,5612,991Total equity1,284,8121,501,926218,447 Total liabilities, mezzanine equity and shareholders’ equity2,337,7083,791,926551,512 The accompanying notes are an integral part of these consolidated financial statements. F-5Table of Contents SECOO HOLDING LIMITEDCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)(All amounts in thousands, except for share data) For the Year Ended December 31,2016 2017 2018RMB RMB RMB US$(Note 2(e))Revenues:Merchandise sales2,566,8723,680,7955,244,446762,773Marketplace and other services26,95059,660143,13120,817Total revenues2,593,8223,740,4555,387,577783,590 Cost of revenues(2,193,676)(3,128,441)(4,427,844)(644,003) Gross profit400,146612,014959,733139,587 Operating expenses:Fulfillment expenses(82,047)(99,064)(138,710)(20,175)Marketing expenses(218,759)(245,989)(410,548)(59,712)Technology and content development expenses(54,262)(62,081)(80,398)(11,693)General and administrative expenses(74,310)(110,059)(110,802)(16,115)Total operating expenses(429,378)(517,193)(740,458)(107,695) (Loss)/income from operations(29,232)94,821219,27531,892 Other income/(expenses):Interest expenses, net(3,923)(6,562)(42,533)(6,186)Foreign currency exchange (losses)/gains(11,418)9,477(11,737)(1,707)Others—4,14831,2694,548(Loss)/income before income tax(44,573)101,884196,27428,547Income tax benefits/(expenses)—31,525(40,728)(5,924)Net (loss)/income(44,573)133,409155,54622,623Less: (Loss)/gain attributable to redeemable non-controllinginterest(82)(298)2,001291Less: (Loss)/gain attributable to non-redeemable non-controlling interest(38)(349)1,712249Net (loss)/income attributable to Secoo Holding Limited(44,453)134,056151,83322,083Accretion to redeemable non-controlling interest redemptionvalue(164)(798)——Accretion to preferred share redemption value(595,742)(202,679)——Net (loss)/income attributable to ordinary shareholders ofSecoo Holding Limited(640,359)(69,421)151,83322,083 F-6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 31,2016 2017 2018RMB RMB RMB US$ (Note 2(e)) Net (loss)/income(44,573)133,409155,54622,623Other comprehensive (loss)/incomeForeign currency translation adjustments, net of nil incometaxes(60,138)81,834(1,041)(151)Total other comprehensive (loss)/income, net of income taxes(60,138)81,834(1,041)(151)Comprehensive (loss)/income(104,711)215,243154,50522,472Comprehensive (loss)/income attributable to redeemable non-controlling interest(82)(298)2,005292Comprehensive (loss)/income attributable to non-redeemablenon-controlling interest(123)(283)1,736252Comprehensive (loss)/income attributable to ordinaryshareholders of Secoo Holding Limited(104,506)215,824150,76421,928 Net (loss)/income per Class A and Class B Ordinary share—Basic(89.06)(5.55)6.020.88—Diluted(89.06)(5.55)5.800.84Weighted average number of Class A and Class B Ordinaryshares outstanding used in computing net (loss)/income pershare —Basic7,189,93312,500,82125,235,40425,235,404—Diluted 7,189,93312,500,82126,182,92226,182,922 The accompanying notes are an integral part of these consolidated financial statements. F-7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 Ordinaryshares Class B OrdinarysharesTreasury Stock Additionalpaid-incapital Accumulatedlosses Accumulatedothercomprehensiveincome/(loss) Totalshareholder’s(deficit)/equity Non-redeemablenon-controllinginterest Total(deficit)/equity Shares RMB SharesRMBShares RMB RMB RMB RMB RMB RMB RMB Balance as of January 1,20167,500,00047—————(735,295)(27,019)(762,267)—(762,267)Net loss for the year———————(44,453)—(44,453)(38)(44,491)Capital contributed by non-redeemable non-controlling interest——————12,240——12,2402,16014,400Share-based compensationresulting from vesting ofFounders’ restrictedshares——————249——249—249Redeemable non-controllinginterest redemption 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 of December 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)6,571,42941———————Conversion 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-controllinginterest redemption valueaccretion———————(798)—(798)—(798)Redeemable ConvertiblePreferred Sharesredemption valueaccretion———————(202,679)—(202,679)—(202,679)Foreign currency translationadjustments, net of nil tax————————81,76881,7686681,834Balance as of December 31,201719,068,2241266,571,42941(359,595)(42,606)2,763,387(1,432,586)(5,304)1,283,0581,7541,284,812Net income for the year———————151,833—151,8331,712153,545Share-based compensation——————23,675——23,675—23,675Acquisition of subsidiaries——————————17,07117,071Repurchase of Class Aordinary shares————(157,859)(28,412)———(28,412)—(28,412)Beneficial conversion featureon convertible note (Note13)——————44,072——44,072—44,072Issuance of warrant (Note13)8,2088,2088,208Foreign currency translationadjustments, net of nil tax————————(1,069)(1,069)24(1,045) Balance as of December 31,201819,068,2241266,571,42941(517,454)(71,018)2,839,342(1,280,753)(6,373)1,481,36520,5611,501,926 US$ (Note 2(e))19,068,224196,571,4296(517,454)(10,329)412,965(186,278)(927)215,4562,991218,447 The accompanying notes are an integral part of these consolidated financial statements. F-8Table of Contents SECOO HOLDING LIMITEDCONSOLIDATED STATEMENTS OF CASH FLOWS(All amounts in thousands, except for share and per share data) For the Year Ended December 31,2016(Asadjusted, seenote 2 (h)) 2017(Asadjusted,see note2 (h)) 2018RMB RMB RMB US$ (Note 2(e))Cash flows from operating activities:Net (loss)/income(44,573)133,409155,54622,623Adjustments to reconcile net (loss) income to net cash used inoperating activitiesShare-based compensation24946,07723,6753,443Inventory write-down3,5841,3289,0181,312Depreciation and amortization expenses13,38813,42418,2332,652Loss on disposal of property and equipment1,2041,54016624Foreign currency exchange loss/(gain)11,330(3,154)6,013875Deferred tax benefits—(43,981)(7,291)(1,060)Share of loss on investment in equity investees——14121Fair value change of assets remeasured at fair value——(1,891)(275)Amortization of issuance costs of convertible note——16524Changes in operating assets and liabilities:Accounts receivable(13,474)(33,218)(60,155)(8,749)Inventories(277,139)(439,110)(519,493)(75,557)Advance to suppliers11,039(48,908)(375,011)(54,543)Amount due from related parties—(38)(13,246)(1,927)Amount due to related parties—1,173(821)(119)Prepayments and other assets(7,409)(8,943)(99,589)(14,485)Accounts payable(15,857)43,785175,71625,557Advance from customers3,42126,835(3,630)(528)Accrued expenses and other liabilities60,914125,727(9,435)(1,372)Deferred revenue2,6556,54350,4277,334Net cash used in operating activities(250,668)(177,511)(651,462)(94,750) Cash flows from investing activities:Cash received from disposal of property and equipment—4539858Purchase of property and equipment(11,666)(19,308)(44,750)(6,509)Acquisition of investment in equity investees(3,000)(436)Cash acquired from acquisition of subsidiaries4,600669Purchase of equity security and put option (Note 6)(31,393)(4,566)Proceeds from maturity of time deposits292,31842,516Purchase of time deposits—(292,318)(68,632)(9,982)Issuance of loan to supplier——(3,439)(500)Net cash (used in) / provided by investing activities(11,666)(311,581)146,10221,250 F-9Table of Contents SECOO HOLDING LIMITEDCONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)(All amounts in thousands, except for share data) For the Year Ended December 31,2016 2017 2018RMB RMB RMB US$ (Note 2(e))Cash flows from financing activities:Proceeds from issuance of Class A ordinary shares upon IPO, netof issuance cost—862,161——Capital contribution from non-redeemable non-controllinginterest14,400———Capital contribution from redeemable non-controlling interest5,000———Repurchase of Class A ordinary shares—(40,677)(30,341)(4,413)Repayment to related parties(321)(1,025)(4,562)(664)Borrowing from related parties——4,480652Proceeds from short-term borrowings50,000115,676180,00026,180Proceeds from long-term borrowings—124,32430,0004,363Repayment of short-term borrowings(25,974)(204,611)(150,000)(21,817)Repayment of Long-term borrowings(161,065)(23,426)Proceeds from other borrowings5,285123,40935,4105,150Repayment for other borrowings(4,121)(57,200)(101,619)(14,780)Proceeds from issuance of convertible note1,195,478173,875Payment of issuance cost for convertible note(1,833)(267)Net cash provided by financing activities44,269922,057995,948144,853 Net (decrease) /increase in Cash and Restricted cash(218,065)432,965490,58871,353Cash and Restricted cash at the beginning of the year440,414211,347632,43991,984 Effect of exchange rate changes on Cash and Restricted cash(11,002)(11,873)3,380492 Cash and Restricted cash at the end of the year211,347632,4391,126,407163,829 Supplemental informationInterest paid3,13610,79613,4601,958Income tax paid—77715,4582,248Accrual for purchase of property and equipment2,1211,313——Receivable from disposal of property and equipment—15——Accrual for repurchase of ordinary shares—1,929——Accrual for business acquisition (Note 5)——15,9962,327 F-10Table of Contents SECOO HOLDING LIMITEDCONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)(All amounts in thousands, except for share data) The following table provides a reconciliation of cash and restricted cash reported within the Consolidated Balance Sheets that sum to the total of the samesuch amounts shown in the Consolidated Statement of Cash Flows. For the Year Ended December 31,2016 2017 2018RMB RMB RMB US$(Note 2(e))Cash55,555453,4251,034,385150,445Restricted cash, current155,79255,21489,22212,977Restricted cash, noncurrent—123,8002,800407Total Cash and Restricted cash211,347632,4391,126,407163,829 The accompanying notes are an integral part of these consolidated financial statements. F-11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 saleof upscale brand products including handbags, watches, jewelry and other premium lifestyle products through its own internet platforms and offlineexperience centers. Secoo also offers its website as a marketplace to third party merchants to facilitate their sales of upscale products and services. TheGroup’s principal operations 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 andvariable interest 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 lawsof the PRC on April 30, 2009, and Beijing Wo Mai Wo Pai Auction Co., Ltd (‘‘Beijing Auction’’), a limited liability company established under the lawsof the PRC on September 15, 2014. Beijing Secoo holds the necessary PRC operating licenses for the online business, and Beijing Auction holds thenecessary PRC operating license for the auction business. The equity interests of Beijing Secoo and Beijing Auction (collectively referred to as the‘‘VIEs’’) are legally held by individuals who act as nominee equity holders of the VIEs on behalf of Kutianxia (Beijing) Information Technology Ltd.(“Kutianxia”), the Company’s indirectly wholly-owned subsidiary in the PRC. Beijing Secoo entered into a series of contractual agreements withKutianxia and its legal shareholders, including Powers of Attorney, an Exclusive Business Cooperation Agreement, Equity Pledge Agreements, ExclusiveOption to Purchase Agreements, and an Exclusive Option to Purchase Intellectual Properties Agreement (collectively, the “Beijing Secoo VIEAgreements”). Beijing Auction entered into a series of contractual agreements with Kutianxia and its legal shareholders, including Powers of Attorney, anExclusive Business Cooperation Agreement, Equity Pledge Agreements, Exclusive Option to Purchase Agreements and Loan Agreements (collectively,the “Beijing Auction VIE Agreements’’, and together with the Beijing Secoo VIE Agreements, the “VIE Agreements”). 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 lawat the minimum price possible. The Company’s management concluded that Beijing Secoo and Beijing Auction are variable interest entities of the Groupand Kutianxia is the primary beneficiary of Beijing Secoo and Beijing Auction. As such, the financial statements of the VIEs are included in theconsolidated financial 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 furtherdescribed below. F-12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 in the shareholders’ meeting, appointing or removing directors, executive officers and senior management, disposing of all or part ofthe shareholder’s equity interests in Beijing Secoo, casting shareholder’s vote on matters requiring shareholders’ approval and doing all other actsin the capacity of shareholder as permitted by Beijing Secoo’s Memorandum and Articles of Association. In addition, Kutianxia has a right toassign its rights and benefits under the Powers of Attorney to any other parties without an advance notice to the shareholders of Beijing Secoo. ThePowers of Attorney shall continue in force and be irrevocable as long as the shareholders of Beijing Secoo remain as the registered legalshareholders of Beijing Secoo. The Powers of Attorney between Kutianxia and the shareholders of Beijing Auction contains the same terms as those described above. The Powersof Attorney 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 byKutianxia, Beijing Secoo is not allowed to engage a third party to provide such services, while Kutianxia is able to designate another party torender such services to Beijing Secoo. Beijing Secoo shall pay Kutianxia on a quarterly basis a service fee, which shall be an amount that isdetermined by Kutianxia based on the amount of services provided, and the market value for those services, and Kutianxia has the sole discretionto adjust the basis of calculation of the service fee amount according to service provided to Beijing Secoo. Kutianxia owns the exclusiveintellectual property rights, whether created by Kutianxia or Beijing Secoo, as a result of the performance of the Exclusive Business CooperationAgreement. The Exclusive Business Cooperation Agreement has an initial term of ten years and can be indefinitely extended at the sole discretionof Kutianxia. Beijing Secoo is not permitted to terminate 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 andcomplexity of the work, the experience of staff personnel and their time spent and the market price of such work. The Exclusive BusinessCooperation Agreement will be in effect for an unlimited term, unless terminated in writing by Kutianxia, or the Exclusive Business CooperationAgreement shall be terminated as of the expiration date of the business term of either Kutianxia or Beijing Auction if the renewal of the businessterm of the respective companies is not approved by the relevant government authorities. Beijing Auction is not permitted to terminate theExclusive Business Cooperation Agreement. F-13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 guaranteepayment from Beijing Secoo for services rendered pursuant to the Exclusive Business Cooperation Agreement, the shareholders of Beijing Secoopledged their respective shares in Beijing Secoo under the Equity Pledge Agreement to Kutianxia as collateral for Beijing Secoo’s service feepayment. In the event Beijing Secoo fails to pay Kutianxia its service fee, Kutianxia will have the right to sell the pledged shares and apply theproceeds received to pay any outstanding service fees due by Beijing Secoo to Kutianxia. The shareholders of Beijing Secoo agree that, during theterm of the Equity Pledge Agreement, they will not dispose of the pledged shares or create or allow any encumbrance on the pledged shares, andthey also agree that Kutianxia’s rights relating to the equity pledges shall not be prejudiced by any legal actions of the shareholders of BeijingSecoo, their successors or their designees. The equity pledges have been registered with the relevant registration authority and became effectiveand enforceable since registration. During the term of the Equity Pledge Agreement, Kutianxia is entitled to receive dividends attributable to thepledged Beijing Secoo shares. The Equity Pledge Agreement has a term of ten years which shall be automatically extended corresponding to theextension of the Exclusive Business Cooperation Agreement. The Equity Pledge Agreement shall be terminated as and when the ExclusiveBusiness Cooperation Agreement terminates. Pursuant to the Equity Pledge Agreement entered into among Kutianxia, Beijing Auction, and the nominee shareholders, the shareholders ofBeijing Auction pledge all of their equity interests in Beijing Auction to guarantee their and Beijng Auction’s performance of their obligationsunder the contractual arrangements including, but not limited to, the Exclusive Business Cooperation Agreement, Exclusive Option to PurchaseAgreement, Loan Agreement and Powers of Attorney. If Beijing Auction or its shareholders breach their contractual obligations under theseagreements, Kutianxia, as pledgee, will have the right to dispose of the pledged equity interests of Beijing Auction. The shareholders of BeijngAuction agree that, during the term of the Equity Pledge Agreement, they will not dispose of the pledged equity interests or create or allow anyencumbrance on the pledged equity interests without the prior written consent of Kutianxia, and they also agree that Kutianxia’s rights relating tothe pledged equity interests shall not be prejudiced by the legal actions of the shareholders, their successors or their designees. The shareholders ofBeijing Auction shall subscribe for additional equity in Beijing Auction only upon the written consent of Kutianxia and the additional equityshall thereon deemed to be pledged equity interests subject to the terms of the Equity Pledge Agreement. During the term of the Equity PledgeAgreement, Kutianxia has the right to receive all of the dividends and profits distributed on the pledged equity interests. F-14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 theaccount shall be unconditionally transferred to Kutianxia to the extent permitted by PRC law. The Equity Pledge Agreement became effective andenforceable on the date when the pledge of equity interests were registered with the relevant office of the Administration for Industry andCommerce in accordance with the PRC Property Rights Law and remain effective until Beijing Auction and its shareholders discharge all theirobligations under the Equity Pledge Agreement. Kutianxia has a right to terminate the Agreement if Beijing Auction or its shareholders have anymaterial breach of the terms of the Agreement, and may assign its rights and obligations under the Beijing Auction Agreements to any designatedparties. Beijing Auction, and its shareholders 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 itsdiscretion and to the extent permitted under the PRC law, all or part of the shareholders’ equity interests in Beijing Secoo at the minimum pricethat the PRC law permits at the time unless a valuation of the shares is required by the PRC law. Beijing Secoo and its shareholders agree thatwithout the prior written consent of Kutianxia, they will not undertake any acts which may adversely affect the interests and rights of Kutianxia inBeijing Secoo. The shareholders of Beijing Secoo commit that without the prior written consent of Kutianxia, they will not sell, pledge or disposeof their equity interests in Beijing Secoo to any other parties. Beijing Secoo commits that without the prior written consent of Kutianxia, it will notincrease or decrease its registered capital, 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 the ordinary course of business, grant any loans or credit to any person, enter into any materialcontracts not in the ordinary course of business, enter into any investments, business acquisitions or combinations, dissolving Beijing Secoo, ordistribute dividends to the shareholders. Beijing Secoo and its shareholders shall appoint those individuals recommended by Kutianxia asdirectors of the company. Beijing Secoo shall provide operating and financial information to Kutianxia at the request of Kutianxia and ensure thecontinuance of the business. The Exclusive Option to Purchase Agreement has an initial term of ten years and can be extended indefinitely at thediscretion of Kutianxia. F-15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 sameterms as those described above, except that the purchase price for the equity interests shall equal the amount that the shareholders contributed toBeijing Auction as its registered capital or a pro-rata amount if only portion of the equity interests is purchased, or the minimum price permitted byapplicable PRC law, whichever is higher. The Exclusive Option to Purchase Agreement will remain effective until all equity interests in BeijingAuction held by its shareholders are transferred or assigned to Kutianxia or its designees. The shareholders of Beijing Auction shall not have anyright to terminate the Exclusive 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 contentof the 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 ceaseto be 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 ofthe loans 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 recordedon the Company’s consolidated balance sheets as they do not meet all the capitalization criteria. The VIEs also have assembled work force for sales,marketing and operations. F-16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 thebenefits and assets of the VIEs and the VIEs’ subsidiaries. As the VIEs and the VIEs’ subsidiaries were established as limited liability companies under thePRC law, their creditors do not have recourse to the general credit of Kutianxia for the liabilities of the VIEs and VIEs’ subsidiaries, and Kutianxia doesnot have the obligation 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 voteon all matters requiring shareholders’ approval in the respective VIEs. As noted above, the Group believes these Powers of Attorney are legallyenforceable but yet they may not be as effective as direct equity ownership. In addition, if the corporate structure of the Group or the contractualarrangements between Kutianxia, the VIEs and their respective shareholders were found to be in violation of any existing PRC laws and regulations, therelevant PRC regulatory authorities 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-17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. The equity interests of VIEs are legally held by Mr. Richard Rixue Li and Ms. Zhaohui Huang as nominee equity holders on behalf of the Group.Mr. Richard Rixue Li and Ms. Zhaohui Huang are also directors of the Group. Mr. Richard Rixue Li and Ms. Zhaohui Huang each holds 87.6% and 0.4%of the total voting rights of the Company as of December 31, 2018, respectively, assuming the exercise of all outstanding options held by Mr. RichardRixue Li and Ms. Zhaohui Huang as of such date. The Group cannot assure that when conflicts of interest arise, either of the nominee equity holders willact in the best interests of the Group or such conflicts will be resolved in the Group’s favor. Currently, the Group does not have any arrangements toaddress potential conflicts of interest between the nominee equity holders and the Group, except that Kutianxia could exercise the purchase option underthe exclusive option agreement with the nominee equity holders to request them to transfer all of their equity ownership in VIEs to a PRC entity orindividual designated by the Group. The Group relies on the nominee equity holders, who are both the Group’s directors and who owe a fiduciary duty tothe Group, to comply with the terms and conditions of the contractual arrangements. Such fiduciary duty requires directors to act in good faith and in thebest interests of the Group and not to use their positions for personal gains. If the Company cannot resolve any conflict of interest or dispute between theGroup and the nominee equity holders of VIEs, the Group would have to rely on legal proceedings, which could result in disruption of the Group’sbusiness and subject the Group to substantial uncertainty as to the outcome of any such legal proceedings. 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 couldrequire the 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, 2017 and 2018, andconsolidated operating results and cash flows information for the years ended December 31, 2016, 2017 and 2018, have been included in theaccompanying consolidated financial statements: F-18Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) As of December 31, 2017 2018 RMB RMB Cash116,222543,525 Accounts receivable54,093119,563Inventories1,178,5071,661,056Advances to suppliers4,815329,741Prepayments and other current assets15,463103,056Amounts due from related parties2012,898Total current assets1,369,1202,769,839 Restricted cash—2,800Investment in equity investee—2,859Property and equipment, net28,94141,758Intangible Assets, net—12,267Goodwill—20,413Other non-current assets3,5005,188Deferred tax assets18,65435,029Total assets1,420,2152,890,153 Short-term borrowings and current portion of long-term borrowings177,274134,324Accounts payable262,576384,280Amount due to the Company and subsidiaries*531,8671,882,797Amount due to related parties2,4511,561Advances from customers67,60463,684Accrued expenses and other current liabilities313,574278,160Deferred revenue12,05162,372Total current liabilities1,367,3972,807,178 Long-term borrowings, excluding current portion124,324—Long-term liabilities—14,240Total liabilities1,491,7212,821,418 *Amounts due to the Company and subsidiaries represent the amounts due to Secoo Holding Limited and its subsidiaries, which are eliminated uponconsolidation. F-19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 31,2016 2017 2018RMB RMB RMBTotal revenues2,378,8373,504,0554,996,168Net (loss)/income(10,160)169,851103,438Net cash used in operating activities(98,799)(19,779)(714,718)Net cash used in investing activities(5,845)(11,996)(38,342)Net cash provided by financing activities55,000101,5991,183,163Net (decrease)/ increase in Cash, restricted cash(49,644)69,824430,103Cash and restricted cash at the beginning of the year96,04246,398116,222Cash and restricted cash at the end of the year46,398116,222546,325 F-20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 Statesof America (‘‘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 subsidiaryis the 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 governthe financial 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 themeeting of directors. A VIE is an entity in which the Company, or its subsidiary, through contractual arrangements, exercises effective control over theactivities that most impact the economic performance, bears the risks of, and enjoys the rewards normally associated with ownership of the entity, andtherefore the Company 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 thataffect the reported amounts of assets and liabilities, related disclosures of contingent assets and liabilities at the balance sheet date, and the reportedrevenues and expenses during the reported period in the consolidated financial statements and accompanying notes. Significant accounting estimatesinclude, but not limited to, the standalone selling prices of performance obligations of revenue contracts, sales returns, fair value of put option, useful lifeof long-lived assets, recoverability of the carrying value of goodwill, the purchase price allocation and fair value of noncontrolling interests with respectto business combinations, inventory write-downs for excess and obsolete inventories, realization of deferred income tax assets, share-based compensation,fair value of convertible note and warrant, and redemption value of the redeemable preferred shares. Actual results may differ materially from thoseestimates. (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 BritishVirgin Islands (‘‘BVI’’), United States of America and Hong Kong Special Administrative Region (‘‘HK’’ or “Hong Kong”) is the United States dollars(‘‘US$’’). The functional currency of the Group’s entity incorporated in Italy and Malaysia is the Euro dollars and the Ringgit Malaysia, respectively. Thefunctional currency of the Group’s PRC subsidiaries, VIEs and VIEs’ subsidiaries is the RMB. F-21Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) Transactions denominated in currencies other than the functional currency are remeasured into the functional currency at the exchange rates prevailing atthe dates of the transactions. Monetary assets and liabilities denominated in a foreign currency are remeasured into the functional currency using theapplicable exchange rate at the balance sheet date. The resulting exchange differences are recorded as foreign currency exchange (losses)/gains in theConsolidated Statements of Comprehensive Income (Loss). The financial statements of the non-PRC Group’s entities are translated from the functional currency into RMB. Assets and liabilities are translated intoRMB using the applicable exchange rates at the balance sheet date. Equity accounts other than earnings generated in the current periods are translatedinto RMB using the appropriate historical rates. Revenues, expenses, gains and losses are translated into RMB using the average exchange rates for therelevant period. The resulting foreign currency translation adjustments are recorded as a component of other comprehensive income or loss in theConsolidated Statements of Comprehensive Income (Loss), and the accumulated foreign currency translation adjustments are recorded as a component ofaccumulated other comprehensive loss in the Consolidated Statements of Shareholders’ Equity. (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, 2018 are solely for theconvenience of the readers and were calculated at the rate of US$1.00=RMB6.8755, representing the noon buying rate in The City of New York for cabletransfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York on December 31, 2018. No representation is made that theRMB amounts could have been, or could be, converted, realized or settled into US$ at that rate on December 31, 2018, 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 awide range of matters, including, among others, government investigations, shareholder lawsuits, and non-income tax matters. An accrual for a losscontingency is recognized when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. If a potential materialloss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, togetherwith an estimate of the range of possible loss if determinable and material, is disclosed. (g) Cash and Time Deposits Cash consists 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 deposit represents demand deposits placed with banks with original maturities of more than three months but less than one year. F-22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 and letter of guarantee. Restriction on the useof such cash and the interest earned thereon is imposed by the bank and remains effective throughout the term of the bank borrowing. The cash restrictedfor use longer than one year is classified as non-current assets in the Consolidated Balance Sheets. In November 2016, the FASB issued ASU 2016-18 Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). According to the ASU, theamounts generally described as restricted cash are included with cash when reconciling the beginning-of-period and end-of-period total amounts shownon the Consolidated statements of Cash Flows using a retrospective transition method to each period. As a result of the adoption of ASU 2016-18, theConsolidated statement of Cash Flows was retrospectively adjusted by excluding the increase of restricted cash of nil and RMB492 from cash flows fromoperating activities, and the decrease of nil and RMB23,714 from cash flows from financing activities for the year ended December 31, 2016 andDecember 31, 2017. (i) Investment in equity security The Company’s investment in equity security includes equity security with readily determinable fair values. Equity security with readily determinablefair values is measured and recorded at fair value on a recurring basis with changes in fair value, whether realized or unrealized, recorded through theincome statement. On January 1, 2018, the Company adopted new financial instruments accounting standard ASU No. 2016-01, which requires equity investments to bemeasured at fair value with subsequent changes recognized in net income, except for those accounted for under the equity method or requiringconsolidation. The new standard also changes the accounting for investments without a readily determinable fair value and that do not qualify for thepractical expedient to estimate fair value. A policy election can be made for these investments whereby investment will be carried at cost and adjusted insubsequent periods for any impairment or changes in observable prices of identical or similar investments. With the adoption of the new standard, theCompany recorded the changes in fair value for investment in equity security measured at fair value in the Consolidated Statements of ComprehensiveIncome (Loss). The adoption of new standard did not impact retained earnings as of January 1, 2018. (j) Accounts Receivable Accounts receivable mainly represent amounts due from customers and installment payment by end customers with payment period within one year.Accounts receivables are recorded net of an allowance for doubtful accounts, if any. The Group considers many factors in assessing the collectability of itsaccounts receivable, such as the age of the amounts due, the payment history, credit-worthiness and the financial condition of the debtor. An allowancefor doubtful accounts is recorded in the period in which a loss is determined to be probable. The Group also makes a specific allowance if there is strongevidence indicating that an accounts receivable is likely to be unrecoverable. Accounts receivable are charged off against the allowance after all means ofcollection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposurerelated to its customers. No allowance for accounts receivable was provided as of December 31, 2017 and 2018 as the Company believes that it isprobable the accounts receivable will be fully collected. F-23Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) (k) Inventories 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. Inventory is written down for damaged goods and slow-moving merchandise, which is dependent upon factors such ashistorical and forecasted consumer demand, and the sales promotion. When appropriate, write downs to inventory are recorded to write down the cost ofinventories to their net realizable value. Write downs are recorded in cost of revenues in the Consolidated Statements of Comprehensive Income (Loss). (l) Property and Equipment, net Property and equipment, net are stated at cost less accumulated depreciation and impairment. Property and equipment are depreciated at rates sufficient towrite off their costs less impairment and residual value (estimated at 5% of cost) over their estimated useful lives on a straight-line basis. Leaseholdimprovements are depreciated on a straight-line basis over the period of the lease or their estimated useful lives, if shorter. The estimated useful lives areas follows: 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 propertyand equipment are capitalized as additions to the related assets. Retirements, sales and disposals of assets are recorded by removing the costs,accumulated depreciation and impairment with any resulting gain or loss recognized in the Consolidated Statements of Comprehensive Income (Loss). (m) Investment in equity investees Investment in equity investees represents the Group’s investments in privately held companies. The Group applies the equity method of accounting toaccount for an equity investment, according to ASC 323 “Investment—Equity Method and Joint Ventures”, over which it has significant influence butdoes not own a majority equity interest or otherwise control. Under the equity method, the Group’s share of the post-acquisition profits or losses of the equity investees are recorded in Other income/(expenses) in theConsolidated Statements of Comprehensive Income (Loss). The Group continually reviews its investment in equity investees to determine whether a decline in fair value to below the carrying value is other-than-temporary. The primary factors the Group considers in its determination are the duration and severity of the decline in fair value; the financial condition,operating performance and the prospects of the equity investee; and other company specific information such as recent financing rounds. If the decline infair value is deemed to be other-than-temporary, the carrying value of the equity investee is written down to fair value. F-24Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) (n) Goodwill Goodwill represents the excess of the purchase price over the fair value of the identifiable assets and liabilities acquired in a business combination. Goodwill is not depreciated or amortized but is tested for impairment on an annual basis as of December 31, and in between annual tests when an eventoccurs or circumstances change that could indicate that the asset might be impaired. In accordance with the FASB guidance on “Testing of Goodwill forImpairment,” a company first has the option to assess qualitative factors to determine whether it is more likely than not that the fair value of a reportingunit is less than its carrying amount. If the company decides, as a result of its qualitative assessment, that it is more likely than not that the fair value of areporting unit is less than its carrying amount, the quantitative impairment test is mandatory. Otherwise, no further testing is required. The quantitativeimpairment test consists of a comparison of the fair value of each reporting unit with its carrying amount, including goodwill. If the carrying amount ofeach reporting unit exceeds its fair value, an impairment loss equal to the difference between the implied fair value of the reporting unit’s goodwill andthe carrying amount of goodwill will be recorded. Application of a goodwill impairment test requires significant management judgment, including theidentification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value ofeach reporting unit. The judgment in estimating the fair value of reporting units includes estimating future cash flows, determining appropriate discountrates and making other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for each reportingunit. (o) 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 ofthe assets 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 assetswas recognized for the years ended December 31, 2016, 2017 and 2018. (p) 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% prior to May 1, 2018 and 16% since May 1, 2018. Service revenue is subject to VAT at the rate of6%. The VAT balance is recorded in Accrued Expenses and Other Current Liabilities in the Consolidated Balance Sheets. F-25Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) (q) 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 marketparticipants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that marketparticipants would use 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.Accounting guidance establishes a three-level fair value hierarchy and requires an entity to maximize the use of observable inputs and minimize the useof unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level ofinput that is significant to the fair value measurement. The three levels of inputs are: 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 approachand (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical orcomparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. Themeasurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount thatwould currently be required to replace an asset. Short-term financial assets and liabilities of the Group primarily consist of cash, time deposits, restricted cash, investment in equity security, accountsreceivable, advances to suppliers, prepayments and other current assets, short-term borrowings, accounts payable, amount due to Founder, advance fromcustomers, accrued expenses and other current liabilities. As of December 31, 2017 and 2018, except for investment in equity security and put optionwithin the prepayments and other current assets account, the carrying values of these financial instruments approximated to their fair values due to theshort-term maturity of these instruments. The Group reports investment in equity security at fair value and discloses the fair value of the investment basedon level 1 in Note 4. The Group reports put option at fair value and discloses the fair value of the investment based on level 3 in Note 4. Long-term financial asset of the Group is restricted cash recognized in non-current assets. As of December 31, 2017 and 2018, the carrying values ofrestricted cash 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 is long-term loans and convertible note. As of December 31, 2017 and 2018, the carrying values of long-termloans approximated to their fair values as the interest rates of the Group’s long-term loans approximate the rates currently offered by the banks for similarloans. The convertible note was initially recognized based on the relative fair value of the convertible note and warrant and subsequently measured atamortized cost using effective interest rate. The estimated fair values of the convertible note based on a market approach were approximately US$190,122(equivalent to RMB1,307,184) as of December 31, 2018, respectively, and represents a Level 3 valuation in accordance with ASC 820, “Fair ValueMeasurements and Disclosures” (“ASC 820”). When determining the estimated fair value of the convertible note, the Company used a commonlyaccepted valuation methodology and market-based risk measurements that are indirectly observable, such as credit risk. The fair value of the bifurcatedderivative from convertible note was nil as of December 31, 2018. F-26Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) (r) Revenue Revenues are generated primarily from merchandise sales, marketplace services and other services. Periods prior to January 1, 2018 Prior to January 1, 2018, revenues are recognized when the following four criteria are met: (1) persuasive evidence of an arrangement exists; (2) deliveryhas occurred or services 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, the Group considers several factors in determining whether itacts as the principal or as an agent in the arrangement of merchandise sales and provision of various related services and thus whether it is appropriate torecord the revenue 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,flash sales, 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 theproducts and the fulfillment of the delivery services; (2) The Group is responsible to compensate end customers if the products are counterfeit or defectivegoods; (3) The Group is also responsible for the loyalty program benefits offered in conjunction with the merchandise sales to the buyers; (4) The Grouphas latitude in establishing selling prices and selecting suppliers; (5) The Group assumes credit risks on receivables; and (6) The Group has legalownership of the inventory and has significant inventory risks even for those inventory with payment deferred until the following month after theinventory is sold as it has physical loss risk after acceptance of all the goods purchased from suppliers. Accordingly, the Group considers itself as theprincipal in the arrangement with the end customers and records revenue earned from merchandise sales on a gross basis. F-27Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) With respect to proceeds from merchandise sales, before determining the timing of revenue recognition, the Group allocates proceeds from merchandisesales among sales of the products and customer loyalty program benefits based on relative fair value of each deliverable. Proceeds allocated to sales ofgoods are recognized as merchandise sales upon acceptance of delivery of products by buyers. Proceeds allocated to customer loyalty program benefitsare recorded as deferred 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 soldthrough auction 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 andmaintenance services to products such as handbags and watches. 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 Grouphas provided the service and is entitled to payment. Period commencing January 1, 2018 Since the adoption of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”) starting from January 1, 2018,the Company recognizes revenues upon the satisfaction of its performance obligation (upon transfer of control of promised goods or services tocustomers) in an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those goods or services, excludingamounts collected on behalf of third parties. The adoption of new revenue standard did not impact retained earnings as of January 1, 2018. The Group hasupdated significant accounting policies and relevant disclosures hereinafter. To achieve that core principle, the Group applies the five steps defined under Topic 606: (i) identify the contract(s) with a customer, (ii) identify theperformance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in thecontract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Group assesses its revenue arrangements againstspecific criteria in order to determine if it is acting as principal or agent. Revenue arrangements with multiple performance obligations are divided intoseparate distinct goods or services. The Group allocates the transaction price to each performance obligation based on the relative standalone selling priceof the goods or services provided. Revenue is recognized upon the transfer of control of promised goods or services to a customer. F-28Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) Revenue recognition policies for each type of revenue steam are as follows: Merchandise Sales The Group presents the revenue generated from its sales of merchandise on a gross basis as the Group has control of the goods and has the ability to directthe use of goods to obtain substantially all the benefits. In making this determination, the Group also assesses whether it is primarily obligated in thesetransactions, is subject to inventory risk, has latitude in establishing prices, or has met several but not all of these indicators. Revenues are measured as the amount of consideration the Group expects to receive in exchange for transferring products to consumers. Considerationfrom merchandise sales is recorded net of value-added tax, discounts and return allowances. Return allowances which reduce revenue, are estimated basedutilizing the most likely amount method based on historical data and updated at the end of each reporting period. With respect to considerations from merchandise sales, the Group allocates proceeds from merchandise sales among sales of the products, customerloyalty program benefits and coupons with material rights based on relative standalone selling price. Proceeds allocated to sales of goods are recognizedas revenue from merchandise sales when the receipt of merchandise is confirmed by the customer, which is the point that the control of the merchandise istransferred to the customer. Proceeds allocated to customer loyalty program benefits and coupons are recorded as Deferred revenues. The Group utilizes delivery service providers to deliver products to its consumers (“shipping activities”) but the delivery service is not considered as aseparate obligation as the shipping activities are performed before the consumers obtain control of the products. Therefore, shipping activities are notconsidered a separate promised service to the consumers but rather are activities to fulfill the Group’s promise to transfer the products and are recorded asfulfillment expenses. Marketplace and other services With respect to the marketplace service revenue, the Group does not consider it controls the products before they are transferred to the customer or havethe ability to direct the use of the goods and obtain substantially all of their benefits. The Group bears no physical and general inventory risk and has nodiscretion in establishing price, so it has determined that revenue from its sales of products under these arrangements are marketplace service fees innature. Revenue is recognized when the Group has fulfilled its selling performance obligations on behalf of the principal in the transaction, which is whenthe products are accepted by the customer. The Group recognizes other service revenue when the services are rendered. F-29Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) Contract balances The timing of revenue recognition, billings and cash collections result in accounts receivable and contract liability (i.e. deferred revenue). Accountsreceivable are recognized in the period when the Company has transferred products or provided services to its customers and when its right toconsideration is unconditional. Amounts collected on accounts receivable are included in net cash provided by operating activities in the combinedstatements of cash flows. The Group collects cash from end customers before or upon deliveries of products mainly through banks, third party online payment platforms or deliverycompanies. The cash collected from the customer before the Company has transferred products or provided services, is initially recorded in Deferredrevenue (a contract liability) in the Consolidated Balance Sheets and subsequently recognized as revenue when the receipt of merchandise is confirmedby the customers, which is the point that the control of the merchandise is transferred to the customer. Advance from customers Under marketplace revenue, the Group collects full amount from end customers and only records the net commission fee as revenue at the point ofcustomer acceptance. The amounts that the Group collected in excess of the net commission fee are recorded under Advance from customers account inthe Group’s Consolidated Balance Sheets. (s) Customer Loyalty Program Customers earn loyalty program points from qualified purchases from the Group. The loyalty program points may be redeemed and applied for paymentfor future purchases from the Group. The loyalty program points would be expired on December 31 of the following year after they are awarded, and areredeemable for a maximum of 30% on the customers’ future purchase amounts. Loyalty program points are considered a separate performance obligationin a merchandise sales arrangement. A portion of the sales price is allocated to this revenue generating unit using its relative standalone selling price, andsuch amount is accounted for as Deferred revenue in the Consolidated Balance Sheets. Deferred revenue is recognized as merchandise revenue at the timethe customer redeems the loyalty program points in a future purchase, or when the Group is legally released from its obligation. The Company estimatesthe value of the future redemption patterns, including an estimate of the breakage for points that members will never redeem. The Company reviews theestimated value of points at least annually based upon the latest available information regarding redemption and expiration patterns. 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 orprice reduction on a future purchase from the Group upon satisfying the conditions stipulated in such coupons. The coupons granted can be categorizedinto 1) coupons granted concurrent with a revenue transaction and 2) coupons granted not concurrent with a revenue transaction. When the coupon isgranted concurrent with a revenue transaction, the Group determine whether the coupon represents a material right of the current transaction. If thecoupon represents a material right, the transaction price is allocated between merchandise sale and the coupon based on the estimated standalone sellingprice taking into consideration the coupon’s forfeiture rate. If the coupon does not represent a material right, it is recognized as a reduction of revenuewhen they are applied in the future sales. When the coupon is not granted concurrent with a revenue transaction, the Company assesses whether thecoupons were granted in exchange for a distinct service at fair value. The amount of coupons with material rights recognized as Deferred revenue wereinsignificant as of December 31, 2017 and 2018, respectively. F-30Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) (t) 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 ofComprehensive Income (Loss). (u) Fulfillment Expenses Fulfillment expenses represent packaging material costs and those costs incurred in shipping and operating and staffing the Group’s fulfillment andcustomer service centers, including costs attributable to receiving, inspecting, and warehousing inventories; picking, packaging, and preparing customerorders for shipment; collecting payments from customers and responding to inquiries from customers. Fulfillment expenses also include amounts payableto third parties that assist the Group in payment collections and product deliveries. Shipping costs included in fulfillment expenses were RMB28,206,RMB32,277 and RMB47,041 for the years ended December 31, 2016, 2017 and 2018, respectively. (v) 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 expenseswere RMB113,663, RMB111,154 and RMB191,501 for the years ended December 31, 2016, 2017 and 2018, respectively. (w) Technology and Content Development Expenses Technology and content development expenses mainly consist of technology infrastructure expenses and payroll and related costs for employeesinvolved in application development, category expansion, editorial content production and system support, as well as costs associated with computation,storage and telecommunication infrastructures. Technology and content development expenses which include software development costs are expensedas incurred, as the costs qualifying for capitalization have been immaterial. (x) 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 bythese functions of facilities and equipment, such as depreciation and rental expenses. F-31Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) (y) 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. ZhaohuiHuang who 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 are measured at the grant datefair value of the awards 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. Share-based awards granted to the employees after the Group’s IPO are subject to service conditions, and aremeasured at the grant date fair value of the awards using straight line method, net of estimated forfeitures. 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 modificationoccurs. For awards not being fully vested, the Group recognizes the sum of the incremental compensation cost and the remaining unrecognizedcompensation cost for 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 dateof the award. Prior to IPO, estimation of the fair value of the Company’s ordinary shares involves significant assumptions that might not be observable inthe market, and a number of complex and subjective variables, including discount rate, and subjective judgments regarding the Company’s projectedfinancial and operating results, its unique business risks, the liquidity of its ordinary shares and its operating history and prospects at the time the grantsare made. Share-based compensation in relation to the share options is estimated using the Binominal Option Pricing Model. The determination of the fairvalue of share options is affected by the share price of the Company’s ordinary shares as well as the assumptions regarding a number of complex andsubjective variables, including the expected share price volatility, risk-free interest rate, exercise multiple and expected dividend yield. The fair value ofthese awards was determined with the assistance from a valuation report prepared by an independent valuation firm using management’s estimates andassumptions. F-32Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) (z) Employee Benefits The Company’s subsidiaries, the VIEs and the VIEs’ subsidiaries in China participate in a government mandated, multiemployer, defined contributionplan, pursuant to which certain retirement, medical, housing and other welfare benefits are provided to employees. PRC labor laws require the entitiesincorporated in China to pay to the local labor bureau a monthly contribution calculated at a stated contribution rate on the monthly basic compensationof qualified employees. For its employees in the PRC, the Group has participated in defined contribution benefit plans and social insurance plansorganized by the relevant local governmental authorities. For its employee in Hong Kong, the Group participates in the mandatory provident fund schemewith contributions calculated in accordance with the provisions under the Mandatory Provident Fund Schemes Ordinance (Chapter 485 of the Laws ofHong Kong).The Group has no further commitments beyond its monthly contribution. The fair value of the employee benefits liabilities approximatestheir carrying value due to the short-term nature of these liabilities. Employee social benefits included as expenses in the accompanying ConsolidatedStatements of Comprehensive Income (Loss) amounted to RMB33,980, RMB32,606 and RMB54,257 for the years ended December 31, 2016, 2017 and2018, respectively. (aa) Subsidy income Subsidy income represent amounts granted by local government authorities as an incentive for companies to promote and develop. Subsidy incomereceived by the Group were nonrefundable and were for the purpose of giving immediate incentive with no future costs or obligations are recognized inOther income/(expenses) amounted to nil, RMB4,148 and RMB27,952 in the Company’s Consolidated Statements of Comprehensive Income (Loss) forthe years ended December 31, 2016, 2017 and 2018, respectively. (bb) 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 whichare not assessable or deductible for income tax purposes, in accordance with the regulations of the relevant tax jurisdictions. Deferred income taxes areprovided using the liability method. Under this method, deferred tax assets and liabilities are recognized for the tax effects of temporary differences andare determined by applying enacted statutory tax rates that will be in effect in the period in which the temporary differences are expected to reverse to thetemporary differences between the financial statements’ carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided toreduce the amount 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 deferredtax assets will not be realized. The effect on deferred taxes arising from a change in tax rates is recognized in the Consolidated Statements ofComprehensive 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 theposition. Tax positions that meet the ‘‘more likely than not’’ recognition threshold are measured at the largest amount of tax benefit that has a greaterthan fifty percent likelihood of being realized upon settlement. Unrecognized tax benefits may be affected by changes in interpretation of laws, rulings oftax authorities, tax audits, and expiry of statutory limitations. In addition, changes in facts, circumstances and new information may require the Group toadjust the recognition and measurement estimates with regard to individual tax positions. Accordingly, unrecognized tax benefits are periodicallyreviewed and re-assessed. Adjustments, if required, are recorded in the Group’s consolidated financial statements in the period in which the change thatnecessities the adjustments occurs. The ultimate outcome for a particular tax position may not be determined with certainty prior to the conclusion of atax audit and, in certain circumstances, a tax appeal or litigation process. As of December 31, 2017 and 2018, the Group did not have any significantunrecognized uncertain tax positions. F-33Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) (cc) 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 fairvalue of 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 anobligation at the inception of the lease. All other leases are accounted for as operating leases. Payments made under operating leases are charged to theConsolidated Statements of Comprehensive Income (Loss) on a straight-line basis over the lease term. The Group had no capital leases as of December 31,2017 and 2018. (dd) 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 ordinaryshares, considering the accretions to redemption value of the preferred shares and accretions to redemption value of the redeemable non-controllinginterest, by the weighted average number of Class A and Class B ordinary shares outstanding during the year using the two-class method. Under the two-class method, any net income is allocated between Class A and Class B ordinary shares and other participating securities based on their participatingrights. Diluted earnings/(loss) per share is calculated by dividing net income/(loss) attributable to Class A and Class B ordinary shareholders, as adjustedfor the accretion and allocation of net income related to the preferred shares and accretion related to redeemable non-controlling interest, if any, by theweighted average number of Class A and Class B ordinary and dilutive ordinary equivalent shares outstanding during the year. Ordinary equivalentshares consist of shares issuable upon the conversion of the preferred shares and convertible note, exercise of the warrant using the if-converted method,unvested restricted shares and Class A ordinary shares issuable upon the exercise of outstanding share option (using the treasury stock method). Ordinaryequivalent shares are not included in the denominator of the diluted earnings per share calculation when inclusion of such shares would be anti-dilutive. (ee) 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. F-34Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) (ff) 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, theCompany’s Chief Executive Officer and management personnel do not segregate the Company’s business by product or service lines. All product andservice categories are viewed as in one and the only operating segment. (gg) Statutory Reserves The Group’s subsidiaries, VIEs and VIEs’ subsidiaries established in the PRC are required to make appropriations to certain non-distributable reservefunds. 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(‘‘PRC GAAP’’)) to non-distributable reserve funds including general reserve fund, enterprise expansion fund and staff bonus and welfare fund. Theappropriation to the general reserve fund must be at least 10% of the after-tax profits calculated in accordance with PRC GAAP. Appropriation is notrequired if the general reserve fund has reached 50% of the registered capital of the company. Appropriations to the enterprise expansion fund and staffbonus and welfare fund are made 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 appliedto offset 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 Companyby way of cash dividends, loans or advances, nor can they be distributed except under liquidation. For the years ended December 31, 2016, 2017 and 2018, no appropriation was made to the general reserve fund by the Group’s wholly foreign ownedPRC subsidiaries, and no appropriation was made to the statutory surplus fund by the Group’s PRC VIEs and VIEs’ subsidiaries as these PRC companieswere still in accumulated losses . In addition, these PRC companies had not made any appropriation to discretionary funds. F-35Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) (hh) Recently issued Accounting Pronouncements In February 2016, the Financial Accounting Standards Board (“FASB”) established Topic 842, Leases, by issuing Accounting Standards Update (ASU)No. 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 wassubsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, CodificationImprovements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use model (ROU) thatrequires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will beclassified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The new standard is effective for public business entities for annual periods beginning after December 15, 2018, and interim periods therein. For all otherentities, the standard is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15,2020. Early adoption is permitted. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date ofinitial application. The Company will adopt the new standard on January 1, 2019 and plan to use the effective date as the date of initial application.Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periodsbefore January 1, 2019. The new standard provides a number of optional practical expedients in transition. The Company plans to elect the ‘package of practical expedients’,which permits the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial directcosts. While the Company continues to assess all of the effects of adoption, the Company expected that this standard will have a material effect on thecombined balance sheet. Leases currently designated as operating leases in Note 24, “Commitments and Contingencies,” will be reported on theConsolidated Balance Sheets upon adoption at their net present value, which will increase total assets and liabilities. The Company plans to use itsestimated incremental borrowing rate based on information available at the date of adoption in calculating the present value of its existing leasepayments. The incremental borrowing rate will be determined using the U.S. Treasury rate adjusted to account for the Company’s credit rating and thecollateralized nature of operating leases. The Group estimates approximately RMB45,000 to RMB46,000 would be recognized as total right-of-use assetsand total lease liabilities on our Consolidated Balance Sheets as of January 1, 2019. Other than disclosed, the Company do not expect the new standard tohave a material impact on its remaining consolidated financial statements. In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements.This ASU requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to becollected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the netcarrying value at the amount expected to be collected on the financial asset. The standard is effective for the Company from calendar 2020, with earlyadoption permitted for calendar 2019. The Company is evaluating the impact of the adoption of this standard 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) In January 2017, the FASB issued ASU 2017-04: Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. Tosimplify the subsequent measurement of goodwill, the Board eliminated Step 2 from the goodwill impairment test. Under the amendments in this Update,an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. Anentity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the lossrecognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity should apply the amendments in this Update on aprospective basis. An entity is required to disclose the nature of and reason for the change in accounting principle upon transition. A public businessentity that is a U.S. Securities and Exchange Commission (SEC) filer should adopt the amendments in this Update for its annual or any interim goodwillimpairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment testsperformed on testing dates after January 1, 2017. The Company is in the process of evaluating the impact of the Update on its consolidated financialstatements. 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 purchasesof the Group for the years ended December 31, 2016, 2017 and 2018. 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. Asof December 31, 2017 and 2018, substantial all of the Group’s cash and restricted cash were held by reputable financial institutions located in the PRCand Hong 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 customers and installment receivable from end customers.The risk with respect to accounts receivable is mitigated by credit evaluations the Group performs on these collection agents and customers and itsongoing monitoring process of their outstanding balances. Although accounts receivable are generally unsecured, the Group considers the credit risk ofaccounts receivable is low. F-37Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) Currency risk The Group’s operational transactions and its assets and liabilities are primarily denominated in RMB, which is not freely convertible into foreigncurrencies. The Group’s cash denominated in RMB are subject to such government controls and amounted to RMB166,076 and RMB526,009 as ofDecember 31, 2017 and 2018. 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 requiredby law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (the ‘‘PBOC’’). Remittances fromChina in currencies other than RMB by the Group must be processed through the PBOC or other China foreign exchange regulatory bodies which requirecertain supporting 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 besubject to interest rate risk. 4. Fair Value Measurement Fair value is the price that would be received from the sale of an asset or paid to transfer a liability assuming an orderly transaction in the mostadvantageous market at the measurement date. U.S. GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level ofobservability of inputs used in measuring fair value. Assets and Liabilities Measured at Fair Value on a Recurring Basis The Company measured its investment in equity security, put option and contingent consideration at fair value on a recurring basis as of December 31,2018. Investment in equity security includes the investments that was traded publicly in the open market and were valued based on the quoted market price andwere classified as Level 1. The put option represents the put option granted by the selling shareholder of a Singapore listed company associated with the Company’s investment inthe equity security of the Singapore listed company in 2018. The fair value of the financial instrument is included in the prepayments and other currentassets in the Company’s Consolidated Balance Sheets. Pursuant to the option agreement, the Company has the right to request the grantor to repurchaseall of the Company’s equity investments of this Singapore listed company (see note 6) at the original purchase price, plus annualized interest of 7.5%.The put option is measured at fair value. In April 17, 2019, the Company exercised the put option. The contingent consideration liability for the acquisition of Wang Pok (see note 5) is classified within Level 3 as the fair value is measured based on theinputs linked to the achievement of the performance targets that are unobservable in the market. Assets and liabilities measured at fair value on a recurring basis are summarized below: DescriptionFair value atDecember31, 2018Level 1 Level 2 Level 3Investment in equity security (note 6)26,03226,032——Put option (note 4)7,898——7,898Contingent consideration (note 5)(15,869)——(15,869) F-38Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) The following table provides additional information about the reconciliation of the fair value measurements of assets and liabilities using significantunobservable inputs (level 3). Put option ContingentconsiderationBalance as of December 31, 2017——Initial recognition5,496(15,974)Earnings for the period2,402105Balance as of December 31, 20187,898(15,869) The put option was valued using the Black-Scholes pricing model at the reporting date. The calculation was based on the exercise price, annual risk freerate of 5.25%, dividend yield of 0% and volatility of 41.0%. Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis The Company measures its property and equipment, intangible assets, goodwill and investment in equity investees, at fair value on a non-recurring basiswhenever events or changes in circumstances indicate that the carrying value may no longer be recoverable. No such impairment was recognized in theyears ended December 31, 2016, 2017 and 2018. 5. Business Acquisition In 2018, the Company acquired 51% equity interest of Beijing Xuri Travel (“Xuri”) and 100% equity interest of Beijing Guanda Travel (“Guanda”). Bothentities are engaged in inbound and outbound tourism business. The total considerations for these two acquisitions amounted to RMB3,400, which waspaid in cash during 2018. In October 2018, The Company entered into a share purchase agreement to acquire 51% equity interest of Wang Pok Timepieces Limited (“Wang Pok”).The total consideration is HKD25,500 (equivalent to RMB22,636). Wang Pok engages in trading of watches and accessories. The consideration will bepayable by the instalments as: (i) first payment totaling HKD2,550 (equivalent to RMB2,264) upon the closing of acquisition; (ii) 3-year instalments upto HKD22,950(equivalent to RMB20,372), which are subject to achievement of future financial performance targets of the Wang Pok indicated in theshare purchase agreement. As of acquisition dare, the total fair value of the considerations for this acquisition amounted to RMB18,238, of whichRMB2,264 was paid in 2018, and contingent consideration with a fair value amounting to RMB15,974 which is recorded at RMB3,686 and RMB12,288in Accrued expenses and other current liabilities and Long-term liabilities in the Consolidated Balance Sheets, respectively. F-39Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) All the three acquisitions were using the acquisition method of accounting. Accordingly, the acquired assets and liabilities acquired were recorded at theirfair value at the date of acquisition. The purchase price allocation was based on a valuation analysis that utilized and considered generally acceptedvaluation methodologies such as the income, market and cost approach. The determination and allocation of fair values to the identifiable assetsacquired, liabilities assumed and non-controlling interests is based on various assumptions and valuation methodologies requiring considerablejudgment from management. The most significant variables in these valuations are discount rates, terminal values, the number of years on which to basethe cash flow projections, as well as the assumptions and estimates used to determine the cash inflows and outflows. The Company determine discountrates to be used based on the risk inherent in the related activity’s current business model and industry comparisons. Terminal values are based on theexpected life of assets, forecasted life cycle and forecasted cash flows over that period. Subsequent to the date of the Wang Pok acquisition, the Company re-measured the estimated fair values of the contingent consideration at each reportingdate. For the year ended December 31, 2018, the Company recorded nil in changes in fair value of contingent consideration in the Company’sConsolidated Statements of Comprehensive Income (Loss) as a result of the Company’s re-measurement of the estimated fair value of the contingentconsideration at the reporting date. The Group engaged a third-party valuation firm to assist with the valuation of assets acquired and liabilities assumed in this business combination. Theexcess of the total cash consideration, fair value of contingent consideration plus the fair value of non-controlling interest over the fair value of the netidentifiable assets acquired was recorded as goodwill which is not amortized and not tax deductible. The Company recorded RMB20,413 of goodwillfrom the above business acquisitions. The acquisitions were not material to the consolidated financial statements for the year ended December 31, 2018,as such pro forma results of operations are not presented. Goodwill resulted from the above acquisition was assigned to one single reporting unit. 6. Investment in equity security In March 2018, the Company subscribed for 8,000,000 of the ordinary shares of a Singapore listed company for a total consideration of approximatelyUSD5,000 (equivalent to RMB31,393) upon its initial public offering. The Company accounted for the investment in equity security at fair value withsubsequent fair value changes recorded in Consolidated Statements of Comprehensive Income (Loss). The fair value of the investment is determinedbased on the closing market price for the shares at the end of each reporting period. The related unrealized loss recognized in 2018 was RMB511, and wasincluded in Other income/(expenses) in the Consolidated Statements of Comprehensive Income (Loss). F-40Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) 7. Inventories As of December 31, 2017 and 2018, inventories represented products, of which amounting to RMB250,889, were pledged to a domestic bank for bankloans (see note 12 and note 13). 8. Prepayments and Other Current Assets As of December 31,2017 2018RMB RMBReceivable from third-party payment platform—59,137Deposits6,27516,282Prepaid expense3,88821,454Subsidy receivable—6,922Staff advances3,5605,332Others9,22024,424Prepayments and Other Current Assets22,943133,551 9. Property and Equipment, net As of December 31,2017 2018RMB RMBElectronic equipment32,32456,000Transportation equipment4,6255,327Office equipment9,49310,459Leasehold improvements40,09244,036Total Property and Equipment86,534115,822Less: Accumulated depreciation(45,741)(59,124)Total Property and Equipment, net40,79356,698 Depreciation expenses were RMB13,388, RMB13,424 and RMB17,883 for the years ended December 31, 2016, 2017 and 2018, respectively. As of December 31, 2017 and 2018, property and equipment amounting to RMB11,753 and RMB14,122, respectively, were pledged to a domestic bankfor bank loans (see note 12 and note 13). 10. Intangible assets, net Intangible assets mainly consists of customer relationship. Customer relationship is generated from business combination in 2018, representing thecustomer lists of the subsidiary. Customer relationship is recorded at fair value at acquisition date, and amortized on a straight-line basis over theestimated useful life of 6 years. Management reviews finite-lived intangible assets for impairment whenever events or changes in circumstances indicatethat the carrying amount may not be recoverable, in a manner similar to that for property and equipment. No impairment losses related to intangible assetswere recognized in the year ended December 31, 2018. F-41Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) Net definite-lived intangible assets at December 31, 2018 consists of the following: GrossCarryingAmountAccumulatedAmortizationNetCarryingAmount EstimatedUseful LifeRMBRMBRMB YearCustomer relationship12,617(350)12,2676 Amortization expenses for intangible assets were RMB350 for the year ended December 31, 2018. As of December 31, 2018, amortization expenses related to the intangible assets for future periods are estimated to be as follows: For the Year Ending December 31, 2019 2020 2021 2022 2023 andthereafter RMB RMB RMB RMB RMB Amortization expenses2,1002,1002,1002,1003,867 11. Other Non-current Assets As of December 31,2017 2018RMB RMBRental and other deposits3,9553,217Other prepayments3,95512,950Others1752,863Other Non-current Assets8,08519,030 12. Short-term Borrowings and Current Portion of Long-term Borrowings As of December 31,2017 2018RMB RMBBank loans100,000130,000Other borrowings66,209—Current portion of long-term borrowings (Note 13)11,0654,324177,274134,324 F-42Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) In May 2017, the subsidiary entered into an amendment to the facility agreement with SPD Silicon Valley Bank Co., Ltd (“SPD”). Pursuant to theamendment, the facility in the amount of RMB50,000 was extended for one year with an interest rate of 7.35% per annum and matured in May 2018. InMay 2018, the subsidiary repaid RMB50,000 under this facility, and concurrently entered into an amended facility agreement with SPD to extend thefacility to August 2018. In August 2018, the subsidiary repaid RMB50,000 under this facility, and concurrently entered into an amended facilityagreement with SPD to extend the facility for one year. In addition, RMB250,899 of inventories and RMB14,122 of equipment in 2018 compared toRMB250,899 of inventories and RMB11,753 of equipment in 2017 were pledged to SPD as collateral and a guarantee provided by the Company’swholly-owned subsidiary in HK and the Company. Both of the original facility and amended facility agreements contain certain financial andnonfinancial covenants. As of December 31, 2017 and 2018, the Group met the financial covenants. As of December 31, 2017 and 2018, the outstandingbalances of the short-term of the facilities were both RMB50,000. 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 atan interest 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 to 2018. During 2017, RMB14,000 was repaid and RMB31,000 was outstanding as ofDecember 31, 2017. The remaining balance was paid off in April 2018. In December 2017, a subsidiary of the Group entered into loan agreement with Shanghai Pudong Development Bank Co., Ltd. to finance its workingcapital. 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 ofRMB55,214 was deposited to the bank for this borrowing. The loan was repaid in December 2018 and the cash deposit amounting to RMB55,214 becameunrestricted following the loan settlement. During 2017, one of the Group’s subsidiaries entered into an agreement with 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 was outstanding as of December 31, 2017 with the accounts receivable of RMB35,209 pledged to the third partyas collateral. In February 2018, the subsidiary repaid RMB35,209. During 2018, the subsidiary entered into two more agreements with the third party non-financial institution that permits the subsidiary to borrow short-term borrowings at the interest rates of 10%. The subsidiary received RMB15,000 andRMB20,410 in June 2018 and August 2018, respectively. The accounts receivables of RMB15,000 and RMB20,410 were pledged to the third party ascollaterals, the subsidiary repaid this borrowing in August 2018 and October 2018, respectively. No balance is outstanding as of December 31, 2018. In December 2018, a subsidiary of the Group entered into loan agreement with Shanghai Pudong Development Bank Co., Ltd. and borrowed RMB80,000with an interest rate of 4.35% per annum, a maturing term of one year. A restricted cash deposit of RMB89,222 was deposited to the bank for thisborrowing. F-43Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) 13. Long-term Borrowings, excluding Current Portion As of December 31,2017 2018RMB RMBConvertible note—1,151,560Long-term loans135,3894,324Less: current portion (Note 12)(11,065)(4,324)124,3241,151,560 Convertible note In August 8, 2018, the Company signed the convertible note and warrant subscription agreement (the “Agreement”) with Great World Lux Pte. Ltd,pursuant to which the Company issued US$175 million convertible note (the “Note”) and warrant to Great World Lux Pte. Ltd on August 8, 2018. The Note bears interest of 4% per annum, payable annually, and will mature on August 8, 2021 (“maturity date”) unless redeemed, repurchased orconverted prior to such date. The Note is convertible at the option of the holders at any time during the conversion period, which is defined as the period starting from the firstanniversary of the issue date to the maturity Date. The conversion rate of the Note is US$26 per Class A shares, representing an initial conversion rate of38.46 Class A Shares per US$1,000 principal amount of the Note, subject to the adjustments as described in the agreement. The holders may require the Company to repurchase all or portion of the Notes for cash on August 8, 2021, or upon a fundamental change (the“contingent put option upon fundamental change”), at a repurchase price equal to 1) the outstanding principal amount, plus 2) accrued and unpaidinterest, and plus 3) an additional amount that shall, provide the holder an internal rate of return of 8%. Additionally, pursuant to the agreement, if theEBITDA (as defined in the agreement) of the Company for the financial year ended on December 31, 2018, as determined based on the auditedconsolidated financial statements of the Company, is lower than US$40 million, the holder have the right to require the Company to repurchase all orportion of the Notes for cash at a repurchase price to provide the holder an internal rate of return of 12% (the “contingent put option upon performancefailure”). As of December 31, 2018, the Company’s EBITDA (as defined in the agreement) exceeded the US$40 million requirement. Pursuant to the Agreement, the holder of the warrant is entitled to purchase from the Company 500,000 ADS at an exercise price of US$18 per ADS. 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 aScope Exception. Part I of this update addresses public entities that issue warrants, convertible debt or convertible preferred stock that contain downround features. This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning afterDecember 15, 2020. Early adoption is permitted. The Company has early adopted ASU 2017-11, Accounting for Certain Financial Instruments with DownRound Features. ASU 2017-11 no longer requires the Company to consider down round features when determining whether its warrant and embeddedconversion option is indexed to its own stock. F-44Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) The Company assessed the accounting on the convertible Note and the warrant under ASC 815 and concluded that: · The warrant is freestanding financial instrument as it is legally detachable and separately exercisable. Further, the warrant is indexed to theCompany’s own stock, and can only be settled by the physical delivery of shares, and no conditions exist in which net cash settlement could beforced upon the Company by August 8, 2021 in any other circumstances, therefore the warrant is equity classified; · The embedded contingent put option upon fundamental change is clearly and closely related to the debt host contract and does not need to beseparately account for. · The embedded contingent put option upon performance failure is not clearly and closely related to the debt host contract and needs to beseparately accounted for. · The embedded conversion feature is indexed to the Company’s own stock, and can only be settled by the physical delivery of shares, and noconditions exist in which net cash settlement could be forced upon the Company by August 8, 2021 in any other circumstances, therefore theconversion feature does not need to be separately accounted for. The proceeds of US$175,000 (equivalent to RMB1,195,478), net of issuance cost of US$300 (equivalent to RMB1,833), was allocated to the Note andthe warrant based on the relative fair value as of August 8, 2018. Accordingly, the Company recorded the warrant of US$1,201 (RMB8,208). TheCompany considered that the possibility of performance failure is zero, therefore the fair value of the contingent put option upon the performance failureis nil on August 8, 2018. The Company measured the effective conversion price of the Note using its carrying value on August 8, 2018, and compared tothe fair value of the Company’s common stock on that date. As the effective conversion price of the convertible note of US$25.82 is below the fair valueof the Company’s common stock of US$26.78, the Company recognized a beneficial conversion feature of US$6,451 (RMB44,072). The issuance cost was amortized as interest expense using the effective interest rate method through the maturity date of the Note. As of December 31,2018, the principal amount was US$175,000 (equivalent to RMB1,201,060), unamortized debt discount and issuance cost was US$7,212 (equivalent toRMB49,500), and net carrying amount was US$167,788 (equivalent to RMB1,151,560). The effective interest rate was 9.45% for the Note. For the yearended December 31, 2018, the Company recognized interest expenses related to the Note of RMB43,090. As of December 31, 2018, since the Company has met the EBITDA (as defined in the agreement) target, the fair value of the contingent put option uponthe performance failure is zero. F-45Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) Long term loans Pursuant to the amended agreement with SPD stated in note 12, a subsidiary of the Group drew down RMB20,000 with a monthly payment fromAugust 2017 to May 2019 at an interest rate of 6.75%. During 2017 and 2018, RMB4,611 and RMB 11,065 were repaid, respectively. As of December 31,2017 and 2018, the subsidiary met the financial covenants. As of December 31, 2017, the outstanding balances of current portion and non-current portionof the facility were RMB11,065 and RMB4,324, respectively. As of December 31, 2018, the outstanding balances of current portion and non-currentportion of the facility were RMB4,324 and nil, respectively. In November 2017, a subsidiary of the Group entered into borrowing agreement with National Trust Co., Ltd (“NTC”) to finance its working capital. Thefacility 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 inJanuary 2018. In September 2018, the subsidiary repaid RMB150,000 and the cash deposits of RMB123,800 became unrestricted following the loansettlement. As of December 31, 2018, the future principal payments for the Group’s long-term borrowings, including long-term loans and the convertible note will bedue according to the following payment schedule: Principalamounts RMB20194,3242020—20211,201,060Total1,205,384 F-46Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) 14. Accrued Expenses and Other Current Liabilities As of December 31, 2017 2018 RMB RMBInterest payable(i)—38,171Accrual for salary, bonus and employee benefits69,20333,549Advertising fees payable45,85955,574Taxes payable169,524116,454Office expenses12,82117,819Deposits from merchants12,78917,522Payables to noncontrolling shareholders—7,208Others(ii)33,74066,417Accrued Expenses and Other Current Liabilities343,936352,714 (i)The balance mainly include the interest payable of convertible note (see Note 13).(ii)Others mainly consist of professional fees payable, delivery cost payable and rent payable. 15. 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%on its taxable income generated from the operations in Hong Kong. A two-tiered profits tax rates regime was introduced since year 2018 where the firstHK$2,000 of assessable profits earned by a company will be taxed at half of the current tax rate (8.25%) whilst the remaining profits will continue to betaxed at 16.5%. There is an anti-fragmentation measure where each group will have to nominate only one company in the group to benefit from theprogressive rates. Payments of dividends by the Hong Kong subsidiary to the Company is not subject to withholding 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%. F-47Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) 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 locatedin the PRC be treated as a resident enterprise for PRC tax purposes and consequently be subject to the PRC income tax at the rate of 25% for its globalincome. The Implementing Rules of the CIT Law define the location of the ‘‘de facto management body’’ as ‘‘the place where the exercising, insubstance, of the overall management and control of the production and business operation, personnel, accounting, property, etc., of a non-PRC companyis located.’’ Based on a review of surrounding facts and circumstances, the Group does not believe that it is likely that its operations outside the PRCshould be considered a resident enterprise for PRC tax purposes. The components of (loss)/income before income taxes are as follows: For the year ended December 31,2016 2017 2018RMB RMB RMBThe Cayman Islands(11,880)(14,109)(42,287)Hong Kong(16,629)14,95159,675PRC, excluding Hong Kong(15,864)103,864178,551Other(200)(2,822)335(44,573)101,884196,274 The EIT Law and its relevant regulations impose a withholding tax at 10%, unless reduced by a tax treaty or agreement, for dividends distributed by aPRC-resident enterprise to its immediate holding company outside the PRC for earnings generated beginning January 1, 2008. Undistributed earningsgenerated prior to January 1, 2008 are exempt from withholding tax. As of December 31, 2018, the Company has not provided deferred tax liability onundistributed earnings of RMB111,689 generated by its PRC consolidated entities, as the Company plans to reinvest these earnings indefinitely in thePRC. The unrecognized deferred income tax liability related to these earnings was RMB11,169. The current and deferred portions of income tax expenses (benefits) included in the Consolidated Statements of Comprehensive Income (Loss), whichwere attributable to the Group’s PRC subsidiaries and VIE entities, are as follows: For the Year Ended December 31, 2016 2017 2018 RMB RMB RMB Current tax expenses—12,45648,019Deferred tax benefits—(43,981)(7,291)Income tax (benefits)/expenses—(31,525)40,728 F-48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, 2016,2017 and 2018 are as follows: For the Year Ended December 31, 2016 2017 2018 RMB RMB RMBStatutory income tax rate25%25%25%Increase (decrease) in effective income tax rate resulting fromEntities not subject to income tax(6.66)%3.46%5.39%Tax rate differential(3.19)%(1.17)%(2.60)%Share-based compensation(0.56)%11.31%3.01%Non-deductive expense without tax invoice6.72%13.02%0.76%R&D surplus deduction——(7.78)%Others(1.50)%1.89%(5.50)%Change in valuation allowance(19.81)%(84.45)%2.47%Effective tax rate0%(30.94)%20.75% b) Deferred tax assets As of December 31, 2017 2018 RMB RMBPayroll and other accrued expenses9,460—Inventory write-down1,5693,648Net operating loss carry forwards45,28461,086Advertisement expenses2,6671,135Deferred revenue—5,196Less: Valuation allowance(14,999)(19,851)Total deferred tax assets43,98151,214 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 temporarydifferences become deductible. The Group considers the cumulative earnings and projected future taxable income in making this assessment. Recovery ofsubstantially all of the Group’s deferred tax assets is dependent upon the generation of future income, exclusive of reversing taxable temporarydifferences. As of December 31, 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, 2016. F-49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 and 2018. As of December 31, 2017 and 2018, the valuation allowance of RMB14,999 andRMB19,851 was provided for the Company and some subsidiaries. For those entities, management believes that it is more likely than not that theaccumulated net operating losses of those entities will not be utilized in the foreseeable future. As of December 31, 2018, the Group had net operating loss carry forwards of approximately RMB166 attributable to the Hong Kong subsidiary, RMB262attributable to the American subsidiary, RMB2,072 attributable to the Malaysia subsidiary, RMB1,332 attributable to the Italian subsidiary and ofapproximately RMB216,064 attributable to the PRC subsidiaries, VIEs and VIEs’ subsidiaries. The loss carried forward by the Hong Kong, American,Malaysia and Italian subsidiaries can be carried forward to net against future taxable income without a time limit; while the loss carried forward by thePRC companies will expire during the period from year 2019 to year 2023. The changes in valuation allowance for the years ended December 31, 2016, 2017 and 2018 are as follows: For the Year Ended December 31, 2016 2017 2018 RMB RMB RMB Balance at the beginning of the year92,204101,03614,999Additions8,8322,84210,875Reversals—(88,879)(6,023)Balance at the end of the year101,03614,99919,851 According to the PRC Tax Administration and Collection Law, the statute of limitation is three years if the underpayment of taxes is due tocomputational errors made by the taxpayer or the withholding agent. The statute of limitation is extended to five years under special circumstances wherethe underpayment of taxes is more than RMB100,000. In the case of transfer pricing issues, the statute of limitation is 10 years. There is no statute oflimitation in the case of tax evasion. The income tax returns of the Company’s PRC subsidiaries, consolidated VIEs, and the subsidiaries of the VIEs forthe years from 2014 to 2018 are open to examination by the PRC tax authorities. F-50Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share and per share data) 16. Redeemable Convertible Preferred Shares Redeemable convertible preferred shares consist of the following: Series A-1PreferredSharesSeries A-2PreferredSharesSeries BPreferredSharesSeries CPreferredSharesSeries DPreferredSharesSeries EPreferredSharesTotalBalance as of January 1, 201652,51757,904155,106118,535306,098389,7791,079,939Redemption value accretion78,60890,231127,74671,359111,684116,114595,742Foreign currency translationadjustment3,5943,96210,6038,09320,90126,61873,771Balance 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 translationadjustment(7,651)(8,632)(16,763)(11,297)(24,341)(28,178)(96,862)Conversion of preferred shares toordinary shares(153,424)(173,084)(336,981)(226,854)(472,330)(492,596)(1,855,269)Balance as of December 31, 2017and 2018——————— F-51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 RedeemableConvertible Series A-1 Preferred Shares (‘‘Series A-1 Preferred Shares’’) and 1,250,000 Redeemable Convertible Series A-2 Preferred Shares (‘‘Series A-2Preferred Shares’’) were issued on September 23, 2011, and 178,572 Series A-2 Preferred Shares were issued on February 7, 2012 for an aggregatedconsideration of US$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, theCompany issued 1,571,973 Redeemable Convertible Series C Preferred Shares (‘‘Series C Preferred Shares’’) for an aggregated consideration ofUS$11,404 (equivalent of 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, theCompany issued 3,178,652 Redeemable Convertible Series D Preferred Shares (‘‘Series D Preferred Shares’’, together with Series C Preferred Shares,Series B Preferred Shares, Series A-1 Preferred Shares and Series A-2 Preferred Shares, ‘‘Preferred Shares’’) for an aggregated consideration of US$35,000(equivalent of RMB215,863). On July 7, 2015, the Company entered into a shares purchase agreement with certain investors and Pingan eCommerce Limited Partnership (‘‘Ping An’’)and pursuant to the agreement, the Company issued 2,925,658 Redeemable Convertible Series E Preferred Shares (‘‘Series E Preferred Shares’’) for anaggregated consideration 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 theoption of the holders after a specified time period. The Group had determined that conversion and redemption features embedded in the Preferred Shareswere not required to be bifurcated and accounted for as a derivative, as the economic characteristics and risks of the embedded conversion and redemptionfeatures were clearly and closely related to that of the Preferred Shares. The Preferred Shares were not readily convertible into cash as there is not a marketmechanism in 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 effectiveconversion prices of these Preferred Shares were higher than the fair value of the Company’s ordinary shares at the relevant commitment dates. F-52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 redemptiondates. The accretions were recorded against retained earnings, or in the absence of retained earnings, by charges against additional paid-in capital. Onceadditional paid-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 thethen outstanding 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 Sharesof such series. In addition, prior to the Redemption Start Date but following the occurrence of certain early redemption events, holders of more than 50%of the Series D Preferred Shares or Ping An may request a redemption. On receipt of a redemption request from the holders, the Company shall redeem allor part, as requested, 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 8,2017 for 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 exercisethe redemption 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 ofPreferred Shares), 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 andSeries E Preferred 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. 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 conversionratio, subject to adjustments for dilution, including but not limited to stock splits, stock dividends and capitalization and certain other events. EachPreferred Share is convertible into a number of ordinary shares determined by dividing the applicable original issuance price by the conversion price. Theconversion price of 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, each Preferred Share is convertible into one ordinary share. F-53Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) 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 (calculatedand voting separately in their respective single class on an as-converted basis), and particularly for the Series C Preferred Shares, approval by the holdersof more than 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 noless than US$61,500 and implied market capitalization of the Company of no less than US$410,000 prior to such initial public offering. Upon theissuance of the Series E Preferred Shares, the net offering proceeds and market capitalization criteria for a ‘‘Qualified IPO’’ was increased to US$130,000and US$550,000 respectively. 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 Sharesshall vote separately as a class with respect to certain specified matters. Otherwise, the holders of Preferred Shares and ordinary shares shall vote togetheras a single class. 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 ratabasis to the holders of ordinary shares and Preferred Shares on an as-converted basis. 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 entitledto receive a per share amount equal to 150% of the original preferred share issue price of the respective series of Preferred Shares, as adjusted for sharedividends, share splits, combinations, recapitalizations or similar events, plus all accrued and declared but unpaid dividends thereon, in the sequence ofSeries E Preferred Shares, Series D Preferred Shares, Series C Preferred Shares, Series B Preferred Shares and Series A-1 and Series A-2 Preferred Shares.After such liquidation amounts have been paid in full, any remaining funds or assets of the Company legally available for distribution to shareholdersshall be distributed on a pro rata, pari passu basis among the holders of the Preferred Shares, on an as-converted basis, together with the holders of theordinary shares. The modifications of the rights, preferences and privileges of the Preferred Shares are not considered substantial, and are thus accountedfor as a modification rather than an extinguishment of the Preferred Shares. Where there is a transfer of value between ordinary shareholders and PreferredShares holders as a result of such modifications, the transfer of value is accounted for as deemed dividends, recorded as additions/reductions inaccumulated deficit and reductions/additions in the Preferred Shares carrying amounts. F-54Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) 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 separatelyas a class. 17. Redeemable Non-controlling Interest For the Year Ended December 31,2016 2017 2018RMB RMB RMBBalance as of January 15,0825,582Capital contribution5,000(Loss) /gain(82)(298)2,001Accretion of redeemable non-controlling interest164798—Foreign currency translation adjustment, net of nil income taxes——4Balance as of December 315,0825,5827,587 F-55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 theclosing of the financing), the redemption value is equal to RMB5,000 plus 10% of interest and 15% of the net profit attributable to the PRC subsidiary ifany for the period beginning October of 2016 to the date of redemption. The redeemable non-controlling interest was recorded outside of permanentequity on the Consolidated Balance Sheets and initially recorded at the carrying value of RMB5,000. The redeemable non-controlling interest is carriedat the expected redemption value. 18. 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 GlobalLimited and YTL Cayman Limited, respectively, in a private placement at a price of US$26 per share. Proceeds from such issuance of ordinary shares wereUSD30,000 (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 ordinaryshares are not convertible into Class B ordinary shares under any circumstances. Both Class A ordinary shares and Class B ordinary shares are entitled tothe same dividend right. The holders of the Group’s ordinary shares are entitled to such dividends as may be declared by the board of directors subject tothe Companies Law. As of December 31, 2018, all Class B ordinary shares were held by the Chairman and CEO of the Group. 19. 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 itsown Class 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. Theshare repurchases 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 weightedaverage price of US$17.96 per share. The Company accounts for repurchased ordinary shares under the cost method and includes such cost as acomponent of the shareholders’ equity. F-56Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) During the year ended December 31, 2018, the Company repurchased 157,859 shares for US$4,149 (RMB28,412) on the open market, at a weightedaverage price of US$26.28 per share. The Company accounts for repurchased ordinary shares under the cost method and includes such cost as acomponent of the shareholders 20. 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 valueof the 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 thedate of imposition of the restriction in May 2011, and was amortized to the Consolidated Statements of Comprehensive Income (Loss) on a straight linebasis over the vesting 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 thecompensation cost attributable to these shares was measured at fair value and recognized immediately as the preferred share issuance cost and a deductionin the preferred shares balance. The remaining 7,301,587 restricted ordinary shares owned by the Founders became subject to a revised four-year vestingrestriction arrangement commencing from March 4, 2012, and the compensation cost for the restricted shares was amortized to the ConsolidatedStatements of Comprehensive 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, 2016, 2017 and 2018 were RMB249, nil and nil, respectively. (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.Stock options granted to an employee under the 2014 Plan will vest only upon the Company completes a Qualified IPO and the employee renders serviceto the Company in accordance with a stipulated service schedule starting from the employee’s date of employment. Employees are generally subject to afour-year service 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 the Company completes a Qualified IPO, all stock options granted to an employee shall be forfeited at the time the employee terminates hisemployment with the Group. After the Company completes a Qualified IPO, vested options not exercised by an employee shall be forfeited three monthsafter termination of employment of the employee. In addition, the employees who have been granted options irrevocably grant a power of attorney to theboard of directors of the Company to exercise voting rights of the shares on their behalf. F-57Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) 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 and 2018. Stock options granted to an employee under the 2017 Plan will vest upon the employee renders service to the Company inaccordance with a stipulated service schedule starting from the employee’s date of employment. Employees are generally subject to a four-year serviceschedule, under which an employee earns an entitlement to vest in 25% of his option grants at the end of each year of completed service. The followingtable sets forth the stock options activity for the years ended December 31, 2016, 2017 and 2018, respectively: Number ofsharesWeightedaverageexercisepriceUS$Weightedaverageremainingcontractualterm Aggregateintrinsicvalue000’US$ Outstanding as of January 1, 2016890,5880.0018.9712,554Granted63,4500.001Exercised—Forfeited(220,282)0.001Expired—Outstanding as of December 31, 2016733,7560.0017.9814,384Granted670,2010.001Exercised—Forfeited(390,544)0.001Expired—Outstanding as of December 31, 20171,094,4130.0018.5521,142Granted261,1230.001Exercised—Forfeited(119,663)0.001Expired—Outstanding as of December 31, 20181,235,8730.0017.8522.416Vested and expected to vest as of December 31, 20181,204,5220.0017.8121,848Exercisable as of December 31, 2018853,5410.0017.2615,482 F-58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: 2016 2017 2018 Expected volatility54.00%~55.00%47.40%~50.00%46.8%~49.6%Risk-free interest rate (per annum)1.49%~1.78%2.37%~2.40%2.69%~2.87%Exercise multiple2.2~2.82.2~2.82.2~2.8Expected dividend yield0%0%0%Expected term (in years)101010Fair value of the underlying shares on the date of option grants(per share)US$15.020~16.987US$14.379~21.573US$16.919~20.979 The expected volatility was estimated based on the historical volatility of comparable peer public companies with a time horizon close to the expectedterm of 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 aterm consistent with the expected term of the Company’s options in effect at the option valuation date. The expected exercise multiple was estimated asthe average ratio of the stock price to the exercise price of when employees would decide to voluntarily exercise their vested options. As the Companydid not have sufficient information of past employee exercise history, it was estimated by referencing to a widely-accepted academic research publication.Expected dividend yield is zero as the Company has never declared or paid any cash dividends on its shares, and the Company does not anticipate anydividend payments 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, 2016, 2017 and 2018 amounted to RMB6,888, RMB72,137 andRMB29,974 respectively. For the options granted to the employees before the Group’s IPO, the exercisability was dependent upon the Company’s IPO,and it was not probable that this performance condition could be achieved until the IPO was effective, no compensation expense relating to the optionswas recorded for the years ended December 31, 2016. The options granted to the employees after the Group’s IPO are subject to service conditions, for theyears ended December 31, 2017 and 2018, the Company recognized RMB46,077 and RMB23,675 as share based compensation expenses relating to thestock option plan. As of December 31, 2018, RMB35,259 of total unrecognized compensation expense related to non-vested share options is expected to be recognized overa weighted average period of approximately 3.22 years. F-59Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) 21. Revenue The following table presents revenue disaggregation by types of products: For the Year Ended December 31, 2016 2017 2018 RMB RMB RMB Merchandise salesWatches863,3821,122,7561,772,466Bags691,474837,516797,700Clothing, Footwear and Accessories403,722833,1021,412,024Jewelleries531,533703,216856,110Other products76,761184,205406,146Total merchandise sales2,566,8723,680,7955,244,446 Marketplace and other services:Marketplace services15,70742,11486,720Other services11,24317,54656,411Total marketplace and other services:26,95059,660143,131 Total revenues2,593,8223,740,4555,387,577 The following summarizes the Group’s revenues from the following geographic areas: For the Year Ended December 31,2016 2017 2018RMB RMB RMBMainland China2,379,0623,435,6614,816,463Hong Kong201,559286,807554,376Others13,20117,98716,738Total revenues2,593,8223,740,4555,387,577 The Group adopted ASC 606 Revenue from Contracts with Customers on January 1, 2018. The Company applied ASC 606 using the cumulative effectmethod — i.e. by recognizing the cumulative effect of initially applying ASC 606 as an adjustment to the opening balance of accumulated deficit atJanuary 1, 2018. The Company elects to apply this guidance retrospectively only to contracts that are not completed contracts as of January 1, 2018.Therefore, the comparative information has not been adjusted and continues to be reported under ASC 605 Revenue Recognition. The adoption of newrevenue standard did not impact retained earnings as of January 1, 2018. The disclosure of the impact of adoption on the Consolidated Balance Sheetswas as follows: F-60Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) As ofDecember 31,2018 Adjustments Amountswithoutadoption ofASC 606Advance from customers66,95441,856108,810Deferred revenue62,478(39,279)23,199Accrued expenses and other liabilities352,714(2,577)350,137 Changes in the Company’s Deferred revenue (contract liability) are presented in the following table for the year ended December 31, 2018: For the Year EndedDecember 31, 2018Deferred revenue as of January 1, 2018 prior to adoption of ASC60612,051Reclassification of VAT payable to Accrued expenses and other liabilities as of January 1, 2018 as a result ofadoption of ASC606(562)Reclassification of Advance from customers, net of VAT as of January 1, 2018 as a result of adoption of ASC60653,091Cash received in advance, net of VAT5,327,054Revenue recognized from opening balance of Deferred revenue(64,580)Revenue recognized from Deferred revenue arising during current period(5,264,576)Deferred revenue as of December 31, 201862,478 The Group has elected the practical expedient not to disclose the information about remaining performance obligations which are part of contracts thathave an original expected duration of one year or less. 22. Segment information The following summarizes the Group’s long-lived assets (including property and equipment, net, intangible assets, goodwill and other non-current assets)from the following geographic areas: As of December 31,2017 2018RMB RMBMainland China38,36663,086Hong Kong1,62937,542Others8,8837,780Total long-lived assets48,878108,408 F-61Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) 23. Net (loss)/income per Share The following table sets forth the basic and diluted net (loss)/income per share computation and provides a reconciliation of the numerator anddenominator for the periods presented: For the Year Ended December 31, 2016 2017 2018 RMB RMB RMB Numerator:Net (loss)/income attributable to Secoo Holding Limited(44,453)134,056151,833Accretion to redeemable non-controlling interest redemption value(164)(798)—Accretion to preferred share redemption value(595,742)(202,679)—Numerator for basic and diluted net (loss)/income per share calculation(640,359)(69,421)151,833Denominator:Weighted average number of ordinary shares7,189,93312,500,82125,235,404Denominator for basic net loss/income per share calculation7,189,93312,500,82125,235,404Adjustment for diluted options——947,518Denominator for diluted net loss/income per share calculation7,189,93312,500,82126,182,922Net (loss)/income per ordinary share— Basic(89.06)(5.55)6.02— Diluted(89.06)(5.55)5.80 The potentially dilutive securities that have not been included in the calculation of diluted net (loss)/income per share as their inclusion would be anti-dilutive are as follows: For the Year Ended December 31, 2016 2017 2018 Restricted shares and stock options733,7561,094,413—Redeemable Convertible Preferred Shares12,735,807——Convertible note and warrant——6,980,769 F-62Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) 24. Commitments and Contingencies Commitments The Group leases its offices and facilities under non-cancelable operating lease agreements. Rental expenses were RMB35,788, RMB34,090 andRMB39,581 for the years ended December 31, 2016, 2017 and 2018, respectively. As of December 31, 2018, future minimum lease commitments, all under office and facilities non-cancelable operating lease agreements, were as follows: Office and facilitiesRMB201933,740202019,554202112,50720222,6242023402Total68,827 Except for those disclosed above, the Group did not have any significant capital or other commitments or guarantees as of December 31, 2017 and 2018. 25. Related Party Transactions (a) Amount due from related parties During the years ended December 31, 2016, 2017 and 2018, 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, RMB287 and nil. Jiangxi Tiangong paid off RMB249 in 2017.The Group has amount due from Jiangxi Tiangong for nil, RMB38 and RMB35 as of December 31, 2016, 2017 and 2018, respectively. During the years ended December 31, 2016, 2017 and 2018, 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, RMB1,712 and RMB9,636,respectively from the Group. Yichun Chuaichuai paid off nil, RMB1,712 and RMB4,420 in 2016, 2017 and 2018, respectively. The Group hasamount due to Yichun Chuaichuai for nil, RMB1,173 and RMB352 as of December 31, 2016, 2017 and 2018, and has amount due from YichunChuaichuai for nil, nil and RMB11,124 as of December 31, 2016, 2017 and 2018. During the years ended December 31, 2016, 2017 and 2018, the Group paid on behalf of Yichun Guangyao Technology Co., Ltd (“YichunGuangyao”), a related party that the Group’s subsidiary can exercise significant influence for nil, nil and RMB2,100. During the years ended December 31, 2016, 2017 and 2018, the Group paid on behalf of Shikonglian (Beijing) Technology Co., Ltd (“Shikonglian”),a related party that the Group’s subsidiary can exercise significant influence for nil, nil and RMB25. F-63Table of Contents SECOO HOLDING LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)(All amounts in thousands, except for share data) (b) Amount due to related parties During the years ended December 31, 2016, 2017 and 2018, the Group borrowed nil, nil and nil, respectively from Mr. Richard Rixue Li, the Group’schairman and chief exercise officer, to fund working capital, among which RMB320, RMB1,025 and RMB493 were repaid during the years endedDecember 31, 2016, 2017 and 2018, respectively. The Group has an amount due to Mr. Richard Rixue Li for RMB2,319, RMB1,294 and RMB801 asof December 31,2016, 2017 and 2018, respectively. The amounts were unsecured, non-interest bearing and have no defined repayment term. During the years ended December 31, 2018, the Group borrowed RMB4,480 from Mr, Rimei Li, CEO of the Group’s subsidiary, to fund workingcapital, among which RMB 4,069 was repaid during the years ended December 31, 2018. The Group has an amount due to Mr. Rimei Li for RMB411as of December 31, 2018. The amounts were unsecured, non-interest bearing and have no defined repayment term. F-64EXHIBIT 4.19 CONVERTIBLE NOTE AND WARRANT SUBSCRIPTION AGREEMENT dated as of July 9, 2018 between SECOO HOLDING LIMITED and GREAT WORLD LUX PTE. LTD  TABLE OF CONTENTS Page ARTICLE I DEFINITION AND INTERPRETATION1 Section 1.01Definition, Interpretation and Rules of Construction1 ARTICLE II PURCHASE AND SALE; CLOSING7 Section 2.01Issuance, Sale and Purchase of the Purchased Securities7Section 2.02Closing7 ARTICLE III CONDITIONS TO CLOSING8 Section 3.01Conditions to Obligations of All Parties8Section 3.02Conditions to Obligations of Purchaser9Section 3.03Conditions to Obligations of the Company10 ARTICLE IV REPRESENTATIONS AND WARRANTIES10 Section 4.01Representations and Warranties of the Company10Section 4.02Representations and Warranties of the Purchaser19 ARTICLE V COVENANTS21 Section 5.01Conduct of Business of the Company21Section 5.02FPI Status21Section 5.03Exclusivity22Section 5.04Further Assurances22Section 5.05No Contract22Section 5.06Reservation of Shares22Section 5.07Director and Observer Appointment22Section 5.08No Integrated Offering23Section 5.09Use of Proceeds23Section 5.10US Tax Election23 ARTICLE VI INDEMNIFICATION23 Section 6.01Indemnification23Section 6.02Third Party Claims24Section 6.03Other Claims25Section 6.04Limitation on the Company’s Liability25 ARTICLE VII MISCELLANEOUS25 Section 7.01Survival of the Representations and Warranties25Section 7.02Governing Law; Arbitration26Section 7.03No Third Party Beneficiaries26  Section 7.04Acknowledgement26Section 7.05Amendment26Section 7.06Binding Effect26Section 7.07Assignment26Section 7.08Notices27Section 7.09Entire Agreement27Section 7.10Severability27Section 7.11Fees and Expenses28Section 7.12Confidentiality28Section 7.13Specific Performance29Section 7.14Termination29Section 7.15Headings30Section 7.16Execution in Counterparts30Section 7.17Public Disclosure30Section 7.18Waiver31 Exhibit B34 Exhibit C74 ii CONVERTIBLE NOTE AND WARRANT SUBSCRIPTION AGREEMENT This Convertible Note and Warrant Subscription Agreement (this “Agreement”) is made as of July 9, 2018, between: 1. SECOO HOLDING LIMITED, an exempted company with limited liability organized and existing under the laws of the Cayman Islands (the“Company”); and 2. GREAT WORLD LUX PTE. LTD, a limited liability company organized and existing under the laws of Singapore (“Purchaser”). RECITALS WHEREAS the Purchaser desires to subscribe for and purchase and the Company desires to issue and sell certain Convertible Note (as defined below) andcertain Warrant (as defined below) pursuant to the terms and conditions set forth in this Agreement; WHEREAS, in relation to this Agreement, the Company and the Purchaser will enter into an investor rights agreement (the “Investor Rights Agreement”), insubstantially the same form attached hereto as Exhibit A to memorialize their mutual agreements and understandings relating to the transactionscontemplated by this Agreement and other Transaction Agreements and certain rights granted to the Purchaser by the Company in relation thereto; and NOW, THEREFORE, in consideration of the foregoing and the mutual representations, warranties, covenants and agreements set forth herein, as well as othergood and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each of the Parties hereto, intending to be legally bound,agrees as follows: ARTICLE IDEFINITION AND INTERPRETATION Section 1.01 Definition, Interpretation and Rules of Construction (a) As used in this Agreement, the following terms have the following meanings: “ADSs” means the American depositary shares of the Company, two of which represents one (1) Class A Share of the Company. “Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under commoncontrol with such Person; provided, that none of the Company, nor any of its Subsidiaries shall be considered an Affiliate of the Purchaser. For purposes ofthis definition, “control” when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly,whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have correlative meanings. For theavoidance of doubt, Affiliates of the Purchaser shall include (i) investment funds managed and/or advised by L Catterton Asia Advisors or L CattertonSingapore Pte. Ltd. or their successors or respective Affiliates or wholly-owned subsidiaries of these funds, (ii) employees and officers of, and other personsassociated with, L Catterton Asia Advisors or L Catterton Singapore Pte. Ltd. and their respective Affiliates, and (iii) the investors in the funds managedand/or advised by L Catterton Asia Advisors or L Catterton Singapore Pte. Ltd and Affiliates of such investors. 1 “Applicable Law” means, with respect to any Person, any transnational, domestic or foreign, state or local law (statutory, commonor otherwise), constitution, treaty, convention, ordinance, code, rule, regulation, order, injunction, judgment, decree, ruling or other similar requirementenacted, adopted, promulgated or applied by a Governmental Authority that is binding upon or applicable to such Person, as amended unless expresslyspecified otherwise. “Business Cooperation Agreement” means the business cooperation agreement to be entered into between the Company and LCatterton Asia Advisors, in substantially the same form attached hereto as Exhibit D, at or prior to Closing. “Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks in the People’s Republicof China (the “PRC” or “China”, which for the purpose of this Agreement shall exclude Hong Kong SAR, Macau SAR and Taiwan), Hong Kong SAR,Singapore or New York are required or authorized by law or executive order to be closed or on which a tropical cyclone warning no. 8 or above or a “black”rainstorm warning signal is hoisted in Hong Kong at any time between 9:00 a.m. and 5:00 p.m. Hong Kong time. “Class A Shares” means Class A ordinary shares, par value US$0.001 per share, in the share capital of the Company. “Class B Shares” means the Class B ordinary shares, par value US$0.001 per share, in the share capital of the Company. “Company SEC Documents” means all registration statements, proxy statements and other statements, reports, schedules, formsand other documents required to be filed or furnished by the Company with the SEC pursuant to the Exchange Act and the Securities Act and all exhibitsincluded therein and financial statements, notes and schedules thereto and documents incorporated by reference therein, in each case, filed or furnished withthe SEC prior to the date hereof. “Condition” means any condition to any Party’s obligation to effect the Closing as set forth in ARTICLE III, and collectively, the“Conditions”. “Director Indemnification Agreement” means the indemnification agreement to be entered into between the Company and thePurchaser Director, in substantially the same form attached hereto as Exhibit F, at or prior to Closing. “Employee Benefit Plan” means any written plan, program, policy, contract or other arrangement providing for severance,termination pay, deferred compensation, performance awards, share or share-related awards, housing funds, insurance arrangements, fringe benefits,perquisites, superannuation funds retirement benefits, pension schemes or other employee benefits, that is maintained, contributed to or required to becontributed to by the Company or any of its Subsidiaries for the benefit of any current or former employee, director, officer or independent contractor of theCompany or any of its Subsidiaries, or with respect to which the Company or any of its Subsidiaries has or would reasonably expect to have any liability orobligation, other than, in each case, one that is sponsored and maintained by a Governmental Authority; 2 “Environment” means land (including, without limitation, surface land, sub-surface strata and natural and man-made structures),water (including, without limitation, coastal and inland waters, surface waters, ground waters and water in drains and sewers), and air. “Environmental Law” means all Applicable Laws in relation to (i) pollution or contamination of the Environment; (ii) theproduction, storage, use, transport, disposal, release or discharge of hazardous substances; (iii) the exposure of any person or other living organism tohazardous substances; or (iv) the creation of any noise, vibration or other material adverse impact on the Environment. “Exchange Act” means the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulationspromulgated thereunder. “Fundamental Warranties” means any representations and warranties of the Company contained in Section 4.01(a) toSection 4.01(f) and Section 4.01(i). “GAAP” means generally accepted accounting principles in the United States. “Material Adverse Effect” with respect to a party shall mean any event, fact, circumstance or occurrence that, individually or in theaggregate with any other events, facts, circumstances or occurrences, results in or would reasonably be expected to result in a material adverse change in or amaterial adverse effect on (i) the financial condition, assets, liabilities, results of operations, business or operations of such party or its Subsidiaries taken as awhole, or (ii) the ability of such party to consummate the transactions contemplated by the Transaction Agreements and to timely perform its obligationshereunder and thereunder, except to the extent that any such material adverse effect results from (a) changes in generally accepted accounting principles thatare generally applicable to comparable companies (to the extent not materially disproportionately affecting such party or its Subsidiaries), (b) changes ingeneral economic and market conditions and capital market conditions or changes affecting any of the industries in which such party or its Subsidiariesoperate generally (in each case to the extent not materially disproportionately affecting such party or its Subsidiaries), (c) the announcement or disclosure ofthis Agreement or any other Transaction Agreement or the consummation of the transactions hereunder or thereunder, or any act or omission required orspecifically permitted by this Agreement and/or any other Transaction Agreement; (d) any pandemic, earthquake, typhoon, tornado or other natural disasteror similar force majeure event, (e) in the case of the Company, any failure to meet any internal or public projections, forecasts, or guidance, or (f) in the case ofthe Company, any change in the Company’s stock price or trading volume, in and of itself; provided, however, that the underlying causes giving rise to orcontributing to any such change or failure under sub-clause (e) or (f) shall not be excluded in determining whether a Material Adverse Effect has occurredexcept to the extent such underlying causes are otherwise excluded pursuant to any of sub-clauses (a) through (d). 3 “NASDAQ” means the Nasdaq Global Market. “Ordinary Shares” means collectively the Class A Shares and the Class B Shares. “Person” means an individual, corporation, partnership, limited liability company, association, trust or other entity ororganization. “Pre-IPO Investors” means, collectively, (i) IDG Technology Venture Investment IV, L.P., IDG-Accel China Growth Fund III L.P.and IDG-Accel China III Investors L.P.; (ii) Ventech ChinaII SICAR; (iii) Blue Lotus Investment SA; (iv) Bertelsmann Asia Investments AG; (v) VangooChina Growth Fund II L.P.; (vi) CMC Galaxy Holdings Ltd; (vii) Pingan eCommerce Limited Partnership and Rhythm Way Limited; and (viii) WJ InvestmentGroup Limited. “Pre-IPO Shareholders Agreement” means the amended and restated shareholders agreement dated July 8, 2015 entered intobetween, amongst others, the Company and the Pre-IPO Investors. “Sarbanes-Oxley Act” means the Sarbanes-Oxley Act of 2002, as amended. “SEC” means the Securities and Exchange Commission of the United States of America or any other federal agency at the timeadministering the Securities Act. “Securities Act” means the Securities Act of 1933, as amended, and all of the rules and regulations promulgated thereunder. “Subsidiary” of a party means any organization or entity, whether incorporated or unincorporated, which is controlled by suchparty and, for the avoidance of doubt, the Subsidiaries of a party shall include any variable interest entity over which such party or any of its Subsidiarieseffects control pursuant to contractual arrangements and which is consolidated with such party in accordance with generally accepted accounting principlesapplicable to such party and any Subsidiaries of such variable interest entity. Significant Subsidiaries is as defined in Article 1, Rule 1-02 of Regulation S-Xunder the U.S. Securities Exchange Act of 1934, as amended. “Transaction Agreements” include this Agreement, the Investor Rights Agreement, the Convertible Note Instrument, the WarrantInstrument, the Business Cooperation Agreement, the Director Indemnification Agreement, and each of the other agreements and documents entered into ordelivered by the parties hereto or their respective Affiliates in connection with the transactions contemplated by this Agreement. 4 (b) Each of the following terms is defined in the Section set forth opposite such term: Term Section“Agreement”Preamble“Bankruptcy and Equity Exception”4.01(b)“Claim Notice”6.02(a)“Closing”2.02(a)“Closing Date”2.02(a)“Company”Preamble“Confidential Information”7.11(a)“Control Contracts”4.01(aa)“Convertible Note”2.01“Convertible Note Instrument”2.01“Conversion Shares”2.01“Encumbrances”4.01(d)“ESOP”4.01(i)“Governmental Authority”3.01(a)“Indemnifying Party”6.01“Indemnified Party”6.01“Indemnity Notice”6.03“Intellectual Property”4.01(u)“Investor Rights Agreement”Recitals“Losses”6.01“Material Contracts”4.01(r)“Note Purchase Price”2.01“Permits”4.01(g)“Purchase Price”2.01“Purchased Securities”2.01“Purchaser Director”5.07“Purchaser”Preamble“Returns”4.01(w)“Tax”4.01(r)“Third Party Claim”6.02(a)“Warrant”2.01“Warrant Instrument”2.01“Warrant Purchase Price”2.01“Warrant Shares”2.01 (c) In this Agreement, except to the extent otherwise provided or that the context otherwise requires: (i) The words “Party” and “Parties” shall be construed to mean a party or the parties to this Agreement, and anyreference to a party to this Agreement or any other agreement or document contemplated hereby shall include such party’s successors and permittedassigns. (ii) When a reference is made in this Agreement to an Article, Section, Exhibit, Schedule or clause, such referenceis to an Article, Section, Exhibit, Schedule or clause of this Agreement. 5 (iii) The headings for this Agreement are for reference purposes only and do not affect in any way the meaning orinterpretation of this Agreement. (iv) Whenever the words “include,” “includes” or “including” are used in this Agreement, they are deemed to befollowed by the words “without limitation.” (v) The words “hereof,” “herein” and “hereunder” and words of similar import, when used in this Agreement, referto this Agreement as a whole and not to any particular provision of this Agreement. (vi) All terms defined in this Agreement have the defined meanings when used in any certificate or otherdocument made or delivered pursuant hereto, unless otherwise defined therein. (vii) The definitions contained in this Agreement are applicable to the singular as well as the plural forms of suchterms. (viii) The use of “or” is not intended to be exclusive unless expressly indicated otherwise. (ix) The term “$” means United States Dollars. (x) The word “will” shall be construed to have the same meaning and effect as the word “shall.” (xi) References to “law,” “laws” or to a particular statute or law shall be deemed also to include any and allApplicable Law. (xii) A reference to any legislation or to any provision of any legislation shall include any modification,amendment, re-enactment thereof, any legislative provision substituted therefor and all rules, regulations and statutory instruments issued or relatedto such legislation. (xiii) References herein to any gender include the other gender. (xiv) The Parties hereto have each participated in the negotiation and drafting of this Agreement and if anyambiguity or question of interpretation should arise, this Agreement shall be construed as if drafted jointly by the Parties hereto and no presumptionor burden of proof shall arise favoring or burdening any Party by virtue of the authorship of any of the provisions in this Agreement or any interimdrafts thereof. 6 ARTICLE IIPURCHASE AND SALE; CLOSING Section 2.01 Issuance, Sale and Purchase of the Purchased Securities. Upon the terms and subject to the conditions of this Agreement, at Closing (as defined below), the Purchaser hereby agrees to subscribe for andpurchase, and the Company hereby agrees to issue and sell to the Purchaser (i) a convertible note with the principal amount of US$175,000,000 (the“Convertible Note”), substantially in the form attached hereto as Exhibit B (the “Convertible Note Instrument”), convertible into certain number of Class AShares (the “Conversion Shares”) on, and subject to, the terms and conditions set forth in the Convertible Note Instrument, for a purchase price ofUS$175,000,000 (the “Note Purchase Price”); and (ii) a warrant (the “Warrant”, together with the Convertible Note, the “Purchased Securities”), substantiallyin the form attached hereto as Exhibit C (the “Warrant Instrument”), which entitles the Purchaser to purchase from the Company 500,000 ADSs (the “WarrantShares”) on, and subject to, the terms and conditions set forth in the Warrant Instrument, for a purchase price of US$1.00 (the “Warrant Purchase Price”,together with the Note Purchase Price, the “Purchase Price”). Section 2.02 Closing. (a) Closing. Subject to satisfaction or, to the extent permissible, waiver by the Party or Parties entitled to the benefit of therelevant Conditions, of all the Conditions (other than Conditions that by their nature are to be satisfied at Closing, but subject to the satisfaction or, to theextent permissible, waiver of those Conditions at Closing), the closing of the sale and purchase of the Purchased Securities pursuant to thisSection 2.02(a) (the “Closing”) shall take place remotely by electronic means on the earlier of (i) the 30th day after the date of this Agreement or (ii) any otherearlier time before the 30th day after the date of this Agreement as notified by the Investor in writing (the “Closing Date”), provided that such notice shall begiven at least 10 days prior to the Closing Date. The Purchaser shall not be obliged to complete the consummation of the sale and purchase of theConvertible Note unless the sale and purchase of the Warrant is completed simultaneously. (b) Payment and Delivery. At Closing, (i) the Purchaser shall deliver an irrevocable MT103 in respect of the electronic funds transfer in immediatelyavailable funds of the Purchase Price in U.S. dollars to such bank account designated in writing by the Company to the Purchaser at least ten(10) Business Days prior to Closing; and (ii) the Company shall deliver (1) the duly executed Convertible Note Instrument dated as of the Closing Date and issued in the name of thePurchaser; (2) the duly executed Warrant Instrument dated as of the Closing Date and issued in the name of the Purchaser; (3) a certified true copy of the register of directors of the Company showing the director and the observernominated by the Purchaser at the Closing Date as a director and an observer respectively of the board of directors of the Company pursuant toSection 5.07; and 7 (4) copies of all the written consents and waivers referred to in Section 3.02(c). (c) Restrictive Legend. Each certificate representing any Ordinary Shares received by the Purchaser after conversion or exerciseof the Purchased Securities on, and subject to, the terms and conditions set forth in the Convertible Note Instrument or Warrant Instrument (as the case maybe) shall be endorsed with the following legend: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (AS AMENDED, THE“SECURITIES ACT”) OR UNDER THE SECURITIES LAWS OF ANY OTHER JURISDICTIONS. THESE SECURITIES MAY NOT BETRANSFERRED, SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED: (A) IN THE ABSENCE OF (1) AN EFFECTIVE REGISTRATIONSTATEMENT UNDER THE SECURITIES ACT OR (2) AN EXEMPTION OR QUALIFICATION UNDER APPLICABLE SECURITIES LAWS, AND(B) UNLESS IN COMPLIANCE WITH THE CONVERTIBLE NOTE AND WARRANT PURCHASE AGREEMENT AMONG THE COMPANY ANDGREAT WORLD LUX PTE. LTD, DATED , 2018 (THE “PURCHASE AGREEMENT”) AND THE INVESTOR RIGHTS AGREEMENT AMONGTHE COMPANY AND GREAT WORLD LUX PTE. LTD AND CERTAIN OTHER PARTIES THEREIN, DATED , 2018 (THE “INVESTORRIGHTS AGREEMENT”). ANY ATTEMPT TO TRANSFER, SELL, PLEDGE OR HYPOTHECATE THIS SECURITY IN VIOLATION OF THESERESTRICTIONS OR ANY OTHER RESTRICTIONS SET FORTH IN THE PURCHASE AGREEMENT AND THE INVESTOR RIGHTSAGREEMENT SHALL BE VOID. ARTICLE IIICONDITIONS TO CLOSING Section 3.01 Conditions to Obligations of All Parties. (a) No United States or non-United States federal, national, supranational, state, provincial, local or similar government,governmental, regulatory or administrative authority, branch, agency or commission or any court, tribunal, or arbitral or judicial body (including any grandjury) (each, a “Governmental Authority”) shall have enacted, issued, promulgated, enforced or entered any law, rule, regulation, judgment, injunction, orderor decree (in each case, whether temporary, preliminary or permanent) that is in effect and restrains, enjoins, prevents, prohibits or otherwise makes illegal theconsummation of the transactions contemplated by the Transaction Agreements. (b) No action, suit, proceeding or investigation shall have been instituted or threatened by a Governmental Authority or anythird party that seeks to restrain, enjoin, prevent, prohibit or otherwise make illegal the consummation of the transactions contemplated by the TransactionAgreements. 8 Section 3.02 Conditions to Obligations of Purchaser. The obligations of the Purchaser to subscribe for, purchase and pay for thePurchased Securities as contemplated by this Agreement are subject to the satisfaction, on or before the Closing Date, of the following conditions, any ofwhich may be waived in writing by the Purchaser in its sole discretion: (a) The Fundamental Warranties shall have been true and correct in all respects on the date of this Agreement and true andaccurate on and as of the Closing Date as though such representations and warranties were made on and as of the Closing Date (except for representations andwarranties that expressly speak as of a specific date, in which case on and as of such specified date). Other representations and warranties of the Companycontained in Section 4.01 of this Agreement shall have been true and correct on the date of this Agreement, and true and correct in all material respects (or, ifqualified by materiality or Material Adverse Effect, true and correct in all respects) on and as of the Closing Date as though such representations andwarranties were made on and as of the Closing Date (except for representations and warranties that expressly speak as of a specified date, in which case on andas of such specified date). (b) The Company shall have performed and complied with all, and not be in breach or default in under any agreements,covenants, conditions and obligations contained in this Agreement that are required to be performed or complied with on or before the Closing Date in allmaterial aspects. (c) The Company shall have obtained (i) the written consent of the Pre-IPO Investors, who in aggregate hold no less than amajority of the outstanding Registrable Securities (as defined in the Pre-IPO Shareholders Agreement) as of the Closing Date, in accordance with clause 2.10of the Pre-IPO Shareholders Agreement with respect to the registration rights of any kind granted by the Company to the Purchaser under the TransactionAgreements and (ii) the written consent of SPD Bank with respect to the transactions contemplated by the Transaction Agreements as required under the SPDFinancing Documents, in each case in form and substance reasonably satisfactory to the Purchaser. (d) There shall have been no Material Adverse Effect with respect to the Company. (e) All corporate and other actions required to be taken by the Company in connection with the issuance and sale of thePurchased Securities and the Company’s execution, delivery and performance of this Agreement and the other Transaction Agreements and the transactionscontemplated hereby and thereby shall have been completed. (f) The board of directors of the Company shall have approved the appointment of a director and an observer nominated by thePurchaser pursuant to Section 5.07 to the board of directors of the Company, which shall be effective immediately upon Closing. (g) The Purchaser shall have received an opinion, dated the Closing Date, of Maples and Calder (Hong Kong) LLP, Caymancounsel to the Company, substantially in the form as set forth in Exhibit E. 9 (h) No stop order or suspension of trading shall have been imposed by NASDAQ, the SEC or any other Governmental Authoritywith respect to the public trading of the ADSs. (i) The Company shall have duly executed and delivered or shall have caused to be duly executed and delivered eachTransaction Agreement to which it is a party to the Purchaser at or prior to Closing. Section 3.03 Conditions to Obligations of the Company. The obligation of the Company to issue and sell the Purchased Securities tothe Purchaser as contemplated by this Agreement are subject to the satisfaction, on or before the Closing Date, of each of the following conditions, any ofwhich may be waived in writing by the Company in its sole discretion: (a) The representations and warranties of the Purchaser contained in Section 4.02 of this Agreement shall have been true andcorrect in all material respects (or, if qualified by materiality or Material Adverse Effect, true and correct in all respects) on the date of this Agreement and onand as of the Closing Date as though such representations and warranties were made on and as of the Closing Date; provided that each representation andwarranty of the Purchaser contained in Sections 4.02(a) to 4.02(c) of this Agreement shall have been true and correct in all respects on the date of thisAgreement and on and as of the Closing Date as though such representations and warranties were made on and as of the Closing Date. (b) The Purchaser shall have performed and complied with all, and not be in breach or default under any, agreements,covenants, conditions and obligations contained in this Agreement that are required to be performed or complied with on or before the Closing Date. (c) The Purchaser shall have duly executed and delivered each Transaction Agreement to which it is a party to the Company ator prior to Closing. ARTICLE IVREPRESENTATIONS AND WARRANTIES Section 4.01 Representations and Warranties of the Company. The Company hereby represents and warrants to the Purchaser, as of thedate hereof and as of the Closing Date that, except as set forth in the Company SEC Documents: (a) Due Formation. The Company is an exempted company, duly incorporated, validly existing and in good standing underthe laws of the Cayman Islands. Each of the Company and the Company’s Subsidiaries is duly formed, validly existing and in good standing in thejurisdiction of its organization. Each of the Company and the Subsidiaries has all requisite power and authority to carry on its business as it is currentlybeing conducted. (b) Authority; Valid Agreement. The Company has all requisite legal power and authority to execute, deliver and perform itsobligations under the Transaction Agreements to which it is a party and each other agreement, certificate, document and instrument to be executed by theCompany pursuant to this Agreement and each other Transaction Agreement. The execution, delivery and performance by the Company of this Agreementand each other Transaction Agreement to which it is a party and the performance by the Company of its obligations hereunder and thereunder have been dulyauthorized by all necessary corporate action on the part of the Company. This Agreement has been, and each other Transaction Agreements to which it is aparty will be duly executed and delivered by the Company and, assuming due authorization, execution and delivery by the Purchaser, constitutes (or, whenexecuted and delivered in accordance herewith will constitute) a legal, valid and binding obligation of the Company, enforceable against the Company inaccordance with its terms, except as enforcement may be limited by general principles of equity, whether applied in a court of law or a court of equity, and byapplicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar law affecting creditors’ rights and remedies generally (the“Bankruptcy and Equity Exception”). Without limiting the generality of the foregoing, as of Closing, no approval by the shareholders of the Company isrequired in connection with this Agreement or other Transaction Agreements, the performance by the Company of its obligations hereunder or thereunder, orthe consummation by the Company of the transactions contemplated hereby or thereby, except for those that have been obtained, waived or exempted at orprior to Closing. 10 (c) Convertible Note. The Convertible Note, when issued and delivered by the Company, will constitute direct, unconditional,unsecured and unsubordinated obligations of the Company and will at all times rank pari passu with all other present and future unconditional andunsubordinated obligations of the Company (other than those preferred by Applicable Law that are mandatory and of general application). (d) Conversion Shares and Warrant Shares. The Conversion Shares and the Warrant Shares have been duly and validlyauthorized for issuance by the Company and, when issued and delivered by the Company to the Purchaser in accordance with the terms of the ConvertibleNote Instrument and Warrant Instrument respectively, will be (i) duly and validly issued, fully paid and non-assessable, and rank pari passu with, and carrythe same rights in all aspects as, the other Class A Shares then in issue, (ii) entitled to all dividends and other distributions declared, paid or made thereon,and (iii) free and clear of any pledge, mortgage, security interest, encumbrance, lien, charge, assessment, right of first refusal, right of pre-emption, third partyright or interest, claim or restriction of any kind or nature, except for restrictions arising under the Securities Act or as disclosed in the Company SECDocuments or created by virtue of the transactions under this Agreement (collectively, the “Encumbrances”). Upon entry of the Purchaser into the register ofmembers of the Company as the legal owner of the relevant Conversion Shares and/or Warrant Shares, the Company will transfer to the Purchaser good andvalid title to such relevant Conversion Shares and/or Warrant Shares respectively, in each case free and clear of any Encumbrances. (e) Non-contravention. None of the execution and the delivery of this Agreement and other Transaction Agreements, nor theconsummation of the transactions contemplated hereby or thereby, will (i) violate any provision of the organizational documents of the Company, (ii) violateany constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental entity orcourt to which the Company is subject, or (iii) conflict with, result in a breach of, constitute a default under, result in the acceleration of or creation of anyEncumbrances under, or create in any party the right to accelerate, terminate, modify, or cancel, any agreement, contract, lease, license, instrument, or otherarrangement to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound or to which any of theCompany’s or any of its Subsidiaries’ assets are subject, except, in the case of (ii) and (iii) above, for such conflicts, breach, defaults, rights or violations,which would not reasonably be expected to result in a Material Adverse Effect. There is no action, suit or proceeding, pending or, to the knowledge of theCompany, threatened against the Company that questions the validity of the Transaction Agreements or the right of the Company to enter into thisAgreement or to consummate the transactions contemplated hereby or thereby. 11 (f) Consents and Approvals. None of the execution and delivery by the Company of this Agreement or any TransactionAgreement, nor the consummation by the Company of any of the transactions contemplated hereby or thereby, nor the performance by the Company of thisAgreement or other Transaction Agreements in accordance with their respective terms requires the consent, approval, order or authorization of, or registrationwith, or the giving notice to, any governmental or public body or authority or any third party, except such as have been or will have been obtained, made orgiven on or prior to the Closing Date and except for any filing or notification required to made with the SEC or NASDAQ regarding the issuance of thePurchased Securities, the Conversion Shares or the Warrant Shares. (g) Compliance with Laws. The business of the Company and its Subsidiaries is not being conducted, and has not beenconducted at any time during the three years prior to the date hereof, in violation of any applicable law (including, without limitation, the U.S. ForeignCorrupt Practices Act, the UK Bribery Act 2010 and the PRC anti-bribery laws, in each case as supplemented, amended, re-enacted or replaced from time totime) or government order applicable to the Company in any material respect. Except as disclosed in the Company SEC Documents, the Company and eachof its Subsidiaries have all permits, licenses, authorizations, consents, orders and approvals in material respects (collectively, “Permits”) that are required inorder to carry on their business as presently conducted. Except as disclosed in the Company SEC Documents, all such Permits are in full force and effect and,to the knowledge of the Company, no suspension or cancellation of any of them is threatened. The Company has complied with the applicable listing andcorporate governance rules and regulations of the NASDAQ in all material respects. The Company and its Subsidiaries have taken no action designed to, orreasonably likely to have the effect of, delisting the ADSs from the NASDAQ. There are no proceedings pending or, to the Company’s knowledge, threatenedagainst the Company relating to the continued listing of the ADSs on NASDAQ and the Company has not received any notification that the SEC or theNASDAQ is contemplating suspending or terminating such listing (or the applicable registration under the Exchange Act related thereto). (h) Information. All information which has been provided by or on behalf of the Company or its authorized representatives tothe Purchaser, its advisers or agents in the course of the due diligence conducted by the Purchaser and the negotiation leading to this Agreement and theother Transaction Agreements is true, complete and accurate. 12 (i) Capitalization. (i) The authorized capital stock of the Company consists of 150,000,000 Ordinary Shares, of which 18,708,629Class A Shares (including 1,307,672 Class A Shares that have been issued to the Company’s depositary under the 2017 Share Incentive Plan of theCompany as disclosed in the Company SEC Documents (the “ESOP”)) and 6,571,429 Class B Shares are issued and outstanding as of the datehereof. As of the date of this Agreement, 213,259 Class A Shares are reserved and available for issuance pursuant to the ESOP. Except as set forth inthe ESOP, the Company has no outstanding bonds, debentures, notes or other obligations, the holders of which have the right to vote (or which areconvertible into or exercisable for securities having the right to vote) with the shareholders of the Company on any matter. All issued andoutstanding Ordinary Shares have been duly authorized and validly issued and are fully paid and non-assessable, are free of preemptive rights, wereissued in compliance with applicable U.S. and other applicable securities laws and were not issued in violation of any preemptive right, resale right,right of first refusal, or similar right and the ADSs have been duly listed and admitted and authorized for trading on the NASDAQ. (ii) Except as set forth above in this Section 4.01(i), there are no outstanding (A) shares of capital stock or votingsecurities of the Company, (B) securities of the Company convertible into or exchangeable for shares of capital stock or voting securities of theCompany or (C) preemptive or other outstanding rights, options, warrants, conversion rights, “phantom” stock rights, stock appreciation rights,redemption rights, repurchase rights, agreements, arrangements, calls, commitments or rights of any kind that obligate the Company to issue or sellany shares of capital stock or other securities of the Company or any securities or obligations convertible or exchangeable into or exercisable for, orgiving any person a right to subscribe for or acquire, any securities of the Company, and no securities or obligations evidencing such rights areauthorized, issued or outstanding. (iii) Except as disclosed in the Company SEC Documents, to the knowledge of the Company, there are noregistration rights, rights of first offer, rights of first refusal, tag-along rights with respect to the securities of the Company or any Subsidiary of theCompany that have been granted to any Person. (iv) All outstanding shares of capital stock or other securities or ownership interests of the Subsidiaries are dulyauthorized, validly issued, fully paid and non-assessable and all such shares or other securities or ownership interests in any Subsidiary (except forany Subsidiary which is a variable interest entity over which the Company or any of its Subsidiaries effects control pursuant to the ControlContracts) are owned, directly or indirectly, by the Company free and clear of any Encumbrance. (j) SEC Matters. The Company has filed or furnished, as applicable, on a timely basis, all registration statements, proxystatements and other documents required to be filed or furnished by it with the SEC, including the Company SEC Documents. None of the Subsidiaries isrequired to file periodic reports with the SEC pursuant to the Exchange Act. As of their respective effective dates (in the case of the Company SECDocuments that are registration statements filed pursuant to the requirements of the Securities Act) and as of their respective SEC filing dates (in the case ofall other Company SEC Documents), or in each case, if amended prior to the date hereof, as of the date of the last such amendment: (A) each of the CompanySEC Documents complied in all material respects with the applicable requirements of the Securities Act or the Exchange Act and the Sarbanes-Oxley Act of2002, as amended, and any rules and regulations promulgated thereunder applicable to the Company SEC Documents (as the case may be) and (B) none ofthe Company SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary inorder to make the statements therein, in the light of the circumstances under which they were made, not misleading. 13 (k) Financial Statements. (i) The financial statements (including any related notes) contained in the Company SEC Documents: (A) compliedas to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto,(B) were prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby (except (a) as may be otherwisespecifically provided in such financial statements or the notes thereto, or (b) in the case of unaudited interim statements, to the extent they mayexclude footnotes or may be condensed to summary statements) and (C) fairly present in all material respects the consolidated financial position ofthe Company and the Subsidiaries as of the respective dates thereof and the consolidated results of operations and cash flows of the Company and itsSubsidiaries for the periods covered thereby (other than as may have corrected or clarified in a subsequent Company SEC Document), in each caseexcept as disclosed therein and as permitted under the Exchange Act. (ii) Neither the Company nor any of its Subsidiaries is a party to, nor has any commitment to become a party to, anyjoint venture, off-balance sheet partnership or any similar contract, agreement, arrangement or undertaking (including any contract, agreement,arrangement or undertaking relating to any transaction or relationship between or among one or more of the Company and/or any of its Subsidiaries,on the one hand, and any unconsolidated Affiliate, including any structured finance, special purpose or limited purpose entity or Person, on theother hand), or any “off-balance sheet arrangements” (as defined in Item 303(a) of Regulation S-K promulgated by the SEC), where the result,purpose or intended effect of such contract, agreement, arrangement or undertaking is to avoid disclosure of any material transaction involving, ormaterial liabilities of, the Company or any of the Subsidiaries in the Company’s or such Subsidiary’s published financial statements or otherCompany SEC Documents. (l) Internal Control and Procedures. The Company has established and maintains a system of internal control over financialreporting (as defined in Rule 13a-15 or 15d-15, as applicable, under the Exchange Act) sufficient to provide reasonable assurance regarding the reliability offinancial reporting, including policies and procedures that (A) mandate the maintenance of records that in reasonable detail accurately and fairly reflect thematerial transactions and dispositions of the assets of the Company, (B) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance withappropriate authorizations of management and the board of directors of the Company and (C) provide reasonable assurance regarding prevention or timelydetection of unauthorized acquisition, use or disposition of the assets of the Company. Save as disclosed in the Company SEC Documents, there are nomaterial weaknesses or significant deficiencies in the Company’s internal controls. The Company’s auditors and the audit committee of the board ofdirectors of the Company have not been advised of any fraud, whether or not material, that involves management or other employees who have a significantrole in the Company’s internal controls over financial reporting. Since December 31, 2014, there has been no change in the Company’s internal control overfinancial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting, except forthe implementation of certain measures to address the material weakness in the Company’s internal control over financial reporting that has been disclosed inthe Company SEC Documents. 14 (m) No Undisclosed Liabilities. There are no liabilities of the Company or any Subsidiary of any kind, whether accrued,contingent, absolute, determined, determinable or otherwise, and there is no existing condition, situation or set of circumstances which could reasonably beexpected to result in such a liability, other than: (i) liabilities reflected on, reserved against, or disclosed in the Company’s unaudited consolidated balancesheet as of March 31, 2018, (ii) liabilities incurred since March 31, 2018 in the ordinary course of business consistent with past practices, (iii) any otherundisclosed liabilities that are not material to the Company and its Subsidiaries on a consolidated basis, and (iv) any liabilities incurred as a result of theCompany’s performing the transactions contemplated by any Transaction Agreement. There are no unconsolidated Subsidiaries of the Company or any off-balance sheet arrangements of any type (including any off-balance sheet arrangement required to be disclosed pursuant to Item 303(a)(4) of Regulation S-Kpromulgated under the Securities Act) that have not been so described in the Company SEC Documents nor any obligations to enter into any sucharrangements. (n) Investment Company. The Company is not and, after giving effect to the offering and sale of the Purchased Securities, theconsummation of the offering and the application of the proceeds hereof, will not be an “investment company,” as such term is defined in the U.S. InvestmentCompany Act of 1940, as amended. (o) No Registration. Assuming the accuracy of the representations and warranties set forth in Section 4.02 of this Agreement, itis not necessary in connection with the issuance and sale of the Purchased Securities (and, when issued, the Conversion Shares and the Warrant Shares) toregister the Purchased Securities (and, when issued, the Conversion Shares and the Warrant Shares) under the Securities Act or to qualify or register themunder applicable U.S. state securities laws. No directed selling efforts (as defined in Rule 902 of Regulation S under the Securities Act) have been made byany of the Company, any of its Affiliates or any person acting on its behalf with respect to any Purchased Securities; and none of such Persons has taken anyactions that would result in the sale of the Purchased Securities to the Purchaser under this Agreement requiring registration under the Securities Act; and theCompany is a “foreign issuer” (as defined in Regulation S). 15 (p) Brokers. The Company has not dealt with any broker, finder, commission agent, placement agent or arranger in connectionwith the sale of the Purchased Securities, and the Company is not under any obligation to pay any broker’s fee or commission in connection with the sale ofthe Purchased Securities. (q) Absence of Changes. Since March 31, 2018, the Company and its Subsidiaries have conducted their business in theordinary course of business consistent with past practice and there has not been (i) any declaration, setting aside or payment of any dividend or other distribution with respect to any securities ofthe Company or any of its Subsidiaries (except for dividends or other distributions by any Subsidiary to the Company or to any of the Company’swholly owned Subsidiaries); (ii) any issuances or sales of shares of capital stock or other securities or obligations convertible or exchangeableinto or exercisable for, or giving any person a right to subscribe for or acquire, any securities of the Company or any of its Subsidiaries or anyredemption, share splits, reclassifications, share dividends, share combinations or other recapitalizations of any such securities other than pursuant toany Employee Benefit Plan effective as at the date of this Agreement; (iii) any amendment to the constitutional documents of the Company; (iv) any redemption or repurchase of any equity securities of the Company; or (v) any entry into any contract, agreement, instrument or other document in respect of any of the foregoing. (r) Contracts. The Company has filed as exhibits to the Company SEC Documents all contracts, agreements and instruments(including all amendments thereto) to which the Company or any of its Subsidiaries is a party or by which it is bound and which is material to the business ofthe Company and its Subsidiaries, taken as a whole, and are required to be filed as an exhibit to the Company SEC Documents pursuant to Item 601(b)(4) orItem 601(b)(10) of Regulation S-K promulgated by the SEC(the “Material Contracts”). Each Material Contract is in full force and effect and, to theknowledge of the Company, enforceable against the counterparties of the Company or the Subsidiaries party thereto, except for the contracts and agreementsthat have already expired pursuant to the terms therein (which for the avoidance of doubt excludes those contracts or agreements that had been terminated bythe other party thereto for cause). The Company and its Subsidiaries and, to the knowledge of the Company, each other party thereto, are not in defaultunder, or in breach or violation of, any Material Contract, in all material respects. To the Company’s knowledge, no event, fact or circumstance has occurredthat will have or is reasonably expected to have a material adverse impact on the renewal or extension of any Material Contract. 16 (s) Litigation. Except as disclosed in the Company SEC Documents and to the knowledge of the Company, any officer anddirector of the Company or any of its Subsidiaries in their capacities as such, there are no pending or threatened material actions, claims, demands,investigations, examinations, indictments, litigations, suits or other criminal, civil or administrative or investigative proceedings before or by anyGovernmental Authority or by any other person against the Company or any of its Subsidiaries or any proceedings that seek to restrain or enjoin theconsummation of the transactions under the Transaction Agreements. (t) Ownership of Assets. The Company and its Subsidiaries have good and marketable title to, or in the case of leased propertyand assets, have valid leasehold interests in, all property and assets (whether real, personal, tangible or intangible) reflected on the Company’s consolidatedunaudited balance sheet as of March 31, 2018 or acquired thereafter, except for properties and assets sold since such date in the ordinary course of businessconsistent with past practices and except where the failure to have such good and marketable title or valid leasehold interests would not have a MaterialAdverse Effect. (u) Intellectual Property. All registered or unregistered, (i) patents, patentable inventions and other patent rights (includingany divisions, continuations, continuations-in-part, reissues, reexaminations and interferences thereof); (ii) trademarks, service marks, trade dress, tradenames, taglines, brand names, logos and corporate names and all goodwill related thereto; (iii) copyrights, mask works and designs; (iv) trade secrets, know-how, inventions, processes, procedures, databases, confidential business information and other proprietary information and rights; (v) computer softwareprograms, including all source code, object code, specifications, designs and documentation related thereto; and (vi) domain names, Internet addresses andother computer identifiers, in each case that is material to the business of the Company or any of its Subsidiaries as currently being conducted (the“Intellectual Property”) is either (a) owned by the Company or one or more of its Subsidiaries or (b) is used by the Company or one or more of its Subsidiariespursuant to a valid license. To the knowledge of the Company, there are no material infringements or other material violations of any Intellectual Propertyowned by the Company or any of its Subsidiaries by any third party. The Company and its Subsidiaries have taken all necessary actions to maintain andprotect each item of Intellectual Property. The conduct of the business of the Company and its Subsidiaries does not infringe or otherwise violate anyintellectual property or other proprietary rights of any other person in material respects, and there is no action pending or, to the knowledge of the Company,threatened alleging any such infringement or violation or challenging the Company’s or any of its Subsidiaries’ rights in or to any Intellectual Propertywhich, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 17 (v) Employment Matters. (i) Neither the Company nor any of its Significant Subsidiaries is a party to or bound by any collectivebargaining agreement or other labor union contract applicable to persons employed by the Company or any of its Significant Subsidiaries. There areno unfair labor practice complaints pending, or to the knowledge of the Company, threatened, against the Company or any of its SignificantSubsidiaries before any Governmental Authority. Each of the Company and its Subsidiaries complies with all Applicable Laws relating toemployment and employment practices (including without limitation, terms and conditions of employment, termination of employment, mandatoryseverance benefits, pension programs, social insurance programs, employee health and safety, equal employment, employment of veterans and thehandicapped, and prohibition of discrimination) in all material aspects. There is no material claim with respect to payment of wages, salary, overtimepay, withholding individual income taxes, social security fund or housing fund that has been asserted and is now pending or, to the knowledge ofthe Company, threatened before any Governmental Authority with respect to any persons currently or formerly employed by the Company or any ofits Significant Subsidiaries. (ii) Each Employee Benefit Plan is in compliance in all material respects with its terms and the requirements ofall Applicable Laws. All employer and employee contributions to each Employee Benefit Plan required by the terms of such Employee Benefit Planor by the Applicable Laws have been made, or, if applicable, accrued in accordance with normal accounting practices and in compliance in allmaterial respects with its terms and the requirements of all Applicable Laws. Each Employee Benefit Plan required to be registered has beenregistered and has been maintained in good standing with applicable Governmental Authorities. (w) Tax Status. Except as disclosed in the Company SEC Documents, the Company and each of its Subsidiaries (i) has madeor filed in the appropriate jurisdictions all material foreign, federal and state income and all other tax returns required to be filed or maintained in connectionwith the calculation, determination, assessment or collection of any and all federal, state, local, foreign and other taxes, levies, fees, imposts, duties,governmental fees and charges of whatever kind (including any interest, penalties or additions to the tax imposed in connection therewith or with respectthereto) (each a “Tax”), including all amended returns required as a result of examination adjustments made by any Governmental Authority responsible forthe imposition of any Tax (collectively, the “Returns”), and such Returns are true, correct and complete in all material respects, and (ii) has paid all materialTaxes and other governmental assessments and charges shown or determined to be due on such Returns, except those being contested or will be contested ingood faith. Except as disclosed in the Company SEC Documents, neither the Company nor any of its Subsidiaries has received notice regarding unpaidforeign, federal and state income in any amount or any Taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and theCompany is not aware of any reasonable basis for such claim. No Returns filed by or on behalf of the Company or any of its Subsidiaries with respect tomaterial Taxes are currently being audited, and neither the Company nor any of its Subsidiaries has received notice of any such audit. (x) Tax Election. No Tax elections under the income tax laws of the United States have been made with respect to theCompany or any of its Subsidiaries other than Secoo Inc. None of the Company or any of its Subsidiaries is, or is at risk of being or becoming, classified as a“passive foreign investment company” or a “controlled foreign corporation” for United States federal income tax purposes. 18 (y) Solvency. Both before and after giving effect to the transactions contemplated by this Agreement and other TransactionAgreements, each of the Company and its Subsidiaries (i) will be solvent (in that both the fair value of its assets will not be less than the sum of its debts andthat the present fair saleable value of its assets will not be less than the amount required to pay its probable liability on its recourse debts as they mature orbecome due) and (ii) will have adequate capital and liquidity with which to engage in the their businesses as currently conducted and as described in theCompany SEC Documents. (z) Transactions with Affiliates and Employees. All related party transactions required to be disclosed under applicablerules of the NASDAQ or the applicable securities law have been accurately described in the Company SEC Documents in all material respects. Any suchrelated party transaction was entered into on terms and conditions no less favorable to the Company or its applicable Subsidiary than those applicable incomparable transactions between independent parties acting at arm’s length. (aa) Variable Interest Entities. The Company controls its variable interest entities, Beijing Wo Mai Wo Pai Auction Co., Ltd.and Beijing Secoo Trading Limited, through a series of contractual arrangements (“Control Contracts”), and there is no enforceable agreement orunderstanding to rescind, amend or change the nature of such captive structure or the terms of the Control Contracts. (bb) Environment. Each of the Company and its Subsidiaries (i) has at all times complied and are presently in compliance withall applicable Environmental Laws in all material respects; (ii) has not received any notice, demand, claim, letter or request for information, relating to anyalleged violation of Environmental Law, or otherwise identifies an environmental concern, health and safety concern or any other concern relating to thesecurity and protection of people, property, flora and fauna relating thereto; (iii) possesses all approvals, consents or authorizations required underEnvironmental Laws for its business as presently conducted and there are no circumstances that could reasonably be expected to result in any such approvals,consents or authorizations being revoked, terminated, revised, amended or not renewed in the ordinary course of its business. There has been no incident ofany occupational disease incurred by any employees of the Company or any of its Subsidiaries due to harmful factors present in their working environment orthe nature of their work, and there are no other circumstances or conditions. Section 4.02 Representations and Warranties of the Purchaser. The Purchaser hereby represents and warrants to the Company as of thedate hereof and as of Closing, as follows: (a) Due Formation. The Purchaser is duly formed, validly existing and in good standing in the jurisdiction of its organization. The Purchaser has all requisite power and authority to carry on its business as it is currently being conducted. 19 (b) Authority. The Purchaser has full power and authority to enter into, execute and deliver this Agreement and otherTransaction Agreements to which it is to become a party and each other agreement, certificate, document and instrument to be executed and delivered by thePurchaser pursuant to this Agreement and each other Transaction Agreement and to perform its obligations hereunder and thereunder. The execution anddelivery by the Purchaser of this Agreement and each other Transaction Agreement to which it is or is to become a party and the performance by the Purchaserof its obligations hereunder and thereunder have been duly authorized by all requisite actions on its part. (c) Valid Agreement. This Agreement has been, and each other Transaction Agreement to which it is to become a party will be,duly executed and delivered by the Purchaser and, assuming the due authorization, execution and delivery by the Company, constitutes (or, when executedand delivered in accordance herewith will constitute), the legal, valid and binding obligation of the Purchaser, enforceable against the Purchaser inaccordance with its terms, subject to the Bankruptcy and Equity Exception and except as limited by laws relating to the availability of specific performance,injunctive relief, or other equitable remedies. (d) Non-contravention. None of the execution and the delivery of this Agreement or any other Transaction Agreement, nor theconsummation of the transactions contemplated hereby or thereby, by the Purchaser will violate any provision of the organizational documents of thePurchaser or violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government,governmental entity or court to which the Purchaser is subject. (e) Consents and Approvals. None of the execution and delivery by the Purchaser of this Agreement and the TransactionAgreements to which the Purchaser is to become a Party, nor the consummation by the Purchaser of any of the transactions contemplated hereby or thereby,nor the performance by the Purchaser of this Agreements or any such Transaction Agreement in accordance with its terms requires the consent, approval, orderor authorization of, or registration with, or the giving notice to, any governmental or public body or authority or any third party, except such as have been orwill have been obtained, made or given at or prior to Closing. (f) Status and Investment Intent. (i) Experience. The Purchaser has sufficient knowledge and experience in financial and business matters so asto be capable of evaluating the merits and risks of its investment in the relevant Purchased Convertible Note. The Purchaser is capable of bearing theeconomic risks of such investment, including a complete loss of its investment. (ii) Purchase Entirely for Own Account. The Purchaser is acquiring the Purchased Securities pursuant to thisAgreement for investment for its own account for investment purposes only and not with the view to, or with any intention of, resale, distribution orother disposition thereof in a manner that would violate the registration requirements of the Securities Act. 20 (iii) Restricted Securities. The Purchaser acknowledges that the Purchased Securities are “restricted securities”that have not been registered under the Securities Act or any applicable state securities law. The Purchaser further acknowledges that, absent aneffective registration under the Securities Act, the Securities may only be offered, sold or otherwise transferred (x) to the Company, (y) outside theUnited States in accordance with Rule 904 of Regulation S under the Securities Act, or (z) pursuant to an exemption from registration under theSecurities Act. (iv) Not a U.S. Person. The Purchaser is either (i) not a “U.S. person” as defined in Rule 902 of Regulation S, or(ii) an “accredited investor” within the meaning of Rule 501(a) under Regulation D of the Securities Act. ARTICLE VCOVENANTS Section 5.01 Conduct of Business of the Company. From the date hereof until the Closing Date, (a) the Company shall, and the Company shall cause each of its Subsidiaries to (i) conduct its business and operations in theordinary course of business consistent with past practice, and (ii) not take any action, or omit to take any action, that would reasonably be expected to makeany of its representations and warranties in this Agreement untrue at, or as of any time before, the Closing Date; (b) the Company shall (i) take all actions necessary to continue the listing and trading of its ADSs on the NASDAQ and shallcomply with the Company’s reporting, filing and other obligations under the rules of the NASDAQ, and (ii) file with the NASDAQ a supplemental listingapplication in respect of the Conversion Shares and the Warrant Shares, when issued and delivered in the manner contemplated by the Convertible NoteInstrument and the Warrant Instrument respectively; and (c) the Company shall promptly notify the Purchaser of any event, condition or circumstance occurring prior to the ClosingDate that would constitute a breach of any terms and conditions contained in this Agreement. Section 5.02 FPI Status. Without limiting the generality of the foregoing, the Company shall promptly after the date hereof andreasonably prior to Closing take all necessary or desirable actions required to duly and validly rely on the exemption for foreign private issuers fromapplicable rules and regulations of the NASDAQ with respect to corporate governance to rely on “home country practice” in connection with the transactionscontemplated hereunder (including an exemption from any NASDAQ rules that would otherwise require seeking shareholder approval in respect of suchtransactions), including without limitation, to the extent necessary, making disclosures, notices and filings to or with the SEC and NASDAQ and obtaining anadequate opinion of counsel in respect of the home country practice exemption. The Company will use commercially reasonable efforts to continue thelisting and trading of its ADSs on NASDAQ and, in accordance, therewith, will use commercially reasonable efforts to comply in all respects with theCompany’s reporting, filing and other obligations under the bylaws or rules of such market or exchange, as applicable. 21 Section 5.03 Exclusivity. During the period from the date of this Agreement and continuing until the earlier of the termination of thisAgreement pursuant to Section 7.14 hereof or the Closing Date, the Company agrees not to initiate, solicit, encourage or engage in any discussion ornegotiation of any type with, provide any information to, accept any proposal from, or enter into any letter of intent, purchase contract or any other similaragreement, or consummate any transaction, with any Persons other than the Purchaser with respect to the issuance, sale, grant, transfer, purchase or otheracquisition by any such Person of any Company Securities (as defined in the Investor Rights Agreement) other than pursuant to the Employee Benefit Planeffective as at the date of this Agreement, except with the Purchaser’s prior written consent; provided, that if the Purchaser grants such consent, and therelevant transaction contains terms and conditions with respect to the subscription or purchase of securities of the Company, or has the effect of establishingany investor or shareholder rights or benefits to such Person, that are in each case more favorable than the comparable terms and conditions or rights orbenefits of the Purchaser under this Agreement or the other Transaction Agreements, the Company shall also with no further action required by the Purchaserbe deemed to have offered all such terms and conditions, rights or benefits, mutatis mutandis, to the Purchaser. Section 5.04 Further Assurances. From the date of this Agreement until Closing, the Parties shall each use their respective reasonablebest efforts to fulfill or obtain the fulfillment of the conditions precedent to the consummation of the transactions contemplated hereby and by theTransaction Agreements. Section 5.05 No Contract. Without limiting the generality of the foregoing, the Company agrees that from the date hereof until theClosing Date, it shall not make (or otherwise enter into any contract with respect to) (x) any material change in any method of accounting or accountingpractice by the Company or any of its Subsidiaries; (y) any declaration, setting aside or payment of any dividend or other distribution with respect to anysecurities of the Company or any of its Subsidiaries (except for dividends or other distributions by any Subsidiary to the Company or to any of theCompany’s Subsidiaries) or (z) any redemption, repurchase or other acquisition of any share capital of the Company or any of its Subsidiaries, except in eachcase for the avoidance of doubt as contemplated by the Transaction Agreements. Section 5.06 Reservation of Shares. The Company shall ensure that it has sufficient number of duly authorized Ordinary Shares tocomply with its obligations to issue the Conversion Shares and Warrant Shares pursuant to the Convertible Note Instrument and the Warrant Instrumentrespectively. Section 5.07 Director and Observer Appointment. The Company shall take all necessary or desirable actions as may be required underApplicable Law and in accordance with its memorandum and articles of association to cause (i) one individual designated by the Purchaser as a director (the“Purchaser Director”), and (ii) one individual designated by the Purchaser as an observer, in each case to be appointed to the Board at Closing. ThePurchaser’s director and observer appointment rights stated in Section 5.07 herein shall expire on the date when the Purchaser’s equity interest falls below 5%of all issued and outstanding share capital of the Company on a fully diluted basis as if the Purchaser has fully converted and exercised the Convertible Noteand the Warrant. 22 Section 5.08 No Integrated Offering. The Company shall not, and shall cause its Affiliates and any Person acting on its or their behalfnot to, directly or indirectly, make any offers or sales of any security or solicit any offers to buy any security, under circumstances that would requireregistration of the issuance of any of the Purchased Securities (and, when issued, the Conversion Shares and the Warrant Shares) under the Securities Actwhether through integration with prior offerings or otherwise. Section 5.09 Use of Proceeds. The Company undertakes to reserve and dedicate US$25 million of the Purchase Price solely for(i) renovation of offline experience centers, (ii) onboarding corner-stone brands and opening offline stores in selective cities, (iii) hiring of global talents forbusiness expansion, (iv) investment in branding and marketing, and/or (v) any other purposes as approved by the Purchaser from time to time. Section 5.10 US Tax Election. At the request of the Purchaser, the Company shall, and shall cause its Subsidiaries to, cooperate withthe Purchaser in (i) the prompt preparation and filing of ‘check the box’ elections effective at least two (2) days prior to Closing to specify the US taxclassification of the Company and/or any such Subsidiary, (ii) the prompt conversion of the Company and/or any of its Subsidiaries that is not currentlyeligible to make a check the box election into a company form which is eligible to make such an election, and (iii) taking any other action that is reasonablyrequested to enhance, rationalize, and/or simplify the US tax treatment of the Company and its Subsidiaries; it being understood that (x) no check the boxelection shall have any bearing on the tax treatment or legal status of the subject entity for non-US purposes, (y) no conversion or action shall be undertakenas described above if it is determined that doing so would have an adverse impact on either the Company or any of its Subsidiaries, and (z) the reasonablecosts and expenses incurred in this connection shall be promptly paid or reimbursed by the Purchaser. ARTICLE VIINDEMNIFICATION Section 6.01 Indemnification. From and after the Closing Date and subject to Section 6.04, the Company (the “Indemnifying Party”),shall indemnify and hold the Purchaser, its Affiliates and their respective directors, officers, agents, successors and assigns (collectively, the “IndemnifiedParty”) harmless from and against any losses, claims, damages, liabilities, judgments, fines, obligations, expenses and liabilities, including but not limited toany investigative, legal and other expenses incurred and any Taxes or levies that may be payable by reason of the indemnification of any indemnifiable losshereunder (collectively, “Losses”) by any Indemnified Party as a result of or arising out of: (i) the breach of any representation or warranty of theIndemnifying Party contained in the Transaction Agreements; (ii) the violation or nonperformance, partial or total, of any covenant or agreement of theIndemnifying Party contained in the Transaction Agreements; or (iii) any failure of the Indemnifying Party to comply with Applicable Laws in relation toTaxes to the extent required in connection with the transactions contemplated by this Agreement or any other Transaction Agreement and/or any conversionor exercise of the Purchased Securities. In calculating the amount of any Losses of an Indemnified Party hereunder, there shall be subtracted the amount ofany insurance proceeds and third-party payments received by the Indemnified Party with respect to such Losses, if any. 23 Section 6.02 Third Party Claims. (a) If any third party shall notify any Indemnified Party in writing with respect to any matter involving a claim by such thirdparty (a “Third Party Claim”) which such Indemnified Party believes would give rise to a claim for indemnification against the Indemnifying Party under thisARTICLE VI, then the Indemnified Party shall promptly following receipt of notice of such claim (i) notify the Indemnifying Party thereof in writing and(ii) transmit to the Indemnifying Party a written notice (“Claim Notice”) describing in reasonable detail the nature of the Third Party Claim, a copy of allpapers served with respect to such claim (if any), and the basis of the Indemnified Party’s request for indemnification under this Agreement. Notwithstandingthe foregoing, no failure or delay in providing such notice shall constitute a waiver or otherwise modify the Indemnified Party’s right to indemnity hereunder,except to the extent that the Indemnifying Party shall have been materially prejudiced by such failure or delay. (b) Upon receipt of a Claim Notice with respect to a Third Party Claim, the Indemnifying Party shall have the right to assumethe defense of any Third Party Claim by, within 30 days of receipt of the Claim Notice, notifying the Indemnified Party in writing that the Indemnifying Partyelects to assume the defense of such Third Party Claim, and upon delivery of such notice by the Indemnifying Party, the Indemnifying Party shall have theright to fully control and settle the proceeding; provided, that, any such settlement or compromise shall be permitted hereunder only with the written consentof the Indemnified Party. Notwithstanding the foregoing, the Indemnifying Party shall not be entitled to assume the defense of any Third Party Claim if(i) the Third Party Claim relates to or arises in connection with any criminal action, (ii) the Third Party Claim seeks an injunction or equitable relief againstany Indemnified Party (other than immaterial equitable relief in connection with an award of monetary damages) or (iii) the Indemnifying Party has notacknowledged that such Third Party Claim is subject to indemnification pursuant to this ARTICLE VI. If the Indemnifying Party assumes the defense of aThird Party Claim pursuant to this Section 6.02(b), the Indemnifying Party shall conduct such defense in good faith. (c) If requested by the Indemnifying Party, the Indemnified Party shall, at the sole cost and expense of the Indemnifying Party,cooperate reasonably with the Indemnifying Party and its counsel in contesting any Third Party Claim which the Indemnifying Party elects to contest,including in connection with the making of any related counterclaim against the person asserting the Third Party Claim or any cross complaint against anyperson. The Indemnified Party shall have the right to receive copies of all pleadings, notices and communications with respect to any Third Party Claim,other than any privileged communications between the Indemnifying Party and its counsel, and shall be entitled, at its sole cost and expense, to retainseparate co-counsel and participate in, but not control, any defense or settlement of any Third Party Claim assumed by the Indemnifying Party pursuant toSection 6.02(b). 24 (d) In the event of a Third Party Claim for which the Indemnifying Party elects not to assume the defense or fails to make suchan election within the 30 days of the Claim Notice, the Indemnified Party may, at its option, defend, settle, compromise or pay such action or claim at theexpense of the Indemnifying Party; provided, that any such settlement or compromise shall be permitted hereunder only with the written consent of theIndemnifying Party, which consent shall not be unreasonably withheld or delayed. Section 6.03 Other Claims. In the event any Indemnified Party should have a claim against the Indemnifying Party hereunder whichdoes not involve a Third Party Claim, the Indemnified Party shall promptly transmit to the Indemnifying Party a written notice (the “Indemnity Notice”)describing in reasonable detail the nature of the claim, the Indemnified Party’s best estimate of the amount of Losses attributable to such claim and the basisof the Indemnified Party’s request for indemnification under this Agreement; provided, that no failure or delay in providing such notice shall constitute awaiver or otherwise modify the Indemnified Party’s right to indemnity hereunder, except to the extent that the Indemnifying Party shall have been materiallyprejudiced by such failure or delay. Section 6.04 Limitation on the Company’s Liability. Absent fraud, intentional misrepresentation or willful breach on the part of theCompany: (a) the Indemnifying Party shall have no liability to the Indemnified Parties with respect to any breach of any representation orwarranty (other than Fundamental Warranties) made by the Company in this Agreement unless the aggregate amount of the Losses suffered or incurred bysuch Indemnified Parties thereunder exceeds US$5 million, in which case the Indemnifying Party shall be liable to such Indemnified Parties for the fullamount of their Losses from dollar one pursuant to Section 6.01; (b) the maximum aggregate liabilities of the Indemnifying Party in respect of Losses suffered by the Indemnified Parties withrespect to any breach of any representation or warranty (other than Fundamental Warranties) made by the Company in this Agreement shall not in any eventbe greater than the Purchase Price; and (c) notwithstanding any other provision contained herein, from and after the Closing, the right to indemnity pursuant toARTICLE VI shall be the sole and exclusive remedy of any of the Indemnified Party for any claims against the Company arising out of or resulting from thisAgreement; provided that the Purchaser shall also be entitled to specific performance or other equitable remedies in any court of competent jurisdictionpursuant to Section 7.13 hereof. ARTICLE VIIMISCELLANEOUS Section 7.01 Survival of the Representations and Warranties. (a) The Fundamental Warranties shall survive indefinitely or until the latest date permitted by law and the representationscontained in Section 4.01(w) shall survive until the expiration of the applicable statute of limitations. All other representations and warranties of theCompany contained in this Agreement shall survive Closing until eighteen (18) months after the Closing Date. 25 (b) Notwithstanding anything to the contrary in the foregoing clauses, (i) any breach of representation or warranty in respect ofwhich indemnity may be sought under this Agreement shall survive the time at which it would otherwise terminate pursuant to the preceding sentences, ifnotice of the inaccuracy or breach thereof giving rise to such right of indemnity shall have been given to the party against whom such indemnity may besought in accordance with this Agreement prior to such time and (ii) any breach of representation or warranty in respect of which indemnity may be soughtthat was caused as a result of fraud or intentional misrepresentation shall survive until the latest date permitted by law. Section 7.02 Governing Law; Arbitration. This Agreement shall be governed and interpreted in accordance with the laws of HongKong. Any dispute arising out of or relating to this Agreement, including any question regarding its existence, validity or termination shall be referred to andfinally resolved by arbitration at the Hong Kong International Arbitration Centre in accordance with the Hong Kong International Arbitration CentreAdministered Arbitration Rules then in force at the time of commencement of the arbitration. There shall be three arbitrators. The Company shall have theright to appoint one arbitrator, the Purchaser shall have the right to appoint the second arbitrator, and the third arbitrator shall be appointed by the HongKong International Arbitration Centre. The language to be used in the arbitration proceedings shall be English. Each of the Parties irrevocably waives anyimmunity to jurisdiction to which it may be entitled or become entitled (including without limitation sovereign immunity, immunity to pre-awardattachment, post-award attachment or otherwise) in any arbitration proceedings and/or enforcement proceedings against it arising out of or based on thisAgreement or the transactions contemplated hereby. Section 7.03 No Third Party Beneficiaries. A person who is not a party to this Agreement has no right under the Contracts (Rights ofThird Parties) Ordinance (Cap. 623) to enforce any term of this Agreement. Section 7.04 Acknowledgement. The Purchaser acknowledges that it understands that the Company, in issuing the PurchasedConvertible Note to the Purchaser pursuant to this Agreement, is relying upon the exemption from registration provided by Regulation S under the SecuritiesAct. Section 7.05 Amendment. This Agreement shall not be amended, changed or modified, except by another agreement in writingexecuted by the Parties hereto. Section 7.06 Binding Effect. This Agreement shall inure to the benefit of, and be binding upon, each of the Parties and their respectiveheirs, successors and permitted assigns and legal representatives. Section 7.07 Assignment. Neither this Agreement nor any of the rights, duties or obligations hereunder may be assigned by the anyParty without the express written consent of the other Parties. Any purported assignment in violation of the foregoing sentence shall be null and void. Notwithstanding the foregoing, the Purchaser may assign its rights hereunder to any of its Affiliates, provided, that no such assignment shall relieve thePurchaser of its obligations hereunder. 26 Section 7.08 Notices. All notices, requests, demands, and other communications under this Agreement shall be in writing and shall bedeemed to have been duly given if (a) in writing and served by personal delivery upon the party for whom it is intended; (b) if delivered by facsimile withreceipt confirmed; or (c) if delivered by certified mail, registered mail or courier service, return-receipt received to the party at the address set forth below: If to Company, at:SECOO HOLDING LIMITEDAddress: 15/F, Building C, Galaxy SOHO, Chaonei Street, Dongcheng District, Beijing 100000, The People’sRepublic of ChinaAttention: Ms. Jingbo MaEmail: jingboma@secoo.com With a copy to:Skadden, Arps, Slate, Meagher & FlomAddress: 42/F, Edinburgh Tower, The Landmark, 15 Queen’s Road Central, Hong Kong, Hong KongAttention: Ms. Haiping LiEmail: haiping.li@skadden.com If to Purchaser, at:GREAT WORLD LUX PTE. LTDAddress: 1 Kim Seng Promenade #18-07/12 Great World City West Tower Singapore 237994Attention: Gilbert Ong / Chris YoumEmail: gilbert.ong@lcatterton.com / chris.youm@lcatterton.com With a copy to:Latham & WatkinsAddress: 18th Floor, One Exchange Square, 8 Connaught Place, Central, Hong KongAttention: Frank SunEmail: frank.sun@lw.com Any Party may change its address for purposes of this Section 7.08 by giving the other Parties hereto written notice of the new address in the mannerset forth above. Section 7.09 Entire Agreement. This Agreement and the other Transaction Agreements including the schedules and exhibits heretoand thereto constitutes the entire understanding and agreement between the Parties with respect to the matters covered hereby and thereby, and all prioragreements and understandings, oral or in writing, if any, between the Parties with respect to the matters covered hereby and thereby are merged andsuperseded by this Agreement and the other Transaction Agreements. Section 7.10 Severability. If any provisions of this Agreement shall be adjudicated to be illegal, invalid or unenforceable in anyaction or proceeding whether in its entirety or in any portion, then such provision shall be deemed amended, if possible, or deleted, as the case may be, fromthe Agreement in order to render the remainder of the Agreement and any provision thereof both valid and enforceable, and all other provisions hereof shallbe given effect separately therefrom and shall not be affected thereby. 27 Section 7.11 Fees and Expenses. Except as otherwise provided in this Agreement or other Transaction Agreements, the Parties willbear their respective expenses incurred in connection with the negotiation, preparation and execution of this Agreement and other Transaction Agreementsand the transactions contemplated hereby and thereby, including fees and expenses of attorneys, accountants, consultants and financial advisors. Section 7.12 Confidentiality. (a) Each Party shall keep confidential any non-public material or information with respect to the business, technology,financial conditions, and other aspects of the other Parties which it is aware of, or have access to, in signing or performing this Agreement (including writtenor non-written information, hereinafter the “Confidential Information”). Confidential Information shall not include any information that is (a) previouslyknown on a non-confidential basis by the receiving Party, (b) in the public domain through no fault of such receiving Party, its Affiliates or its or itsAffiliates’ officers, directors or employees, (c) received from a party other than the Company or the Company’s representatives or agents, so long as such partywas not, to the knowledge of the receiving party, subject to a duty of confidentiality to the Company or (d) developed independently by the receiving Partywithout reference to confidential information of the disclosing Party. No Party shall disclose such Confidential Information to any third Party. Either Partymay use the Confidential Information only for the purpose of, and to the extent necessary for performing this Agreement; and shall not use such ConfidentialInformation for any other purposes. The Parties hereby agree, for the purpose of this Section 7.12, that the existence and terms and conditions of thisAgreement and schedule hereof shall be deemed as Confidential Information. (b) Notwithstanding any other provisions in this Section 7.12, if any Party believes in good faith that any announcement ornotice must be prepared or published pursuant to applicable laws (including any rules or regulations of any securities exchange or valid legal process) orinformation is otherwise required to be disclosed to any Governmental Authority, such Party may, in accordance with its understanding of the applicablelaws, make the required disclosure in the manner it deems in compliance with the requirements of applicable laws; provided, that, the Party who is required tomake such disclosure shall, to the extent permitted by law and so far as it is practicable, provide the other Parties with prompt notice of such requirement andcooperate with the other Parties at such other Parties’ request and at the requesting Party’s cost, to enable such other Parties to seek an appropriate protectionorder or remedy. In addition, each Party may disclose, after giving prior notice to the other Parties to the extent practicable under the circumstances andsubject to any practicable arrangements to protect confidentiality, Confidential Information to the extent required under judicial or regulatory process or inconnection with any judicial process regarding any legal action, suit or proceeding arising out of or relating to this Agreement or any TransactionAgreement; provided that, the Party who is required to make such disclosure shall, to the extent permitted by law and so far as it is practicable, at the otherParties’ request and at the requesting Party’s cost, cooperate with the other Parties to enable such other Parties to seek an appropriate protection order orremedy. 28 (c) Each Party may disclose the Confidential Information only to its Affiliates and its and its Affiliates’ officers, directors,employees, agents and representatives on a need-to-know basis in the performance of the Transaction Agreements; provided that, such Party shall ensure suchpersons strictly abide by the confidentiality obligations hereunder. (d) Without the prior written consent of the Purchaser (regardless of whether or not the Purchaser is then a shareholder of theCompany), the Company shall not, and shall cause its Affiliates not to, (i) use in advertising, publicity, announcements, or otherwise, the name of thePurchaser or any Affiliate of the Purchaser, either alone or in combination with any company name, trade name, trademark, service mark, domain name,device, design, symbol or any abbreviation, contraction or simulation thereof owned or used by the Purchaser or any of its Affiliates, or (ii) represent, directlyor indirectly, that any product or services provided by the Company or any of its Affiliates has been approved or endorsed by the Purchaser or any of itsAffiliates. (e) The confidentiality obligations of each Party hereunder shall survive the termination of this Agreement. Each Party shallcontinue to abide by the confidentiality clause hereof and perform the obligation of confidentiality it undertakes until the other Party approves release of thatobligation or until a breach of the confidentiality clause hereof will no longer result in any prejudice to the other Party. Section 7.13 Specific Performance. The Parties agree that irreparable damage would occur in the event any provision of thisAgreement were not performed in accordance with the terms hereof and that the Parties shall be entitled to specific performance of the terms hereof, inaddition to any other remedy at law or equity. Section 7.14 Termination. (a) This Agreement shall automatically terminate as between the Company and the Purchaser upon the earliest to occur of: (i) the written consent of each of the Company and the Purchaser; (ii) the delivery of written notice to terminate by either the Company or the Purchaser if Closing shall not haveoccurred by 3 months after the date of this Agreement; provided, however, that such right to terminate this Agreement under this Section 7.14(a)(ii) shall not be available to any party whose failure to fulfill any obligation under this Agreement shall have been the principal cause of, or shallhave resulted in, the failure of Closing to occur on or prior to such date; or (iii) by the Company or the Purchaser in the event that any Governmental Authority shall have issued a judgment ortaken any other action restraining, enjoining or otherwise prohibiting the transactions contemplated by the Transaction Agreements and suchjudgment or other action shall have become final and non-appealable. 29 (b) Upon the termination of this Agreement, this Agreement will have no further force or effect, except for the provisions ofSection 7.02, Section 7.08 and Section 7.12 hereof, which shall survive any termination under this Section 7.14; provided, that neither the Company nor thePurchaser shall be relieved or released from any liabilities or damages arising out of (i) fraud or (ii) any breach of this Agreement prior to such termination. Section 7.15 Headings. The headings of the various articles and sections of this Agreement are inserted merely for the purpose ofconvenience and do not expressly or by implication limit, define or extend the specific terms of the section so designated. Section 7.16 Execution in Counterparts. For the convenience of the Parties and to facilitate execution, this Agreement may beexecuted in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute but one and the sameinstrument. Signatures in the form of facsimile or electronically imaged “PDF” shall be deemed to be original signatures for all purposes hereunder. Section 7.17 Public Disclosure. Without limiting any other provision of this Agreement, both the Purchaser and the Company shallconsult and agree with each other on the terms and content of a joint press release with respect to the execution of this Agreement and any other TransactionAgreements and the transactions contemplated hereby and thereby and no press release shall be issued by any Party hereto without the prior written consentof the other Parties. Thereafter, neither the Company nor the Purchaser, nor any of their respective Affiliates, shall issue any press release or other publicannouncement or communication (to the extent not previously publicly disclosed or made in accordance with this Agreement or any other TransactionAgreements) with respect to the transactions contemplated hereby or thereby without the prior written consent of the other parties (such consent not to beunreasonably withheld, conditioned or delayed), except to the extent a party’s counsel deems such disclosure necessary or desirable in order to comply withany law or the regulations or policies of any securities exchange or other similar regulatory body (in which case the disclosing party shall give the otherparties notice as promptly as is reasonably practicable of any required disclosure to the extent permitted by applicable law), shall limit such disclosure to theinformation such counsel advises is required to comply with such law or regulations, and if reasonably practicable, shall consult with the other partyregarding such disclosure and give good faith consideration to any suggested changes to such disclosure from the other party. Notwithstanding anything tothe contrary in this Section 7.17, the Purchaser and the Company may make public statements in response to specific questions by the press, analysts,investors or those attending industry conferences or financial analyst conference calls, so long as any such statements are not materially inconsistent withprevious press releases, public disclosures or public statements made by the Company or the Purchaser and do not reveal material, non-public informationregarding the other Parties or the transactions contemplated by this Agreement. 30 Section 7.18 Waiver. No waiver of any provision of this Agreement shall be effective unless set forth in a written instrument signed bythe Party waiving such provision. No failure or delay by a Party in exercising any right, power or remedy under this Agreement shall operate as a waiverthereof, nor shall any single or partial exercise of the same preclude any further exercise thereof or the exercise of any other right, power or remedy. [Signature pages follow] 31 IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the date first above written. SECOO HOLDING LIMITED By: /s/ Rixue Li Name: Rixue Li Title: Chairman and Chief Executive Director [Signatue Page to Convertible Note and Warrant Subscription Agreement]  IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the date first above written. GREAT WORLD LUX PTE. LTD By: /s/ Gilbert Ong Name: Gilbert Ong Title: Director [Signatue Page to Convertible Note and Warrant Subscription Agreement]  Exhibit B Form of Convertible Note Instrument 34 CONVERTIBLE NOTE THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATESSECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER ANY OTHER SECURITIES LAWS. THIS NOTE AND THESECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE ANDMAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND OTHER APPLICABLE SECURITIES LAWS,PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM, AND IN THE CASE OF A TRANSACTION EXEMPT FROM REGISTRATION, UNLESSTHE COMPANY HAS RECEIVED AN OPINION OF COUNSEL THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION UNDER THESECURITIES ACT AND SUCH OTHER APPLICABLE LAWS. HOLDERS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THEFINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. CONVERTIBLE NOTE US$175,000,000 _______________, 2018 Subject to the terms and conditions of this Convertible Note (the “Note”), for good and valuable consideration received, Secoo Holding Limited, anexempted company incorporated with limited liability under the laws of the Cayman Islands (the “Company”), promises to pay to the order of Great WorldLux Pte. Ltd, an exempted company incorporated with limited liability under the laws of Singapore (such party and any other permitted transferee, the“Holder”), the principal amount of US$175,000,000, plus accrued and unpaid interest thereon at the rate provided below, and plus other amounts payableprovided below, on the third (3) anniversary of the Issue Date (as defined below) (the “Maturity Date”), or such earlier date as may be otherwise providedherein, unless the outstanding principal, together with accrued interest, is settled in accordance with Article 3 of the Note. The Note is issued pursuant to, and in accordance with, the Convertible Note and Warrant Subscription Agreement, dated _____________, 2018(the “Subscription Agreement”), between the Company, the Holder and other parties thereto, and is subject to the provisions thereof. Capitalized terms usedand not defined herein shall have the meaning set forth in the Subscription Agreement. The following is a statement of the rights of the Holder of the Note and the terms and conditions to which the Note is subject, and to which theHolder hereof, by the acceptance of the Note, agrees: 1. DEFINITIONS “ADS” means an American Depositary Share, two of which represent one Class A Share of the Company as of the date of this Note. 35rd “Board of Directors” means the board of directors of the Company or a committee of such board duly authorized to act for it hereunder. “Business Day” means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by Law to be closed in thePeople’s Republic of China (which for the purpose of this Note excludes Hong Kong SAR, Macau SAR and Taiwan), , Singapore, Hong Kong or NewYork. “Capital Stock” means for any entity, any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of orinterests in (however designated) stock issued by that entity. “Class A Shares” means Class A ordinary shares, par value US$0.001 per share, in the share capital of the Company. “Clause A Distribution” shall have the meaning ascribed to such term in Section 4.2(c). “Clause B Distribution” shall have the meaning ascribed to such term in Section 4.2(c). “Clause C Distribution” shall have the meaning ascribed to such term in Section 4.2(c). “close of business” means 5:00 p.m. (New York City time). “Common Equity” of any Person means ordinary share capital or Capital Stock of such Person that is generally entitled (a) to vote in the election ofdirectors of such Person or (b) if such Person is not a corporation, to vote or otherwise participate in the selection of the governing body, partners,managers or others that will control the management or policies of such Person. “Company” shall have the meaning ascribed to such term in the Preamble. “Control” (including the terms “Controlled by” and “under common Control with”) means the possession, directly or indirectly, of the power todirect or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, as trustee or executor,by contract or otherwise, including the ownership, directly or indirectly, of securities having the power to elect a majority of the board of directors orsimilar body governing the affairs of such Person or securities that represent a majority of the outstanding voting securities of such Person. “Conversion Date” shall have the meaning ascribed to such term in Section 3.3. “Conversion Notice” shall have the meaning ascribed to such term in Section 3.3. “Conversion Period” shall mean the period starting from (and including) the first anniversary of the Issue Date and prior to the close of business onthe second Business Day immediately preceding the Maturity Date. “Conversion Rate” shall have the meaning ascribed to such term in Section 3.2. 36 “Current Market Price” means, in respect of an ADS at a particular date, the volume-weighted average of the Last Reported Sale Prices for one ADS(carrying full entitlement to dividend) for the thirty (30) consecutive Trading Days ending on the Trading Day immediately preceding such date,provided that if at any time during the said thirty (30) Trading Day period the ADSs shall have been quoted ex-dividend and during some other partof that period the ADSs shall have been quoted cum-dividend then: (a) if the ADSs (or the Ordinary Shares) to be issued in such circumstances do not rank for the dividend in question, the quotations on the dateson which the ADSs shall have been quoted cum-dividend shall for the purpose of this definition be deemed to be the amount thereofreduced by an amount equal to the amount of that dividend per ADS; or (b) if the ADSs (or the Ordinary Shares) to be issued in such circumstances rank for the dividend in question, the quotations on the dates onwhich the ADSs shall have been quoted ex-dividend shall for the purpose of this definition be deemed to be the amount thereof increasedby such similar amount; and provided further that if the ADSs on each of the said thirty (30) Trading Days have been quoted cum-dividend in respect of a dividend which hasbeen declared or announced but the ADSs or the Ordinary Shares to be issued do not rank for that dividend, the quotations on each of such datesshall for the purpose of this definition be deemed to be the amount thereof reduced by an amount equal to the amount of that dividend per ADS “Default” means any event that is, or after notice or passage of time, or both, would be, an Event of Default. “Defaulted Amounts” means any amounts on this Note (including, without limitation, the Fundamental Change Repurchase Price, principal andinterest) that are payable but are not punctually paid or duly provided for. “Distributed Property” shall have the meaning ascribed to such term in Section 4.2(c). “EBITDA” means, with respect to the relevant period, the consolidated profits of the Company from ordinary activities before taxation incompliance with the U.S. generally accepted accounting principles: (a) before deducting any interest, commission, fees, costs, prepayment penalties or other finance payments in respect of any bank loans orindebtedness in the nature of borrowings, whether paid or accrued; (b) before deducting any amount attributable to the amortization of intangible assets or the depreciation of tangible assets; 37 (c) before taking into account any accrued or paid interest owing to the Company or any of its Subsidiaries; (d) before deducting expenses and restructuring or integration charges incurred in connection with any acquisition of assets or businesses andexpenses incurred in connection with equity and debt issuances; (e) before taking into consideration any non-cash stock-based compensation expenses, unrealized foreign currency gains or losses, non-cashcharges attributable to the application of purchase accounting principles, or gain or loss arising from reappraisal or write-up or write-down of assets; (f) before deducting any loss from discontinued operations (or operations disposed of outside of the ordinary course of business); and (g) before taking into account any other non-operating, abnormal, non-recurring, exceptional or extraordinary items. “Event of Default” shall have the meaning ascribed to such term in Section 2.4. “Ex-Dividend Date” means the first date on which the Class A Shares, ADSs representing Class A Shares (or other applicable security), trade on theapplicable exchange or in the applicable market, regular way, without the right to receive the issuance, dividend or distribution in question, from theCompany or, if applicable, from the seller of the Class A Shares, ADSs representing Class A Shares (or other applicable security) on such exchange ormarket (in the form of due bills or otherwise) as determined by such exchange or market. “Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. “Expiring Rights” means any rights, options or warrants to purchase Class A Shares or ADSs that expire on or prior to the Maturity Date. “Fundamental Change” shall be deemed to have occurred if any of the following occurs after the Note is originally issued: (a) a “person” or “group” within the meaning of Section 13(d) of the Exchange Act, other than the Company, its Subsidiaries, the employeebenefit plans of the Company and its Subsidiaries and any of the Permitted Holders has become the direct or indirect “beneficial owner,” asdefined in Rule 13d-3 under the Exchange Act, of the Company’s Common Equity (including Common Equity held in the form of ADSs)representing more than 50% of the voting power of the Company’s Common Equity; (b) the consummation of (A) any recapitalization, reclassification or change of the Class A Shares or the ADSs (other than changes resultingfrom a subdivision or combination) as a result of which the Class A Shares or the ADSs would be converted into, or exchanged for, stock,other securities, other property or assets; (B) any share exchange, consolidation or merger of the Company, or transactions to the similareffect, pursuant to which the Class A Shares or the ADSs will be converted into cash, securities or other property; or (C) any sale, lease orother transfer in one transaction or a series of transactions of all or substantially all of the consolidated assets of the Company and itsSignificant Subsidiaries and Variable Interest Entities, taken as a whole, to any Person other than one of the Company’s wholly-ownedSignificant Subsidiaries; provided, however, that a transaction described in clause (b) in which the holders of all classes of the Company’sCommon Equity immediately prior to such transaction own, directly or indirectly, more than 50% of all classes of Common Equity of thecontinuing or surviving corporation or transferee or the parent thereof immediately after such transaction in substantially the sameproportions vis-a-vis each other as such ownership immediately prior to such transaction shall not be a Fundamental Change pursuant tothis clause (b); 38 (c) the shareholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company; or (d) the ADSs (or other Common Equity or ADSs in respect of the Common Equity underlying the Note) cease to be listed or quoted on TheNASDAQ Global Market or its successor; provided, however, that a transaction or transactions described in clause (a) or (b) above shall not constitute a Fundamental Change if at least 90% ofthe consideration received or to be received by holders of the ADSs, excluding cash payments for any fractional Class A Shares and cash paymentsmade in connection with dissenters’ appraisal rights, in connection with such transaction or transactions consists of shares of Common Equity orADSs or depositary receipts in respect of Common Equity that are listed or quoted on any of The New York Stock Exchange, The NASDAQ GlobalSelect Market or The NASDAQ Global Market (or any of their respective successors) or will be so listed or quoted when issued or exchanged inconnection with such transaction or transactions and as a result of such transaction or transactions the Note become convertible into suchconsideration, excluding cash payments for any fractional Class A Shares and cash payments made in connection with dissenters’ appraisal rights. “Fundamental Change Repurchase Date” shall have the meaning ascribed to such term in Section 5.2. “Fundamental Change Repurchase Notice” shall have the meaning ascribed to such term in Section 5.3(a). “Fundamental Change Repurchase Price” shall have the meaning ascribed to such term in Section 5.2. “Fundamental Change Company Notice” shall have the meaning ascribed to such term in Section 5.4. “GAAP” means the generally accepted accounting principles in the United States. “Governmental Authority” means any federal, national, foreign, supranational, state, provincial, local, municipal or other political subdivision orother government, governmental, regulatory or administrative authority, agency, board, bureau, department, instrumentality or commission or anycourt, tribunal, judicial or arbitral body of competent jurisdiction or stock exchange. 39 “Holder” shall have the meaning ascribed to such term in the Preamble. “Interest Payment Date” means the anniversary date of the Issue Date each year, beginning on __________, 2019. “Internal Rate of Return” means an amount to be received by the Holder from the Company sufficient to cause the Holder to have received, as of thedate of determination, an aggregate internal rate of return of a stated rate per annum on the principal amount of the Note (or any relevant portionthereof) advanced to the Company, as calculated in US$ and after deduction of any tax payable in respect of any such payment by the Company tothe Holder but excluding any tax levied on the Holder for receiving such payment. For such purposes, an internal rate of return shall be calculatedin US$ using the “xIRR” function in Excel and using contributions and advances made or credited as the investment “out-flows” with any paymentreceived by the Holder at any time from (as appropriate) its contribution to the Company taken into account as “in-flows” on a discounted cash flowbasis. “Issue Date” means _______________, 2018. “Last Reported Sale Price” of the Class A Shares on any date shall be calculated as (i) the closing sale price per ADS (or if no closing sale price isreported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and the average ask prices) on thatdate as reported in composite transactions for the principal U.S. national or regional securities exchange on which the ADSs are traded divided by(ii) 0.50 (or the applicable number of Class A Shares then represented by one ADS). If the ADSs are not listed for trading on a U.S. national orregional securities exchange on the relevant date, the “Last Reported Sale Price” shall be (i) the last quoted bid price for the ADSs in the over-the-counter market on the relevant date as reported by OTC Markets Group Inc. or a similar organization divided by (ii) 0.50 (or the applicable numberof Class A Shares then represented by one ADS). If the ADSs are not so quoted, the “Last Reported Sale Price” shall be (i) the average of the midpointof the last bid and ask prices for the ADSs on the relevant date from each of at least three nationally recognized independent investment bankingfirms selected by the Company for this purpose divided by (ii) 0.50 (or the applicable number of Class A Shares then represented by one ADS). “Law” means any statute, law, ordinance, regulation, rule, code, order, judgment, writ, injunction, decree or requirement of law (including commonlaw) enacted, issued, promulgated, enforced or entered by a Governmental Authority. “Lock-up Period” shall have the meaning ascribed to such term in Section 10.5(a). “Maturity Date” shall have the meaning ascribed to such term in the Preamble. “Maturity Repurchase Price” shall have the meaning ascribed to such term in Section 5.1. “Merger Event” shall have the meaning ascribed to such term in Section 4.4. 40 “Note” shall have the meaning ascribed to such term in the Preamble. “Officer” means, with respect to the Company, the Chairman, President, the Chief Executive Officer, the Secretary, any Executive or any VicePresident (whether or not designated by a number or numbers or word or words added before or after the title “Vice President”). “Officer’s Certificate”, when used with respect to the Company, means a certificate that is delivered to the Holder and that is signed by the principalexecutive, financial or accounting officer of the Company. To the extent applicable, each such certificate shall include (a) a statement that theperson making such certificate is familiar with the requested action and the Note; (b) a brief statement as to the nature and scope of the examinationor investigation upon which the statement contained in such certificate is based; (c) a statement that, in the judgment of such person, he or she hasmade such examination or investigation as is necessary to enable him or her to express an informed judgment as to whether or not such action ispermitted by the Note; and (d) a statement as to whether or not, in the judgment of such person, such action is permitted by the Note, if and to theextent required by the provisions of the Note. “open of business” means 9:00 a.m. (New York City time). “Performance Failure Event” shall have the meaning ascribed to such term in Section 5.5. “Performance Failure Repurchase Date” shall have the meaning ascribed to such term in Section 5.5. “Performance Failure Repurchase Notice” shall have the meaning ascribed to such term in Section 5.5. “Performance Failure Repurchase Price” shall have the meaning ascribed to such term in Section 5.5. “Permitted Holders” means Mr. Richard Li and any his estates and lineal descendants, and any bona fide trust and trustee of any such bona fide trustthat holds the Company’s ordinary shares pursuant to which one or more of the foregoing are sole beneficiaries or the grantors, or any person ofwhich any of the forgoing, individually or collectively, beneficially own (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) votingsecurities representing at least a majority of the total voting power of all classes of capital stock of such person (exclusive of any matters as to whichclass voting rights exist). “Per Share Purchase Price” shall have the meaning ascribed to such term in the Subscription Agreement. “Person” means any individual, partnership, corporation, association, joint stock company, trust, joint venture, limited liability company,organization, entity or Governmental Authority. “Record Date” means, with respect to any dividend, distribution or other transaction or event in which the holders of the Class A Shares (directly orin the form of ADSs) (or other applicable security) have the right to receive any cash, securities or other property or in which the Class A Shares(directly or in the form of ADSs) (or such other security) is exchanged for or converted into any combination of cash, securities or other property, thedate fixed for determination of security holders entitled to receive such cash, securities or other property (whether such date is fixed by the Board ofDirectors, statute, contract or otherwise). 41 “Reference Price” means the higher of (i) US$13.00 per ADS or US$26.00 per Class A Share, subject to the same adjustment to the Conversion Ratepursuant to this Note and (ii) the Current Market Price, in each case on the date of announcement of the issuance referred to under the provisions inSection 2.3. “Reference Property” and “unit of Reference Property” have the meanings ascribed thereto in Section 4.4. “Regular Interest” shall have the meaning ascribed to such term in Section 2.1. “Relevant Securities” shall have the meaning ascribed to such term in Section 4.2(f). “Significant Subsidiary” means a Subsidiary of the Company that meets the definition of “significant subsidiary” in Article 1, Rule 1-02 ofRegulation S-X under the Exchange Act. “Spin-Off” shall have the meaning ascribed to such term in Section 4.2(c). “Subscription Agreement” shall have the meaning ascribed to such term in the Preamble. “Subsidiary” of any Person means any corporation, partnership, limited liability company, joint stock company, joint venture or other organizationor entity, whether incorporated or unincorporated, which is Controlled by such Person and, for the avoidance of doubt, the Subsidiaries of anyPerson shall include any Variable Interest Entity over which such Person or any of its Subsidiaries effects Control pursuant to contractualarrangements and which is consolidated with such Person in accordance with GAAP applicable to such Person. “Successor Company” shall have the meaning ascribed to such term in Section 7.1(a). “Top-up Interest” shall have the meaning ascribed to such term in Section 2.1. “Trading Day” means a day on which (i) trading in the ADSs (or other security for which a closing sale price must be determined) generally occurson NASDAQ Global Market or, if the ADSs (or such other security) are not then listed on NASDAQ Global Market, on the principal other U.S.national or regional securities exchange on which the ADSs (or such other security) are then listed or, if the ADSs (or such other security) are notthen listed on a U.S. national or regional securities exchange, on the principal other market on which the ADSs (or such other security) are thentraded and (ii) a Last Reported Sale Price with respect to the ADSs (or closing sale price for such other security) is available on such securitiesexchange or market; provided that if the ADSs (or such other security) are not so listed or traded, “Trading Day” means a Business Day. 42 “Transaction Documents” shall have the meaning ascribed to such term in the Subscription Agreement. “Trigger Event” shall have the meaning ascribed to such term in Section 4.2(c). “U.S.” means United States. “US$” or “$” means the United States dollar, the lawful currency of the United States of America. “Valuation Period” shall have the meaning ascribed to such term in Section 4.2(c). “Variable Interest Entity” shall have the meaning ascribed to such term in the Subscription Agreement. 2. INTEREST; PAYMENTS; DEFAULTS 2.1 Interest Rate. The principal amount outstanding under the Note shall bear (x) interest at a rate of 4% per annum until the Regular Interest EndingDate (the “Regular Interest”), which shall be payable annually in arrears on each Interest Payment Date, and (y) shall bear additional interest in atotal amount that shall, together with the Regular Interest accrued on the Note, provide the Holder an Internal Rate of Return of 8.0% on theprincipal amount of the Note over the period starting from (and including) the date of the Issue Date and ending on (and including) the RegularInterest Ending Date (the “Top-up Interest”), payable on the Regular Interest Ending Date. The Regular Interest shall accrue daily from andincluding the Issue Date and shall be computed on the basis of a 360-day year composed of twelve 30-day months and, for partial months, on thebasis of actual days elapsed over a 30-day month. “Regular Interest Ending Date” means the earliest of (i) the Maturity Date, (ii) the Conversion Date, and (iii) any other date on which the outstandingprincipal amount of the Note (or the relevant portion thereof) becomes due and payable pursuant to the terms hereunder, whether through repurchaseupon an Event of Default or otherwise. 2.2 Payment. All amounts payable on or in respect of the Note or the indebtedness evidenced hereby shall be paid to the Holder in U.S. dollars, inimmediately available funds on the date that any principal or interest payment is due and payable hereunder. The Company shall make suchprincipal or interest payments to the Holder by wire transfer of immediately available funds for the account of the Holder as the Holder maydesignate from time to time, provided that any change to the account of the Holder must be notified in writing to the Company at least three(3) Business Days prior to relevant payment date. If any such payment date or the Maturity Date falls on a day that is not a Business Day, therequired payment will be made on the next succeeding Business Day and no interest on such payment will accrue in respect of the delay. 2.3 Seniority. The Note ranks senior in right of payment to any of the Company’s future indebtedness that is expressly subordinated in right of paymentto the Note, equal in right of payment to any of the Company’s present and future indebtedness and other liabilities of the Company that are not sosubordinated, junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing suchindebtedness and structurally junior to all future indebtedness incurred by the Company’s Subsidiaries and their other liabilities (including tradepayables) and save for obligations that are preferred by provisions of Law that are mandatory and of general application. 43 2.4 Events of Default. For purposes of the Note, an “Event of Default” shall be deemed to have occurred if any of the following events occurs, whateverthe reason or cause for such Event of Default: (a) Failure to Pay Principal. The Company defaults in the payment of principal of the Note when due and payable on the Maturity Date, uponany required repurchase, upon declaration of acceleration or otherwise; (b) Failure to Pay Interest. The Company defaults in the payment of interest when any such interest payment becomes due and payable and thedefault continues for a period of thirty (30) days; (c) Breach of Conversion Obligation. The Company fails to comply with its obligation to convert all or a portion of the Note in accordancewith Article 3 upon Holder’s exercise of its conversion rights and such failure continues for a period of ten (10) Business Days; (d) Breach of Article 6. The Company fails to comply with its obligations under Article 6 and such failure has not been fully and completelyremedied within thirty (30) days; (e) Breach of Other Obligations. The Company fails for sixty (60) days after written notice from the Holder has been received by the Companyto comply with any of its other agreements contained in any Transaction Document to which the Company is a party; (f) Cross Default. Any default by the Company or any Subsidiary of the Company with respect to any mortgage, agreement or other instrumentunder which there may be outstanding, or by which there may be secured or evidenced, any indebtedness for money borrowed in excess ofUS$80 million (or the foreign currency equivalent thereof) in the aggregate of the Company and/or any such Significant Subsidiary,whether such indebtedness now exists or shall hereafter be created (A) resulting in such indebtedness becoming or being declared due andpayable or (B) constituting a failure to pay the principal or interest of any such debt when due and payable at its stated maturity, uponrequired repurchase, upon declaration of acceleration or otherwise and such acceleration shall not have been rescinded or annulled or suchfailure to pay shall not have been cured or waived or such indebtedness shall not have been repaid, as the case may be, within 30 days afterwritten notice from the Holder; (g) Adverse Judgment. A final judgment for the payment of US$5 million (or the foreign currency equivalent thereof) or more (excluding anyamounts covered by insurance) is rendered against the Company or any Significant Subsidiary of the Company, which judgment is notpaid, bonded or otherwise discharged or stayed within sixty (60) days after the earlier of (i) the date on which the right to appeal thereof hasexpired if no such appeal has commenced and (ii) the date on which all rights to appeal have been extinguished; 44 (h) Trading Suspension. The ADSs (or other Common Equity or ADSs in respect of the Common Equity underlying the Note) have beensuspended from trading on The NASDAQ Global Market or its successor for a period of 90 consecutive trading days or for more than 180trading days in any 12-month period; (i) Bankruptcy. The Company or any Significant Subsidiary shall commence a voluntary case or other proceeding seeking liquidation,winding-up, reorganization or other relief with respect to the Company or any such Significant Subsidiary or its debts under anybankruptcy, liquidation, insolvency or other similar Law now or hereafter in effect or seeking the appointment of a trustee, receiver,liquidator, custodian or other similar official of the Company or any such Significant Subsidiary or all or substantially all of its property, orshall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or otherproceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts asthey become due; or (j) Involuntary Proceedings. An involuntary case or other proceeding shall be commenced against the Company or any Significant Subsidiaryseeking liquidation, winding-up, reorganization or other relief with respect to the Company or such Significant Subsidiary or its debtsunder any bankruptcy, liquidation, insolvency or other similar Law now or hereafter in effect or seeking the appointment of a trustee,receiver, liquidator, custodian or other similar official of the Company or such Significant Subsidiary or all or substantially all of itsproperty, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of sixty (60) consecutive days. 2.5 Consequences of Event of Default. (a) If one or more Events of Default shall have occurred and be continuing (whatever the reason or cause for such Event of Default), then, (x) ineach and every such case (other than an Event of Default specified in Section 2.4(i) or Section 2.4(j)), unless the principal of the Note shallhave already become due and payable, the Holder may by notice in writing to the Company (the “EoD Notice”) to require the Company torepurchase for cash all of the Note or any portion thereof on the 5th Business Days after the date of the EoD Notice at a repurchase price (the“EoD Repurchase Price”) equal to (i) 100% of the principal amount (or such portion thereof as the case may be), plus (ii) accrued andunpaid interest thereon (including any accrued and unpaid interest on the Defaulted Amounts, if any), and plus (iii) an additional amountthat shall, together with any interest accrued on the Note payable to the Holder, provide the Holder an Internal Rate of Return of 8.0% onthe principal amount (or such portion thereof as the case may be) over the period starting from (and including) the date of the Issue Date andending on (and including) the date when the EoD Repurchase Price is made in full, and (y) if an Event of Default specified inSection 2.4(i) or Section 2.4(j) occurs and is continuing, the Company shall promptly repurchase for cash all of the Note at a repurchaseprice equal to the EoD Repurchase Price without any action on the part of the Holder. 45 (b) Section 2.5(a), however, is subject to the conditions that if, at any time after the outstanding principal of the Note shall have been sodeclared due and payable, and before any arbitral award for the payment of the monies due shall have been obtained or entered ashereinafter provided, the Company shall pay or shall deposit with the Holder a sum sufficient to pay installments of accrued and unpaidinterest upon the Note and the outstanding principal of the Note that shall have become due otherwise than by acceleration (with intereston overdue installments of accrued and unpaid interest to the extent that payment of such interest is enforceable under applicable Law, andon such principal at the rate per annum borne by the Note plus one percent), and if (1) rescission would not conflict with any such arbitralaward and (2) any and all existing Events of Default under the Note, other than the nonpayment of the principal of and accrued and unpaidinterest on the Note that shall have become due solely by such acceleration, shall have been cured or waived, then and in every such casethe Holder, by written notice to the Company, may waive all Default or Events of Default with respect to the Note and rescind and annulsuch declaration and its consequences and such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed tohave been cured for every purpose of the Note; but no such waiver or rescission and annulment shall extend to or shall affect anysubsequent Default or Event of Default, or shall impair any right consequent thereon. 2.6 Defaulted Amounts. Any Defaulted Amounts shall accrue interest at the rate per annum borne by the Note plus 1%, subject to the enforceabilitythereof under applicable Law, from, and including, such relevant payment date, and such Defaulted Amounts together with such interest thereonshall be paid by the Company to the Holder by wire transfer of immediately available funds pursuant to the procedures set forth in Section 2.2. 3. CONVERSION 3.1 Conversion by Holder. Subject to and upon compliance with the provisions of this Article 3, the Holder shall have the right from time to time, at theHolder’s option, to convert all or any portion (if the portion to be converted is US$1,000 principal amount or an integral thereof) of the Note to theCompany’s fully paid Class A Shares at the applicable Conversion Rate at any time during the Conversion Period. 3.2 Conversion Price; Conversion Rate. Subject to adjustments as provided in Article 4, the initial conversion price shall be equal to US$26.00 perClass A Share, representing an initial conversion rate of 38.46 Class A Shares (the “Conversion Rate”) per US$1,000 principal amount of the Note. 3.3 Conversion Procedure; Settlement Upon Conversion. (a) Subject to Section 3.3(b), this Note shall be deemed to have been converted immediately prior to the close of business on the date (the“Conversion Date”) that the Holder has delivered a duly completed irrevocable written notice to the Company (the “Conversion Notice”)and the Note for cancellation to the Company. Within five (5) Business Days after the delivery of the Note and the Conversion Notice to theCompany pursuant to Section 3.1 above, the Company shall (i) take all actions and execute all documents necessary to effect the issuanceof the full number of Class A Shares to which the Holder shall be entitled in satisfaction of any conversion pursuant to Section 3.1,(ii) deliver to the Holder certificate(s) representing the number of Class A Shares delivered upon each such conversion, (iii) deliver to theHolder a certified copy of the register of members of the Company, reflecting the Holder’s ownership of the Class A Shares delivered uponeach such conversion, (iv) pay the Top-up Interest and the accrued and unpaid Regular Interest on the principal amount of the Note or therelevant portion thereof as being converted, in each case to (and including) the Conversion Date, and (v) subject to Section 3.3(b), cancelthe Note. No Conversion Notice may be delivered and the Note may not be surrendered by a Holder for conversion thereof if the Holder hasalso delivered a Fundamental Change Repurchase Notice to the Company in respect of the Note and not validly withdrawn suchFundamental Change Repurchase Notice in accordance with Article 5. 46 (b) In the event the Holder surrenders this Note pursuant to Section 3.3(a) for partial conversion, the Company shall, in addition to cancellingthe Note upon such surrender, execute and deliver to the Holder a new note denominated in U.S. dollars and in an aggregate principalamount equal to the unconverted portion of the surrendered Note, without payment of any service charge by the Holder. (c) If the Holder submits the Note for conversion, the Company shall pay any documentary, stamp or similar issue or transfer tax due on thedelivery of the Class A Shares upon such conversion of the Note, unless the tax is due because the Holder requests such Class A Shares to beissued in a name other than the Holder’s name, in which case (i) if in the name of any Person which is an Affiliate of the Holder (which, forthe avoidance of doubt, shall include JD.com, Inc. or any of its Affiliates), the Company shall pay that tax, or (ii) if in the name of any otherPerson, the Holder shall pay that tax. The Company shall pay the relevant fees for issuance of the Class A Shares and shall pay the relevantdepositary’s fees for any future conversion of the issued Class A Shares into the ADSs. (d) Except as provided in Section 4.2, no adjustment shall be made for dividends on any Class A Shares delivered upon any conversion of thisNote as provided in this Article 3. (e) Without prejudice to the Holder’s right to receive the interest in accordance with clause (iv) of Section 3.3(a) and subject to Section 3.3(h),the Company’s settlement of each conversion pursuant to this Article 3 shall be deemed to satisfy in full its obligation to pay the principalamount of the Note converted and accrued and unpaid interest thereon, if any. As a result, such accrued and unpaid interest, if any, shall bedeemed to be paid in full rather than cancelled, extinguished or forfeited. 47 (f) The Holder in whose name the certificate for any Class A Shares delivered upon conversion is registered shall be treated as a holder ofrecord of such Class A Shares as of the close of business on the relevant Conversion Date. Upon a conversion of the entire outstandingamount of the Note, the Holder shall no longer be a holder of the Note surrendered for conversion. (g) The Company shall not issue any fractional Class A Share upon conversion of the Note and shall instead pay cash in lieu of any fractionalClass A Share deliverable upon conversion based on the Last Reported Sale Price of the Class A Shares on the relevant Conversion Date. (h) Nothing in this Article 3 shall prejudice the Holder’s entitlement to receive interest on any of the Defaulted Amounts in accordance withSection 2.6. 4. ADJUSTMENTS 4.1 [Reserved] 4.2 Adjustment of Conversion Rate. If the number of Class A Shares represented by the ADSs is changed, after the date of this Note, for any reason otherthan one or more of the events described in this Section 4.2, the Company shall make an appropriate adjustment to the Conversion Rate such thatthe number of Class A Shares represented by the ADSs upon which any conversion of this Note is based remains the same. Notwithstanding the adjustment provisions described in this Section 4.2, if the Company distributes to holders of the Class A Shares any cash,rights, options, warrants, shares of capital stock or similar equity interest, evidences of indebtedness or other assets or property of the Company (butexcluding Expiring Rights) and a corresponding distribution is not made to holders of the ADSs, but, instead, the ADSs shall represent, in additionto Class A Shares, such cash, rights, options, warrants, shares of Capital Stock or similar equity interest, evidences of indebtedness or other assets orproperty of the Company, then an adjustment to the Conversion Rate described in this Section 4.2 shall not be made until and unless acorresponding distribution (if any) is made to holders of the ADSs, and such adjustment to the Conversion Rate shall be based on the distributionmade to the holders of the ADSs and not on the distribution made to the holders of the Class A Shares. However, in the event that the Companyissues or distributes to all holders of the Class A Shares any Expiring Rights, notwithstanding the immediately preceding sentence, the Companyshall adjust the Conversion Rate pursuant to Section 4.2(b) (in the case of in-the-money Expiring Rights entitling holders of the Class A Shares for aperiod of not more than 45 calendar days after the announcement date of such issuance to subscribe for or purchase Class A Shares or ADSs) orSection 4.2(c) (in the case of all other Expiring Rights). For the avoidance of doubt, if any event described in this Section 4.2 results in a change to the number of Class A Shares represented by the ADSs,then such change shall be deemed to satisfy the Company’s obligation to effect the relevant adjustment to the Conversion Rate on account of suchevent to the extent such change produces the same economic result as the adjustment to the Conversion Rate that would otherwise have been onaccount of such event. 48 Subject to the foregoing, the Conversion Rate shall be adjusted from time to time by the Company if any of the following events occurs, except thatthe Company shall not make any adjustments to the Conversion Rate if the Holder participates (other than in the case of a share split or sharecombination), at the same time and upon the same terms as holders of the Class A Shares and solely as a result of holding the Note, in any of thetransactions described in this Section 4.2, without having to convert the Note, as if it held a number of Class A Shares equal to the Conversion Rate,multiplied by the principal amount of the Note held by the Holder. (a) If the Company exclusively issues Class A Shares as a dividend or distribution on the Class A Shares, or if the Company effects a share splitor share combination, the Conversion Rate shall be adjusted based on the following formula: where, CR0 = the Conversion Rate in effect immediately prior to the close of business on the Record Date for such dividend or distribution, orimmediately prior to the close of business on the effective date of such share split or share combination, as applicable; CR1 = the Conversion Rate in effect immediately after the close of business on such Record Date or immediately after the close ofbusiness on such effective date, as applicable; OS0 = the number of Class A Shares outstanding immediately prior to the close of business on such Record Date or immediately prior tothe close of business on such effective date, as applicable; and OS1 = the number of Class A Shares outstanding immediately after giving effect to such dividend, distribution, share split or sharecombination. Any adjustment made under this Section 4.2(a) shall become effective immediately after the close of business on the Record Date for suchdividend or distribution, or immediately after the open of business on the effective date for such share split or share combination, asapplicable. If any dividend or distribution of the type described in this Section 4.2(a) is declared but not so paid or made, the ConversionRate shall be immediately readjusted, effective as of the date the Board of Directors determines not to pay such dividend or distribution, tothe Conversion Rate that would then be in effect if such dividend or distribution had not been declared. (b) If the Company issues to all or substantially all holders of the Class A Shares (directly in or in the form of ADSs) any rights, options orwarrants entitling them, for a period of not more than 45 calendar days after the announcement date of such issuance, to subscribe for orpurchase Class A Shares (directly or in the form of ADSs) at a price per Class A Share that is less than the average of the Last Reported SalePrices of the Class A Shares, for the 10 consecutive Trading Day period ending on, and including, the Trading Day immediately precedingthe date of announcement of such issuance, the Conversion Rate shall be increased based on the following formula: 49 where, CR0 = the Conversion Rate in effect immediately prior to the close of business on the Record Date for such issuance; CR1 = the Conversion Rate in effect immediately after the close of business on such Record Date; OS0 = the number of Class A Shares outstanding immediately prior to the close of business on such Record Date; X = the total number of Class A Shares (directly or in the form of ADSs) deliverable pursuant to such rights, options or warrants; and Y = the number of Class A Shares equal to (i) the aggregate price payable to exercise such rights, options or warrants, divided by (ii) theaverage of the Last Reported Sale Prices of the Class A Shares over the 10 consecutive Trading Day period ending on, and including, theTrading Day immediately preceding the date of announcement of the issuance of such rights, options or warrants. Any increase made under this Section 4.2(b) shall be made successively whenever any such rights, options or warrants are issued and shallbecome effective immediately after the close of business on the Record Date for the Class A Shares (directly or in the form of ADSs), asapplicable, for such issuance. To the extent that Class A Shares or ADSs are not delivered after the expiration of such rights, options orwarrants, the Conversion Rate shall be decreased to the Conversion Rate that would then be in effect had the increase with respect to theissuance of such rights, options or warrants been made on the basis of delivery of only the number of Class A Shares actually delivered(directly or in the form of ADSs). If such rights, options or warrants are not so issued, the Conversion Rate shall be decreased to theConversion Rate that would then be in effect if such the Record Date for such issuance had not occurred. For purposes of this Section 4.2(b), in determining whether any rights, options or warrants entitle the holders to subscribe for or purchaseClass A Shares (directly or in the form of ADSs) at a price per Class A Share that is less than such average of the Last Reported Sale Prices ofthe Class A Shares, for the 10 consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the dateof announcement for such issuance, and in determining the aggregate offering price of such Class A Shares (directly or in the form of ADSs),there shall be taken into account any consideration received by the Company for such rights, options or warrants and any amount payableon exercise or conversion thereof, the value of such consideration, if other than cash, to be determined by the Board of Directors acting ingood faith. 50 (c) If the Company distributes shares of its Capital Stock, evidences of its indebtedness, other assets or property of the Company or rights,options or warrants to acquire its Capital Stock or other securities, to all or substantially all holders of the Class A Shares (directly or in theform of ADSs), excluding (i) dividends, distributions or issuances as to which an adjustment was effected pursuant to Section 4.2(a) orSection 4.2(b), (ii) dividends or distributions paid exclusively in cash as to which an adjustment was effected pursuant to Section 4.2(d),and (iii) Spin-Offs as to which the provisions set forth below in this Section 4.2(c) shall apply (any of such shares of Capital Stock,evidences of indebtedness, other assets or property or rights, options or warrants to acquire Capital Stock or other securities of theCompany, the “Distributed Property”), then the Conversion Rate shall be increased based on the following formula: where, CR0 = the Conversion Rate in effect immediately prior to the close of business on the Record Date for such distribution; CR1 = the Conversion Rate in effect immediately after the close of business on such Record Date; SP0 = the average of the Last Reported Sale Prices of the Class A Shares over the 10 consecutive Trading Day period ending on, andincluding, the Trading Day immediately preceding the Ex-Dividend Date for such distribution; and FMV = the fair market value (as determined by the Board of Directors acting in good faith) of the Distributed Property with respect to eachoutstanding Class A Share (directly or in the form of ADSs) on the Record Date for such distribution. Any increase made under the portion of this Section 4.2(c) above shall become effective immediately after the close of business on theRecord Date for such distribution. If such distribution is not so paid or made, the Conversion Rate shall be decreased to the ConversionRate that would then be in effect if such distribution had not been declared. Notwithstanding the foregoing, if “FMV” (as defined above) isequal to or greater than “SP0” (as defined above), in lieu of the foregoing increase, the Holder shall receive, in respect of each US$1,000principal amount thereof, at the same time and upon the same terms as holders of the Class A Shares receive the Distributed Property, theamount and kind of Distributed Property the Holder would have received if the Holder owned a number of Class A Shares equal to theConversion Rate in effect on the Record Date for the distribution. 51 With respect to an adjustment pursuant to this Section 4.2(c) where there has been a payment of a dividend or other distribution on theClass A Shares (directly or in the form of ADSs) of shares of Capital Stock of any class or series, or similar equity interest, of or relating to aSubsidiary or other business unit of the Company, that are, or, when issued, will be, listed or admitted for trading on a U.S. nationalsecurities exchange (a “Spin-Off”), the Conversion Rate shall be increased based on the following formula: where, CR0 = the Conversion Rate in effect immediately prior to the end of the Valuation Period; CR1 = the Conversion Rate in effect immediately after the end of the Valuation Period; FMV0 = the average of the Last Reported Sale Prices of the Capital Stock or similar equity interest distributed to holders of the Class AShares (directly or in the form of ADSs) applicable to one Class A Share (determined by reference to the definition of Last Reported SalePrice as if references therein to the ADSs were to such Capital Stock or similar equity interest) over the first 10 consecutive Trading Dayperiod after, and including, the Ex-Dividend Date of the Spin-Off (the “Valuation Period”); and MP0 = the average of the Last Reported Sale Prices of the Class A Shares over the Valuation Period. The adjustment to the Conversion Rate under the preceding paragraph shall occur on the last Trading Day of the Valuation Period;provided that in respect of any conversion during the Valuation Period, references in the portion of this Section 4.2(c) related to Spin-Offsto 10 Trading Days shall be deemed to be replaced with such lesser number of Trading Days as have elapsed from, and including, the Ex-Dividend Date of such Spin-Off to, and including, the Conversion Date in determining the Conversion Rate. For purposes of this Section 4.2(c) (and subject in all respect to Section 4.2(f)), rights, options or warrants distributed by the Company to allholders of the Class A Shares (directly or in the form of ADSs) entitling them to subscribe for or purchase shares of the Company’s CapitalStock, including Class A Shares (either initially or under certain circumstances), which rights, options or warrants, until the occurrence of aspecified event or events (“Trigger Event”): (i) are deemed to be transferred with such Class A Shares (directly or in the form of ADSs);(ii) are not exercisable; and (iii) are also issued in respect of future issuances of the Class A Shares (directly or in the form of ADSs), shall bedeemed not to have been distributed for purposes of this Section 4.2(c) (and no adjustment to the Conversion Rate under thisSection 4.2(c) will be required) until the occurrence of the earliest Trigger Event, whereupon such rights, options or warrants shall bedeemed to have been distributed and an appropriate adjustment (if any is required) to the Conversion Rate shall be made under thisSection 4.2(c). If any such right, option or warrant, including any such existing rights, options or warrants distributed prior to the date ofthis Note, are subject to events, upon the occurrence of which such rights, options or warrants become exercisable to purchase differentsecurities, evidences of indebtedness or other assets, then the date of the occurrence of any and each such event shall be deemed to be thedate of distribution and Record Date with respect to new rights, options or warrants with such rights (in which case the existing rights,options or warrants shall be deemed to terminate and expire on such date without exercise by any of the holders thereof). In addition, in theevent of any distribution (or deemed distribution) of rights, options or warrants, or any Trigger Event or other event (of the type describedin the immediately preceding sentence) with respect thereto that was counted for purposes of calculating a distribution amount for which anadjustment to the Conversion Rate under this Section 4.2(c) was made, (1) in the case of any such rights, options or warrants that shall allhave been redeemed or purchased without exercise by any holders thereof, upon such final redemption or purchase (x) the Conversion Rateshall be readjusted as if such rights, options or warrants had not been issued and (y) the Conversion Rate shall then again be readjusted togive effect to such distribution, deemed distribution or Trigger Event, as the case may be, as though it were a cash distribution, equal to theper Class A Share redemption or purchase price received by a holder or holders of Class A Shares (directly or in the form of ADSs) withrespect to such rights, options or warrants (assuming such holder had retained such rights, options or warrants), made to all holders ofClass A Shares (directly or in the form of ADSs) as of the date of such redemption or purchase, and (2) in the case of such rights, options orwarrants that shall have expired or been terminated without exercise by any holders thereof, the Conversion Rate shall be readjusted as ifsuch rights, options and warrants had not been issued. 52 For purposes of Section 4.2(a), Section 4.2(b) and this Section 4.2(c), any dividend or distribution to which this Section 4.2(c) is applicablethat also includes one or both of: (A) a dividend or distribution of Class A Shares (directly or in the form of ADSs) to which Section 4.2(a) is applicable (the“Clause A Distribution”); or (B) a dividend or distribution of rights, options or warrants to which Section 4.2(b) is applicable (the “Clause BDistribution”), then (1) such dividend or distribution, other than the Clause A Distribution and the Clause B Distribution, shall be deemed to be a dividendor distribution to which this Section 4.2(c) is applicable (the “Clause C Distribution”) and any Conversion Rate adjustment required by thisSection 4.2(c) with respect to such Clause C Distribution shall then be made, and (2) the Clause A Distribution and Clause B Distributionshall be deemed to immediately follow the Clause C Distribution and any Conversion Rate adjustment required by Section 4.2(a) andSection 4.2(b) with respect thereto shall then be made, except that, if determined by the Company (I) the “Record Date” of the Clause ADistribution and the Clause B Distribution shall be deemed to be the Record Date of the Clause C Distribution and (II) any Class A Shares(directly or in the form of ADSs) included in the Clause A Distribution or Clause B Distribution shall be deemed not to be “outstandingimmediately prior to the close of business on such Record Date or immediately after the open of business on such effective date, asapplicable” within the meaning of Section 4.2(a) or “outstanding immediately prior to the close of business on such Record Date” withinthe meaning of Section 4.2(b). 53 (d) If any cash dividend or distribution is made to all or substantially all holders of the Class A Shares (directly or in the form of ADSs), theConversion Rate shall be adjusted based on the following formula: where, CR0 = the Conversion Rate in effect immediately prior to the close of business on the Record Date for such dividend or distribution; CR1 = the Conversion Rate in effect immediately after the close of business on such Record Date; SP0 = the Last Reported Sale Price of the Class A Shares on the Trading Day immediately preceding the Ex-Dividend Date for suchdividend or distribution; and C = the amount in cash per Class A Share the Company distributes to all or substantially all holders of the Class A Shares (directly or in theform of ADSs). Any increase pursuant to this Section 4.2(d) shall become effective immediately after the close of business on the Record Date for suchdividend or distribution. If such dividend or distribution is not so paid, the Conversion Rate shall be decreased, effective as of the date theBoard of Directors determines not to make or pay such dividend or distribution, to be the Conversion Rate that would then be in effect ifsuch dividend or distribution had not been declared. Notwithstanding the foregoing, if “C” (as defined above) is equal to or greater than“SP0” (as defined above), in lieu of the foregoing increase, the Holder shall receive, for each US$1,000 principal amount of the Note, at thesame time and upon the same terms as holders of the Class A Shares (directly or in the form of ADSs), the amount of cash that the Holderwould have received if the Holder owned a number of Class A Shares equal to the Conversion Rate on the Record Date for such cashdividend or distribution. 54 (e) If the Company or any of its Subsidiaries make a payment in respect of a tender or exchange offer for the Class A Shares (directly or in theform of ADSs), to the extent that the cash and value of any other consideration included in the payment per Class A Share exceeds theaverage of the Last Reported Sale Prices of the Class A Shares over the 10 consecutive Trading Day period commencing on, and including,the Trading Day next succeeding the date such tender or exchange offer expires, the Conversion Rate shall be increased based on thefollowing formula: where, CR0 = the Conversion Rate in effect immediately prior to the close of business on the 10th Trading Day immediately following, andincluding, the Trading Day next succeeding the date such tender or exchange offer expires; CR1 = the Conversion Rate in effect immediately after the close of business on the 10th Trading Day immediately following, andincluding, the Trading Day next succeeding the date such tender or exchange offer expires; AC = the aggregate value of all cash and any other consideration (as determined by the Board of Directors acting in good faith) paid orpayable for Class A Shares (directly or in the form of ADSs) purchased in such tender or exchange offer; OS0 = the number of Class A Shares outstanding immediately prior to the date such tender or exchange offer expires (prior to giving effectto the purchase of all Class A Shares (directly or in the form of ADSs) accepted for purchase or exchange in such tender or exchange offer); OS1 = the number of Class A Shares outstanding immediately after the date such tender or exchange offer expires (after giving effect to thepurchase of all Class A Shares (directly or in the form of ADSs) accepted for purchase or exchange in such tender or exchange offer); and SP = the average of the Last Reported Sale Prices of the Class A Shares over the 10 consecutive Trading Day period commencing on, andincluding, the Trading Day next succeeding the date such tender or exchange offer expires. The adjustment to the Conversion Rate under this Section 4.2(e) shall occur at the close of business on the 10th Trading Day immediatelyfollowing, and including, the Trading Day next succeeding the date such tender or exchange offer expires; provided that in respect of anyconversion within the 10 Trading Days immediately following, and including, the expiration date of any tender or exchange offer,references in this Section 4.2(e) with respect to 10 Trading Days shall be deemed replaced with such lesser number of Trading Days as haveelapsed from, and including, the Trading Day next succeeding the expiration date of such tender or exchange offer to, and including, theConversion Date in determining the Conversion Rate. No adjustment to the Conversion Rate under this Section 4.2(e) shall be made if suchadjustment would result in a decrease in the Conversion Rate. In the event that the Company or one of the Company’s Subsidiaries isobligated to purchase Class A Shares (directly or in the form of ADSs) pursuant to any such tender offer or exchange offer, but the Companyor such Subsidiary is permanently prevented by applicable law from effecting any such purchases, or all such purchases are rescinded, thenthe Conversion Rate shall again be adjusted to be the Conversion Rate that would then be in effect if such tender offer or exchange offerhad not been made. 55 (f) If and whenever the Company shall issue any Ordinary Shares or ADSs (other than any issuance pursuant to this Warrant or on the exerciseof any other rights of conversion into, or exchange or subscription for, Ordinary Shares or ADSs) or issue or grant options, warrants or otherrights to purchase, subscribe, convert into, exercise or exchange for Ordinary Shares or ADSs (the “Relevant Securities”, which for thepurposes of this definition only excludes any Ordinary Shares, ADSs, option, warrant or other rights to purchase, subscribe, convert into,exercise or exchange for Ordinary Shares or ADSs issued or granted in accordance with any Employee Stock Incentive Plan (as defined inthe Investor Rights Agreement)), in each case at a consideration per ADS (on an as-converted and as-exercised basis and, in the case of anyissuance of Ordinary Shares, such issue price per Ordinary Share multiplied by the applicable number of Ordinary Shares then representedby each ADS) which is less than the Reference Price, the Conversion Rate shall be adjusted based on the following formula: where: CR0 = the Conversion Rate in effect immediately prior to the date of issue of the Relevant Securities; CR1 = the Conversion Rate in effect as from the date of issue of the Relevant Securities; A = the number of Ordinary Shares in issue immediately before the issue of the Relevant Securities; B = the number of Ordinary Shares which the aggregate consideration receivable for the issue of the Relevant Securities would purchase atthe price equal to (x) Reference Price, multiplied by (y) the applicable number of Ordinary Shares then represented by each ADS; and C = the number of Ordinary Shares in issue immediately after the issue of the Relevant Securities, provided that references to the number of Ordinary Shares in the above formula shall include all the Ordinary Shares to be issued assumingthat all options, warrants or other rights to purchase, subscribe, convert into, exercise or exchange for Ordinary Shares or ADSs are exercisedin full at the initial exercise price on the date of issue of such options, warrants or other rights. 56 (g) Except as stated herein, the Company shall not adjust the Conversion Rate for the issuance of Class A Shares or ADSs or any securitiesconvertible into or exchangeable for Class A Shares or ADSs or the right to purchase Class A Shares or ADSs or such convertible orexchangeable securities. (h) In addition to those adjustments required by subsections (a), (b), (c), (d), (e) and (f) of this Section 4.2, and to the extent permitted byapplicable Law and subject to the applicable rules of The NASDAQ Global Market and any other securities exchange on which any of theCompany’s securities are then listed, the Company from time to time may increase the Conversion Rate by any amount for a period of atleast 20 Business Days if the Board of Directors determines that such increase would be in the Company’s best interest, and the Companymay (but is not required to) increase the Conversion Rate to avoid or diminish any income tax to holders of the Class A Shares or the ADSsor rights to purchase Class A Shares or ADSs in connection with a dividend or distribution of Class A Shares or ADSs (or rights to acquireClass A Shares or ADSs) or similar event. (i) Notwithstanding anything to the contrary in this Section 4.2, the Conversion Rate shall not be adjusted: (i) upon the issuance of any Class A Shares or ADSs pursuant to any present or future plan providing for the reinvestment ofdividends or interest payable on the Company’s securities and the investment of additional optional amounts in Class A Shares orADSs under any plan; (ii) upon the issuance of any Class A Shares or ADSs or options or rights to purchase those Class A Shares or ADSs pursuant to anypresent or future employee, director or consultant benefit plan or program of or assumed by the Company or any of the Company’sSubsidiaries; (iii) upon the issuance of any Class A Shares or ADSs pursuant to any option, warrant, right or exercisable, exchangeable orconvertible security not described in clause (ii) of this subsection and outstanding as of the date this Note was first issued; (iv) solely for a change in the par value of the Class A Shares or ADSs; or (v) for accrued and unpaid interest, if any. (j) All calculations and other determinations under this Section 4.2 shall be made by the Company and shall be made to the nearest one-tenthousandth (1/10,000) of a Class A Shares. (k) Whenever the Conversion Rate is adjusted as herein provided, the Company shall promptly prepare a notice of such adjustment of theConversion Rate setting forth the adjusted Conversion Rate and the date on which each adjustment becomes effective and shall mail suchnotice of such adjustment of the Conversion Rate to the Holder. 57 (l) For purposes of this Article 4, the number of Class A Shares at any time outstanding shall not include Class A Shares held in the treasury ofthe Company (directly or in the form of ADSs) so long as the Company does not pay any dividend or make any distribution on Class AShares held in the treasury of the Company (directly or in the form of ADSs), but shall include Class A Shares issuable in respect of scripcertificates issued in lieu of fractions of Class A Shares. (m) For purposes of this Section 4.2, the “effective date” means the first date on which the ADSs trade on the applicable exchange or in theapplicable market, regular way, reflecting the relevant share split or share combination, as applicable. 4.3 Adjustments of Prices. Whenever any provision of this Note requires the Company to calculate the Last Reported Sale Prices over a span of multipledays, the Board of Directors shall make appropriate adjustments to each to account for any adjustment to the Conversion Rate that becomes effectivepursuant to Section 4.2, or any event requiring an adjustment to the Conversion Rate pursuant to Section 4.2 where the Record Date, effective dateor expiration date, as the case may be, of the event occurs, at any time during the period when such Last Reported Sale Prices are to be calculated. 4.4 Effect of Recapitalizations, Reclassifications and Changes of the Class A Shares. (a) In the case of: (i) any recapitalization, reclassification or change of the Class A Shares (other than changes resulting from a subdivision orcombination), (ii) any consolidation, merger, combination or similar transaction involving the Company, (iii) any sale, lease or other transfer to a third party of the consolidated assets of the Company and the Company’s Subsidiariessubstantially as an entirety; or (iv) any statutory share exchange, in each case, as a result of which the Class A Shares (directly or in the form of ADSs) would be converted into, or exchanged for, stock, othersecurities, other property or assets (including cash or any combination thereof) (any such event, a “Merger Event”), then, prior to or at theeffective time of such Merger Event, the Company or the successor or purchasing Person, as the case may be, shall execute an amendment tothis Note providing that, at and after the effective time of such Merger Event, the right to convert the Note shall be changed into a right toconvert the Note into the kind and amount of shares of stock, other securities or other property or assets (including cash or any combinationthereof) that a holder of a number of Class A Shares equal to the Conversion Rate immediately prior to such Merger Event would haveowned or been entitled to receive (the “Reference Property”, with each “unit of Reference Property” meaning the kind and amount ofReference Property that a holder of one Class A Share is entitled to receive) upon such Merger Event; provided, however, that at and afterthe effective time of the Merger Event the number of Class A Shares otherwise deliverable upon any conversion of the Note in accordancewith Article 3 shall instead be deliverable in the amount and type of Reference Property that a holder of that number of Class A Shareswould have been entitled to receive in such Merger Event. 58 If the Merger Event causes the Class A Shares (directly or in the form of ADSs) to be converted into, or exchanged for, the right to receivemore than a single type of consideration (determined based in part upon any form of holder election), then (i) the Reference Property intowhich the Note will be convertible shall be deemed to be the weighted average of the types and amounts of consideration received by theholders of Class A Shares (directly or in the form of ADSs) that affirmatively make such an election, and (ii) the unit of Reference Propertyfor purposes of the immediately preceding paragraph shall refer to the consideration referred to in clause (i) attributable to one Class AShares. The Company shall provide written notice to the Holder of such weighted average as soon as practicable after such determination ismade. Such amendment described in the second immediately preceding paragraph shall provide for anti-dilution and other adjustments that shallbe as nearly equivalent as is practicable to the adjustments provided for in this Article 4 (it being understood that no such adjustments shallbe required with respect to any portion of the Reference Property that does not consist of shares of Common Equity (however evidenced) ordepositary receipts in respect thereof). If, in the case of any Merger Event, the Reference Property includes shares of stock, securities orother property or assets (including cash or any combination thereof) of a Person other than the Company or the successor or purchasingPerson, as the case may be, in such Merger Event, then such other Person shall also execute such amendment, and such amendment shallcontain such additional provisions to protect the interests of the Holder, including the rights of the Holder to require the Company torepurchase this Note upon a Fundamental Change pursuant to Article 5 as the Board of Directors shall reasonably consider necessary byreason of the foregoing. (b) None of the foregoing provisions shall affect the right of the Holder to convert this Note into Class A Shares as set forth in Article 3 prior tothe effective date of such Merger Event. (c) The above provisions of this Section 4.4 shall similarly apply to successive Merger Events. 4.5 No Adjustment. Notwithstanding anything herein to the contrary, no adjustment under this Article 4 shall be required to be made to the ConversionRate if the Company receives written notice from the Holder that no such adjustment is required. 59 4.6 Certain Covenants. (a) The Company covenants that all Class A Shares delivered upon any conversion of this Note will be fully paid and non-assessable by theCompany and free from all taxes, liens and charges with respect to the issue thereof. (b) The Company covenants that if any Class A Shares to be provided for the purpose of any conversion of this Note require registration with orapproval of any Governmental Authority under any Law before such Class A Shares may be validly issued upon conversion, the Companywill, to the extent then permitted by applicable Law, secure such registration or approval, as the case may be. (c) The Company further covenants to take all actions and obtain all approvals and registrations required with respect to any conversion of thisNote into Class A Shares, and shall reserve for issuance an adequate number of Class A Shares, such that Class A Shares can be delivered inaccordance with the terms of this Note upon any conversion hereunder. In addition, the Company further covenants to provide the Holderwith a reasonably detailed description of the mechanics for the delivery of Class A Shares upon any conversion of this Note upon request. (d) The parties hereto acknowledge and agree that the Holder may only resell the Note, the Class A Shares delivered upon conversion of all orany portion of the Note pursuant to an effective registration statement or an exemption from, or in a transaction not subject to, theregistration requirements of the Securities Act and other applicable securities Laws. 4.7 Notice for Certain Actions. In case of any (a) action by the Company or one of its Subsidiaries that would require an adjustment in the ConversionRate pursuant to Section 4.2, (b) Merger Event or (c) voluntary or involuntary dissolution, liquidation or winding-up of the Company or any of itsSubsidiaries, then, in each case (unless notice of such event is otherwise required pursuant to another provision of this Note), the Company shalldeliver a written notice to the Holder, as promptly as possible but in any event at least 20 days prior to the applicable date hereinafter specified,stating (i) the date on which a record is to be taken for the purpose of such action by the Company or one of its Subsidiaries or, if a record is not to betaken, the date as of which the holders of Class A Shares, of record are to be determined for the purposes of such action by the Company or one of itsSubsidiaries, or (ii) the date on which such Merger Event, dissolution, liquidation or winding-up is expected to become effective or occur, and thedate as of which it is expected that holders of Class A Shares, of record shall be entitled to exchange their Class A Shares, for securities or otherproperty deliverable upon such Merger Event, dissolution, liquidation or winding-up. Failure to give such notice, or any defect therein, shall notaffect the legality or validity of such action by the Company or one of its Subsidiaries, dissolution, liquidation or winding-up unless otherwiseprovided for pursuant to any applicable Laws, the constitutional documents of the Company or any such Subsidiaries or any agreement or documentto which the Company or any such Subsidiaries is a party; provided that nothing herein shall adversely affect any right, claim or other remedies, atlaw or contract, of the Holder arising as a result of or in connection with such failure or defect. 60 4.8 Termination of Depository Receipt Program. If the Class A Shares cease to be represented by ADSs issued under a depositary receipt programsponsored by the Company, all references in this Note to the ADSs shall be deemed to have been replaced by a reference to the number of Class AShares (and other property, if any) represented by the ADSs on the last day on which the ADSs represented the Class A Shares and as if the Class AShares and the other property had been distributed to holders of the ADSs on that day. In addition, all references to the Last Reported Sale Price ofthe ADSs will be deemed to refer to the Last Reported Sale Price of the Class A Shares, and other appropriate adjustments, including adjustments tothe Conversion Rate, will be made to reflect such change. In making such adjustments, where currency translations between U.S. dollars and anyother currency are required, the exchange rate in effect on the date of determination will apply. 5. REPURCHASE 5.1 Repurchase on Maturity Date. Unless previously redeemed or surrendered and converted, the Company shall redeem this Note in whole on theMaturity Date at a price equal to (i) the outstanding principal amount, plus (ii) accrued and unpaid interest thereon (including any accrued andunpaid interest on the Defaulted Amounts, if any), and plus (iii) an additional amount that shall, together with any interest accrued on the Notepayable to the Holder, provide the Holder an Internal Rate of Return of 8.0% on such principal amount over the period starting from (and including)the date of the Issue Date and ending on (and including) the Maturity Date (the “Maturity Repurchase Price”). 5.2 Repurchase on Fundamental Change. If a Fundamental Change occurs at any time, the Holder shall have the right, at its option, to require theCompany to repurchase for cash all of the Note or any portion thereof on the date (the “Fundamental Change Repurchase Date”) notified in writingby the Company that is not less than 20 Business Days and not more than 35 Business Days following the date of the Fundamental ChangeCompany Notice (as defined below) at a repurchase price equal to (i) 100% of the principal amount (or such portion thereof, as the case may be), plus(ii) accrued and unpaid interest thereon (including any accrued and unpaid interest on the Defaulted Amounts, if any), and plus (iii) an additionalamount that shall, together with any interest accrued on the Note payable to the Holder, provide the Holder an Internal Rate of Return of 8.0% onsuch principal amount (or such portion thereof, as the case may be) over the period starting from (and including) the date of the Issue Date andending on (and including) the Fundamental Change Repurchase Date (the “Fundamental Change Repurchase Price”). 5.3 Delivery of Fundamental Change Repurchase Notice and the Note by the Holder. (a) Repurchases of the Note under Section 5.2 shall be made, at the option of the Holder thereof, upon: (i) delivery by the Holder to theCompany of a duly completed notice (the “Fundamental Change Repurchase Notice”), in the form attached hereto as Exhibit A, on orbefore the close of business on the second Business Day immediately preceding the Fundamental Change Repurchase Date; and(ii) delivery of the Note to the Company at any time after delivery of the Fundamental Change Repurchase Notice (together with allnecessary endorsements for transfer), such delivery being a condition to receipt by the Holder of the Fundamental Change Repurchase Pricetherefor. 61 (b) Each Fundamental Change Repurchase Notice delivered pursuant to this Section 5.3 shall state (i) the portion of the principal amount ofthe Note to be repurchased and (ii) that the Note is to be repurchased by the Company pursuant to the applicable provisions of this Note. (c) Notwithstanding anything herein to the contrary, the Holder shall have the right to withdraw, in whole or in part, such Fundamental ChangeRepurchase Notice at any time prior to the close of business on the second Business Day immediately preceding the Fundamental ChangeRepurchase Date by delivery of a written notice of withdrawal to the Company in accordance with Section 5.7. 5.4 Fundamental Change Company Notice. On or before the 30th calendar day after the occurrence or the effective date of a Fundamental Change, theCompany shall provide to the Holder a written notice (the “Fundamental Change Company Notice”) by first class mail of the occurrence of theeffective date of the Fundamental Change and of the repurchase right at the option of the Holder arising as a result thereof. Each FundamentalChange Company Notice shall specify: (a) the events causing the Fundamental Change; (b) the date of the Fundamental Change; (c) the last date on which the Holder may exercise the repurchase right pursuant to this Article 5; (d) the Fundamental Change Repurchase Price; (e) the Fundamental Change Repurchase Date; (f) if applicable, the Conversion Rate and any adjustments to the Conversion Rate; (g) that the Note may be converted only if any Fundamental Change Repurchase Notice that has been delivered by the Holder has beenwithdrawn in accordance with the terms of this Note; and (h) the procedures that the Holder must follow to require the Company to repurchase the Note. No failure of the Company to give the foregoing notices and no defect therein shall limit the Holder’s repurchase rights or affect the validity of theproceedings for the repurchase of the Note pursuant to this Article 5. 62 5.5 Repurchase on Performance Failure. If the EBITDA of the Company for the financial year ending on December 31, 2018, as determined based on theaudited consolidated financial statements of the Company prepared and filed pursuant to the Securities Act, is lower than US$40,000,000 (the“Performance Failure Event”), the Holder shall have the right, at its option, to require the Company to repurchase for cash all of the Note or anyportion thereof, by delivering a duly completed notice in writing to the Company (the “Performance Failure Repurchase Notice”), in the formattached hereto as Exhibit B, within 60 days after the date on which the audited consolidated financial statements of the Company for the financialyear ending on December 31, 2018 is publicly available, on such date (the “Performance Failure Repurchase Date”) specified by the Holder in thePerformance Failure Purchase Notice that is not less than 30 Business Days and not more than 60 Business Days following the date of thePerformance Failure Repurchase Notice and at a repurchase price equal to (i) 100% of the principal amount (or such portion thereof, as the case maybe), plus (ii) accrued and unpaid interest thereon (including any accrued and unpaid interest on the Defaulted Amounts, if any), and plus (iii) anadditional amount that shall, together with any interest accrued on the Note and paid or payable to the Holder, provide the Holder an Internal Rateof Return of 12.0% on such principal amount (or such portion thereof, as the case may be) over the period starting from (and including) the date ofthe Issue Date and ending on (and including) the Performance Failure Repurchase Date (the “Performance Failure Repurchase Price”). The Holdershall also deliver the Note to the Company at any time after delivery of the Performance Failure Repurchase Notice, such delivery being a conditionto receipt by the Holder of the Performance Failure Repurchase Price therefor. 5.6 No Repurchase in the Event of Acceleration. Notwithstanding the foregoing, the Note may not be repurchased by the Company on any date at theoption of the Holder upon a Fundamental Change or the Performance Failure Event if the principal amount of the Note has been accelerated, andsuch acceleration has not been rescinded, on or prior to such date (except in the case of an acceleration resulting from a default by the Company inthe payment of the Fundamental Change Repurchase Price or the Performance Failure Repurchase Price (as the case may be) with respect to theNote). 5.7 Withdrawal of Fundamental Change Repurchase Notice or Performance Failure Repurchase Notice. A Fundamental Change Repurchase Notice or aPerformance Failure Repurchase Notice (as the case may be) may be withdrawn (in whole or in part) by means of a duly completed written notice ofwithdrawal delivered to the Company in accordance with this Section 5.7 at any time prior to the close of business on the second Business Dayimmediately preceding the Fundamental Change Repurchase Date or the Performance Failure Repurchase Date (as the case may be), specifying(a) the principal amount of the Note with respect to which such notice of withdrawal is being submitted and (b) the principal amount, if any, of theNote that remains subject to the original Fundamental Change Repurchase Notice or the Performance Failure Repurchase Notice (as the case maybe). 5.8 Payment of Fundamental Change Repurchase Price or Performance Failure Repurchase Price. (a) On or prior to 10:00 a.m., New York time, on one Business Day prior to the Fundamental Change Repurchase Date or the PerformanceFailure Repurchase Date (as the case may be), the Company shall set aside, segregate and hold in trust for the benefit of the Holder anamount of money sufficient to repurchase the applicable portion of the Note to be repurchased at the appropriate Fundamental ChangeRepurchase Price or the Performance Failure Repurchase Price (as the case may be). Payment for the applicable portion of the Notesurrendered for repurchase (and not withdrawn in accordance with Section 5.7) will be made on the later of (i) the Fundamental ChangeRepurchase Date or the Performance Failure Repurchase Price (as the case may be), provided the Holder has satisfied the conditions in thisArticle 5 and (ii) the time of delivery of the applicable portion of the Note by the Holder to the Company in the manner required bySection 5.3 or 5.6 (as the case may be), by mailing checks for the amount payable to the Holder. 63 (b) If by 10:00 a.m., New York time, on one Business Day prior to the Fundamental Change Repurchase Date or the Performance FailureRepurchase Date (as the case may be), the Company holds money sufficient to make payment on the applicable portion of the Note to berepurchased on such Fundamental Change Repurchase Date or the Performance Failure Repurchase Date (as the case may be), then, withrespect to the applicable portion of the Note that has been properly surrendered for repurchase and not validly withdrawn in accordancewith this Article 5, on such Fundamental Change Repurchase Date or the Performance Failure Repurchase Date (as the case may be), (i) suchportion of the Note will cease to be outstanding, (ii) interest will cease to accrue on such portion of the Note and (iii) in the event the entireoutstanding amount of the Note is surrendered by the Holder to be repurchased, all other rights of the Holder will terminate (other than theright to receive the Fundamental Change Repurchase Price or the Performance Failure Repurchase Price (as the case may be)). (c) Upon the surrender of the Note that is to be repurchased in part pursuant to this Article 5, the Company shall execute and deliver to theHolder a new Note in an authorized denomination equal in principal amount to the unrepurchased portion of the Note. 5.9 Covenant to Comply with Applicable Laws Upon Repurchase of the Note. In connection with any repurchase offer, the Company will, if required,comply with all federal and state securities laws in connection with any offer by the Company to repurchase the Note so as to permit the rights andobligations under this Article 5 to be exercised in the time and in the manner specified in this Article 5. 6. COVENANTS 6.1 Payment of Principal and Interest. The Company covenants and agrees that it will cause to be paid the principal (including, if applicable, theMaturity Repurchase Price, the Fundamental Change Repurchase Price or the Performance Failure Repurchase Price) of, and accrued and unpaidinterest on, the Note at the respective times and in the manner provided herein. 6.2 Existence. Subject to Article 7, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect itscorporate existence. 6.3 No Withholding. All payments and deliveries made by, or on behalf of, the Company or any successor to the Company under or with respect to thisNote, including, but not limited to, payments of principal (including, if applicable, the Fundamental Change Repurchase Price), payments of interestand deliveries of Class A Shares (together with payments of cash for any fractional Class A Share) upon any conversion of the Note, shall be madewithout withholding or deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges of whatever natureimposed or levied by or within any jurisdiction in which the Company or any successor to the Company is, for tax purposes, organized or resident ordoing business or through which payment is made or deemed made (or any political subdivision or taxing authority thereof or therein), unless suchwithholding or deduction is required by Law or by regulation or governmental policy having the force of law. 64 6.4 Stay, Extension and Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, orin any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other Law that would prohibit or forgive theCompany from paying all or any portion of the principal of or interest on the Note as contemplated herein, wherever enacted, now or at any timehereafter in force, or that may affect the covenants or the performance of the Note; and the Company (to the extent it may lawfully do so) herebyexpressly waives all benefit or advantage of any such Law, and covenants that it will not, by resort to any such Law. 6.5 Compliance Certificates; Statements as to Defaults. The Company shall deliver to the Holder within 120 days after the end of each fiscal year of theCompany (beginning with the fiscal year ending on December 31, 2018) and within 30 days of a written request made by the Holder a certificateexecuted by an executive officer of the Company stating that a review has been conducted of the Company’s activities under this Note and whetherthe Company has fulfilled its obligations hereunder, and whether such officer thereof have knowledge of any Default by the Company that occurredduring the previous year that is then continuing and, if so, specifying each such Default and the nature thereof. The Company shall deliver to theHolder, as soon as possible, and in any event within 30 days after the Company becomes aware of the occurrence of any Default if such Default isthen continuing, an Officer’s Certificate setting forth the details of such Default, its status and the action that the Company is taking or proposing totake in respect thereof. 6.6 Further Instruments and Acts. Upon request of the Holder, the Company will execute and deliver such further instruments and do such further acts asmay be reasonably necessary or proper to carry out more effectively the purposes of this Note. 6.7 New Note Instruments. Upon request of the Holder for the Note to be broken down into a number of note instruments of smaller principal amounts,the Company shall issue additional note instruments of such smaller principal amounts without charge within three (3) Business Days after the dateof such request, provided that the existing note instrument of this Note shall be returned by the Holder to the Company for cancellation. 6.8 Replacement of Note. Upon the loss, theft, destruction or mutilation of this Note (and in the case of loss, theft or destruction, of indemnity from theHolder reasonably satisfactory to the Company, or in the case of mutilation, upon surrender and cancellation thereof), the Company shall at its theHolder’s expense within five (5) Business Days execute and deliver to the Holder, in lieu thereof, a new Note, dated and bearing interest from thedate hereof. 6.9 PFIC Disclosure. The Company shall use its reasonable efforts to avoid the Company or any of its Subsidiaries being classified as a “passive foreigninvestment company” (a “PFIC”) as defined in Section 1297 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), for the currentand any future taxable year. Within seventy-five (75) days from the end of each taxable year of the Company, the Company shall determine whetherthe Company or any of its Subsidiaries was a PFIC in such taxable year. If the Company determines that the Company or, if applicable, any of itsSubsidiaries was a PFIC in a taxable year (or if the U.S. Internal Revenue Service or such Purchaser informs the Company that it has so determined),the Company shall, within one hundred and five (105) days from the end of such taxable year, inform such Purchaser of such determination and shallprovide or cause to be provided to such Purchaser upon request a complete and accurate “PFIC Annual Information Statement” as described inSection 1.1295-1(g)(1) of the U.S. Treasury Regulations for the Company or the applicable Subsidiary of the Company. 65 7. CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE 7.1 Company May Consolidate, Etc. on Certain Terms. Subject to the provisions of Section 7.2, the Company shall not consolidate with, merge with orinto, or sell, convey, transfer or lease all or substantially all of its properties and assets to another Person unless: (a) the resulting, surviving or transferee Person (the “Successor Company”), if not the Company, shall be a corporation, organized and existingunder the laws of the United States of America, any State thereof, the District of Columbia, the Cayman Islands, the British Virgin Islands,Bermuda or Hong Kong and the Successor Company (if not the Company) shall expressly assume all of the obligations of the Companyunder the Note and the Subscription Agreement; and (b) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing under this Note. For purposes of this Section 7.1, the sale, conveyance, transfer or lease of all or substantially all of the properties and assets of one or moreSubsidiaries of the Company to another Person, which properties and assets, if held by the Company instead of such Subsidiaries, would constituteall or substantially all of the properties and assets of the Company on a consolidated basis, shall be deemed to be the sale, conveyance, transfer orlease of all or substantially all of the properties and assets of the Company to another Person. 7.2 Successor Corporation to Be Substituted. In case of any such consolidation, merger, sale, conveyance, transfer or lease and upon the assumption bythe Successor Company of the due and punctual payment of the principal of and accrued and unpaid interest on the Note, the due and punctualdelivery or payment, as the case may be, of any consideration due upon conversion of the Note and the due and punctual performance of all of thecovenants and conditions of the Note to be performed by the Company, such Successor Company (if not the Company) shall succeed to and, exceptin the case of a lease of all or substantially all of the Company’s properties and assets, shall be substituted for the Company, with the same effect as ifit had been named herein as the party of the first part. In the event of any such consolidation, merger, sale, conveyance or transfer (but not in the caseof a lease), upon compliance with this Article 7 the Person named as the “Company” in the first paragraph of the Note (or any successor that shallthereafter have become such in the manner prescribed in this Article 7) may be dissolved, wound up and liquidated at any time thereafter and, exceptin the case of a lease, such Person shall be released from its liabilities as obligor and maker of the Note and from its obligations under the Note. 66 7.3 No consolidation, merger, sale, conveyance, transfer or lease shall be effective if any such consolidation, merger, sale, conveyance, transfer or leaseand any such assumption fails to comply with the provisions of this Article 7. 8. CANCELLATION After all amounts at any time owing on the Note have been paid in full or upon the conversion of the Note in full pursuant to Article 3, the Note shallbe surrendered to the Company for cancellation and shall not be reissued. 9. NO REDEMPTION OR PREPAYMENT This Note shall not be redeemable or pre-paid by the Company prior to the Maturity Date, and no sinking fund is provided for this Note. 10. MISCELLANEOUS 10.1 Termination of Rights. All rights under this Note shall terminate when (a) all amounts at any time owing on the Note have been paid in full or (ii) theNote is converted in full pursuant to the terms set forth in Article 3. 10.2 Provisions Binding on Company’s Successors. All the covenants, stipulations, promises and agreements of the Company contained in the Note shallbind its successors and assigns whether so expressed or not. 10.3 Official Acts by Successor Company. Any act or proceeding by any provision of the Note authorized or required to be done or performed by anyboard, committee or Officer of the Company shall and may be done and performed with like force and effect by the like board, committee or officerof any corporation or other entity that shall at the time be the lawful sole successor of the Company. 10.4 Amendments and Waivers; Notice. The amendment or waiver of any term of the Note shall be subject to the written consent of the Holder and theCompany. The provision of notice shall be made pursuant to the terms of the Subscription Agreement. 10.5 Transfer Restrictions. (a) The Holder shall not, during the period that commences on the Issue Date and continues until the third anniversary of the Issue Date(inclusive) (the “Lock-up Period”), resell, pledge or transfer the Note (or any portion thereof) (a “Transfer”) without the prior written consentof the Board of Directors, except for (i) any Transfer to the Affiliates of the Holder (which, for the avoidance of doubt, shall includeJD.com, Inc. or any of its Affiliates), (ii) any Transfer in connection with or following a Fundamental Change, and (iii) any Transfer as aresult of an exercise of the piggyback registration rights pursuant to the Investor Rights Agreement by the Holder. For the avoidance ofdoubt, (i) the Note (or any portion thereof) may be offered for a Transfer without the consent of the Board of Directors at any time after theexpiry of the Lock-up Period, and (ii) none of the Class A Shares issuable upon conversion of the Note shall be subject to any restrictionsset out in this Section 10.5(a). 67 (b) The Holder covenants that the Note and/or the Class A Shares issuable upon conversion of the Note will only be disposed of pursuant to aneffective registration statement under, and in compliance with the requirements of, the Securities Act or pursuant to an available exemptionfrom the registration requirements of the Securities Act, and in compliance with any applicable state securities laws. In connection with anytransfer of Notes and/or the Class A Shares issuable upon conversion of the Note other than pursuant to an effective registration statement orRule 144 promulgated under the Securities Act (“Rule 144”), the Company may require the transferor to provide to the Company anopinion of counsel selected by the transferor, the form and substance of which opinion shall be reasonably satisfactory to the Company, tothe effect that such transfer does not require registration under the Securities Act. (c) The Holder agrees to the imprinting, until no longer required by this Section 10.5, of the following legend on any certificate evidencingany of the Note or the Class A Shares issuable upon conversion of the Note: THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE“SECURITIES ACT”), OR UNDER ANY OTHER SECURITIES LAWS. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ONTRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THESECURITIES ACT AND OTHER APPLICABLE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of the Note or theClass A Shares issuable upon conversion of the Note if, unless otherwise required by state securities laws, (i) such securities are registeredfor resale under the Securities Act and are transferred to a Holder pursuant to a registration statement that is effective at the time of suchtransfer, (ii) in connection with a sale, assignment or other transfer, such Holder provides the Company with an opinion of counsel, the formand substance of which opinion shall be reasonably acceptable to the Company, that the sale, assignment or transfer of the securities maybe made without registration under the applicable requirements of the Securities Act or (iii) such Holder provides the Company withreasonable assurance that the securities can be sold, assigned or transferred pursuant to Rule 144 or have been sold under Rule 144. (d) Notwithstanding anything to the contrary herein, transfers of this Note shall be registered upon registration books maintained for suchpurpose by or on behalf of the Company. Prior to presentation of this Note for registration of transfer, the Company shall treat the registeredholder hereof as the owner and holder of this Note for the purpose of receiving all payments of principal and interest hereon and for all otherpurposes whatsoever. This provision is intended to be a book entry system as defined in Treasury Regulations Section 5f.103-1(c) and shallbe interpreted consistently therewith. 68 10.6 No Third Party Beneficiary. A person who is not a party to this Note shall have no right under the Contracts (Rights of Third Parties) Ordinance(Chapter 623) to enforce any of its terms. 10.7 Governing Law. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF HONG KONG WITHOUT REGARD TOPRINCIPLES OF CONFLICTS OF LAW. 10.8 Arbitration. (a) Any dispute, controversy, difference or claim arising out of or relating to this Note, including the existence, validity, interpretation,performance, breach or termination thereof or any dispute regarding non-contractual obligations arising out of or relating to it shall bereferred to and finally resolved by arbitration administered by the Hong Kong International Arbitration Centre (“HKIAC”) under the HKIACAdministered Arbitration Rules in force when the Notice of Arbitration is submitted. (b) The law of this arbitration clause shall be Hong Kong law. (c) The seat of arbitration shall be Hong Kong. (d) The number of arbitrators shall be three. The arbitrators shall be appointed in accordance with the HKIAC rules. The arbitration proceedingsshall be conducted in English. (e) It shall not be incompatible with this arbitration agreement for any party to seek interim or conservatory relief from courts of competentjurisdiction before the constitution of the arbitral tribunal. 10.9 Force Majeure. In no event shall the Holder be responsible or liable for any failure or delay in the performance of its obligations hereunder arisingout of or caused by, directly or indirectly, forces beyond its control, including, without limitation, strikes, work stoppages, accidents, acts of war orterrorism, civil or military disturbances, nuclear or natural catastrophes or acts of God, and interruptions, loss or malfunctions of utilities,communications or computer (software and hardware) services; it being understood that the Holder shall use reasonable efforts to resumeperformance as soon as practicable under the circumstances. 10.10 Calculations. Except as otherwise provided herein, the Company shall be responsible for making all calculations called for under the Note. Thesecalculations include, but are not limited to, determinations of the Last Reported Sale Prices, accrued interest payable on the Note, if any, and theConversion Rate of the Note. The Company shall make all these calculations in good faith and, absent manifest error, the Company’s calculationsshall be final and binding on the Holder. The Company shall provide a schedule of its calculations to the Holder. 69 10.11 Delays or Omissions. No delay or failure by any party to insist on the strict performance of any provision of the Note, or to exercise any power, rightor remedy, will be deemed a waiver or impairment of such performance, power, right or remedy or of any other provision of the Note, nor shall it beconstrued to be a waiver of any breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring. 10.12 Interpretation. If any claim is made by a party relating to any conflict, omission or ambiguity in the provisions of the Note, no presumption orburden of proof or persuasion will be implied because the Note was prepared by or at the request of any party or its counsel. [The remainder of this page has been deliberately left blank] 70 IN WITNESS WHEREOF, the Company has caused the Note to be issued on the date first above written. COMPANY: Secoo Holding Limited By: Name:Title: 71 Agreed Form Exhibit A FORM OF FUNDAMENTAL CHANGE REPURCHASE NOTICE To: [Name of Company] The undersigned Holder of this Note hereby acknowledges receipt of a notice from Secoo Holding Limited (the “Company”) as to the occurrence ofa Fundamental Change with respect to the Company and specifying the Fundamental Change Repurchase Date and requests and instructs the Company topay to the Holder in accordance with Section 5.2 of this Note the entire principal amount of this Note, or the portion thereof below designated. Principal amount to be repaid (if less than all): US$_____________ Dated: [NAME OF HOLDER] By: Name: Capacity: 72 Exhibit B FORM OF PERFORMANCE FAILURE REPURCHASE NOTICE To: [Name of Company] The undersigned Holder of this Note hereby requests and instructs the Company to pay to the Holder in accordance with Section 5.5 of this Note theentire principal amount of this Note, or the portion thereof below designated. Principal amount to be repaid (if less than all): US$_____________ Performance Failure Repurchase Date: [NAME OF HOLDER] By: Name: Capacity: 73 Exhibit C Form of Warrant Instrument 74 Agreed Form THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THESECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. THISWARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISETRANSFERRED EXCEPT (1) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OR IN A TRANSACTION NOTSUBJECT TO THE REGISTRATION REQUIREMENTS OF THAT ACT, OR (2) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDERTHE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE STATE SECURITIES LAWS AND THE SECURITIES LAWS OFOTHER JURISDICTIONS, AND IN THE CASE OF A TRANSACTION EXEMPT FROM REGISTRATION, UNLESS THE COMPANY HAS RECEIVED ANOPINION OF COUNSEL THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION UNDER THE SECURITIES ACT AND SUCH OTHERAPPLICABLE LAWS. HOLDERS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENTFOR AN INDEFINITE PERIOD OF TIME. SECOO HOLDING LIMITED WARRANT TO PURCHASE AMERICAN DEPOSITARY SHARES Warrant No.: _____________Outstanding Principal Amount: $9,000,000.00Date of Issuance: _____________, 2018 (“Issuance Date”) Secoo Holding Limited, an exempted company incorporated and existing under the laws of the Cayman Islands (the “Company”), hereby certifiesthat, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Great World Lux Pte. Ltd, the registered holderhereof or its permitted assigns (the “Holder”), is entitled, subject to the terms set forth below, to purchase from the Company, pursuant to this warrant(including any warrants issued in exchange, transfer or replacement hereof, this “Warrant”) to purchase ADSs (the “Warrant ADSs”), at any time or times onor after the Initial Exercise Date (as defined below) and subject to the applicable securities laws and regulations, but not after 11:59 p.m., New York time, onthe Expiration Date (as defined below), at the Exercise Price (as defined below) then in effect up to a maximum of $9,000,000.00. For purposes ofclarification, two ADS represents one Class A ordinary share, par value US$0.001 per share, in the share capital of the Company (the “Class A Shares”) as atthe Issuance Date. This Warrant is issued pursuant to that certain Convertible Note and Warrant Subscription Agreement dated as of _____________, 2018by and among the Company, the Holder and the other parties named therein (as amended, supplemented or modified from time to time the “SubscriptionAgreement”). Except as otherwise defined herein, capitalized terms in this Warrant shall have the meanings set forth in Section 16 or as otherwise given inaccordance with the Subscription Agreement. The Warrant ADSs issuable upon exercise of this Warrant are “Registrable Securities” as defined in the Subscription Agreement. 75 1. EXERCISE OF WARRANT 1.1 Mechanics of Exercise (a) Subject to the terms and conditions hereof, this Warrant may be exercised by the Holder on any day on or after the Initial Exercise Date, inwhole or in part, by delivery of a written notice, in the form attached hereto as Schedule 1 (the “Exercise Notice”), of the Holder’s electionto exercise this Warrant. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender thisWarrant to the Company until the Holder has purchased all of the Warrant ADSs available hereunder such that the Outstanding PrincipalAmount has been reduced to zero and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to theCompany for cancellation within three (3) Trading Days of the date the final Exercise Notice is delivered to the Company. Partial exercisesof this Warrant shall have the effect of lowering the Outstanding Principal Amount by an amount equal to the product of the number ofWarrant ADSs purchased as part of the partial exercise and the then applicable Exercise Price (as defined below). The Company shallmaintain records showing the date of such purchases of Warrant ADSs and the Outstanding Principal Amount. The Holder and anyassignee, by acceptance of this Warrant, acknowledge and agree that, by reason of this paragraph, following the purchase of a portion of theWarrant ADSs hereunder, the Outstanding Principal Amount at any given time may be less than the Outstanding Principal Amount statedon the face hereof. On or before the third (3rd) Business Day following the date on which the Company has received the Exercise Noticeand representation letters and other documents reasonably requested by the Depositary, the Company shall transmit by facsimile anacknowledgment of confirmation of receipt of the Exercise Notice to the Holder and Deutsche Bank Trust Company Americas (the“Depositary”) for the ADSs. On or before the fifth (5th) Business Day following the date on which the Company has received the ExerciseNotice and representation letters and other documents requested by the Depositary (the “ADS Delivery Date”), the Company shall (A) issueand deposit with the Depositary a number of Class A Shares that will be represented by the number of Warrant ADSs to which the Holder isentitled in respect of that exercise, (B) pay the fee of the Depositary for the issuance of that number of Warrant ADSs and (C) instruct theDepositary to promptly execute and deliver to that Holder the Warrant ADSs subject to the applicable securities laws and regulations. Nofractional ADSs are to be issued upon the exercise of this Warrant. If any fractional share of an ADS would, except for the provisions of theprior sentence, be deliverable upon such exercise, the Company, in lieu of delivering such fractional share of an ADS, shall pay to theexercising Holder an amount in cash equal to the Closing Sale Price on the Principal Market of such fractional ADS on the date of exercise. The Holder shall pay any and all taxes and expenses which may be payable with respect to the issuance and delivery of Warrant ADSs uponexercise of this Warrant, unless otherwise agreed in any Transaction Agreement. (b) In the case of Warrant ADSs issued with any restrictive legends, upon the Company’s receipt of notice and representation letters and otherdocuments reasonably requested by the Depositary from the Holder that (A) Warrant ADSs containing any restrictive legends have beenresold in reliance on an effective resale registration statement relating to the resale of ADSs representing Warrant ADSs or pursuant toRule 144, or (B) Warrant ADSs containing any restrictive legends that are beneficially owned by it have become freely tradable pursuant toRule 144 without the requirement for the Company to be in compliance with the current public information required under Rule 144 as tosuch Warrant ADSs and without volume or manner-of-sale restrictions, accompanied by a certificate or certificates evidencing the WarrantADSs, if any, that have been sold pursuant to clause (A) above or for which the legend is to be removed pursuant to clause (B) above, theCompany shall within ten (10) Business Days cause to be issued and delivered for deposit to the Depositary irrevocable instructions thatthe Depositary deliver ADSs without any restrictive legend with respect to such Warrant ADSs to or upon the directions of the Holder andsuch other documents as the Depositary may reasonably require from the Company in connection therewith. From and after the date theCompany receives the notice specified in clause (B) above, Warrant ADSs which are subsequently issued upon exercise of this Warrantshall not bear a restrictive legend, provided that the conditions specified in clause (B) above are still satisfied at such time. If the Companyfails to cause the Depositary to deliver ADSs representing Warrant ADSs pursuant to the terms of this Warrant, then the Company shall fullyindemnify the Holder for any liabilities, judgments, costs, losses, fines and expenses of any kind the Holder incurs in connection with suchfailure. 76 1.2 Exercise Price For purposes of this Warrant, “Exercise Price” means $18.00 per ADS, subject to adjustment as provided herein. 1.3 Payment of Exercise Price The Company shall promptly, and in no case later than the third (3rd) Business Day immediately following receipt of an Exercise Notice confirmsuch receipt via facsimile to the number specified in such Exercise Notice. Within three (3) Business Days of the date of the Exercise Notice, the Holder shallmake payment to the Company of an amount equal to the applicable Exercise Price multiplied by the number of Warrant ADSs as to which this Warrant isbeing exercised (the “Aggregate Exercise Price”) in cash or by wire transfer of immediately available funds. 1.4 Company’s Failure to Timely Deliver Securities. (a) If the Company fails to deliver to the Holder the number of ADSs to which such Holder is entitled upon exercise by the ADS Delivery Date(an “Exercise Failure”) and such Exercise Failure is not completely and fully cured within five (5) Business Days after the ADS DeliveryDate, then: (i) the Company shall pay damages to the Holder, for the ADS Delivery Date and each subsequent day on which such Exercise Failurecontinues, an amount equal to an annual interest rate of one percent (1%) of the product of (x) the sum of the number of ADSs notissued to the Holder on or prior to the ADS Delivery Date and to which the Holder is entitled, times (y) the Closing Sale Price ofthe ADSs on the ADS Delivery Date, and 77 (ii) the Holder, upon written notice to the Company, may, no later than seven (7) Business Days after the ADS Delivery Date, at itssole discretion, void its Exercise Notice with respect to, and retain or have returned, as the case may be, any portion of this Warrantthat has not been converted pursuant to such Exercise Notice and rescind such exercise. (b) Without prejudice to any other remedies available to the Holder, upon an Exercise Failure, in the event that the highest Closing Sale Priceof the ADS on each date during the period starting from (and including) the ADS Delivery Date and ending on (and excluding) the actualdate of delivery of the required ADSs by the Company (the “Relevant Closing Sale Price”) is higher than the Closing Sale Price of the ADSon the actual date of delivery of the required ADSs by the Company, the Holder shall be entitled to an amount equal to the product of (i) thenumber of ADSs that the Company fails to deliver to the Holder on the ADS Delivery Date and (ii) the difference between the RelevantClosing Sale Price and the Closing Sale Price of the ADS on the actual date of delivery of the required ADSs by the Company, to be paid bythe Company to the Holder in cash, no later than five (5) Business Days after the actual date of delivery of the required ADSs by theCompany. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the ExerciseFailure. (c) In case of an Exercise Failure, the rights of the Holder pursuant to paragraph (a) or (b) above shall be without prejudice to any other rights orremedies available to the Holder under this Warrant or under applicable laws in the event of an Exercise Failure. 1.5 Disputes In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant ADSs or the Outstanding PrincipalAmount, the Company shall promptly issue to the Holder the number of Warrant ADSs that are not disputed. 2. ADJUSTMENT OF EXERCISE PRICE The Exercise Price shall be adjusted from time to time as follows: 2.1 Adjustment upon Subdivision or Combination of Ordinary Shares or ADSs If the Company, at any time while this Warrant is outstanding: (i) subdivides outstanding ADSs or Ordinary Shares into a larger number of shares,(ii) combines (including by way of reverse stock split) outstanding ADSs or Ordinary Shares into a smaller number of shares, or (iii) issues by reclassificationof ADSs or Ordinary Shares, then in each case the Exercise Price shall be multiplied by a fraction, of which (x) the numerator shall be the number of OrdinaryShares (including the Ordinary Shares represented by all the ADSs outstanding, but excluding treasury shares, if any) outstanding immediately before suchevent and (y) the denominator shall be the number of Ordinary Shares (including the Ordinary Shares represented by all the ADSs outstanding, but excludingtreasury shares, if any) outstanding immediately after such event. Any adjustment made pursuant to this Section 2.1 shall become effective immediately afterthe effective date in the case of a subdivision, combination or re-classification. 78 2.2 Adjustment upon Distribution of Assets If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of Ordinary Shares orADSs, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way ofa dividend, stock split, spin off, subdivision, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”),at any time after the issuance of this Warrant, then, in each such case the Exercise Price in effect immediately prior to the close of business on the record datefixed for the determination of holders of Ordinary Shares or ADSs entitled to receive the Distribution shall be reduced, effective as of the close of business onsuch record date, to a price determined by multiplying such Exercise Price by a fraction, of which (x) the numerator shall be the Closing Bid Price of theOrdinary Shares or ADSs, as applicable, on the Trading Day immediately preceding such record date minus the value of the Distribution (as determined ingood faith by the Company’s Board of Directors) applicable to one Ordinary Share or ADS, as applicable, and (y) the denominator shall be the Closing BidPrice of the Ordinary Shares or ADSs, as applicable on the Trading Day immediately preceding such record date; provided that in the event that theDistribution is of securities (“Other Securities”) of a company which are traded on a national securities exchange or a national automated quotation system,then the Holder may elect to receive a warrant to purchase Other Securities in lieu of an adjustment in the Exercise Price, the terms of which shall be identicalto those of this Warrant, except that such warrant shall be exercisable into the number of Other Securities that would have been payable to the Holderpursuant to the Distribution had the Holder exercised this Warrant immediately prior to such record date and with an aggregate exercise price of zero. 2.3 Adjustment upon Issuance at less than Reference Price If and whenever the Company shall issue any Ordinary Shares or ADSs (other than any issuance pursuant to this Warrant or on the exercise of anyother rights of conversion into, or exchange or subscription for, Ordinary Shares or ADSs) or issue or grant options, warrants or other rights to purchase,subscribe, convert into, exercise or exchange for Ordinary Shares or ADSs (the “Relevant Securities”), in each case at a consideration per ADS (on an as-converted and as-exercised basis and, in the case of any issuance of Ordinary Shares, such issue price per Ordinary Share multiplied by the applicable numberof Ordinary Shares then represented by each ADS) which is less than the Reference Price, the Exercise Price shall be adjusted by multiplying the ExercisePrice in force immediately before such issuance by the following fraction: (A + B) / C Where: A = the number of Ordinary Shares in issue immediately before the issue of the Relevant Securities; 79 B = the number of Ordinary Shares which the aggregate consideration receivable for the issue of the Relevant Securities would purchase at the priceequal to (x) Reference Price, multiplied by (y) the applicable number of Ordinary Shares then represented by each ADS; and C = the number of Ordinary Shares in issue immediately after the issue of the Relevant Securities, provided that references to the number of Ordinary Shares in the above formula shall include all the Ordinary Shares to be issued assuming that alloptions, warrants or other rights to purchase, subscribe, convert into, exercise or exchange for Ordinary Shares or ADSs are exercised in full at the initialexercise price on the date of issue of such options, warrants or other rights. Such adjustment shall become effective on the date of issue of the RelevantSecurities. 2.4 Other Adjustment Events If any event occurs of the type contemplated by the provisions of this Section 2 but not expressly provided for by such provisions, then theCompany’s Board of Directors will make an appropriate adjustment in the Exercise Price so as to protect the rights of the Holder; provided that no suchadjustment pursuant to this Section 2.4 will increase the Exercise Price unless as otherwise determined pursuant to this Section 2. 2.5 Exceptions to Adjustment Anything herein to the contrary notwithstanding, there shall be no adjustment to the Exercise Price with respect to any Excluded Issuance. 3. PURCHASE RIGHTS In addition to any adjustments pursuant to Section 2 above, if at any time the Company grants, issues or sells any rights to purchase stock, warrants,securities or other property pro rata to all the record holders of Ordinary Shares or ADSs (the “Purchase Rights”), then the Holder will be entitled to acquire,upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired as if the Holder had held the numberof Ordinary Shares or ADSs issuable upon the full conversion of the Convertible Note and the complete and full exercise of this Warrant (without regard toany limitations on the exercise of this Warrant) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights,or, if no such record is taken, the date as of which the record holders of Ordinary Shares or ADSs are to be determined for the grant, issue or sale of suchPurchase Rights, provided that the Ownership Percentage of the Holder shall not exceed the Ownership Cap (as defined in the Investor Rights Agreement)immediately after such subscription and purchase; provided further that any change to the Ownership Percentage of the Holder as a result of any adjustmentto the Exercise Price in accordance with the terms and conditions herein or to the Conversion Rate (as defined in the Convertible Note Instrument) inaccordance with the terms and condition set forth in the Convertible Note Instrument, shall not be taken into account when determining whether theOwnership Cap has been exceeded. 80 4. FUNDAMENTAL TRANSACTIONS In connection with any Fundamental Transaction, the Company shall make appropriate provision so that this Warrant shall thereafter be exercisablefor shares of the Successor Entity based upon the conversion ratio or other consideration payable in the Fundamental Transaction. The provisions of thisSection shall apply similarly and equally to successive Fundamental Transactions and shall be applied without regard to any limitations on the exercise ofthis Warrant. In the event that any Person becomes a Parent Entity of the Company, such Person shall assume all of the obligations of the Company under thisWarrant with the same effect as if such Person had been named as the Company herein. 5. NONCIRCUMVENTION The Company hereby covenants and agrees that the Company will not, by amendment of its memorandum and articles of association or otherconstitutional documents or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale ofsecurities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times ingood faith carry out all the provisions of this Warrant and take all action as may be required to protect the rights of the Holder. Without limiting thegenerality of the foregoing, the Company (i) shall not increase the par value of any Ordinary Shares underlying the ADSs receivable upon the exercise of thisWarrant above the Exercise Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly andlegally issue fully paid and nonassessable ADSs upon the exercise of this Warrant, and (iii) shall, so long as this Warrant is outstanding, take all actionnecessary to reserve and keep available out of its authorized and unissued Ordinary Shares, solely for the purpose of effecting the exercise of this Warrant,100% of the number of Ordinary Shares issuable upon exercise of this Warrant then outstanding (without regard to any limitations on exercise). 6. WARRANT HOLDER NOT DEEMED A SHAREHOLDER Except as otherwise specifically provided herein, the Holder, solely in such Person’s capacity as a holder of this Warrant, shall not be entitled to voteor receive dividends or be deemed the holder of share capital of the Company or a holder of ADSs for any purpose, nor shall anything contained in thisWarrant be construed to confer upon the Holder, solely in such Person’s capacity as the Holder of this Warrant, any of the rights of a stockholder of theCompany or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock,consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance tothe Holder of the Warrant ADSs which such Person is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in thisWarrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a shareholderof the Company, whether such liabilities are asserted by the Company or by creditors of the Company. 81 7. REISSUANCE OF WARRANTS 7.1 Transfer of Warrant Subject to Section 13, if this Warrant is to be transferred, the Holder shall surrender this Warrant to the Company, whereupon the Company willforthwith issue and deliver upon the order of the Holder a new Warrant (in accordance with Section 7.4), registered as the Holder may request, representingany portion of the then Outstanding Principal Amount being transferred by the Holder and, if less than the total amount of the applicable OutstandingPrincipal Amount is being transferred, a new Warrant (in accordance with Section 7.4) to the Holder representing the portion of the Outstanding PrincipalAmount not being transferred. 7.2 Lost, Stolen or Mutilated Warrant Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and, inthe case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation,upon surrender and cancellation of this Warrant, the Company shall execute and deliver to the Holder a new Warrant (in accordance with Section 7.4)representing the then Outstanding Principal Amount. 7.3 Exchangeable for Multiple Warrants This Warrant is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Warrant or Warrants (inaccordance with Section 7.4) representing in the aggregate the then applicable Outstanding Principal Amount, and each such new Warrant will represent theright to purchase such portion of Outstanding Principal Amount as is designated by the Holder at the time of such surrender. 7.4 Issuance of New Warrants Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of like tenor with thisWarrant, (ii) shall represent, as indicated on the face of such new Warrant, the then applicable Outstanding Principal Amount (or in the case of a new Warrantbeing issued pursuant to Section 7.1 or Section 7.3, such principal amount designated by the Holder which, when added to the principal amount of the othernew Warrants issued in connection with such issuance, does not exceed the then applicable Outstanding Principal Amount), (iii) shall have an issuance date,as indicated on the face of such new Warrant which is the same as the Issuance Date, and (iv) shall have the same rights and conditions as this Warrant. 8. NOTICES Whenever notice is required to be given under this Warrant, unless otherwise provided herein, such notice shall be given in accordance with theSubscription Agreement. The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Warrant, including inreasonable detail a description of such action and the reason therefore. 82 9. AMENDMENT AND WAIVER Except as otherwise provided herein, the provisions of this Warrant may be amended and the Company may take any action herein prohibited, oromit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Holder. 10. GOVERNING LAW AND DISPUTE RESOLUTION (a) This Warrant shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation andperformance of this Warrant shall be governed by, the laws of Hong Kong without regard to any choice of laws or conflict of lawsprovisions that would require the application of the laws of any other jurisdiction. (b) Any dispute, controversy, difference, proceedings or claim arising out of or relating to this Warrant, including the existence, validity,interpretation, performance, breach or termination thereof or any dispute regarding non-contractual obligations arising out of or relating toit shall be referred to and finally resolved by arbitration administered by the Hong Kong International Arbitration Centre (“HKIAC”) underthe HKIAC Administered Arbitration Rules in force when the notice of arbitration is submitted (the “Rules”). (c) The seat of arbitration shall be Hong Kong. The number of arbitrators shall be three. The arbitrators shall be appointed in accordance withthe Rules. The arbitration proceedings shall be conducted in English. (d) Each of the Parties shall cooperate with any party to the dispute in making full disclosure of and providing complete access to allinformation and documents requested by such party in connection with such arbitration proceedings, subject only to any confidentialityobligations binding on the party receiving the request. (e) The award of the arbitration tribunal shall be final and binding upon the disputing parties, and any party to the dispute may apply to a courtof competent jurisdiction for enforcement of such award. (f) Nothing in this Section 10 shall prevent, obstruct or otherwise restrict any party from seeking interim or conservatory relief from courts ofcompetent jurisdiction before the constitution of the arbitral tribunal. 11. CONSTRUCTION; HEADINGS This Warrant shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed against any person as the drafterhereof. The headings of this Warrant are for convenience of reference and shall not form part of, or affect the interpretation of, this Warrant. 83 12. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF The remedies provided in this Warrant shall be cumulative and in addition to all other remedies available under this Warrant, at law or in equity(including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the right of the Holder to pursue actual damages forany failure by the Company to comply with the terms of this Warrant. 13. TRANSFER RESTRICTIONS Notwithstanding anything to the contrary herein, the Holder shall not, during the period that commences on the Issuance Date and continues untilthe third anniversary of the Issuance Date (inclusive) (the “Lock-up Period”), resell, pledge or transfer this Warrant and(a “Transfer”), without, in each case,the prior written consent of the board of directors the Company, except for (i) any Transfer to the Affiliates of the Holder (which, for the avoidance of doubt,shall include JD.com, Inc. or any of its Affiliates), (ii) any Transfer in connection with or following a Fundamental Transaction, and (iii) any Transfer as aresult of an exercise of the piggyback registration rights pursuant to the Investor Rights Agreement by the Holder. For the avoidance of doubt, (i) this Warrantmay be offered for a Transfer without the consent of the board of directors of the Company at any time after the expiry of the Lock-up Period; and (ii) none ofthe ADSs issued upon exercise of this Warrant shall be subject to any restrictions set out in this Section 13. 14. NO THIRD PARTY BENEFICIARY A person who is not a party to this Warrant shall have no right under the Contracts (Rights of Third Parties) Ordinance (Chapter 623) to enforce anyof its terms. 15. WARRANT AGENT The Company shall serve as warrant agent under this Warrant. Upon thirty (30) days’ notice to the Holder, the Company may appoint a new warrantagent. Any corporation into which the Company or any new warrant agent may be merged or any corporation resulting from any consolidation to which theCompany or any new warrant agent shall be a party or any corporation to which the Company or any new warrant agent transfers substantially all of itscorporate trust or shareholder services business shall be a successor warrant agent under this Warrant without any further act. Any such successor warrantagent shall promptly cause notice of its succession as warrant agent to be given to the Holder in accordance with Section 8. 16. CERTAIN DEFINITIONS AND INTERPRETATION 16.1 For purposes of this Warrant, the following terms shall have the following meanings: “ADS” means the American depositary share of the Company, two of which represent one (1) Class A Share as of the date of this Warrant, anddeposited with the Depositary or its designee. “ADS Delivery Date” shall have the meaning set forth in Section 1.1. “Aggregate Exercise Price” shall have the meaning set forth in Section 1.3. 84 “Bloomberg” means Bloomberg L.P. (or any successor thereto). “Business Day” means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by Law to be closed in thePeople’s Republic of China (which for the purpose of this Note excludes Hong Kong, Macau SAR and Taiwan), Singapore, Hong Kong or New York. “Closing Bid Price” and “Closing Sale Price” means, for any security as of any date, the last closing bid price and last closing trade price,respectively, for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hoursbasis and does not designate the closing bid price or the closing trade price, as the case may be, then the last bid price or the last trade price,respectively, of such security prior to 4:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not the principal securitiesexchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securitiesexchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bidprice or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported byBloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or theask prices, respectively, of any market makers for such security as reported in the “OTCPink” marketplace by OTC Markets Group Inc. (formerlyPink Sheets LLC). If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoingbases, the Closing Bid Price or the Closing Sale Price, as the case may be, of such security on such date shall be the fair market value as mutuallydetermined by the Company’s Board of Directors and the Holder. All such determinations to be appropriately adjusted for any stock dividend, stocksplit, stock combination or other similar transaction during the applicable calculation period. “Company” shall have the meaning set forth in the Preamble. “Current Market Price” means, in respect of an ADS at a particular date, the volume-weighted average of the Closing Sale Prices for one ADS(carrying full entitlement to dividend) for the thirty (30) consecutive Trading Days ending on the Trading Day immediately preceding such date,provided that if at any time during the said 30 Trading Day period the ADSs shall have been quoted ex-dividend and during some other part of thatperiod the ADSs shall have been quoted cum-dividend then: (a) if the ADSs (or the Ordinary Shares) to be issued in such circumstances do not rank for the dividend in question, the quotations on the dateson which the ADSs shall have been quoted cum-dividend shall for the purpose of this definition be deemed to be the amount thereofreduced by an amount equal to the amount of that dividend per ADS; or (b) if the ADSs (or the Ordinary Shares) to be issued in such circumstances rank for the dividend in question, the quotations on the dates onwhich the ADSs shall have been quoted ex-dividend shall for the purpose of this definition be deemed to be the amount thereof increasedby such similar amount; 85 and provided further that if the ADSs on each of the said thirty (30) Trading Days have been quoted cum-dividend in respect of a dividend which hasbeen declared or announced but the ADSs or the Ordinary Shares to be issued do not rank for that dividend, the quotations on each of such datesshall for the purpose of this definition be deemed to be the amount thereof reduced by an amount equal to the amount of that dividend per ADS. “Depositary” shall have the meaning set forth in Section 1.1. “Distribution” shall have the meaning set forth in Section 2.2. “Employee Incentive Plan” means the Company’s incentive plan or plans adopted for its directors, officers, employees and consultants andapproved by the Company’s Board of Directors. “Excluded Issuance” means any issuance or sale (or deemed issuance or sale) by the Company after the Issuance Date of (a) Ordinary Shares or ADSsissued upon the conversion or exercise of any Ordinary Share Equivalents issued prior to the Issuance Date, provided that such securities are notamended after the Issuance Date to increase the number of Ordinary Shares or ADSs issuable thereunder, lower the exercise or conversion pricethereof or in a manner that otherwise adversely affects the Holder; (b) Ordinary Shares or ADSs issued upon the exercise of this Warrant or pursuantto any transaction contemplated under the Subscription Agreement; or (c) all Ordinary Shares, ADSs or Ordinary Share Equivalents that are issuedunder the Employee Incentive Plan. “Exercise Price” shall have the meaning set forth in Section 1.2. “Exercise Notice” shall have the meaning set forth in Section 1.1. “Expiration Date” means the date 36 months after the Issuance Date or, if such date falls on a day other than a Business Day or on which tradingdoes not take place on the Principal Market (in each case, a “Holiday”), the next date that is not a Holiday. “Fundamental Transaction” means that the Company shall, directly or indirectly, in one or more related transactions, (i) consolidate or merge withor into (whether or not the Company is the surviving corporation) another Person, or (ii) sell, assign, transfer, convey or otherwise dispose of all orsubstantially all of the properties or assets of the Company to another Person, or (iii) allow another Person to make a purchase, tender or exchangeoffer that is accepted by the holders of more than the 50% of the outstanding Ordinary Shares (not including any Ordinary Shares held by the Personor Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or(iv) consummate a stock purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than the 50% of the outstanding Ordinary Shares (notincluding any Ordinary Shares held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons makingor party to, such stock purchase agreement or other business combination), (v) reorganize, recapitalize or reclassify its Ordinary Shares, or (vi) any“person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act) is or shall become the “beneficial owner”(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued andoutstanding Ordinary Shares. 86 “HKIAC” shall have the meaning set forth in Section 10(b). “Holder” shall have the meaning set forth in the Preamble. “Hong Kong” means the Hong Kong Special Administrative Region of the People’s Republic of China. “Initial Exercise Date” means the first anniversary of the Issuance Date. “Ordinary Shares” means (i) the Company’s ordinary shares, consisting of the Class A Shares and the Class B Shares, and (ii) any share capital intowhich such ordinary shares shall have been changed or any share capital resulting from a reclassification of such ordinary shares. “Ordinary Share Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at anytime Ordinary Shares, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any timeconvertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Ordinary Shares or ADSs. “Other Securities” shall have the meaning set forth in Section 2.2. “Outstanding Principal Amount” means the outstanding principal amount of this Warrant applicable from time to time as calculated in accordancewith the terms of this Warrant. The Outstanding Principal Amount as at the Issuance Date is $9,000,000. “Parent Entity” of a Person means an entity that, directly or indirectly, controls the applicable Person, or, if there is more than one such Person orParent Entity, the Person or Parent Entity with the largest public market capitalization as of the date of consummation of the FundamentalTransaction. “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, anyother entity and a government or any department or agency thereof. “Principal Market” means The NASDAQ Global Market. “Purchase Rights” shall have the meaning set forth in Section 3. “Reference Price” means the higher of (i) the Exercise Price then in effect and (ii) the Current Market Price, in each case on the date ofannouncement of the issuance referred to under the provisions in Section 2.3. “Relevant Securities” shall have the meaning ascribed to such term in Section 2.3. “Securities Act” means the Securities Act of 1933, as amended. 87 “Subscription Agreement” shall have the meaning set forth in the Preamble. “Successor Entity” means the Person (or, if so elected by the Holder, the Parent Entity of such Person) formed by, resulting from or surviving anyFundamental Transaction or the Person (or, if so elected by the Holder, the Parent Entity of such Person) with which such Fundamental Transactionshall have been entered into. “Trading Day” means any day on which the ADSs are traded on the Principal Market, or, if the Principal Market is not the principal trading marketfor the ADSs, then on the principal securities exchange or securities market on which the ADSs are then traded; provided that “Trading Day” shallnot include any day on which the ADSs are scheduled to trade on such exchange or market for less than 4 hours or any day that the ADSs aresuspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advancethe closing time of trading on such exchange or market, then during the hour ending at 4:00 p.m., New York time). “Warrant” shall have the meaning set forth in the Preamble. “Warrant ADSs” shall have the meaning set forth in the Preamble. “$” or “US$” means the legal currency of the United States of America. 16.2 A section, clause, paragraph or schedule, unless the context otherwise requires, is a reference to a section, clause, paragraph or schedule to, thisWarrant. [Signature Page Follows] 88 IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase American Depositary Shares to be duly executed as of the IssuanceDate set out above. SECOO HOLDING LIMITED By:Name:Title: 89 SCHEDULE 1 EXERCISE NOTICE TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT TO PURCHASE AMERICAN DEPOSITARY SHARES SECOO HOLDING LIMITED The undersigned holder hereby exercises the right to purchase _________ American Depositary Shares (“Warrant ADSs”) of Secoo HoldingLimited, an exempted company incorporated existing under the laws of the Cayman Islands (the “Company”), evidenced by the attached Warrant toAmerican Depositary Shares (the “Warrant”). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in theWarrant. 1. Form of Exercise Price. The Holder’s payment of the Exercise Price shall be made as a “Cash Exercise” with respect to _________ Warrant ADSs 2. Payment of Exercise Price. In the event that the Holder conducted a Cash Exercise with respect to some or all of the Warrant ADSs to be issuedpursuant hereto, the Holder shall pay the Aggregate Exercise Price in the sum of $_________ to the Company in accordance with the terms of the Warrant. 3. Delivery of Warrant ADSs. The Company shall deliver to the Holder _________ Warrant ADSs in accordance with the terms of the Warrant. 4. Confirmation. Please send confirmation of receipt of this Exercise Notice to the following facsimile number: _________. Date:, Name of Holder By:Name:Title: 90 ACKNOWLEDGMENT The Company hereby acknowledges this Exercise Notice and hereby directs Deutsche Bank Trust Company Americas to issue the above indicatednumber of American Depositary Shares in accordance with the Depositary Instructions dated _________, 20_________ from the Company andacknowledged and agreed to by Deutsche Bank Trust Company Americas. SECOO HOLDING LIMITED By:Name:Title: 91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 ChinaYichun 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 thisreport; 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 the company 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 thoseentities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about 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 thisannual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; 5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to thecompany’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are 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 29, 2019 By:/s/ Richard Rixue LiName:Richard Rixue Li Title: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, Inc.; 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 thisreport; 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 the company 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 thoseentities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about 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; 5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to thecompany’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent function): (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 29, 2019 By:/s/ Shaojun ChenName:Shaojun Chen Title: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, 2018 as filed with theSecurities 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 theCompany. Date:April 29, 2019 By:/s/ Richard Rixue LiName:Richard Rixue Li Title:Chief Executive Officer 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 RYB Education, Inc. (the “Company”) on Form 20-F for the year ended December 31, 2018 as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), I, Shaojun Chen, Chief Financial Officer of the Company, hereby certify, pursuant to18 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 theCompany. Date:April 29, 2019 By:/s/ Shaojun ChenName:Shaojun Chen Title:Chief Financial Officer 1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 29, 2019 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, 2018, whichwill be filed by Secoo Holding Limited on April 29, 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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