Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020.
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Date of event requiring this shell company report
For the transition period from to
Commission file number: 001-38877
Yunji Inc.
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
Cayman Islands
(Jurisdiction of incorporation or organization)
15/F, South Building
Hipark Phase 2, Xiaoshan District
Hangzhou, Zhejiang, 310000
People’s Republic of China
(Address of principal executive offices)
Chengqi Zhang, Vice President of Finance
15/F, South Building
Hipark Phase 2, Xiaoshan District
Hangzhou, Zhejiang, 310000
People’s Republic of China
Phone: +86-571-8168 8947
Email: zhangcq@yunjiglobal.com
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class
American depositary shares, each American
depositary share representing ten Class A
ordinary shares
Class A ordinary shares, par value US$0.000005
per share*
* Not for trading, but only in connection with
the listing on the Nasdaq Global Market of
American depositary shares.
Trading
Symbol
YJ
Name of Each Exchange
On Which Registered
The Nasdaq Stock Market LLC
(The Nasdaq Global Market)
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
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, 2020, there were 2,133,265,412 ordinary shares outstanding, par value US$0.000005 per share, being the sum of 1,183,305,412
Class A ordinary shares (excluding treasury shares), par value US$0.000005 per share and 949,960,000 Class B ordinary shares, par value US$0.000005
per share.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934. ☐ Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Non-accelerated filer
☐
Accelerated filer
☒
Emerging growth company
☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected
not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of
the Exchange Act. ☐
†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting
Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ☒
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☒
International Financial Reporting Standards as issued
by the International Accounting Standards Board
☐
Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to
follow. ☐ Item 17 ☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). ☐ Yes ☒ No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ☐ Yes ☐ No
Table of Contents
INTRODUCTION
FORWARD-LOOKING STATEMENTS
PART I.
TABLE OF CONTENTS
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 3. KEY INFORMATION
ITEM 4. INFORMATION ON THE COMPANY
ITEM 4A. UNRESOLVED STAFF COMMENTS
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
ITEM 8. FINANCIAL INFORMATION
ITEM 9. THE OFFER AND LISTING
ITEM 10. ITEM 10. ADDITIONAL INFORMATION
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
PART II.
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
ITEM 15. CONTROLS AND PROCEDURES
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
ITEM 16B. CODE OF ETHICS
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
ITEM 16G CORPORATE GOVERNANCE
ITEM 16H. MINE SAFETY DISCLOSURE
PART III.
ITEM 17. FINANCIAL STATEMENTS
ITEM 18. FINANCIAL STATEMENTS
ITEM 19. EXHIBITS
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4
4
4
4
57
93
93
116
125
129
130
131
141
142
145
145
145
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147
147
147
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Unless otherwise indicated or the context otherwise requires, references in this annual report on Form 20-F to:
INTRODUCTION
•
•
•
•
•
•
“ADRs” are to the American depositary receipts which may evidence the ADSs;
“ADSs” are to the American depositary shares, each of which represents ten Class A ordinary shares;
“buyer” in a given period are to a user who places at least one order on our platform during such period, regardless of whether any product in such
order is ultimately sold or delivered or whether any product in such order is returned;
“China” or the “PRC” are to the People’s Republic of China, excluding, for the purposes of this annual report only, Hong Kong, Macau and
Taiwan;
“Class A ordinary shares” are to our Class A ordinary shares of par value US$0.000005 per share;
“Class B ordinary shares” are to our Class B ordinary shares of par value US$0.000005 per share;
•
“GMV” are to the total value of all orders for merchandise placed in our merchandise business and marketplace business, including the value of
the merchandise sold as part of the membership packages, as well as the VAT and tax surcharges paid, regardless of whether the merchandises are
returned and without taking into consideration any discounts and incentives. GMV includes the value from orders placed on our mobile apps as
well as orders placed on third-party mobile apps and websites that are fulfilled by us, by our third-party merchants, or by our third-party business
partners. Our revenues recognized on a gross basis are net of the VAT and related tax surcharges paid, discounts and incentives, the value of the
merchandises returned, and any adjustments due to the timing difference between shipping and receipt, which are included in the above GMV
measure. Our revenues recognized on a net basis are net of the corresponding amount to be paid to the vendor, the principal in the transaction, in
addition to the items mentioned above, which are included in the above GMV measure.;
•
“Jishang Preferred” are to Zhejiang Jishang Preferred E-Commerce Co., Ltd.;
•
“member” are to an individual who registers an account on our flagship Yunji app and satisfies certain requirements such as purchasing a
membership package or meeting certain other requirements;
•
“ordinary shares” are to our ordinary shares, par value US$0.000005 per share;
•
“our VIEs” are to (i) Yunji Sharing Technology Co., Ltd., or Yunji Sharing, (ii) Zhejiang Yunji Preferred E-Commerce Co., Ltd., or Yunji
Preferred, (iii) Hangzhou Chuanchou Network Technology Co., Ltd., or Hangzhou Chuanchou, and (vi) Hangzhou Fengjing Network Technology
Co., Ltd., or Hangzhou Fengjing;
•
“our WFOE” are to Hangzhou Yunchuang Sharing Network Technology Co., Ltd. or Yunchuang Sharing;
•
“repeat purchase rate” in a given period are calculated as the number of transacting members who purchased not less than twice divided by the
total number of transacting members during such period;
•
“RMB” and “Renminbi” are to the legal currency of China;
•
•
“SPUs” are to standard product units offered on our platform. The number of SPUs does not represent the number of distinct products offered on
our platform. We assign the same SPU to the same type of product without distinguishing product specifics such as colors and sizes;
“transacting member” in a given period are to a member who successfully promotes our products to generate at least one order or places at least
one order on our platform, regardless of whether any product in such order is ultimately sold or delivered or whether any product in such order is
returned;
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•
•
“US$,” “U.S. dollars,” “$,” and “dollars” are to the legal currency of the United States;
“users” are to individuals who access our platform through our mobile apps or sharing interfaces, including our members;
•
“Yunji,” “we,” “us,” “our company” and “our” are to Yunji Inc., our Cayman Islands holding company and its subsidiaries, its consolidated
variable interest entities and the subsidiaries of the consolidated variable interest entities; and
•
“Zhejiang Jiyuan” are to Zhejiang Jiyuan Network Technology Co., Ltd.
Our reporting currency is the Renminbi because our business is mainly conducted in China and all of our revenues are denominated in Renminbi. This
annual report contains translations of Renminbi amounts into U.S. dollars at specific rates solely for the convenience of the reader. The conversion of
Renminbi into U.S. dollars in this annual report is based on the exchange rate set forth in the H.10 statistical release of the Board of Governors of the
Federal Reserve System. Unless otherwise noted, all translations from Renminbi to U.S. dollars and from U.S. dollars to Renminbi in this annual report
are made at a rate of RMB6.5250 to US$1.00, the exchange rate in effect as of the end of December 31, 2020, as set forth in the H.10 statistical release
of The Board of Governors of the Federal Reserve System. We make no representation that any Renminbi or U.S. dollar amounts could have been, or
could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, or at all. The PRC government imposes control over its
foreign currency reserves in part through direct regulation of the conversion of Renminbi into foreign exchange and through restrictions on foreign
trade.
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FORWARD-LOOKING STATEMENTS
This annual report on Form 20-F contains forward-looking statements that relate to our current expectations and views of future events. These
statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be
materially different from those expressed or implied by the forward-looking statements. These statements are made under the “safe harbor” provisions of
the U.S. Private Securities Litigations Reform Act 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
largely on our current expectations and projections about future events that we believe may affect our financial condition, results of operations, business
strategy and financial needs. These forward-looking statements include statements relating to:
•
•
•
•
•
•
•
our mission, goals and strategies;
our future business development, financial conditions and results of operations;
the expected growth of the online retail industry in China;
our expectations regarding demand for and market acceptance of our products and services;
our expectations regarding our relationships with our members, users, suppliers, third-party merchants and other partners;
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.
Important risks and factors that could cause our actual results to be materially different from our expectations are generally set forth in “Item 3. Key
Information–D. Risk Factors,” “Item 4. Information on the Company–B. Business Overview,” “Item 5. Operating and Financial Review and Prospects,”
and other sections in this annual report. You should read thoroughly this annual report and the documents that we refer to with the understanding that our
actual future results may be materially different from and worse than what we expect. We qualify all of our forward-looking statements by these
cautionary statements.
This annual report contains certain data and information that we obtained from various government and private publications. Statistical data in these
publications also include projections based on a number of assumptions. The online retail industry may not grow at the rate projected by market data, or
at all. Failure of this market to grow at the projected rate may have a material and adverse effect on our business and the market price of the ADSs. In
addition, the rapidly evolving nature of this industry results in significant uncertainties for any projections or estimates relating to the growth prospects
or future condition of our market. Furthermore, if any one or more of the assumptions underlying the market data are later found to be incorrect, actual
results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements.
The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this
annual report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of
new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You
should read this annual report and the documents that we refer to in this annual report completely and with the understanding that our actual future
results may be materially different from what we expect.
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ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
PART I.
Not applicable.
ITEM 3. KEY INFORMATION
A.
Selected Financial Data
The following tables present the selected consolidated financial information for our company. The selected consolidated statements of
operations data for the years ended December 31, 2018, 2019 and 2020, selected consolidated balance sheets data as of December 31, 2019 and 2020
and selected consolidated cash flows data for the years ended December 31, 2018, 2019 and 2020 have been derived from our audited consolidated
financial statements, which are included in this annual report beginning on page F-1. The selected consolidated statement of operations data for the
fiscal year ended December 31, 2016 and 2017, the selected consolidated balance sheet data as of December 31, 2016, 2017 and 2018 and the selected
consolidated cash flow data for the year ended December 31, 2016 and 2017 are derived from our audited consolidated financial statements not included
in this annual report. Our consolidated financial statements are prepared and presented in accordance with accounting principles generally accepted in
the United States of America, or U.S. GAAP. Our historical results are not necessarily indicative of results expected for future periods. The selected
consolidated financial data should be read in conjunction with, and are qualified in their entirety by reference to, our audited consolidated financial
statements and related notes and “Item 5. Operating and Financial Review and Prospects” included elsewhere in this annual report.
2016
RMB
For the Year Ended December 31,
2019
2018
2017
RMB
RMB
RMB
(in thousands, except for per share data)
2020
RMB
US$
Consolidated Statements of Operations Data:
Revenues:
Sale of merchandise, net
Membership program revenue
Marketplace revenue
Other revenues
Total revenues
Operating cost and expenses(1):
Cost of revenues
Fulfilment
Sales and marketing
Technology and content
General and administrative
Total operating cost and expenses
Other operating income(2)
1,129,053 5,912,109 11,388,425 10,548,322 4,829,397 740,138
6,503
599,895 91,938
8,970
1,284,444 6,444,071 13,015,225 11,672,024 5,530,257 847,549
510,818 1,552,437
—
74,363
776,839
311,914
34,949
155,391
—
—
—
21,144
42,438
58,527
(978,688) (5,172,842) (10,706,596) (9,249,474) (3,939,997) (603,830)
(450,104) (68,981)
(184,407)
(806,140) (123,546)
(138,046)
(202,817) (31,083)
(18,207)
(261,877) (40,135)
(12,153)
(1,331,501) (6,558,299) (13,114,628) (11,995,473) (5,660,935) (867,575)
5,091
(569,410) (1,162,051)
(707,735)
(58,159)
(50,153)
(965,883)
(955,128) (1,187,462)
(315,167)
(143,645)
(277,487)
(147,208)
68,646
33,218
7,048
—
—
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Loss from operations
Financial income/(loss), net
Foreign exchange gain/(loss), net
Change in fair value of warrant
liabilities
Other non-operating income/(loss),
net
Loss before income tax expense, and
equity in income of affiliates, net of
tax
Income tax benefit/(expense)
Equity in income/(loss) of affiliates,
net of tax
Net loss
Less: net income/(loss) attributable to
non-controlling interests shareholders
Net loss attributable to Yunji Inc.
Accretion on convertible redeemable
preferred shares to redemption value
Re-designation to Series A convertible
redeemable preferred shares from Initial
Ordinary Shareholders’ contribution,
including beneficial conversion feature
Deemed dividend from preferred
shareholders
Net loss attributable to ordinary
shareholders
Net loss per share attributable to
ordinary shareholders
Basic
Diluted
Net loss per ADS(3):
Basic and diluted
Weighted average number of ordinary
shares used in computing net loss per
share:
(47,057)
154
1,525
(114,228)
11,564
(7,444)
(92,355)
46,068
(685)
(254,803)
121,370
(12,397)
(97,460)
(8,571)
(919)
160
—
152
894
—
—
—
—
8,497
(1,610)
(45,218)
20,550
(109,062)
3,331
(46,972)
(12,346)
(137,333)
16,720
(108,560)
(39,298)
—
(24,668)
7
(105,724)
2,992
(56,326)
(3,221)
(123,834)
(3,834)
(151,692)
—
(24,668)
—
(105,724)
3,362
(59,688)
1,928
(125,762)
(5,346)
(146,346)
(14,935)
(1,314)
(141)
—
(247)
(16,637)
(6,022)
(586)
(23,245)
(819)
(22,426)
(77,179)
(1,628,656)
(2,187,633)
(1,532,013)
—
—
—
132
—
(60,796)
—
107
—
—
—
—
—
—
(101,715)
(1,734,380)
(2,308,010)
(1,657,775)
(146,346)
(22,426)
(0.08)
(0.08)
(1.37)
(1.37)
(1.98)
(1.98)
(0.91)
(0.91)
(0.07)
(0.07)
(0.01)
(0.14)
(0.20)
(0.09)
(0.01)
(0.01)
(0.01)
(0.00)
Basic and diluted
1,268,000,000 1,268,000,000 1,165,136,438 1,818,487,917 2,125,906,398 2,125,906,398
Notes:
(1)
Share-based compensation expenses were allocated as follows:
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Sales and marketing
Technology and content
General and administrative
Fulfillment
Total
For the Year Ended December 31,
2016 2017
2018
2019
2020
RMB RMB RMB RMB US$
(in thousands)
— 144 3,192 29,884 12,362 1,792
—
98 4,434 10,562 8,887 1,288
— 1,545 41,932 79,011 71,777 10,403
— 221 4,742
776
— 2,008 54,300 128,197 98,378 14,259
8,740 5,352
(2)
(3)
Starting from 2020, we present government grants, which are received from local government to support and reward our ongoing business and
operations, as other operating income instead of other non-operating income/(loss), net. The relevant item in the prior year periods of RMB 7,048
and RMB 43,599 for the year ended December 31, 2018 and 2019, respectively, are also reclassified from other non-operating income/(loss), net
to other operating income, to be in conformity with the presentation for the year ended December 31, 2020.
Each ADS represents ten Class A ordinary shares.
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2016
RMB
2017
RMB
For the Year Ended December 31,
2018
RMB
2019
RMB
(in thousands)
2020
RMB
US$
Total assets
Consolidated Balance Sheet Data:
Cash and cash equivalents
Short-term investments
Inventories, net
Prepaid expenses and other current assets
328,741 1,519,146 883,369 1,063,900 163,050
287,107
663,780 1,099,394 774,736 134,146 20,559
33,000
675,543 428,322 135,245 20,727
332,778
97,443
410,439 567,432 410,423 62,899
226,098
80,724
540,526 1,673,161 3,918,799 3,302,199 2,550,481 390,878
770,025 1,432,274 741,959 501,549 76,866
158,790
546,975 181,828
323,551
112,295
7,809
421,945 384,486 312,170 47,842
239,840
81,270
674
396,024
147,943
77,652
35,899
197,962 349,111 280,586 43,002
81,377
470,817 1,671,064 3,115,206 1,837,540 1,235,613 189,366
Total liabilities
255,938 1,920,698 4,914,048
— —
Total mezzanine equity
(186,229) (1,918,601) (4,110,455) 1,464,659 1,314,868 201,512
Total shareholders’ (deficit)/equity
Total liabilities, mezzanine equity and shareholders’ (deficit)/equity 540,526 1,673,161 3,918,799 3,302,199 2,550,481 390,878
Accounts payable
Deferred revenue
Incentive payables to members
Refund payable to members
Other payable and accrued liabilities
50,951
26,883
4,398
—
Summary Consolidated Cash Flow Data:
Net cash generated from/(used in) operating activities
Net cash generated from/(used in) investing activities
Net cash generated from/(used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase/(decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of the year
Cash, cash equivalents and restricted cash at end of the year
For the Year Ended December 31,
2016
RMB
2017
RMB
2018
RMB
2019
RMB
(in thousands)
2020
RMB
US$
119,538 699,582 883,037 (1,116,816) (261,514) (40,075)
(115,483) 551,015 84,443
3,002 (644,992) (458,047)
(2,127)
623,406
123,915 26,255 747,921
(8,217)
11,390
34,594
252,822 69,934 1,207,505
(597,503) 222,001 34,024
34,985 287,807 357,741 1,565,246 967,743 148,313
967,743 1,189,744 182,337
287,807 357,741 1,565,246
(13,876)
(53,624)
6,367 (10,911)
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We regularly review a number of metrics, including the key metrics listed below, to evaluate our business, measure our performance,
formulate financial projections, and make operating and strategic decisions:
Buyers (in millions)
Transacting members (in millions)
Orders fulfilled under merchandise sales business (in millions)
Orders fulfilled under marketplace business (in millions)
Cumulative members (in millions)
2016
2.5
0.6
13.5
—
For the Year Ended December 31,
2019
2018
22.5
23.2
6.1
9.6
166.6
153.4
34.6
—
2017
16.9
2.3
75.8
—
2020
17.4
13.3
113.2
65.8
2016
0.9
8
As of December 31,
2018
7.4
2017
2.9
2019
13.8
2020
23.8
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B.
C.
D.
Capitalization and Indebtedness
Not applicable.
Reasons for the Offer and Use of Proceeds
Not applicable.
Risk Factors
Risks Related to Our Business and Industry
Our limited operating history makes it difficult to evaluate our business and prospects. We have experienced revenue declines in recent years, and
we cannot guarantee that we will be able to resume and maintain revenue growth in the future.
We commenced operations in 2015, and have a limited operating history. Our total revenues decreased from RMB13,015.2 million in 2018
to RMB11,672.0 million in 2019 and further to RMB5,530.3 million (US$847.5 million) in 2020. The decreases in total revenues in 2019 and 2020 were
primarily due to decreases in revenues from sales of merchandise in each period as a result of continual increases in the proportion of our business
contributed from our marketplace business platform, which was launched in the first quarter of 2019, whereby third-party merchants can sell products
on our platform and pay us commissions on their sales. Revenues generated under the marketplace business are recognized on a net basis, while
revenues generated under our merchandise sales business are recognized on a gross basis. Our historical performance may not be indicative of our future
growth or financial results. We have experienced revenue declines in recent years, and we cannot guarantee that we will be able to resume and maintain
revenue growth in the future. Our growth may slow down or become negative, and revenues may continue to decline for a number of possible reasons,
some of which are beyond our control, including decreasing consumer spending, increasing competition, declining growth of our overall market or
industry, the emergence of alternative business models, changes in rules, regulations, government policies or general economic conditions. It is difficult
to evaluate our prospects, as we may not have sufficient experience in addressing the risks to which companies operating in rapidly evolving markets
may be exposed. If our growth rate declines, investors’ perceptions of our business and prospects may be materially and adversely affected and the
market price of the ADSs could decline. You should consider our prospects in light of the risks and uncertainties that companies with a limited operating
history may encounter.
If we fail to maintain membership loyalty or sustain membership growth, or fail to maintain member relationships effectively and retain existing
members, our business and operating results may be materially and adversely affected.
We are a membership-based social e-commerce platform and therefore membership loyalty and growth are essential to our business. The
cumulative number of our members reached approximately 23.8 million as of December 31, 2020. The growth of our business depends on our ability to
maintain and increase the number of members on our platform and improve the level of their engagement. Previously, a user had to purchase a
membership package in order to become a member and enjoy membership benefits. In order to stimulate our users’ interest in transacting on our
platform and attract more members, in 2019, we provided each non-member user with a free three-month experiential period during which time the user
had access to the full spectrum of membership benefits. After the three-month experiential period, the user could become our member if he or she met a
certain cumulative spending threshold or certain other requirements during the experiential period or if he or she purchased one of our membership
packages. Starting in January 2020, we further refined our membership enrollment system by allowing any user to become a member and enjoy
membership benefits free of charge for one year by simply registering for an account on the Yunji app. If the user meets a certain cumulative spending
threshold or certain other requirements during the initial one-year period, the user may extend his or her membership for an extra year. We have ceased
allowing users to become members free of charge since April 1, 2021. We currently require new users and renewing members to pay an annual
membership fee to become or continue as a member and enjoy membership benefits. In addition, current members who became members through
purchasing a membership package are now referred to as our diamond members and enjoy free lifelong membership and membership benefits. Other
current members could also become diamond members if they spend RMB398 or more by the earlier of (i) the expiration date of their current
membership and (ii) December 31, 2021. Our recent change in membership system may not be well received by our members and may negatively
impact membership loyalty and growth and result in a decline in the level of engagement of our members. Damage to our reputation or our failure to
anticipate needs of and provide value-added services to our members, among other things, could also diminish membership loyalty and reduce activity
of members on our platform, which could cause our revenue and operating income to decline and negatively impact our profitability.
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Our membership growth depends on existing members to promote our products and invite new members through their social networks.
Our members may decide not to promote our products or invite new members at any time. To increase our revenue, we must increase the number of, or
level of activity of, our members. However, we may not be able to accurately predict how the number and level of activity of members may fluctuate,
because we outsource provision of member services to third-party service companies. We work with third-party service companies and enter into
agreements with them on an annual basis or for a longer term. These third-party service companies select service managers based on the standards we
provide in our agreements and they hire, train and compensate service managers to provide training to our members. However, we cannot guarantee
service managers selected by these third-party service companies will provide satisfactory performance. If the service managers fail to motivate our
members or facilitate members’ product sales, we may lose our existing members and the level of activity of members may reduce on our platform.
Service managers may voluntarily terminate their contracts with third-party service companies at any time. The loss of service managers or the loss of a
significant number of members for any reason, could negatively impact our business operations and impair our ability to attract new members. In
addition, if our existing and new business opportunities and incentives, products, services and other initiatives do not generate sufficient enthusiasm and
economic incentive to retain our existing members or attract new members on a sustained basis, our operating results could be adversely affected. As a
result, in order to maintain our business growth in the future, we need to increase our retention of existing members and continue to successfully attract
additional members.
If we fail to anticipate user needs and provide products and services attractive to users, or fail to adapt our services or business model to changing
user needs, emerging industry standards or rapid technological evolution, or fail to provide products at a satisfactory quality to our users, our
business may be materially and adversely affected.
The e-commerce market in which we operate and user needs and preferences are constantly evolving. As a result, we must continuously
respond to changes in the market and user demand and preferences to remain competitive, grow our business and maintain our market position. We
intend to further diversify our product and service offerings to contribute to our revenue sources in the future. We launched our marketplace business in
the first quarter of 2019 whereby third-party merchants can sell products on our platform and pay us commissions on their sales. New products and
services, new types of customers or new business models may involve risks and challenges we do not currently face. We continually introduce new sales
format on our platform to improve user engagement and our productivity. Any new initiatives may require us to devote significant financial and
management resources and may not perform as well as expected. Furthermore, we may have difficulty in anticipating user demand and preferences, and
the products offered on our platform may not be accepted by the market or be rendered obsolete or uneconomical. Therefore, any inability to adapt to
these changes may result in a failure to capture new members and other users or retain existing members and other users, the occurrence of which would
materially and adversely affect our business, financial condition and results of operations. In addition, if we are unable to provide products to users at a
satisfactory quality, in a timely manner, in sufficient quantities or at an acceptable cost, our business could be negatively impacted. We may also be
subject to claims if our users are not satisfied with the quality of the products or do not have satisfactory experiences in general.
In addition, to remain competitive, we must continue to enhance and improve the responsiveness, functionality and features of our
platform. The internet and the e-commerce markets are characterized by rapid technological evolution, changes in user requirements and preferences,
frequent introductions of new products, features 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 and adapt
to new technologies useful in our business, and respond to technological advances and emerging industry standards and practices, in particular with
respect to mobile internet, in a cost-effective and timely way. We cannot assure you that we will be successful in these efforts.
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We will not be able to exert the same level of influence or control over members and service managers as we could if they were our employees, and
we may be subject to significant costs and reputational harm in the event our members violate any laws or regulations applicable to our operations.
Members and service managers, most of whom are also our members, are not our employees and do not enter into any employment
contracts with us. Accordingly, we are not in a position to provide the same level of control over and oversight of members and service managers as we
would if they were our employees. However, our members play an important role in promoting our products and inviting new members to our platform,
including promoting our products via live streaming sessions under the “Endorsement” section of our Yunji app, on our Yunji Endorsement app and
through our official account on other live streaming platforms. Some members also interact frequently with the users in their social network regarding
our products and platform. Therefore, such users may associate the members with us and hold us accountable for any misconduct by our members. Also,
service managers provide services to our members and communicate with them on a regular basis. The members they serve may view us as vicariously
liable for any misconduct by service managers. We may be subject to lawsuits or reputational harm if, for example, a member misrepresents the
functionality or provides inaccurate information of our products through the member’s social network or via the live streaming sessions they host, or a
member or service manager conducts any wrongdoings or otherwise violates applicable laws. While we have implemented policies and procedures
designed to govern conduct of our members to comply with the regulatory regime in China and protect our goodwill, including content control policies
and live streaming standards, and the third-party service companies have adopted policies to regulate the conduct of the service managers, there can be
no assurance that members or service managers will comply with the policies and procedures. Violations by members or service managers of applicable
law or of the policies and procedures could reflect negatively on our products and operations and harm our business reputation. While we have not
experienced any significant problems affecting our products, operations or business reputation caused by violations by members or service managers of
the policies and procedures, we cannot assure you that we will not face such problems in the future.
Any harm to our Yunji brand or reputation may materially and adversely affect our business and results of operations.
We believe that the recognition and reputation of our Yunji (云集) brand among our members, other users, suppliers, third-party merchants
and other third-party service providers and partners have contributed significantly to the growth and success of our business. Maintaining and enhancing
the recognition and reputation of our brand are critical to our business and competitiveness. Many factors, some of which are beyond our control, are
important to maintaining and enhancing our brand and may negatively impact our brand if not properly managed. These factors include our ability to:
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provide a superior shopping experience to our users;
maintain and grow our member and user base and keep our community, members and other users highly engaged;
maintain the popularity, attractiveness, diversity, quality and authenticity of our product offerings;
maintain the efficiency, reliability and quality of our fulfillment services to our users;
maintain or improve users’ satisfaction with our after-sale services;
increase brand awareness through marketing and brand promotion activities; and
preserve our reputation and goodwill in the event of any negative publicity on customer service, product quality, price or
authenticity, data privacy and security, our industry and other players within the industry or other issues affecting us or other social
e-commerce and e-commerce businesses in China.
Public perception that non-authentic, counterfeit or defective goods are sold on our platform or that we or third-party service providers do
not provide satisfactory customer service, even if factually incorrect or based on isolated incidents, could damage our reputation, diminish the value of
our brand, undermine the trust and credibility we have established and have a negative impact on our ability to attract new users or retain our current
users. If we are unable to maintain our reputation, enhance our brand recognition or increase positive awareness of our platform, products and services,
it may be difficult to maintain and grow our member and user base, and our business and growth prospects may be materially and adversely affected.
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If our business model were found to be in violation of applicable laws and regulations, our business, financial condition and results of operations
would be materially and adversely affected.
In August 2005, the State Council promulgated the Regulations on the Prohibition of Pyramid Selling, which prohibits individuals and
entities in China from engaging in pyramid selling. See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations
Relating to Pyramid Selling in the PRC.” In May 2017, we received a formal notice from the local Administration for Market Regulation in Hangzhou,
which ruled that our sales and marketing practice prior to February 2016 violated the Regulations on the Prohibition of Pyramid Selling and imposed a
fine of approximately RMB9.6 million (US$1.4 million). Since the early stage of our operations in 2015, the local governmental authorities in
Hangzhou had been in discussion with us on potential violation by our then-existing business model of the Regulations on the Prohibition of Pyramid
Selling, and we have adjusted our business practices since February 2016 to comply with the Regulations on the Prohibition of Pyramid Selling and
other applicable regulations. We fully paid the fine in June 2017. In December 2018, we and Han Kun Law Offices, our PRC legal counsel, consulted
with the competent government authority in Hangzhou, the district branch of the State Administration for Market Regulation, or the SAMR, having
direct jurisdiction over our PRC entities that currently operate our membership-based social e-commerce platform, and the government authority
verbally confirmed that these entities have conducted their business operations lawfully and none of these entities are in violation of the Regulations on
the Prohibition of Pyramid Selling or any other applicable laws. Based on our discussion with the competent government authorities and the advice of
Han Kun Law Offices, we believe that our current business model is not in violation of applicable PRC laws and regulations, including the Regulations
on the Prohibition of Pyramid Selling. However, there is no assurance that the competent governmental authorities in China that we communicated with
will not change their views, or the other relevant government authorities will share the same view as our PRC legal counsel, or they will find our
business model not in violation of any applicable regulations, given the uncertainties in the interpretation and application of existing PRC laws,
regulations and policies relating to our current business model, including, but not limited to, regulations regulating pyramid selling. Moreover, new laws,
regulations or policies may also be promulgated in the future, and there is no assurance that our current business model will be in full compliance with
the new laws, regulations or policies. If our business model were to be found in violation in the future, we will have to make adjustment to our business
model or cease certain of our business operations, and the relevant governmental authorities may confiscate any illegal gains and impose a fine, which
would have a material and adverse impact on our business, financial condition and results of operations.
Any change, disruption or discontinuity in the features and functions of major social networks in China could severely limit our ability to continue
growing our member and user base, and our business may be materially and adversely affected.
Our success depends on our ability to attract and retain new members and other users and expand our member and user base. We leverage
social networks in China as a tool for member and user acquisition and engagement. For example, we leverage social networks, such as WeChat, QQ
and Weibo, to enable members to share product information and their experiences with products on our platform to their friends, family and other social
contacts, who can purchase such products directly via the links shared by the members through social networks. A substantial portion of our member
and user traffic comes from such member recommendation through social networks. To the extent that we are banned from using some or all functions
of such social networks, or fail to leverage such social networks, our ability to attract or retain members and other users, and maintain an active
community may be severely harmed. If WeChat, QQ or Weibo changes its functions or support, such as charging fees for functions or support that is
currently provided for free, or stops offering its functions or support to us or discontinues its functions or support in general, we may not be able to
locate alternative platforms of similar scale to provide similar functions or support in a timely manner, or at all. Furthermore, we may fail to establish or
maintain relationships with additional social network operators to support the growth of our business on economically viable terms, or at all. Any
interruption to or discontinuation of our relationships with major social network operators may severely and negatively impact our ability to continue
growing our user base, and any occurrence of the circumstances mentioned above may have a material adverse effect on our business, financial
condition and results of operations.
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We face intense competition. We may lose market share and users if we fail to compete effectively.
The e-commerce industry in China is intensely competitive. We compete to attract, engage and retain members, other users, orders,
suppliers, third-party merchants and other participants on our platform. Our current or potential competitors include all major e-commerce companies in
China and other internet companies in China that engage in social e-commerce businesses. See “Item 4. Information on the Company—B. Business
Overview—Competition.”
Our current or potential competitors may have longer operating histories, greater brand recognition, better relationships with supplier and
third-party merchants, larger customer bases, higher user activity and loyalty or greater financial, technical or marketing resources than we do. Our
competitors may leverage their brand recognition, experience and resources to compete with us in a variety of ways, including making investments and
acquisitions for the expansion of their product and service offerings. Some of our competitors may be able to secure more favorable terms from
suppliers and third-party merchants, devote greater resources to marketing and promotional campaigns, adopt more aggressive pricing or inventory
policies and devote substantially more resources to their IT systems and technology than us. In particular, some of these competitors have substantially
greater financial resources that may allow them to initiate and sustain aggressive price competition and we experience increased competition when our
competitors offer discounts or clearance sale for various reasons. If we are unable to offer products on our platform at competitive prices, we may
experience increased negative pressure on pricing for our products and loss of users. Some of our competitors may also utilize social networks to attract
users, which may divert traffic or attention of our potential users. In addition, new and enhanced technologies may increase the competition in the
e-commerce industry. Increased competition may reduce our profitability, market share, user base and brand recognition. We cannot assure you that we
will be able to compete successfully against current or future competitors, and competitive pressures may have a material and adverse effect on our
business, financial condition and results of operations.
Any disruption to our IT systems could materially affect our ability to maintain the satisfactory performance of our IT systems and deliver consistent
services to our users.
The proper functioning of our IT systems is essential to our business. The satisfactory performance, reliability and availability of our IT
systems are critical to our success, our ability to attract and retain members and other users and our ability to maintain and deliver consistent services on
our platform. However, our technology infrastructure may fail to keep pace with increased sales on our platform, in particular with respect to our new
product and service offerings or in association with traffic and order surges during promotional events and holiday seasons, and therefore our users may
experience delays as we seek to source additional capacity, which would adversely affect our results of operations as well as our reputation.
Additionally, we must continue to upgrade and improve our technology infrastructure to support our business growth. However, we cannot
assure you that we will be successful in executing these system upgrades, and the failure to do so may impede our growth. We currently use cloud
services and servers operated by external cloud service providers to store our data, to allow us to analyze a large amount of data simultaneously and to
update our user database and profiles quickly. Any interruption or delay in the functionality of these external cloud service and server providers may
materially and adversely affect the operations of our business.
We may be unable to monitor and ensure high-quality maintenance and upgrade of our IT systems and infrastructure on a real-time basis,
and users may experience service outages and delays in accessing and using our platform to place orders. In addition, we may experience surges in
online traffic and orders associated with promotional activities and generally as we scale, which can put additional demand on our platform at specific
times. Our technology or infrastructure may not function properly at all times. Any system interruptions caused by telecommunications failures,
computer viruses, physical or electronic break-ins or other attempts to harm our systems could result in the unavailability or slowdown of our platform
or reduced order fulfillment performance, which in turn could reduce the volume of products sold and the attractiveness of product offerings on our
platform. Any of such occurrences could cause severe disruption to our daily operations. As a result, our reputation may be materially and adversely
affected, our market share could decline and we could be subject to liability claims. In addition, in order to ensure that our technology infrastructure can
be comprehensively and rapidly upgraded, we need to constantly enhance our technology. Otherwise, we face the risk of our technology infrastructure
becoming unstable and susceptible to security breaches, which we may be unable to identify or rectify rapidly and effectively. Such instability or
susceptibility could create serious challenges to the security and uninterrupted operation of our platform and services, which would materially and
adversely affect our business and reputation.
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We may face challenges in expanding our product offerings and optimizing our product mix.
Our platform carries a wide range of products including, among others, household goods, healthcare goods, cosmetics, apparel, bags and
cases, food and beverage, childcare products, electronic appliances and fresh produce. Expansion into diverse new product categories and increase in
number of products we offer involve new risks and challenges. Our lack of familiarity with these products and lack of relevant user data relating to these
products may make it more difficult for us to anticipate user demand and preferences. We may misjudge user demand, resulting in inventory buildup and
possible inventory write-down. It may also make it more difficult for us to inspect and control quality and ensure proper handling, storage and delivery.
We may experience higher return rates on new products, receive more complaints from members and other users about them and face costly product
liability claims, which would harm our brand and reputation as well as our financial performance. Furthermore, we may not have much purchasing
power in new categories of products and we may not be able to negotiate favorable terms with suppliers and third-party merchants. We may need to
price aggressively to gain market share or remain competitive in new categories. It may be difficult for us to achieve profitability in the new product
categories and our profit margin for these new product categories, if any, may be lower than we anticipate, which would adversely affect our overall
profitability and results of operations. We cannot assure you that we will be able to recoup our investments in introducing these new product categories.
In addition, some of our existing product categories may have lower profit margins than others, and failure to grow our existing product categories with
higher profit margins may adversely impact our overall profitability and results of operations.
We have incurred net loss in the past and we may continue to experience losses in the future.
We incurred a net loss of RMB56.3 million, RMB123.8 million and RMB151.7 million (US$23.2 million) in 2018, 2019 and 2020,
respectively. In the year ended December 31, 2018, our operating cash flow was positive, but in the years ended December 31, 2019 and 2020, our
operating cash flow was negative. We cannot assure you that we will be able to generate net profits or positive cash flow from operating activities in the
future. Our ability to achieve and maintain profitability will depend in large part on our ability to, among other things, increase our number of members
and other users, grow and diversify our supplier and third-party merchant base, and optimize our cost structure. We may not be able to achieve any of
the above. We intend to continue to invest for the foreseeable future in the technology platform to support an even more carefully curated selection of
products and to offer additional value-added services. As a result of the foregoing, we believe that we may incur net losses in the future.
If we fail to manage and expand our relationships with suppliers and third-party merchants, or otherwise fail to procure products at favorable terms,
our business, growth and profitability prospects may suffer.
We source products from third-party suppliers for our merchandise sales business. We also operate a marketplace business whereby third-
party merchants sell products on our platform. As of December 31, 2020, we had 2,103 suppliers and third-party merchants on our platform. Our
suppliers and third-party merchants include merchants of mainstream brands and emerging brands, and manufacturing partners we cooperate with.
Maintaining strong relationships with these suppliers and third-party merchants is important to the growth of our business. In particular, we depend
significantly on our ability to procure products from suppliers on favorable pricing terms and attract third-party merchants to offer their products on
commercially attractive terms. We typically enter into one-year framework agreements with our suppliers and third-party merchants on an annual basis,
and these framework agreements are typically renewed automatically on an annual basis unless either party chooses to discontinue the business
relationship. Should any of our supplier or third-party merchant choose to discontinue their business relationship with us on existing terms, we cannot
ensure the availability of products or the continuation of particular pricing practices or payment terms beyond the end of the contractual term. In
addition, except in the case of our collaboration with certain top-quality emerging brands for the production of Yunji exclusive products, our agreements
with suppliers and third-party merchants typically do not restrict them from selling products to others or on other platforms. We cannot assure you that
our current suppliers and third-party merchants will continue to sell products to us or on our platform on commercially acceptable terms, or at all, after
the term of the current agreement expires. Even if we maintain good relations with our suppliers and third-party merchants, their ability to supply
products to us or on our platform in sufficient quantity and at competitive prices may be adversely affected by economic conditions, labor actions,
regulatory or legal decisions, natural disasters or other causes.
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In the event that we are not able to purchase products at favorable prices, our revenues and cost of sales may be materially and adversely
affected. In the event any brand owner does not have authority from the relevant manufacturer to sell certain products to us or on our platform, such
brand owner may cease selling such products to us or on our platform at any time. If our suppliers and third-party merchants cease to provide us with
favorable payment terms, our need for working capital may increase and our operations may be materially and adversely affected. We will also need to
establish new supplier and third-party merchant relationships to ensure that we have access to a steady supply of products on favorable commercial
terms. If we are unable to develop and maintain good relationships with suppliers and third-party merchants that would allow us to obtain a sufficient
amount and variety of authentic and quality products on acceptable commercial terms, it may inhibit our ability to offer sufficient products sought by our
users, or to offer these products at competitive prices. Any adverse developments in our relationships with suppliers and third-party merchants could
materially and adversely affect our business and growth prospects. In addition, as part of our growth strategy, we plan to further expand our product
offerings. If we fail to attract new suppliers and third-party merchants to sell their products to us or on our platform due to any reason, our business,
growth and profitability prospects may be materially and adversely affected.
Our operations could be materially adversely affected if we fail to effectively manage our relationships with, or lose the services of, third-party
manufacturing partners.
We rely on third-party manufacturing partners to manufacture our private label products. Our ability to grow revenues in the future will
depend in part on our success in maintaining successful relationships with our manufacturing partners. As we do not enter into long-term contracts with
third-party manufacturing partners, they may decide not to accept our future orders on the same or similar terms, or at all. If a manufacturing partner
decides to substantially reduce its volume of supply to us or to terminate its business relationship with us, we may not be able to find a proper
replacement in a timely manner, or at all. This may negatively impact our revenues and adversely affect our reputation, causing a material adverse effect
on our financial condition, results of operations and prospects. In particular, a substantial portion of our GMV from private label products is generated
from the sale of Solo Life (素野). If there is any adverse change to the nature of our relationship with the manufacturer of Solo Life or if the
manufacturer of Solo Life decides to terminate its cooperation with us, the sale of our private label products and thus our results of operations may be
negatively impacted. Moreover, some manufacturing partners may not fully comply with certain laws and regulations, such as consumer protection,
labor and environmental laws. If any of our manufacturing partners is found to have violated laws and regulations in China, media reports on such
violations may negatively affect our reputation and image, resulting in material adverse impact on our business, financial condition and results of
operations. In addition, while we provide the designs of our products to the manufacturing partner, as well as guidance for manufacturing the products
ordered by us, we do not have direct control over the manufacturing partners. If any of them is involved in unauthorized production and sale of goods
using our brand name, our reputation, financial condition and results of operations may be materially adversely affected.
We and the third-party merchants in our marketplace business use third-party logistics service providers to deliver our orders. If these third-party
logistics service providers fail to provide reliable delivery services, our business and reputation may be materially and adversely affected.
We and the third-party merchants in our marketplace business cooperate with a number of third-party logistics service providers to deliver
products sold on our platform to end customers. Interruptions to or failures in these third parties’ delivery services could prevent the timely or proper
delivery of our products or may cause product damage or product loss during transit. These interruptions may be due to events that are beyond our
control or the control of these third-party logistics companies, such as inclement weather, natural disasters, health epidemics, transportation disruptions
or labor unrest. In addition, if our third-party logistics service providers fail to comply with applicable rules and regulations in China, our delivery
services may be materially and adversely affected. We may not be able to find alternative third-party logistics companies to provide delivery services in
a timely and reliable manner, or at all. Delivery of our products could also be affected or interrupted by the merger, acquisition, insolvency or shut-down
of the delivery companies we engage to make deliveries, especially those local companies with relatively small business scales. If our products are not
delivered in proper condition or on a timely basis, our users may refuse to accept products purchased on our platform and lose confidence in our
platform, and our business and reputation could suffer.
Furthermore, delivery personnel of contracted third-party logistics service providers act on our behalf and interact with our users
personally. We need to effectively manage these third-party logistics service providers to ensure the quality of customer services. We have in the past
received user complaints from time to time regarding our delivery and return and exchange services. Any failure to provide high-quality delivery
services to our users may negatively impact the shopping experience of our users, damage our reputation and cause us to lose users.
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Our marketplace business is subject to risks associated with third-party merchants.
As of December 31, 2020, there were 1,055 third-party merchants under our marketplace business. We do not have as much control over
the storage and delivery of products sold on our online marketplace as we do over the products that we sell directly ourselves under our merchandise
sales business. With the exception of third-party merchants outside of China for whom we handle the logistics and delivery process within China, our
third-party merchants use their own facilities to store their products and their own or third-party delivery systems to deliver their products to our
customers, which makes it more difficult for us to ensure that our customers get the same high-quality service for all products sold on our platform. If
any third-party merchant does not control the quality of the products that it sells on our platform, or if it does not deliver the products or delivers them
late or delivers products that are materially different from its description of them, or if it sells counterfeit or unlicensed products on our platform, or if it
sells certain products without licenses or permits as required by the relevant laws and regulations even though we have requested such licenses or
permits in our standard form agreement with third-party merchants, the reputation of our marketplace business and our Yunji brand may be materially
and adversely affected and we could face claims that we should be held liable for any losses. Moreover, despite our efforts to prevent it, some products
sold under our marketplace business may compete with the products we sell directly, which may cannibalize our merchandise sales business. In addition,
the supplier relationships, customer acquisition dynamics and other requirements for our marketplace business may not be the same as those for our
merchandise sales operations, which may complicate the management of our business. In order for our marketplace business to be successful, we must
continue to identify and attract third-party merchants, and we may not be successful in this regard.
Failure to deal effectively with any fictitious transactions or other fraudulent conduct that take place under our marketplace business would
materially and adversely affect our business, financial condition and results of operations.
We may face risks with respect to fraudulent activities under our marketplace business. Although we have implemented various measures
to detect and reduce the occurrence of fraudulent activities within our marketplace business, there can be no assurance that such measures will be
effective in combating fraudulent transactions or improving overall satisfaction among third-party merchants and customers. In addition to fraudulent
transactions with legitimate customers, merchants may also engage in fictitious or “phantom” transactions with themselves or collaborators in order to
artificially inflate their own ratings on our platform, reputation and search results rankings. This activity may harm other merchants by enabling the
perpetrating merchant to be favored over legitimate merchants, and may harm our customers by deceiving them into believing that a merchant is more
reliable or trusted than the merchant actually is. This activity may also result in inflated GMV from our marketplace business. Moreover, illegal,
fraudulent or collusive activities by our employees could also subject us to liability or negative publicity. Although we have internal controls and
policies with regard to the review and approval of sales activities and other relevant matters, we cannot assure you that such controls and policies will
prevent fraud or illegal activity by our employees. Negative publicity and user sentiment generated as a result of actual or alleged fraudulent or
deceptive conduct on our platform or by our employees would severely diminish consumer confidence in us, reduce our ability to attract new or retain
current third-party merchants and customers, damage our reputation and diminish the value of our brand, and materially and adversely affect our
business, financial condition and results of operations.
If we are unable to successfully manage our relationships with third-party service companies or third-party business process outsourcing companies
(BPOs), we may lose service managers or customer service representatives, or fail to provide superior customer services, which could negatively
affect our business and operations.
We maintain a limited number of our own employees for customer services and rely on third-party business process outsourcing
companies (BPOs) for outsourced customer services. Our customer service center in Hefei, Anhui Province provides real-time assistance to our users
and it had 349 outsourced customer service representatives as of December 31, 2020. These outsourced customer service representatives may not have
the same level of commitment to our users or be as well-trained as our own employees and we have less control over the services provided by them than
our own employees. We typically enter into service agreements with third-party BPOs on an annual basis or for a longer term. In the event that one or
more of these third-party BPOs unexpectedly become unable or unwilling to provide some or all of these services to us, our own employees may not be
able to provide the necessary range of customer services. If these outsourced customer service representatives fail to perform in accordance with the
terms of our agreements with third-party BPOs or fail to provide satisfactory customer service, or if waiting times are too long due to the high volume of
calls from users at peak times, we may fail to meet user expectations and our brand and user loyalty may be adversely affected. Any negative publicity
or poor feedback regarding our customer service may harm our brand and reputation and in turn cause us to lose users and market share.
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We outsource provision of member services to third-party service companies and they hire, train and compensate service managers at our
request. Service managers enter into service contracts with third-party service companies and are not our employees. We currently work with three third-
party service companies and enter into agreements with them on an annual basis or for a longer term. These third-party service companies select service
managers based on the standards we provide in our agreements. While we may oversee the performance of service managers and request these third-
party service companies to replace service managers that do not meet our standards, management of service managers through third parties may not be
as timely and effective as were they our employees. If we are unable to enter into new agreements or extend existing agreements with these third-party
service companies on terms and conditions acceptable to us, we may lose service managers. We may not be able to find alternative third-party service
companies to provide similar services in a timely and reliable manner, or at all. Accordingly, our members may not receive sufficient training or support
for promoting the products sold on our platform and they may become less motivated to promote our products via their social networks. Any termination
of our arrangements with these third-party service companies, or their refusal to select service managers for us, could have a material adverse effect on
our business, financial condition and results of operations.
Failure to comply with the relatively new E-Commerce Law may have a material adverse impact on our business, financial conditions and results of
operations.
As the e-commerce industry is still evolving in China, new laws and regulations may be adopted from time to time to address new issues
that arise from time to time. For example, in August 2018, the Standing Committee of the National People’s Congress promulgated the E-Commerce
Law, which became effective on January 1, 2019. The E-Commerce Law generally provides that e-commerce operators must obtain administrative
licenses if business activities conducted by the e-commerce operators are subject to administrative licensing requirements under applicable laws and
regulations. In addition, the E-Commerce Law imposes a number of obligations on e-commerce platform operators, including the obligations: (i) to
verify and register platform merchants, (ii) to ensure platform cybersecurity, including, but not limited to, data privacy, (iii) to ensure fair dealing and the
legitimate rights and interests of consumers on the platform, (iv) to publicize transaction information preservation and transaction rules, and (v) to
protect intellectual properties. See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations Relating to
E-Commerce” for further details. As the E-Commerce Law is relatively new, no detailed interpretation and implementation rules have been
promulgated, and it remains uncertain how the E-Commerce Law will be interpreted and implemented. We cannot assure you that our current business
operations satisfy the obligations provided under the E-Commerce Law in all respects. If the PRC governmental authorities determine that we are not in
compliance with all the requirements proposed under the E-Commerce Law, we may be subject to fines and/or other sanctions.
In April 2021, SAMR, together with the Office of the Central Cyberspace Affairs Commission and the State Tax Bureau of China, held a
meeting with more than 30 major platform operators, including us. All platform operators that participated in the meeting were required to conduct a
self-inspection within one month to identify and correct possible violations of anti-monopoly, anti-unfair competition, tax and other related laws and
regulations and submit their compliance commitments for public supervision. It is still uncertain how the requirement will be implemented and whether
further legislation and administration activities will be entailed. As a result, we may incur additional costs and expenses, devote more management’s
attention and allocate additional resources in the compliance with relevant laws and regulations. If we are required to take any rectifying or remedial
measures or are subject to any penalty, our reputation and business operations may be materially and adversely affected.
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The E-Commerce Law also imposes a requirement on operators of e-commerce platforms, such as our company, to assist in tax collection
with respect to income generated by sellers from transactions conducted on e-commerce platforms, including, among others, submitting to the tax
authority information on the identities of sellers on e-commerce platforms and other information relating to tax payment. Failure to comply with the
requirement may result in operators of e-commerce platforms being subject to fines and, in severe circumstances, suspension of business operations of
e-commerce platforms. Substantial uncertainties exist regarding the interpretation and implementation of the E-Commerce Law. We encourage and
incentivize members to promote the products on our platform. If the members were deemed to be selling our products on consignment basis, the PRC
tax authorities may require our members to make tax registration and request our assistance in these efforts, pursuant to the E-Commerce Law, and our
members may be subject to more stringent tax compliance requirements. Due to the lack of detailed interpretation and implementation rules, we are in
discussion, from time to time, with the relevant government authorities on how to comply with the requirements under the E-Commerce Law. The PRC
government may adopt additional requirements from time to time, and we may be requested by tax authorities to provide further assistance in the
enforcement of tax regulations, such as disclosure of transaction records and bank account information of the members, and withholding taxes for our
members. If any of these were to occur, we may lose our existing members or fail to attract new members and the level of activity of members may
reduce on our platform. We may also incur increased costs and expenses as a result. The tightened tax enforcement by PRC tax authorities in the
e-commerce industry, such as imposition of reporting or withholding obligations on operators of e-commerce platforms with respect to tax payable of
merchants on e-commerce platforms, may have a material and adverse effect on our business, financial condition and results of operations.
If we are unable to manage our growth or execute our strategies effectively, our business and prospects may be materially and adversely affected.
Our business, results of operations and financial condition depend in part on our ability to effectively manage our growth or implement our
growth strategies. As part of our business strategies, we plan to further improve our technology platform and continue to optimize our product offerings.
We also intend to continue to invest significant resources in training, managing and motivating our workforce. In addition, as we optimize our product
offerings, we will need to work with new suppliers and third-party merchants efficiently and establish and maintain mutually beneficial relationships
with our existing and new suppliers and third-party merchants. We may have limited or no experience for certain new product offerings, and our
expansion into these new product offerings may not achieve broad user acceptance. In addition, these offerings may present new and difficult
technological or operational challenges, and we may be subject to claims if our users are not satisfied with the quality of the products or do not have
satisfactory experiences in general. To effectively manage the expected growth of our operations and personnel, we will need to continue to improve our
transaction processing, technological, operational and financial systems, policies, procedures and controls. All these endeavors involve risks and will
require significant managerial, financial and human resources. We cannot assure you that we will be able to effectively manage our growth or to
implement all these systems, procedures and control measures successfully or that our new business initiatives will be successful. If we are not able to
manage our growth or execute our strategies effectively, our expansion may not be successful and our business and prospects may be materially and
adversely affected.
We may incur liability or become subject to administrative penalties for counterfeit or unauthorized products sold on our platform, or for products
sold on our platform or content posted on our platform that infringe on third-party intellectual property rights, or for other misconduct.
We sourced our products from 1,048 suppliers as of December 31, 2020. Third-party merchants under our marketplace business are
separately responsible for sourcing the products they sell on our platform. As of December 31, 2020, we had 1,055 third-party merchants on our online
marketplace. We have been and may continue to be subject to allegations and lawsuits claiming that products sold or listed on our platform are
counterfeit, unauthorized, illegal, or otherwise infringe third-party copyrights, trademarks and patents or other intellectual property rights, or that content
posted on our user interfaces or shared by members through their social networks contain misleading or inaccurate information on description of
products and comparable prices. Although we have adopted strict measures to protect us against these potential liabilities, including proactively
verifying the authenticity and authorization of products sold on our platform through conducting offline investigations and immediately removing any
counterfeit or illegal products or misleading information found on our platform, these measures may not always be successful or timely.
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In the event that counterfeit, unauthorized or infringing products are sold on our platform or infringing or misleading content is posted on
our platform, we could face claims or be imposed with penalties. We have in the past received claims alleging the sales of defective, counterfeit or
unauthorized items on our platform. Irrespective of the validity of such claims, 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 to pay substantial damages or refrain from further sale of the relevant
products. Potential liabilities under PRC law for negligence in participating or assisting in infringement activities associated with counterfeit goods
include 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 our reputation could be severely damaged. In addition, in the event that
any of our suppliers or third-party merchants fail to obtain proper authorization to sell certain products to us or on our platform, they may be prevented
from selling products to us or on our platform and we may become subject to claims or disputes alleging that some products are sold on our platform
without proper authorization. Any of these events could have a material and adverse effect on our business, results of operations or financial condition.
Under our standard form agreements, we require suppliers and third-party merchants to indemnify us for any losses we suffer or any costs
that we incur due to any products we source from these suppliers or any products sold by these third-party merchants. However, not all of our
agreements with suppliers and third-party merchants have such terms, and for those agreements that have such terms, we may not be able to successfully
enforce our contractual rights and may need to initiate costly and lengthy legal proceedings in China to protect our rights. See “—Risks Related to
Doing Business in China—We may be adversely affected by the complexity, uncertainties and changes in PRC regulation of internet-related businesses
and companies.”
If we fail to manage our inventory effectively, our results of operations, financial condition and liquidity may be materially and adversely affected.
The scale and business model of our merchandise sales business require us to manage a large volume of inventory effectively. We depend
on our demand forecasts for various kinds of products to make purchase decisions and to manage our inventory. Demand for products, however, can
change significantly between the time inventory is ordered and the date by which we hope to sell it. Demand may be affected by seasonality, new
product launches, changes in product cycles and pricing, product defects, changes in consumer spending patterns, changes in consumer tastes with
respect to our products and other factors, and our users may not order products in the quantities that we expect. In addition, when we begin selling a new
product, it may be difficult to establish supplier relationships, determine appropriate product selection, and accurately forecast demand. The acquisition
of certain types of inventory may require significant lead time and prepayment and they may not be returnable. We do not have the right to return unsold
items to some of our suppliers.
Our net inventories have decreased in recent periods, from RMB675.5 million as of December 31, 2018 to RMB428.3 million as of
December 31, 2019, and further to RMB135.2 million (US$20.7 million) as of December 31, 2020. Our inventory turnover days were 17.0 days in 2018,
21.5 days in 2019 and 25.7 days in 2020. The decreases in net inventories in 2019 and 2020 are primarily due to portions of merchandise sales shifting
to our marketplace business platform that launched in the first quarter of 2019 under which substantially all of the third-party merchants handle the
procurement, storage and management of their own inventory. We may include more products in our inventory, which will make it more challenging for
us to manage our inventory effectively and will put more pressure on our warehousing system.
If we fail to manage our inventory effectively, we may be subject to a heightened risk of inventory obsolescence, a decline in inventory
values, and significant 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 to lower margins. High inventory levels may also require us to commit substantial capital resources, preventing us from using that
capital for other important purposes. If we underestimate demand for our products, or if our suppliers fail to supply quality products in a timely manner,
we may experience inventory shortages, which might result in missed sales, diminished brand loyalty and lost revenues, any of which could harm our
business and reputation. Any of the above may materially and adversely affect our results of operations and financial condition.
Failure to successfully manage our fulfillment infrastructure or any interruption in the operation of the warehouse facilities for an extended period
may negatively affect our business, prospects and results of operations.
We believe that our fulfillment infrastructure, consisting of strategically located warehouses, is essential to our success. Currently all of the
warehouses we use are operated by third-party vendors over which we have limited control. We provide our operating standards under our operating
agreements with third-party vendors and typically renew these agreements on an annual basis. Any decrease in the quality of service offered by these
third-party vendors will adversely affect our reputation and business operations. The warehouse facilities may be vulnerable to damage caused by fire,
flood, power outage, telecommunications failure, break-ins, earthquake, health epidemics, human error and other events. If any of the warehouse
facilities were rendered incapable of operations, then we may be unable to fulfill our orders on a timely basis. For example, business operations at
warehouse facilities could be disrupted if any of the employees working therein are suspected of being infected with a novel strain of coronavirus, now
named as COVID-19, since it could require the employees to be quarantined and/or the facilities to be disinfected. We do not carry 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.
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In the first quarter of 2019, we launched our marketplace business, allowing third-party merchants to sell their products on our platform
and pay commissions on their sales to us. Unlike our merchandise sales business where we handle the fulfillment process for the products sold,
substantially all of the third-party merchants under our marketplace business handle the fulfillment logistics for their products sold on our platform,
thereby lessening the demand for expansion of our fulfillment infrastructure. We have started and will continue integrating and consolidating our
warehouse facilities to enhance the efficiency in fulfilling orders placed from all areas in China under our merchandise sales business. Our fulfillment
network is complex and challenging to manage. We may not be able to recruit a sufficient number of qualified employees in connection with managing
our fulfillment infrastructure. In addition, the integration and consolidation of our fulfillment infrastructure may strain our managerial, financial,
operational and other resources. If we fail to manage such integration and consolidation successfully, our business and results of operations may be
materially and adversely affected.
We may not be able to recoup the investments we make to improve our technology capabilities.
We have invested and will continue to invest in upgrading our technology platform. We expect to continue to invest in our technology
capabilities for a number of years. We also intend to continue to add resources to our technology platform as we focus on expanding our product
selection and offering new services. We are likely to recognize the costs associated with these investments earlier than some of the anticipated benefits,
and the return on these investments may be 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 the recovery 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 an impairment charge, which could adversely affect our financial condition and results of operation.
If we fail to implement and maintain an effective system of internal controls, we may be unable to accurately report our results of operations, meet
our reporting obligations or prevent fraud, and investor confidence and the market price of our ADSs may be materially and adversely affected.
The SEC, as required under Section 404 of the Sarbanes-Oxley Act of 2002, has adopted rules requiring public companies to include a
report of management on the effectiveness of such companies’ internal control over financial reporting in their respective annual reports. In addition, an
independent registered public accounting firm for a public company may be required to issue an attestation report on the effectiveness of such
company’s internal control over financial reporting. We have been subject to such requirement starting from the fiscal year ended December 31, 2020.
In auditing our consolidated financial statements for the fiscal year ended December 31, 2018 and 2019, we and our independent registered
public accounting firm identified two material weaknesses in our internal control over financial reporting, in accordance with the standards established
by the Public Company Accounting Oversight Board of the United States (PCAOB).
As defined in the standards established by the PCAOB, a “material weakness” is a deficiency, or combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will
not be prevented or detected on a timely basis. The material weaknesses that had been identified relate to (i) our lack of sufficient financial accounting
staff and management with appropriate levels of accounting knowledge and experience to address complex U.S. GAAP accounting issues and to prepare
and review financial statements and related disclosures under U.S. GAAP and SEC reporting and compliance requirements and (ii) our lack of sufficient
documented financial closing policies and procedures, especially those related to period end expenses cut-off and accruals. The material weaknesses, if
not timely remediated, may lead to significant misstatements in our consolidated financial statements in the future.
Following the identification of the material weaknesses, we have taken measures to remedy the material weaknesses. Our management has
concluded that our internal control over financial reporting was effective as of December 31, 2020 after the remediation. For details on these measures,
please see “Item 15. Controls and Procedures—Remediation of the Material Weaknesses in Internal Control over Financial Reporting Reported in 2018
and 2019.” In addition, our independent registered public accounting firm has audited the effectiveness of our internal control over financial reporting as
of December 31, 2020, as stated in its report, which appears on page F-2 of this annual report on Form 20-F.
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In the future, our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our
management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting
its own independent testing, may issue a report with adverse opinion if it is not satisfied with our internal controls or the level at which our controls are
documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us.
If we fail to implement and maintain an effective internal control environment, we could suffer material misstatements in our consolidated
financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial
information. This could in turn limit our access to capital markets, harm our results of operations, and lead to a decline in the trading price of our listed
securities. Furthermore, we may need to incur additional costs and use additional management and other resources as our business and operations further
expand or in an effort to remediate any significant control deficiencies that may be identified in the future. Additionally, ineffective internal control over
financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange
on which we list, regulatory investigations and civil or criminal sanctions.
Any lack of requisite approvals, licenses or permits applicable to our business or failure to comply with any requirements of PRC laws, regulations
and policies may have a material and adverse impact on our business, financial condition and results of operations.
Our business is subject to governmental supervision and regulation by the relevant PRC governmental authorities, including the Ministry
of Commerce, or MOFCOM, the Ministry of Industry and Information Technology, or the MIIT, the SAMR, the State Internet Information Office, the
National Radio and Television Administration, or the NRTA, and other governmental authorities in charge of the relevant categories of products sold
and services provided by us. Together, these government authorities promulgate and enforce regulations that cover many aspects of our operation of
social e-commerce platform, including entry into this industry, 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 for our business operations. Although we hold all material
licenses and permits that are necessary to our business, we have not obtained certain licenses, permits and filings for selling certain specific products or
services on our platform. See “Item 4. Information on the Company—B. Business Overview—Regulations—Licenses, Permits and Filings.” For
example, we have not obtained the internet audio-visual program transmission license for the audio-visual program services on our platform, for which
we are not qualified to apply according to current applicable laws and regulations. In addition, we have not completed filing for distributing publications
and providing live streaming services on our platform. We are in the process of applying for these licenses, permits and filings as permitted by relevant
laws, regulations and practice of relevant PRC governmental authorities.
As of the date of this annual report, we have not received any notice of warning or been subject to penalties or other disciplinary actions
from relevant governmental authorities regarding our business operations without the required licenses, permits or filings. However, we cannot assure
you that we will not be subject to any penalties or disciplinary actions in the future. There exist substantial uncertainties with respect to interpretation
and application of existing PRC laws, regulations and policies, and new laws, regulations or policies regulating the internet industry may also be
promulgated in the future, which together result in substantial uncertainties regarding the legality of existing and future foreign investments in, and the
businesses activities of, internet businesses in China, including our social e-commerce platform.
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We may be held liable for information or content displayed on, retrieved from or linked to our platform, or distributed to our users, and PRC
authorities may impose legal sanctions on us, including, in serious cases, suspending or revoking the licenses necessary to operate our platforms.
Some of our members engage in sales promotion activities through our live streaming sessions under the “Endorsement” section on our
Yunji app, on our Yunji Endorsement app and through our official account on other live streaming platforms, and they interact and exchange information
with our users and generate and distribute content. However, because a majority of the communications through our live streaming sessions and on our
platforms is conducted in real time, we are unable to verify the sources of all information communicated or posted thereon or examine the content
generated by our members and users before they are posted. We also allow users to upload user-generated content on our platform. It is possible that
activities of users or the content uploaded on our platform by users may engage in illegal, obscene or incendiary conversations or activities, including
inappropriate or illegal information or content that may be deemed unlawful under PRC laws and regulations or that may expose us to allegations by
third parties of infringement of intellectual property rights, unfair competition, invasion of privacy, defamation and other violations of third-party rights.
When users register on our platform, they agree to our standard agreement, under which they agree not to disseminate any content infringing on third-
party copyright on our platform. However, if any information or content on our platform is deemed illegal, obscene or incendiary, or if appropriate
licenses and third-party consents have not been obtained, claims may be brought against us for defamation, libel, negligence, intellectual property rights
or other rights infringement, other unlawful activities or other theories and claims based on the nature and content of the information delivered on or
otherwise accessed through our platform. We also may face liability for intellectual property rights infringement, fraud, and other claims based on the
nature and content of the materials that are delivered, shared or otherwise accessed through or published on our platform. Under relevant PRC laws and
regulations, online service providers, which provide storage space for users to upload works, may be held liable for copyright infringement under
various circumstances pursuant to applicable PRC laws and regulations, including situations where the online service provider knows or should
reasonably have known that the relevant content uploaded or linked to on its platform infringes upon the copyright of others and the online service
provider profits from such infringing activities. In certain cases in China, the courts have found an online service provider to be liable for the
copyrighted content posted by users which was accessible from and stored on such provider’s servers. Defending any such actions could be costly and
involve significant time and attention of our management and other resources, and there can be no assurance that we will obtain final outcomes that are
favorable to us. In addition, if it is found that we have not adequately managed the information or content on our platform, PRC authorities may impose
legal sanctions on us, including, in serious cases, suspending or revoking the licenses necessary to operate our platform. As a result, our business,
financial condition and results of operations may be materially and adversely affected.
Our success depends on the continuing efforts of our senior management and key employees. If our senior management is unable to work together
effectively or efficiently or if we fail to hire, retain and motivate key employees, our business may be severely disrupted.
Our success is significantly dependent upon the continued services of our management and other key employees. In particular, our founder
and chief executive officer, Mr. Shanglue Xiao, and other management members are critical to our vision, strategic direction, culture and overall
business success. If our senior management cannot work together effectively or efficiently, our business may 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 to locate suitable or qualified replacements
easily or at all, and our business, financial condition and results of operations may be materially and adversely affected. If any of our senior management
or key employees joins a competitor or forms a competing business, we may lose users, suppliers, third-party merchants, know-how and key
professionals and staff members. Our senior management has entered into employment agreements and confidentiality and non-competition agreements
with us. However, if any dispute arises between any of them and us, we may have to incur substantial costs and expenses in order to enforce such
agreements in China or we may be unable to enforce such agreements at all.
The increasing scale of our business also requires us to hire and retain a wide range of capable and experienced personnel and technology
talents who can adapt to a dynamic, competitive and challenging business environment. Competition for talents is intense, and the availability of suitable
and qualified candidates in China is limited. Competition for talents could cause us to offer higher compensation and other benefits to attract and retain
them. Even if we were to offer higher compensation and other benefits, these individuals may not choose to join or continue to work for us. Any failure
to attract or retain key management and personnel could severely disrupt our business and growth.
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We may be subject to claims under consumer protection laws, including health and safety claims and product liability claims, if people or properties
are harmed by the products sold on our platform.
We sell products manufactured by third parties and third-party merchants sell their products on our platform. Some of the products sold on
our platform may be defectively designed or manufactured. Sales of such products could expose us to increasing liability associated with consumer
protection laws in those areas, including product liability or health and safety claims relating to personal injury or illness, death, or environmental or
property damage, and may require product recalls or other actions. Moreover, pursuant to applicable consumer protection laws in China, consumers or
any third parties subject to such injury or damage may bring claims or legal proceedings against the e-commerce platforms as sellers of such products.
Although we would have legal recourse against the manufacturer or third-party seller of such products, as applicable, under PRC law if the liabilities are
attributable to the manufacturer or third-party seller, attempting to enforce our rights against the manufacturer or third-party seller, as applicable, may be
expensive, time-consuming and ultimately futile. In addition, we do not currently maintain any third-party liability insurance or product liability
insurance in relation to most of the 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. Even unsuccessful claims could result in the expenditure of funds and managerial
efforts in defending them and could have a negative impact on our reputation.
Our business generates and processes a large amount of data, and we are required to comply with PRC laws relating to data privacy and security.
The improper use or disclosure of data could have a material and adverse effect on our business and prospects.
Our business generates and processes a large quantity of data. We face risks inherent in handling and protecting large volume of data. In
particular, we face a number of challenges relating to data from transactions and other activities on our platform, including:
•
•
•
protecting the data in and hosted on our system, including against attacks on our system by outside parties or fraudulent behavior or
improper use by our employees;
addressing concerns related to privacy and sharing, safety, security and other factors; and
complying with applicable laws, rules and regulations relating to the collection, use, storage, transfer, disclosure and security of
personal information, including any requests from regulatory and government authorities relating to this data.
The PRC regulatory and enforcement regime with regard to data security and data protection is evolving. We may be required by PRC
governmental authorities to share personal information and data that we collect to comply with PRC laws relating to cybersecurity. See “Item 4.
Information on the Company—B. Business Overview—Regulations—Regulations Relating to Internet Information Security and Privacy Protection.”
All these laws and regulations may result in additional expenses and obligations to us and subject us to negative publicity, which could harm our
reputation and negatively affect the trading price of our ADSs. There are also uncertainties with respect to how these laws will be implemented in
practice. PRC regulators have been increasingly focused on regulation in the areas of data security and data protection. We expect that these areas will
receive greater attention and focus from regulators, and attract continued or greater public scrutiny and attention going forward, which could increase
our compliance costs and subject us to heightened risks and challenges associated with data security and protection. If we are unable to manage these
risks, we could become subject to penalties, fines, suspension of business and revocation of required licenses, and our reputation and results of
operations could be materially and adversely affected. In addition, regulatory authorities around the world have recently adopted or are considering a
number of legislative and regulatory proposals concerning data protection. These legislative and regulatory proposals, if adopted, and the uncertain
interpretations and application thereof could, in addition to the possibility of fines, result in an order requiring that we change our data practices, which
could have an adverse effect on our business and results of operations.
The PRC National People’s Congress enacted the PRC Civil Code on May 28, 2020, which came into effect on January 1, 2021. The PRC
Civil Code, in addition to the systematic codification of provisions from existing legislations, introduces more generally acceptable provisions on the
right to privacy and the protection of personal information, and provides clearer legal basis for civil actions against privacy and personal information
related infringements and breaches. More specific data privacy and cybersecurity related provisions are set out in existing legislations including the PRC
Cyber Security Law (effective from June 1, 2017), the PRC E-commerce Law (effective from January 1, 2019), the PRC Consumer Rights Protection
Law (latest revision effective from October 25, 2013), etc. Further, the Standing Committee of the National People’s Congress has released the draft
PRC Data Security Law on July 3, 2020, and the draft PRC Personal Information Protection Law on October 21, 2020. Once enacted, these two laws,
together with the current legislations, will form an increasingly comprehensive legal framework in the area of data security and data protection in the
PRC.
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Failure to protect confidential information of our users and network against security breaches could damage our reputation and brand and
substantially harm our business and results of operations.
A significant challenge to the e-commerce industry is the secure storage of confidential information and its secure transmission over public
networks. A substantial amount of the orders and the payments for products offered on our platform are made through our mobile apps. In addition, all
online payments for our products are settled through third-party online payment services. We also share certain personal information about our users
with contracted third-party suppliers and logistics service providers, such as their names, addresses, phone numbers and transaction records. Maintaining
complete security for the storage and transmission of confidential information on our technology platform, such as user’s personal information,
payment-related information and transaction information, is essential to maintaining user confidence.
We have adopted security policies and measures, including encryption technology, to protect our proprietary data and user information.
However, advances in technology, the expertise of hackers, new discoveries in the field of cryptography or other events or developments could result in
a compromise or breach of the technology that we use to protect confidential information. We may not be able to prevent third parties, especially
hackers or other individuals or entities engaging in similar activities, from illegally obtaining such confidential or private information we hold with
respect to users on our platform. In addition, we have limited control or influence over the security policies or measures adopted by third-party providers
of online payment services through which some of our users may elect to make payment for purchases. The contracted third-party suppliers and logistics
service providers we use may also violate their confidentiality obligations and disclose or use information about our users illegally. Individuals or
entities obtaining our users’ confidential or private information illegally may further engage in various other illegal activities using such information,
which may cause losses to our users and undermine their trust in our platform. We have received complaints from our users that their personal and
transaction information has been leaked and used by others to conduct fraud or other illegal activities, which resulted in losses to these users. We have
examined our security system and measures after receiving the complaints, and believe that it is not us or our employees who leaked the user
information to others or any other reasons attributable to us and we should not be held liable for the losses suffered by the users in accordance with the
applicable PRC laws. To better protect the users on our platform, we have taken further measures to enhance our data protection policies and measures,
require contracted third-party suppliers and logistics service providers to comply with their confidentiality obligations, and alert our users about the
potential illegal activities associated with leakage of user information. There can be no assurance, however, that the measures we have taken are
sufficient and effective to ensure the confidentiality and integrity of our data and confidential user information stored or transmitted through our
platform. Any negative publicity on our platform’s safety or privacy protection mechanisms and policies, and any claims asserted against us or fines
imposed upon us as a result of actual or perceived failures, could have a material and adverse effect on our public image, reputation, financial condition
and results of operations. Any compromise of our information security or the information security measures of our contracted third-party suppliers or
logistics service providers or third-party online payment service providers could have a material and adverse effect on our reputation, business,
prospects, financial condition and results of operations.
We rely on third-party online payment service providers for payment processing and escrow services on our platform. If these payment services are
restricted or curtailed in any way or become unavailable to us or our users for any reason, our business may be materially and adversely affected.
All online payments for products sold on our platform are settled through third-party online payment service providers. Our business
depends on the billing, payment and escrow systems of these payment service providers to maintain accurate records of payments of sales proceeds by
users and collect such payments. If the quality, utility, convenience or attractiveness of these payment processing and escrow services declines, or we
have to change the pattern of using these payment services for any reason, the attractiveness of our platform could be materially and adversely affected.
Business involving online payment services is subject to a number of risks that could materially and adversely affect third-party online
payment service providers’ ability to provide payment processing and escrow services to us, including:
•
dissatisfaction with these online payment services or decreased use of their services by our users;
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•
•
•
•
•
•
increasing competition, including from other established PRC internet companies, payment service providers and companies
engaged in other financial technology services;
changes to rules or practices applicable to payment systems that link to third-party online payment service providers;
breach of users’ personal information and concerns over the use and security of information collected from users;
service outages, system failures or failures to effectively scale the system to handle large and growing transaction volumes;
increasing costs to third-party online payment service providers, including fees charged by banks to process transactions through
online payment channels, which would also increase our costs of revenues; and
failure to manage funds accurately or loss of funds, whether due to employee fraud, security breaches, technical errors or otherwise.
Certain commercial banks in China impose limits on the amounts that may be transferred by automated payment from users’ bank
accounts to their linked accounts with third-party online payment services. We cannot predict whether these and any additional restrictions that could be
put in place would have a material adverse effect on our platform.
In addition, the commercial banks and third-party online payment service providers that we work with are subject to the supervision of the
People’s Bank of China, or the PBOC. The PBOC may publish rules, guidelines and interpretations from time to time regulating the operation of
financial institutions and payment service providers, which may in turn affect how they provide payment services to us. For example, in November
2017, the PBOC published a notice, or the PBOC Notice, on the investigation and administration of illegal offering of settlement services by financial
institutions and payment service providers to unlicensed entities. The PBOC Notice intends to prevent unlicensed entities from using licensed payment
service providers as a conduit for conducting unlicensed payment settlement service business, to safeguard the fund security and information security.
We launched the marketplace business in the first quarter of 2019, and cooperate with third-party online payment service providers and commercial
bank to receive payment from the buyers and distribute payment to third-party merchants and us. We believe our current cooperation with third-party
online payment service providers and commercial bank are not in violation of the PBOC Notice. We will continue to expand cooperation with third-
party online payment service providers and commercial banks to cover all of our marketplace business and to support the new initiatives. We cannot
assure you that the PBOC or other governmental authorities will find our cooperation model with third-party online payment service providers and
commercial banks with respect to the marketplace business model to be in compliance with the PBOC Notice. If required by the PBOC or other relevant
governmental authorities in the future, we may need to adjust or suspend our cooperation model with third-party payment service providers, and be
subject to fines and other sanctions.
In addition, we cannot assure you that we will be successful in entering into and maintaining amicable relationships with these online
payment service providers and commercial banks. Identifying, negotiating and maintaining relationships with these providers require significant time
and resources. Our current agreements with these service providers also do not prohibit them from working with our competitors. They could choose to
terminate their relationships with us or propose terms that we cannot accept. In addition, these service providers may not perform as expected under our
agreements with them, and we may have disagreements or disputes with such payment service providers, any of which could adversely affect our brand
and reputation as well as our business operations.
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Changes in our return and exchange policies may adversely affect our results of operations.
Pursuant to the Consumer Protection Law in China, as amended, except for certain types of products, such as custom-made goods, fresh
and perishable goods, consumers are generally entitled to return the products purchased within seven days upon receipt without giving any reasons. We
have adopted user-friendly return and exchange policies that make it convenient and easy for users to change their minds after completing purchases,
including allowing users to return products purchased within seven days upon receipt without giving any reasons. We may be required by new laws or
regulations to adopt new or amend existing return and exchange policies from time to time. These policies may subject us to additional costs and
expenses which we may not recoup through increased revenue. If our return and exchange policy is misused by a significant number of users, our costs
may increase significantly and our results of operations may be materially and adversely affected. If we revise these policies to reduce our costs and
expenses, our users may be dissatisfied, which may result in loss of existing users or failure to acquire new users at a desirable pace, which may
materially and 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 business
operations.
Certain lessors of our leased properties have not provided us with their property ownership certificates or any other documentation proving
their right to lease those properties to us. If our lessors are not the owners of the properties and they have not obtained consents from the owners or their
lessors or permits from the relevant government authorities, our leases could be invalidated. If this occurs, we may have to renegotiate 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. We have not entered into
written contracts with our lessors for some of our leased properties and the lessors of such properties may claim to terminate our leases. We may not be
able to find alternative properties to lease in a timely and reliable manner, or at all. Some of the leased properties were also subject to mortgage at the
time the leases were entered into. If no consent had been obtained from the mortgage holder under such circumstances, the lease may not be binding on
the transferee of the property in the event that the mortgage holder forecloses on the mortgage and transfers the property to another party. In addition, a
substantial portion of our leasehold interests in leased properties have not been registered with the relevant PRC government authorities as required by
PRC law, which may expose us to potential fines if we fail to remediate after receiving any notice from the relevant PRC government authorities. We
have subleased a portion of our leased properties to our PRC subsidiaries, VIEs and their subsidiaries as well as other third parties.
As of the date of this annual report, we are not aware of any claims or actions being contemplated or initiated by government authorities,
property owners 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 leased properties 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 the affected operations. In addition, we may become involved in disputes with the property owners or third parties who otherwise have rights
to or interests in our leased properties. We can provide no assurance that we will be able to find suitable replacement sites on terms acceptable to us on a
timely basis, 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,
our business, financial condition and results of operations may be materially and adversely affected.
Failure to renew our current leases or locate desirable alternatives for our leased properties could materially and adversely affect our business.
We lease properties for our offices. We may not be able to successfully extend or renew such leases upon expiration of the current term on
commercially reasonable terms or at all, and may therefore be forced to relocate our affected operations. This could disrupt our operations and result in
significant relocation expenses, which could adversely affect our business, financial condition and results of operations. In addition, we may compete
with other businesses for premises at certain locations or of desirable sizes. As a result, even though we could extend or renew our leases, rental
payments may significantly increase as a result of the high demand for the leased properties. In addition, we may not be able to locate desirable
alternative sites for our current leased properties as our business continues to grow and failure in relocating our affected operations could adversely
affect our business and operations.
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We have granted, and may continue to grant, options and other types of awards under our share incentive plan, which may result in increased
share-based compensation expenses.
We adopted a share incentive plan in 2017, which was amended and restated in its entirety in March 2019 and referred to as the 2019 Plan
in this annual report, for the purpose of granting share-based compensation awards to employees, directors, officers, consultants and other personnel to
incentivize their performance and align their interests with ours. We recognize expenses in our consolidated financial statements in accordance with U.S.
GAAP. Under the 2019 Plan, we are authorized to grant options, restricted shares, restricted share units and other types of awards. As of February 28,
2021, the awards that had been granted to our directors, officers, employees, consultants and other personnel and remained outstanding included (i)
100,974,600 restricted share units, excluding restricted share units that were forfeited, cancelled, or vested after the relevant grant date, and (ii) options
to purchase an aggregate of 68,119,430 Class A ordinary shares, excluding options that were forfeited, cancelled, or exercised after the relevant grant
date. In particular, on May 3, 2019, we were authorized by our board of directors to grant stock options and restricted share units to non-employees
under the 2019 Plan, and granted options to purchase an aggregate of 10,409,050 Class A ordinary shares and 3,332,040 restricted share units to
non-employees by batches during the year ended December 31, 2019. In addition, on January 1, 2020, we were authorized by our board of directors to
grant 356,210 restricted share units to two external consultants. See “Item 6. Directors, Senior Management and Employees—B. Compensation of
Directors and Executive Officers—2019 Share Incentive Plan.” We believe the granting of share-based compensation is of significant importance to our
ability to attract and retain key personnel 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. We may
re-evaluate the vesting schedules, lock-up period, exercise price or other key terms applicable to the grants under our currently effective share incentive
plans from time to time. If we choose to do so, we may experience substantial change in our share-based compensation charges in the reporting periods.
Our results of operations are subject to seasonal fluctuations which could result in volatility or have an adverse effect on the market price of our
ADSs.
We experience seasonality in our business, reflecting a combination of seasonal fluctuations in internet usage and traditional retail
seasonality patterns. For example, we generally experience less user traffic and purchase orders during the Chinese New Year holiday season in the first
quarter of each year. Furthermore, online sales in China are significantly higher in the fourth quarter of each calendar year than in the preceding three
quarters. E-commerce companies in China hold special promotional campaigns on November 11 each year and we hold a special promotional campaign
in the second quarter of each year, both of which can affect our results for those quarters. The decrease in sales and marketing expenses from the second
quarter of 2018 to the third quarter of 2018 was mainly due to the decrease in member management fees we paid to the third-party service companies for
their product sales facilitation services during this period, which resulted from the decrease of revenues from the second quarter of 2018 to the third
quarter of 2018 due to seasonality. The decreases in our total revenues from quarter to quarter in 2019 and 2020 were primarily due to continual
decreases in revenues from sales of merchandise as a result of continual increases in the proportion of our business contributed from our marketplace
business platform from quarter to quarter in 2019 and 2020. Revenues generated under our marketplace business were recognized on a net basis, while
revenues generated under our merchandise sales business were recognized on a gross basis. Due to the foregoing factors, our financial condition and
results of operations for future quarters may continue to fluctuate and our historical quarterly results may not be comparable to future quarters. 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
alliances with 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 have little ability to control or monitor their actions. To the extent the third parties suffer negative publicity or harm to their
reputations from events relating to their 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 are complementary to our existing business. Future investments or acquisitions and the subsequent integration of new assets and businesses into our
own would require significant attention from our management and could result in a diversion of resources from our existing business, which in turn
could have an adverse effect on our business operations. The costs of identifying and consummating investments and acquisitions may be significant.
We may also incur significant expenses in obtaining necessary approvals from relevant government authorities in China and elsewhere in the world.
Acquired assets or businesses 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 intangible assets and exposure to potential unknown liabilities of the acquired business. The cost and duration of integrating newly
acquired businesses could also materially exceed our expectations. Any such negative developments could have a material adverse effect on our
business, financial condition and results of operations.
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We may need additional capital, and financing may not be available on terms acceptable to us, or at all.
In the year ended December 31, 2018, our operating cash flow was positive, but in the years ended December 31, 2019 and 2020, our
operating cash flow was negative. It is possible that we will continue to have negative cash flow in the future. We believe that our current cash and cash
equivalents and our anticipated cash flows from operations will be sufficient to meet our anticipated working capital requirements and capital
expenditures for at least the next 12 months. We may, however, require additional cash resources due to changed business conditions or other future
developments, including any changes in our account payable policy, marketing initiatives or investments we may decide to pursue. If these resources are
insufficient to satisfy our cash requirements, we may seek to obtain a credit facility or sell additional equity or debt securities. The sale of additional
equity securities could result in dilution of our existing shareholders. The incurrence of indebtedness would result in increased debt service obligations
and could result in operating and financing covenants that would restrict our operations. It is uncertain whether financing will be available in amounts or
on terms acceptable to us, if at all.
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 to our success, and we rely on a combination of intellectual property laws and contractual arrangements, including confidentiality, invention
assignment and non-compete agreements with our employees and others, to protect our proprietary rights. Although we are not aware of any copycat
mobile apps that 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 our brand recognition in the e-commerce 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.
In addition, there can be no assurance that (i) our application for registration of trademarks, patents, and other intellectual property rights will be
approved, (ii) any intellectual property rights will be adequately protected, or (iii) such intellectual property rights will not be challenged by third parties
or found by a judicial authority to be invalid or unenforceable. Furthermore, because of the rapid pace of technological change in our industry, parts of
our business rely on technologies developed or licensed by third parties, and we may not be able to obtain or continue to obtain licenses and
technologies from these third parties at all or on reasonable terms.
It is often difficult to register, maintain and enforce intellectual property rights in China. Confidentiality, invention assignment and
non-compete agreements may be breached by counterparties, and there may not be adequate remedies available to us for any such breach. Accordingly,
we may not be able to effectively protect our intellectual property rights or to enforce our contractual rights in China. Policing any unauthorized use of
our intellectual property is difficult and costly and the steps we take may be inadequate to prevent the infringement or misappropriation of our
intellectual property. In the event that we resort to litigation to enforce our intellectual property rights, such litigation could result in substantial costs and
a diversion of our managerial and financial resources, and could put our intellectual property at risk of being invalidated or narrowed in scope. We can
provide no assurance 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 be leaked or otherwise become available to, or be independently discovered by, our competitors. Any failure in maintaining, protecting or
enforcing our intellectual property rights could have a material adverse effect on our business, financial condition and results of operations.
We may be subject to intellectual property infringement claims, which may be expensive to defend and may disrupt our business and operations.
We cannot be certain that our operations or any aspects of our business do not or will not infringe upon or otherwise violate 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
proceedings and claims relating to the intellectual property rights of others. In addition, there may be other third-party intellectual property that is
infringed by our products, services or other aspects of our business. There could also be existing patents of which we are not aware that our products
may inadvertently infringe. We cannot assure you that holders of patents purportedly relating to some aspect of our technology platform or business, if
any such holders exist, would not seek to enforce such patents against us in China, the United States or any other jurisdictions.
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In addition, we strive to closely monitor the products offered on our platform, and also require suppliers and third-party merchants to
indemnify us for any losses we suffer or any costs that we incur in relation to the products we source from such suppliers or the products offered by such
third-party merchants on our platform. However, we cannot be certain that these measures would be effective in completely preventing the infringement
of trademarks, patents, copyrights, know-how or other intellectual property rights held by third parties. Further, the application and interpretation of
China’s patent laws and the procedures and standards for granting patents in China are still evolving and are uncertain, and we cannot assure you that
PRC courts or regulatory authorities would agree with our analysis. 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 be prohibited from using such intellectual property, and we may incur licensing fees or be
forced to develop alternatives of our own. In addition, we may incur significant expenses, and may be forced to divert management’s time and other
resources from our business and operations to defend against these third-party infringement claims, regardless of their merits. Successful infringement
or licensing claims made against us may result in significant monetary liabilities and may materially disrupt our business and operations by restricting or
prohibiting our use of the intellectual property in question. Finally, we use open source software in connection with our products and services.
Companies that incorporate open source software into their products and services have, from time to time, faced claims challenging the ownership of
open source software and compliance with open source license terms. As a result, we could be subject to suits by parties claiming ownership of what we
believe to be open source software or noncompliance with open source licensing terms. Some open source software licenses 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 make available 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 for breach of contract
could be harmful to our business, results of operations and financial condition.
We rely on proper operation and maintenance of our mobile platform and internet infrastructure and telecommunications networks in China. Any
malfunction, capacity constraint or operation interruption may have an adverse impact on our business.
Currently, substantially all of our sales of products are generated online through our mobile platform. Therefore, the satisfactory
performance, reliability and availability of our mobile platform are critical to our success and our ability to attract and retain users. Our business
depends on the performance and reliability of the internet infrastructure in China. The reliability and availability of our mobile platform depends on
telecommunications carriers and other third-party providers for communications and storage capacity, including bandwidth and server storage, among
other things. If we are unable to enter into and renew agreements with these providers on acceptable terms, or if any of our existing agreements with
such providers are terminated as a result of our breach or otherwise, our ability to provide products and services could be adversely affected. Access to
internet in China is maintained through state-owned telecommunications carriers under administrative control, and we obtain access to end-user
networks operated by such telecommunications carriers and internet service providers to give users access to our mobile platform. The failure of
telecommunications network operators to provide us with the requisite bandwidth could also interfere with the speed and availability of our mobile
platform. Service interruptions prevent users from accessing our mobile platform and placing orders, and frequent interruptions could frustrate users and
discourage them from attempting to place orders, which could cause us to lose users and in turn suppliers and third-party merchants and harm our
operating results.
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 food safety insurance for our
products. In addition to providing social security insurance for our employees as required by PRC law, we also provide supplemental commercial
medical insurance, which covers life insurance, for our employees upon request. We do not maintain business interruption insurance, nor do we maintain
product liability insurance or 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 our losses 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 compensated amount is significantly less than our actual loss, our business, financial condition and results of operations
could be materially and adversely affected.
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Our failure to comply with anti-corruption laws and regulations, or effectively control the corruptive activities of our employees, could severely
damage our reputation, and materially and adversely affect our business, financial condition, results of operations and prospects.
We are subject to risks in relation to actions taken by us or our employees that may constitute violations of the anti-corruption laws and
regulations. While we adopt strict internal procedures and work closely with relevant government agencies to assure compliance of our business
operations with relevant laws and regulations, our efforts may not be sufficient to ensure that we comply with relevant laws and regulations at all times
or prevent corruptive activities of our employees. If we or our employees violate any such laws, rules or regulations, we could be subject to fines and/or
other penalties. Our reputation, corporate image, and business operations may be materially and adversely affected if we or our employees engage in
corruptive activities or violate any anti-corruption laws or regulations or if we become the target of any negative publicity as a result of corruptive
actions taken by us or our employees, which may in turn have a material adverse effect on our business, financial condition, results of operations and
prospects.
We may increasingly become a target for public scrutiny, including complaints to regulatory agencies, which could severely damage our reputation
and materially and adversely affect our business and prospects. Negative media coverage or publicity of us, our management or our employees or
public dissemination of malicious assessments of our business could harm our reputation and cause us to lose market share, users and revenues and
adversely affect the price of our ADSs.
The high volume of transactions taking place on our platform as well as publicity about our business create the possibility of heightened
attention from the public, regulators and the media. Heightened regulatory and public concerns over consumer protection, consumer safety and data
privacy and security issues may subject us to additional legal and social responsibilities and increased scrutiny and negative publicity over these issues,
due to the large number of transactions that take place on our platform and the increasing scope of our overall business operations. We may become the
target of detrimental conduct by third parties, which include complaints, anonymous or otherwise, to regulatory agencies. We may be subject to
government or regulatory investigation as a result of such third-party conduct and may be required to expend significant time and incur substantial costs
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 reasonable
period of time, or at all. Moreover, as our business expands and grows, we may be exposed to heightened public scrutiny in jurisdictions where we
already operate as well as in new jurisdictions where we may operate. There is no assurance that we would not become a target for regulatory or public
scrutiny in the future or that scrutiny and public exposure would not severely damage our reputation as well as our business and prospects. Any illegal or
immoral conducts by our management or employees could also result in negative publicity of us and thus harm our public image and reputation.
In addition, allegations, directly or indirectly against us, may be posted in social media or on blogs or websites by anyone, whether or not
related to us, on an anonymous basis. Consumers value readily available information concerning retailers, manufacturers, and their goods and services
and often act on such information without further investigation or authentication and without regard to its accuracy. The availability of information on
social media platforms and devices is virtually immediate, as is its impact. Social media platforms and devices immediately publish the content their
subscribers and participants post, often without filters or checks on the accuracy of the content posted. Information posted may be inaccurate and
adverse to us, and it may harm our financial performance, prospects or business. The harm may be immediate without affording us an opportunity for
redress or correction. Our reputation may be negatively affected as a result of the public dissemination of anonymous allegations or malicious statements
about our business, which in turn may cause us to lose market share, users and revenues and adversely affect the price of our ADSs.
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We and certain of our directors and officers have been named as defendants in putative shareholder class action lawsuits, which could have a
material adverse impact on our business, financial condition, results of operation, cash flows and reputation.
We will have to defend against putative shareholder class action lawsuits described in “Item 8. Financial Information—A. Consolidated
Statements and Other Financial Information—Legal Proceedings,” including any appeals of such lawsuits should our initial defenses be unsuccessful.
We are currently unable to estimate the possible outcome or loss or possible range of loss, if any, associated with the resolution of these lawsuits. In the
event that our initial defenses of these lawsuits are unsuccessful, there can be no assurance that we will prevail in any appeal. Any adverse outcome of
these cases, including any plaintiff’s appeal of a judgment in these lawsuits, could have a material adverse effect on our business, financial condition,
results of operation, cash flows and reputation. In addition, there can be no assurance that our insurance carriers will cover all or part of the defense
costs, or any liabilities that may arise from these matters. The litigation process may utilize a significant portion of our resources and divert
management’s attention from the day-to-day operations of our company, all of which could harm our business. We also may be subject to claims for
indemnification related to these matters, and we cannot predict the impact that indemnification claims may have on our business or financial results.
We face risks related to natural disasters, health epidemics and other outbreaks, which could significantly disrupt our operations.
Our business could be materially and adversely affected by natural disasters, health epidemics or other public safety concerns affecting the
PRC. Natural disasters may give rise to server interruptions, breakdowns, system failures, technology platform failures or internet failures, which could
cause the loss or corruption of data or malfunctions of software or hardware as well as adversely affect our ability to operate our platform and provide
services and solutions. Our business could also be adversely affected if our employees are affected by health epidemics. Our business operations could
be disrupted if any of our employees is suspected of having any transmissible health epidemic, since this may cause our employees to be quarantined
and/or our offices to be temperately shut down. In addition, our results of operations could be adversely affected to the extent that any health epidemic
harms the Chinese economy in general.
For example, beginning in January 2020, the outbreak of COVID-19 has severely impacted China and the rest of the world, and our
business and results of operations have been adversely affected as a result. In early 2020, the COVID-19 pandemic resulted in the temporary closure of
many corporate offices, retail stores, and manufacturing facilities across China. Given the strict implementation of quarantine measures during this
period, we, our suppliers, third-party merchants, third-party logistics service providers and other business partners experienced various degrees of
temporary shutdowns and delays in commencement of operations. We and certain of our business partners implemented temporary adjustment of work
schemes allowing employees to work from home and adopt remote collaboration. We took measures to reduce the impact of the epidemic outbreak and
provided support to our employees, service managers, members and business partners, including, providing advance online technical support to enable
majority of our employees to work from home efficiently, securing ample supply of disinfectant materials and protective gears for our employees who
were able to return to work, and maintaining a steady supply of daily essential products and epidemic containment materials at stable prices on our
platform as a result of our combination of private labels, joint-venture brands, and product partnerships. As a result of the above developments, our
operations and results of operations for the first quarter of 2020 were adversely affected.
Many of the quarantine measures within China have since been relaxed, and we, together with our suppliers, third-party merchants, third-
party logistics service providers and other business partners, have gradually resumed normal operations since early March 2020. The COVID-19 global
pandemic has resulted in, and may intensify, global economic distress, and the duration and extent of the impact of COVID-19 outbreak is highly
uncertain at this time. The extent to which it may affect our results of operations, especially our product mix, our financial condition and our cash flows
will depend on the future development of the outbreak, which is also highly uncertain and difficult to predict and will depend on a number of factors,
including the duration and severity of COVID-19, the extent and severity of new waves of outbreak in China and other countries, the development and
progress of distribution of COVID-19 vaccine and other medical treatment and the effectiveness of such vaccine and other medical treatment, and the
actions taken by government authorities to contain the outbreak, all of which are beyond our control. If the situation materially deteriorates in China or
globally, our business, results of operations and financial condition could be materially and adversely affected. In particular, there have been new waves
of outbreaks in various cities in China and if the situation materially deteriorates in China, the Chinese government may again implement strict
quarantine measures to contain the new waves of outbreak and our operations and the operations of our business partners may be materially and
adversely affected.
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A severe or prolonged downturn in the Chinese or global economy could materially and adversely affect our business and financial condition.
The success of our business ultimately depends on consumer spending. We derive substantially all of our revenues from China. As a result,
our revenues and financial results are impacted to a significant extent by economic conditions in China and globally, as well as economic conditions
specific to online retail. The global macroeconomic environment is facing numerous challenges. The growth rate of the Chinese economy has gradually
slowed since 2010 and the trend may continue in the foreseeable future, especially in light of the challenges the global economy is facing due to the
COVID-19 global pandemic. See “— We face risks related to natural disasters, health epidemics and other outbreaks, which could significantly disrupt
our operations.” Any slowdown could significantly reduce domestic commerce in China, including through the internet generally and through us. In
addition, there is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies adopted by the central banks and
financial authorities of some of the world’s leading economies, including the United States and China. Unrest, terrorist threats and the potential for war
in the Middle East and elsewhere may increase market volatility across the globe. There have also been concerns about the relationship between China
and other countries, including the surrounding Asian countries, which may potentially have economic effects. In particular, there is significant
uncertainty about the future relationship between the United States and China with respect to trade policies, treaties, government regulations and tariffs.
Economic conditions in China are sensitive to global economic conditions, as well as changes in domestic economic and political policies and the
expected or perceived overall economic growth rate in China. Any severe or prolonged slowdown in the global or Chinese economy may materially and
adversely affect our business, results of operations and financial condition.
Our ADSs may be delisted under the Holding Foreign Companies Accountable Act if the PCAOB is unable to inspect auditors who are located in
China. The delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.
Additionally, the inability of the PCAOB to conduct inspections deprives our investors with the benefits of such inspections.
The Holding Foreign Companies Accountable Act, or the HFCA Act, was enacted on December 18, 2020. The HFCA Act states if the
SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for
three consecutive years beginning in 2021, the SEC shall prohibit our shares or ADSs from being traded on a national securities exchange or in the
“over-the-counter” trading market in the U.S.
Our auditor, the independent registered public accounting firm that issues the audit report included elsewhere in this annual report, as an
auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant
to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Since our auditor is located in
China, a jurisdiction where the PCAOB has been unable to conduct inspections without the approval of the Chinese authorities, our auditor is currently
not inspected by the PCAOB.
On March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation
requirements of the HFCA Act. We will be required to comply with these rules if the SEC identifies us as having a “non-inspection” year under a
process to be subsequently established by the SEC. The SEC is assessing how to implement other requirements of the HFCA Act, including the listing
and trading prohibition requirements described above.
The SEC may propose additional rules or guidance that could impact us if our auditor is not subject to PCAOB inspection. For example,
on August 6, 2020, the President’s Working Group on Financial Markets, or the PWG, issued the Report on Protecting United States Investors from
Significant Risks from Chinese Companies to the then President of the United States. This report recommended the SEC implement five
recommendations to address companies from jurisdictions that do not provide the PCAOB with sufficient access to fulfil its statutory mandate. Some of
the concepts of these recommendations were implemented with the enactment of the HFCA Act. However, some of the recommendations were more
stringent than the HFCA Act. For example, if a company was not subject to PCAOB inspection, the report recommended that the transition period
before a company would be delisted would end on January 1, 2022.
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The SEC has announced that the SEC staff is preparing a consolidated proposal for the rules regarding the implementation of the HFCA
Act and to address the recommendations in the PWG report. It is unclear when the SEC will complete its rulemaking and when such rules will become
effective and what, if any, of the PWG recommendations will be adopted. The implications of this possible regulation in addition to the requirements of
the HFCA Act are uncertain. Such uncertainty could cause the market price of our ADSs to be materially and adversely affected, and our securities
could be delisted or prohibited from being traded “over-the-counter” earlier than would be required by the HFCA Act. If our securities are unable to be
listed on another securities exchange by then, such a delisting would substantially impair your ability to sell or purchase our ADSs when you wish to do
so, and the risk and uncertainty associated with a potential delisting would have a negative impact on the price of our ADSs.
The PCAOB’s inability to conduct inspections in China prevents it from fully evaluating the audits and quality control procedures of our
independent registered public accounting firm. As a result, we and investors in our ordinary shares are deprived of the benefits of such PCAOB
inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our
independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors outside of China that are subject
to the PCAOB inspections, which could cause investors and potential investors in our stock to lose confidence in our audit procedures and reported
financial information and the quality of our financial statements.
In May 2013, the PCAOB announced that it had entered into a Memorandum of Understanding on Enforcement Cooperation with the
CSRC and the PRC Ministry of Finance, which establishes a cooperative framework between the parties for the production and exchange of audit
documents relevant to investigations undertaken by the PCAOB in the PRC or by the CSRC or the PRC Ministry of Finance in the United States. The
PCAOB continues to be in discussions with the CSRC and the PRC Ministry of Finance to permit joint inspections in the PRC of audit firms that are
registered with the PCAOB and audit Chinese companies that trade on U.S. exchanges.
Proceedings instituted by the SEC against PRC affiliates of the “big four” accounting firms, including our independent registered public accounting
firm, could result in financial statements being determined to not be in compliance with the requirements of the Exchange Act.
Starting in 2011, the PRC affiliates of the “big four” accounting firms, including our independent registered public accounting firm, were
affected by a conflict between U.S. and PRC law. Specifically, for certain U.S.-listed companies operating and audited in mainland China, the SEC and
the PCAOB sought to obtain from the PRC firms access to their audit work papers and related documents. The firms were, however, advised and
directed that under PRC law, they could not respond directly to the U.S. regulators on those requests, and that requests by foreign regulators for access to
such papers in China had to be channeled through the CSRC.
In late 2012, this impasse led the SEC to commence administrative proceedings under Rule 102(e) of its Rules of Practice and also under
the Sarbanes-Oxley Act of 2002 against the PRC accounting firms, including our independent registered public accounting firm. A first instance trial of
the proceedings in July 2013 in the SEC’s internal administrative court resulted in an adverse judgment against the firms. The administrative law judge
proposed penalties on the firms including a temporary suspension of their right to practice before the SEC, although that proposed penalty did not take
effect pending review by the Commissioners of the SEC. On February 6, 2015, before a review by the Commissioner had taken place, the firms reached
a settlement with the SEC. Under the settlement, the SEC accepted that future requests by the SEC for the production of documents will normally be
made to the CSRC. The firms were to receive matching Section 106 requests, and are required to abide by a detailed set of procedures with respect to
such requests, which in substance require them to facilitate production via the CSRC. If they failed to meet specified criteria, during a period of four
years starting from the settlement date, the SEC retained authority to impose a variety of additional remedial measures on the firms depending on the
nature of the failure. Under the terms of the settlement, the underlying proceeding against the four PRC-based accounting firms was deemed dismissed
with prejudice four years after entry of the settlement. The four-year mark occurred on February 6, 2019. It is uncertain whether the SEC will further
challenge the four PRC-based accounting firms’ compliance with U.S. laws in connection with U.S. regulatory requests for audit work papers or if the
results of such challenge would result in the SEC imposing penalties such as suspensions. If additional remedial measures are imposed on the Chinese
affiliates of the “big four” accounting firms, including our independent registered public accounting firm, we could be unable to timely file future
financial statements in compliance with the requirements of the Exchange Act.
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In the event the Chinese affiliates of the “big four” become subject to additional legal challenges by the SEC or PCAOB, depending upon
the final outcome, listed companies in the United States with major PRC operations may find it difficult or impossible to retain auditors in respect of
their operations in China, which could result in financial statements being determined to not be in compliance with the requirements of the Exchange
Act, including possible delisting. Moreover, any negative news about any such future proceedings against these audit firms may cause investor
uncertainty regarding China-based, U.S.-listed companies and the market price of our common stock may be adversely affected.
If our independent registered public accounting firm was denied, even temporarily, the ability to practice before the SEC and we were
unable to timely find another registered public accounting firm to audit and issue an opinion on our financial statements, our financial statements could
be determined not to be in compliance with the requirements of the Exchange Act. Such a determination could ultimately lead to the delisting of our
ADSs from the Nasdaq Global Market or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of
our ADSs in the United States.
We are subject to changing law and regulations regarding regulatory matters, corporate governance and public disclosure that have increased both
our costs and the risk of non-compliance.
We are or will be subject to rules and regulations by various governing bodies, including, for example, the Securities and Exchange
Commission, which is charged with the protection of investors and the oversight of companies whose securities are publicly traded, and the various
regulatory authorities in China and the Cayman Islands, and to new and evolving regulatory measures under applicable law. Our efforts to comply with
new and changing laws and regulations have resulted in and are likely to continue to result in, increased general and administrative expenses and a
diversion of management time and attention from revenue-generating activities to compliance activities.
Moreover, because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve
over time as new guidance becomes available. This evolution may result in continuing uncertainty regarding compliance matters and additional costs
necessitated by ongoing revisions to our disclosure and governance practices. If we fail to address and comply with these regulations and any
subsequent changes, we may be subject to penalty and our business may be harmed.
Risks Related to Our Corporate Structure
If the PRC government finds that the agreements that establish the structure for operating some of our operations in China do not comply with PRC
regulations relating to the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be
subject to severe penalties or be forced to relinquish our interests in those operations.
Foreign ownership of certain parts of our businesses, including value-added telecommunications services, is subject to restrictions under
current PRC laws and regulations. For example, foreign investors are not allowed to own more than 50% of the equity interests in a value-added
telecommunication service provider (excluding e-commerce) and any such foreign investor must have experience in providing value-added
telecommunications services overseas and maintain a good track record, and foreign investors are prohibited from engaging in the distribution of audio
and video products in China via the internet in accordance with the Special Administrative Measures for Market Access of Foreign Investment
(Negative List) promulgated in 2020.
We are an exempted Cayman Islands company and our PRC subsidiaries are considered foreign-invested enterprises. Accordingly, none of
these PRC subsidiaries is eligible to provide internet content-related services. As a result, we conduct such business activities through two of our VIEs,
(i) Yunji Preferred, whose wholly-owned subsidiary holds a VATS License for online data processing and transaction processing business (operating
e-commerce, excluding internet finance and e-hailing services) and internet content-related services (excluding information search and inquiry services
and real-time interactive information services); and (ii) Hangzhou Chuanchou, who holds a VATS License for internet content-related services
(excluding information search and inquiry services and real-time interactive information services). Yunji Preferred is 99.0099% owned by Mr. Shanglue
Xiao, the chairman of our board of directors and our chief executive officer, and 0.9901% owned by Mr. Huan Hao, a beneficial owner of the shares of
our company. Mr. Shanglue Xiao and Mr. Huan Hao are PRC citizens. Hangzhou Chuanchou is 100% owned by Mr. Wenwei Shu, a nominee of our
company. Mr. Wenwei Shu is PRC Citizen. Our WFOE has entered into a series of contractual arrangements with our VIEs (including Yunji Preferred
and Hangzhou Chuanchou) and their respective shareholders, which enable us to:
•
exercise effective control over our VIEs;
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•
•
receive substantially all of the economic benefits and bear the obligation to absorb substantially all of the losses of our VIEs; and
have an exclusive option to purchase all or part of the equity interests in our VIEs when and to the extent permitted by PRC law.
As a result of these contractual arrangements, we have control over and are the primary beneficiary of our VIEs and hence consolidate
their financial results and their subsidiaries into our consolidated financial statements under U.S. GAAP. For a detailed discussion of these contractual
arrangements, see “Item 4. Information on the Company—C. Organizational Structure.”
In the opinion of Han Kun Law Offices, our PRC legal counsel, (i) the ownership structures of our WFOE and our VIEs in China are not
in violation of PRC laws and regulations currently in effect; and (ii) the contractual arrangements between our WFOE, our VIEs and their respective
shareholders governed by PRC law are not in violation of PRC laws or regulations currently in effect, and valid and binding upon each party to such
arrangements and enforceable against each party thereto in accordance with their terms and applicable PRC laws and regulations currently in effect.
However, our PRC legal counsel has also advised us that there are substantial uncertainties regarding the interpretation and application of current and
future PRC laws, regulations and 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 any new PRC laws or regulations relating to variable interest entity structures will be adopted or if adopted, what they
would provide. If we or our VIEs are found to be in violation of any existing or future PRC laws or regulations, or fail to obtain or maintain any of the
required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or
failures, including:
•
•
•
•
revoking the business licenses and/or operating licenses of such entities;
discontinuing or placing restrictions or onerous conditions on our operations;
imposing fines, confiscating the income from our WFOE or our VIEs, or imposing other requirements with which we or our VIEs
may not be able to comply;
requiring us to restructure our ownership structure or operations, including terminating the contractual arrangements with our VIEs
and deregistering the equity pledges of our VIEs, which in turn would affect our ability to consolidate, derive economic interests
from, or exert effective control over our VIEs; or
•
restricting or prohibiting our use of the proceeds 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 unclear what impact the PRC government actions would have on us and on our ability to consolidate the financial results of our VIEs in our
consolidated financial statements, if the PRC government authorities were to find our legal structure and contractual arrangements to be in violation of
PRC laws and regulations. If the imposition of any of these government actions causes us to lose our right to direct the activities of our VIEs or our right
to receive substantially all the economic benefits and residual returns from our VIEs and we are not able to restructure our ownership structure and
operations in a satisfactory manner, we would no longer be able to consolidate the financial results of our VIEs in our consolidated financial statements.
Either of these results, or any other significant penalties that might be imposed on us in this event, would have a material adverse effect on our financial
condition and results of operations.
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Our current corporate structure and business operations may be affected by the newly enacted Foreign Investment Law.
On March 15, 2019, the National People’s Congress approved the Foreign Investment Law, which took effect on January 1, 2020, and on
December 26, 2019, the State Council promulgated the Implementation Rules of Foreign Investment Law, which took effect on January 1, 2020. Since it
is relatively new, uncertainties exist in relation to its interpretation and implementation. The Foreign Investment Law does not explicitly classify
whether variable interest entities that are controlled through contractual arrangements would be deemed as foreign invested enterprises if they are
ultimately “controlled” by foreign investors. However, it has a catch-all provision under definition of “foreign investment” that includes investments
made by foreign investors in China through other means as provided by laws, administrative regulations or the State Council. Therefore it still leaves
leeway for future laws, administrative regulations or provisions of the State Council to provide for contractual arrangements as a form of foreign
investment. Therefore, there can be no assurance that our control over our VIEs through contractual arrangements will not be deemed as foreign
investment in the future.
The Foreign Investment Law grants national treatment to foreign-invested entities, except for those foreign-invested entities that operate in
industries specified as either “restricted” or “prohibited” from foreign investment in the Special Administrative Measures (Negative List) for Foreign
Investment Access jointly promulgated by Ministry of Commerce, or MOFCOM, and the National Development and Reform Commission, or NDRC, as
amended from time to time. The Foreign Investment Law provides that foreign-invested entities are barred from operating in “prohibited” industries and
will require market entry clearance and other approvals from relevant PRC government authorities if operating in “prohibited” industries. On
December 26, 2019, the Supreme People’s Court issued the Interpretations on Certain Issues Regarding the Application of Foreign Investment Law, or
the FIL Interpretations, which came into effect on January 1, 2020. In accordance with the FIL Interpretations, any claim to invalidate an investment
agreement will be supported by courts if such agreement is found to be entered into for purposes of making investments in the “prohibited industries”
under the negative list or for purposes of investing in “restricted industries” while failing to satisfy the conditions set out in the Negative List. If our
control over our VIEs through contractual arrangements are deemed as foreign investment in the future, and any business of our VIEs is “restricted” or
“prohibited” from foreign investment under the “negative list” effective at the time, we may be deemed to be in violation of the Foreign Investment
Law, the contractual arrangements that allow us to have control over our VIEs may be deemed as invalid and illegal, and we may be required to unwind
such contractual arrangements and/or restructure our business operations, any of which may have a material adverse effect on our business operation.
Furthermore, if future laws, administrative regulations or provisions mandate further actions to be taken by companies with respect to
existing contractual arrangements, we may face substantial uncertainties as to whether we can 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 regulatory compliance challenges could materially and adversely
affect our current corporate structure and business operations.
We rely on contractual arrangements with our VIEs and their respective shareholders for a large portion of our business operations, which may not
be as effective as direct ownership in providing operational control.
We have relied and expect to continue to rely on contractual arrangements with our VIEs and their respective shareholders to conduct our
business. For a description of these contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure.” These
contractual arrangements may not be as effective as direct ownership in providing us with control over our VIEs. For example, our VIEs and their
respective shareholders could breach their contractual arrangements with us by, among other things, failing to conduct their operations in an acceptable
manner or taking other actions that are detrimental to our interests.
If we had direct ownership of our VIEs, we would be able to exercise our rights as a shareholder to effect changes in the board of directors
of our VIEs, which in turn could effect changes, subject to any applicable fiduciary obligations, at the management level. However, under the current
contractual arrangements, we rely on the performance by our VIEs and their respective shareholders of their obligations under the contracts to exercise
control over our VIEs. The shareholders of our VIEs 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 in which we intend to operate our business through the contractual arrangements with our VIEs. If any
dispute relating to these contracts remains unresolved, we will have to enforce our rights under these contracts through the operations of PRC law and
courts and therefore will be subject to uncertainties in the PRC legal system. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our
Corporate Structure—Any failure by our VIEs or their respective shareholders to perform their obligations under our contractual arrangements with
them would have a material and adverse effect on our business.” Therefore, our contractual arrangements with our VIEs may not be as effective in
ensuring our control over the relevant portion of our business operations as direct ownership would be.
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Any failure by our VIEs or their respective shareholders to perform their obligations under our contractual arrangements with them would have a
material and adverse effect on our business.
If our VIEs or their respective shareholders fail to perform their respective obligations under the contractual arrangements, we may have to
incur substantial costs and expend additional resources to enforce such arrangements. We may also have to rely on legal remedies under PRC law,
including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure you will be effective. For example, if the
shareholders of our VIEs were to refuse to transfer their equity interest in our VIEs to us or our designee when we exercise the purchase 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 to compel them to perform
their contractual obligations.
All of the agreements under our contractual arrangements are governed by PRC law and provide for the resolution of disputes through
arbitration in China. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance
with PRC legal procedures. The legal system in China is not as developed as in some other jurisdictions, such as the United States. As a result,
uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements. See “Item 3. Key Information—D. Risk Factors
— Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system and changes in laws and regulations in China could
adversely affect us.” Meanwhile, there are very few precedents and little formal guidance as to how contractual arrangements in the context of a variable
interest entity should be interpreted or enforced under PRC law, and as a result it may be difficult to predict how an arbitration panel would view such
contractual arrangements. Additionally, under PRC law, rulings by arbitrators are final, parties cannot appeal the arbitration results in courts, and if the
losing parties fail to carry out the arbitration awards within a prescribed time limit, the prevailing parties may only enforce the arbitration awards in PRC
courts through arbitration award recognition proceedings, which would require additional expenses and delay.
Jishang Preferred, a wholly-owned subsidiary of Yunji Preferred, one of our VIEs, holds our VATS License for online data processing and
transaction processing business (operating e-commerce, excluding internet finance and e-hailing services) and internet content-related services
(excluding information search and inquiry services and real-time interactive information services). In the event we are unable to enforce our contractual
arrangements, we may not be able to exert effective control over Yunji Preferred, and our ability to conduct these businesses may be negatively affected.
The shareholders of our VIEs may have potential conflicts of interest with us, which may materially and adversely affect our business and financial
condition.
The shareholders of our VIEs may have potential conflicts of interest with us. For example, Mr. Shanglue Xiao and Mr. Huan Hao are the
shareholders of Yunji Preferred, one of our VIEs. Mr. Shanglue Xiao is the chairman of our board of directors and our chief executive officer and
Mr. Huan Hao is a beneficial owner of shares of our company. The shareholders may breach, or cause our VIEs to breach, or refuse to renew, the
existing contractual arrangements we have with them and our VIEs, which would have a material and adverse effect on our ability to effectively control
our VIEs and receive substantially all the economic benefits from them. For example, the shareholders may be able to cause our agreements with our
VIEs to be performed in a manner adverse to us by, among other things, failing to remit payments due under the contractual arrangements to us on a
timely basis. We cannot assure you that when conflicts of interest arise, any or all of these shareholders will act in the best interests of our company or
such conflicts will be resolved in our favor.
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Currently, we do not have any arrangements to address potential conflicts of interest between these shareholders and our company, except
that we could exercise our purchase option under the exclusive option agreements with these shareholders to request them to transfer all of their equity
interests in the VIEs to a PRC entity or individual designated by us, to the extent permitted by PRC law. For individuals who are also our directors and
officers, we rely on them to abide by the laws of the Cayman Islands, which provide that directors and officers owe a fiduciary duty to the company that
requires them to act in good faith and in what they believe to be the best interests of the company and not to use their position for personal gains. The
shareholders of our VIEs have executed shareholders’ voting rights proxy agreement to appoint our WFOE or a person designated by our WFOE to vote
on their behalf and exercise voting rights as shareholders of our VIEs. If we cannot resolve any conflict of interest or dispute between us and the
shareholders of our VIEs, we would have to rely on legal proceedings, which could result in disruption of our business and subject us to substantial
uncertainty as to the outcome of any such legal proceedings.
The shareholders of our VIEs may be involved in personal disputes with third parties or other incidents that may have an adverse effect on
their respective equity interests in the relevant VIEs and the validity or enforceability of our contractual arrangements with the relevant entity and its
shareholders. For example, in the event that any of the shareholders of our VIEs divorces his or her spouse, the spouse may claim that the equity interest
of the relevant VIE held by such shareholder is part of their community property and should be divided between such shareholder and his or her spouse.
If such claim is supported by the court, the relevant equity interest may be obtained by the shareholder’s spouse or another third party who is not subject
to obligations under our contractual arrangements, which could result in a loss of the effective control over the relevant VIE by us. Similarly, if any of
the equity interests of our VIEs is inherited by a third party with whom the current contractual arrangements are not binding, we could lose our control
over the relevant VIE or have to maintain such control by incurring unpredictable costs, which could cause significant disruption to our business and
operations and harm our financial condition and results of operations.
Although under our current contractual arrangements, (i) each of the spouses of each individual shareholder of our VIEs, including, but not
limited to, Mr. Shanglue Xiao, Mr. Huan Hao and Mrs. Panyan Ding, has respectively executed a spousal consent letter, under which each spouse agrees
that he/she will not raise any claims against the equity interest, and will take every action to ensure the performance of the contractual arrangements, and
(ii) the VIEs and the their shareholders shall not assign any of their respective rights or obligations to any third party without the prior written consent of
our WFOE, we cannot assure you that these undertakings and arrangements will be complied with or effectively enforced. In the case any of them is
breached or becomes unenforceable and leads to legal proceedings, it could disrupt our business, distract our management’s attention and subject us to
substantial uncertainties as to the outcome of any such legal proceedings.
Contractual arrangements in relation to our VIEs may be subject to scrutiny by the PRC tax authorities and they may determine that we or our VIEs
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 PRC tax authorities. We could face material and adverse tax consequences if the PRC tax authorities determine that the variable interest entity
contractual arrangements 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 the income of our VIEs in the form of a transfer pricing adjustment. A transfer pricing adjustment
could, among other things, result in a reduction of expense deductions recorded by our VIEs for PRC tax purposes, which could in turn increase their tax
liabilities. In addition, the PRC tax authorities may impose punitive interest on our VIEs for the adjusted but unpaid 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 VIEs’ tax liabilities increase or if they are required to pay punitive interest.
Risks Related to Doing Business in China
Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and
operations.
Substantially all of our assets and operations are located in China. Accordingly, our business, financial condition, results of operations and
prospects may be influenced to a significant degree by political, economic and social conditions in China generally and by continued economic growth
in China as a whole. The PRC 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 PRC government has
implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the
establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the
government. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies.
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The PRC government also exercises significant control over China’s economic growth through allocating resources, controlling payment
of foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries or companies.
While the Chinese economy has experienced significant growth over the past decades, growth has been uneven, both geographically and
among various sectors of the economy. The Chinese government has implemented various measures to encourage economic growth and guide the
allocation of resources. Some of these measures may benefit the overall Chinese economy, but may have a negative effect on us. For example, our
financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations.
Uncertainties with respect to the PRC legal system and changes in laws and regulations in China could adversely affect us.
We conduct our business primarily through our PRC subsidiaries and our VIEs. Our operations in China are governed by PRC laws and
regulations. Our PRC subsidiaries are subject to laws and regulations applicable to foreign investment in China. The PRC legal system is a civil law
system based on written statutes. Unlike the common law system, prior court decisions under the civil law system may be cited for reference but have
limited precedential value. In addition, any new or changes in PRC laws and regulations related to foreign investment in China could affect the business
environment and our ability to operate our business in China.
From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. Any administrative and court
proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention. Since PRC administrative
and court authorities have significant discretion in interpreting and implementing statutory provisions and contractual terms, it may be more difficult to
evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. These
uncertainties may impede our ability to enforce the contracts we have entered into and could materially and adversely affect our business and results of
operations.
Furthermore, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely
basis or at all and may have retroactive effect. As a result, we may not be aware of our violation of any of these policies and rules until sometime after
the violation. Such unpredictability towards our contractual, property and procedural rights could adversely affect our business and impede our ability to
continue our operations.
We may be adversely affected by the complexity, uncertainties and changes in PRC regulation of internet-related businesses and companies.
The PRC government extensively regulates the internet industry, including foreign ownership of, and the licensing and permit
requirements pertaining to, companies in the internet industry. These internet-related laws and regulations are relatively new and evolving, and their
interpretation and enforcement involve significant uncertainties. As a result, in certain circumstances it may be difficult to determine what actions or
omissions may be deemed to be in violation of applicable laws and regulations.
We only have contractual control over our Yunji mobile app. We do not directly own the mobile apps due to the restrictions on foreign
investment in businesses providing internet content-related services. This may significantly disrupt our business, subject us to sanctions, compromise
enforceability 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 the State Internet Information Office (with the involvement of the State Council
Information Office, MIIT, and the Ministry of Public Security). The primary role of the State Internet Information Office is to facilitate the policy-
making and legislative development in this field, to direct and coordinate with the relevant departments in connection with online content administration
and to deal with cross-ministry regulatory matters in relation to the internet industry.
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Our online platform, operated by Jishang Preferred, a wholly-owned subsidiary of Yunji Preferred, may be deemed to be providing
commercial internet content-related services and online data processing and transaction processing services, which would require Jishang Preferred to
obtain an ICP License and an EDI License. Each of ICP License and EDI License is under the category of value-added telecommunications business
operating licenses, or VATS License. The Circular on Strengthening the Administration of Foreign Investment in and Operation of Value-added
Telecommunications Business, issued by the MIIT in July 2006, prohibits domestic telecommunications service providers from leasing, transferring or
selling telecommunications business operating licenses to any foreign investor in any form, or providing any resources, sites or facilities to any foreign
investor for their illegal operation of a telecommunications business in China. The circular also requires each license holder to have the necessary
facilities, including servers, for its approved business operations and to maintain such facilities in the regions covered by its license. According to the
recent practice in China, if any commercial internet content-related service or online data processing and transaction processing service is to be carried
out via mobile apps, such mobile apps are required to be registered on the VATS License of the operator of such mobile apps. Our Yunji mobile app has
been registered on the VATS License held by Jishang Preferred.
The interpretation and application of existing PRC laws, regulations and policies and possible new laws, regulations or policies relating to
the internet industry have created substantial uncertainties regarding the legality of existing and future foreign investments in, and the businesses and
activities of, internet businesses in China, including our business. We cannot assure you that we have obtained all the permits or licenses required for
conducting our business in China or will be able to maintain our existing licenses or obtain new ones.
It may be difficult for overseas regulators to conduct investigations or collect evidence within China.
Shareholder claims or regulatory investigations that are common in jurisdictions outside China are difficult to pursue as a matter of law or
practicality in China. For example, in China, there are significant legal and other obstacles to providing information needed for regulatory investigations
or litigation initiated outside China. Although the authorities in China may establish a regulatory cooperation mechanism with the securities regulatory
authorities of another country or region to implement cross-border supervision and administration, such cooperation with the securities regulatory
authorities in the United States or other jurisdictions may not be efficient in the absence of a mutual and practical cooperation mechanism. Furthermore,
according to Article 177 of the PRC Securities Law, or Article 177, which became effective in March 2020, no overseas securities regulator is allowed
to directly conduct investigation or evidence collection activities within the territory of the PRC, and without the consent by the Chinese securities
regulatory authorities and the other competent governmental agencies, no entity or individual may provide documents or materials related to securities
business to any foreign party. While detailed interpretation of or implementation rules under Article 177 have yet to be promulgated, the inability of an
overseas securities regulator to directly conduct investigation or evidence collection activities within China and the potential obstacles for information
provision may further increase difficulties you face in protecting your interests. See also “—Risks Related to Our ADSs—You may face difficulties in
protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands
law” for risks associated with investing in us as a Cayman Islands company.
You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against us or our
management named in the annual report based on foreign laws.
We are an exempted company incorporated under the laws of the Cayman Islands, we conduct substantially all of our operations in China
and substantially all of our assets are located in China. In addition, all our senior executive officers reside within China for a significant portion of the
time and all of them are PRC nationals. As a result, it may be difficult for you to effect service of process upon us or those persons inside mainland
China. It may also be difficult for you to enforce in U.S. courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S.
federal securities laws against us and our officers and directors as none of them currently resides in the United States or has substantial assets located in
the United States. In addition, there is uncertainty as to whether the courts of the Cayman Islands or the PRC would recognize or enforce judgments of
U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state. Due to
jurisdictional limitations, matters of comity and various other factors, the SEC, U.S. Department of Justice and other U.S. authorities may also
experience difficulties in bringing and enforcing actions against us or our directors and officers, including in instances of fraud or other wrongdoing.
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The recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize
and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the
country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other forms of written
arrangement with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC
Civil Procedures Law, the PRC courts will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment
violates the basic principles of PRC laws or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC
court would enforce a judgment rendered by a court in the United States.
In addition, shareholder claims that are common in the United States, including class action securities law and fraud claims, may be
difficult to pursue as a matter of law or practicality in China. Under the PRC Civil Procedures Law, foreign shareholders may originate actions based on
PRC law against a company in China for disputes if they can establish sufficient nexus to the PRC for a PRC court to have jurisdiction, and meet other
procedural requirements, including, among others, the plaintiff must have a direct interest in the case, and there must be a concrete claim, a factual basis
and a cause for the suit. It will be, however, difficult for U.S. shareholders to originate actions against us in the PRC in accordance with PRC laws
because we are incorporated under the laws of the Cayman Islands and it will be difficult for U.S. shareholders, by virtue only of holding the ADSs or
our ordinary shares, to establish a connection to the PRC for a PRC court to have jurisdiction as required under the PRC Civil Procedures Law.
Fluctuations in exchange rates could have a material and adverse effect on our results of operations and the value of your investment.
The conversion of Renminbi into foreign currencies, including U.S. dollars, is based on rates set by the People’s Bank of China. The
Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. The value of Renminbi against the U.S. dollar and other
currencies is affected by changes in China’s political and economic conditions and by China’s foreign exchange policies, among other things. We cannot
assure you that Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the future. It is difficult to predict how market
forces or PRC or U.S. government policy may impact the exchange rate between Renminbi and the U.S. dollar in the future.
Any significant appreciation or depreciation of Renminbi may materially and adversely affect our revenues, earnings and financial
position, and the value of, and any dividends payable on, our ADSs in U.S. dollars. For example, to the extent that we need to convert U.S. dollars we
receive into Renminbi to pay our operating expenses, appreciation of Renminbi against the U.S. dollar would have an adverse effect on the RMB
amount we would receive from the conversion. Conversely, a significant depreciation of Renminbi against the U.S. dollar may significantly reduce the
U.S. dollar equivalent of our earnings, which in turn could adversely affect the price of our ADSs.
All of our revenues are denominated in Renminbi, while a portion of our financial assets are denominated in U.S. dollars. Very limited
hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have entered into cross currency swap contracts
with fixed exchange rate between U.S. dollar and Renminbi to help hedge our exposure to foreign currency risk. However, the amount of such hedging
transactions we entered into is small and the effectiveness of the hedges is uncertain. We may not be able to adequately hedge our exposure or at all. In
addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert Renminbi 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 Renminbi into foreign currencies and, in certain cases, the remittance of
currency out of China. We receive substantially all of our revenues in Renminbi. Under our current corporate structure, our Cayman Islands holding
company primarily relies on dividend payments from our PRC subsidiary to fund any cash and financing requirements we may have. Under existing
PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related
foreign exchange transactions, can be made in foreign currencies without prior approval of the State Administration of Foreign Exchange, or SAFE, by
complying with certain procedural requirements. Specifically, under the existing exchange restrictions, without prior approval of SAFE, cash generated
from the operations of our PRC subsidiary in China may be used to pay dividends to our company. However, approval from or registration with
appropriate government authorities is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital
expenses such as the repayment of loans denominated in foreign currencies. As a result, we need to obtain SAFE approval to use cash generated from
the operations of our PRC subsidiaries and VIEs to pay off their respective debt in a currency other than Renminbi owed to entities outside China, or to
make other capital expenditure payments outside China in a currency other than Renminbi.
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In light of the flood of capital outflows of China, the PRC government may from time to time impose more restrictive foreign exchange
policies and step up scrutiny of major outbound capital movement. More restrictions and substantial vetting process may be required by SAFE or other
government authorities to regulate cross-border transactions falling under the capital account. The PRC government may at its discretion restrict access
to foreign currencies for current account transactions in the future. If the foreign exchange control system prevents us from obtaining sufficient foreign
currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of
our ADSs.
Certain PRC regulations may make it more difficult for us to pursue growth through acquisitions.
Among other things, the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules,
adopted by six PRC regulatory agencies in 2006 and amended in 2009, established additional procedures and requirements that could make merger and
acquisition activities by foreign investors more time-consuming and complex. Such regulation requires, among other things, that the MOFCOM be
notified in advance of any change-of-control transaction in which a foreign investor acquires control of a PRC domestic enterprise or a foreign company
with substantial PRC operations, if certain thresholds under the Provisions on Thresholds for Prior Notification of Concentrations of Undertakings,
issued by the State Council in 2008 and was amended in 2018, were triggered. Moreover, the Anti-Monopoly Law promulgated by the Standing
Committee of the National People’s Congress, or NPC, which became effective in 2008 requires that transactions which are deemed concentrations and
involve parties with specified turnover thresholds must be cleared by the anti-monopoly authority before they can be completed. In addition, PRC
national security review rules which became effective in September 2011 and Measures for the Security Review of Foreign Investment which became
effective in January 2021 require acquisitions by foreign investors of PRC companies engaged in military related or certain other industries that are
crucial to national security be subject to security review before consummation of any such acquisition. We may pursue potential strategic acquisitions
that are complementary to our business and operations. Complying with the requirements of these regulations to complete such transactions could be
time-consuming, and any required approval processes, including obtaining approval or clearance from the MOFCOM and the NDRC or even anti-
monopoly authority, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our
market share.
MOFCOM approval may be required for our acquisition of certain PRC subsidiaries.
Pursuant to the M&A Rules, if an overseas company established or controlled by PRC companies or individuals, or PRC Citizens, intends
to acquire equity interests or assets of any other PRC domestic company affiliated with the PRC Citizens, such acquisition must be submitted to
MOFCOM for approval. Our WFOE acquired certain PRC subsidiaries that were wholly owned, directly or indirectly, by Yunji Sharing, in 2018. Such
acquisitions may be subject to MOFCOM approval, but were not submitted to the MOFCOM for approval. There is no definite penalty provided under
M&A Rules for failure to obtain MOFCOM approval in transactions where such approval is required. If it is determined that MOFCOM approvals are
required for the acquisitions, we may be required to revert the transactions. Nevertheless, considering that all the PRC subsidiaries involved in such
transactions were wholly owned, directly or indirectly, by Yunji Sharing, which is one of our VIEs, before the acquisitions, and the acquisition of the
PRC subsidiaries are inter-group companies transactions, we understand that the failure to obtain the MOFCOM approvals for the acquisitions of the
PRC subsidiaries will not have a material adverse effect on our financial condition and results of operations. We conducted a few other inter-group
restructuring transactions in 2019, which may also be subject to MOFCOM approval, but were not submitted to MOFCOM for approval. For example,
our WFOE acquired Shanghai Suye Cosmetics Co., Ltd, or Shanghai Suye, which was owned by an affiliated entity of Mr. Shanglue Xiao, in January
2019, and Shanghai Suye was then transferred to Yunji Preferred from our WFOE in February 2019.
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PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries’ ability to change their registered capital
or distribute profits to us or otherwise expose us or our PRC resident beneficial owners to liability and penalties under PRC laws.
In July 2014, SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore
Investment and Financing and Roundtrip Investment Through Special Purpose Vehicles, or SAFE Circular 37. SAFE Circular 37 requires PRC residents
(including PRC individuals and PRC corporate entities as well as foreign individuals that are deemed as PRC residents for foreign exchange
administration purpose) to register with SAFE or its local branches in connection with their direct or indirect offshore investment activities. SAFE
Circular 37 further requires amendment to the SAFE registrations in the event of any changes with respect to the basic information of the offshore
special purpose vehicle, such as change of a PRC individual shareholder, name and operation term, or any significant changes with respect to the
offshore special purpose vehicle, such as increase or decrease of capital contribution, share transfer or exchange, or mergers or divisions. SAFE Circular
37 is applicable to our shareholders who are PRC residents and may be applicable to any offshore acquisitions that we make in the future.
If our shareholders who are PRC residents fail to make the required registration or to update the previously filed registration, our PRC
subsidiaries may be prohibited from distributing their profits or the proceeds from any capital reduction, share transfer or liquidation to us, and we may
also be prohibited from making additional capital contributions into our PRC subsidiaries. In February 2015, SAFE promulgated a Notice on Further
Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13, effective June 2015. Under SAFE
Notice 13, applications for foreign exchange registration of inbound foreign direct investments and outbound overseas direct investments, including
those required under SAFE Circular 37, will be filed with qualified banks instead of SAFE. The qualified banks will directly examine the applications
and accept registrations under the supervision of SAFE.
All of our shareholders who we are aware of being subject to the SAFE regulations have completed the initial registrations with the local
SAFE branch or qualified banks as required by SAFE Circular 37. However, we may not be informed of the identities of all the PRC residents holding
direct or indirect interest in our company, and we cannot provide any assurance that these PRC residents will comply with our request to make or obtain
any applicable registrations or continuously comply with all requirements under SAFE Circular 37 or other related rules. The failure or inability of the
relevant shareholders to comply with the registration procedures set forth in these regulations may subject us to fines and legal sanctions, such as
restrictions on our cross-border investment activities, on the ability of our wholly foreign-owned subsidiaries in China to distribute dividends and the
proceeds from any reduction in capital, share transfer or liquidation to us. Moreover, failure to comply with the various foreign exchange registration
requirements described above could result in liability under PRC law for circumventing applicable foreign exchange restrictions. As a result, our
business operations and our ability to distribute profits to you could be materially and adversely affected.
Any failure to comply with PRC regulations regarding the registration requirements for employee stock incentive plans may subject the PRC plan
participants or us to fines and other legal or administrative sanctions.
In February 2012, SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals
Participating in Stock Incentive Plan of Overseas Publicly Listed Company, replacing earlier rules promulgated in 2007. Pursuant to these rules, PRC
citizens and non-PRC citizens who reside in China for a continuous period of not less than one year who participate in any stock incentive plan of an
overseas publicly listed company, subject to a few exceptions, are required to register with SAFE through a domestic qualified agent, which could be the
PRC subsidiaries of such overseas-listed company, and complete certain other procedures. In addition, an overseas-entrusted institution must be retained
to handle matters in connection with the exercise or sale of stock options and the purchase or sale of shares and interests. We and our executive officers
and other employees who are PRC citizens or who reside in China for a continuous period of not less than one year and who have been granted options
are subject to these regulations as our company is an overseas-listed company. Failure to complete SAFE registrations may subject them to fines of up to
RMB300,000 for entities and up to RMB50,000 for individuals, and legal sanctions and may also limit our ability to contribute additional capital into
our PRC subsidiary and limit our PRC subsidiary’s ability to distribute dividends to us. We also face regulatory uncertainties that could restrict our
ability to adopt additional incentive plans for our directors, executive officers and employees under PRC law. See “Item 4. Information on the Company
— B. Business Overview—Regulations—Regulations Relating to Labor Protection in the PRC—Employee Stock Incentive Plan.”
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In addition, the State Administration of Taxation, or SAT, has issued certain circulars concerning employee share options and restricted
shares. Under these circulars, our employees working in China who exercise share options or are granted restricted shares will be subject to PRC
individual income tax. Our PRC subsidiaries have obligations to file documents related to employee share options or restricted shares with relevant tax
authorities and to withhold individual income taxes of those employees who exercise their share options. If our employees fail to pay or we fail to
withhold their income taxes according to relevant laws and regulations, we may face sanctions imposed by the tax authorities or other PRC government
authorities. See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations Relating to Labor Protection in the PRC—
Employee Stock Incentive Plan.”
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,
and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct
our business.
We are an exempted Cayman Islands holding company and we may rely on dividends and other distributions on equity paid by our PRC
subsidiaries for our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders and
service any debt we may incur. If any of our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may
restrict their ability to pay dividends or make other distributions to us. Under PRC laws and regulations, our PRC subsidiaries, each of which is a wholly
foreign-owned enterprise, may pay dividends only out of its respective accumulated profits as determined in accordance with PRC accounting standards
and regulations. In addition, a wholly foreign-owned enterprise is required to set aside at least 10% of its after-tax profits each year, if any, to fund a
certain statutory reserve fund, until the aggregate amount of such fund reaches 50% of its registered capital. At its discretion, a wholly foreign-owned
enterprise may allocate a portion of its after-tax profits based on PRC accounting standards to a staff welfare and bonus fund. These reserve fund and
staff welfare and bonus fund cannot be distributed to us as dividends.
Our PRC subsidiaries generate primarily all of their revenue in Renminbi, which is not freely convertible into other currencies. As a result,
any restriction on currency exchange may limit the ability of our PRC subsidiaries to use their Renminbi revenues to pay dividends to us.
The PRC government may continue to strengthen its capital controls, and more restrictions and substantial vetting process may be put
forward by SAFE for cross-border transactions falling under both the current account and the capital account. Any limitation on the ability of our PRC
subsidiaries to pay dividends or make other kinds of payments to us could materially and adversely limit our ability to grow, make investments or
acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.
In addition, the Enterprise Income Tax Law and its implementation rules provide that a withholding tax rate of up to 10% will be
applicable to dividends payable by PRC companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or
arrangements between the PRC central government and governments of other countries or regions where the non-PRC-resident enterprises are
incorporated.
PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion
may delay or prevent us from using the proceeds to make loans to our PRC subsidiaries and our VIEs 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 our VIEs. We may make loans
to our PRC subsidiaries and VIEs subject to the approval from governmental authorities and limitation of amount, or we may make additional capital
contributions to our wholly foreign-owned subsidiaries in China.
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Any loans to our wholly foreign-owned subsidiaries in China, which are treated as foreign-invested enterprises under PRC law, are subject
to PRC regulations and foreign exchange loan registrations. For example, loans by us to our wholly foreign-owned subsidiaries in China to finance their
activities cannot exceed statutory limits and must be registered with the local counterpart of SAFE. In addition, a foreign invested enterprise shall use its
capital pursuant to the principle of authenticity and self-use within its business scope. The capital of a foreign invested enterprise shall not be used for
the following purposes: (i) directly or indirectly used for payment beyond the business scope of the enterprises or payment prohibited by relevant laws
and regulations; (ii) directly or indirectly used for investment in securities or investments other than banks’ principal-secured products unless otherwise
provided by relevant laws and regulations; (iii) the granting of loans to non-affiliated enterprises, except where it is expressly permitted in the business
license; and (iv) paying the expenses related to the purchase of real estate that is not for self-use (except for foreign-invested real estate enterprises).
SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming the Administration of Foreign Exchange
Settlement of Capital of Foreign-invested Enterprises, or SAFE Circular 19, effective June 2015, in replacement of the Circular on the Relevant
Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested
Enterprises, the Notice from the State Administration of Foreign Exchange on Relevant Issues Concerning Strengthening the Administration of Foreign
Exchange Businesses, and the Circular on Further Clarification and Regulation of the Issues Concerning the Administration of Certain Capital Account
Foreign Exchange Businesses. According to SAFE Circular 19, the flow and use of the RMB capital converted from foreign currency-denominated
registered capital of a foreign-invested company is regulated such that RMB capital may not be used for the issuance of RMB entrusted loans, the
repayment of inter-enterprise loans or the repayment of banks loans that have been transferred to a third party. Although SAFE Circular 19 allows RMB
capital converted from foreign currency-denominated registered capital of a foreign-invested enterprise to be used for equity investments within China,
it also reiterates the principle that RMB converted from the foreign currency-denominated capital of a foreign-invested company may not be directly or
indirectly used for purposes beyond its business scope. Thus, it is unclear whether SAFE will permit such capital to be used for equity investments in
China in actual practice. SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing the Foreign
Exchange Settlement Management Policy of Capital Account, or SAFE Circular 16, effective on June 9, 2016, which reiterates some of the rules set
forth in SAFE Circular 19, but changes the prohibition against using RMB capital converted from foreign currency-denominated registered capital of a
foreign-invested company to issue RMB entrusted loans to a prohibition against using such capital to issue loans to non-associated enterprises.
Violations of SAFE Circular 19 and SAFE Circular 16 could result in administrative penalties. SAFE Circular 19 and SAFE Circular 16 may
significantly limit our ability to transfer any foreign currency we hold, including the net proceeds, to our PRC subsidiaries, which may adversely affect
our liquidity and our ability to fund and expand our business in China.
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 timely basis, if at all, with respect to future loans to our PRC subsidiaries or VIEs or future capital contributions by us to our wholly foreign-owned
subsidiaries in China. As a result, uncertainties exist as to our ability to provide prompt financial support to our PRC subsidiaries or VIEs when needed.
If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds and to capitalize or otherwise fund our PRC operations
may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to
us and our non-PRC shareholders or ADS holders.
Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with “de facto
management body” within China is considered a “resident enterprise” and will be subject to the enterprise income tax on its global income at the rate of
25%. The implementation rules define the term “de facto management body” as the body that exercises full and substantial control and overall
management over the business, productions, personnel, accounts and properties of an enterprise. In 2009, the SAT, issued the Circular of the State
Administration of Taxation on Issues Relating to Identification of PRC-Controlled Overseas Registered Enterprises as Resident Enterprises in
Accordance With the De Facto Standards of Organizational Management, or SAT Circular 82, which provides certain specific criteria for determining
whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular only
applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the
criteria set forth in the circular may reflect SAT’s general position on how the “de facto management body” text should be applied in determining the tax
resident status of all offshore enterprises. According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC
enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China and will be subject 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-day operational
management is in China; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by
organizations or personnel in China; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder
resolutions, are located or maintained in China; and (iv) at least 50% of voting board members or senior executives habitually reside in China.
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We believe that we are not a PRC resident enterprise for PRC tax purposes. However, the tax resident status of an enterprise is subject to
determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” If the PRC
tax authorities determine that we are a PRC resident enterprise for enterprise income tax purposes, we could be subject to PRC tax at a rate of 25% on
our worldwide income, which could materially reduce our net income, and we may be required to withhold a 10% withholding tax from dividends we
pay to our shareholders that are non-resident enterprises, including the holders of our ADSs. In addition, non-resident enterprise shareholders (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, if such income is
treated as sourced from within China. Furthermore, if we are deemed a PRC resident enterprise, dividends payable to our non-PRC individual
shareholders (including our ADS holders) and any gain realized on the transfer of ADSs or Class A ordinary shares by such shareholders may be subject
to PRC tax at a rate of 10% in the case of non-PRC enterprises or a rate of 20% in the case of non-PRC individuals unless a reduced rate is available
under an applicable tax treaty. It is unclear whether non-PRC shareholders of our company would be able to claim the benefits of any tax treaties
between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce the returns on
your investment in the ADSs or Class A ordinary shares.
We face uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.
In February 2015, the SAT issued the Public Notice Regarding Certain Enterprise Income Tax Matters on Indirect Transfer of Properties
by Non-Resident Enterprises, or SAT Public Notice 7. SAT Public Notice 7 extends its tax jurisdiction to not only indirect transfers but also transactions
involving transfer of other taxable assets, through the offshore transfer of a foreign intermediate holding company. In addition, SAT Public Notice 7
provides certain criteria on how to assess reasonable commercial purposes and has introduced safe harbors for internal group restructurings and the
purchase and sale of equity through a public securities market. SAT Public Notice 7 also brings challenges to both the foreign transferor and transferee
(or other person who is obligated to pay for the transfer) of the taxable assets. Where a non-resident enterprise conducts an “indirect transfer” by
transferring the taxable assets indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise being the
transferor, or the transferee, or the PRC entity which directly owns the taxable assets may report to the relevant tax authority such indirect transfer.
Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable
commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such indirect
transfer may be subject to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold
the applicable taxes, currently at a tax rate of 10%, for the transfer of equity interests in a PRC resident enterprise. Both the transferor and the transferee
may be subject to penalties under PRC tax laws if the transferee fails to withhold the taxes and the transferor fails to pay the taxes. However, according
to the aforesaid safe harbor rule, the PRC tax would not be applicable to the transfer by any non-resident enterprise of ADSs of the Company acquired
and sold on public securities markets.
On October 17, 2017, the SAT issued the Public Notice on Issues Relating to Withholding at Source of Income Tax of Non-resident
Enterprises, or the SAT Public Notice 37, which came into effect on December 1, 2017. According to SAT Public Notice 37, where the non-resident
enterprise fails to declare its tax payable pursuant to Article 39 of the EIT Law, the tax authority may order it to pay its tax due within required time
limits, and the non-resident enterprise shall declare and pay its tax payable within such time limits specified by the tax authority. If the non-resident
enterprise voluntarily declares and pays its tax payable before the tax authority orders it to do so, it shall be deemed that such enterprise has paid its tax
payable in time.
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We face uncertainties on the reporting and consequences of future private equity financing transactions, share exchanges or other
transactions involving the transfer of shares in our company by investors that are non-PRC resident enterprises. The PRC tax authorities may pursue
such non-resident enterprises with respect to a filing or the transferees with respect to withholding obligation, and request our PRC subsidiaries to assist
in the filing. As a result, we and non-resident enterprises in such transactions may become at risk of being subject to filing obligations or being taxed
under SAT Public Notice 7 and SAT Public Notice 37, and may be required to expend valuable resources to comply with them or to establish that we
and our non-resident enterprises should not be taxed under these regulations, which may have a material adverse effect on our financial condition and
results of operations.
The custodians or authorized users of our controlling non-tangible assets, including chops and seals, may fail to fulfill their responsibilities, or
misappropriate or misuse these assets.
In China, a company chop or seal serves as the legal representation of the company towards third parties even when unaccompanied by a
signature. Each legally registered company in China is required to maintain a company chop, which must be registered with the local Public Security
Bureau. In addition to this mandatory company chop, companies may have several other chops which can be used for specific purposes.
In order to secure the use of our chops and seals, we have established internal control procedures and rules for using these chops and seals.
In any event that the chops and seals are intended to be used, the responsible personnel will submit the application through our office automation system
and the application will be verified and approved by authorized employees in accordance with our internal control procedures and rules. In addition, in
order to maintain the physical security of our chops, we generally have them stored in secured locations accessible only to authorized employees.
Although we monitor such authorized employees, the procedures may not be sufficient to prevent all instances of abuse or negligence. There is a risk
that our employees could abuse their authority, for example, by entering into a contract not approved by us or seeking to gain control of one of our
subsidiaries or our VIEs or their subsidiaries. To the extent those chops are not kept safely, are stolen or are used by unauthorized persons or for
unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised and those corporate entities may be
bound to abide by the terms of any documents so chopped, even if they were chopped by an individual who lacked the requisite power and authority to
do so. If any employee obtains, misuses or misappropriates our chops and seals or other controlling non-tangible assets for whatever reason, we could
experience disruption to our normal business operations. We may have to take corporate or legal action, which could involve significant time and
resources to resolve and divert management from our operations.
Recent litigation and negative publicity surrounding China-based companies listed in the U.S. may result in increased regulatory scrutiny of us and
negatively impact the trading price of our ADSs.
We believe that litigation and negative publicity surrounding companies with operations in China that are listed in the U.S. have negatively
impacted stock prices for such companies. Various equity-based research organizations have published reports on China-based companies after
examining, among other things, their corporate governance practices, related party transactions, sales practices and financial statements that have led to
special investigations and stock suspensions on national exchanges. Any similar scrutiny of us, regardless of its lack of merit, could result in a diversion
of management resources and energy, potential costs to defend ourselves against rumors, decreases and volatility in the ADS trading price, and increased
directors and officers insurance premiums, and could have a material adverse effect upon our business, results of operations and financial condition.
The tension in international trade and rising political tension, particularly between U.S. and China, may adversely impact our business, financial
condition, and results of operations.
Although cross-border business may not be an area of our focus, if we plan to expand our business internationally in the future, any
unfavorable government policies on international trade, such as capital controls or tariffs, may affect the demand for our products and services, impact
our competitive position, or prevent us from being able to conduct business in certain countries. If any new tariffs, legislation, or regulations are
implemented, or if existing trade agreements are renegotiated, such changes could adversely affect our business, financial condition, and results of
operations. Recently, there have been heightened tensions in international economic relations, such as the one between the United States and China. The
U.S. government has recently imposed, and has recently proposed to impose additional, new, or higher tariffs on certain products imported from China
to penalize China for what it characterizes as unfair trade practices. China has responded by imposing, and proposing to impose additional, new, or
higher tariffs on certain products imported from the United States. Following mutual retaliatory actions for months, on January 15, 2020, the United
States and China entered into the Economic and Trade Agreement Between the United States of America and the People’s Republic of China as a phase
one trade deal, effective on February 14, 2020. It remains unclear what additional actions, if any, will be taken by the U.S. or other governments with
respect to international trade, tax policy related to international commerce, or other trade matters.
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The situation is further complicated by the political tensions between the United States and China that escalated during the COVID-19
pandemic and in the wake of the PRC National People’s Congress’ decision on Hong Kong national security legislation, sanctions imposed by the U.S.
Department of Treasury on certain officials of the Hong Kong Special Administrative Region and the central government of the PRC and the executive
orders issued by U.S. President in August 2020 that prohibit certain transactions with certain China-based companies and their respective subsidiaries.
Against this backdrop, China has implemented, and may further implement, measures in response to the changing trade policies, treaties, tariffs and
sanctions and restrictions against Chinese companies initiated by the U.S. government. For example, the Ministry of Commerce of China published new
rules in January 2021 to counter restrictions imposed by foreign countries on Chinese citizens and companies. Rising trade and political tensions could
reduce levels of trade, investments, technological exchanges and other economic activities between China and other countries, which would have an
adverse effect on global economic conditions, the stability of global financial markets, and international trade policies.
Although the direct impact of the current international trade and political tension, and any escalation of such tension, on the online retail
industry in China is uncertain, the negative impact on general, economic, political and social conditions may adversely impact our business, financial
condition and results of operations.
Risks Related to Our ADSs
The trading price of our ADSs may be volatile, which could result in substantial losses to you.
Since our ADSs became listed on the Nasdaq Global Market on May 3, 2019, the trading price of our ADSs has ranged from US$1.67 to
US$6.05 per ADS in 2020. 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 of broad market and industry factors, like the performance and fluctuation in the market prices or the underperformance or
deteriorating financial results of other listed companies based in China. The securities of some of these companies have experienced significant
volatility since their initial public offerings, including, in some cases, substantial price declines in the trading prices of their securities. The trading
performances of other PRC companies’ securities after their offerings, including internet and e-commerce companies, may affect the attitudes of
investors toward PRC 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 or perceptions about inadequate corporate governance practices or fraudulent accounting,
corporate structure or matters of other PRC companies may also negatively affect the attitudes of investors towards PRC companies in general,
including us, regardless of whether we have conducted any inappropriate activities. In addition, securities markets may from time to time experience
significant price and volume fluctuations that are not related to our operating performance, such as the large decline in share prices in the United States,
China and other jurisdictions in late 2008, early 2009, the second half of 2011 and early 2020, 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, users, suppliers or third-party sellers;
announcements of studies and reports relating to the quality of our product and service offerings or those of our competitors;
changes in the economic performance or market valuations of other 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;
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•
•
•
•
•
•
•
•
•
conditions in the e-commerce market;
announcements by us or our competitors of new product and service offerings, acquisitions, strategic relationships, joint ventures,
capital raisings or capital commitments;
additions to or departures of our senior management;
public perception or negative news about our products or us;
litigation, government investigation or other legal or regulatory proceedings;
fluctuations of exchange rates between the RMB and the U.S. dollar;
release or expiry of lock-up or other transfer restrictions on our issued and outstanding shares or ADSs;
sales or perceived potential sales of additional Class A ordinary shares or ADSs; and
general economic or political conditions in China or elsewhere in the world.
Any of these factors may result in large and sudden changes in the volume and price at which our ADSs will trade.
We are named as a defendant in putative shareholder class action lawsuits in the United States, and we may be involved in more class
action lawsuits in the future. Such lawsuits could divert a significant amount of our management’s attention and other resources from our business and
operations and require us to incur significant expenses to defend the suit, which could harm our results of operations. Any such class action suit, whether
or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us,
we may be required to pay significant damages, which could have a material adverse effect on our financial condition and results of operations.
Techniques employed by short sellers may drive down the market price of our ADSs.
Short selling is the practice of selling securities that the seller does not own but rather has borrowed from a third party with the intention of
buying identical securities back at a later date to return to the lender. The short seller hopes to profit from a decline in the value of the securities between
the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less in that purchase than it received in
the sale. As it is in the short seller’s interest for the price of the security to decline, many short sellers publish, or arrange for the publication of, negative
opinions regarding the relevant issuer and its business prospects in order to create negative market momentum and generate profits for themselves after
selling a security short. These short attacks have, in the past, led to selling of shares in the market.
Public companies listed in the United States that have a substantial majority of their operations in China have been the subject of short
selling. Much of the scrutiny and negative publicity has centered on allegations of a lack of effective internal control over financial reporting resulting in
financial and accounting irregularities and mistakes, inadequate corporate governance policies or a lack of adherence thereto and, in many cases,
allegations of fraud. As a result, many of these companies are now conducting internal and external investigations into the allegations and, in the
interim, are subject to shareholder lawsuits and/or SEC enforcement actions.
We may be the subject of unfavorable allegations made by short sellers in the future. Any such allegations may be followed by periods of
instability in the market price of our common shares and ADSs and negative publicity. If and when we become the subject of any unfavorable
allegations, whether such allegations are proven to be true or untrue, we could have to expend a significant amount of resources to investigate such
allegations and/or defend ourselves. While we would strongly defend against any such short seller attacks, we may be constrained in the manner in
which we can proceed against the relevant short seller by principles of freedom of speech, applicable federal or state law or issues of commercial
confidentiality. Such a situation could be costly and time-consuming and could distract our management from growing our business. Even if such
allegations are ultimately proven to be groundless, allegations against us could severely impact our business operations and shareholders’ equity, and the
value of any investment in our ADSs could be greatly reduced or rendered worthless.
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The concentration of our share ownership among executive officers, directors, and principal shareholders and their affiliated entities will likely limit
your ability to influence corporate matters and could discourage others from pursuing any change of control transaction that holders of our
ordinary shares and ADSs may view as beneficial.
As of February 28, 2021, our executive officers, directors, and principal shareholders and their affiliated entities together beneficially own
approximately 84.9% of our total outstanding ordinary shares. As a result of the concentration of ownership, these shareholders will have considerable
influence over matters such as decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, election of directors and
other significant corporate actions. Such shareholders may take actions that are not in the best interest of us or our other shareholders. This concentration
of ownership may discourage, delay or prevent a change in control of our company, which could have the effect of depriving our other shareholders of
the opportunity to receive a premium for their shares as part of a sale of our company and may reduce the price of our ADSs. This concentrated control
will limit your ability to influence corporate matters and could discourage others from pursuing any potential merger, takeover or other change of
control transactions that holders of our ordinary shares and ADSs may view as beneficial.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, or if they adversely
change their recommendations regarding our ADSs, the market price for our ADSs and 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 or publishes inaccurate or unfavorable research about our business, the market price for our ADSs would likely decline. If one or more of these
analysts cease coverage 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 market price or trading volume for our ADSs to decline.
Our dual-class voting structure will limit your ability to influence corporate matters and could discourage others from pursuing any change of
control transactions that holders of our Class A ordinary shares and the ADSs may view as beneficial.
We have a dual-class ordinary share structure. Our authorized and issued ordinary shares consist of Class A ordinary shares and Class B
ordinary shares (with certain shares remaining undesignated, with power for our directors to designate and issue such classes of shares as they think fit).
In respect of matters requiring the votes of shareholders, holders of Class A ordinary shares and Class B ordinary shares vote together as a single class
except as may otherwise be required by law. Holders of Class A ordinary shares are entitled to one vote per share, while holders of Class B ordinary
shares are entitled to ten votes per share. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof,
while Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon any transfer of Class B ordinary shares by
a holder thereof to any person or entity that is not an affiliate of such holder, such Class B ordinary shares shall be automatically and immediately
converted into an equal number of Class A ordinary shares.
As of February 28, 2021, the chairman of our board of directors and our chief executive officer, Mr. Shanglue Xiao, beneficially own an
aggregate of 949,960,000 Class B ordinary shares, which represent 88.9% of our total voting power. Therefore, Mr. Shanglue Xiao have decisive
influence over matters requiring shareholders’ approval, including election of directors and significant corporate transactions, such as a merger or sale of
our company or our assets. This concentrated control will limit your ability to influence corporate matters and could discourage others from pursuing
any potential merger, takeover or other change of control transactions that holders of our Class A ordinary shares and the ADSs may view as beneficial.
The dual-class structure of our ordinary shares may adversely affect the trading market for the ADSs.
S&P Dow Jones and FTSE Russell have previously announced changes to their eligibility criteria for inclusion of shares of public
companies on certain indices, including the S&P 500, to exclude companies with multiple classes of shares and companies whose public shareholders
hold no more than 5% of total voting power from being added to such indices. In addition, several shareholder advisory firms have announced their
opposition to the use of multiple class structures. As a result, the dual class structure of our ordinary shares may prevent the inclusion of the ADSs
representing our Class A ordinary shares in such indices and may cause shareholder advisory firms to publish negative commentary about our corporate
governance practices or otherwise seek to cause us to change our capital structure. Any such exclusion from indices could result in a less active trading
market for the ADSs representing our Class A ordinary shares. Any actions or publications by shareholder advisory firms critical of our corporate
governance practices or capital structure could also adversely affect the value of the ADSs.
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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. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in our ADSs
as a source for any future dividend income.
Our board of directors has complete discretion as to whether to distribute dividends, subject to certain requirements of Cayman Islands
law. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our
directors. Under Cayman Islands law, a Cayman Islands company may pay a dividend out of either profit or share premium account; provided that in no
circumstances may a dividend be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of
business. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on
our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our
subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your
investment in our ADSs will likely depend entirely upon any future price appreciation of our ADSs. There is no guarantee that our ADSs will appreciate
in value or even maintain the price at which you purchased the ADSs. You may not realize a return on your investment in our ADSs and you may even
lose your entire investment in our ADSs.
The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise your right to direct how
the Class A ordinary shares represented by your ADSs are voted.
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
attend general meetings of our shareholders or to cast any votes at such meetings. As an ADS holder, you will only be able to exercise the voting rights
carried by the underlying Class A ordinary shares represented by your ADSs indirectly by giving voting instructions to the depositary in accordance with
the provisions of the deposit agreement. Under the deposit agreement, you may vote only by giving voting instructions to the depositary. Upon receipt of
your voting instructions, the depositary will try, as far as is practicable, to vote the Class A ordinary shares underlying your ADSs in accordance with
your instructions. If we ask for your instructions, then upon receipt of your voting instructions, the depositary will try to vote the underlying Class A
ordinary shares in accordance with these instructions. If we do not instruct the depositary to ask for your instructions, the depositary may still vote in
accordance with instructions you give, but it is not required to do so. You will not be able to directly exercise your right to vote with respect to the
underlying Class A ordinary shares represented by your ADSs unless you withdraw the shares, and become the registered holder of such shares prior to
the record date for the general meeting. When a general meeting is convened, you may not receive sufficient advance notice of the meeting to withdraw
the Class A ordinary shares represented by your ADSs and become the registered holder of such shares to allow you to attend the general meeting and to
vote directly with respect to any specific matter or resolution to be considered and voted upon at the general meeting. In addition, under our
memorandum and articles of association, for the purposes of determining those shareholders who are entitled to attend and vote at any general meeting,
our directors may close our register 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 may prevent you from withdrawing the Class A ordinary shares represented by 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. If we ask for your
instructions, the depositary will notify you of the upcoming vote and will arrange to deliver our voting materials to you. We have agreed to give the
depositary notice of shareholder meetings sufficiently in advance of such meetings. Nevertheless, we cannot assure you that you will receive the voting
materials in time to ensure that you can instruct the depositary to vote the underlying Class A ordinary shares represented by your ADSs. In addition, the
depositary and its agents are not responsible for failing to carry out voting instructions or for their manner of carrying out your voting instructions. This
means that you may not be able to exercise your right to direct how the Class A ordinary shares represented by your ADSs are voted and you may have
no legal remedy if the Class A ordinary shares represented by your ADSs are not voted as you requested. In addition, in your capacity as an ADS holder,
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 if you do not vote at shareholders’ meetings, which could adversely affect your interests.
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Under the deposit agreement for the ADSs, if you do not vote, the depositary will give us a discretionary proxy to vote the Class A
ordinary shares underlying your ADSs at shareholders’ meetings unless:
•
•
•
•
we have instructed the depositary that we do not wish a discretionary proxy to be given;
we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting;
a matter to be voted on at the meeting would have a material adverse impact on shareholders; or
the voting at the meeting is to be made on a show of hands.
The effect of this discretionary proxy is that you cannot prevent our Class A ordinary shares underlying your ADSs from being voted,
except under the circumstances described above. This may make it more difficult for shareholders to influence the management of our company. Holders
of our Class A ordinary 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
available to 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 the registration requirements is available. Under the deposit agreement, the depositary will not make rights available to you unless both
the rights and the underlying securities to be distributed to ADS holders are either registered under the Securities Act or exempt from registration under
the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a
registration statement to be declared effective and we may not be able to establish a necessary exemption from registration under the Securities Act.
Accordingly, you may be unable to participate 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 other deposited 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 extent that there is a distribution, the depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the
custodian receives on our Class A ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions
in proportion to the number of Class A ordinary shares your ADSs represent. However, the depositary may, at its discretion, decide that it is inequitable
or impractical to make a distribution available to any holders of ADSs. For example, the depositary may determine that it is not practicable to distribute
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 depositary may
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 time when it deems expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number of
reasons, including in connection with corporate events such as a rights offering, during which time the depositary needs to maintain an exact number of
ADS holders on its books for a specified period. The depositary may also close its books in emergencies, and on weekends and public holidays. In
addition, the depositary may refuse to deliver, transfer or register transfers of ADSs 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 any requirement of law or of any government or governmental body, or
under any provision of the deposit agreement, or for any other reason.
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Certain judgments obtained against us by our shareholders may not be enforceable.
We are an exempted company incorporated under the laws of the Cayman Islands. We conduct our operations in China and substantially
all of our assets are located 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 the assets 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 individuals in 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 are successful 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 assets or the assets of our directors and officers.
Your investment in our ADSs may be impacted if we are encouraged to issue CDRs in the future.
The PRC central government once proposed rules that would allow PRC technology companies listed outside China to list on the PRC
stock exchanges through the creation of Chinese Depositary Receipts, or CDRs. It is uncertain if and when the CDR mechanism will be finalized and
put in place due to evolving PRC government policies. Once the CDR mechanism is in place, we might consider and be encouraged to issue CDRs and
allow investors to trade our CDRs on PRC stock exchanges. However, there are uncertainties as to whether a pursuit of CDRs in China would bring
positive or negative impact on your investment in our ADSs.
Your rights to pursue claims against the depositary as a holder of ADSs are limited by the terms of the deposit agreement.
Under the deposit agreement, any action or proceeding against or involving the depositary, arising out of or based upon the deposit
agreement or the transactions contemplated thereby or by virtue of owning the ADSs may only be instituted in a state or federal court in New York, New
York, and you, as a holder of our ADSs, will have irrevocably waived any objection which you may have to the laying of venue of any such proceeding,
and irrevocably submitted to the exclusive jurisdiction of such courts in any such action or proceeding. The depositary may, in its sole discretion, require
that any dispute or difference arising from the relationship created by the deposit agreement be referred to and finally settled by an arbitration conducted
under the terms described in the deposit agreement, which may include claims arising under the federal securities laws, although the arbitration
provisions of the deposit agreement do not preclude you from pursuing claims under the U.S. federal securities laws in federal courts. No condition,
stipulation or provision of the deposit agreement or ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of
compliance with the U.S. federal securities laws and the rules and regulations promulgated thereunder. The state and federal courts sitting in New York
generally respect the contractual decision of the parties to submit their disputes to arbitration and such arbitration provisions are generally enforceable
under federal law and the laws of the State of New York, subject to certain exceptions, such as corruption, fraud or undue means. Therefore, we believe
that the arbitration provision in the deposit agreement is enforceable under federal law and the laws of the State of New York.
ADSs holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable
outcomes to the plaintiff(s) in any such action.
The deposit agreement governing the ADSs representing our Class A ordinary shares provides that, subject to the depositary’s right to
require a claim to be submitted to arbitration, the federal or state courts in the City of New York have exclusive jurisdiction to hear and determine claims
arising under the deposit agreement and in that regard, to the fullest extent permitted by law, ADS holders waive the right to a jury trial of any claim
they may have against us or the depositary arising out of or relating to our shares, the ADSs or the deposit agreement, including any claim under the
U.S. federal securities laws.
If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable
based on the facts and circumstances of that case in accordance with the applicable U.S. state and federal law. To our knowledge, the enforceability of a
contractual pre-dispute jury trial waiver in connection with claims arising under the U.S. federal securities laws has not been finally adjudicated by the
United States Supreme Court. However, we believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under
the laws of the State of New York, which govern the deposit agreement. In determining whether to enforce a contractual pre-dispute jury trial waiver
provision, courts will generally consider whether a party knowingly, intelligently and voluntarily waived the right to a jury trial. We believe that this is
the case with respect to the deposit agreement and the ADSs. It is advisable that you consult legal counsel regarding the jury waiver provision before
investing in the ADSs.
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If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters arising
under the deposit agreement or the ADSs, including claims under U.S. federal securities laws, you or such other holder or beneficial owner may not be
entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us and/or the depositary. If a
lawsuit is brought against us and/or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court,
which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have had, including
results that could be less favorable to the plaintiff(s) in any such action.
Nevertheless, if this jury trial waiver provision is not enforced, to the extent a court action proceeds, it would proceed under the terms of
the deposit agreement with a jury trial. No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any holder or
beneficial owner of ADSs or by us or the depositary of compliance with the U.S. federal securities laws and the rules and regulations promulgated
thereunder.
You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are
incorporated under Cayman Islands law.
We are an exempted company incorporated under the laws of the Cayman Islands with limited liability. Our corporate affairs are governed
by our memorandum and articles of association, the Companies Act (2021 Revision) of the Cayman Islands and the common law of the Cayman Islands.
The rights of shareholders to take action against our directors, actions by our minority shareholders and the fiduciary responsibilities of our directors to
us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is
derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of whose
courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities
of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the
United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. Some U.S. states, such as Delaware,
have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not
have standing to initiate a shareholder derivative action in a federal court of the United States.
Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate
records (other than copies of the memorandum and articles of association, the register of mortgages and charges, and any special resolutions passed by
the shareholders) or to obtain copies of lists of shareholders of these companies. Under Cayman Islands law, the names of our current directors can be
obtained from a search conducted at the Registrar of Companies. Our directors have discretion under our articles of association to determine whether or
not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our
shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to
solicit proxies from other shareholders in connection with a proxy contest.
As a result of all of the above, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by
management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the
United States.
Our memorandum and articles of association contain anti-takeover provisions that could discourage a third party from acquiring us and adversely
affect the rights of holders of our Class A ordinary shares and the ADSs.
We have conditionally adopted amended and restated memorandum and articles of association. Our new memorandum and articles of
association contain provisions to limit the ability of others to acquire control of our company or cause us to engage in change-of-control transactions.
These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by
discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction. Our board of directors has the authority,
without further action by our shareholders, to issue preferred shares in one or more series and to fix their designations, powers, preferences, privileges,
and relative participating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting
rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our Class A ordinary shares, in
the form of ADS or otherwise. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or
make removal of management more difficult. If our board of directors decides to issue preferred shares, the price of our ADSs may fall and the voting
and other rights of the holders of our Class A ordinary shares and ADSs may be materially and adversely affected.
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We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions
applicable to U.S. domestic public companies.
Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and
regulations in 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 the Exchange Act;
the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability
for insiders who profit from trades made in a short period of time; and
the selective disclosure rules by issuers of material nonpublic information under Regulation FD.
We will be required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to
publish our results on a quarterly basis as press releases, distributed pursuant to the rules and regulations of the Nasdaq Stock Market. Press releases
relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or
furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you
may not be afforded the same protections or information that would be made available to you were you investing in a U.S. domestic issuer.
As an exempted company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate
governance matters that differ significantly from Nasdaq’s corporate governance requirements; these practices may afford less protection to
shareholders than they would enjoy if we complied fully with Nasdaq’s corporate governance requirements.
As a Cayman Islands company listed on the Nasdaq Global Market, we are subject to Nasdaq’s corporate governance requirements.
However, Nasdaq rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate
governance practices in the Cayman Islands, which is our home country, may differ significantly from Nasdaq’s corporate governance requirements. For
example, neither the Companies Act of the Cayman Islands nor our memorandum and articles of association requires a majority of our directors to be
independent and we could include non-independent directors as members of our compensation committee and nominating committee, and our
independent directors would not necessarily hold regularly scheduled meetings at which only independent directors are present. We intend to rely on
home country practice to be exempted from the corporate governance requirement that we have a majority of independent directors on our board of
directors. As a result of this and other home country practice we may follow in the future, our shareholders may be afforded less protection than they
otherwise would under Nasdaq’s corporate governance requirements applicable to U.S. domestic issuers.
We are a “controlled company” within the meaning of the Nasdaq Stock Market Rules and, as a result, may rely on exemptions from certain
corporate governance requirements that provide protection to shareholders of other companies.
We are a “controlled company” as defined under the Nasdaq Stock Market Rules because Mr. Shanglue Xiao, the chairman of our board of
directors and our chief executive officer, will own more than 50% of our total voting power. For so long as we remain a controlled company under that
definition, we are permitted to elect to rely, and may rely, on certain exemptions from corporate governance rules, including an exemption from the rule
that a majority of our board of directors must be independent directors or that we have to establish a nominating committee and a compensation
committee composed entirely of independent directors. As a result, you will not have the same protection afforded to shareholders of companies that are
subject to these corporate governance requirements.
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There can be no assurance that we will not be classified as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for
any taxable year, which could subject U.S. investors in our ADSs or Class A ordinary shares to significant adverse U.S. income tax consequences.
We will be a “passive foreign investment company,” or “PFIC,” if, in any particular taxable year, either (a) 75% or more of our gross income for
such year consists of certain types of “passive” income or (b) 50% or more of the average quarterly value of our assets (as determined on the basis of
fair market value) during such year produce or are held for the production of passive income (the “asset test”). Although the law in this regard is unclear,
we intend to treat our VIE (including its subsidiaries) as being owned by us for U.S. federal income tax purposes, not only because we exercise effective
control over the operation of such entity but also because we are entitled to substantially all of its economic benefits, and, as a result, we consolidate its
results of operations in our consolidated financial statements. Assuming that we are the owner of our VIE (including its subsidiaries) for U.S. federal
income tax purposes, and based upon our current and expected income and assets, including goodwill, and the value of our ADSs, we do not believe that
we were a PFIC for the taxable year ended December 31, 2020 and we do not expect to be a PFIC for the foreseeable future.
While we do not believe that we were a PFIC for the taxable year ended December 31, 2020 and we do not expect to become a PFIC, because the
value of our assets for purposes of the asset test may be determined by reference to the market price of our ADSs, fluctuations in the market price of our
ADSs may cause us to become a PFIC for the current or subsequent taxable years. Recent fluctuations in the market price of our ADSs increased our
risk of becoming a PFIC. Because the market price of our ADSs and ordinary shares may continue to fluctuate considerably, we cannot assure you of
our PFIC status for any taxable year. The determination of whether we will be or become a PFIC will also depend, in part, on the composition of our
income and assets, which may be affected by how, and how quickly, we use our liquid assets. If we determine not to deploy significant amounts of cash
for active purposes or if it were determined that we do not own the stock of our VIE for U.S. federal income tax purposes, our risk of being a PFIC may
substantially increase. Because there are uncertainties in the application of the relevant rules and PFIC status is a factual determination made annually
after the close of each taxable year, there can be no assurance that we will not be a PFIC for the current taxable year or any future taxable year.
If we are a PFIC in any taxable year, a U.S. holder (as defined in “Item 10. Additional Information—E. Taxation—United States Federal Income
Tax Considerations”) may incur significantly increased U.S. income tax on gain recognized on the sale or other disposition of the ADSs or Class A
ordinary shares and on the receipt of distributions on the ADSs or Class A ordinary shares to the extent such gain or distribution is treated as an “excess
distribution” under the U.S. federal income tax rules, and such holder may be subject to burdensome reporting requirements. Further, if we are a PFIC
for any year during which a U.S. holder holds our ADSs or Class A ordinary shares, we generally will continue to be treated as a PFIC for all succeeding
years during which such U.S. holder holds our ADSs or Class A ordinary shares. For more information see “Item 10. Additional Information—E.
Taxation —U.S. Federal Income Tax Considerations—Passive Foreign Investment Company Considerations.”
We will incur increased costs and become subject to additional rules and regulations as a result of being a public company.
We are a public company and expect to incur significant accounting, legal and other expenses that we did not incur as a private company.
The Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC and the Nasdaq Stock Market, have detailed requirements concerning
corporate governance practices of public companies, including Section 404 of the Sarbanes-Oxley Act relating to internal controls over financial
reporting. We expect these rules and regulations applicable to public companies to increase our accounting, legal and financial compliance costs and to
make certain corporate activities more time-consuming and costly. Our management will be required to devote substantial time and attention to our
public company reporting obligations and other compliance matters. We are currently evaluating and monitoring developments with respect to these
rules and regulations, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. Our reporting and other
compliance obligations as a public company may place a strain on our management, operational and financial resources and systems for the foreseeable
future.
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We are named as a defendant in putative shareholder class action lawsuits in the United States, and we may be involved in more class
action lawsuits in the future. Such lawsuits could divert a significant amount of our management’s attention and other resources from our business and
operations, which could harm our results of operations and require us to incur significant expenses to defend the suit. Any such class action suit, whether
or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us,
we may be required to pay significant damages, which could have a material and adverse effect on our financial condition and results of operations.
ITEM 4. INFORMATION ON THE COMPANY
A.
History and Development of the Company
We commenced operations through Yunji Sharing, and launched our Yunji app in May 2015.
In November 2017, Yunji Inc. was established in the Cayman Islands as our offshore holding company to facilitate financing and offshore
listing. Shortly following its incorporation, Yunji Inc. established a wholly-owned subsidiary in Hong Kong, Yunji Holding Limited.
In February 2018, Yunji Holding Limited established a wholly-owned subsidiary in China, Yunchuang Sharing. In April 2018, we gained
control over Yunji Sharing through Yunchuang Sharing by entering into a series of contractual arrangements with Yunji Sharing and its shareholders.
The contractual arrangements with Yunji Sharing were subsequently amended and restated in December 2018.
In June 2018, Yunji Preferred, was established. In the same month, we gained control over Yunji Preferred through Yunchuang Sharing by
entering into a series of contractual arrangements with Yunji Preferred and its shareholders. The contractual arrangements with Yunji Preferred were
subsequently amended and restated in December 2018. We have migrated all of our business operations under Yunji Sharing and its subsidiaries to Yunji
Preferred and Yunchuang Sharing and their subsidiaries.
On May 3, 2019, our ADSs commenced trading on the Nasdaq Global Market under the symbol “YJ.” We raised approximately
US$109.0 million in net proceeds from the issuance of new shares from the IPO and related over-allotment option arrangement after deducting
underwriting commissions and the offering expenses payable by us.
Our principal executive offices are located at 15/F, South Building, Hipark Phase 2, Xiaoshan District, Hangzhou, People’s Republic of
China. Our telephone number at this address is +86-571-8168-8920. Our registered office in the Cayman Islands is located at the offices of Maples
Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. Our agent for service of process in the United
States is Puglisi & Associates, located at 850 Library Avenue, Suite 204, Newark, Delaware 19711. We maintain our web site at www.yunjiglobal.com.
The SEC maintains a web site at www.sec.gov that contains reports, proxy and information statements, and other information regarding
issuers that file electronically with the SEC using its EDGAR system.
See “Item 5. Operating and Financial Review and Prospects — B. Liquidity and Capital Resources — Capital Expenditures” for a
discussion of our capital expenditures.
B.
Business Overview
We operate a social e-commerce platform in China using a unique, membership-based model that leverages the power of social interaction.
We offer high-quality products at attractive prices and incentivize our members to promote our platform and share our products with their social
contacts. We empower prime emerging brands and manufacturers with deep understanding of market trends and customer behavior to produce high-
quality innovative products to better meet the demands of our members.
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Our platform has attracted a large and growing base of users, including members and non-members. These users are actively purchasing
products on our platform. The number of transacting members on our platform increased from approximately 6.1 million in 2018 to approximately
9.6 million in 2019 and further to approximately 13.3 million in 2020.
Members are the key participants on our platform and drivers of our substantial growth. Our members gain access to a dedicated app that
provides access to a curated selection of products, exclusive membership benefits and features, including discounted prices. Previously, a user had to
purchase a membership package in order to become a member and enjoy membership benefits. In order to stimulate our users’ interest in transacting on
our platform and attract more members, in 2019, we provided each non-member user with a free three-month experiential period during which time the
user had access to the full spectrum of membership benefits. After the three-month experiential period, the user could become our member if he or she
met a certain cumulative spending threshold or certain other requirements during the experiential period or if he or she purchased one of our
membership packages. Starting in January 2020, we refined our membership enrollment system by allowing any user to become a member and enjoy
membership benefits free of charge for one year by simply registering for an account on the Yunji app. If the user met a certain cumulative spending
threshold or certain other requirements during the initial one-year period, the user may extend his or her membership for an extra year. We have ceased
allowing users to become members free of charge since April 1, 2021. We currently require new users and renewing members to pay an annual
membership fee to become or continue as a member and enjoy membership benefits. In addition, current members who became members through
purchasing a membership package are now referred to as our diamond members and enjoy free lifelong membership and membership benefits. Other
current members could also become diamond members if they spend RMB398 or more by the earlier of (i) the expiration date of their current
membership and (ii) December 31, 2021.
Our members, typically middle-class consumers, are highly social and are interested in discussing and sharing their shopping experiences
and various products within their social circles. Members often refer others to become members and are rewarded for doing so. Members can also
promote products on various social platforms and are rewarded if those users purchase our products. We also provide support such as training,
technology support and customer services to make the process easier for them. As of December 31, 2020, we had accumulated 23.8 million members.
We had approximately 13.3 million transacting members on our platform in 2020.
We offer products across a large variety of categories with the aim of catering to the various daily needs of our users and their households.
We also add to our product offerings based on feedback and understanding of our members and users based on various analytics. While we offer
products from mainstream and emerging brands, we also work with manufacturers directly to produce private labels. In particular, we engage in
minority-interest equity investments in high-quality innovative brands and manufacturers, combining their unique manufacturing capabilities and supply
channels with our deep understanding of end customers through our various user analytics to develop innovative products specifically designed to meet
the demands of our members and users. In this way, we empower our manufacturer and brand partners with products improvement advices based on our
understanding of market trends and insights on customer behavior and precise marketing and customer education through our active communities,
thereby supporting our partners to achieve further growth.
To complement our existing merchandise sales business under which we acquire products from suppliers and sell them directly to
customers, we launched our marketplace business in the first quarter of 2019 whereby third-party merchants can sell products on our platform and pay
us commissions on their sales. We attract and select third-party merchants to offer high quality products at attractive prices to our users through our
marketplace business and monitor the third-party merchants’ performance and activities on our platform closely to ensure that they meet our
requirements for authentic products and high-quality logistics and customer service. In each product category in the marketplace model, we will only
select a limited number of brands, fostering a healthy competitive environment where we only select and work with the best third-party merchants to
offer our members a broad range of carefully curated high-quality products. Products offered through our marketplace business are directly sold and
fulfilled by third-party merchants. Our marketplace business allows us to further expand our product offerings, improve the shopping experience on our
platform, and attract and retain more members and users.
We are extremely focused on the quality and pricing of our products under both the merchandise sale business and the marketplace
business. We have been intentionally maintaining a balance between expanding the product category coverage to meet our users’ evolving demand and
controlling the number of SPUs in each category to ensure that we only offer curated products with high value and quality to our users. As a result, we
offered an average of 6,613, 17,660 and 17,090 SPUs on our platform on a daily basis in December 2018, December 2019 and December 2020,
respectively.
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We currently generate revenues mainly by selling products directly on our platform to users, including both members and non-members,
and earning commissions on the sales of products by third-party merchants on our platform. Total orders we fulfilled under our merchandise sales
business were 153.4 million, 166.6 million and 113.2 million in 2018, 2019 and 2020, respectively. Total orders fulfilled by third-party merchants under
the marketplace business were 34.6 million and 65.8 million in 2019 and 2020, respectively. Our total revenues were RMB13,015.2 million,
RMB11,672.0 million and RMB5,530.3 million (US$847.5 million) in 2018, 2019 and 2020, respectively. We recorded net loss of RMB56.3 million,
RMB123.8 million and RMB151.7 million (US$23.2 million) in 2018, 2019 and 2020, respectively.
Our Business Model
We operate a social e-commerce platform in China using a unique, membership-based model that leverages the power of social interaction.
We offer high-quality products at attractive prices and incentivize our members to promote our platform and share our products with their social
contacts. We operate on our platform both our merchandise sales business, under which we acquire products from suppliers and sell them directly to
customers, and our marketplace business that launched in the first quarter of 2019, under which third-party merchants can sell products on our platform
and pay us commissions on their sales.
Under our merchandise sales business, we work with a mix of mainstream brands, emerging brands and private labels to offer products
across a large variety of categories based on feedback and understanding of our members and users based on various analytics. In particular, we
empower quality manufacturers with products improvement advices based on our understanding of market trends and insights on customer behavior and
precise marketing and customer education through our active communities, thereby supporting the further growth of our manufacturing partners.
To complement our existing merchandise sales business, we launched our marketplace business in the first quarter of 2019. We attract and
select third-party merchants to offer high quality products at attractive prices to our users through our marketplace business and monitor the third-party
merchants’ performance and activities on our platform closely to ensure that they meet our requirements for authentic products and high-quality logistics
and customer service. Products offered through our marketplace business are directly sold and fulfilled by third-party merchants. Our marketplace
business allows us to further expand our product offerings, improve the shopping experience on our platform, and attract and retain more members and
users.
The decreases in total revenues in 2019 and 2020 were primarily due to decreases in revenues from sales of merchandise as we shifted
portions of our merchandise sales business to our marketplace business that we introduced in the first quarter of 2019 whereby third-party merchants can
sell products on our platform and pay us commissions on their sales. Revenues generated under the marketplace business were recognized on a net basis,
while revenues generated under our merchandise sales business were recognized on a gross basis.
Yunji Platform
We conduct our social e-commerce business primarily through our flagship Yunji app. In addition, we create visually appealing interfaces
in mini programs and HTML-5 webpages available in major social platforms in China, including WeChat, QQ, Weibo, to promote our platform and
products. Through these promotional channels, potential users can learn about our platform and visit our mobile apps.
Our members can easily share the mini programs and links to HTML-based webpages with their family, friends and other social contacts
who may be interested in buying products on our platform. The promotional interfaces visually aid the shopping experience on our platform, and enable
viral dissemination of product information on a large scale at low costs.
Yunji App
Our flagship Yunji app is used by our members and non-member users to discover, explore and purchase a wide range of high-quality
products at attractive prices and to access other membership features and benefits. We provide services to members and non-member users under the
same app so as to open up our platform and provide better user experience. To date, revenue from product sales to non-member users not resulting from
promotion made by existing members has been immaterial.
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•
•
•
One can become a member of our platform mainly by accepting invitation from existing members in the form of an invitation link or
QR code whereby the invitee can register an account on the Yunji app. Previously, the invitee can then become a member through
purchasing a membership package consisting of a set of selected products or services and access to the Yunji app containing
membership benefits and features. In order to stimulate our users’ interest in transacting on our platform and attract more members,
in 2019, we provided each non-member user with a free three-month experiential period during which time the user had access to the
full spectrum of membership benefits. After the three-month experiential period, the user could become our member if he or she met
a certain cumulative spending threshold or certain other requirements during the experiential period or if he or she purchased one of
our membership packages. Starting in January 2020, we further refined our membership enrollment system by allowing any user to
become a member and enjoy membership benefits free of charge for one year by simply registering for an account on the Yunji app.
If the user meets a certain cumulative spending threshold or certain other requirements during the initial one-year period, the user
may extend his or her membership for an extra year. We have ceased allowing users to become members free of charge since April 1,
2021. We currently require new users and renewing members to pay an annual membership fee to become or continue as a member
and enjoy membership benefits. In addition, current members who became members through purchasing a membership package are
now referred to as our diamond members and enjoy free lifelong membership and membership benefits. Other current members
could also become diamond members if they spend RMB398 or more by the earlier of (i) the expiration date of their current
membership and (ii) December 31, 2021.
The member can choose to view our product offerings on our user-friendly app interface by accessing any of our three sales formats,
i.e., flash sale (特卖), endorsements (代言) and channels (频道). See “Item 4. Information on the Company—B. Business Overview
—Our Product Offerings—Sales Formats.”
The member can click on the desired product to view detailed product description and consider whether to make the purchase. In
addition to the attractive price, the app also offers features to encourage the member to recommend his/her family, friends or other
social contacts to purchase our products. In the product listings, the member can see the amount of incentives he/she will earn if
someone purchases products via the links he/she shares through his/her social network. Our app provides the member with
ready-to-use promotional materials containing product description and reviews, which can be easily posted on social network
platforms such as WeChat, QQ and Weibo with the seamless integration of our platform with such social network platforms. The
member may also create promotional materials on his/her own and share them with other members.
•
The member can access our community feature by clicking on the “Endorsement” (代言) tab at the bottom of the app interface to see
what other members are buying and sharing. Our members write product description and reviews, upload photographs and short
video clips and host live streaming sessions to express their opinions on, share their experience with and recommend to other
members a variety of products. The live streaming sessions, in particular, help our members better understand the various features of
products offered on our platform and aid them in their product selection processes, especially for products for which there are many
options available such as apparel. From time to time, we organize campaigns featuring popular brands and products, in which
members can post product reviews and host live streaming sessions on the Yunji app. These campaigns offer an open forum for
members to share their experience with the relevant products, making it easier for members to find others with similar shopping
interest and help each other in picking out the best fit products.
Our Member Community
Our member community is driven by social connections. Users access our platform mostly through invitation and recommendation by our
existing members via their social networks both online and offline. As a result, new users come to us with established trust in their own family, friends
and neighbors, as well as shared interests and similar purchasing preferences with our existing members. Therefore, they are more likely to find our
platform credible and refer our platform and products through their social networks to other friends, neighbors and family members. We keep close
contacts with our member community to learn their changing consumption needs and preferences, which serve as crucial references to product curation
and procurement for our supply chain team.
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Members
One can become a member of our platform mainly by accepting invitation from existing members in the form of an invitation link or QR
code whereby the invitee can register an account on the Yunji app. Previously, the invitee can then become a member through purchasing a membership
package, which consists of a set of selected products or services and access to the Yunji app containing membership benefits and features. Membership
packages are offered at a fixed price, depending on the different selection of products or services included in the package. In order to stimulate our
users’ interest in transacting on our platform and attract more members, in 2019, we provided each non-member user with a free three-month
experiential period during which time the user had access to the full spectrum of membership benefits. After the three-month experiential period, the
user could become our member if he or she met a certain cumulative spending threshold or certain other requirements during the experiential period or if
he or she purchased one of our membership packages. Starting in January 2020, we further refined our membership enrollment system by allowing any
user to become a member and enjoy membership benefits free of charge for one year by simply registering for an account on the Yunji app. If the user
meets a certain cumulative spending threshold or certain other requirements during the initial one-year period, the user may extend his or her
membership for an extra year. We have ceased allowing users to become members free of charge since April 1, 2021. We currently require new users
and renewing members to pay an annual membership fee to become or continue as a member and enjoy membership benefits. In addition, current
members who became members through purchasing a membership package are now referred to as our diamond members and enjoy free lifelong
membership and membership benefits. Other current members could also become diamond members if they spend RMB398 or more by the earlier of
(i) the expiration date of their current membership and (ii) December 31, 2021. We may further refine and develop our membership enrollment and
benefits system to expand our membership base and encourage existing members to extend the length of their memberships by making purchases on our
platform. Our members enjoy more attractive prices than non-member users when purchasing products on our platform, and receive incentives for
promoting and initiating transactions of our products via their social networks and for inviting new members to our platform. We had a cumulative
number of approximately 7.4 million, 13.8 million and 23.8 million members on our platform as of December 31, 2018, 2019 and 2020, respectively.
We provide members with benefits both in the form of Yun-coins and cash incentives. Through these benefits, we attract members to our
platform and encourage and motivate our members to share product reviews and promotional materials of our products via their social networks.
Members receive units of Yun-coin, each equivalent to RMB1.00, when they join as a member, when they successfully refer a new member, and from
time to time as a form of coupon. Additionally, members enjoy exclusive discounts when purchasing products on our platform, and receive referral
incentives for products sold via the links they share through their social networks. For each transaction completed from the promotion by a member,
such member earns a certain percentage of the listed price, with the percentage being determined based on the market price and margin of the product.
Additionally, we may provide extra incentive to a member depending on the number of completed promotions or purchases made as a result of the
member’s referral. The referral incentive is allocated to the member’s account immediately following payment for the transaction, and may be used by
the member after seven days following the receipt of product by the buyer. We also provide members with a variety of tools and support to enable them
to promote our products via their social networks, including ready-to-use product promotional materials, online and offline training to facilitate product
sales, and centralized order fulfillment, product delivery and real-time customer service.
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Our members generally come from middle-class households and make purchase decisions for their respective households. The majority of
our members are female. Our members typically spend much time on social networks and take an interest in discussing trends and sharing shopping
experience and product information among their social contacts both online and offline. We offer social experience as an integral part of our member
experience. Our members not only enjoy shopping as supported by membership benefits and features on our platform, but also can become more
involved in the promotion of our products and platform and the building of our member community. Many of our members promote our products via
their social networks, and some of them become influential opinion leaders within their social networks affecting the consumption preferences of many
others. Our members also form groups and engage in interactive activities both online and offline based on their existing social network, geographic
locations and interests, which allow them to obtain relevant product information more easily, establish trust relationships amongst themselves and keep
them engaged with our platform. We facilitate member groups to provide support to members and enable further communication among members. The
grouping system helps us enhance member engagement and promote community value. In particular, we encourage members to form neighborhood-
based groups based on geographic proximity which allows for easier and more frequent organization of offline events to foster social interaction and
enhance the trust relationship amongst our members. The majority of our offline events were not intended to drive product sales or promotions, but
instead to provide our members with opportunities to learn something new, share their experience and better interact with each other. As a result, our
offline events have attained positive feedback from our members and have played a key part in the continual enhancement of member engagement and
loyalty on our platform.
Driven by social interaction, our platform has accumulated a highly active member base. We had approximately 6.1 million, 9.6 million
and 13.3 million transacting members on our platform in 2018, 2019 and 2020, respectively. In 2020, 50% of transacting members promoted products
through their social networks where such promotion resulted in order placement on our platform. In the same period, 97% of our GMV were from
purchases that our members made and we had approximately 77% repeat purchase rate from our transacting members.
Service managers
We outsource some member services to third-party service companies and they hire service managers based on the standards we provide in
our agreements with the third-party service companies. Most of service managers are also our members. Third-party service companies select service
managers based on their capability in facilitating members’ product sales and in training members, and assign them to provide services to a group of
members. The member groups operate both online on social network platforms such as WeChat, QQ and Weibo and offline through trainings and
experience-sharing gatherings hosted by our neighborhood-based groups, generating diversified forms of interactive social experiences as an integral
part of our member benefits.
Since 2019, we have started to promote the use of live streaming to better introduce our products to our members and users and promote
further social sharing. Accordingly, we have on-boarded a group of service managers with the appropriate skills to host the different streaming rooms
introducing and selling the products on our platform. Other service managers could share the live streaming rooms to members, and if a member then
completes an order through one of the streaming rooms, both the live stream host and the service manager that referred the streaming room to the
purchasing member will receive a sale commission.
Starting in the second quarter of 2020, we also began to develop professional vertical product category communities based on our insights
on the members’ interests and service managers’ capabilities. For each vertical product category, we bring in lecturers experienced in marketing and
training in such product category to provide our service managers with highly relevant training session that help to improve the quality and the
authenticity of the product-related content produced by these service managers and thus increase engagement of our members. Currently, we have
established professional vertical product category communities for food, beauty and healthcare categories and achieved high user engagement in those
communities.
As of December 31, 2020, our members were served by more than 80,000 service managers. Service managers provide training and
support to our members, including teaching members how to use our apps and platform, responding to questions from members on a daily basis, and
organizing both online and offline training courses to share their sales experience. Service managers also facilitate members’ product sales, including
monitoring and collecting member feedback on a real-time basis, designing and implementing marketing strategies for popular products in the member
group, and helping to address member queries related to our products.
Non-Member Users
Through our members’ word-of-mouth referral via their social networks both online and offline, our platform has garnered trust and
attracted a large and growing base of users. Users actively purchase products on our platform. The number of buyers in 2018, 2019 and 2020 were
approximately 23.2 million, 22.5 million and 17.4 million, respectively. Since our platform is recommended by family, friends and neighbors, users may
find us more credible and have more confidence in the quality of products offered on our platform.
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Our Product Offerings
We offer broad coverage of product categories from mainstream brands, emerging brands and private labels on our platform under the
combination of our merchandise sales business and our marketplace business with an aim of catering to the various daily needs of our users and their
households, including beauty and personal care, healthcare products, household goods, cloths, food and fresh produce, computer and electronics,
apparel, bags and cases, baby and maternity products and home appliances. Our top product categories that each contributed to more than 10% of our
GMV are (i) beauty and personal care, computer and electronics, food and fresh produce, and apparel, bags and cases in 2018, (ii) beauty and personal
care, food and fresh produce, household goods, apparel, bags and cases and online virtual services in 2019, and (iii) beauty and personal care, food and
fresh produce, apparel, bags and cases, computer and electronics and online virtual services in 2020, while each of the other product categories
contributed less than 10% of our GMV in each of 2018, 2019 and 2020. Within each product category, we offer carefully curated items meeting the
preferences of our users with attractive pricing. In December 2018, December 2019 and December 2020, we offered an average of 6,613, 17,660 and
17,090 SPUs for sale on our platform on a daily basis, respectively. In December 2019 and December 2020, products offered under our marketplace
business accounted on average for 82% and 87% of SPUs for sale on our platform on a daily basis, respectively.
Product and Supplier Selection
For our merchandise sales business, our product procurement team, consisting of 213 employees as of December 31, 2020, possess
extensive knowledge and understanding of existing and potential users’ needs and preferences, and our big data capabilities enable us to better analyze
market trends and understand customer behavior. We reflect such knowledge and understanding in product selection and when working with our
suppliers. This customer-to-manufacturer (C2M) model allows us to source products in response to evolving customer needs and preferences, and enable
us to help our suppliers, especially our manufacturing partners, provide products better designed for end customers and manage regional inventory
storage. From time to time, we are directly involved in the product design process of our manufacturing partners. We review and continually monitor the
performance of each SPU based on a few key dimension, in particular revenue contribution and margin, and suspend and replace SPUs with poor
performance each month.
We believe it is crucial for us to carefully select the suppliers with high-quality product offerings, and empower them with our
understanding of market trends and insights on customer behavior to better design products meeting customer preferences. We have adopted a set of
selection guidelines for identifying potential suppliers. Our key supplier selection criteria include manufacturing capability, reputation, sales records
among consumers similar to those in our user community, and product offerings. Once a potential supplier is identified, we conduct due diligence
reviews on its qualifications. We generally choose to work with reputable brand owners with good track records and high-quality product offerings. For
manufacturing partners producing private labels, we conduct on-site visits and examine candidates based on our selection criteria, including the relevant
qualifications and governmental permits. We also conduct detailed factory auditing on the supplier’s manufacturing capability and production process to
control product quality.
We follow similar selection guidelines for identifying potential third-party merchants. We conduct careful diligence and select third-party
merchants in our marketplace business in terms of scale, reputation and brand recognition, sales records among consumers similar to those in our user
community, logistics and customer service capabilities, and product offerings to ensure that the merchants are able to offer high quality products at
competitive prices, possess in-depth knowledge of the current trends in their particular product categories and have the operation flexibility and logistics
and customer service efficiency to meet our members’ demands. Furthermore, in each product category in the marketplace model, we will only select a
limited number of brands in each category and we will replace the underperformers on a quarterly basis with newly curated brands in our marketplace
model. In this way, we are committed to selecting and working with only the best third-party merchants, fostering a healthy competitive environment
where the merchants can establish deep collaborations with us in our marketplace business to offer our members a broad range of carefully curated high-
quality products at attractive prices.
Sales Formats
We offer products in three sales formats—flash sale, endorsements and channels—through each of which users could view our product
offerings.
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Flash sale (特卖). We organize flash sale events every day to sell a finite quantity of discounted products for a limited period of time
beginning at 9:00 a.m. (Beijing time) each day. To foster user interest, we periodically analyze historical data, seasonality and user feedback to
determine the types of products we should offer for different hours and days. In addition, we carefully adjust our product mix to achieve a balanced and
complementary product offering across different product categories so as to maximize sales.
Endorsements (代言). We provide our members with community features to see what other members are buying and sharing, including
product reviews, photos and short videos. In 2019 we introduced the live streaming function where members can host live video broadcasts to express
their opinions on, share their experience with and promote to other members products on our platform. During the live streaming session, as the host
member is sharing his/her experience and interacting with other users viewing the session, direct links to the products being discussed are displayed on
the screen to facilitate convenient purchasing of the products. Similar to product referrals made by members via their social networks, the live streaming
hosts receive referral incentives for products sold via their live broadcasts.
Channels (频道). We organize all of our product offerings on our Yunji app based on product characteristics such as category, functionality
and brand into different channels on our Yunji app to facilitate easy browsing by our users. Specifically, we operate category-based channels such as
food, beauty and personal care, apparel and overseas products.
Pricing
We strive to offer attractive pricing for all the products offered on our platform. We make continual efforts to maintain and improve an
efficient cost structure and create incentives for our suppliers and our third-party merchants to provide us with competitive prices. For the products with
recognized brand names, we set our prices to be competitive with those on other major e-commerce platforms in China. We typically negotiate with our
suppliers and our third-party merchants for discounted prices based on our large sales volume and other value propositions. For the products we offer
with private labels, we set our prices to be not only appealing to the users but also satisfactory to us in terms of margin contribution. For these products,
we typically have more discretion in setting the retail price and more leverage in negotiating with our manufacturing partners.
We also offer a selection of discounted products on special occasions, such as the anniversary of the founding of our company on May 16
and China’s new online shopping festival on November 11, and on important holidays. We also hold daily promotions through flash sale events for
selected products for a limited period of time. Special promotions attract bargain hunters and give our users an additional incentive to visit our platform
regularly.
Quality Control
We have a dedicated team and stringent quality assurance and control procedures to ensure product quality and prevent counterfeit
products. We carefully scrutinize the products before listing them on our platform. We diligently examine the product sourcing channel and qualification
of our suppliers and our third-party merchants, carefully inspect products delivered to the warehouses, and reject or return products that do not meet our
quality standards or the purchase order specifications. We also reject any products with broken or otherwise compromised packaging. In addition, we
inspect all products before shipment to our users and conduct random periodic quality checks on our inventory. For products sold by third-party
merchants whose order fulfillment is handled by the third-party merchants themselves and are not processed by our logistics centers, we carefully
scrutinize the product sourcing channels of the third-party merchants and impose penalties, typically in amounts equal to several times the value of the
relevant products, for any quality non-compliance that we discover through customer feedback.
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Our Suppliers and Third-Party Merchants
Seeking to offer a balanced mix of products of mainstream brands, emerging brands and private labels on our platform, we provide values
to a variety of suppliers and third-party merchants. We help owners of mainstream brands expand their business in China or certain specific regions in
China cost effectively. We often cooperate with third-party mainstream brands to help launch and market their new products on our platform, providing
feedback on the new products based on various user analytics and effectively introducing the new products to our members and users through our active
social communities. We also support owners of emerging brands in reaching a wider customer base and gaining better recognition and reputation. We
are particularly focused on establishing partnerships with top emerging brands that produce quality products in different industries in order to generate
more high quality Yunji exclusive products that appeal to our customers and accelerate our supply chain differentiation. When forming such
partnerships, we are focused on selecting emerging brands that sell different categories of fast-moving consumer goods with high turnover, repurchase
rates and gross profit margins and that have annual sales in excess of RMB100 million, such as those in the healthcare and cosmetics industries. For
example, in 2020, we partnered with a top healthcare emerging brand to develop an exclusive weight loss dietary supplement which achieved over
600 million in sales through the effective promotion by our service managers on our platform. When collaborating with the emerging brands to develop
new products, we also employ user feedback to improve product features and strive to roll out new versions of products regularly to keep up with users’
evolving tastes.
In addition, we engage in minority-interest equity investments in high-quality manufacturers and innovative brands, combining their
unique manufacturing capabilities and supply channels with our deep understanding of end customers through our various user analytics to develop
innovative products specifically designed to meet the demands of our members and users, such as Yunji exclusive products. In addition to financial
support, we also help to channel traffic to the products produced by such joint venture brands to help our members and users gain easy access to these
quality products while also promoting the growth of such brands. In this way, we empower our manufacturer and brand partners with products
improvement advices based on our understanding of market trends and insights on customer behavior and precise marketing and customer education
through our active communities, thereby supporting our partners to achieve further growth. Our suppliers and third-party merchants included merchants
of mainstream brands and emerging brands and manufacturing partners we cooperate with. Our private labels include Solo Life ( 素野), Yuan Sheng
Huang, Unibeauty and P&S, among others. As our private labels continue to grow and expand, some of their products are also now offered and sold on
other third-party online platforms such as Tmall and Douyin.
Starting in 2019, we have been particularly focused on developing our crafted sale cooperation with suppliers, in which we collaborate
with leading global manufacturers to incubate products and brands distinguishable with the following characteristics: high quality, attractive design,
compelling value and high throughput. Through the crafted sales cooperation with suppliers, we are able to cultivate brands with individual “super
products” capable of generating millions or even billions of RMB in sales, increase incomes for our service managers, provide more value to our
members, and improve the profitability of our platform. For example, through our crafted sales cooperation with suppliers, we have empowered multiple
brands in the fruit category in 2019 to achieve million-dollar sales volume on a per-day and per-SKU basis.
We generally enter into framework supply agreements with suppliers and third-party merchants annually based on our standard form. We
constantly communicate with our suppliers to keep them informed of any changes to the inventory levels of their products in order for them to timely
respond to our sales demands. With the exception of third-party merchants outside of China for whom we handle the logistics and delivery process
within China, substantially all of the third-party merchants under the marketplace business take responsibility for the procurement, storage and
management of their own inventory. Before hosting a major sales event, we provide advance notice to our suppliers and third-party merchants so that
they can prepare ample stock to meet a potential surge in demand and increased purchases. Our standard form agreement requires suppliers and third-
party merchants to represent that their goods are authentic and from lawful sources and do not infringe upon the intellectual property rights or other
lawful rights of third parties and to pay us liquidated damages for any breach.
Fulfillment and Customer Service
We deliver a compelling customer experience by fulfilling orders quickly and accurately. We provide centralized and comprehensive
fulfillment and customer service to users regardless of whether they purchase products on our apps directly or through the introduction of our members.
Our fulfillment infrastructure for the prompt receipt, storage and shipment of products is primarily comprised of a nationwide warehouse and delivery
network, which we operate mainly through collaboration with contracted third-party logistics service providers. We fulfilled approximately
153.4 million, 166.6 million and 113.2 million orders in 2018, 2019 and 2020, respectively, under our merchandise sales business.
Products offered through our marketplace business are directly sold and fulfilled by third-party merchants, who take responsibility for the
entire fulfillment and customer service process. We closely monitor the speed and service quality of the third-party merchants through customer surveys
and feedbacks from our members to ensure member satisfaction.
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Fulfillment Process
Our products are strategically stored at warehouses we use and the suppliers’ warehouses. The volume of products to be stored at the
warehouses and the choice of warehouse to be placed are determined based on customer demand. When a user places an order and makes payment, our
warehouse management system automatically processes the order and assigns it to the warehouse or warehouses with the appropriate inventory. The
third-party logistics service provider that we have hired in the region picks up the order at the warehouse to make the delivery. Once the order has
shipped, our warehouse management system automatically updates the inventory level for each product in the order, ensuring that additional inventory
will be ordered as needed. For some of our products that are not stored at the warehouses, such as fresh produce or home appliances, the third-party
logistics service providers will pick up the order from the facilities of the respective suppliers to make the delivery. To further enhance inventory
accountability and security, we track our inventory at all stages of the receiving and order fulfillment process. Our users can track the shipping status of
their orders through our platform at each step of the process.
Payment
We provide our users with a number of payment options, including credit or debit cards or e-wallets. We cooperate with major third-party
online payment platforms such as Alipay, WeChat Pay, JD Pay and UnionPay to provide these options.
Warehouses
We strategically select the locations for warehouse facilities and choose the type of warehouse facilities at these locations based on the
density of orders we expect to be fulfilled. As of December 31, 2020, warehouse facilities in our fulfillment network included three central warehouses,
14 regional warehouses, with an aggregate gross floor area of approximately 107,800 square meters in 11 cities. As third-party merchants under our
marketplace business handle the fulfillment logistics for the products sold on our platform themselves, demand for expansion of our fulfillment
infrastructure has assuaged. We have started and will continue integrating and consolidating our warehouse facilities to enhance the efficiency in
fulfilling orders placed from all areas in China under our merchandise sales business.
We cooperate with third-party vendors to operate our warehouse facilities. As of December 31, 2020, all of the 17 warehouses we use were
operated by third-party vendors. We establish our operating standards under our operating agreements with third-party vendors and typically renew these
agreements on an annual basis.
At each warehouse location, inventory is bar-coded and tracked through our warehouse management system, allowing real-time
monitoring of inventory levels across our fulfillment network and item tracking at each warehouse location. We repackage all products to our
standardized boxes for optimized storage at the warehouses. Our warehouse management system is specifically designed to support the frequent curated
sales events on our platform and the large volume of inventory turnover.
Delivery
We deliver products to users across China through collaboration with third-party logistics service providers. The warehouses have a
dispatch system to more effectively manage the pick-up and delivery services by third-party logistics service providers. We closely monitor the speed
and service quality of the third-party logistics service providers through our internal tracking system as well as customer surveys and feedbacks to
ensure customer satisfaction.
To ensure timely delivery of our products, third-party logistics service providers are bound by the terms of cooperation agreements with us
to deliver the products within the stipulated timeframe that we had promised to our users at the time of purchase. We leverage our large-scale operations
and reputation to obtain favorable contractual terms from third-party logistics service providers. To reduce the risk of reliance on any single logistics
service provider and to ensure timely delivery at all times, we maintain close working relationships with several leading third-party logistics service
providers in China and typically contract with two or more local delivery companies in each major city or region. We typically negotiate and enter into
agreements on an annual basis.
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Customer Service
Providing superior customer service is our high priority. Our commitment to users is reflected in the high service levels provided by our
customer service staff as well as in our product return policy.
Customer service center. We have a customer service center in Hefei, Anhui to provide real-time assistance to our users. Users can
communicate with online representatives through our mobile apps. We train our customer service representatives to answer user inquiries and
proactively educate potential users about our products and promptly resolve customer complaints. We typically enter into service agreements on an
annual basis with third-party BPO companies to provide customer service. As of December 31, 2020, 57.0% of our customer service representatives
were outsourced from third-party BPO companies and 43.0% were our employees.
Product returns. We generally allow users to return unused goods within seven days, counting from the date when the user receives the
product. Once a user submits a return application request on our mobile app, our customer service representative will review and process the request or
contact the user through our mobile app or by phone if there are any questions relating to the request. Upon receipt of the returned product, we credit the
user’s payment account with the purchase price. The same policies apply to products sold through our marketplace business. We believe our product
return policy helps build user trust and increase user loyalty.
Technology
Our smooth operation and rapid growth are supported by our technological capabilities. Our technology team, coupled with our proprietary
technology and infrastructure and the large volume of data generated and collected on our platform, have created opportunities for continuous
improvements in our technology capabilities. The key components of our technology include big data analytics and artificial intelligence (AI), which are
also the focus of our research and development efforts.
Big Data and Artificial Intelligence
We are able to obtain feedback timely from users on our platform, and gain access to a large volume of transaction and user behavioral
data. We develop and leverage big data analytics to enhance the accuracy of user behavior predictions and user profiling, optimize targeted marketing
and platform operations, and deliver best-in-class user experience. We utilize AI and machine learning technologies to conduct modeling exercises and
data mining in order to gain actionable and effective insights from the data. For example, we not only look into the basic order information but also user
behavioral data, and then build predictive and statistical models based on the data we have accumulated. Our big data capabilities enable us to better
analyze market trends and understand customer behavior, and we reflect such understanding in SPU selection and when working with our suppliers and
third-party merchants. This customer-to-manufacturer (C2M) model allows us to source products in response to evolving customer needs and
preferences, and enable us to help our suppliers and third-party merchants, especially our manufacturing partners, provide products better designed for
end customers and manage regional inventory storage.
With access to a massive amount of data, we believe we are in a strong position to capitalize on the use of AI and machine learning
technologies in the new e-commerce arena. To date, we have applied various AI and machine learning technologies on our platform in multiple areas,
such as personalization of product recommendation, intelligent inventory management, automated risk assessment, automated fulfillment process, and
automated question answering. We will continue to explore the application of the big data and AI technologies on our platform and use them in more
areas such as intelligent customer services to enhance user experience.
Technology Infrastructure
We build our technology infrastructure to support our business in a cost-effective manner. We have built a reliable and smart network
infrastructure to ensure high availability and a low risk of downtime. We currently utilize third-party clouds in China to host our network infrastructure,
renting public servers and bandwidth.
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We focus on maintaining and enhancing the reliability, stability and scalability of our service-oriented technology infrastructure. Our
technology infrastructure enables us to accurately process and fulfill increasingly large numbers of orders at peak periods while maintaining processing
speed and quality consistency, as well as powering full supply chain visibility and control. For example, we have adopted a micro-service architecture
that is built on top of our technology infrastructure to support horizontal scaling at all times. We have also designed a complex transaction processing
system and supply chain management system which can support the continued growth in our business.
Our Technology Team
We invest significant resources in research and development to improve our technology and develop solutions supporting our platform
operations. We incurred RMB143.6 million, RMB315.2 million and RMB202.8 million (US$31.1 million) of technology and content expenses in 2018,
2019 and 2020, respectively.
Our technology team primarily consists of four groups. We have a team of engineers who focus on the development and implementation of
new functions or features of our transaction and supply chain management systems. We have a team of research and development personnel who focus
on technology development and providing user support services. A team of data scientists who leverage big data analytics to support our business
decision making. We also have a team of IT personnel who provide internal system maintenance and system operations and development. As of
December 31, 2020, our technology team had a total of 333 personnel.
Data Privacy and Security
We are committed to protecting our users’ personal information and privacy. We have established and implemented a strict platform-wide
policy on data collection, processing and usage. We collect personal information and other data that is related to the services we provide and use the
collected data for our platform operations, all with users’ consent.
To ensure the confidentiality and integrity of our data, we maintain a comprehensive and rigorous data security program. We anonymize
and encrypt confidential personal information and take other technological measures to ensure the secure processing, transmission and usage of data. We
have also established stringent internal protocols under which we grant classified access to confidential personal data only to limited employees with
strictly defined and layered access authority.
We back-up our user and other forms of data on a daily basis in separate and various secured data back-up systems to minimize the risk of
data loss. We also conduct frequent reviews of our back-up systems to ensure that they function properly and are well maintained. Our back-end security
system is capable of handling malicious attacks each day to safeguard the security of our platform and to protect the privacy of our users.
See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Our business generates and processes a
large amount of data, and we are required to comply with PRC laws relating to data privacy and security. The improper use or disclosure of data could
have a material and adverse effect on our business and prospects” and “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and
Industry—Failure to protect confidential information of our users and network against security breaches could damage our reputation and brand and
substantially harm our business and results of operations.”
Intellectual Property
We regard our trademarks, copyrights, patents, domain names, know-how, proprietary technologies, and similar intellectual property as
critical to our success, and we rely on trademark, copyright and patent law and confidentiality, invention assignment and non-compete agreements with
our employees and others to protect our proprietary rights. As of December 31, 2020, we owned 61 computer software copyrights in China relating to
various aspects of our operations and maintained 757 trademark registrations inside China and 23 trademark registrations outside China. As of
December 31, 2020, we had 968 trademark applications inside China and 33 outside China. As of December 31, 2020, we had 16 patent applications
pending in China. As of December 31, 2020, we had registered 41 domain names, including www.yunjiglobal.com, among others.
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Marketing
We have been able to build a large base of loyal users through, among other means, word-of-mouth referrals via users’ social networks and
organization of offline interactive events, which we intend to utilize to further grow our user base and increase member stickiness. Our ability to do so
depends on whether we can continue to provide superior user experience and promote and enhance our community value. To enhance our brand
awareness, we also have engaged in offline marketing and brand promotion activities. For example, we host offline promotion campaigns for the
shopping festival on November 11 each year in major cities in China.
We maintain official accounts on various social networking and live streaming platforms in China to continuously engage and
communicate with our members and to promote awareness of our brand. We utilize diverse content formats for our online marketing, such as short-form
video and live streaming, which enables us to better present and promote our products sourced from our quality supply chain, especially our private
label products and products developed through our collaboration with emerging brands. We also engage passionate members and service managers as
well as KOLs to host live streaming sessions to promote our products on various live streaming platforms. In particular, we have established online store
and video account on Douyin’s e-commerce business and will utilize the live streaming platform to introduce and promote more quality products
sourced from our supply chain to a broader range of consumers. In addition, we also organize product category-specific educational live streaming
sessions through our official accounts to help consumers gain general knowledge that will help them make well-informed consumption decisions.
Competition
The e-commerce industry in China is intensely competitive. Our competitors include all major e-commerce companies in China, and other
internet companies in China that engage in social e-commerce businesses.
We anticipate that the e-commerce industry 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 compete primarily on the basis of the following factors: (i) differentiated, reliable and flexible supply chain with
customer-to-manufacturer (C2M) capability and strong manufacturing partner network, (ii) our ability to attract, cultivate and retain a large number of
service managers who are highly effective in and passionate about fostering our close-knit community and promoting our products, (iii) our ability to
attract and retain a large number of members and other users and establish strong community bonding and maintain member loyalty through social
interaction effectively, (iv) our full-serviced platform that enables users to buy products easily, and (v) advanced technology infrastructure.
We believe that we are well-positioned to effectively compete on the basis of the factors listed above. However, some of our current or
future competitors may have longer operating histories, greater brand recognition, better supplier relationships, larger user base or greater financial,
technical or marketing resources than we do, and they may also adopt membership-based or social network-driven e-commerce models or other similar
models on their platforms.
Seasonality
We experience seasonality in our business, reflecting a combination of seasonal fluctuations in internet usage and traditional retail
seasonality patterns. For example, we generally experience less user traffic and purchase orders during the Chinese New Year holiday season in the first
quarter of each year. Furthermore, sales are significantly higher in the fourth quarter of each calendar year than in the preceding three quarters.
E-commerce companies in China hold special promotional campaigns on November 11 each year that boost sales in the fourth quarter relative to other
quarters, and we hold a special promotional campaign in the second quarter of each year, on May 16, to celebrate the anniversary of the founding of our
platform. All other components of our operating cost and expenses generally continued to increase as we grew our business and expanded our user base.
Overall, the historical seasonality of our business has been relatively mild due to our rapid growth but may increase further in the future. Due to our
limited operating history, the seasonal trends that we have experienced in the past may not apply to, or be indicative of, our future operating results.
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Insurance
We maintain various insurance policies to safeguard against risks and unexpected events. We have purchased food safety insurance for our
products. In addition to providing social security insurance for our employees as required by PRC law, we also provide supplemental commercial
medical insurance, which covers life insurance, for our employees upon request. We do not maintain business interruption insurance, nor do we maintain
product liability insurance or standalone key-man life insurance.
Regulations
This section sets forth a summary of the most significant rules and regulations that affect our business and operations in China.
Regulations Relating to Foreign Investment
Guidance Catalogue of Industries for Foreign Investment
Investment activities in the PRC by foreign investors are principally governed by the Guidance Catalogue of Industries for Foreign
Investment, or the Guidance Catalog, which was promulgated and is amended from time to time by the Ministry of Commerce, or MOFCOM, and the
National Development and Reform Commission, or NDRC. The Guidance Catalog lays out the basic framework for foreign investment in China,
classifying businesses into three categories with regard to foreign investment: “encourage,” “restricted” and “prohibited.” Industries not listed in the
catalog are generally deemed as falling into a fourth category “permitted” unless specifically restricted by other PRC laws. In addition, in June 2019 the
MOFCOM and the NDRC promulgated the Special Management Measures (Negative List) for the Access of Foreign Investment, or the 2019 Negative
List, which became effective on July, 2019 to amend the Guidance Catalog. In June 2020, the MOFCOM and the NDRC jointly promulgated the Special
Management Measures (Negative List) (2020), or the 2020 Negative List, which became effective and replaced the 2019 Negative List in July 2020. In
June 2019, MOFCOM and the NDRC also jointly promulgated the Encouraged Foreign Investment Industry Catalog (2019), or the 2019 Encouraged
List, which became effective and replaced the “encouraged” category under the Guidance Catalog. In December 2020, MOFCOM and the NDRC also
jointly promulgated the Encouraged Foreign Investment Industry Catalog (2020), or the 2020 Encouraged List, which became effective and replaced the
2019 Encouraged List. Industries that are not listed in either the 2020 Negative List or the 2020 Encourage List are permitted areas for foreign
investments, and are generally open to foreign investment unless specifically restricted by other PRC regulations. Some restricted industries are limited
to equity or contractual joint ventures, while in some cases Chinese partners are required to hold the majority interests in such joint ventures. In addition,
restricted category projects may be subject to higher-level government approvals. Foreign investors are not allowed to invest in industries in the
prohibited category. Foreign investment in value-added telecommunications services (except for e-commerce) falls within the 2020 Negative List and
the percentage of foreign ownership cannot exceed 50%. As a result, foreign investors can only conduct investment activities through equity or
contractual joint ventures with certain shareholding requirements and approvals from competent authorities. PRC partners are required to hold the
majority interests in the joint ventures and the joint ventures are required to obtain approval from MOFCOM and MIIT for their incorporation and
business operations.
In order to coincide with the implementation of the Foreign Investment Law and the Implementing Regulations of the Foreign Investment
Law, the MOFCOM and the SAMR promulgated the Measures for Reporting of Information on Foreign Investment on December 30, 2019, effective
from January 1, 2020, which provides that foreign investors or foreign-invested enterprises, or the FIEs, shall submit investment information by
submitting initial reports, change reports, deregistration reports, and annual reports through an enterprise registration system and a national enterprise
credit information publicity system. Announcement of the Ministry of Commerce [2019] No.62—Announcement on Matters Concerning the Reporting
of Information on Foreign Investment promulgated by MOFCOM on December 31, 2019 and Circular of the State Administration for Market
Regulation on Effective Work on Registration of Foreign-invested Enterprises for the Implementation of the Foreign Investment Law promulgated by
SMAR on December 28, 2019 further refine the related rules.
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Pursuant to the Provisions on Administration of Foreign-Invested Telecommunications Enterprises promulgated by the State Council in
December 2001 and most recently amended in February 2016, or the FITE Regulations, the ultimate foreign equity ownership in a value-added
telecommunications services provider may not exceed 50%. Moreover, for a foreign investor to acquire any equity interest in a value-added
telecommunication business in China, it must satisfy a number of stringent performance and operational experience requirements, including
demonstrating good track records and experience in operating value-added telecommunication business overseas. Foreign investors that meet these
requirements must obtain approvals from the Ministry of Industry and Information Technology, or MIIT, and MOFCOM or their authorized local
counterparts, which retain considerable discretion in granting approvals. MIIT issued the Circular on Strengthening the Administration of Foreign
Investment in and Operation of Value-added Telecommunications Business, or the MIIT Circular, in July 2006. The MIIT Circular reiterated the
regulations on foreign investment in telecommunications businesses, which require foreign investors to set up foreign invested enterprises and obtain
telecommunications business operating licenses to conduct any value-added telecommunications business in China. Under the MIIT Circular, a domestic
company that holds a telecommunications business operating licenses 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, to foreign investors that conduct value-added
telecommunications business illegally in China.
Pursuant to publicly available information, the PRC government has issued telecommunications business operating licenses to only a
limited number of FIEs, most of which are Sino-foreign joint ventures engaging in the value-added telecommunication business. In June 2015, MIIT
issued the Circular on Removing the Restrictions on Equity Ratio Held by Foreign Investors in Online Data Processing and Transaction Processing
(Operating E-Commerce) Business to amend the relevant provisions in the FITE Regulations, allowing foreign investors to own more than 50% of
equity interest in an operator that “conducts e-commerce” business. However, other requirements provided by the Foreign Investment
Telecommunications Rules (such as the track record and experience requirement for a major foreign investor) still apply, and foreign investors are still
prohibited from holding more than 50% of equity interest in a provider of other subcategories of value-added telecommunications services.
To comply with PRC laws and regulations, we rely on contractual arrangements with our VIE to operate our e-commerce business in
China. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—We rely on contractual arrangements with our VIEs
and their respective shareholders for a large portion of our business operations, which may not be as effective as direct ownership in providing
operational control.”
Foreign Investment Law
On March 15, 2019, the National People’s Congress approved the Foreign Investment Law, which took effect on January 1, 2020 and
replaced three existing laws on foreign investments in China, namely, the PRC Equity Joint Venture Law, the PRC Cooperative Joint Venture Law and
the Wholly Foreign-owned Enterprise Law, together with their implementation rules and ancillary regulations. On December 26, 2019, the State Council
promulgated the Implementation Rules of Foreign Investment Law and the Supreme People’s Court issued the Interpretations on Certain Issues
Regarding the Application of Foreign Investment Law, both of which took effect on January 1, 2020. The Foreign Investment Law embodies an
expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative
efforts to unify the corporate legal requirements for both foreign and domestic invested enterprises in China. The Foreign Investment Law establishes
the basic framework for the access to, and the promotion, protection and administration of foreign investments in view of investment protection and fair
competition.
According to the Foreign Investment Law, “foreign investment” refer to investment activities directly or indirectly conducted by one or
more natural persons, business entities, or otherwise organizations of a foreign country (collectively referred to as “foreign investor”) within China, and
the investment activities include the following situations: (i) a foreign investor, individually or collectively with other investors, establishes a foreign-
invested enterprise within China; (ii) a foreign investor acquires stock shares, equity shares, shares in assets, or other like rights and interests of an
enterprise within China; (iii) a foreign investor, individually or collectively with other investors, invests in a new project within China; and
(iv) investments in other means as provided by laws, administrative regulations, or the State Council.
According to the Foreign Investment Law, the State Council will publish or approve to publish a catalogue for special administrative
measures, or the “negative list.” The Foreign Investment Law grants national treatment to foreign invested entities, except for those foreign invested
entities that operate in industries deemed to be either “restricted” or “prohibited” in the “negative list.” Because the “negative list” has yet to be
published, it is unclear whether it will differ from the current Special Administrative Measures for Market Access of Foreign Investment (Negative List).
The Foreign Investment Law provides that foreign invested entities operating in foreign restricted or prohibited industries will require market entry
clearance and other approvals from relevant PRC governmental authorities.
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Furthermore, the Foreign Investment Law provides that foreign invested enterprises established according to the existing laws regulating
foreign investment may maintain their structure and corporate governance within five years after the implementing of the Foreign Investment Law.
In addition, the Foreign Investment Law also provides several protective rules and principles for foreign investors and their investments in
the PRC, including, among others, that local governments shall abide by their commitments to the foreign investors; foreign-invested enterprises are
allowed to issue stocks and corporate bonds; except for special circumstances, in which case statutory procedures shall be followed and fair and
reasonable compensation shall be made in a timely manner, expropriation or requisition of the investment of foreign investors is prohibited; mandatory
technology transfer is prohibited; and the capital contributions, profits, capital gains, proceeds out of asset disposal, licensing fees of intellectual
property rights, indemnity or compensation legally obtained, or proceeds received upon settlement by foreign investors within China, may be freely
remitted inward and outward in RMB or a foreign currency. Also, foreign investors or the foreign investment enterprise should be imposed legal
liabilities for failing to report investment information in accordance with the requirements.
Licenses, Permits and Filings
The PRC government extensively regulates the telecommunications industry, including the internet sector. The State Council, MIIT,
MOFCOM, SAMR, the former State Administration of Press, Publication, Radio, Film and Television (which has been replaced by the NRTA), and
other relevant government authorities have promulgated an extensive regulatory scheme governing telecommunications, on-line sales and e-commerce.
New laws and regulations may be adopted from time to time that will require us to obtain additional licenses and permits in addition to those that we
currently have, and will require us to address new issues that arise from time to time. In addition, substantial uncertainties exist regarding the
interpretation and implementation of current and any future PRC laws and regulations applicable to the telecommunications, on-line sales and
e-commerce.
We are required to hold certain licenses and permits and to make certain filings with the relevant PRC governmental authorities in
connection with various aspects of our business, including the following:
Value-Added Telecommunication Business Operating Licenses
The PRC Telecommunications Regulations, or the Telecom Regulations, which were issued by the State Council in 2000 and were most
recently amended in February 2016 are the primary governing law on telecommunication services. The Telecom Regulations set out the general
framework for the provision of telecommunication services by PRC entities. Under the Telecom Regulations, telecommunications service providers are
required to procure operating licenses prior to their commencement of operations. The Telecom Regulations draw a distinction between “basic
telecommunications services” and “value-added telecommunications services.” A “Catalog of Telecommunications Business” was issued as an
attachment to the Telecom Regulations to categorize telecommunications services as basic or value-added. In December 2015, MIIT released the
Catalog of Telecommunication Business (2015 Revision), or the 2015 Telecom Catalog, implemented in March 2016. Under the 2015 Telecom Catalog,
both the online data processing and transaction processing business (i.e., operating e-commerce business) and information service business, continue to
be categorized as value-added telecommunication services.
In March 2009, MIIT issued the Administrative Measures for Telecommunications Business Operating Permit, or the Telecom Permit
Measures, which was implemented in 2009 and most recently amended in 2017. Pursuant to the Telecom Permit Measures, the operation scope of the
value-added telecommunication business operating license, or VATS license, shall detail the permitted activities of the enterprise to which it is granted.
An approved telecommunication services operator shall conduct its business in accordance with the specifications recorded on its VATS License. The
VATS Licenses can be further categorized based on the specific business operations permitted to be carried out under such licenses, including among
others, the VATS Licenses for internet information services, or the ICP License, and the VATS License for electronic data interchange business, or the
EDI License. In addition, a VATS License holder is required to obtain approval from the original permit-issuing authority prior to any change to its
shareholders, business scope or other information recorded on such license. In February 2015, the State Council has issued the Decisions on Cancelling
and Adjusting a Batch of Administrative Approval Items, which, among others, replaced the pre-registration approval requirement for
telecommunications business with post-registration approval requirement.
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In September 2000, the State Council promulgated the Administrative Measures on Internet Information Services, or the Internet
Measures, most recently amended in January 2011. Under the Internet Measures, “internet information services” refer to the provision of information
through the internet to online users, and are divided into “commercial internet information services” and “non-commercial internet information
services.” Commercial internet information services operators shall obtain an ICP License, from the relevant government authorities within China.
Each of Jishang Preferred, a wholly-owned subsidiary of Yunji Preferred, one of our VIEs, and Zhejiang Jixiang E-commerce Co., Ltd., or
Zhejiang Jixiang, a wholly-owned subsidiary of Jishang Preferred, holds a VATS License for online data processing and transaction processing business
(operating e-commerce, excluding internet finance and e-hailing services) and internet content-related services (excluding information search and
inquiry services and real-time interactive information services). Hangzhou Chuanchou, one of our VIEs, hold a VATS License for internet content-
related services (excluding information search and inquiry services and real-time interactive information services).
Filing by Third-Party Platforms Providers for Publications Online Trading Services and by Sellers of Publications via Online Trading
We are also subject to regulations relating to online trading platform services provided for distribution of publications including books and
audio-video products. According to the Provisions on the Administration of the Publication Market, or the Publication Market Provisions, which were
jointly promulgated by General Administration of Press and Publication and MOFCOM in May 2016 and implemented in June 2016, an online trading
platform that provides services for the distribution of publications shall complete record-filing formalities with the competent publication administrative
authority, and is required to examine the identity of a dealer distributing publications through the platform, verify its business license and Publications
Operation Permit, establish a mechanism to prevent and control the trading risks and take effective measures to rectify illicit actions conducted by the
dealers distributing publications on the platform. If any entity subject to such requirements fails to complete the filing or fails to fulfill the relevant
duties of examination and management in accordance with the Publication Market Provisions, it may be subject to an order to cease illegal acts and a
warning by the competent publication administrative authority, as well as a penalty not exceeding RMB30,000. In practice, such filing has not been open
for trading platform services provided through mobile applications like Yunji app. Jishang Preferred will submit its record-filing application with the
competent authority for providing services for distribution of publications as soon as practical.
Pursuant to the Publication Market Provisions, an entity engaged in the wholesale or retail of publications shall obtain an operation permit
for publications. If an entity fails to obtain operation permit for publications, it may be subject to an order to cease illegal acts, fines or confiscation of
illegal gains and devices, equipment used for the illegal business operation. In cases where an entity that is engaged in the distribution of publications
via the internet or other information networks within the approved business scope has obtained the operation permit for publications, such entity shall
complete its record-filing formalities with the publication administrative department that has approved its business scope within 15 days after launching
its online distribution business. Zhejiang Jiyuan Network Technology Co., Ltd. holds an operation permit for publications whose scope includes online
and retail sales of publications. Zhejiang Jixiang holds an operation permit for publications whose scope includes retail of publications and online
publishing.
Filing by Third-Party Platforms Providers for Medical Device Online Trading Services and by Sellers of Medical Devices via Online Trading
Pursuant to the Regulations on the Supervision and Administration of Medical Devices, an enterprise engaging in the operation of medical
devices shall have business premises and storage facilities suitable for the operation scale and scope, and shall have a quality control mechanism or
personnel suitable for the medical devices it operates. An enterprise engaged in the distribution of class two medical devices shall complete record-filing
formalities with the municipal level food and drug administration and provide supporting materials to satisfy the relevant conditions of engaging in the
operation of medical devices, while an enterprise engaged in the distribution of class three medical devices shall apply for an operation permit with the
municipal level food and drug administration and provide supporting materials to satisfy the relevant conditions of engaging in the operation of medical
devices. Zhejiang Jiyuan completed the record-filing for its operation of class two medical devices in September 2020.
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The former China Food and Drug Administration, or the CFDA, which has been merged into SAMR promulgated the Measures for the
Supervision and Administration of Online Sale of Medical Devices, or the Medical Devices Online Sale Measures, in December 2017, which became
effective in March 2018, and the Administrative Measures for Online Drug Information Service, or the Measures for Online Drug Information Service,
in July 2004 and amended in November 2017. Pursuant to the Medical Devices Online Sale Measures and the Measures for Online Drug Information
Service, a provider of a third-party platform for online trading services for medical devices shall complete filing procedures with the competent
provincial food and drug administrative department and obtain an Internet Pharmaceutical Information Services Qualification Certificate. A provider of
a third-party platform for online trading services for medical devices that fails to complete the filing in accordance with the Medical Devices Online
Sale Measures may be ordered by the competent provincial food and drug administrative department to make rectification within a prescribed time limit,
and failure to make such rectification may be subject to public exposure of incompliance and a penalty of not exceeding RMB30,000. In the case of any
engagement in the online drug information service without obtaining a valid Internet Pharmaceutical Information Services Qualification Certificate, the
provider of a third-party platform may be subject to an order to cease illegal acts and a warning by the competent administrative authority.
Pursuant to the Medical Devices Online Sale Measures and the Measures for Online Drug Information Service, a seller of medical devices
via online transactions shall complete record-filing procedures with the competent food and drug administrative department, or such seller may be
ordered to make rectification within a prescribed time limit, and failure to make such rectification may be subject to public exposure of incompliance
and a penalty of up to RMB10,000. Jishang Preferred obtained the Internet Pharmaceutical Information Services Qualification Certificate in March 2019
and completed the record-filing application for its online trading services for medical devices in March 2020.
Food Operation Permit
China has adopted a licensing system for food supply operations under the Food Safety Law and its implementation rules. Entities or
individuals that intend to engage in food production, food distribution or food service businesses must obtain licenses or permits for such businesses.
Pursuant to the Administrative Measures on Food Operation Licensing issued by the CFDA in August 2015 and amended in November 2017, an
enterprise needs to obtain a Food Operation Permit from the local food and drug administration, and the permits already obtained by food business
operators prior to the effective date of these new measures will remain valid for their originally approved validity period. Each of Zhejiang Youji Supply
Chain Management Co., Ltd., or Youji Supply Chain, a wholly-owned subsidiary of our WFOE, and Hangzhou Chuanchou, one of our VIEs holds the
Food Operation Permit.
Filing by Third-Party Platform Providers for Food Online Trading
In July 2016, the CFDA promulgated the Measures for Investigation and Handling of Illegal Acts Involving Online Food Safety, pursuant
to which a third-party platform provider for online food trading in the PRC shall file a record with the food and drug administration at the provincial
level and obtain a filing number. Where an online food trading third-party platform provider fails to complete such filing, the provider may be ordered to
make rectifications and given a warning by the competent food and drug administration, and failure to make such rectification may be subject to fines
ranging from RMB5,000 to RMB30,000. Each of Jishang Preferred and Zhejiang Jixiang has completed its record-filing application as a third-party
platform provider for online food trading in March 2021.
Licenses Relating to Internet Audio-Visual Program Services
The former State Administration of Radio Film and Television, or the SARFT, which is the predecessor of NRTA and the former Ministry
of Information Industry jointly issued the Administrative Regulations on Internet Audio-Visual Program Service, or the Internet Audio-Visual Program
Regulations, in December 2007 which became effective as of January 31, 2008 and was subsequently amended in August 2015. The Internet Audio-
Visual Program Regulations define “internet audio-visual programs services” as the production, edition and integration of audio-video programs, the
supply of audio-video programs to the public via the internet, and providing uploading and audio-video programs transmission services to a third party.
Entities engaging in internet audio-visual programs services must obtain the internet audio-visual program transmission license, or the Audio-Visual
License issued by the NRTA, which is only issued to state-owned or state-controlled entities unless the license applicants have obtained internet audio-
visual program transmission licenses prior to the promulgation of the Audio-visual Program Provisions in accordance with the then-in-effect laws and
regulations. According to the Categories of the Internet Audio-Video Program Services (Trial) promulgated by the SARFT in March 2017, “aggregation
of internet audio-visual programs,” meaning “editing and arranging the internet audio-visual programs on the same website and providing searching and
watching services to public users,” falls into the definition of the aforementioned “internet audio-visual programs services.” As of the date of this annual
report, we have not obtained the Audio-Visual License for our business, and are not qualified to apply for the Audio-Visual License according to
currently applicable law.
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According to the Administrative Regulations on Production of Broadcasting and Television Programs, which was promulgated by the
SARFT on July 19, 2004, an entity engaged in producing broadcasting and television programs shall obtain the Production and Operation of
Broadcasting and Television Programs Permit. If an entity engages in producing broadcasting and television programs without such permit, the relevant
governmental authority may order such entity to cease its operations and confiscate its relevant equipment and impose a fine. We provide and display
video programs on our apps, and therefore, are required obtain the Production and Operation of Broadcasting and Television Programs Permit. Jishang
Preferred currently holds the Production and Operation of Broadcasting and Television Programs Permit. Beijing Feiyun Huyu Technology Co., Ltd, or
Beijing Feiyun, a wholly-owned subsidiary of Yunji Preferred, obtained the Production and Operation of Broadcasting and Television Programs Permit
in June 2020.
SARFT issued the Notice on Strengthening the Management of Live Streaming Service for the Network Audio-visual Programs in
September 2016, pursuant to which an internet live streaming service provider shall (i) equip personnel to review the content of the live-stream;
(ii) establish the technical methods and work mechanisms in order to emergently replace the unlawful content by using backup program; (iii) record the
live streaming program and keep records for at least 60 days to fulfil the inspections requirements from the competent administrative authorities. The
State Internet Information Office promulgated the Administrative Provisions on Internet Live Streaming Services in November 2016, pursuant to which
an internet live streaming service provider shall (i) establish a live streaming content review platform; (ii) conduct authentication registration of internet
live streaming issuers based on their identity certificates, business licenses and organization code certificates, etc.; and (iii) enter into a service
agreement with internet live streaming services user to specify both parties’ rights and obligations.
According to the Notice of Filing by Entities Engaged in Live Streaming Services which was issued by Cyberspace Administration on
July 12, 2017, an entity that operates as a transmission platform for live streaming activities shall complete record-filing procedures with local branch of
Cyberspace Administration. Currently, no specific regulation has been promulgated with respect to the consequence of breach of such requirements.
According to the Circular on Tightening the Administration of Online Live Services which was issued jointly by National Working Group of Attacking
Pornography and Illegal Publications, MIIT, Ministry of Public Security, Ministry of Culture and Tourism, SARFT and Cyberspace Administration on
August 1, 2018, online live streaming service providers shall fulfill the website ICP filing formalities with competent authority according to applicable
laws, and shall fulfill the public security filing formalities with the local public security organs within 30 days of their live services being launched.
Jishang Preferred and Beijing Feiyun are in the process of completing their respective record-filing procedures with the competent authorities.
Regulations on Commercial Factoring
The commercial factoring is a relatively new business in China, the MOFCOM issued the circulars to promote commercial factoring in
specific regions. Pursuant to the Circular on the Pilot Work of Commercial Factoring, which was promulgated by the MOFCOM on June 27, 2012, a
trial implementation of commercial factoring pilot work was permitted in Tianjin Binhai New Area and Shanghai Pudong New Area to explore the
approaches to develop the commercial factoring. Certain specific requirements for establishment of commercial factoring companies in Tianjin Binhai
New Area and Shanghai Pudong New Area were provided under the Reply Letter on Pilot Plan of Commercial Factoring issued by the MOFCOM on
October 9, 2012. In December 2012, the said trial implementation of commercial factoring pilot work was extended to Guangzhou and Shenzhen under
the Notice on Trial Establishment of Commercial Factoring Companies in Shenzhen and Guangzhou by Service Providers from Hong Kong and Macau,
which allowed qualified investors from Hong Kong and Macau to establish commercial factoring companies in the said cities. The MOFCOM issued the
Notice on Industrial Administration of Commercial Factoring on August 15, 2013, which imposes reporting requirements on commercial factoring
companies established in the trial zones. Pursuant to the Reply of the Ministry of Commerce on Launching Pilot Commercial Factoring Business in the
Chongqing Liangjiang New Area, the Sunan Modernization Development Demonstration Zone and the Suzhou Industrial Park, released by the
MOFCOM on August 26, 2013, and amended on October 28, 2015, the trial implementation of commercial factoring was extended to Chongqing
Liangjiang New Area, Sunan Modernization Development Demonstration Zone, and the Suzhou Industrial Park.
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Regulations Relating to Financing Lease
On September 18, 2013, MOFCOM issued the Administration Measures of Supervision on Financing Lease Enterprises, or the Leasing
Measures, to regulate and administer the business operations of financing lease enterprises. According to the Leasing Measures, financing lease
enterprises are allowed to carry out financing lease business in such forms as direct lease, sublease, sale-and-lease-back, leveraged lease, entrusted lease
and joint lease in accordance with the provisions of relevant laws, regulations and rules. However, the Leasing Measures prohibit financing lease
enterprises from engaging in financial business such as accepting deposits, providing loans or entrusted loans. Without the approval from relevant
authorities, financing lease enterprises shall not engage in inter-bank borrowing and other businesses. In addition, financing lease enterprises are
prohibited from carrying out illegal fund-raising activities in the name of financing lease. The Leasing Measures require financing lease enterprises to
establish and improve their financial and internal risk control systems, and a financing lease enterprise’s risk assets shall not exceed ten times of its total
net assets. Risk assets generally refer to the adjusted total assets of a financing lease enterprise excluding cash, bank deposits, sovereign bonds and
entrusted leasing assets.
Regulations Relating to OEM Production and Labeling of Domestic Cosmetic Products
Pursuant to the Regulations Concerning the Hygiene Supervision over Cosmetics Products, the Hygiene Regulations, which was
promulgated by the former Ministry of Health and became effective in 1990, and its implementation rules, the Implementation of Hygiene Regulations,
which was promulgated by the former Ministry of Health and became effective in 1991 and amended in 2005, cosmetic products are divided into
“special purpose cosmetic products” and “non-special purpose cosmetic products.” “Special purpose cosmetic products” refer to those cosmetics used
for hair growth, hair-dye, hair perm, hair removal, breast massage, deodorant, fading cream and sun protection. Any cosmetic product not covered by
such scope is a non-special purpose cosmetic product.
The Regulations on the Supervision and Administration of Cosmetics, or the Supervision Regulations, was promulgated by the State
Council on June 16, 2020 and become effective from January 1, 2021 that replacing the Hygiene Regulations. Compared with the Hygiene Regulations
and the Implementation Rule of Hygiene Regulations and its implementation rules, the Supervision Regulations clarify or amend certain provisions
including, without limitation, the followings:
(i)
Responsibilities of the different parties in the operation of cosmetics. Firstly, the Supervision Regulations for the first time introduce
the concepts of registrant and record-filing applicant of cosmetics. The applicant for registration or record-filing of cosmetics shall
undertake the main responsibilities for the quality, safety and effectiveness claims of cosmetics. Specifically, an applicant for
registration or record-filing of cosmetics shall be responsible for the registration or filing before sale of such cosmetics, the
monitoring of adverse reactions, the evaluation and reporting, product risk control and recall, and safety re-evaluation of the products
and raw materials after sale of such cosmetics to ensure quality and safety of the registered/filed products. In addition, the claims for
the effectiveness of all types of cosmetics shall be supported by sufficient scientific basis and an extract of the papers, research data
or product evaluation material on which such effectiveness is claimed to be based shall be made public on websites designated by the
regulatory authority. An applicant registering or filing the record for cosmetics shall be subject to the supervision of the NMPA.
Secondly, an applicant for registration or record-filing of cosmetics may entrust another enterprise (OEMs) with the production of
cosmetics. The OEMs shall obtain the corresponding license for production of cosmetics and shall carry out production in
accordance with the laws, regulations, mandatory national standards, technical specifications and contractual agreements, and be
responsible for production activities and accept the supervision of the applicant for registration or record-filing of cosmetics. With
respect to our business operation, we will become the applicant for registration or record-filing of cosmetics under the Supervision
Regulations and undertake main responsibilities for quality, safety and effectiveness claims of our cosmetics products.
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(ii) Categories of cosmetics. Cosmetics are divided into special cosmetics and ordinary cosmetics instead of special purpose cosmetic
products and non-special purpose cosmetic products. Special cosmetics refer to cosmetics for hair dye, hair perm, freckle removal
and whitening, sun protection and hair loss prevention as well as those purporting to have new functions and effects, and ordinary
cosmetics refer to cosmetics other than special cosmetics. The production and import of special cosmetics shall be registered with
the NMPA. The production and import of ordinary cosmetics is subject to the record-filing administration.
(iii) Legal consequences of violations. The Supervision Regulations have raised the limit for penalties for noncompliance. For example,
monetary penalties on production of cosmetics without requisite permits, production of unregistered special cosmetics, use of banned
materials and illegal use of materials may be subject to a fine of 30 times the value of the concerned products. Violations of the
provisions of the Hygiene Regulations or the Supervision Regulations will result in different penalties ranging from fines (fixed
range or, in cases of severe violations, based on the values of the illegally manufactured goods), confiscation of raw materials,
products illegally manufactured or sold and illegally obtained gains, revoking licenses, and suspension of business. Furthermore,
pursuant to the Supervision Regulations, the responsible individual shall be subject to an industry operation banning period for five
or ten years or even criminal liability.
The Administrative Provisions on the Labeling of Cosmetics, which was promulgated in August 2007 by the General Administration of
Quality Supervision, Inspection and Quarantine and became effective in September 2008, requires labels of cosmetic products to contain information
such as name and address of the producers, date of production, expiry date, batch number, applicable industrial standards, quality inspection certificates,
and production license number. No claim or implication that a cosmetic product has medical or therapeutic effects is permitted to be included in the
labels of such cosmetic product.
Regulations Relating to E-Commerce
In January 2014, the former State of Administration of Industry and Commerce (which has been merged into SAMR) adopted the
Administrative Measures for Online Trading, or the Online Trading Measures, which took effect in March 2014. Under the Online Trading Measures,
e-commerce platform operators are required to examine, register and archive the identity information of the merchants applying for access to their
platforms as sellers, and verify and update such information regularly. The Online Trading Measures also provide that e-commerce platform operators
must make publicly available (i) the link to or the information contained in the business licenses of the merchants, in the case of business entities, or
(ii) a label confirming the verified identity of the merchants, in the case of individuals. A consumer is entitled to return the commodities within seven
days after receipt of the commodities without giving a reason, except for the following commodities: customized commodities, fresh and perishable
commodities, audio-visual products downloaded online or unpackaged by consumers and computer software and other digital commodities, and
newspapers and journals that have been delivered. E-commerce platform operators must, within seven days upon receipt of the returned commodities,
provide full refunds to consumers. In addition, operators are prohibited from setting forth provisions in contracts or other terms that are not fair or
reasonable to consumers such as those excluding or restraining consumers’ rights, relieving or exempting operators’ responsibilities, and increasing the
consumers’ responsibilities, or conducting transactions in a forcible manner taking advantage of contractual terms or technical means.
In March 2016, the State Administration of Taxation, or the SAT, the Ministry of Finance, or the MOF, and the General Administration of
Customs jointly issued the Circular on Tax Policy for Cross-Border E-Commerce Retail Imports, which took effect in April 2016. Pursuant to this
circular, goods imported through the cross-border e-commerce retail are subject to tariff, import value-added tax, and consumption tax based on the
types of goods. Individuals purchasing any goods imported through cross-border e-commerce retail are taxpayers, and e-commerce companies,
companies operating e-commerce transaction platforms or logistic companies are required to withhold the taxes.
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On August 31, 2018, the Standing Committee of the National People’s Congress promulgated the E-Commerce Law, which became
effective on January 1, 2019. The E-Commerce Law sets forth a series of requirements on e-commerce platform operators. According to the
E-Commerce Law, e-commerce platform operators shall verify and register platform merchants, and cooperate with the market regulatory administrative
department and tax administrative department to conduct industry and commerce registrations and tax registrations for merchants. The e-commerce
platform operators shall also prepare a contingency plan for cybersecurity events and take technological measures and other measures to prevent online
illegal and criminal activities. The E-Commerce Law also expressly requires platform operators to take necessary actions to ensure fair dealing on their
platforms to safeguard the legitimate rights and interests of consumers, including to prepare platform service agreements and transaction information
record-keeping and transaction rules, to prominently display such documents on the platform’s website, and to keep such information for no less than
three years following the completion of a transaction. To legally handle intellectual property infringement disputes, upon receipt of the notice specifying
preliminary evidence for alleged infringement, the platform operators are required to take necessary measures in a timely manner, such as deleting,
blocking and disconnecting the hyperlinks, terminating transactions and services, and to forward notices to merchants on its platform. If an e-commerce
platform operator fails to take necessary measures when it knows or should have known that a merchant on the platform infringes any third-party
intellectual property rights, products or services provided by a merchant on its platform do not meet the requirements regarding personal or property
safety, or any merchant otherwise impairs the lawful rights and interests of consumers, the e-commerce platform operator will be held jointly liable with
the merchants on its platform.
Moreover, the E-Commerce Law imposes a requirement on operators of e-commerce platforms to assist in tax collection with respect to
income generated by sellers from transactions conducted on e-commerce platforms, including among others, submitting to the tax authority information
on the identities of sellers on e-commerce platforms and other information relating to tax payment. Failure to comply with the requirement may result in
operators of e-commerce platform being subject to fines and, in severe circumstances, suspension of business operations of e-commerce platforms. If the
members on our platform were deemed to be selling our products on consignment basis, the PRC tax authorities may require our members to make tax
registration and request our assistance in these efforts, pursuant to the E-Commerce Law and our members may be subject to more stringent tax
compliance requirements. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Failure to comply with the
relatively new E-Commerce Law may have a material adverse impact on our business, financial conditions and results of operations.” According to the
EIT Law, the VAT Law and other applicable regulations, sellers that conduct transactions on e-commerce platforms are generally subject to enterprise
income tax at a rate of 25%, and value-added tax at a rate of 13% or 9% for services or products sold on the e-commerce platforms. Certain sellers that
are deemed as small taxpayers under PRC law are subject to reduced value-added tax at a rate of 3%.
Regulations Relating to Pyramid Selling in the PRC
The Regulations on Prohibition of Pyramid Selling, that were promulgated by the State Council in August 2005 and became effective in
November 2005, prohibit pyramid selling activities. According to the Regulations on Prohibition of Pyramid Selling, the following activities taken by
organizers or operators are considered as “pyramid selling”: (i) taking in new members and compensating each member by giving material awards or
other financial benefits, based upon the number of new members directly or indirectly introduced by such member on a rolling basis, so as to gain illegal
benefits; or (ii) requesting a sum of money as entry fee or as a condition to membership for new members, either directly or through purchasing
commodities, so as to gain illegal benefits; or (iii) requesting members to introduce additional members to establish a multi-level relationship and
compensating each member based on the level of sales generated by the additional members introduced by such member, so as to gain illegal benefits.
The PRC laws and regulations have not defined “illegal benefit” and the determination of gaining “illegal benefit” is to a large extent subject to
discretionary view of the competent authorities in the PRC. Any individual or entity engaging in organization of pyramid selling may be subject to
confiscation of illegal gains and fines ranging from RMB0.5 million to RMB2.0 million (US$0.3 million), and even criminal liabilities if a crime is
constituted. On March 23, 2016, the former State of Administration of Industry and Commerce (which has been merged into SAMR) promulgated the
Risk Warning for New Types of Pyramid Selling, which provides that if an activity satisfies the three features stated above at the same time, it will be
identified as pyramid selling, regardless of whether any illegal benefit is obtained.
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In May 2017, we received a formal notice from the local Administration for Market Regulation in Hangzhou, which ruled that our sales
and marketing practice adopted in our early stage of development prior to February 2016 violated the Regulations on the Prohibition of Pyramid Selling
and imposed a penalty of approximately RMB9.6 million (US$1.4 million). We fully paid this fine in June 2017 and have adjusted our business
practices since February 2016 to comply with the Regulations on the Prohibition of Pyramid Selling and other applicable regulations. We have adjusted
our practices specifically as follows: (i) to avoid being deemed as requesting a sum of money as entry fee through purchasing commodities, we have
adjusted our membership package, which individuals are required purchase to become a member of our platform, to include a set of selected products or
services and access to the Yunji app containing membership benefits and features; (ii) to avoid being deemed as giving material awards or other financial
benefits to existing members for new member referrals, we have adjusted the rewards that we grant to our members upon a successful new member
referral to Yun-coins, which are not redeemable for cash and can only be used as coupons for future purchases on our platform; and (iii) to avoid
establishing multilevel relationship of members, we grant members incentives only for products sold directly via the links that such member shares
through his/her social network, and not for products sold via links shared by any other member that was originally invited by such member. In addition,
since we have provided products of value and services to our members as consideration for purchasing our membership package, and the products on
our platform are offered at market prices, we believe our current business practices do not constitute as gaining “illegal benefits.” In December 2018, we
and Han Kun Law Offices, our PRC legal counsel, consulted with the competent government authority in Hangzhou on our current business model and
operations, and the district branch of SAMR having direct jurisdiction over our PRC entities that currently operate our membership-based social
e-commerce platform verbally confirmed that these entities have conducted their business operations lawfully and none of these entities is in violation of
the Regulations on the Prohibition of Pyramid Selling or any other applicable laws. Based on our discussion with the competent government authorities
and the advice of Han Kun Law Offices, we believe that our current business model is not in violation of applicable PRC laws and regulations, including
the Regulations on the Prohibition of Pyramid Selling. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—
If our business model were found to be in violation of applicable laws and regulations, our business financial condition and results of operations would
be materially and adversely affected.”
Regulations Relating to Internet Information Security and Privacy Protection
Internet information in China is regulated from a national security standpoint. The National People’s Congress, or the NPC, has enacted
the Decisions on Preserving Internet Security in December 2000 and amended in August 2009, which subject violators to potential criminal punishment
in China for any attempt to: (i) gain improper entry into a computer or system of strategic importance; (ii) disseminate politically disruptive information;
(iii) leak state secrets; (iv) spread false commercial information; or (v) infringe intellectual property rights. The Ministry of Public Security of the PRC,
or the MPS, has promulgated the Administrative Measures for the Computer Information Network and Internet Security Protection in December 1998
and amended in January 2011, which prohibits use of the internet in ways which, among other things, result in a leak of state secrets or a spread of
socially destabilizing content. If an internet information service provider violates these measures, the MPS and its local branches may issue warning,
confiscate the illegal gains, impose fines, and, in severe cases, advice competent authority to revoke its operating license or shut down its websites.
Under the Several Provisions on Regulating the Market Order of Internet Information Services, issued by the MIIT in December 2011 and
implemented in March 2012, an internet information service provider may not collect any user personal information or provide any such information to
third parties without the consent of the user. An internet information service provider must expressly inform the users of the method, content and
purpose of the collection and processing of such user personal information and may only collect such information necessary for the provision of its
services. An internet information service provider is also required to properly maintain the user’s personal information, and in case of any leak or likely
leak of the user’s personal information, the internet information service provider must take immediate remedial measures and, in severe circumstances,
immediately report to the telecommunications authority. Moreover, pursuant to the Ninth Amendment to the Criminal Law issued by the SCNPC in
August 2015 and implemented in November 2015, any internet service provider that fails to fulfill the obligations related to internet information security
administration as required by applicable laws and refuses to rectify upon orders, shall be subject to criminal penalty for the result of (i) any
dissemination of illegal information in large scale; (ii) any severe effect due to the leakage of the client’s information; (iii) any serious loss of criminal
evidence; or (iv) other severe situation. Any individual or entity that (i) sells or provides personal information to others in a way violating the applicable
law, or (ii) steals or illegally obtains any personal information, shall be subject to criminal penalty in severe situation. In addition, the Interpretations of
the Supreme People’s Court and the Supreme People’s Procuratorate of the PRC on Several Issues Concerning the Application of Law in Handling
Criminal Cases of Infringing Personal Information, issued in May 2017 and implemented in June 2017, clarified certain standards for the conviction and
sentencing of the criminals in relation to personal information infringement.
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In November 2016, the SCNPC, promulgated the Cyber Security Law of the PRC, or the Cyber Security Law, which became effective on
June 1, 2017. The Cyber Security Law requires that a network operator, which includes, among others, internet information services providers, take
technical measures and other necessary measures in accordance with applicable laws and regulations and the compulsory requirements of the national
and industrial standards to safeguard the safe and stable operation of its networks. We are subject to such requirements as we are operating website and
mobile applications and providing certain internet services mainly through our mobile applications. The Cyber Security Law further requires internet
information service providers to formulate contingency plans for network security incidents, report to the competent departments immediately upon the
occurrence of any incident endangering cyber security and take corresponding remedial measures.
Internet information service providers are also required to maintain the integrity, confidentiality and availability of network data. The
Cyber Security Law reaffirms the basic principles and requirements specified in other existing laws and regulations on personal data protection, such as
the requirements on the collection, use, processing, storage and disclosure of personal data, and internet information service providers being required to
take technical and other necessary measures to ensure the security of the personal information they have collected and prevent the personal information
from being divulged, damaged or lost. Any violation of the Cyber Security Law may subject the internet information service provider to warnings, fines,
confiscation of illegal gains, revocation of licenses, cancellation of filings, shutdown of websites or criminal liabilities.
Furthermore, MIIT’s Rules on Protection of Personal Information of Telecommunications and Internet Users promulgated in July 2013,
effective September 2013, contain detailed requirements on the use and collection of personal information as well as security measures required to be
taken by telecommunications business operators and internet information service providers.
On January 23, 2019, the Office of the Central Cyberspace Affairs Commission and other three authorities jointly issued the Circular on
the Special Campaign of Correcting Unlawful Collection and Usage of Personal Information via Apps. Pursuant to this 2019 circular, (i) app operators
are prohibited from collecting any personal information irrelevant to the services provided by such operator; (ii) information collection and usage policy
should be presented in a simple and clear way, and such policy should be consented by the users voluntarily; (iii) authorization from users should not be
obtained by coercing users with default or bundling clauses or making consent a condition of a service. App operators violating such rules can be
ordered by authorities to correct its incompliance within a given period of time, be reported in public; or even quit its operation or cancel its business
license or operational permits. Furthermore, on November 28, 2019, the SAMR, the Office of the Central Cyberspace Affairs Commission, the MIIT
and the Ministry of Public Security jointly issued the Measures for the Determination of the Collection and Use of Personal Information by Apps in
Violation of Laws and Regulations, which provides guidance for the regulatory authorities to identify the illegal collection and use of personal
information through mobile apps, and for the app operators to conduct self-examination and self-correction and for other participants to voluntarily
monitor compliance. The Provisions on the Cyber Protection of Children’s Personal Information issued by the Office of the Central Cyberspace Affairs
Commission came into effect on October 1, 2019, which requires, among others, that network operators who collect, store, use, transfer and disclose
personal information of children under the age of 14 shall establish special rules and user agreements for the protection of children’s personal
information, inform the children’s guardians in a noticeable and clear manner, and shall obtain the consent of the children’s guardians. Furthermore, the
authorities issuing the circular has pledged to initiate a campaign to correct unlawful collection and usage of personal information via apps from January
2019 through December 2019.
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The PRC National People’s Congress enacted the PRC Civil Code on May 28, 2020, which came into effective on January 1, 2021. The
PRC Civil Code, in addition to the systematic codification of provisions from existing legislations, introduces more generally acceptable provisions on
the right to privacy and the protection of personal information, and provides clearer legal basis for civil actions against privacy and personal information
related infringements and breaches. Personal information is the information recorded electronically or in other ways that can be used, by itself or in
combination with other information, to identify a natural person, including the name, date of birth, identification number, biometric information,
residential address, telephone number, email address, health information, whereabouts, and the like, of the person. The processing of personal
information shall be in compliance with the principles of lawfulness, justification, and within a necessary limit, and shall not be excessively processed;
Where a natural person discovers that an information processer has violated the provisions of laws or administrative regulations, or breached the
agreement between both parties while processing his personal information, he has the right to request the information processor to delete it in a timely
manner. According to the PRC Civil Code, a natural person’s personal information is protected by law. Any organization or individual that needs to
access other’s personal information must do so in accordance with law and guarantee the safety of such information, and may not illegally collect, use,
process, or transmit other’s personal information, or illegally trade, provide, or publicize such information. An information processor shall not disclose
or tamper with the personal information he collects and stores, and shall not illegally provide to others the personal information of a natural person
without the latter’s consent, unless the information, after being processed, cannot be used to identify any specific individual and cannot be restored to its
original status. An information processor shall take technical measures and other necessary measures to ensure the security of the personal information
he collects and stores, and prevent the information from being leaked, tampered with, or lost. Where a person’s personal information has been or is
likely to be leaked, tampered with, or lost, he shall take remedial measures in a timely manner, notify the natural persons concerned in accordance with
the regulations, and report to the relevant competent authorities. Where a natural person discovers that an information processer has violated the
provisions of laws or administrative regulations, or breached the agreement between both parties while processing his personal information, he has the
right to request the information processor to delete it in a timely manner.
Regulations Relating to Product Quality and Consumer Protection
The PRC Product Quality Law, or the Product Quality Law, which was promulgated by the MOFCOM in February 1993 and most recently
amended in December 2018, applies to all production and sale activities in China. Pursuant to the Product Quality Law, products offered for sale must
satisfy the relevant quality and safety standards. Enterprises may not produce or sell counterfeit products in any fashion, including forging brand labels
or giving false information regarding a product’s manufacturer. Violations of state or industrial standards for health and safety and any other related
violations may result in civil liabilities and administrative penalties, such as compensation for damages, fines, suspension or shutdown of business, as
well as confiscation of products illegally 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 the manufacturer 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 of recourse against the manufacturer. Similarly, if the manufacturer pays compensation and it is the seller that should
bear the liability, the manufacturer has a right of recourse against the seller.
The PRC Consumer Rights and Interests Protection Law, or the Consumer Protection Law, as amended in October 2013 and implemented
in March 2014 sets out the obligations of business operators and the rights and interests of the consumers. Pursuant to the Consumer Protection Law,
business operators must guarantee that the sold commodities satisfy the requirements for personal or property safety, provide consumers with authentic
information about the commodities, and guarantee the quality, function, usage and term of validity of the commodities, failure of which may subject
business operators to civil liabilities such as refunding purchase prices, exchange of commodities, repairing, ceasing damages, compensation, and
restoring reputation, and even subject the business operators or the responsible individuals to criminal penalties if business operators commit crimes by
infringing the legitimate rights and interests of consumers. The Consumer Protection Law further strengthens the protection of consumers and imposes
more stringent requirements and obligations on business operators, especially on the business operators through the internet. For example, the
consumers are entitled to return the goods (except for certain specific goods) within seven days upon receipt without any reasons when they purchase
the goods from business operators via the internet. The consumers whose interests are harmed due to their purchase of goods or acceptance of services
on online marketplace platforms may claim damages from the sellers or service providers.
Furthermore, the Consumer Protection Law and the Online Trading Measures, have provided stringent requirements and obligations on
business operators, including internet business operators and platform service providers. For example, consumers are entitled to return goods purchased
online, subject to certain exceptions, within seven days upon receipt of such goods for no reason. To ensure that sellers and service providers comply
with such regulations, the platform operators are required to implement rules governing transactions on the platform, monitor the information posted by
sellers and service providers, and report any violations by such sellers or service providers to the competent authorities. In addition, online platform
providers may, pursuant to the relevant PRC consumer protection laws, be exposed to liabilities if rights and interests of any consumer are infringed
upon in connection with consumers’ purchase of goods or acceptance of services on such online platforms and the online marketplace platform
providers fail to provide consumers with the contact information of the seller or manufacturer. In addition, online marketplace platform providers may
be jointly and severally liable with sellers and manufacturers of relevant goods or services if they are aware or should be aware that such sellers or
manufacturers are using the online platform to infringe the rights and interests of any consumers and fail to take measures necessary to prevent or stop
such activities.
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According to Part VII Tort Liability of the PRC Civil Code, which was enacted by the PRC National People’s Congress in May 2020 and
came into effect on January 1, 2021, if damages to other persons are caused by defective products due to the fault of third parties, such as the parties
providing transportation or warehousing, the producers and the sellers of the products have the right to recover their respective losses from such third
parties. If defective products are identified after they have been put into circulation, the producers or the sellers shall take remedial measures such as
issuance of a warning, recall of products, etc., in a timely manner. The producers or the sellers shall be liable under tort if they fail to take remedial
measures in a timely manner or have not made efforts to take remedial measures, thus causing damages. If the products are produced or sold with known
defects, causing deaths or severe adverse health issues, the infringed party has the right to claim punitive damages in addition to compensatory damages.
Regulations Relating to Payment Services
In June 2010, the PBOC issued the Administrative Measures for the Payment Services of Non-Financial Institutions. Under this rule, a
non-financial institution must obtain a payment business license, or Payment License, to provide payment services and qualifies as a paying institution.
With the Payment License, a non-financial institution may serve as an intermediary between payees and payers and provide some or all of the following
services: online payment, issuance and acceptance of prepaid card, bank card acceptance, and other payment services as specified by the PBOC. Without
PBOC’s approval, no non-financial institution or individual may engage in payment business whether explicitly or in a disguised form.
In November 2017, the PBOC published a notice, or the PBOC Notice, on the investigation and administration of illegal offering of
settlement services by financial institutions and third-party payment service providers to unlicensed entities. The PBOC Notice intended to prevent
unlicensed entities from using licensed payment service providers as a conduit for conducting the unlicensed payment settlement services, so as to
safeguard the fund security and information security. We believe that our cooperation with third-party online payment service providers is not in
violation of the PBOC Notice, because we sell the products on our platform to users and receive payment from users through the third-party online
payment service providers. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—We rely on third-party
online payment service providers for payment processing and escrow services on our platform. If these payment services are restricted or curtailed in
any way or become unavailable to us or our users for any reason, our business may be materially and adversely affected.”
Regulations Relating to Intellectual Property in the PRC
Trademark
The PRC Trademark Law and its implementation rules protect registered trademarks. The Trademark Office of National Intellectual
Property Administration under the SAMR is responsible for the registration and administration of trademarks throughout the PRC. The Trademark Law
has adopted a “first-to-file” principle with respect to trademark registration. Registered trademarks are granted a valid term of ten years, which could be
renewed each time for another ten years commencing from the day after the expiry date of the last period of validity if the required renewal formalities
have been completed. Pursuant to the PRC Trademark Law, counterfeit or unauthorized production of the label of another person’s registered trademark,
or sale of any label that is counterfeited or produced without authorization will be deemed as an infringement to the exclusive right to use a registered
trademark. 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 losses suffered by the right holder as a result of the infringement, including reasonable expenses incurred by the right holder for stopping the
infringement.
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Domain Name
The MIIT promulgated the Measures on Administration of Internet Domain Names, or the Domain Name Measures, on August 24, 2017,
which took effect on November 1, 2017. The MIIT is the major regulatory body responsible for the administration of the PRC internet domain names,
under supervision of which the China Internet Network Information Center, or CNNIC, is responsible for the daily administration of “.cn” domain
names and Chinese domain names. CNNIC adopts a “first-to-file” principle with respect to the registration of domain names. Applicants for registration
of domain names must provide the true, accurate and complete information of their identities to domain name registration service institutions. The
applicants will become the holder of such domain names upon the completion of the registration procedure.
Copyright
The PRC Copyright Law, or the Copyright Law, which took effect on June 1, 1991 and was amended in 2001 and in 2010, provides that
Chinese citizens, legal persons, or other organizations shall, whether published or not, own copyright in their copyrightable works, which include,
among others, works of literature, art, natural science, social science, engineering technology and computer software. Copyright owners enjoy certain
legal rights, including right of publication, right of authorship and right of reproduction. The Copyright Law extends copyright protection to Internet
activities, products disseminated over the Internet and software products. In addition, the Copyright Law provides for a voluntary registration system
administered by the China Copyright Protection Center, or the CPCC. According to the Copyright Law, an infringer of the copyrights shall be subject to
various civil liabilities, which include ceasing infringement activities, apologizing to the copyright owners and compensating the loss of copyright
owner. Infringers of copyright may also subject to fines and/or administrative or criminal liabilities in severe situations.
Pursuant to the Computer Software Copyright Protection Regulations promulgated by the State Council on December 20, 2001 and
amended on January 30, 2013, Chinese citizens, legal persons and other organizations shall enjoy copyright on software they develop, regardless of
whether the software is released publicly. Software copyright commences from the date on which the development of the software is completed. The
protection period for software copyright of a legal person or other organizations shall be 50 years, concluding on December 31 of the 50th year after the
software’s initial release. The software copyright owner may go through the registration formalities with a software registration authority recognized by
the State Council’s copyright administrative department. The software copyright owner may authorize others to exercise that copyright, and is entitled to
receive remuneration.
Patent
According to the PRC Patent Law (revised in 2008), the State Intellectual Property Office is responsible for administering patent law in the
PRC. The patent administration departments of provincial, autonomous region or municipal governments are responsible for administering patent law
within their respective jurisdictions. The Chinese patent system adopts a first-to-file principle, which means that when more than one person files
different patent applications for the same invention, only the person who files the application first is entitled to obtain a patent of the invention. Patents
in China fall into three categories: invention, utility model and design. To be patentable, an invention or a utility model must meet three criteria: novelty,
inventiveness and practicability. A patent is valid for twenty years in the case of an invention and ten years in the case of utility models and designs.
Regulations Relating to Labor Protection in the PRC
Labor Contract Law
The PRC Labor Contract Law, or the Labor Contract Law, which became effective on January 1, 2008 and was amended on December 28,
2012, is primarily aimed at regulating rights and obligations of employer and employee relationships, including the establishment, performance and
termination of labor contracts. Pursuant to the Labor Contract Law, labor contracts shall be concluded in writing if labor relationships are to be or have
been established between employers and the employees. Employers are prohibited from forcing employees to work above certain time limit and
employers shall pay employees for overtime work in accordance to national regulations. In addition, employee wages shall be no lower than local
standards on minimum wages and must be paid to employees in a timely manner.
Interim Provisions on Labor Dispatch
Pursuant to the Interim Provisions on Labor Dispatch, or the Labor Dispatch Provisions, promulgated by the Ministry of Human
Resources and Social Security on January 24, 2014, which became effective on March 1, 2014, dispatched workers are entitled to equal pay with full-
time employees for equal work. Employers are allowed to use dispatched workers for temporary, auxiliary or substitutive positions, and the number of
dispatched workers may not exceed 10% of the total number of employees.
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Social Insurance and Housing Fund
As required under the Regulation of Insurance for Labor Injury implemented on January 1, 2004 and amended in 2010, the Provisional
Measures for Maternity Insurance of Employees of Corporations implemented on January 1, 1995, the Decisions of the State Council on the
Establishment of a Unified Program for Old-Aged Pension Insurance issued on July 16, 1997, the Decisions of the State Council on the Establishment of
the Medical Insurance Program for Urban Workers promulgated on December 14, 1998, the Unemployment Insurance Measures promulgated on
January 22, 1999 and the Social Insurance Law of the PRC implemented on July 1, 2011, employers are required to provide their employees in the PRC
with welfare benefits covering pension insurance, unemployment insurance, maternity insurance, labor injury insurance and medical insurance. These
payments are made to local administrative authorities. Any employer that fails to make social insurance contributions may be order to rectify the
non-compliance and pay the required contributions within a prescribed time limit and be subject to a late fee. If the employer still fails to rectify the
failure to make the relevant contributions within the prescribed time, it may be subject to a fine ranging from one to three times the amount overdue. In
accordance with the Regulations on the Management of Housing Fund which was promulgated by the State Council in 1999 and amended in 2002,
employers must register at the designated administrative centers and open bank accounts for depositing employees’ housing funds. Employer and
employee are also required to pay and deposit housing funds, with an amount no less than 5% of the monthly average salary of the employee in the
preceding year in full and on time.
Employee Stock Incentive Plan
Pursuant to the Notice of Issues Related to the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive
Plan of Overseas Listed Company, or Circular 7, which was issued by the SAFE on February 15, 2012, employees, directors, supervisors, and other
senior management who participate in any stock incentive plan of a publicly-listed overseas company and who are PRC citizens or non-PRC citizens
residing in China for a continuous period of no less than one year, subject to a few exceptions, are required to register with SAFE through a qualified
domestic agent, which may be a PRC subsidiary of such overseas listed company, and complete certain other procedures. In addition, the SAT has issued
certain circulars concerning employee stock options and restricted shares. Under these circulars, employees working in the PRC who exercise stock
options or are granted restricted shares will be subject to PRC individual income tax. The PRC subsidiaries of an overseas listed company are required
to file documents related to employee stock options and restricted shares with relevant tax authorities and to withhold individual income taxes of
employees who exercise their stock option or purchase restricted shares. If the employees fail to pay or the PRC subsidiaries fail to withhold income tax
in accordance with relevant laws and regulations, the PRC subsidiaries may face sanctions imposed by the tax authorities or other PRC governmental
authorities.
Regulations Relating to Tax in the PRC
Income Tax
The PRC Enterprise Income Tax Law, or the EIT 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 income as determined under PRC tax laws and accounting standards. If a non-resident enterprise sets up an organization or
establishment in the PRC, it will be subject to enterprise income tax for the income derived from such organization or establishment in the PRC and for
the income derived from outside the PRC but with an actual connection with such organization or establishment in the PRC. The EIT Law and its
implementation rules permit certain “high and new technology enterprises strongly supported by the state” that independently own core intellectual
property and meet statutory criteria, to enjoy a reduced 15% enterprise income tax rate. In January 2016, the SAT, the Ministry of Science and
Technology and the MOF jointly issued the Administrative Rules for the Certification of High and New Technology Enterprises specifying the criteria
and procedures for the certification of High and New Technology Enterprises.
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On April 22, 2009, the SAT issued the Circular of the State Administration of Taxation on Issues Relating to Identification of
PRC-Controlled Overseas Registered Enterprises as Resident Enterprises in Accordance With the De Facto Standards of Organizational Management, or
the SAT Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise
that is incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC
enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect the SAT’s general position on
how the “de facto management body” text should be applied in determining the tax resident status of all offshore enterprises. According to the SAT
Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by
virtue of having its “de facto management body” in China and will be subject 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-day operational management is in the PRC; (ii) decisions relating to the enterprise’s
financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise’s primary assets,
accounting books and records, company seals, and board and shareholder resolutions, are located or maintained in the PRC; and (iv) at least 50% of
voting board members or senior executives habitually reside in the PRC. Further to SAT Circular 82, on July 27, 2011, the SAT issued the
Announcement of the State Administration of Taxation on Printing and Distributing the Administrative Measures for Income Tax on PRC-controlled
Resident Enterprises Incorporated Overseas (Trial Implementation), or the SAT Bulletin 45, which took effect in September 2011, to provide more
guidance on the implementation of SAT Circular 82. SAT Bulletin 45 provides for procedures and administration details of determination on resident
status and administration on post-determination matters.
Value-added Tax
The Provisional Regulations of the PRC on Value-added Tax, the VAT Regulation, were promulgated by the State Council on
December 13, 1993 and came into effect on January 1, 1994 which were subsequently amended from time to time. The Detailed Rules for the
Implementation of the Provisional Regulations of the PRC on Value-added Tax (Revised in 2011) was promulgated by the MOF on December 25, 1993
and subsequently amended on December 15, 2008 and October 28, 2011, or collectively, the VAT Law. On November 19, 2017, the State Council
promulgated the Decisions on Abolishing the Provisional Regulations of the PRC on Business Tax and Amending the Provisional Regulations of the
PRC on Value-added Tax, or the Order 691. On April 4, 2018, MOF and SAT jointly promulgated the Circular on Adjustment of Value-Added Tax
Rates, or Circular 32. On March 31, 2019, the MOF, SAT and General Administration of Customs jointly issued the Announcement on Relevant Polices
for Deepening Value-added Tax Reform, or Announcement No. 39. According to the VAT Law, the Order 691 and the Circular 32, all enterprises and
individuals engaged in the sale of goods, the provision of processing, repair and replacement services, sales of services, intangible assets, real property
and the importation of goods within the territory of the PRC are the taxpayers of VAT. According to Announcement No. 39, the VAT tax rates generally
applicable are simplified as 13%, 9%, 6% and 0%, and the VAT tax rate applicable to the small-scale taxpayers is 3%.
Dividend Withholding Tax
The EIT Law provides that since January 1, 2008, an income tax rate of 10% will normally be applicable to dividends derived from
sources within the PRC and declared to non-PRC resident investors which do not have an establishment or place of business in the PRC, or which have
an establishment or place of business that is not effectively connected with the relevant income.
Pursuant to the Arrangement Between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of
Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Incomes, or the Double Tax Avoidance Arrangement, and other
applicable PRC laws, if a Hong Kong resident enterprise is determined by the competent PRC tax authority to have satisfied the relevant conditions and
requirements under such Double Tax Avoidance Arrangement and other applicable laws, the 10% withholding tax on dividends the Hong Kong resident
enterprise receives from a PRC resident enterprise may be reduced to 5%. However, based on the Circular on Certain Issues with Respect to the
Enforcement of Dividend Provisions in Tax Treaties, or the SAT Circular 81, issued on February 20, 2009 by the SAT, if the relevant PRC tax authorities
determine, in their discretion, that a company benefits from such reduced income tax rate due to a structure or arrangement that is primarily tax-driven,
such PRC tax authorities may adjust the preferential tax treatment. According to the Circular on Several Questions regarding the “Beneficial Owner” in
Tax Treaties, which was issued on February 3, 2018 by the SAT and took effect on April 1, 2018, when determining the applicant’s status as the
“beneficial owner” regarding tax treatments in connection with dividends, interest or royalties in the tax treaties, several factors, including, without
limitation, whether the applicant is obligated to pay more than 50% of his or her income over a twelve-month period to residents in a third country or
region, whether the business operated by the applicant constitutes actual business activities, and whether the counterparty country or region to the tax
treaty does not levy any tax, exempts the relevant income from tax, or levies tax at an extremely low rate, will be taken into account, and it will be
analyzed according to the actual circumstances of the specific cases. This circular further provides that applicants who intend to prove his or her
“beneficial owner” status shall submit the relevant documents to the relevant tax bureau according to the Announcement on Issuing the Measures for the
Administration of Non-Resident Taxpayers’ Enjoyment of the Treatment under Tax Agreements.
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On February 3, 2015, the SAT issued the Public Notice Regarding Certain Enterprise Income Tax Matters on Indirect Transfer of
Properties by Non-Tax Resident Enterprises, or the SAT Public Notice 7. The SAT Public Notice 7 extends its tax jurisdiction to cover not only the
indirect transfer by a non-resident enterprise of equity interests in a PRC resident enterprise through disposition of equity interests in an overseas
holding company, or an Indirect Transfer, but also to transactions involving the transfer of other taxable assets through the offshore transfer of a foreign
intermediate holding company. The SAT Public Notice 7 also brings challenges to both foreign transferor and transferee (or other person who is
obligated to pay for the transfer) of taxable assets. Where a non-resident enterprise transfers taxable assets indirectly by disposing of the equity interests
of an overseas holding company, which is an Indirect Transfer, the non-resident enterprise as either transferor or transferee, or the PRC entity that
directly owns the taxable assets, may report such Indirect Transfer to the relevant tax authority. Using a “substance over form” principle, the PRC tax
authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose
of reducing, avoiding or deferring PRC tax. As a result, gains derived from such Indirect Transfer may be subject to PRC enterprise income tax, and the
transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10%, for the transfer
of equity interests in a PRC resident enterprise. Both the transferor and the transferee may be subject to penalties under PRC tax laws if the transferee
fails to withhold the taxes and the transferor fails to pay the taxes.
On October 17, 2017, the SAT issued the Public Notice on Issues Relating to Withholding at Source of Income Tax of Non-resident
Enterprises, or the SAT Public Notice 37, which came into effect on December 1, 2017. According to SAT Public Notice 37, where the non-resident
enterprise fails to declare its tax payable pursuant to Article 39 of the EIT Law, the tax authority may order it to pay its tax due within required time
limits, and the non-resident enterprise shall declare and pay its tax payable within such time limits specified by the tax authority. If the non-resident
enterprise voluntarily declares and pays its tax payable before the tax authority orders it to do so, it shall be deemed that such enterprise has paid its tax
payable in time.
Regulations relating to Foreign Exchange
General Administration of Foreign Exchange
Under the PRC Foreign Currency Administration Rules promulgated on January 29, 1996 and most recently amended on August 5, 2008
and various regulations issued by the State Administration of Foreign Exchange of the PRC, or the SAFE and other relevant PRC government
authorities, Renminbi is convertible into other currencies for current account items, such as trade-related receipts and payments and payment of interest
and dividends. The conversion of Renminbi into other currencies and remittance of the converted foreign currency outside the PRC for of capital
account items, such as direct equity investments, loans and repatriation of investment, requires the prior approval from the SAFE or its local office.
Payments for transactions that take place within the PRC must be made in Renminbi. Unless otherwise approved, PRC companies may not
repatriate foreign currency payments received from abroad or retain the same abroad. Foreign-invested enterprises may retain foreign exchange in
accounts with designated foreign exchange banks under the current account items subject to a cap set by the SAFE or its local office. Foreign exchange
proceeds under the current accounts may be either retained or sold to a financial institution engaged in settlement and sale of foreign exchange pursuant
to relevant SAFE rules and regulations. For foreign exchange proceeds under the capital accounts, approval from the SAFE is generally required for the
retention or sale of such proceeds to a financial institution engaged in settlement and sale of foreign exchange.
Pursuant to the Circular of the SAFE on Further Improving and Adjusting Foreign Exchange Administration Policies for Direct
Investment, or the SAFE Circular 59, promulgated by SAFE on November 19, 2012, which became effective on December 17, 2012 and was further
amended on May 4, 2015, approval of SAFE is not required for opening a foreign exchange account and depositing foreign exchange into the accounts
relating to the direct investments. The SAFE Circular 59 also simplified foreign exchange-related registration required for the foreign investors to
acquire the equity interests of Chinese companies and further improve the administration on foreign exchange settlement for foreign-invested
enterprises.
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The Circular on Further Simplifying and Improving the Foreign Currency Management Policy on Direct Investment, or the SAFE Circular
13, effective from June 1, 2015, cancels the administrative approvals of foreign exchange registration of direct domestic investment and direct overseas
investment and simplifies the procedure of foreign exchange-related registration. Pursuant to the SAFE Circular 13, the investors shall register with
banks for direct domestic investment and direct overseas investment.
The Circular on Reforming the Management Approach regarding the Settlement of Foreign Capital of Foreign-invested Enterprise, or the
SAFE Circular 19, which was promulgated by the SAFE on March 30, 2015 and became effective on June 1, 2015, provides that a foreign-invested
enterprise may, according to its actual business needs, settle with a bank the portion of the foreign exchange capital in its capital account for which the
relevant foreign exchange administration has confirmed monetary capital contribution rights and interests (or for which the bank has registered the
injection of the monetary capital contribution into the account). Pursuant to the SAFE Circular 19, for the time being, foreign-invested enterprises are
allowed to settle 100% of their foreign exchange capital on a discretionary basis; a foreign-invested enterprise shall truthfully use its capital for its own
operational purposes within the scope of business; where an ordinary foreign-invested enterprise makes domestic equity investment with the amount of
foreign exchanges settled, the invested enterprise must first go through domestic re-investment registration and open a corresponding account for foreign
exchange settlement pending payment with the foreign exchange administration or the bank at the place where it is registered.
The Circular on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts, or the SAFE
Circular 16, which was promulgated by the SAFE and became effective on June 9, 2016, provides that enterprises registered in the PRC may also
convert their foreign debts from foreign currency into Renminbi on self-discretionary basis. The SAFE Circular 16 also provides an integrated standard
for conversion of foreign exchange under capital account items (including but not limited to foreign currency capital and foreign debts) on self-
discretionary basis, which applies to all enterprises registered in the PRC.
According to the FIE Record-filing Interim Measures, the Administrative Rules on the Company Registration, which was promulgated by
the State Council on June 24, 1994, became effective on July 1, 1994 and latest amended on February 6, 2016, and other laws and regulations governing
the foreign invested enterprises and company registrations, the establishment of a foreign invested enterprise and any capital increase and other major
changes in a foreign invested enterprise shall be registered with the State Administration for Market Regulation, or the SAMR, or its local counterparts,
and shall be filed via the foreign investment comprehensive administrative system, or the FICMIS, if such foreign invested enterprise does not involve
special access administrative measures prescribed by the PRC government.
Pursuant to the SAFE Circular 13 and other laws and regulations relating to foreign exchange, when setting up a new foreign invested
enterprise, the foreign invested enterprise shall register with the bank located at its registered place after obtaining the business license, and if there is
any change in capital or other changes relating to the basic information of the foreign-invested enterprise, including, without limitation, any increase in
its registered capital or total investment, the foreign invested enterprise must register such changes with the bank located at its registered place after
obtaining approval from or completing the filing with competent authorities. Pursuant to the relevant foreign exchange laws and regulations, the above-
mentioned foreign exchange registration with the banks will typically take less than four weeks upon the acceptance of the registration application.
Based on the foregoing, if we intend to provide funding to our wholly foreign owned subsidiaries through capital injection at or after their
establishment, we must register the establishment of and any follow-on capital increase in our wholly foreign owned subsidiaries with the SAMR or its
local counterparts, file such via the FICMIS and register such with the local banks for the foreign exchange related matters.
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Offshore Investment
Under the Circular of the State Administration of Foreign Exchange on Issues Concerning the Foreign Exchange Administration over the
Overseas Investment and Financing and Round-trip Investment by Domestic Residents via Special Purpose Vehicles, or the SAFE Circular 37, issued by
the SAFE and effective on July 4, 2014, PRC residents are required to register with the local SAFE branch prior to contributing assets or equity interests
in an offshore special purpose vehicle, or SPV, which is defined as offshore enterprises directly established or indirectly controlled by PRC residents for
investment and financing purposes, with the enterprise assets or interests they hold in China or overseas. The term “control” means obtain the operation
rights, right to proceeds or decision-making power of a SPV through acquisition, trust, holding shares on behalf of others, voting rights, repurchase,
convertible bonds or other means. An amendment to registration or subsequent filing with the local SAFE branch by such PRC resident is also required
if there is any change in basic information of the offshore company or any material change with respect to the capital of the offshore company. At the
same time, the SAFE has issued the Operation Guidance for the Issues Concerning Foreign Exchange Administration over Round-trip Investment
regarding the procedures for SAFE registration under the SAFE Circular 37, which became effective on July 4, 2014 as an attachment of Circular 37.
Under the relevant rules, failure to comply with the registration procedures set forth in the SAFE Circular 37 may result in bans on the
foreign exchange activities of the relevant onshore company, including the payment of dividends and other distributions to its offshore parent or
affiliates, and may also subject relevant PRC residents to penalties under PRC foreign exchange administration regulations.
Regulations on Dividend Distribution
The principal laws and regulations regulating the dividend distribution of dividends by foreign-invested enterprises in the PRC include the
PRC Company Law, as amended in 1999, 2004, 2005, 2013 and 2018, and the Foreign Investment Law take into effect on January 1, 2020. Under the
current regulatory regime in the PRC, foreign-invested enterprises in the PRC may pay dividends only out of their retained earnings, if any, determined
in accordance with PRC accounting standards and regulations. A PRC company is required to set aside as statutory reserve funds at least 10% of its
after-tax profit, until the cumulative amount of such reserve funds reaches 50% of its registered capital unless laws regarding foreign investment provide
otherwise. A PRC company shall not distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal
years may be distributed together with distributable profits from the current fiscal year.
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C.
Organizational Structure
The chart below summarizes our corporate structure, including our principal subsidiaries, our VIEs and our VIEs’ principal subsidiaries, as
of the date of this annual report:
Equity interests (100% unless otherwise specified)
Contractual arrangements (For details. See “Item 4. Information on the Company—C. Organizational Structure—Contractual Arrangements with
Our Consolidated Affiliated Entities and Their Respective Shareholders.”)
Notes:
(1) Daqiao Network Technology (Hangzhou) Co., Ltd., Hangzhou Yuepeng Trading Co., Ltd., and Deqing Jijie Investment Management Partnership
(Limited Partnership) each holds 65.53%, 28.09%, and 6.38% of the equity interests in Yunji Sharing, respectively. All of these entities are
shareholders or affiliates of shareholders of our company. We plan to dissolve this entity in the future as it does not engage in substantial business
activities.
(2) Mr. Shanglue Xiao and Mr. Huan Hao each holds 99.0099% and 0.9901% of the equity interests in Yunji Preferred, respectively. Mr. Shanglue
Xiao and Mr. Huan Hao are both beneficial owners of our company. Mr. Shanglue Xiao also serves as the chairman of our board of directors and
the chief executive officer of our company and Mr. Huan Hao also serves as the chief technology officer of our company.
(3) Mr. Wenwei Shu holds 100% of equity interests in Hangzhou Chuanchou. Mr. Wenwei Shu is a nominee of our company.
(4) Mrs. Panyan Ding and Mr. Wenwei Shu each holds 60% and 40% of the equity interests in Hangzhou Fengjing. Mrs. Panyan Ding and
Mr. Wenwei Shu are nominees of our company.
(5) Yunchuang Sharing holds 10% of the equity interest in Zhejiang Jiyuan, and Zhejiang Fengji Technology Co., Ltd., an indirect wholly-owned
foreign-invested enterprise subsidiary of Yunji Inc., holds 90% of the equity interest in Zhejiang Jiyuan.
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The following is a summary of the currently effective contractual arrangements relating to Yunji Sharing, Yunji Preferred, Hangzhou
Chuanchou and Hangzhou Fengjing.
Contractual Arrangements with Our Consolidated Affiliated Entities and Their Respective Shareholders
Current PRC laws and regulations impose certain restrictions or prohibitions on foreign ownership of companies that engage in value-
added telecommunication services and certain other businesses. We are an exempted company incorporated in the Cayman Islands. Yunchuang Sharing
is our PRC subsidiary and a foreign-invested enterprise under PRC laws. To comply with PRC laws and regulations, we conduct certain of our business
in China through Yunji Sharing, Yunji Preferred, Hangzhou Chuanchou and Hangzhou Fengjing, our consolidated affiliated entities in the PRC, based
on a series of contractual arrangements by and among Yunchuang Sharing, our VIEs and their shareholders. We refer to Yunchuang Sharing as our
WFOE, and Yunji Sharing, Yunji Preferred, Hangzhou Chuanchou and Hangzhou Fengjing collectively as our VIEs in this annual report.
Our contractual arrangements with our VIEs and their respective shareholders allow us to (i) exercise effective control over our VIEs,
(ii) receive substantially all of the economic benefits of our VIEs, and (iii) have an exclusive option to purchase all or part of the equity interests in our
VIEs when and to the extent permitted by PRC law.
As a result of our direct ownership in our WFOE and the contractual arrangements with our VIEs, we are regarded as the primary
beneficiary of our VIEs, and we treat them and their subsidiaries as our consolidated affiliated entities under U.S. GAAP. We have consolidated the
financial results of our VIEs and their subsidiaries in our consolidated financial statements in accordance with U.S. GAAP.
Agreements that provide us with effective control over our VIEs
Proxy Agreement and Power of Attorney. Pursuant to the amended and restated proxy agreement and power of attorney, dated
December 14, 2018, among our WFOE, Yunji Preferred and the shareholders of Yunji Preferred, each of the shareholders of Yunji Preferred has
executed a power of attorney to irrevocably authorize our WFOE, or any person designated by our WFOE, to act as its attorney-in-fact to exercise all of
its rights as a shareholder of Yunji Preferred, including, but not limited to, the right to (i) convene and attend shareholders’ meetings, (ii) sign and
deliver written resolutions on behalf of such shareholder, (iii) vote on any resolution that requires shareholders to vote, such as the sale, transfer and
disposal of all or part of the assets owned by a shareholder, and (iv) sell, transfer, pledge or dispose all or part of a shareholder’s equity interests in Yunji
Preferred. The powers of attorney will remain effective until such shareholder ceases to be a shareholder of Yunji Preferred or otherwise instructed by
our WFOE.
On December 17, 2018, our WFOE, Yunji Sharing and the shareholders of Yunji Sharing entered into an amended and restated proxy
agreement and power of attorney, and each of the shareholders of Yunji Sharing executed a power of attorney, which contained terms substantially
similar to the proxy agreement and power of attorney by and among our WFOE, Yunji Preferred and the shareholders of Yunji Preferred described
above.
On October 23, 2020, our WFOE, Hangzhou Chuanchou and the shareholder of Hangzhou Chuanchou entered into a proxy agreement and
power of attorney, and the shareholder of Hangzhou Chuanchou executed a power of attorney, which contained terms substantially similar to the proxy
agreement and power of attorney by and among our WFOE, Yunji Preferred and the shareholders of Yunji Preferred described above.
On December 18, 2020, our WFOE, Hangzhou Fengjing and the shareholders of Hangzhou Fengjing entered into a proxy agreement and
power of attorney, and each of the shareholders of Hangzhou Fengjing executed a power of attorney, which contained terms substantially similar to the
proxy agreement and power of attorney by and among our WFOE, Yunji Preferred and the shareholders of Yunji Preferred described above.
Equity Interest Pledge Agreements. Pursuant to the amended and restated equity interest pledge agreement, dated December 14, 2018,
among our WFOE, Yunji Preferred and the shareholders of Yunji Preferred, the shareholders of Yunji Preferred have pledged 100% equity interests in
Yunji Preferred to our WFOE to guarantee performance by the shareholders of their obligations under the exclusive option agreement, the exclusive
service agreement, the proxy agreement and power of attorney, as well as the performance by Yunji Preferred of its obligations under the exclusive
option agreement and the exclusive service agreement. In the event of a breach by Yunji Preferred or any of its shareholders of contractual obligations
under these contractual arrangements, our WFOE, as pledgee, will have the right to dispose of the pledged equity interests in Yunji Preferred and will
have priority in receiving the proceeds from such disposal. The shareholders of Yunji Preferred also covenant that, without the prior written consent of
our WFOE, they will not dispose of, create or allow any encumbrance on the pledged equity interests. The equity interest pledge agreement will remain
effective until the pledges are released.
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On December 17, 2018, our WFOE, Yunji Sharing and the shareholders of Yunji Sharing entered into an amended and restated equity
interest pledge agreement, which contained terms substantially similar to the equity interest pledge agreement by and among our WFOE, Yunji Preferred
and the shareholders of Yunji Preferred described above.
On October 23, 2020, our WFOE, Hangzhou Chuanchou and the shareholder of Hangzhou Chuanchou entered into an equity interest
pledge agreement, which contained terms substantially similar to the equity interest pledge agreement by and among our WFOE, Yunji Preferred and the
shareholders of Yunji Preferred described above.
On December 18, 2020, our WFOE, Hangzhou Fengjing and the shareholders of Hangzhou Fengjing entered into an equity interest pledge
agreement, which contained terms substantially similar to the equity interest pledge agreement by and among our WFOE, Yunji Preferred and the
shareholders of Yunji Preferred described above.
We have completed the registration of the equity interest pledge under the amended and restated equity interest pledge agreements in
relation to each of Yunji Preferred and Yunji Sharing with the relevant office of the State Administration of Market Regulation. We are in the process of
applying the registration of the equity interest pledge under the equity interest pledge agreements in relation to each of Hangzhou Chuanchou and
Hangzhou Fengjing.
Agreements that allow us to receive economic benefits from our VIEs
Exclusive Service Agreements. Pursuant to the amended and restated exclusive service agreement, dated December 14, 2018, between our
WFOE and Yunji Preferred, our WFOE has the exclusive right to provide Yunji Preferred with operational supports as well as consulting and technical
services required by Yunji Preferred’s business. Without our WFOE’s prior written consent, Yunji Preferred may not accept the same or similar
operational supports as well as consulting and technical services provided by any third party during the term of the agreement. Yunji Preferred agrees to
pay our WFOE service fees at an amount determined by our WFOE in its sole discretion, which should be paid within ten business days upon receipt of
invoice from our WFOE. Our WFOE has the exclusive ownership of all the intellectual property rights created as a result of the performance of the
exclusive service agreement. To guarantee Yunji Preferred’s performance of its obligations thereunder, the shareholders of Yunji Preferred have pledged
all of their equity interests in Yunji Preferred to our WFOE pursuant to the equity interest pledge agreement. The exclusive service agreement has an
initial term of ten years and shall automatically renew at the end of each term for a further term of ten years, unless otherwise terminated by our WFOE
in its sole discretion with 30 days’ prior written notice.
On December 17, 2018, our WFOE and Yunji Sharing entered into an amended and restated exclusive service agreement, which contains
terms substantially similar to the exclusive service agreement between our WFOE and Yunji Preferred described above.
On October 23, 2020, our WFOE and Hangzhou Chuanchou entered into an exclusive service agreement, which contains terms
substantially similar to the exclusive service agreement between our WFOE and Yunji Preferred described above.
On December 18, 2020, our WFOE and Hangzhou Fengjing entered into an exclusive service agreement, which contains terms
substantially similar to the exclusive service agreement between our WFOE and Yunji Preferred described above.
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Agreements that provide us with the option to purchase the equity interests in and assets of our VIEs
Exclusive Option Agreements. Pursuant to the amended and restated exclusive option agreement, dated December 14, 2018, among our
WFOE, Yunji Preferred and the shareholders of Yunji Preferred, each of the shareholders has irrevocably granted our WFOE an exclusive option to
purchase all or part of its equity interests in Yunji Preferred, and Yunji Preferred has irrevocably granted our WFOE an exclusive option to purchase all
or part of its assets. Our WFOE may exercise such options at a price equal to the loan provided by our WFOE to the shareholders of Yunji Preferred,
which price may be adjusted based on the proportion of the equity interests or assets to be transferred. Yunji Preferred and the shareholders of Yunji
Preferred covenant that, without our WFOE’s prior written consent, they will not, among other things, (i) create any pledge or encumbrance on their
equity interests in Yunji Preferred, other than those created under the equity interest pledge agreement, (ii) transfer or otherwise dispose of their equity
interests in Yunji Preferred, (iii) change Yunji Preferred’s registered capital, (iv) amend Yunji Preferred’s articles of association, (v) dispose any assets of
Yunji Preferred or enter into any material contract (except in the ordinary course of business), or (vi) merge Yunji Preferred with any other entity. The
exclusive option agreement has an initial term of ten years and shall automatically renew at the end of each term for a further term of ten years, unless
otherwise terminated by our WFOE in its sole discretion with ten days’ prior written notice.
On December 17, 2018, our WFOE, Yunji Sharing and the shareholders of Yunji Sharing entered into an amended and restated exclusive
option agreement, which contained terms substantially similar to the exclusive option agreement by and among our WFOE, Yunji Preferred and the
shareholders of Yunji Preferred described above, except that our WFOE may exercise the options to purchase the equity interests and assets of Yunji
Sharing at the price of RMB1.00 or the lowest price permitted under applicable PRC law.
On October 23, 2020, our WFOE, Hangzhou Chuanchou and the shareholder of Hangzhou Chuanchou entered into an exclusive option
agreement, which contained terms substantially similar to the exclusive option agreement by and among our WFOE, Yunji Preferred and the
shareholders of Yunji Preferred described above, except that our WFOE may exercise the options to purchase the equity interests and assets of
Hangzhou Chuanchou at the price of RMB1.00 or the lowest price permitted under applicable PRC law.
On December 18, 2020, our WFOE, Hangzhou Fengjing and the shareholders of Hangzhou Fengjing entered into an exclusive option
agreement, which contained terms substantially similar to the exclusive option agreement by and among our WFOE, Yunji Preferred and the
shareholders of Yunji Preferred described above, except that our WFOE may exercise the options to purchase the equity interests and assets of
Hangzhou Fengjing at the price of RMB1.00 or the lowest price permitted under applicable PRC law.
Loan Agreement. Pursuant to the loan agreement, dated December 14, 2018, between our WFOE and the shareholders of Yunji Preferred,
our WFOE made loans in an aggregate amount of RMB12.12 million to the shareholders of Yunji Preferred for the sole purpose of making capital
contribution to Yunji Preferred. The shareholders of Yunji Preferred can only repay the loans by the sale of all or part of their equity interests in Yunji
Preferred to our WFOE or its designated person pursuant to the amended and restated exclusive option agreement, and, to the extent
permitted under PRC law, pay all of the proceeds from sale of such equity interests to our WFOE. In the event that the shareholders of Yunji Preferred
sell their equity interests in Yunji Preferred to our WFOE or its designated person at a purchase price equal to or less than the principal amount of the
loans, the loans will be interest free and the loans shall be deemed to be duly repaid. If the purchase price is higher than the principal amount of the
loans, the excess amount will be deemed as interest on the loans and shall be paid to our WFOE. The term of the loan agreement is ten years from the
date of the loan agreement, which may be extended upon mutual agreement.
Spousal Consent Letters. The spouses of the shareholders of Yunji Preferred have each signed a spousal consent letter agreeing that the
equity interests in Yunji Preferred held by and registered under the name of the respective shareholders will be disposed pursuant to the contractual
agreements with our WFOE. Each spouse agreed not to assert any rights over the equity interest in Yunji Preferred held by the respective shareholder.
Mr. Wenwei Shu, the sole shareholder of Hangzhou Chuanchou and one of the shareholders of Hangzhou Fengjing, has no spouse yet. The spouse of
Mrs. Panyan Ding, the other shareholder of Hangzhou Fengjing, has signed a spousal consent letter agreeing that the equity interests in Hangzhou
Fengjing held by and registered under the name of Mrs. Ding will be disposed pursuant to the contractual agreements with our WFOE. The spouse of
Mrs. Ding agreed not to assert any rights over the equity interest in Hangzhou Fengjing held by Mrs. Ding.
In the opinion of Han Kun Law Offices, our PRC legal counsel:
•
the ownership structures of our VIEs in China and our WFOE are not in violation of applicable PRC laws and regulations currently
in effect; and
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•
the contractual arrangements between our WFOE, our VIEs and their respective shareholders governed by PRC law are valid,
binding and enforceable, and will not result in any violation of applicable PRC laws and regulations currently in effect.
However, our PRC legal counsel has also advised us that there are substantial uncertainties regarding the interpretation and application of
current and future PRC laws, regulations and 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 any new 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 VIEs are found to be in violation of any existing or future PRC laws or regulations, or fail to obtain or
maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with
such violations or failures. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—If the PRC government finds
that the agreements that establish the structure for operating some of our operations in China do not comply with PRC regulations relating to the relevant
industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to
relinquish our interests in those operations.” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Uncertainties
with respect to the PRC legal system and changes in laws and regulations in China could adversely affect us.”
D.
Property, Plant and Equipment
We are headquartered in Hangzhou, China and have leased an aggregate of approximately 10,257 square meters of office space in
Hangzhou. As of the date of this annual report, we have also leased an aggregate of approximately 2,998 and 5,446 square meters of office space in
Hefei and Shenzhen, China, respectively.
As of December 31, 2020, warehouse facilities in our fulfillment network included three central warehouses and 14 regional warehouses in
China. We engage third-party vendors for all of our warehouse facilities in 11 cities with an aggregate floor area of approximately 107,800 square
meters, including providing physical space for such facilities and operating the day-to-day activities of such facilities.
We will adjust our fulfillment infrastructure as needed over the next several years to accommodate our future business expansion plans,
further improve logistic efficiency and enhance customer experience.
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial
statements and the related notes included elsewhere in this annual report on Form 20-F. This discussion may contain forward-looking statements based
upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those set forth under “Item 3. Key Information—D. Risk Factors” or in other parts of this annual
report on Form 20-F.
A.
Operating Results
We operate a social e-commerce platform in China using a unique, membership-based model that leverages the power of social interaction.
We offer high-quality products at attractive prices and incentivize our members to promote our platform and share our products with their social
contacts. We generate our revenues mainly by selling the products on our platform to users, including members and non-member users, and earning
commissions on the sales of products by third-party merchants on our platform under our marketplace business that launched in the first quarter of 2019.
Our total revenues were RMB13,015.2 million, RMB11,672.0 million and RMB5,530.3 million (US$847.5 million) in 2018, 2019 and
2020, respectively. The decreases in total revenues in 2019 and 2020 were primarily due to decreases in revenues from sales of merchandise as we
shifted portions of our merchandise sales business to our marketplace business whereby third-party merchants can sell products on our platform and pay
us commissions on their sales. Revenues generated under the marketplace business were recognized on a net basis, while revenues generated under our
merchandise sales business were recognized on a gross basis. We recorded net loss of RMB151.7 million (US$23.2 million), RMB123.8 million and
RMB56.3 million in 2020, 2019, and 2018, respectively.
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Key Factors Affecting Our Results of Operations
Our results of operations and financial condition are affected by the general factors affecting China’s retail industry, including, among
others, China’s overall economic growth, the increase in per capita disposable income, the growth in consumer spending and consumption upgrade, and
the competitive environment in China. In addition, they are also affected by factors driving online retail in China, such as the growing number of online
shoppers, the improved logistics infrastructure and the increasing adoption of mobile payments. Unfavorable changes in any of these general factors
could materially and adversely affect our results of operations.
While our business is influenced by general factors affecting our industry, our results of operations are more directly affected by company
specific factors, including the following major factors:
Our ability to attract members and users and increase their activities
Attracting, engaging and retaining users have been one of our key focuses since our inception. We measure our effectiveness in attracting,
engaging and retaining users through several key performance indicators, including the number of buyers who place orders on our platform, the number
of orders we fulfill and the number of orders fulfilled by the third-party merchants selling products under our marketplace business. Our ability to attract
and retain users and increase user activities depends on our ability to continue to offer carefully curated authentic products at attractive prices, provide
superior shopping and social experience, and promote and enhance community value among members and other users. We have been able to build a
large base of users through, among other means, word-of-mouth referrals via our members’ social networks and both online and offline interactive
events. Only when our members are satisfied with the products and experience on our platform, would they stay active on our platform, and in turn
promote our products and recommend platform to their family, friends and other social contacts. To grow our user base and keep them engaged, we have
implemented a distinctive product offering strategy whereby we offer broad coverage of product categories with an aim of catering to the various daily
needs of users and their households, but carefully select items within each category meeting the preferences of users with attractive pricing, and we
design our sales formats to meet our members’ evolving needs and preferences. We also facilitate communications among members based on
geographical location or shared interest. Furthermore, we provide incentives and organize campaign activities to enhance user activities.
Our ability to manage product offerings and supply chain
Our results of operations are also affected by whether we can successfully implement our product selection strategy and manage our
product offerings. We offer broad coverage of product categories to cater to the various daily needs of our users and their households, but provide
carefully curated items within each category to meet the preferences of our users. In December 2020, we offered an average of 17,090 SPUs on our
platform on a daily basis, including products of mainstream brands, emerging brands and our own brands. While we will continue to work with
reputable brand owners with good track records, we intend to broaden and deepen our cooperation with high-quality manufacturing partners to increase
our offering of private label products. We review and continually monitor the performance of each SPU, supplier and third-party merchant, and carefully
manage the mix of products we offer, based on a number of metrics such as the preferences of users, revenue contribution and margin.
We make continual efforts to maintain and improve an efficient cost structure and create incentives for our suppliers and third-party
merchants to provide us and our members with competitive prices. As our business further grows in scale, we strive to obtain more favorable terms from
suppliers, including pricing terms and volume-based rebates. In addition, we aim to create value for our suppliers and third-party merchants by
providing an effective channel for selling large volumes of their products online and by offering them comprehensive information on customer
preferences and market demand and ensuring the high quality of fulfillment services. We believe this value proposition also helps us obtain favorable
terms from suppliers and third-party merchants.
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Our Ability to Manage Our Mix of Product and Service Offerings
Our results of operations are also affected by the mix of products and services we offer. We commenced our e-commerce business by
primarily selling products directly on our platform to users, including both members and non-members. We launched our marketplace business in the
first quarter of 2019 whereby third-party merchants can sell products on our platform and pay us commissions on their sales. We offer a wide range of
products and services and aim to provide one-stop shopping to maximize our wallet share. Our mix of products and services also affects our gross
margin. Revenues generated under the marketplace business were recognized on a net basis, while revenues generated under our merchandise sales
business were recognized on a gross basis. The split between our merchandise sales business and our marketplace business thus has a major influence on
our revenue growth and our gross margins. We intend to further expand our selection of general merchandise products and attract more quality third-
party merchants to our marketplace business.
Our ability to conduct sales and marketing efficiently
A key advantage of our business model that distinguishes us from many other players in China’s e-commerce industry is our ability to
leverage our members’ social networking activities to conduct sales and marketing efficiently. We provide incentives to members for promoting our
products and inviting new members through their social networks, and the referral incentives are recorded as reduction of our revenues. We outsource
some member services to third-party service companies, which select, hire and train service managers to provide the services. Most of the service
managers are members. We pay member management fees to the third-party service companies for their product sales facilitation services. The member
management fees have accounted for the substantial majority of our sales and marketing expenses.
In addition, we intend to invest more efforts in marketing and brand promotion activities both online and offline. Such initiatives would
not only support an increase in the number and activities of our members, but also allow us to expand our user base to reach a broader range of online
purchasers. We believe an increase in the number of users accessing and making purchases on our platform, whether or not they are members, would
result in significant growth in our revenues and scale.
Our ability to fulfill orders cost-effectively
Our results of operations depend in part on our ability to fulfill orders quickly and accurately, as it is an important part of a compelling
customer experience. We provide centralized and comprehensive fulfillment and customer service to users primarily through collaboration with
contracted third-party vendors. As of December 31, 2020, warehouse facilities in our fulfillment network included three central warehouses and 14
regional warehouses, with an aggregate gross floor area of approximately 107,800 square meters in 11 cities. In the first quarter of 2019, we launched
our marketplace business, allowing third-party merchants to sell their products on our platform and pay commissions on their sales to us. Unlike our
merchandise sales business where we handle the fulfillment process for the products sold, substantially all of the third-party merchants under our
marketplace business handle the fulfillment logistics for their products sold on our platform, thereby lessening the demand for expansion of our
fulfillment infrastructure. We have started and will continue integrating and consolidating our warehouse facilities to improve the efficiency in fulfilling
orders placed from all areas in China under our merchandise sales business and to enhance customer experience. We have primarily relied on third-party
logistics service providers to operate the warehouses and provide last-mile delivery, third-party online payment platforms to provide various payment
options, and BPO arrangements to provide customer services. As our user base grows and business evolves, we may invest more resources in operating
fulfillment facilities and hiring our own personnel to better meet the demands of our anticipated growth, and we must make such investments in a cost-
effective manner.
Our ability to effectively invest in technology
We have invested, and will continue to invest, in research and development and technology. As our business grows, and as we continue to
expand and enhance our platform, we will continue to invest in personnel with expertise in big data analytics and AI technologies, and other research
and development personnel. In addition, we have dedicated and will continue to dedicate resources to research and development efforts, focusing on
developing innovative applications and solutions aimed at providing more convenience to users, further enhancing our supply chain management
capabilities and increasing our operational efficiency. Moreover, we will also continue to invest resources in the development of our technology
infrastructure to support the growth of our business.
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Impact of COVID-19 On Our Operations
Substantially all of our revenues are derived from online retail sales in China. Our results of operations and financial condition in 2020,
and in the first quarter of 2020 in particular, were affected by the outbreak of COVID-19 that severely impacted China and the rest of the world
beginning in January 2020. In early 2020, the COVID-19 pandemic resulted in the temporary closure of many corporate offices, retail stores, and
manufacturing facilities across China. Given the strict implementation of quarantine measures during this period, we, our suppliers, third-party
merchants, third-party logistics service providers and other business partners experienced various degrees of temporary shutdowns and delays in
commencement of operations. In addition, during this period of outbreak, the level of engagement of our members and users declined compared to the
prior period due to the COVID-19 outbreak; our ability to fulfill orders cost-effectively were adversely affected; and we experienced difficulties in
maintaining our desired efficient cost structure and creating incentives for our suppliers and third-party merchants to provide us and our members with
competitive prices, as we work to ensure supply availability, maintain price stability, and prevent price gouging of daily essential items and epidemic
containment materials on our platform to support the well-being of our members and users.
Many of the quarantine measures within China have since been relaxed, and we, together with our suppliers, third-party merchants, third-
party logistics service providers and other business partners, have gradually resumed normal operations since early March 2020 The COVID-19 global
pandemic has resulted in, and may intensify, global economic distress, and the duration and extent of the impact of COVID-19 outbreak is highly
uncertain at this time. The extent to which it may affect our results of operations, especially our product mix, our financial condition and our cash flows
will depend on the future development of the outbreak, which is also highly uncertain and difficult to predict and will depend on a number of factors,
including the duration and severity of COVID-19, the extent and severity of new waves of outbreak in China and other countries, the development and
progress of distribution of COVID-19 vaccine and other medical treatment and the effectiveness of such vaccine and other medical treatment, and the
actions taken by government authorities to contain the outbreak, all of which are beyond our control. If the situation materially deteriorates in China or
globally, our business, results of operations and financial condition could be materially and adversely affected. In particular, recently there have been
new waves of outbreaks in various cities in China and if the situation materially deteriorates in China, the Chinese government may again implement
strict quarantine measures to contain the new waves of outbreak and our operations and the operations of our business partners may be materially and
adversely affected.
As of December 31, 2020, we had cash, cash equivalents and restricted cash of RMB1,189.7 million (US$182.3 million). We believe this
level of liquidity is sufficient to successfully navigate an extended period of uncertainty.
See “Item 3. Key Information—3.D. Risk Factors—Risks Related to Our Business and Industry—We face risks related to natural disasters,
health epidemics and other outbreaks, which could significantly disrupt our operations.”
Key Components of Results of Operations
Revenues
Revenues are comprised of sale of merchandise, net, membership program revenue, marketplace revenue and other revenues. The
following table sets forth the components of our revenues by amounts and percentages of our total revenues for the periods presented:
2018
2019
For the Year Ended December 31,
RMB
%
RMB
RMB
(in thousands, except for percentages)
%
2020
US$
%
Revenues:
Sale of merchandise, net
Membership program revenue
Marketplace revenue
Other revenues
Total
11,388,425 87.5 10,548,322 90.3 4,829,397 740,138 87.3
6.7
1,552,437 11.9
0.8
2.7 599,895 91,938 10.8
0.0
—
1.1
0.3
0.6
74,363
13,015,225 100.0 11,672,024 100.0 5,530,257 847,549 100.0
776,839
311,914
34,949
58,527
42,438
6,503
8,970
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Revenues generated from sales of most products on our platform are recorded as revenues from sale of merchandise, net of discounts,
coupons, referral incentives provided to members, return allowances and VAT. We acquire products from suppliers and sell them to users. We expect
revenues generated from sale of merchandise will continue to account for a majority of our total revenues.
We earn membership fees from our members, who pay a fixed fee in exchange for (1) a package of selected products, (2) the right to
receive member exclusive discounts for products sold on our flagship Yunji app, (3) access rights to our flagship Yunji app and its member-exclusive
features, (4) the right to receive units of Yun-coin upon a successful new member referral, (5) member exclusive training, and (6) certain units of
Yun-coin. Yun-coin can only be used as credits when making purchases on our platform, with one unit of Yun-coin representing RMB1.00. Yun-coins
cannot be redeemed for cash. Members may transfer Yun-coins to others for free. In order to stimulate our users’ interest in transacting on our platform
and attract more members, in 2019, we provided each non-member user with a free three-month experiential period during which time the user had
access to the full spectrum of membership benefits. After the three-month experiential period, the user could become our member if he or she met a
certain cumulative spending threshold or certain other requirements during the experiential period or if he or she purchased one of our membership
packages. Starting in January 2020, we further refined our membership enrollment system by allowing any user to become a member and enjoy
membership benefits free of charge for one year by simply registering for an account on the Yunji app. If the user meets a certain cumulative spending
threshold or certain other requirements during the initial one-year period, the user may extend his or her membership for an extra year. As a result of the
refinement of our membership enrollment system in 2020, revenues from membership program in 2020 were from deferred revenue of prior paying
members. We have ceased allowing users to become members free of charge since April 1, 2021. We currently require new users and renewing members
to pay an annual membership fee to become or continue as a member and enjoy membership benefits. In addition, current members who became
members through purchasing a membership package are now referred to as our diamond members and enjoy free lifelong membership and membership
benefits. Other current members could also become diamond members if they spend RMB398 or more by the earlier of (i) the expiration date of their
current membership and (ii) December 31, 2021.
In the first quarter of 2019, we launched our marketplace business, allowing third-party merchants to sell their products on the platform
and pay commissions on their sales to us. The revenues from the marketplace business is recognized on a net basis.
Other revenues include revenues earned on net basis from sales of certain products on our platform, such as air tickets, tourist attractions
tickets, cruise, group tour, hotel reservation and car insurance policies and revenues generated from offering loans to qualified customers.
Operating Cost and Expenses
Operating cost and expenses consist primarily of cost of revenues, fulfillment expenses, sales and marketing expenses, research and
development expenses, and general and administrative expenses. The following table sets forth the components of our operating expenses by amounts
and percentages of total revenues for the periods presented:
2018
2019
For the Year Ended December 31,
RMB
%
RMB
RMB
(in thousands, except for percentages)
%
2020
US$
%
Operating Cost and Expenses:
Cost of revenues
Fulfillment
Sales and marketing
Technology and content
General and administrative
Total
10,706,596 82.3 9,249,474 79.2 3,939,997 603,830 71.2
8.1
1,162,051
8.9
7.3 1,187,462 10.2 806,140 123,546 14.6
955,128
3.7
1.1
143,645
4.7
1.1
147,208
13,114,628 100.8 11,995,473 102.8 5,660,935 867,575 102.3
2.7 202,817 31,083
2.4 261,877 40,135
8.3 450,104 68,981
315,167
277,487
965,883
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Cost of revenues. Cost of revenues consists of purchase price of merchandise, inbound shipping charges, write-downs of inventory and
member training costs. Inbound shipping charges to receive merchandise from suppliers are included in the inventories, and recognized as cost of
revenues upon sale of the merchandise to the customers.
Fulfillment expenses. Fulfillment expenses represent packaging material costs and those costs incurred in outbound shipping, operating
and staffing our fulfillment and customer service centers, including costs attributable to buying, receiving, inspecting and warehousing inventories,
picking, packaging and preparing customer orders for shipment, processing payment and related transaction costs and responding to inquiries from
customers, depreciation expenses, payroll costs including share-based compensation expenses, and other daily expenses which are related to the
purchasing functions. Fulfillment costs also contain third-party payment transaction fees, such as bank card processing and debit card processing fees.
Sales and marketing expenses. Sales and marketing expenses comprise primarily of member management fees, promotion expenses,
marketplace coupons, payroll costs including share-based compensation expenses, depreciation expenses and other daily expenses which are related to
the sales and marketing functions. We engage third-party vendors to provide member management services, which are ultimately performed by service
managers who enter into employment contracts with the third-party vendors. Certain of our members (customers) have been engaged by third-party
vendors to serve as service managers. We have concluded that the member management services provided by the service managers, including those who
are also members, are for distinct services at fair value, and records the member management fees paid to the third-party vendors as sales and marketing
expenses.
Technology and content expenses. Technology and content expenses are expensed as incurred and primarily consist of payroll costs
including share-based compensation expenses, rental expenses, costs associated with the computing, storage and telecommunications infrastructure for
internal use that support our system and the services of our apps and other expenses related to the technology and content functions, which are
responsible for technology research and development and content editing. We account for internal use software development costs in accordance with
guidance on intangible assets and internal use software. This requires capitalization of qualifying costs incurred during the software’s application
development stage and to expense costs as they are incurred during the preliminary project and post implementation/operation stages. Costs capitalized
for developing such software application were not material for the periods presented in this annual report.
General and administrative expenses. General and administrative expenses consist of payroll costs including share-based compensation
expenses and other expenses which are related to the general corporate functions, including accounting, finance, tax, legal and human relations, costs
associated with use by these functions of facilities and equipment, such as depreciation expenses, rental and other general corporate related expenses.
Taxation
Cayman Islands
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is
no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman
Islands except for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of the Cayman
Islands. There are no exchange control regulations or currency restrictions in the Cayman Islands. In addition, the Cayman Islands does not impose
withholding tax on dividend payments.
Hong Kong
Our subsidiary incorporated in Hong Kong, Yunji Hong Kong Limited, is subject to 16.5% Hong Kong profit tax on their taxable income
generated from operations in Hong Kong. Under the Hong Kong tax laws, we are exempted from the Hong Kong income tax on our foreign-derived
income. In addition, payments of dividends from our Hong Kong subsidiary to us are not subject to any Hong Kong withholding tax. No provision for
Hong Kong profits tax was made as we had no estimated assessable profit that was subject to Hong Kong profits tax during 2016 and 2017.
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PRC
In accordance with PRC Enterprise Income Tax Law, foreign-invested enterprises and domestic companies are subject to enterprise
income tax on their taxable income at a statutory rate of 25%. In accordance with the implementation rules of PRC Enterprise Income Tax Law, a
qualified “High and New Technology Enterprise” is eligible for a preferential tax rate of 15%. The “High and New Technology Enterprise” certificate is
effective for a period of three years. An entity may re-apply for the “High and New Technology Enterprise” certificate when the prior certificate expires.
Jishang Preferred obtained its “High and New Technology Enterprise” certificate on November 30, 2018. Therefore, Jishang Preferred is
eligible to enjoy a preferential tax rate of 15% from 2018 to 2020 to the extent it has taxable income under the PRC Enterprise Income Tax Law, as long
as it maintains the “High and New Technology Enterprise” qualification and duly conducts relevant tax filing procedures with the relevant tax authority.
From July 2019, Jishang Preferred started to function as a Procurement company within the Group and is not able to continue its status as an HNTE to
enjoy a preferential tax rate of 15% since 2019.
Our other PRC subsidiaries, VIEs and their subsidiaries are subject to the statutory income tax rate of 25%.
In accordance with the relevant laws and regulations promulgated by the SAT effective from 2008 onwards, enterprises engaging in
research and development activities are entitled to claim 150% of their qualified research and development expenses so incurred as tax deductible
expenses when determining their assessable profits for the year. The additional deduction of 50% of qualified research and development expenses can
only be claimed directly in the annual tax filing and subject to the approval from the relevant tax authorities. Effective from 2018 onwards, enterprises
engaging in research and development activities are entitled to claim 175% of their qualified research and development expenses so incurred as tax
deductible expenses. The additional deduction of 75% of qualified research and development expenses can be directly claimed in the annual tax filing.
We are subject to value-added tax rate of 13% on our sales of products (which was 16% prior to April 1, 2019), and 6% on the services
provided to members (such as technology support, product promotion consulting and support, online training, customer service and order fulfillment), in
each case less any deductible value-added tax we have already paid or borne. While we generate a portion of our revenues by selling products to end
users through member referrals, such referrals are treated as if selling products to members while the members being deemed as selling products to end
users on a consignment basis under PRC tax law. We are also subject to surcharges on value-added tax payments in accordance with the PRC tax law.
Dividends paid by our WFOE to our intermediary holding company in Hong Kong will be subject to a withholding tax rate of 10%, unless
the relevant Hong Kong entity satisfies all the requirements under the Arrangement between China and the Hong Kong Special Administrative Region
on the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income and Capital and receives approval from the
relevant tax authority. If our Hong Kong subsidiary satisfies all the requirements under the tax arrangement and receives approval from the relevant tax
authority, then the dividends paid to the Hong Kong subsidiary would be subject to withholding tax at the standard rate of 5%. Effective from
November 1, 2015, the above mentioned approval requirement has been abolished, but a Hong Kong entity is still required to file application package
with the relevant tax authority, and settle the overdue taxes if the preferential 5% tax rate is denied based on the subsequent review of the application
package by the relevant tax authority. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—We may rely on
dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation
on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business.”
If our holding company in the Cayman Islands or any of our subsidiaries outside of China were deemed to be a “resident enterprise” under
the PRC Enterprise Income Tax Law, it would be subject to enterprise income tax on its worldwide income at a rate of 25%. See “Item 3. Key
Information— D. Risk Factors—Risks Related to Doing Business in China—If we are classified as a PRC resident enterprise for PRC income tax
purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders or ADS holders.”
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Results of Operations
The following table sets forth a summary of our consolidated results of operations for the periods presented, both in absolute amount and
as a percentage of our total revenues for the periods presented. This information should be read together with our consolidated financial statements and
related notes included elsewhere in this annual report. The results of operations in any period are not necessarily indicative of our future trends.
For the Year Ended December 31,
2018
RMB
2019
RMB
2020
RMB
US$
(in thousands, except for per share data)
Consolidated Statements of Operations Data:
Revenues:
Sale of merchandise, net
Membership program revenue
Marketplace revenue
Other revenues
Total revenues
Operating cost and expenses(1):
Cost of revenues
Fulfilment
Sales and marketing
Technology and content
General and administrative
Total operating cost and expenses
Other Operating Income(2)
Loss from operations
Financial income/(expense), net
Foreign exchange loss, net
Other non-operating income/(loss), net
Loss before income tax expense, and equity in income of affiliates, net of tax
Income tax (expense)/benefit
Equity in income/(loss) of affiliates, net of tax
Net loss
Notes:
(1)
Share-based compensation expenses were allocated as follows:
11,388,425 10,548,322 4,829,397 740,138
6,503
1,552,437
599,895 91,938
—
8,970
74,363
13,015,225 11,672,024 5,530,257 847,549
776,839
311,914
34,949
42,438
58,527
(965,883)
(955,128) (1,187,462)
(315,167)
(143,645)
(277,487)
(147,208)
(10,706,596) (9,249,474) (3,939,997) (603,830)
(450,104) (68,981)
(1,162,051)
(806,140) (123,546)
(202,817) (31,083)
(261,877) (40,135)
(13,114,628) (11,995,473) (5,660,935) (867,575)
33,218
5,091
(97,460) (14,935)
(1,314)
(8,571)
(141)
(919)
(247)
(1,610)
(108,560) (16,637)
(6,022)
(586)
(151,692) (23,245)
68,646
(254,803)
121,370
(12,397)
8,497
(137,333)
16,720
(3,221)
(123,834)
7,048
(92,355)
46,068
(685)
—
(46,972)
(12,346)
2,992
(56,326)
(39,298)
(3,834)
For the Year Ended December 31,
2020
2018
RMB
2019
RMB
RMB
US$
Sales and marketing
Technology and content
General and administrative
Fulfillment
Total
(in thousands)
3,192
4,434
41,932
4,742
54,300
29,884
10,562
79,011
8,740
128,197
12,362
8,887
71,777
5,352
98,378
1,792
1,288
10,403
776
14,259
(2)
Starting from 2020, we present government grants, which are received from local government to support and reward our ongoing business and
operations, as other operating income instead of other non-operating income/(loss), net. The relevant item in the prior year periods of RMB 7,048
and RMB 43,599 for the year ended December 31, 2018 and 2019, respectively, are also reclassified from other non-operating income/(loss), net
to other operating income, to be in conformity with the presentation for the year ended December 31, 2020.
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Year ended December 31, 2020 compared to year ended December 31, 2019
Revenues
Our revenues decreased by 52.6% from RMB11,672.0 million in 2019 to RMB5,530.3 million (US$847.5 million) in 2020, primarily due
to a decrease in revenues from sales of merchandise as a result of an increase in the proportion of our business contributed from our marketplace
business, which was launched in the first quarter of 2019. Marketplace revenue was generated on the marketplace business platform and recognized on a
net basis, while sale of merchandise, net was generated on the merchandise sales platform and recognized on a gross basis. The number of orders
fulfilled under our merchandise sales business decreased by 32.1% from 166.6 million in 2019 to 113.2 million in 2020 and the number of orders
fulfilled by third-party merchants under the marketplace business grew by 90.2% from 34.6 million in 2019 to 65.8 million in 2020. The number of
buyers decreased slightly from 22.5 million in 2019 to 17.4 million in 2020. Our GMV increased by 1.8% from RMB35.3 billion in 2019 to
RMB35.9 billion in 2020. The decrease in total number of orders fulfilled by us and by third-party merchants and the decrease in the number of buyers
from 2019 to 2020 are mainly attributable to the fact that a significant portion of the new members and users we attracted to our platform in 2019
through large-scale user acquisition campaigns did not become loyal members of our platform and subsequently left our platform in 2020. Starting in
2020, we have placed more emphasis on enhancing member and user loyalty and activities, which contributed to the increase in GMV in 2020 compared
to 2019 despite the decrease in number of buyers during the same period.
•
•
Revenue from sale of merchandise, net. Our revenue from sale of merchandise, net decreased by 54.2% from RMB10,548.3 million
in 2019 to RMB4,829.4 million (US$740.1 million) in 2020 due to a portion of merchandise sales shifted to marketplace business
platform as we continued to reallocate our internal resources to accommodate the increase of marketplace business and to further
improve the operational efficiencies on our platform.
Revenue from membership programs. Membership program revenue decreased by 94.5% from RMB776.8 million in 2019 to
RMB42.4 million (US$6.5 million) in 2020, primarily due to our ongoing refinement of our membership enrollment system.
Beginning in January 2020, we have allowed any user to become a member and enjoy membership benefits free of charge for one
year by simply registering for an account on the Yunji app. Revenues from the membership program in 2020 were from the deferred
revenue of prior paying members.
•
Revenue from marketplace business. Revenue from the marketplace business increased by 92.3% from RMB311.9 million in 2019 to
RMB599.9 million (US$91.9 million) in 2020, primarily due to the increased number of popular brands and merchants on our
platform and the increased sales through a diverse range of sales channels on other platforms.
•
Other revenues. Other revenues increased by 67.5% from RMB34.9 million in 2019 to RMB58.5 million (US$9.0 million) in 2020.
Operating cost and expenses
Our total operating cost and expenses decreased by 52.8% from RMB11,995.5 million in 2019 to RMB5,660.9 million (US$867.6 million)
in 2020. This decrease was due to decreases in all of our operating cost and expenses line items.
•
Cost of revenues. Our cost of revenues decreased by 57.4% from RMB9,249.5 million, representing 79.2% of our total revenues, in
2019 to RMB3,940.0 million (US$603.8 million), representing 71.2% of our total revenues, in 2020, which was mainly attributable
to the decline in our merchandise sales, which recognize revenues on a gross basis.
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•
Fulfillment expenses. Our fulfillment expenses decreased by 53.4% from RMB965.9 million, representing 8.3% of our total
revenues, in 2019 to RMB450.1 million (US$69.0 million), representing 8.1% of our total revenues, in 2020. This decrease was
primarily attributable to (i) reduced warehousing and logistics expenses due to lower merchandise sales and improved logistics
efficiency, (ii) decreased service fees charged by third-party payment settlement platforms as we secured lower transaction fee rates,
(iii) reduced personnel costs due to headcount optimization and (iv) decreased share-based compensation expenses, which included a
reversal of RMB8.9 million in share-based compensation expenses that had been recognized in 2019.
•
Sales and marketing expenses. Our sales and marketing expenses decreased by 32.1% from RMB1,187.5 million, representing
10.2% of our total revenues, in 2019 to RMB806.1 million (US$123.5 million), representing 14.6% of our total revenues, in 2020.
The decrease in sales and marketing expenses was primarily attributable to the reduction in member management fees as a result of
improvements to our member management efficiency. This decrease was partially offset by an increase in business promotion
expenses, which resulted from our efforts to attract more popular brands and merchants to our marketplace business through the
execution of more business development activities.
•
Technology and content expenses. Our technology and content expenses decreased by 35.6% from RMB315.2 million, representing
2.7% of our total revenues, in 2019 to RMB202.8 million (US$31.1 million), representing 3.7% of our total revenues, in 2020,
primarily due to (i) reduced server costs resulting from the better contract terms that we secured with our server providers, and
(ii) reduced personnel costs as a result of headcount optimization.
•
General and administrative expenses. Our general and administrative expenses decreased by 5.6% from RMB277.5 million,
representing 2.4% of our total revenues, in 2019 to RMB261.9 million (US$40.1 million), representing 4.7% of our total revenues, in
2020. The decrease was primarily attributable to reduced personnel costs as a result of headcount optimization, and decreased share-
based compensation expenses, which included a reversal of RMB25.9 million in share-based compensation expenses that had been
recognized in 2019. The decrease was partially offset by higher professional service fees.
Loss from operations
Our loss from operations was RMB97.5 million (US$14.9 million) in 2020, compared to RMB254.8 million in 2019. The decrease in our
loss from operations was primarily due to improvements in our operating efficiency.
Financial income/(loss), net
Our financial loss, net was RMB8.6 million (US$1.3 million) in 2020, compared to financial income, net of RMB121.4 million in 2019 as
a result of a decrease in the readily determinable fair value of our investment in the equity securities of a Hong Kong listed Company, GXG(1817.HK).
Foreign exchange loss, net
We recorded foreign exchange loss, net of RMB0.9 million (US$0.1 million) in 2020, compared to RMB12.4 million in 2019 primarily
due to the depreciation of U.S. dollar against the Renminbi.
Income tax benefit/(expense)
We recorded income tax expense of RMB39.3 million (US$6.0 million) in 2020, compared to income tax benefit of RMB16.7 million in
2019, primarily due to the increase in the valuation allowance as it was more likely than not that we will not be able to utilize tax loss carry forwards
generated by certain unprofitable subsidiaries.
Net loss
As a result of the foregoing, we recorded net loss of RMB151.7 million (US$23.2 million) in 2020, compared to RMB123.8 million in
2019.
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Year ended December 31, 2019 compared to year ended December 31, 2018
Revenues
Our revenues decreased by 10.3% from RMB13,015.2 million in 2018 to RMB11,672.0 million in 2019, primarily due to a decrease in
revenues from sales of merchandise as a result of an increase in the proportion of our business contributed from our marketplace business platform,
which was launched in the first quarter of 2019. Marketplace revenue was generated on the marketplace business platform and recognized on a net basis,
while sale of merchandise, net was generated on the merchandise sales platform and recognized on a gross basis. The number of orders fulfilled under
our merchandise sales business grew by 8.5% from 153.4 million in 2018 to 166.6 million in 2019 and the number of orders fulfilled by third-party
merchants under the marketplace business in 2019 was 34.6 million. The significant increase in the total number of orders fulfilled by us and our third-
party merchants in 2019 was primarily due to (i) our ability to continually optimize the mix of our product offerings and carefully curate products of
higher quality at attractive prices to fulfill buyers’ needs, and (ii) our unique membership-based social e-commerce model that led to exponential growth
in our member base, which we have relied upon for promotion of products and new membership referrals, while the number of buyers decreased slightly
from 23.2 million in 2018 to 22.5 million in 2019.
•
Revenue from sale of merchandise, net. Our revenue from sale of merchandise, net decreased by 7.4% from RMB11,388.4 million in
2018 to RMB10,548.3 million in 2019 due to an increase in the proportion of our business contributed from our marketplace
business platform, which was partially offset by the positive revenue impact from a decrease in estimated refunds payable to
members. The estimation of refund payable to members is based upon the historical data of referral incentives earned by referring
members within their active life cycle. The balance of the payable was RMB396,024 at December 31, 2018, and reflected our
strategy to utilize membership packages and referrals as a principal means of gaining customers. In order to stimulate our users’
interest in transacting on our platform and attract more members, in 2019, we provided each non-member user with a free three-
month experiential period during which time the user had access to the full spectrum of membership benefits. After the three-month
experiential period, the user could become our member if he or she met a certain cumulative spending threshold or certain other
requirements during the experiential period or if he or she purchased one of our membership packages. The free three-month
experiential period enlarged our member base in 2019 by attracting more non-member users to become members. It further
encouraged an increasing percentage of members to purchase more merchandise to meet the cumulative spending threshold and
enjoy the member exclusive discounts under the membership program. Upon the successful launch of the free three-month
experiential period, the amount of revenue earned from referring members, and the commissions paid to them, decreased since late
of the second quarter of 2019. Based on this new pattern of activity, and the continuing expansion of the free three-month
experiential period, we recognized a change in estimate to reduce the refund payable to members by RMB379,370 during 2019. The
adjustment was recorded as an increase in revenue, reflecting the original establishment of the refund payable as a reduction in
revenue (as a form of variable revenue consideration). The balance of the refund payable as of December 31, 2019 was RMB26,883,
and reflected our best estimate of its liability based on historical patterns of earnings and redemptions, after the introduction of the
above mentioned promotion activities.
•
Revenue from membership programs. Membership program revenue decreased by 50.0% from RMB1,552.4 million in 2018 to
RMB776.8 million in 2019, primarily due to the refinement of our membership enrollment system to provide users with alternative
paths to achieve membership status in order to facilitate further business expansion. Alternative paths to achieve membership status
include purchasing gift packages or meeting certain other requirements.
•
Revenue from marketplace business. Revenue from the marketplace business was RMB311.9 million in 2019 compared with nil in
2018, as we continued to increase our investments in attracting more popular brands and merchants onto our platform after launching
the marketplace business in the first quarter of 2019 and our marketplace business continued to generate higher commission rates.
•
Other revenues. Other revenues decreased by 53.0% from RMB74.4 million in 2018 to RMB34.9 million in 2019.
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Operating cost and expenses
Our total operating cost and expenses decreased by 8.5% from RMB13,114.6 million in 2018 to RMB11,995.5 million in 2019. This
decrease was due to decreases in cost of revenues and fulfillment expenses, which was partially offset by increases in sales and marketing expenses,
technology and content expenses and general and administrative expenses.
•
Cost of revenues. Our cost of revenues decreased by 13.6% from RMB10,706.6 million, representing 82.3% of our total revenues, in
2018 to RMB9,249.5 million, representing 79.2% of our total revenues, in 2019, which was mainly attributable to the decline in our
sales of merchandise, which recognize revenues on a gross basis.
•
Fulfillment expenses. Our fulfillment expenses decreased by 16.9% from RMB1,162.1 million, representing 8.9% of our total
revenues, in 2018 to RMB965.9 million, representing 8.3% of our total revenues, in 2019. This decrease was primarily attributable
to a decrease in our warehousing and logistics expenses from RMB866.6 million in 2018 to RMB585.2 million in 2019, resulting
from lower merchandise sales and improved logistics efficiency, which was partially offset by an increase in personnel costs from
RMB123.1 million in 2018 to RMB187.4 million in 2019, as the headcount of our fulfillment personnel increased from 392 as of
December 31, 2018 to an average of 456 during the year ended December 31, 2019.
•
Sales and marketing expenses. Our sales and marketing expenses increased by 24.3% from RMB955.1 million, representing 7.3% of
our total revenues, in 2018 to RMB1,187.5 million, representing 10.2% of our total revenues, in 2019. The increase in sales and
marketing expenses was primarily attributable to (i) an increase in member management fees from RMB834.6 million in 2018 to
RMB876.8 million in 2019 due to an 86.5% increase in the cumulative number of members on our platform from 7.4 million as of
December 31, 2018 to 13.8 million as of December 31, 2019, (ii) an increase in personnel costs from RMB34.8 million in 2018 to
RMB51.3 million in 2019, as the headcount of our sales and marketing personnel increased from 105 as of December 31, 2018 to
205 as of December 31, 2019, and (iii) an increase in business promotion expenses from RMB44.9 million in 2018 to
RMB189.8 million in 2019 due to more brand and business promotion activities in 2019, especially increased business development
activities for our marketplace business platform to attract more popular brands and merchants, and (iv) an increase in share-based
compensation expenses from RMB3.2 million in 2018 to RMB29.9 million in 2019 due to new grant share-based awards.
•
•
Technology and content expenses. Our technology and content expenses increased by 119.4% from RMB143.6 million, representing
1.1% of our total revenues, in 2018 to RMB315.2 million, representing 2.7% of our total revenues, in 2019, primarily due to (i) an
increase in personnel costs from RMB86.6 million in 2018 to RMB186.9 million in 2019, as the number of our research and
development employees increased from 409 as of December 31, 2018 to 523 as of December 31, 2019, and (ii) an increase in costs
of servers from RMB41.6 million in 2018 to RMB103.3 million in 2019, which was due to the growth in user traffic.
General and administrative expenses. Our general and administrative expenses increased by 88.5% from RMB147.2 million,
representing 1.1% of our total revenues, in 2018 to RMB277.5 million, representing 2.4% of our total revenues, in 2019. The
increase was primarily attributable to (i) an increase in personnel costs from RMB54.9 million in 2018 to RMB127.6 million in
2019, resulting from an increase in headcount of general and administrative employees from 107 as of December 31, 2018 to 213 as
of December 31, 2019 and an increased amount of bonuses paid, and (ii) an increase in share-based compensation expenses from
RMB41.9 million in 2018 to RMB79.0 million in 2019 due to new grant share-based awards.
Loss from operations
Our loss from operations was RMB254.8 million in 2019, compared to RMB92.4 million in 2018. The increase in our loss from operations
was primarily due to increases in share-based compensation expenses, personnel costs and market promotion fees.
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Financial income, net
Our financial income, net was RMB121.4 million in 2019, compared to RMB46.1 million in 2018. This increase was primarily due to an
increase in the readily determinable fair value of our investment in the equity securities of a Hong Kong listed Company, GXG (1817.HK).
Foreign exchange gain/(loss), net
We recorded foreign exchange loss, net of RMB12.4 million in 2019, compared to foreign exchange loss, net of RMB0.7 million in 2018
as a result of the loss for the exchange settlement from the third-party payment settlement platform, which was partially offset by the appreciation of the
U.S. dollar against the Renminbi.
Income tax benefit/(expense)
We recorded income tax benefit of RMB16.7 million in 2019, compared to income tax expense of RMB12.3 million in 2018, primarily
because (i) the tax rate of Jishang Preferred changed from 15% in 2018 to 25% in 2019, which resulted in an increase of RMB35.3 million of deferred
tax assets on the revaluation in 2019 and (ii) an increase in deduction for research and development expenses, which was RMB89.0 million in 2019
compared to RMB77.6 million in 2018, as the number of our research and development employees increased, partially offset by (i) an increase in our
share-based compensation expense from RMB54.3 million in 2018 to RMB128.2 million in 2019 and (ii) an increase in valuation allowance form
RMB10.0 million in 2018 to RMB65.2 million in 2019, because we will not be able to utilize tax loss carry forwards generated by certain unprofitable
subsidiaries.
Net loss
As a result of the foregoing, we recorded net loss of RMB123.8 million in 2019, compared to RMB56.3 million in 2018.
Critical Accounting Policies
An accounting policy is considered critical if it requires an accounting estimate to be made based on assumptions about matters that are
highly uncertain at the time such estimate is made, and if different accounting estimates that reasonably could have been used, or changes in the
accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements.
We prepare our financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates and assumptions. We
continually evaluate these estimates and assumptions based on the most recently available information, our own historical experiences and various other
assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting
process, actual results could differ from our expectations as a result of changes in our estimates. Some of our accounting policies require a higher degree
of judgment than others in their application and require us to make significant accounting estimates.
The following descriptions of critical accounting policies, judgments and estimates should be read in conjunction with our consolidated
financial statements and other disclosures included in this annual report. When reviewing our financial statements, you should consider (i) our selection
of critical accounting policies, (ii) the judgments and other uncertainties affecting the application of such policies and (iii) the sensitivity of reported
results to changes in conditions and assumptions.
Revenue recognition
We adopted ASC Topic 606, “Revenue from Contracts with Customers,” for all periods presented. Consistent with the criteria of Topic
606, we recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we
expect to receive in exchange for those goods or services.
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To achieve that core principle, we apply the five steps defined under Topic 606: (i) identify the contract(s) with a customer, (ii) identify the
performance 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 its revenue arrangements against specific
criteria in order to determine if it is acting as principal or agent. Revenue arrangements with multiple performance obligations are divided into separate
distinct goods or services. 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 is recorded net of value-added tax.
Revenue recognition policies for each type of revenue steam are as follows:
Sales of merchandise
We primarily sell merchandise through its Yunji Apps. We present the revenue generated from its sales of merchandise on a gross basis as
we have control of the goods and has the ability to direct the use of goods to obtain substantially all the benefits. In making this determination, We also
assess whether it is primarily obligated in these transactions, is subject to inventory risk, has latitude in establishing prices, or has met several but not all
of these indicators. The cash collected from the sales of merchandise is initially recorded in Deferred revenue in the Consolidated Balance Sheets and
subsequently recognized as revenue when the receipt of merchandise is confirmed by the customers, which is the point that the title of the merchandise
is transferred to the customer. The revenue is recorded net of value-added tax, discounts, coupons, incentives and return allowances. Return allowances
are estimated based on historical experiences and updated at the end of each reporting period.
Membership program
Before January 2020, we earn membership fees from our members, who pay a fixed fee in exchange for (1) a merchandise gift package,
(2) the right to receive member exclusive discounts for merchandise sold on the Yunji app, (3) access rights to the member-exclusive features on the
Yunji app, (4) the right to receive units of Yun-coin upon a successful new member referral (“Referral Yun-coins”), (5) member exclusive training, and
(6) units of Yun-coins (“New Member Yun-coins”). Each of these items represents a separate performance obligation. Yun-coin can be used as coupons
for the member’s future purchases on our apps and therefore reflect material rights. In order to promote our membership program, we, at our discretion,
allow our users to join the membership program by purchasing any merchandise of equivalent value of the membership fee through our Yunji app within
a defined period as an alternative way of paying the upfront fixed membership fee, or allow individuals that meet certain requirements to become
members without paying membership fee. When users become members in this manner, they are not entitled to the merchandise gift package and
member exclusive training. We allocate the transaction price to each performance obligation, after taking into consideration expected refunds payable to
members, based on their relative standalone selling price. When the standalone selling price of a performance obligation is not directly observable, it is
estimated by us by using an expected cost plus a margin approach.
For the merchandise gift package, revenue is recognized when the receipt of the gift package is confirmed by the members. For the right to
receive Referral Yun-coins, revenue is recognized when Referral Yun-coin is used and redeemed, or upon expiration if not redeemed. For New Member
Yun-coins, revenue is recognized when the New Member Yun-coin is used and redeemed, or upon expiration if not redeemed. The allocated amounts of
the transaction price to the right to receive Referral Yun-coin and New Member Yun-coin incorporate estimation of breakages based upon historical data,
and are deferred on the balance sheet upon the collection of the upfront membership fees. For member exclusive training, revenue is recognized when
the training courses are delivered over the service period by the third-party vendors engaged by us. For the remaining performance obligations, revenue
is recognized over the period of the active life cycle of our members on a straight-line basis. The active life cycle of our members is estimated based on
historical behavior of these members, which is approximately one year.
In addition, when members subsequently purchase merchandise, the members initially pay for their purchases at non-member regular
prices, and then are issued refunds equal to the member-exclusive discounts from us as a credit upon the members confirming receipt of the
merchandise. We record such anticipated refunds as a reduction of revenue and discounts payables to the members.
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Starting from January 2020, we have allowed any user to become our member free of charge for one year by simply registering for an
account on Yunji App. When users become members in this manner, they are still entitled to enjoy the right to receive member exclusive discounts for
merchandise sold on the Yunji App.
Marketplace
In 2019, we launched our marketplace business model, under which we operate our e-commerce platform, Yunji app, as a marketplace for
third-party merchants to sell their merchandise to the users of Yunji app. When the transactions are completed on the Yunji app, we charge merchants
commissions at their respective agreed percentage of the amount of merchandise sold by merchants. We act as an agent in these transactions and do not
control the underlying merchandise provided by merchants before they are transferred to users, as we are not responsible for fulfilling the promise to
provide the merchandise to users and have no inventory risk before the merchandise are transferred to the users or after the control is transferred to the
users. In addition, we have no discretion in establishing prices of the merchandise provided by merchants. Revenues are recognized on a net basis to the
extent of the commission we earn at the point of users’ acceptance of merchandise.
Remaining performance obligations
The remaining performance obligations associated with our sale of merchandise represent the cash collected upfront from the customers
for their purchase of merchandise on our apps, but the underlying merchandise has not yet been received by the customers, which is included in the
presentation of deferred revenue and are expected to be recognized as revenue when the receipt of merchandise is confirmed by the customers.
Revenue allocated to remaining performance obligations of our membership program represents that portion of the overall transaction
price that has been received (or for which we have an unconditional right to payment) allocated to obligations under the membership program that we
have not yet fulfilled, which is included in the presentation of deferred revenue and are expected to be recognized as revenue within 12 months.
The remaining performance obligations associated with our marketplace revenue represents the portion of commission fee included in the
payment collected from the users for their purchase of merchandise on the Yunji app on behalf of the merchants, but the underlying merchandise has not
yet been received by the users, which is included in the presentation of deferred revenue and are expected to be recognized as revenue when the
transactions are completed.
Other goods and services
We offer products such as air tickets, tourist attractions tickets, cruise, group tour, hotel reservation and car insurance through our Yunji
App. We present the revenue generated from such sales on a net basis as we do not have control of the goods or services or have the ability to direct the
use of the goods or services and obtain substantially all of their benefits. Revenue is recognized when we have fulfilled its selling performance
obligations on behalf of the principal in the transaction, which is either when the products are accepted by the customer, or once the order of the
products become non-cancellable on our Yunji App, depending on the terms of the particular agreement.
We also offer loans to qualified customers, including the merchants, and changes an interest based on the principal through factoring
arrangements. We extend loans to merchants for their expected orders in addition to the loans to the same merchants who factored their accounts
receivable generated from their transactions completed on Yunji App with recourse. We also extend loans to unrelated customers who factored their
account receivable derived from their own business with recourse. We record factoring receivables, which is included in accounts receivable, when the
cash is advanced to the customers. The interests are recognized over the term of loans, normally within one year. From cash flow perspective, when we
have legal rights to net settle the factoring receivables from merchants with its payable to merchants, we settle the factoring receivables with the
payables to the same merchant respectively, provided by the legal rights as per agreement between the two parties.
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Refund payable to members
After joining our membership program, members are able to make referrals to other users through their social networks. We provide
incentives to those referring members by paying a cash refund upon a successful merchandise referral.
Since customers are only able to receive referral incentives after they become members. When the member become a customer of us by
either paying the membership fees or making purchase of merchandise sold on our Yunji app after they register as a member, the referral incentives
related to merchandise referral are considered payments to customers (and are not payment for a distinct good or service) and accounted for as a refund
payable to members. Such refunds are estimated at the time the membership fee is received or at the time that the members make merchandise
purchases, and recorded as refund payable to members, and reduce the transaction price (that we expect to be entitled to keep) for the membership fee
revenue recognition calculation described above accordingly. Any amount of referral incentives expected to be paid in excess of the initial membership
fee received is recorded as refund payable to members (and reduces merchandise revenue subsequently generated from those members) at the time they
make subsequent merchandise purchases, up to the amount of the expected future referral incentives.
The estimation of refunds payable to members involves the assumption of the members’ active life cycle and the expected number of
members who will earn referral incentives, based upon the historical data of referral incentives earned by referring members within their active life
cycle. Once the referral incentives are earned by the referring members, the amounts are transferred to the members’ individual Yunji App accounts and
reclassified from refund payable to members to incentive payables to members.
Users Incentive Programs
We grant certain units of Yun-coin and other coupons (collectively referred to as coupons), from time to time, to our customers at our
discretion in different situations. Yun-coins are not redeemable for cash and can be used as a coupon for the customer’s future purchase on our Yunji
app. The value of one unit of Yun-coin is equivalent to one RMB. The coupons granted can be categorized into (i) coupons granted concurrent with a
revenue transaction and (ii) coupons granted not concurrent with a revenue transaction. When the coupon is granted concurrent with a revenue
transaction, we determine whether the coupon represents a material right of the current transaction. If the coupon represents a material right, the
transaction price is allocated between merchandise sale and the coupon based on the estimated standalone selling price taking into consideration the
coupon’s forfeiture rate. If the coupon does not represent a material right, it is recognized as a reduction of revenue when they are applied in the future
sales. When the coupon is not granted concurrent with a revenue transaction, we assess whether the coupons were granted in exchange for a distinct
service at fair value. When the coupons are granted in exchange for a distinct service at fair value, they are recorded as expense upon grant. In this case,
the person granted coupons in return for their service activities does not need to be a member. When the coupons are not granted in exchange for a
distinct service, they can only be applied to the future purchase of certain specified merchandise. These coupons are not accounted for when they are
granted and are recognized as a reduction of revenue when they are applied in future sales.
Starting from 2019, in order to promote our marketplace business, from time to time, we at our own discretion issues coupons in various
forms to users without any concurrent transactions in place or any substantive action needed from the recipient. These coupons can be used in purchase
of goods in a broad range of merchants as an immediate discount of their next purchase, some of which can only be used when the purchase amount
exceeds pre-defined threshold. We settle with the merchants in cash for the coupons used by the users. As the users are required to make purchases of
the merchants’ merchandises to redeem the coupons, we recognize the amounts of redeemed coupons as sales and marketing expenses when the
purchases are made.
Inventories, net
Inventories, consisting of products available for sale, are stated at the lower of cost and net realizable value. Cost of inventory is
determined using the weighted average cost method. Adjustments are recorded to write down the cost of inventory to the estimated net realizable value
due to slow-moving merchandise and damaged goods, which is dependent upon factors such as historical and forecasted consumer demand, and
promotional environment. Write-downs of RMB2.5 million, RMB3.6 million and RMB40.6 million are recorded in cost of revenues in the consolidated
statements of comprehensive loss for the years ended December 31, 2018, 2019 and 2020, respectively.
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Share-based Compensation
On December 19, 2017, we adopted the 2017 Share Incentive Plan, or the 2017 Plan, which allows the compensation committee to grant
options and restricted share units to our directors and employees, and other personnel to acquire our ordinary shares at an exercise price as determined
by the compensation committee at the time of grant. The 2017 Plan was subsequently replaced by the 2019 Plan in March 2019, and is no longer
effective. The awards granted and outstanding under the 2017 Plan survive the termination of the 2017 Plan and remain effective and binding under the
2019 Plan. See “Item 6. Directors, Senior Management and Employees—B. Compensation of Directors and Executive Officers—2019 Share Incentive
Plan.” Under the 2019 Plan, 227,401,861 ordinary shares were authorized and reserved for issuance.
Since adoption of the 2017 Plan, which was subsequently replaced by the 2019 Plan in March 2019, we granted options and restricted
share units to our employees. All options and restricted share units granted have a contractual term of six years from the grant date, and the vest over a
period of four years of continuous service, half (1/2) of which vest upon the second anniversary of the stated vesting commencement date and one-fourth
(1/4) of the remaining will vest upon the third and fourth anniversaries of the stated vesting commencement date. Under the 2017 Plan and the 2019
Plan, which replaced the 2017 plan in its entirety in March 2019, options are exercisable subject to the grantee’s continuous service.
We accounted for the share based compensation costs on a straight-line bases over the requisite service period for the award based on the
fair value on their respectively grant date.
On December 19, 2017, June 30, 2018, November 28, 2018, and January 31, 2019, we granted 73,225,200, 12,021,500, 5,540,000 and
4,968,000 stock options to our directors and employees, respectively. In addition, on December 19, 2017, November 28, 2018, and January 31, 2019, we
granted 5,000,000, 19,800,000 and 14,925,000 restricted share units to our directors and employees, respectively.
On May 3, 2019, we granted 720,000 stock options to certain independent directors. In addition, on May 3, 2019, we were authorized by
our board of directors to grant stock options and restricted share units to non-employees under the 2019 Plan, and granted options to purchase an
aggregate of 10,409,050 Class A ordinary shares and 3,332,040 restricted share units to non-employees by batches during the year ended December 31,
2019.
On January 1 2020, we granted 356,210 and 49,964,000 restricted share units to two external consultants and our employees, respectively.
In addition, on July 1, 2020, we granted 13,890,000 restricted share units to our directors and employees.
(a) Options
The following table sets forth the stock options activity for the years ended December 31, 2018, 2019 and 2020:
Outstanding as of December 31, 2018
Granted
Forfeited
Exercised
Outstanding as of December 31, 2019
Granted
Forfeited
Exercised
Expired
Outstanding as of December 31, 2020
Vested and expected to vest as of December 31, 2020
Exercisable as of December 31, 2020
Number of
shares
87,112,400
16,097,050
(7,954,980)
(1,407,920)
93,846,550
—
(16,014,140)
(9,151,290)
(115,200)
68,565,920
68,565,920
53,535,110
Weighted-
average
exercise price
US$
0.12
0.61
0.31
0.09
0.19
—
0.11
0.10
0.14
0.22
—
109
Weighted
average
remaining
contractual term
5.09
Aggregate
intrinsic
value
000’US$
60,399
3.77
30,442
2.65
2,826
—
—
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The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the estimated fair
value of the underlying stock at each reporting date (December 31, 2019: US$0.46, December 31, 2020: US$0.19).
We use the Binominal option pricing model to estimate the fair value of stock options. The assumptions used to value our options grants
were as follow:
Exercise price (US$)
Exercise multiple
Risk-free interest rate
Expected term (in years)
Expected dividend yield
Expected volatility
Expected forfeiture rate (post-vesting)
Fair value of the underlying shares on the date of options grants (US$)
Fair value of share option (US$)
2019
0.1~0.7
2.2~2.8
1.68%~2.47%
6
—
39.91%~41.29%
0%/5%
0.46~1.42
0.11~1.32
2020
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Risk-free interest rate is estimated based on the yield curve of US Sovereign Bond as of the option valuation date. The expected volatility
at the grant date and each option valuation date is estimated based on annualized standard deviation of daily stock price return of comparable companies
with a time horizon close to the expected expiry of the term of the options. We have never declared or paid any cash dividends on its capital stock, and
we do not anticipate any dividend payments in the foreseeable future. Expected term is the contract life of the options.
Share-based compensation expense is recorded on a straight-line basis over the requisite service period, which is generally four years from
the date of grant. We recognized share-based compensation expenses of RMB48.3 million, RMB66.2 million and RMB52.9 million for share options
granted under the 2017 Plan and the 2019 Plan, which replaced the 2017 Plan in its entirety in March 2019, in the consolidated statements of
comprehensive loss for the years ended 2018, 2019 and 2020, respectively.
As of December 31, 2019 and 2020, there was RMB137.5 million and RMB40.2 million, respectively, in total unrecognized compensation
expense, related to unvested share options, which is expected to be recognized over a weighted average period of 1.97 and 0.8 years, respectively. The
unrecognized compensation expense may be adjusted for future changes in actual forfeitures.
(b) Restricted share units
A summary of activities of the service-based restricted share units for the years ended December 31, 2018, 2019 and 2020 is presented
below:
Unvested at December 31, 2018
Granted
Vested
Forfeited
Unvested at December 31, 2019
Granted
Vested
Forfeited
Expired
Unvested at December 31, 2020
Number of
RSUs
24,800,000
18,257,040
(3,036,290)
(3,185,900)
36,834,850
64,210,210
(954,960)
(51,629,000)
(500,000)
47,961,100
110
Weighted-Average
Grant-Date Fair Value
US$
0.74
0.68
0.76
0.43
0.63
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The fair value of each restricted share units granted with service conditions is estimated based on the fair market value of the underlying
our ordinary shares on the date of grant.
As of December 31, 2019 and 2020, 3,036,290 restricted share units and 954,960 restricted share units were vested. For the years ended
December 31, 2018, 2019 and 2020, our total share-based compensation expenses recognized for the restricted share units granted were
RMB6.0 million, RMB62.0 million and RMB45.5million, respectively.
As of December 31, 2019 and 2020, there was RMB138.4 million and RMB112.4 million in total unrecognized compensation expense,
related to unvested RSUs, which is expected to be recognized over a weighted average period of 2.60 and 2.51 years, respectively.
Fair Value Measurements
As of December 31, 2019 and 2020, information about inputs into the fair value measurement of our assets and liabilities that are
measured or disclosed at fair value on a recurring basis in periods subsequent to their initial recognition is as follows:
Description
Assets:
Short-term investments
Time deposits
Wealth management products
Long-term investments
Equity securities with readily
determinable fair value
Total assets
Description
Assets:
Short-term investments
Time deposits
Long-term investments
Equity securities with readily
determinable fair value
Total assets
Fair value measurement at reporting date using
Fair value
as of
December 31,
2019
RMB
Quoted Prices in Active
Markets for Identical
Assets
(Level 1)
RMB
Significant Other
Observable Inputs
(Level 2)
RMB
Significant
Unobservable
Inputs
(Level 3)
RMB
593,954
180,782
158,072
932,808
—
—
158,072
158,072
593,954
180,782
—
774,736
—
—
—
—
Fair value measurement at reporting date using
Fair value
as of
December 31,
2020
RMB
Quoted Prices in Active
Markets for Identical
Assets
(Level 1)
RMB
Significant Other
Observable Inputs
(Level 2)
RMB
Significant
Unobservable
Inputs
(Level 3)
RMB
134,146
—
134,146
94,552
228,698
111
94,552
94,552
—
134,146
—
—
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When available, we use quoted market prices to determine the fair value of an asset or liability. If quoted market prices are not available,
we will measure fair value using valuation techniques that use, when possible, current market-based or independently sourced market parameters, such
as interest rates and currency rates. The following is a description of the valuation techniques that we use to measure the fair value of assets that we
report in our consolidated balance sheets at fair value on a recurring basis:
Short-term investments. Short-term investment consists of wealth management products and time deposits, which are valued by us on a
recurring basis. We value our short-term wealth management products investments held in certain banks using model-derived valuations based upon
discounted cash flow, in which significant inputs, mainly including expected return, are observable or can be derived principally from, or corroborated
by, observable market data, and accordingly, we classify the valuation techniques that use these inputs as Level 2. The expected return of the financial
products were determined based on the prevailing interest rates in the market.
Long-term investments. Equity securities with readily determinable fair values are measured and recorded at fair value on a recurring basis
with changes in fair value. We value these equity securities at its quoted prices in stock market, and accordingly we classify the valuation techniques that
use these inputs as Level 1.
Recently Issued Accounting Pronouncements
A list of recently issued accounting pronouncements that are relevant to us is included in note 2 of our consolidated financial statements
included elsewhere in this annual report.
Inflation
To date, inflation in China has not materially affected our results of operations. According to the National Bureau of Statistics of China,
the year-over-year percent changes in the consumer price index for December 2018, 2019 and 2020 were increases of 1.9%, 4.5% and 0.2%,
respectively. Although we have not been materially affected by inflation in the past, we can provide no assurance that we will not be affected by higher
rates of inflation in China in the future.
B.
Liquidity and Capital Resources
The following table sets forth a summary of our cash flows for the periods presented:
Summary Consolidated Cash Flow Data:
Net cash generated from/(used in) operating activities
Net cash generated from/(used in) investing activities
Net cash generated from/(used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase/(decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of the year
Cash, cash equivalents and restricted cash at end of the year
For the Year Ended December 31,
2018
RMB
2019
RMB
2020
RMB
US$
(in thousands)
883,037 (1,116,816) (261,514) (40,075)
(115,483) 551,015 84,443
(458,047)
(2,127)
623,406
747,921
34,594
(8,217)
11,390
(597,503) 222,001 34,024
1,207,505
357,741 1,565,246 967,743 148,313
967,743 1,189,744 182,337
1,565,246
(13,876)
(53,624)
To date, our primary sources of liquidity have been issuances of equity securities in our initial public offering and historical private
placements. As of December 31, 2020, our cash, cash equivalents and restricted cash were RMB1,189.7 million (US$182.3 million). Our cash and cash
equivalents consist of currency on hand, deposits held by financial institutions that can be added to or withdrawn without limitation, and short-term,
highly liquid investments that are readily convertible to known amounts of cash and with original maturities from the date of purchase of three months
or less. Cash held in accounts with third-party online payment platforms are recorded as other receivables.
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Our accounts payable include merchandise purchase payables, warehouse and logistics fees payables and payable to merchants
representing the unpaid balances to the merchants of cash collected by us on behalf of the merchants for products sold on our platform when we are
viewed as the agent in the sales arrangement. As of December 31, 2018, 2019 and 2020, our accounts payable amounted to RMB1,432.3 million,
RMB742.0 million and RMB501.5 million (US$76.9 million), respectively. These changes were primarily contributed by the changes in merchandise
purchase payables, which decreased from RMB1,247.2 million as of December 31, 2018 to RMB548.4 million as of December 31, 2019 and further to
RMB292.5 million (US$44.8 million) as of December 31, 2020. The changes in merchandise purchase payables reflected the continual shift of portions
of merchandise sales to our marketplace business platform that launched in the first quarter of 2019 from 2018 to 2019 and from 2019 to 2020. Our
merchandise purchase payable turnover days were 31.0 days in 2018, 34.9 days in 2019 and 38.4 days in 2020. Merchandise purchase payable turnover
days for a given period equal to average merchandise purchase payable at the beginning and the end of the period divided by cost of revenues during the
period and then multiplied by the number of days during the period.
As of December 31, 2018, 2019 and 2020, our net inventories amounted to RMB675.5 million, RMB428.3 million and RMB135.2 million
(US $20.7 million), respectively. These decreases were primarily due to portions of merchandise sales continually shifting to our marketplace business
platform that launched in the first quarter of 2019, under which substantially all of the third-party merchants handle the procurement, storage and
management of their own inventory. Our inventory turnover days were 17.0 days in 2018, 21.5 days in 2019 and 25.7 days in 2020. Inventory turnover
days for a given period equal to average inventory balances at the beginning and the end of the period divided by cost of revenues during the period and
then multiplied by the number of days during the period. Our inventory balances will fluctuate over time due to a number of factors, including changes
in our product mix. Our inventory balances typically increase when we prepare for special promotion events, such as the special promotional campaign
on our founding anniversary May 16 and the online shopping festival on November 11.
We believe that our current cash and cash equivalents and our anticipated cash flows from operations will be sufficient to meet our
anticipated working capital requirements and capital expenditures for at least the next 12 months from the date of this annual report. After this report, we
may decide to enhance our liquidity position or increase our cash reserve for future investments through additional capital and finance funding. The
issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence of indebtedness would result in increased fixed
obligations and could result in operating covenants that would restrict our operations. We cannot assure you that financing will be available in amounts
or on terms acceptable to us, if at all.
As of December 31, 2020, we had RMB1,189.7 million (US$182.3 million) in cash, cash equivalents and restricted cash, of which
approximately 32.7% were held in Renminbi, 67.1% in U.S. dollars, and the remainder in other currencies. Although we consolidate the results of our
VIEs and their subsidiaries, we only have access to the assets or earnings of our VIEs and their subsidiaries through our contractual arrangements with
our VIEs and their shareholders. See “Item 4. Information on the Company—C. Organizational Structure—Contractual Arrangements with Our
Consolidated Affiliated Entities and Their Respective Shareholders.” For restrictions and limitations on liquidity and capital resources as a result of our
corporate structure, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Holding Company Structure.”
A majority of our future revenues are likely to continue to be in the form of Renminbi. Under existing PRC foreign exchange regulations,
Renminbi may be converted into foreign exchange for current account items, including profit distributions, interest payments and trade-and service-
related foreign exchange transactions.
We expect that substantially all of our future revenues will be denominated in Renminbi. Under existing PRC foreign exchange
regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange
transactions, can be made in foreign currencies without prior SAFE approval as long as certain routine procedural requirements are fulfilled. Therefore,
our PRC subsidiaries are allowed to pay dividends in foreign currencies to us without prior SAFE approval by following certain routine procedural
requirements. However, approval from or registration with competent government authorities is required where the Renminbi is to be converted into
foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC
government may at its discretion restrict access to foreign currencies for current account transactions in the future.
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Operating activities
Net cash used in operating activities in 2020 was RMB261.5 million (US$40.1 million), as compared to net loss of RMB151.7 million
(US$23.2 million) in the same period. In 2020, the principal items accounting for the difference between our net cash used in operating activities and our
net loss were (i) a decrease in accounts payable of RMB205.8 million (US$31.5 million), (ii) an increase in accounts receivable of RMB154.4 million
(US$23.7million), (iii) a decrease in deferred revenue of RMB130.9 million (US$20.1 million), partially offset by (i) a decrease in inventories of
RMB252.0 million (US$38.6 million) and (ii) a non-cash share-based compensation of RMB98.4 million (US$15.1 million). The decreases in accounts
payable and inventories were primarily due to a portion of merchandise sales shifting to our marketplace business platform that launched in the first
quarter of 2019 under which substantially all of the third-party merchants handle the procurement, storage and management of their own inventory. The
increase in accounts receivables were primarily due to increased funds extended by us to qualified customers and increased receivables from sales
channels on other platforms.
Net cash used in operating activities in 2019 was RMB1,116.8 million, as compared to net loss of RMB123.8 million in the same period.
In 2019, the principal items accounting for the difference between our net cash used in operating activities and our net loss were (i) a decrease in
accounts payable of RMB674.4 million, (ii) a decrease in deferred revenue of RMB365.1 million and (iii) a non-cash change in the estimate of refund
payable to members of RMB379.4 million, partially offset by (i) a decrease in inventories of RMB243.6 million and (ii) an increase in other payable and
accrued liabilities of RMB134.0 million. The decreases in accounts payable and inventories were primarily due to a portion of merchandise sales
shifting to our recently launched marketplace business platform under which substantially all of the third-party merchants handle the procurement,
storage and management of their own inventory. The increase in other payable and accrued liabilities was primarily due to increases in merchants
deposits in our marketplace business and salaries and welfare payable. The non-cash change in the estimate of refund payable to members was due to
the on-going pattern and changes of the members’ referral behavior in that an increasing number of non-member users became members in 2019 due to
the introduction of the three-month experiential membership period and that the member can earn referral commission only when the referee is
non-member.
Net cash generated from operating activities in 2018 was RMB883.0 million, as compared to net loss of RMB56.3 million in the same
period. In 2018, the principal items accounting for the difference between our net cash generated from operating activities and our net loss were (i) an
increase in accounts payable of RMB662.2 million, (ii) an increase in incentive payables to members of RMB182.1 million, (iii) an increase in refund
payable to members of RMB248.1 million, and (iv) an increase in deferred revenue of RMB223.4 million, partially offset by (i) an increase in
inventories of RMB345.3 million, and (ii) an increase in prepaid expenses and other current assets of RMB184.3 million. The increases in accounts
payable, incentive payables to members and inventories were primarily due to the growth of our business. The increase in refund payable to members
was primarily due to an increase in the number of members referring products and hence becoming eligible to receive refunds. The increase in prepaid
expenses and other current assets was primarily due to an increase in prepaid member training costs.
Investing activities
Net cash generated from investing activities in 2020 was RMB551.0 million (US$84.4 million), primarily due to cash received from
maturity of short-term investments of RMB2,492.6 million (US$382.0 million), partially offset by cash paid for short-term investments of
RMB1,774.8 million (US$272.0 million).
Net cash used in investing activities in 2019 was RMB115.5 million, primarily due to cash paid for short-term investments of
RMB4,793.9 million, cash paid for long-term investments of RMB120.9 million and loans provided to third parties of RMB171.9 million, partially
offset by cash received from maturity of short-term investments of RMB5,028.8 million.
Net cash used in investing activities in 2018 was RMB458.0 million, primarily due to purchase of short-term investments of
RMB11,539.4 million and purchase of property, equipment and software of RMB28.7 million, partially offset by maturity of short-term investments of
RMB11,124.6 million.
Financing activities
Net cash used in financing activities in 2020 was RMB13.9 million (US$2.1 million), primarily due to cash paid for repurchase of
common stocks of RMB23.2 million (US$3.6 million).
Net cash generated from financing activities in 2019 was RMB623.4 million (US$89.5 million), mainly consisting of the proceeds from
the IPO.
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Net cash generated from financing activities in 2018 was RMB747.9 million, mainly consisting of the proceeds from the issuance of
preferred shares.
Capital expenditures
Our capital expenditures were RMB28.7 million, RMB28.2 million and RMB84.4 million (US$12.9 million) in 2018, 2019 and 2020,
respectively. We intend to fund our future capital expenditures with our existing cash balance and cash flow from operating activities. We will continue
to make capital expenditures to meet the expected growth of our business.
Holding Company Structure
Yunji Inc. is a holding company with no material operations of its own. We conduct our operations primarily through our PRC
subsidiaries, our VIEs and their subsidiaries in China. As a result, our ability to pay dividends depends upon dividends paid by our PRC subsidiaries. If
our existing PRC subsidiaries or any newly formed ones incur debt on their own behalf in the future, the instruments governing their debt may restrict
their ability to pay dividends to us. In addition, our wholly foreign-owned subsidiaries in China are permitted to pay dividends to us only out of its
retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, each of our subsidiaries and our
VIEs and their subsidiaries in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds
until such reserve funds reach 50% of their registered capital. In addition, our wholly foreign-owned subsidiaries in China may allocate a portion of their
after-tax profits based on PRC accounting standards to enterprise expansion funds and staff bonus and welfare funds at their discretion, and our VIEs
and their subsidiaries may allocate a portion of its after-tax profits based on PRC accounting standards to a surplus fund at their discretion. The statutory
reserve funds and the discretionary funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned company out of
China is subject to examination by the banks designated by SAFE. Our PRC subsidiaries have not paid dividends and will not be able to pay dividends
until they generate accumulated profits and meet the requirements for statutory reserve funds.
C.
Research and Development, Patents and Licenses, Etc.
See “Item 4. Information On the Company—B. Business Overview—Technology” and “Item 4. Information On the Company—B.
Business Overview—Intellectual Property.”
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 year ended December 31, 2020 that are reasonably likely to have a material adverse effect on our net revenues, income, profitability, liquidity or
capital resources, or that caused the 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. In
addition, we have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in
our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity
that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides
financing, liquidity, market risk or credit support to us or engages in leasing, hedging or product development services with us.
F.
Tabular Disclosure of Contractual Obligations
The following table sets forth our contractual obligations as of December 31, 2020:
Total
Less than
Payment Due by Period
3-5
1-3
years
years
1 year
More than 5
years
Operating lease
16,223
7,316
8,846
61
—
(in RMB thousands)
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Our operating lease obligations relate to our leases of offices and operation space. Other than as shown above, we did not have any
significant capital and other commitments, long-term obligations or guarantees as of December 31, 2020.
G.
Safe Harbor
See “Forward-Looking Statements” on page 3 of this annual report.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.
Directors and Senior Management
The following table sets forth information regarding our directors and executive officers as of the date of this annual report.
Directors and Executive Officers
Shanglue Xiao
Wei Ye
Wei Ying
Li-Lan Cheng
Gao Wang
Suqin Xi
Huan Hao
Chengqi Zhang
Position/Title
Age
42 Chairman of the Board of Directors and Chief Executive Officer
37 Executive President
54 Director
56 Independent Director
56 Independent Director
65 Independent Director
39 Chief Technology Officer
37 Vice President of Finance
Mr. Shanglue Xiao is our founder, and has served as the chairman of our board of directors and chief executive officer since our inception.
Xiao is a serial entrepreneur with more than 15 years of experience in the e-commerce industry. Prior to founding our company, Mr. Xiao founded the
Xiaoye Perfume, an online cosmetics retailer in China, in 2003. Mr. Xiao received his EMBA from China Europe International Business School.
Mr. Wei Ye has served as our executive president since April 2021. Prior to joining us, Mr. Ye served as executive president of Taiyuan
Lionhead Cement Co.,Ltd. (SSE: 600539), from September 2020 to April 2021. Mr. Ye served as chief executive officer of Haiercash Co., Ltd. a
national consumer finance company in China, from June 2019 to September 2020. Mr. Ye was chief operating officer of Weidai Ltd. (NYSE:WEI), from
May 2016 to June 2019. Prior to that, he was a general manager of Ping An Financial Technology Co., Ltd., a subsidiary of Ping An Insurance (Group)
Company of China, Ltd. (SSE: 601318), from March 2011 to May 2016. Mr. Ye was a marketing director of Alisoft Co., Ltd., a subsidiary of Alibaba
Group Holding Limited (NYSE:BABA), from June 2009 to December 2010 and a deputy business director of Tencent Holdings Limited, an investment
corporation listed on the Hong Kong Stock Exchange (HKSE: 0700), from July 2007 to May 2009. Mr. Ye received his bachelor’s degree in software
engineering from Zhejiang University in 2007.
Mr. Wei Ying has served as our director since February 2018. Mr. Ying is currently a managing director of CDH Investments. Prior to
joining CDH Investments, Mr. Ying was a vice president of China Water Affairs Group Limited from February 2007 to March 2009 and president and
executive director of China Plant Development Holdings Limited from July 2008 to July 2009. Prior to this, Mr. Ying served as an executive director of
China Resources Textiles (Holding) Co., Ltd. Mr. Ying currently serves as non-executive director for several Hong Kong listed companies, such as
CHTC Fong’s International Company Limited (0641.HK), New Focus Auto Tech Holdings Ltd (0360.HK), Fountain Set (Holdings) Limited
(0420.HK), China Health Group Limited (0673.HK) and Zhongsheng Group Holdings Limited (0881.HK). Mr. Ying has also served as a director of
Giant Interactive Group Inc. since May 2016. Mr. Ying received his bachelor’s degree in accounting from Zhejiang Gongshang University and an MBA
from University of San Francisco.
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Mr. Li-Lan Cheng has served as our director since May 2019. Mr. Cheng has served as the acting chief financial officer of Leju Holdings
Limited (NYSE: LEJU) since June 2017. Mr. Cheng also served as Leju’s executive director from March 2014 to March 2017. Mr. Cheng has served as
the chief operating officer of E-House (China) Holdings Limited, a real estate services company in China, since April 2012. He was E-House’s chief
financial officer from November 2006 to April 2012. Prior to joining E-House, Mr. Cheng served as the chief financial officer of SouFun Holdings
Limited, a real estate internet company in China, from 2005 to 2006. From 2002 to 2004, Mr. Cheng served as an executive director and the chief
financial officer of SOHO China Limited, a real estate developer in Beijing. Mr. Cheng was an assistant director and the head of the Asian transportation
sector investment banking group of ABN AMRO Asia from 1997 to 2002. Mr. Cheng currently serves as an independent director of 51job, Inc.
(NASDAQ: JOBS), a human resource service provider, an independent director of LAIX Inc. (NYSE: LAIX), an artificial intelligence company for
English language training, and an executive director of E-House (China) Enterprise Holdings Limited (2048.HK), a real estate transaction service
provider in China. Mr. Cheng received a bachelor’s degree in Economics from Swarthmore College and a Ph.D. degree in Economics from the
Massachusetts Institute of Technology. Mr. Cheng is a chartered financial analyst (CFA).
Mr. Gao Wang has served as our director since May 2019. Mr. Wang has been a professor of marketing at China Europe International
Business School (CEIBS) since 2009. Prior to joining CEIBS, Mr. Wang was an associate professor of marketing at the School of Economics and
Management, Tsinghua University from 2002 to 2008. Before joining the faculty of Tsinghua University, he worked as a manager of the Strategic
Analytics Group at the Minute Maid Company, a division of Coca Cola in Houston, for two years with responsibility for sales planning/evaluation and
marketing plan. Prior to that, Mr. Wang was a senior consultant at Information Resources Inc. (IRI) in Chicago from 1998 to 2000 with responsibility for
marketing model development. Mr. Wang currently serves as the supervisor of Beijing Zhuoyuezhiye Consulting Company Limited and as
non-executive director of the following companies: GOME Electrical Appliances Holding Limited, Canature Environmental Products Co., Ltd and
Sineng Electric Company Limited. Mr. Wang received his bachelor’s degree in demography from Renmin University of China and his master’s and
Ph.D. degrees in sociology from Yale University.
Mr. Suqin Xi has served as our director since January 2020. Mr. Xi has been a consultant of Puhua Capital since October 2019. Prior to
joining Puhua Capital, Mr. Xi served as a counsel of Hangzhou Municipal Market Supervision Bureau from 2014 to 2016. From 2009 to 2014, Mr. Xi
was the director of Hangzhou Municipal Financial Services Office, where he was responsible for developing and managing local financial services.
Prior to that, Mr. Xi served as the deputy director of Hangzhou Administration for Industry and Commerce, from 1998 to 2009, where he was in charge
of company registration, trademark advertising supervision, e-government and policy related affairs. Mr. Xi received his bachelor’s degree in history
from Hangzhou University in 1982.
Mr. Huan Hao has served as our chief technology officer since our inception and served as our director from February 2018 to December
2020. Mr. Hao has also been in charge of our member community management since April 2020. Mr. Hao has extensive knowledge of internet
companies and the technology industry. Mr. Hao served as a senior manager in Tencent (700.HK), a provider of comprehensive internet services serving
the largest online community in China and listed on Hong Kong Stock Exchange, from December 2011 to May 2015. Mr. Hao worked as a consultant in
Oracle from April 2009 to November 2011. Mr. Hao received his bachelor’s degree from Nanchang University.
Mr. Chengqi Zhang has served as our vice president of finance since November 2020. Mr. Zhang first joined Yunji in November 2019.
Prior to joining the Company, Mr. Zhang had been an audit director at Deloitte since 2007. Mr. Zhang is a member of the American Institute of Certified
Public Accountants (AICPA). Mr. Zhang received a Bachelor’s degree from Shanghai University of Finance And Economics.
B.
Compensation of Directors and Executive Officers
For the fiscal year ended December 31, 2020, we paid an aggregate of RMB8.2 million (US$1.3 million) in cash to our executive officers,
and we did not pay any compensation to our non-executive directors. We have not set aside or accrued any amount to provide pension, retirement or
other similar benefits to our directors and executive officers. Our PRC subsidiaries and our VIEs are required by law to make contributions equal to
certain percentages of each employee’s salary for his or her pension insurance, medical insurance, unemployment insurance and other statutory benefits
and a housing provident fund.
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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
is employed for a specified time period. We may terminate employment for cause, at any time, for certain acts of the executive officer, such as continued
failure to satisfactorily perform, willful misconduct or gross negligence in the performance of agreed duties, conviction or entry of a guilty or nolo
contendere plea of any felony or any misdemeanor involving moral turpitude, or dishonest act that results in material to our detriment or material of the
employment agreement. We may also terminate an executive officer’s employment without cause upon 60-day advance written notice. In such case of
termination by us, we will provide severance payments to the executive officer as may be agreed between the executive officer and us. The executive
officer may resign at any time with a 60-day advance written notice.
Each executive officer has agreed to hold, both during and after the termination or expiry of his or her employment agreement, in strict
confidence and not to use, except as required in the performance of his or her duties in connection with the employment or pursuant to applicable law,
any of our confidential information or trade secrets, any confidential information or trade secrets of our clients or prospective clients, or the confidential
or proprietary information of any third party received by us and for which we have confidential obligations. The executive officers have also agreed to
disclose in confidence to us all inventions, designs and trade secrets which they conceive, develop or reduce to practice during the executive officer’s
employment with us and to assign all right, title and interest in them to us, and assist us in obtaining and enforcing patents, copyrights and other legal
rights for these inventions, designs and trade secrets.
In addition, each executive officer has agreed to be bound by non-competition and non-solicitation restrictions during the term of his or her
employment and typically for one year following the last date of employment. Specifically, each executive officer has agreed not to (i) solicit from any
customer doing business with us during the effective term of the employment agreement business of the same or of a similar nature to our business;
(ii) solicit from any of our known potential customer business of the same or of a similar nature to that which has been the subject of our known written
or oral bid, offer or proposal, or of substantial preparation with a view to making such a bid, proposal or offer; (iii) solicit the employment or services of,
or hire or engage, any person who is known to be employed or engaged by us; or (iv) otherwise interfere with our business or accounts, including, but
not limited to, with respect to any relationship or agreement between any vendor or supplier and us.
We have also entered into indemnification agreements with each of our directors and executive officers. Under these agreements, we agree
to indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by
reason of their being a director or officer of our company.
2019 Share Incentive Plan
In December 2017, our shareholders and board of directors approved the 2017 Share Incentive Plan, which we refer to as the 2017 Plan in
this annual report, to attract and retain the best available personnel, provide additional incentives to employees, directors and consultants, and promote
the success of our business. In March 2019, we adopted a 2019 Share Incentive Plan, or the 2019 Plan, which replaced the 2017 Plan in its entirety, and
the 2017 Plan is no longer effective. The awards granted and outstanding under the 2017 Plan survive the termination of the 2017 Plan and remain
effective and binding under the 2019 Plan. The maximum aggregate number of ordinary shares that may be issued under 2019 Plan is initially
227,401,861 ordinary shares, which shall be increased by a number equal to 1% of the then total issued and outstanding ordinary shares on an
as-converted and fully diluted basis, on each of the first, second, third, fourth and fifth anniversary of the date of effectiveness of the 2019 Plan. As of
February 28, 2021, options to purchase a total of 68,119,430 Class A ordinary shares and 100,974,600 restricted share units were outstanding under the
2019 Plan.
The following paragraphs summarize the principal terms of the 2019 Plan.
Type of Awards. The 2019 Plan permits the awards of options, restricted share units, restricted shares, share appreciation rights, dividend
equivalents and share payments.
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Plan Administration. Our board of directors or a committee appointed by the board of directors will administer the 2019 Plan. The plan
administrator will determine the participants to receive awards, the type and number of awards to be granted to each participant, and the terms and
conditions of each grant.
Award Agreement. Awards granted under the 2019 Plan are evidenced by an award agreement that sets forth the terms, conditions and
limitations for each award, which may include the term of the award, the provisions applicable in the event that the grantee’s employment or service
terminates, and our authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind the award.
Eligibility. We may grant awards to our directors, employees, consultants and members.
Vesting Schedule. In general, the plan administrator determines the vesting schedule, which is specified in the relevant award agreement.
Exercise of Options. The plan administrator determines the exercise price for each award, which is stated in the relevant award agreement.
Options that are vested and exercisable will terminate if they are not exercised prior to the time as the plan administrator determines at the time of grant.
However, the maximum exercisable term is ten years from the date of effectiveness of the 2019 Plan.
Transfer Restrictions. Awards may not be transferred in any manner by the participant other than in accordance with the exceptions
provided in the 2019 Plan or the relevant award agreement or otherwise determined by the plan administrator, such as transfers by will or the laws of
descent and distribution.
Termination and Amendment of the 2019 Plan. Unless terminated earlier, the 2019 Plan has a term of ten years from the date of
effectiveness of the 2019 Plan. Our board of directors has the authority to terminate, amend, suspend or modify the 2019 Plan in accordance with our
articles of association. However, without the prior written consent of the participant, no such action may adversely affect in any material way any award
previously granted pursuant to the 2019 Plan.
The following table summarizes, as of February 28, 2021, the number of ordinary shares underlying outstanding options and restricted
share units that we granted to our current directors and executive officers.
Name
Shanglue Xiao
Wei Ye
Wei Ying
Li-Lan Cheng
Gao Wang
Suqin Xi
Huan Hao
Chengqi Zhang
Ordinary Shares
Underlying
Options and
Restricted
Share
Units
20,000,000
15,000,000(1)
—
—
*
*
*(1)
*
*(1)
*(1)
Exercise Price
(US$/Share)
0.0925
—
—
—
0.1
0.1
—
0.0925
—
—
Date of Grant
December 19, 2017
November 28, 2018
—
—
May 3, 2019
May 3, 2019
January 1, 2020
December 19, 2017
November 28, 2018,
January 1, 2020 and
February 1, 2021
January 1, 2020,
July 1, 2020 and
February 1, 2021
Date of Expiration
December 18, 2023
November 27, 2024
—
—
May 2, 2025
May 2, 2025
December 31, 2025
December 18, 2023
November 27, 2024,
December 31, 2025 and
January 31, 2026
December 31, 2025,
June 30, 2025 and
January 31, 2026
All directors and executive officers as a
group
42,790,000
Note:
*
All awards granted to such director or officer were less than 1% of our total ordinary shares on an as-converted basis outstanding as of the date of
this annual report.
(1) Represents restricted share units.
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As of February 28, 2021, our employees, other than our directors and executive officers held options to purchase 15,735,430 Class A
ordinary shares, with exercise prices ranging from US$0.0925 per share to US$0.5 per share and 75,923,750 restricted share units.
C.
Board Practices
Our board of directors consists of five directors. A director is not required to hold any shares in our company by way of qualification. A
director who is in any way, whether directly or indirectly, interested in a contract or transaction or proposed contract or transaction with our company is
required to declare the nature of his interest at a meeting of our directors. Subject to the Nasdaq Stock Market Rules and disqualification by the
chairman of the relevant board meeting, a director may vote in respect of any contract or transaction or proposed contract or transaction notwithstanding
that he may be interested therein, and if he does so his vote shall be counted and he shall be counted in the quorum at any meeting of our directors at
which any such contract or transaction or proposed contract or transaction is considered. Our directors may exercise all the powers of our company to
raise or borrow money and to mortgage or charge its undertaking, property and assets (present and future) and uncalled capital or any part thereof, to
issue debentures, debenture stock, bonds and other securities, whether outright or as collateral security for any debt, liability or obligation of our
company or of any third party.
Committees of the Board of Directors
We have establish three committees under the board of directors: an audit committee, a compensation committee and a nominating and
corporate governance committee. We have adopted a charter for each of the three committees. Each committee’s members and functions are described
below.
Audit Committee. Our audit committee consists of Mr. Li-Lan Cheng, Mr. Gao Wang and Mr. Suqin Xi. Mr. Li-Lan Cheng is the chairman
of our audit committee. We have determined that Mr. Li-Lan Cheng, Mr. Gao Wang and Mr. Suqin Xi satisfy the “independence” requirements of the
Nasdaq Stock Market Rules and Rule 10A-3 under the Exchange Act. We have determined that Mr. Li-Lan Cheng qualifies as an “audit committee
financial expert.” The audit committee will oversee our accounting and financial reporting processes and the audits of the financial statements of our
company. The audit committee is responsible for, among other things:
•
•
•
•
•
•
•
appointing the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the
independent auditors;
reviewing with the independent auditors any audit problems or difficulties and management’s response;
discussing the annual audited financial statements with management and the independent auditors;
reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps taken to
monitor and control major financial risk exposures;
reviewing and approving all proposed related party transactions;
meeting separately and periodically with management and the independent auditors; and
monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our
procedures to ensure proper compliance.
Compensation Committee. Our compensation committee consists of Mr. Li-Lan Cheng, Mr. Gao Wang and Mr. Suqin Xi. Mr. Li-Lan
Cheng is the chairman of our compensation committee. We have determined that Mr. Li-Lan Cheng, Mr. Gao Wang and Mr. Suqin Xi satisfy the
“independence” requirements of the Nasdaq Stock Market Rules. The compensation committee will assist the board in reviewing and approving the
compensation structure, including all forms of compensation, relating to our directors and executive officers. Our chief executive officer may not be
present at any committee meeting during which his compensation is deliberated. The compensation committee is responsible for, among other things:
•
reviewing and approving, or recommending to the board for its approval, the compensation for our chief executive officer and other
executive officers;
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•
•
•
reviewing and recommending to the board for determination with respect to the compensation of our non-employee directors;
reviewing periodically and approving any incentive compensation or equity plans, programs or similar arrangements; and
selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors relevant to that
person’s independence from management.
Nominating and Corporate Governance Committee. Our nominating and corporate governance committee consists of Mr. Li-Lan Cheng,
Mr. Gao Wang and Mr. Suqin Xi. Mr. Li-Lan Cheng is the chairman of our nominating and corporate governance committee. We have determined that
Mr. Li-Lan Cheng, Mr. Gao Wang and Mr. Suqin Xi satisfy the “independence” requirements of the Nasdaq Stock Market Rules. The nominating and
corporate governance committee will assist the board of directors in selecting individuals qualified to become our directors and in determining the
composition of the board and its committees. The nominating and corporate governance committee is responsible for, among other things:
•
•
•
•
selecting and recommending to the board nominees for election by the shareholders or appointment by the board;
reviewing annually with the board the current composition of the board with regards to characteristics such as independence,
knowledge, skills, experience and diversity;
making recommendations on the frequency and structure of board meetings and monitoring the functioning of the committees of the
board; and
advising the board periodically with regards to significant developments in the law and practice of corporate governance as well as
our compliance with applicable laws and regulations, and making recommendations to the board on all matters of corporate
governance and on any remedial action to be taken.
Duties of Directors
Under Cayman Islands law, our directors owe fiduciary duties to our company, including a duty of loyalty, a duty to act honestly and a
duty to act in what they consider in good faith to be in our best interests. Our directors must also exercise their powers only for a proper purpose. Our
directors also owe to our company a duty to exercise the skill they actually possess and such care and diligence that a reasonably prudent person would
exercise in comparable circumstances. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of
skill than may reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth Courts have moved
toward an objective 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 of care to us, our directors must ensure compliance with our memorandum and articles of association, as amended and restated from time to
time, and the class rights vested thereunder in the holders of the shares. In certain limited exceptional circumstances, a shareholder may have the right to
seek damages in our name if a duty owed by our directors is breached.
Our board of directors has all the powers necessary for managing, and for directing and supervising, our business affairs. The functions
and powers of our board of directors include, among others:
•
•
•
convening shareholders’ annual and extraordinary general meetings and reporting its work to shareholders at such meetings;
declaring dividends and distributions;
appointing officers and determining the term of office of the officers;
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•
•
exercising the borrowing powers of our company and mortgaging the property of our company; and
approving the transfer of shares in our company, including the registration of such shares in our share register.
Terms of Directors and Officers
Our directors may be elected by an ordinary resolution of our shareholders. Alternatively, our board of directors may, by the affirmative
vote of a simple majority of the directors present and voting at a board meeting appoint any person as a director to fill a casual vacancy on our board or
as an addition to the existing board. Our directors are not automatically subject to a term of office and hold office until such time as they are removed
from office by an ordinary resolution of our shareholders. In addition, a director will cease to be a director if he (i) becomes bankrupt or makes any
arrangement or composition with his creditors; (ii) dies or is found to be or becomes of unsound mind; (iii) resigns his office by notice in writing;
(iv) without special leave of absence from our board, is absent from meetings of our board for three consecutive meetings and our board resolves that his
office be vacated; or (v) is removed from office pursuant to any other provision of our articles of association.
Our officers are appointed by and serve at the discretion of the board of directors, and may be removed by our board of directors.
D.
Employees
As of December 31, 2020, we had a total of 1,036 employees. We had a total of 1,013 and 1,334 employees as of December 31, 2018 and
2019, respectively. The following table gives breakdowns of our employees as of December 31, 2020 by function:
Function
Procurement
Operations, including customer service
Technology
Sales and Marketing
General and Administrative
Total
As of December 31, 2020
213
263
333
91
136
1,036
To focus corporate resources on the more crucial parts of our business model and for better operating efficiency, we enter into
arrangements with third-party BPO companies to provide certain ancillary services available on our platform, such as real-time customer service. As of
December 31, 2020, 349 of our customer service personnel were outsourced from third-party BPO companies, representing 57.0% of the total customer
service personnel.
We outsource provision of member services to third-party service companies and they select, hire, train and compensate service managers
at our request. Most of the service managers are our members. Service managers enter into contracts with third-party service companies and are not our
employees. As of December 31, 2020, our members were served by more than 80,000 service managers. We currently work with three third-party
service companies and enter into agreements with them on an annual basis or for a longer term. These third-party service companies select service
managers based on the standards we provide in our agreements. We have the right to supervise the performance of the service managers and may request
third-party service companies to replace service managers who do not meet our standards. We pay training fees to third-party service companies based
on the number of members managed by these service companies through service managers that provide training and support to our members. We pay
member management fees to third-party service companies for their product sales facilitation services. The service companies compensate the service
managers based on the length of work hours and other performance criteria.
As required by regulations in China, we participate in various government statutory employee benefit plans, including social insurance
funds, namely, medical insurance, maternity insurance, workplace injury insurance, unemployment insurance and pension benefits, as well as a housing
provident fund. We are required under PRC law to contribute to employee benefit plans at specified percentages of the salaries, bonuses and certain
allowances of our employees up to a maximum amount specified by the local government from time to time.
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We enter into standard labor contracts with our employees. We also enter into standard confidentiality and non-compete agreements with
all of our employees. The non-compete restricted period typically expires two years after the termination of employment, and we agree to compensate
the employee with a certain percentage of his/her pre-departure salary during the restricted period.
Our success depends on our ability to attract, retain and motivate qualified employees that share our values. We place great emphasis on
our corporate culture to ensure that we maintain consistently high standards everywhere we operate. We believe that we maintain a good working
relationship with our employees, and we have not experienced any labor disputes. None of our employees are represented by labor unions.
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
February 28, 2021 by:
•
•
each of our current directors and executive officers; and
each person known to us to own beneficially more than 5% of our total outstanding shares.
The calculations in the table below are based on 2,133,318,232 ordinary shares as of February 28, 2021, including (i) 1,183,358,232
Class A ordinary shares (excluding the company’s repurchase of 25,472,990 Class A ordinary shares in the form of ADSs held as treasury shares and
reserved for future issuance upon the exercising or vesting of awards granted under our share incentive plans); and (ii) 949,960,000 Class B ordinary
shares.
Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60
days, including through the exercise of any option, warrant or other right or the conversion of any other security. These shares, however, are not
included in the computation of the percentage ownership of any other person.
Directors and Executive Officers**:
Shanglue Xiao(1)
Wei Ye
Wei Ying(2)
Li-Lan Cheng(3)
Gao Wang(4)
Suqin Xi(5)
Huan Hao
Chengqi Zhang
All Directors and Executive Officers as a Group
Principal Shareholders:
Lanlan Ltd.(6)
Entities affiliated with Eastern Bell Venture Capital(7)
CPYD Singapore Pte. Ltd.(8)
Fasturn Overseas Limited(9)
Acceleration S Limited(10)
Trustbridge Partners IV, LP(11)
*
Less than 1% of our total outstanding shares.
Ordinary Shares Beneficially Owned
Class A
Ordinary
Shares
Class B
Ordinary
Shares
Total Ordinary
Shares
% of
Total
Ordinary
Shares
% of
Aggregate
Voting
Power***
22,500,000
—
—
—
*
*
*
—
37,698,700
949,960,000
—
—
—
—
—
—
—
949,960,000
972,460,000
—
—
—
*
*
*
—
987,658,700
45.1
—
—
—
*
*
*
—
45.8
88.9
—
—
—
*
*
*
—
89.1
—
259,154,052
215,800,000
147,932,480
110,803,324
109,732,490
949,960,000
—
—
—
—
—
949,960,000
259,154,052
215,800,000
147,932,480
110,803,324
109,732,490
44.5
12.1
10.1
6.9
5.2
5.1
88.9
2.4
2.0
1.4
1.0
1.0
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**
***
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
Except as indicated otherwise below, the business address of our directors and executive officers is 15/F, South Building, Hipark Phase 2,
Xiaoshan District, Hangzhou 310000, Zhejiang Province, People’s Republic of China.
For each person or group included in this column, percentage of total voting power represents voting power based on both Class A and Class B
ordinary shares held by such person or group with respect to all outstanding shares of our Class A and Class B ordinary shares as a single class.
Each holder of our Class A ordinary shares is entitled to one vote per share. Each holder of our Class B ordinary shares is entitled to ten votes per
share. Our Class B ordinary shares are convertible at any time by the holder into Class A ordinary shares on a one-for-one basis, while Class A
ordinary shares are not convertible into Class B ordinary shares under any circumstances.
Represents (i) 949,960,000 Class B ordinary shares held by Lanlan Ltd., a BVI business company, (ii) 15,000,000 Class A ordinary shares
issuable to Mr. Shanglue Xiao upon exercise of options within 60 days after February 28, 2021, and (iii) 7,500,000 Class A ordinary shares
issuable to Mr. Shanglue Xiao upon vesting of restricted share units within 60 days after February 28, 2021. Lanlan Ltd. is wholly owned by
Mr. Shanglue Xiao. The registered address of Lanlan Ltd. is Maples Corporate Services (BVI) Limited of Kingston Chambers, PO Box 173,
Road Town, Tortola, British Virgin Islands.
The business address of Mr. Wei Ying is 3/F, K.stone Building, No. 1 East Yan’an Road, Huangpu District, Shanghai, People’s Republic of
China.
The business address of Mr. Li-Lan Cheng is 11/F Floor, Yinlin Building, No. 788 Guangzhong Road, Shanghai, China.
The business address of Mr. Gao Wang is 699 Hongfeng Road, Pudong New District, Shanghai 201206, China.
The business address of Mr. Suqin Xi is Jingyi Villa, No. 5 Geling Road, Beishan Street, Xihu District, Hangzhou, China.
Represents 949,960,000 Class B ordinary shares held by Lanlan Ltd., a BVI business company. Lanlan Ltd. is wholly owned by Mr. Shanglue
Xiao. The registered address of Lanlan Ltd. is Maples Corporate Services (BVI) Limited of Kingston Chambers, PO Box 173, Road Town,
Tortola, British Virgin Islands.
Represents (i) 202,354,052 Class A Ordinary Shares held by Eastern Bell XIX Investment Limited, a company incorporated in the British Virgin
Islands, and (ii) 56,800,000 Class A ordinary shares held by Eastern Bell XII Investment Limited, a company incorporated in the British Virgin
Islands. The registered address of each of Eastern Bell XIX Investment Limited and Eastern Bell XII Investment Limited is Trinity Chambers,
P.O. Box 4301, Road Town, Tortola, British Virgin Islands. Eastern Bell XIX Investment Limited is wholly owned by Suzhou Zhongding No. 3
Venture Capital Center (Limited Partnership) (苏州钟鼎三号创业投资中心(有限合伙)), whose general partners are Shanghai Dingying
Investment Management Center (Limited Partnership) (上海鼎迎投资管理中心(有限合伙)) and Suzhou Zhongding Hengtang Equity
Investment Management Center (Limited Partnership) ( 苏州钟鼎恒棠股权投资管理中心(有限合伙)), each of which is ultimately controlled by
Mr. Li Yan. Eastern Bell XII Investment Limited is wholly owned by Suzhou Zhongding No. 4 Venture Capital Center (Limited Partnership) (苏
州钟鼎四号创业投资中心(有限合伙)), whose general partners are Shanghai Dingying Investment Management Center (Limited Partnership)
(上海鼎迎投资管理中心(有限合伙)) and Shanghai Zhongding Investment Center (Limited Partnership) (上海种鼎创业投资中心(有限合伙)),
each of which is ultimately controlled by Mr. Li Yan.
Represents 215,800,000 Class A ordinary shares held by CPYD Singapore Pte. Ltd., a Singapore exempted private company limited by share.
The registered address of CPYD Singapore Pte. Ltd. is Marker Icon, 1 Temasek Avenue, #20-01 Millennia Tower, Singapore 039192. CPYD
Singapore Pte. Ltd. is beneficially owned and controlled by Mr. David Hand. CPYD Singapore Pte. Ltd. is a fund managed by Crescent Point.
Represents (i) 126,820,000 Class A ordinary shares and (ii) 2,111,248 ADSs, representing 21,112,480 Class A ordinary shares, held by Fasturn
Overseas Limited, a BVI business company. Fasturn Overseas Limited is wholly owned by Mr. Yuan Chen. The registered address of Fasturn
Overseas Limited is Palm Grove House, P.O. Box 438, Road Town, Tortola, British Virgin Islands.
Represents 110,803,324 Class A ordinary shares held by Acceleration S Limited, a BVI business company. Acceleration S Limited is ultimately
controlled by Mr. Shangzhi Wu. The registered address of Acceleration S Limited is Maples Corporate Services (BVI) Limited, Kingston
Chambers, PO Box 173, Road Town, Tortola, British Virgin Islands.
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(11)
Represents (i) 94,350,000 Class A ordinary shares and (ii) 1,538,249 ADSs, representing 15,382,490 Class A ordinary shares, held by
Trustbridge Partners IV, LP a Cayman Islands limited partnership. Trustbridge Partners IV, LP is controlled by TB Alternative Assets Ltd, an
investment adviser organized under the Cayman Islands and registered under Section 203 of the Investment Advisors Act of 1940. TB
Alternative Assets Ltd acts as the investment adviser of Trustbridge Partners IV LP. The registered address of Trustbridge Partners IV, LP is c/o
Intertrust Corporate Services (Cayman) Limited, 190 Elgin Avenue, George Town, Grand Cayman KY1-9005, Cayman Islands. The business
address of TB Alternative Assets Ltd is c/o Maples Corporate Services Limited, Ugland House, Grand Cayman, Cayman Islands, KY1-1104.
To our knowledge, as of February 28, 2021, 357,997,170 of our ordinary shares were held by one record holder in the United States, which
was Deutsche Bank Trust Company Americas, the depositary of our ADS program. The number of beneficial owners of our ADSs in the United States
is likely to be much larger than the number of record holders of our ordinary shares in the United States.
Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of Class A ordinary shares are entitled
to one vote per share, while holders of Class B ordinary shares are entitled to ten votes per share.
We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A.
B.
Major Shareholders
Please refer to “Item 6. Directors, Senior Management and Employees—E. Share Ownership.”
Related Party Transactions
Contractual Arrangements with our Variable Interest Entity and its Shareholders
See “Item 4. Information on the Company—C. Organizational Structure—Contractual Arrangements with Our Consolidated Affiliated
Entities and Their Respective Shareholders.”
Shareholders Agreement
We entered into our amended and restated shareholders agreement on June 4, 2018 with our shareholders, which consist of holders of
ordinary shares and preferred shares. The shareholders agreement provides for certain shareholders’ rights, including information and inspection rights,
right of participation, right of first refusal and co-sale rights, and contains provisions governing our board of directors and other corporate governance
matters.
Registration Rights Granted to Shareholders
We have granted certain registration rights to our shareholders. Set forth below is a description of the registration rights granted under the
shareholders agreement.
Demand Registration Rights. At any time after the earlier of (i) June 4, 2021 or (ii) six months after the completion of our initial public
offering, holders of at least twenty percent (20%) of the registrable securities (including preferred shares and ordinary shares issued upon conversion of
preferred shares) then issued and outstanding have the right to demand that we file a registration statement of all registrable securities that the holders
request to be registered and included in such registration by written notice. Other than required by the underwriter(s) in connection with our initial
public offering, at least twenty-five percent (25%) of the registrable securities requested by the holders to be included in the underwriting and
registration shall be so included. We have the right to defer filing of a registration statement for a period of not more than 90 days after the receipt of the
request of the initiating holders if we furnish to the holders requesting registration a certificate signed by our president or chief executive officer stating
that in the good faith judgment of our board of directors, it would be materially detrimental to us and our shareholders for such registration statement to
be filed at such time. However, we cannot exercise the deferral right more than once in any twelve-month period. We are obligated to effect no more
than three demand registrations, other than demand registration to be effected pursuant to registration statement on Form F-3, for which an unlimited
number of demand registrations shall be permitted.
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Piggyback Registration Rights. If we propose to file a registration statement for a public offering of our securities, we must offer
shareholders an opportunity to include in the registration all or any part of the registrable securities held by such holders. If the managing underwriters
of any underwritten offering determine in good faith that marketing factors require a limitation of the number of shares to be underwritten, and the
number of shares that may be included in the registration and the underwriting shall be allocated (i) first, to us, (ii) second, to each holder requesting
inclusion of its registrable securities in such registration statement on a pro rata basis based on the total number of registrable securities then held by
each such holder; provided that at least twenty-five percent (25%) of the registrable securities requested by the holders to be included in the
underwriting and registration shall be so included and all shares that are not registrable securities shall first be excluded from such registration and
underwriting before any registrable securities are so excluded.
Form F-3 Registration Rights. Our shareholders may request us in writing to file an unlimited number of registration statements on Form
F-3. We shall effect the registration of the securities on Form F-3 as soon as practicable, except in certain circumstances.
Expenses of Registration. We will bear all registration expenses, other than underwriting discounts and commissions.
Termination of Registration Rights. Our shareholders’ registration rights will terminate (i) after two years of the initial public offering, or
(ii) all such registrable securities proposed to be sold by a shareholder may then be sold under Rule 144 promulgated under the Securities Act.
Employment Agreements and Indemnification Agreements
See “Item 6. Directors, Senior Management and Employees—B. Compensation of Directors and Executive Officers—Employment
Agreements and Indemnification Agreements.”
Share Incentive Plan
See “Item 6. Directors, Senior Management and Employees—B. Compensation of Directors and Executive Officers— 2019 Stock
Incentive Plan.”
Transactions with Our Founder’s Related Entity
Transactions with Small Ye Group, or Small Ye. Small Ye is under control of Mr. Shanglue Xiao, our chairman and chief executive officer.
In 2018, 2019 and 2020, we purchased products from Small Ye in the amount of nil, RMB3.1 million and RMB0.3 million, respectively. As of
December 31, 2018, 2019 and 2020, we had nil, RMB0.7 million and RMB1.0 million, respectively, due to Small Ye, representing the payments due to
Small Ye for products purchased from Small Ye.
Transactions with Our Equity Investees
Transaction with Beijing Siwei Technology and Culture Co., Ltd., or Beijing Siwei. Beijing Siwei is our equity investee and our supplier. In
2018, 2019 and 2020, we purchased products from Beijing Siwei in the amount of RMB0.3 million, RMB5.6 million and RMB7.7 million, respectively.
As of December 31, 2018, 2019 and 2020, we had RMB0.2 million, RMB0.1 million and RMB0.3 million, respectively, due to Beijing Siwei,
representing the payments due to Beijing Siwei for products purchased from Beijing Siwei.
Transaction with Guangdong Weixin Technology Co Ltd., or Guangdong Weixin. Guangdong Weixin is our equity investee and our
supplier. In 2018, 2019 and 2020, we purchased products from Guangdong Weixin in the amount of RMB37.0 million, RMB79.3 million and
RMB9.2 million, respectively. As of December 31, 2018, 2019 and 2020, we had RMB70 thousand, RMB0.1 million and 0.1 million, respectively, due
to Guangdong Weixin, representing the payments in year 2018 and deposits in year 2019 due to Guangdong Weixin for products purchased from
Guangdong Weixin. As of December 31, 2018, 2019 and 2020, we had nil, RMB5.8 million and RMB3.7 million, respectively, advance to Guangdong
Weixin, representing the advance payment for products purchased from Guangdong Weixin. In 2018, 2019 and 2020, we provided factoring services to
Guangdong Weixin in the amount of nil, nil and RMB58 thousand, respectively.
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Transaction with Guangzhou Misili Personal care Co., Ltd., or Guangzhou Misili. Guangzhou Misili is our equity investee and our
supplier. In 2018, 2019 and 2020, we purchased products from Guangzhou Misili in the amount of nil, RMB8.2 million and RMB3.3 million,
respectively. As of December 31, 2018, 2019 and 2020, we had nil, RMB0.3 million and RMB0.3 million, respectively, due to Guangzhou Misili,
representing the payments due to Guangzhou Misili for products purchased from Guangzhou Misili.
Transaction with Hainan Yunding Supply Chain Management Co., Ltd, or Hainan Yunding. Hainan Yunding is our equity investee and our
supplier. In 2018, 2019 and 2020, we purchased products from Hainan Yunding in the amount of nil, nil and RMB1.7 million, respectively.
Transaction with Hangzhou Adopt A Cow Biological Technology Co., Ltd., or Hangzhou Biological Technology. Hangzhou Biological
Technology is our equity investee and our supplier. In 2018, 2019 and 2020, we purchased products from Hangzhou Biological Technology in the
amount of RMB0.5 million, RMB103.3 million and RMB53.8 million, respectively. As of December 31, 2018, 2019 and 2020, we had RMB0.6 million,
RMB4.9 million and RMB4.2 million, respectively, due to Hangzhou Biological Technology, representing the payments due to Hangzhou Biological
Technology for products purchased from Hangzhou Biological Technology. In 2018, 2019 and 2020, we provided factoring services to Hangzhou
Biological Technology in the amount of nil, nil and RMB73 thousand, respectively.
Transaction with Hangzhou Bixin Biology Technology Co., Ltd., or Hangzhou Bixin. Hangzhou Bixin is our equity investee and our
supplier. In 2018, 2019 and 2020, we purchased products from Hangzhou Bixin in the amount of nil, RMB69.3 million and RMB31.8 million,
respectively. As of December 31, 2018, 2019 and 2020, we had nil, RMB0.3 million and RMB3.4 million, respectively, due to Hangzhou Bixin,
representing the payments due to Hangzhou Bixin for products purchased from Hangzhou Bixin. In 2018, 2019 and 2020, we provided marketplace
service to Hangzhou Bixin in the amount of nil, RMB0.4 million and RMB2.8 million, respectively. In 2018, 2019 and 2020, we provided factoring
services to Hangzhou Bixin in the amount of nil, nil and RMB31 thousand, respectively.
Transaction with Hangzhou Dianhua Technology Co., Ltd., or Hangzhou Dianhua. Hangzhou Dianhua is our equity investee and our
supplier. As of December 31, 2018, 2019 and 2020, we had nil, RMB0.1 million and RMB0.1 million, respectively, due to Hangzhou Dianhua,
representing the payments due to Hangzhou Dianhua for products purchased from Hangzhou Dianhua.
Transaction with Hangzhou Huaji Brand Marketing Management Co., Ltd, or Hangzhou Huaji. Hangzhou Huaji is our equity investee and
our supplier. In 2018, 2019 and 2020, we purchased products from Hangzhou Huaji in the amount of nil, nil and RMB2.6 million, respectively. As of
December 31, 2018, 2019 and 2020, we had nil, nil and RMB0.9 million, respectively, due to Hangzhou Huaji, representing the payments due to
Hangzhou Huaji for products purchased from Hangzhou Huaji.
Transaction with Hangzhou Ji’ao Sanitary Products Co., Ltd, or Hangzhou Ji’ao. Hangzhou Ji’ao is our equity investee and our supplier.
In 2018, 2019 and 2020, we purchased products from Hangzhou Ji’ao in the amount of nil, nil and RMB1.7 million, respectively.
Transaction with Hangzhou Jixi Internet Technology Co., Ltd., or Hangzhou Jixi. Hangzhou Jixi is our equity investee and our supplier. As
of December 31, 2018, 2019 and 2020, we had nil, RMB1.0 million and RMB3.0 million, respectively, due from Hangzhou Jixi representing an
one-year interest free loan. As of December 31, 2018, 2019 and 2020, we had nil, nil and RMB1.8 million, respectively, due to Hangzhou Jixi,
representing the payments due to Hangzhou Jixi for products purchased from Hangzhou Jixi. In 2018, 2019 and 2020, we provided marketplace service
to Hangzhou Jixi in the amount of nil, nil and RMB0.6 million, respectively.
Transaction with Hangzhou Tianshi Technology Co. Ltd., or Tianshi. Tianshi is our equity investee and our supplier. In 2018, 2019 and
2020, we purchased products from Tianshi in the amount of RMB39.8 million, RMB25.3 million and RMB17.0 million, respectively. As of
December 31, 2018, 2019 and 2020, we had RMB5.6 million, RMB0.2 million and RMB0.8 million, respectively, due to Tianshi, representing the
payments due to Tianshi for products purchased from Tianshi.
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Transaction with Hangzhou Yuncheng Brand Management Co., Ltd, or Hangzhou Yuncheng. Hangzhou Yuncheng is our equity investee
and our supplier. As of December 31, 2018, 2019 and 2020, we had nil, nil and RMB1.0 million, respectively, due from Hangzhou Yuncheng,
representing factoring receivables due to offering loans. In 2018, 2019 and 2020, we purchased products from Hangzhou Yuncheng in the amount of nil,
nil and RMB2.2 million, respectively. In 2018, 2019 and 2020, we provided marketplace service to Hangzhou Yuncheng in the amount of nil, nil and
RMB2.9 million, respectively. In 2018, 2019 and 2020, we provided factoring services to Hangzhou Yuncheng in the amount of nil, nil and
RMB0.2 million, respectively.
Transaction with Hangzhou Zhangtaihe Health Technology Co., Ltd, or Zhangtaihe. Zhangtaihe is our equity investee and our supplier. In
2018, 2019 and 2020, we purchased products from Zhangtaihe in the amount of RMB32.1 million, RMB16.4 million and RMB0.5 million, respectively.
As of December 31, 2018, 2019 and 2020, we had RMB5.0 million, RMB0.4 million and RMB0.6 million, respectively, due to Zhangtaihe, representing
the payments due to Zhangtaihe for products purchased from Zhangtaihe. In 2018, 2019 and 2020, we provided marketplace service to Zhangtaihe in the
amount of nil, nil and RMB0.8 million, respectively.
Transaction with Hunan Haomeihaomei Cosmetics Co., Ltd., or Hunan Haomeihaomei. Hunan Haomeihaomei is our equity investee and
our supplier. In 2018, 2019 and 2020, we purchased products from Hunan Haomeihaomei in the amount of nil, RMB13.4 million and RMB16.4 million,
respectively. As of December 31, 2018, 2019 and 2020, we had nil, RMB0.5 million and RMB1.7 million, respectively, due to Hunan Haomeihaomei,
representing the payments due to Hunan Haomeihaomei for products purchased from Hunan Haomeihaomei.
Transaction with Huzhou Boyun E-commerce Co., Ltd, or Huzhou Boyun. Huzhou Boyun is our equity investee and our supplier. In 2018,
2019 and 2020, we purchased products from Huzhou Boyun in the amount of nil, nil and RMB0.3 million, respectively. As of December 31, 2018, 2019
and 2020, we had nil, nil and RMB0.3 million, respectively, due to Huzhou Boyun, representing the payments due to Huzhou Boyun for products
purchased from Huzhou Boyun.
Transaction with Ningbo Langfei Household Appliance Co., Ltd., or Ningbo Langfei. Ningbo Langfei is our equity investee and our
supplier. In 2018, 2019 and 2020, we purchased products from Ningbo Langfei in the amount of nil, RMB3.5 million and RMB1.1 million, respectively.
As of December 31, 2018, 2019 and 2020, we had nil, RMB0.1 million and RMB0.1 million, respectively, due to Ningbo Langfei, representing the
payments due to Ningbo Langfei for products purchased from Ningbo Langfei.
Transaction with Shanxi Yunnong Supply Chain Management Co., Ltd., or Shanxi Yunnong. Shanxi Yunnong is our equity investee and our
supplier. In 2018, 2019 and 2020, we purchased products from Shanxi Yunnong in the amount of nil, RMB8.0 million and RMB21.5 million,
respectively. As of December 31, 2018, 2019 and 2020, we had nil, RMB4.7 million and RMB0.6 million, respectively, due to Shanxi Yunnong,
representing the payments due to Shanxi Yunnong for products purchased from Shanxi Yunnong.
Transaction with Shenzhen Liumangyike Food and Beverage Management Co., Ltd., or Shenzhen Liumangyike. Shenzhen Liumangyike is
our equity investee and our supplier. As of December 31, 2018, 2019 and 2020, we had nil, RMB66 thousand and RMB0.2 million, respectively, due to
Shenzhen Liumangyike, representing the payments due to Shenzhen Liumangyike for products purchased from Shenzhen Liumangyike. In 2018, 2019
and 2020, we provided marketplace service to Shenzhen Liumangyike in the amount of nil, RMB0.3 million and RMB0.2 million, respectively.
Transaction with Yunmu Dairy (Jiangsu) Co., Ltd, or Yunmu Dairy. Yunmu Dairy is our equity investee and our supplier. In 2018, 2019
and 2020, we purchased products from Yunmu Dairy in the amount of nil, nil and RMB4.5 million, respectively.
Transaction with Zhejiang Jimi E-commerce Co., Ltd, or Zhejiang Jimi. Zhejiang Jimi is our equity investee and our supplier. As of
December 31, 2018, 2019 and 2020, we had nil, nil and RMB2.5 million, respectively, due to Zhejiang Jimi, representing the payments due to Zhejiang
Jimi for products purchased from Zhejiang Jimi. In 2018, 2019 and 2020, we provided marketplace service to Zhejiang Jimi in the amount of nil, nil and
RMB2.4 million, respectively.
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Transaction with Zhejiang Jibi Technology Co., Ltd., or Zhejiang Jibi. Zhejiang Jibi is our equity investee and our supplier. As of
December 31, 2018, 2019 and 2020, we had nil, nil and RMB0.5 million, respectively, due to Zhejiang Jibi, representing the payments due to Zhejiang
Jibi for products purchased from Zhejiang Jibi. In 2018, 2019 and 2020, we provided marketplace service to Zhejiang Jibi in the amount of nil, nil and
RMB0.5 million, respectively.
Transaction with Zhejiang Zhengdao Fengju Supply Chain Management Co., Ltd., or Zhejiang Zhengdao Fengju. Zhejiang Zhengdao
Fengju is our equity investee and our supplier. In 2018, 2019 and 2020, we purchased products from Zhejiang Zhengdao Fengju in the amount of nil,
RMB31.4 million and RMB28.4 million, respectively. As of December 31, 2018, 2019 and 2020, we had nil, RMB6.0 million and RMB2.2 million,
respectively, due to Zhejiang Zhengdao Fengju, representing the payments due to Zhejiang Zhengdao Fengju for products purchased from Zhejiang
Zhengdao Fengju.
Transaction with Hangzhou Xingsheng Brand Marketing Management Co., Ltd., or Xingsheng. Xingsheng is our equity investee and our
supplier. In 2018, 2019 and 2020, we purchased products from Xingsheng in the amount of nil, nil and RMB0.6 million, respectively. As of
December 31, 2018, 2019 and 2020, we had nil, nil and RMB0.3 million, respectively, due to Xingsheng, representing the payments due to Xingsheng
for products purchased from Xingsheng.
We believe the terms of the transactions with Small Ye, Beijing Siwei, Guangdong Weixin, Guangzhou Misili, Hainan Yunding, Hangzhou
Biological Technology, Hangzhou Bixin, Hangzhou Dianhua, Hangzhou Huaji, Hangzhou Ji’ao, Hangzhou Jixi, Tianshi, Hangzhou Yuncheng,
Zhangtaihe, Hunan Haomeihaomei, Huzhou Boyun, Ningbo Langfei, Shanxi Yunnong, Shenzhen Liumangyike, Yunmu Dairy, Zhejiang Jimi, Zhejiang
Jibi, Zhejiang Zhengdao Fengju, and Xingsheng are comparable to those with third-party suppliers.
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 be involved in disputes and legal or administrative proceedings in the ordinary course of our business. In May
2017, we received a notice from the local Administration for Market Regulation in Hangzhou, which ruled that our sales and marketing practice adopted
in our early stage of development prior to February 2016 violated the Regulations on the Prohibition of Pyramid Selling and imposed a penalty of
approximately RMB9.6 million (US$1.4 million). We paid this fine in June 2017 and have adjusted our business practices since February 2016 to
comply with the Regulations on the Prohibition of Pyramid Selling and other applicable regulations. See “Item 4. Information on the Company—B.
Business Overview—Regulations—Regulations Relating to Pyramid Selling in the PRC” and “Item 3. Key Information—D. Risk Factors—Risks
Related to Our Business and Industry—Any lack of requisite approvals, licenses or permits applicable to our business or failure to comply with any
requirements of PRC laws, regulations and policies may have a material and adverse impact on our business, financial condition and results of
operations.”
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Starting in November 2019, we and certain of our officers and directors and others have been named as defendants in putative securities
class actions captioned In Re Yunji Inc., Securities Litigation, No. 1:19-cv-06403-LDH (U.S. District Court for the Eastern District of New York,
Amended Complaint filed March 19, 2020) (the “Federal Court Action”), Axel Lindholm v. Yunji Inc. et al., Case No. 21635/2020E (Bronx County
Supreme Court of the State of New York, filed on January 31, 2020) (the “Lindholm Case”), Christopher Guilford v. Yunji, et al., Case No. 23095/2020E
(Bronx County Supreme Court of the State of New York, filed on March 3, 2020) (the “Guilford Case”), and Stephanie Ng v. Yunji, et al., Case No.
24906/2020E (Bronx County Supreme Court of the State of New York, filed on May 29, 2020) (the “Ng Case”). The actions allege that defendants made
misstatements and omissions in connection with our initial public offering in May 2019 in violation of the Securities Act of 1933. On March 19, 2020,
an amended complaint was filed in the Federal Court Action. On March 31, 2021, the Court granted our motion to dismiss the Federal Court Action, and
plaintiffs’ time to file a second amended complaint has expired. The Lindholm Case, the Guilford Case, the Ng Case otherwise remain in their
preliminary stages.
Dividend Policy
Our board of directors has discretion on whether to distribute dividends, subject to certain requirements of Cayman Islands law. In
addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of
directors. In either case, all dividends are subject to certain restrictions under Cayman Islands law, namely that our company may only pay dividends out
of profits or share premium, and provided always that in no circumstances may a dividend be paid if this would result in our company being unable to
pay its debts as they fall due in the ordinary course of business. Even if we decide to pay dividends, the form, frequency and amount will depend upon
our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board
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. We currently intend to retain
most, if not all, of our available funds and any future earnings to operate and expand our business.
We are a holding company incorporated in the Cayman Islands. We may rely on dividends from our subsidiaries in China for our cash
requirements, including any payment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC subsidiaries to pay dividends
to us. See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations on 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
underlying the ADSs to the depositary, as the registered holder of such Class A ordinary shares, and the depositary then will pay such amounts to the
ADS holders in proportion to the Class A ordinary shares underlying the ADSs held by such ADS holders, subject to the terms of the deposit agreement,
including the fees and expenses payable thereunder. Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.
B.
Significant Changes
We have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual
report.
ITEM 9. THE OFFER AND LISTING
A.
Offering and Listing Details
See “—C. Markets” below for our host market and trading symbol. We have a dual-class structure in which Class B ordinary shares have
different voting rights from Class A ordinary shares. Class B ordinary shares are each entitled to ten votes, whereas Class A ordinary shares are each
entitled to one vote. See “ Item 3. Key Information—D. Risk Factors—Risks Related to Our ADSs—Our dual-class voting structure will limit your
ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of our Class A ordinary
shares and the ADSs may view as beneficial.”
B.
C.
Plan of Distribution
Not applicable.
Markets
The ADSs, each represents ten of our Class A ordinary shares, have been listed on Nasdaq since May 3, 2019. The ADSs trade under the
symbol “YJ.”
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D.
E.
F.
Selling Shareholders
Not applicable.
Dilution
Not applicable.
Expenses of the Issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
A.
B.
Share Capital
Not applicable.
Memorandum and Articles of Association
The following are summaries of material provisions of our current amended and restated memorandum and articles of association and of
the Companies Act, insofar as they relate to the material terms of our ordinary shares.
Objects of Our Company. Under our amended and restated memorandum and articles of association, the objects of our company are
unrestricted and we have the full power and authority to carry out any object not prohibited by the laws of the Cayman Islands.
Ordinary Shares. Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of our Class A
ordinary shares and Class B ordinary shares will have the same rights except for voting and conversion rights. Our ordinary shares are issued in
registered form and are issued when registered in our register of members. We may not issue shares to bearer. Our shareholders who are nonresidents of
the Cayman Islands may freely hold and vote their shares.
Each Class B ordinary share is convertible into an equal number of Class A ordinary shares upon the occurrence of certain matters as set
forth in our memorandum and articles of association, including upon any direct or indirect sale, transfer, assignment or disposition of Class B ordinary
shares by a holder thereof to any person other than holders of Class B ordinary shares or their affiliates. Class A ordinary shares are not convertible into
Class B ordinary shares under any circumstances.
Dividends. Our directors may from time to time declare dividends (including interim dividends) and other distributions on our shares in
issue and authorize payment of the same out of the funds of our company lawfully available therefor. In addition, our shareholders may declare
dividends by ordinary resolution, but no dividend shall exceed the amount recommended by our directors. Our memorandum and articles of association
provide that dividends may be declared and paid out of the funds of our Company lawfully available therefor. Under the laws of the Cayman Islands, our
company may pay a dividend out of either profit or share premium account; provided that in no circumstances may a dividend be paid if this would
result in our company being unable to pay its debts as they fall due in the ordinary course of business.
Voting Rights. In respect of all matters subject to a shareholders’ vote, each holder of Class A ordinary shares is entitled to one vote per
share and each holder of Class B ordinary shares is entitled to ten votes per share. Our Class A ordinary shares and Class B ordinary shares votes
together as a single class on all matters submitted to a vote of our shareholders, except as may otherwise be required by law. Voting at any meeting of
shareholders is by show of hands unless a poll is demanded. A poll may be demanded by the chairman of such meeting or any one shareholder holding
not less than 10% of the votes attaching to the shares present in person or by proxy.
An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the votes
attaching to the ordinary shares cast at a meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes cast
attaching to the issued and outstanding ordinary shares at a meeting. A special resolution will be required for important matters such as a change of
name or making changes to our memorandum and articles of association. Our shareholders may, among other things, divide or combine their shares by
ordinary resolution.
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General Meetings of Shareholders. As a Cayman Islands exempted company, we are not obliged by the Companies Act to call
shareholders’ annual general meetings. Our memorandum and articles of association provide that we may (but are not obliged to) in each year hold a
general meeting as our annual general meeting in which case we shall specify the meeting as such in the notices calling it, and the annual general
meeting shall be held at such time and place as may be determined by our directors.
Shareholders’ general meetings may be convened by the chairman of our board of directors or by our directors (acting by a resolution of
our board). Advance notice of at least seven days is required for the convening of our annual general shareholders’ meeting (if any) and any other
general meeting of our shareholders. A quorum required for any general meeting of shareholders consists of, at the time when the meeting proceeds to
business, one or more of our shareholders holding shares which carry in aggregate (or representing by proxy) not less than one-third of all votes
attaching to all of our shares in issue and entitled to vote at such general meeting.
The Companies Act provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders
with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. Our
memorandum and articles of association provide that upon the requisition of any one or more of our shareholders holding shares which carry in
aggregate not less than one-third of all votes attaching to all issued and outstanding shares of our company entitled to vote at general meetings, our
board will convene an extraordinary general meeting and put the resolutions so requisitioned to a vote at such meeting. However, our memorandum and
articles of association do not provide our shareholders with any right to put any proposals before annual general meetings or extraordinary general
meetings not called by such shareholders.
Conversion. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof. Class A ordinary
shares are not convertible into Class B ordinary shares under any circumstances. Upon any sale of Class B ordinary shares by a holder thereof to any
person or entity, such Class B ordinary shares will be automatically and immediately converted into an equal number of Class A ordinary shares.
Transfer of Ordinary Shares. Subject to the restrictions set out below, any of our shareholders may transfer all or any of his or her ordinary
shares by an instrument of transfer in the usual or common form or any other form approved by our board of directors.
Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is not fully paid up or on
which we have a lien. Our board of directors may also decline to register any transfer of any ordinary share unless:
•
•
•
•
•
the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it relates and such other
evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer;
the instrument of transfer is in respect of only one class of ordinary shares;
the instrument of transfer is properly stamped, if required;
in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share is to be transferred does not exceed
four; and
a fee of such maximum sum as the Nasdaq Stock Market may determine to be payable or such lesser sum as our directors may from
time to time require is paid to us in respect thereof.
If our directors refuse to register a transfer they shall, within three months after the date on which the instrument of transfer was lodged,
send to each of the transferor and the transferee notice of such refusal.
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The registration of transfers may, on ten calendar days’ notice being given by advertisement in such one or more newspapers, by electronic
means or by any other means in accordance with the rules of the Nasdaq Stock Market be suspended and the register closed at such times and for such
periods as our board of directors may from time to time determine; provided, however, that the registration of transfers shall not be suspended nor the
register closed for more than 30 days in any year as our board may determine.
Liquidation. On the winding up of our company, if the assets available for distribution amongst our shareholders shall be more than
sufficient to repay the whole of the share capital at the commencement of the winding up, the surplus shall be distributed amongst our shareholders in
proportion to the par value of the shares held by them at the commencement of the winding up, subject to a deduction from those shares in respect of
which there are monies due, of all monies payable to our company for unpaid calls or otherwise. If our assets available for distribution are insufficient to
repay all of the paid-up capital, such the assets will be distributed so that, as nearly as may be, the losses are borne by our shareholders in proportion to
the par value of the shares held by them.
Calls on Shares and Forfeiture of Shares. Our board of directors may from time to time make calls upon shareholders for any amounts
unpaid on their shares in a notice served to such shareholders at least 14 days prior to the specified time and place of payment. The shares that have been
called upon and remain unpaid are subject to forfeiture.
Redemption, Repurchase and Surrender of Shares. We may issue shares on terms that such shares are subject to redemption, at our option
or at the option of the holders of these shares, on such terms and in such manner as may be determined, before the issue of such shares, by our board of
directors or by our shareholders by special resolution. Our company may also repurchase any of our shares on such terms and in such manner as have
been approved by our board of directors or by an ordinary resolution of our shareholders. Under the Companies Act, the redemption or repurchase of
any share may be paid out of our Company’s profits or out of the proceeds of a new issue of shares made for the purpose of such redemption or
repurchase, or out of capital (including share premium account and capital redemption reserve) if our company can, immediately following such
payment, pay its debts as they fall due in the ordinary course of business. In addition, under the Companies Act no such 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 shares outstanding or (c) if the company
has commenced liquidation. In addition, our company may accept the surrender of any fully paid share for no consideration.
Variations of Rights of Shares. Whenever the capital of our company is divided into different classes the rights attached to any such class
may, subject to any rights or restrictions for the time being attached to any class, only be materially adversely varied with the consent in writing of the
holders of all of the issued shares of that class or with the sanction of an ordinary resolution passed at a separate meeting of the holders of the shares of
that class. The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, subject to any rights or
restrictions for the time being attached to the shares of that class, be deemed to be materially adversely varied by the creation, allotment or issue of
further shares ranking pari passu with or subsequent to them or the redemption or purchase of any shares of any class by our company. The rights of the
holders of shares shall not be deemed to be materially adversely varied by the creation or issue of shares with preferred or other rights, including,
without limitation, the creation of shares with enhanced or weighted voting rights.
Issuance of Additional Shares. Our memorandum and articles of association authorizes our board of directors to issue additional ordinary
shares from time to time as our board of directors shall determine, to the extent of available authorized but unissued shares.
Our memorandum and articles of association also authorizes our board of directors to establish from time to time one or more series of
preference shares and to determine, with respect to any series of preference shares, the terms and rights of that series, including:
•
•
•
the designation of the series;
the number of shares of the series;
the dividend rights, dividend rates, conversion rights, voting rights; and
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•
the rights and terms of redemption and liquidation preferences.
Our board of directors may issue preference shares without action by our shareholders to the extent authorized but unissued. Issuance of
these shares may dilute the voting power of holders of ordinary shares.
Inspection of Books and Records. Holders of our ordinary shares will have no general right under Cayman Islands law to inspect or obtain
copies of our list of shareholders or our corporate records (other than copies of our memorandum and articles of association, our register of mortgages
and charges, and any special resolutions passed by our shareholders). However, we intend to provide our shareholders with annual audited financial
statements. Under Cayman Islands law, the names of our current directors can be obtained from a search conducted at the Registrar of Companies.
Anti-Takeover Provisions. Some provisions of our memorandum and articles of association may discourage, delay or prevent a change of
control of our company or management that shareholders may consider favorable, including provisions that:
•
•
authorize our board of directors to issue preference shares in one or more series and to designate the price, rights, preferences,
privileges and restrictions of such preference 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 memorandum and
articles of association for a proper purpose and for what they believe in good faith to be in the best interests of our company.
Exempted Company. We are an exempted company with limited liability under the Companies Act. The Companies Act distinguishes
between ordinary resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly
outside of the Cayman Islands may apply to be registered as an exempted company. The requirements for an exempted company are essentially the same
as for an ordinary company except that an exempted company:
•
•
•
•
•
•
•
•
does not have to file an annual return of its shareholders with the Registrar of Companies;
is not required to open its register of members for inspection;
does not have to hold an annual general meeting;
may issue negotiable or bearer shares or shares with no par value;
may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the first
instance);
may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;
may register as a limited duration company; and
may register as a segregated portfolio company.
“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the
company (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or
other circumstances in which a court may be prepared to pierce or lift the corporate veil).
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C.
Material Contracts
We have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item 4.
Information on the Company,” “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions,” or elsewhere in this annual
report on Form 20-F.
D.
E.
Exchange Controls
See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations Relating to Foreign Exchange.”
Taxation
The following summary of certain Cayman Islands, PRC and U.S. federal income tax considerations of an investment in our ADSs or
Class A ordinary shares 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 summary does not deal with all possible tax considerations relating to an investment in our ADSs or Class A ordinary shares, such as tax
considerations under U.S. state and local tax laws or under the tax laws of jurisdictions other than the Cayman Islands, the People’s Republic of China
and the United States.
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is
no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman
Islands except for stamp duties which may be applicable on instruments executed in, or, after execution, brought within the jurisdiction of the Cayman
Islands. The Cayman Islands is not party to any double tax treaties that are applicable to any payments made to or by our company. There are no
exchange control regulations or currency restrictions in the Cayman Islands.
Payments of dividends and capital in respect of our ordinary shares will not be subject to taxation in the Cayman Islands and no
withholding will be required on the payment of a dividend or capital to any holder of our ordinary shares or the ADSs, nor will gains derived from the
disposal of our ordinary shares or the ADSs be subject to Cayman Islands income or corporation tax.
People’s Republic of China Taxation
Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with a “de facto
management body” within the PRC is considered a resident enterprise and will be subject to the enterprise income tax at the rate of 25% on its global
income. The implementation rules define the term “de facto management body” as the body that exercises full and substantial control over and overall
management of the business, production, personnel, accounts and properties of an enterprise. In April 2009, the State Administration of Taxation issued
a circular, known as SAT Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a
PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled by PRC
enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect the State
Administration of Taxation’s general position on how the “de facto management body” test should be applied in determining the tax resident status of all
offshore enterprises. According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be
regarded as a PRC tax resident by virtue of having its “de facto management body” in China only if all of the following conditions are met: (i) the
primary location of the day-to-day operational management is in the PRC; (ii) decisions relating to the enterprise’s financial and human resource matters
are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records,
company seals, and board and shareholder resolutions are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior
executives habitually reside in the PRC.
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We believe that Yunji Inc. is not a PRC resident enterprise for PRC tax purposes. Yunji Inc. is not controlled by a PRC enterprise or PRC
enterprise group and we do not believe that Yunji Inc. meets all of the conditions above. Yunji Inc. is a company incorporated outside the PRC. As a
holding company, its key assets are its ownership interests in its subsidiaries, and its key assets are located, and its records (including the resolutions of
its board of directors and the resolutions of its shareholders) are maintained, outside the PRC. For the same reasons, we believe our other entities outside
of China are not PRC resident enterprises either. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities
and uncertainties remain with respect to the interpretation of the term “de facto management body.” There can be no assurance that the PRC government
will ultimately take a view that is consistent with us.
If the PRC tax authorities determine that Yunji Inc. is a PRC resident enterprise for enterprise income tax purposes, we may be required to
withhold a 10% withholding tax from dividends we pay to our shareholders that are non-resident enterprises, including the holders of the ADSs. In
addition, non-resident enterprise shareholders (including the ADS holders) may be subject to a 10% PRC tax on gains realized on the sale or other
disposition of ADSs or ordinary shares, if such income is treated as sourced from within the PRC. It is unclear whether our non-PRC individual
shareholders (including the ADS holders) would be subject 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 resident enterprise. If any PRC tax were to apply to such dividends or gains, it would generally apply at a rate
of 20% unless a reduced rate is available under an applicable tax treaty. It is also unclear whether non-PRC shareholders of Yunji Inc. would be able to
claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that Yunji Inc. is treated as a PRC resident
enterprise.
Provided that our Cayman Islands holding company, Yunji Inc., is not deemed to be a PRC resident enterprise, holders of the ADSs and
ordinary shares who are not PRC residents will not be subject to PRC income tax on dividends distributed by us or gains realized from the sale or other
disposition of our shares or ADSs. However, under SAT Public Notice 7 and SAT Public Notice 37, where a non-resident enterprise conducts an
“indirect transfer” by transferring taxable assets, including, in particular, equity interests in a PRC resident enterprise, indirectly by disposing of the
equity interests of an overseas holding company, the non-resident enterprise, being the transferor, or the transferee, or the PRC entity which directly
owns such taxable assets may report to the relevant tax authority such indirect transfer. Using a “substance over form” principle, the PRC tax authority
may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of
reducing, avoiding or deferring PRC tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, and the
transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer
of equity interests in a PRC resident enterprise. We and our non-PRC resident investors may be at risk of being required to file a return and being taxed
under SAT Public Notice 7 and SAT Public Notice 37, and we may be required to expend valuable resources to comply with SAT Public Notice 7 and
SAT Public Notice 37, or to establish that we should not be taxed under these circulars. See “Item 3. Key Information—D. Risk Factors—Risks Related
to Doing Business in China—We face uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC
holding companies.”
United States Federal Income Tax Considerations
The following discussion is a summary of U.S. federal income tax considerations generally applicable to the ownership and disposition of
the ADSs or ordinary shares by a U.S. Holder (as defined below) that acquires the ADSs and holds the ADSs or ordinary shares as “capital
assets”(generally, property held for investment) under the U.S. Internal Revenue Code of 1986, as amended, or the Code. This discussion is based upon
existing U.S. federal tax law, which is subject to differing interpretations or change, possibly with retroactive effect. No ruling has been sought from the
Internal Revenue Service, or the IRS, with respect to any U.S. federal income tax considerations described below, and there can be no assurance that the
IRS or a court will not take a contrary position. This discussion, moreover, does not address the U.S. federal estate, gift, and alternative minimum tax
considerations, the Medicare tax on certain net investment income or any state, local and non-U.S. tax considerations relating to the ownership or
disposition of the ADSs or ordinary shares. The following summary does not address all aspects of U.S. federal income taxation that may be important
to particular investors in light of their individual circumstances or to persons in special tax situations such as:
•
•
•
banks and other financial institutions;
insurance companies;
pension plans;
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•
•
•
•
•
•
•
•
•
•
•
•
cooperatives;
regulated investment companies;
real estate investment trusts;
broker-dealers;
traders that elect to use a mark-to-market method of accounting;
certain former U.S. citizens or long-term residents;
tax-exempt entities (including private foundations);
holders who acquire their ADSs or ordinary shares pursuant to any employee share option or otherwise as compensation;
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;
investors that have a functional currency other than the U.S. dollar;
persons that actually or constructively own 10% or more of our stock (by vote or value); or
partnerships or other entities taxable as partnerships for U.S. federal income tax purposes, or persons holding the ADSs or ordinary
shares through such entities,
all of whom may be subject to tax rules that differ significantly from those discussed below.
Each U.S. Holder is urged to consult its tax advisor regarding the application of U.S. federal taxation to its particular circumstances, and
the state, local, non-U.S. and other tax considerations of the ownership and disposition of the ADSs or ordinary shares.
General
For purposes of this discussion, a “U.S. Holder” is a beneficial owner of the ADSs or ordinary shares that is, for U.S. federal income tax
purposes:
•
•
•
•
an individual who is a citizen or resident of the United States;
a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created in or organized under the law of
the United States or any state thereof or the District of Columbia;
an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or
a trust (A) the administration of which is subject to the primary supervision of a U.S. court and which has one or more U.S. persons
who have the authority to control all substantial decisions of the trust or (B) that has otherwise validly elected to be treated as a U.S.
person under the Code.
If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of the ADSs or ordinary
shares, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership.
Partnerships holding the ADSs or ordinary shares and their partners are urged to consult their tax advisors regarding an investment in the ADSs or
ordinary shares.
The discussion below assumes that the representations contained in the deposit agreement are and will continue to be true, and that the
obligations in the deposit agreement and any related agreement have been and will be complied with in accordance with their terms. For U.S. federal
income tax purposes, a U.S. Holder of ADSs will generally be treated as the beneficial owner of the underlying shares represented by the ADSs.
Accordingly, deposits or withdrawals of ordinary shares for ADSs will generally not be subject to U.S. federal income tax.
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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 of a quarterly average) during such year is attributable to assets that produce or are held for the production of passive income.
For this purpose, cash and assets readily convertible into cash are categorized as passive assets and the company’s goodwill and other unbooked
intangibles are taken into account. Passive income generally includes, among other things, dividends, interest, rents, royalties, and gains from the
disposition of passive assets. We will be treated as owning a proportionate share of the assets and earning a proportionate share of the income of any
other corporation in which we own, directly or indirectly, more than 25% (by value) of the stock.
Although the law in this regard is not entirely clear, we treat our VIEs and their subsidiaries as being owned by us for U.S. federal income
tax purposes because we control their management decisions and are entitled to substantially all of the economic benefits associated with them. As a
result, we consolidate their results of operations in our consolidated U.S. GAAP financial statements. If it were determined, however, that we are not the
owner of our VIEs for U.S. federal income tax purposes, we may be treated as a PFIC for the current taxable year and any subsequent taxable year.
Assuming that we are the owner of our VIEs and their subsidiaries for U.S. federal income tax purposes, and based upon our current and
projected income and assets, and projections as to the market price of the ADSs, we do not believe we were a PFIC for the 2020 taxable year and do not
expect to be a PFIC for the current taxable year or the foreseeable future. However, no assurance can be given in this regard because the determination
of whether we are or will become a PFIC is a factual determination made annually that will depend, in part, upon the composition of our income and
assets. Fluctuations in the market price of the ADSs may cause us to be or become a PFIC for the current or future taxable years because the value of our
assets for purposes of the asset test, including the value of our goodwill and unbooked intangibles, may be determined by reference to the market price
of the ADSs from time to time (which may be volatile). In estimating the value of our goodwill and other unbooked intangibles, we have taken into
account our anticipated market capitalization. Among other matters, if our market capitalization is less than anticipated or subsequently declines, we
may be or become a PFIC for the current or future taxable years. Recent fluctuations in the market price of our ADSs increased our risk of becoming a
PFIC. Because the market price of our ADSs and ordinary shares may continue to fluctuate considerably, we cannot assure you of our PFIC status for
any taxable year. The composition of our income and assets may also be affected by how, and how quickly, we use our liquid assets and the cash raised.
Under circumstances where our revenue from activities that produce passive income significantly increases relative to our revenue from activities that
produce non-passive income, or where we determine not to deploy significant amounts of cash for active purposes, our risk of becoming classified as a
PFIC may substantially increase.
If we are a PFIC for any year during which a U.S. Holder holds the ADSs or ordinary shares, we generally will continue to be treated as a
PFIC for all succeeding years during which such U.S. Holder holds the ADSs or ordinary shares.
The discussion below under “—Dividends” and “—Sale or Other Disposition” is written on the basis that we will not be or become
classified as a PFIC for U.S. federal income tax purposes. If, however, we are or become a PFIC, you could be subject to additional United States federal
income taxes on gain recognized with respect to the ADSs and common shares and on certain distributions, plus an interest charge on certain taxes
treated as having been deferred under the PFIC rules. The U.S. federal income tax rules that apply generally if we are treated as a PFIC are discussed
below under “—Passive Foreign Investment Company Rules.”
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Dividends
Any cash distributions paid on the ADSs or ordinary shares (including the amount of any PRC tax withheld) out of our current or
accumulated earnings and profits, as determined under U.S. federal income tax principles, will generally be includible in the gross income of a U.S.
Holder as dividend income on the day actually or constructively received by the U.S. Holder, in the case of ordinary shares, or by the depositary, in the
case of ADSs. Because we do not intend to determine our earnings and profits on the basis of U.S. federal income tax principles, you should expect to
treat the full amount of any distribution as a “dividend” for U.S. federal income tax purposes. Dividends received on the ADSs or ordinary shares will
not be eligible for the dividends-received deduction allowed to corporations in respect of dividends received from U.S. corporations.
Dividends received by individuals and other non-corporate U.S. Holders will be subject to tax at the lower capital gain tax rate applicable
to “qualified dividend income”; provided that certain conditions are satisfied, including that (1) the ADSs or ordinary shares on which the dividends are
paid are readily tradable on an established securities 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 the benefit of the United States-PRC income tax treaty (the “Treaty”), (2) we are neither a PFIC nor treated as
such with respect to a U.S. Holder (as discussed below) for the taxable year in which the dividend is paid and the preceding taxable year, and (3) certain
holding period requirements are met.
The ADSs have been approved for listing on the Nasdaq Global Market. Provided that this listing is approved, we believe that the ADSs
should generally be considered to be readily tradable on an established securities market in the United States. There can be no assurance that the ADSs
will continue to be considered readily tradable on an established securities market in later years. Because the ordinary shares will not be listed on a U.S.
exchange, we do not believe that dividends received with respect to ordinary shares that are not represented by ADSs will be treated as qualified
dividends unless we meet certain residence and Treaty eligibility requirements described below.
In the event that we are deemed to be a PRC resident enterprise under the PRC Enterprise Income Tax Law (see “Item 10. Additional
Information—E. Taxation—People’s Republic of China Taxation”), we may be eligible for the benefits of the Treaty. If we are eligible for such benefits,
dividends we pay on our ordinary shares, regardless of whether such shares are represented by the ADSs, and regardless of whether the ADSs are
readily tradable on an established securities market in the United States, should be eligible for the reduced rates of taxation described in the preceding
paragraph. U.S. Holders are urged to consult their tax advisors regarding the availability of the lower rate for dividends paid with respect to the ADSs or
ordinary shares.
For U.S. foreign tax credit purposes, dividends paid on the ADSs or ordinary shares will generally be treated as income from foreign
sources and will generally constitute passive category 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 to PRC withholding taxes on dividends paid on the ADSs or ordinary shares (see “Item 10. Additional
Information—E. Taxation—People’s Republic of China Taxation”). Depending on the U.S. Holder’s particular facts and circumstances and subject to a
number of complex conditions and limitations, PRC withholding taxes on dividends that are non-refundable under the Treaty may be treated as foreign
taxes eligible for credit against a U.S. Holder’s U.S. federal income tax liability. A U.S. Holder who does not elect to claim a foreign tax credit for
foreign tax withheld may instead claim a deduction for U.S. federal income tax purposes in respect of such withholding, but only for a year in which
such holder elects to do so for all creditable foreign income taxes. The rules governing the foreign tax credit are complex and U.S. Holders are urged to
consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.
Sale or Other Disposition
A U.S. Holder will generally recognize gain or loss upon the sale or other disposition of ADSs or ordinary shares in an amount equal to the
difference between the amount realized upon the disposition and the holder’s adjusted tax basis in such ADSs or ordinary shares. The gain or loss will
generally be capital gain or loss and will be long-term if the ADSs or ordinary shares have been held for more than one year. The deductibility of a
capital loss may be subject to limitations. Any such gain or loss that the U.S. Holder recognizes will generally be treated as U.S. source income or loss
for foreign tax credit limitation purposes, which could limit the availability of foreign tax credits. Nevertheless, in the event we are deemed to be a PRC
resident enterprise under the PRC Enterprise Income Tax Law, we may be eligible for the benefits of the Treaty. In such event, if PRC tax were to be
imposed on any gain from the disposition of the ADSs or ordinary shares, a U.S. Holder that is eligible for the benefits of the Treaty may elect to treat
such gain as PRC source income. If a U.S. Holder is not eligible for the benefits of the Treaty or fails to make the election to treat any gain as foreign
source, then such U.S. Holder may not be able to use the foreign tax credit arising from any PRC tax imposed on the disposition of the ADSs or ordinary
shares unless such credit can be applied (subject to applicable limitations) against United States federal income tax due on other income derived from
foreign sources in the same income category (generally, the passive category). Each U.S. Holder is advised to consult its tax advisor regarding the tax
consequences if a foreign tax is imposed on a disposition of the ADSs or ordinary shares, including the availability of the foreign tax credit under its
particular circumstances.
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Passive Foreign Investment Company Rules
If we are classified as a PFIC for any taxable year during which a U.S. Holder holds the 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 on (i) any excess distribution
that we make to the U.S. Holder (which generally means any distribution paid during a taxable year to a U.S. Holder that is greater than 125 percent of
the average annual distributions paid in the three preceding taxable years or, if shorter, the U.S. Holder’s holding period for the ADSs or ordinary
shares), and (ii) any gain realized on the sale or other disposition including, under certain circumstances, a pledge, of ADSs or ordinary 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;
the amount allocated to the current taxable year and any taxable years in the U.S. Holder’s holding period prior to the first taxable
year in which we are classified as a PFIC (each, a “pre-PFIC year”) will be taxable as ordinary income; and
the amount allocated to each prior taxable year, other than a pre-PFIC year, will be subject to tax at the highest tax rate in effect for
individuals or corporations, as appropriate, for that year, increased by an additional tax equal to the interest on the resulting tax
deemed deferred with respect to each such taxable year.
If we are a PFIC for any taxable year during which a U.S. Holder holds the ADSs or ordinary shares, and any of our subsidiaries, our VIEs
or any of their subsidiaries is also a PFIC, such U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier
PFIC for purposes of the application of these rules. U.S. Holders are urged to consult their tax advisors regarding the application of the PFIC rules to any
of our subsidiaries, our VIEs or their subsidiaries.
As an alternative to the foregoing rules, a U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market
election with respect to such stock. If a U.S. Holder makes this election with respect to the ADSs, the holder will generally (i) include as ordinary
income for each taxable year that we are a PFIC the excess, if any, of the fair market value of ADSs held at the end 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 the ADSs over the fair market value of such
ADSs held at the end of the taxable year, but such deduction will only be allowed to the extent of the amount previously included in income as a result
of the mark-to-market election. The U.S. Holder’s adjusted tax basis in the 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 the ADSs and we cease to be classified as a PFIC, the holder
will not be required to take into account the gain or loss described above during any period that we are not classified as a PFIC. If a U.S. Holder makes a
mark-to-market election, any gain such U.S. Holder recognizes upon the sale or other disposition of the ADSs in a year when we are a PFIC will be
treated as ordinary income and any loss will be treated as ordinary loss, but such loss will only be treated as ordinary loss to the extent of the net amount
previously included in income as a result of the mark-to-market election.
The mark-to-market election is available only for “marketable stock,” which is stock that is traded in other than de minimis quantities on at
least 15 days during each calendar quarter (“regularly traded”) on a qualified exchange or other market, as defined in applicable United States Treasury
regulations. The ADSs, but not our ordinary shares, will be treated as marketable stock upon their listing on the Nasdaq Global Market. We anticipate
that the ADSs should qualify as being regularly traded, but no assurances may be given in this regard.
Because a mark-to-market election cannot technically be made for any lower-tier PFICs that we may own, a U.S. Holder may continue to
be subject to the PFIC rules with respect to such U.S. Holder’s indirect interest in any investments held by us that are treated as an equity interest in a
PFIC for U.S. federal income tax purposes.
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We do not intend to provide information necessary for U.S. Holders to make qualified electing fund elections which, if available, would
result in tax treatment different from (and generally less adverse than) the general tax treatment for PFICs described above.
If a U.S. Holder owns the ADSs or ordinary shares during any taxable year that we are a PFIC, the holder must generally file an annual
IRS Form 8621. You should consult your tax advisor regarding the U.S. federal income tax consequences of owning and disposing of the ADSs or
ordinary shares if we are or become a PFIC.
F.
G.
H.
Dividends and Paying Agents
Not applicable.
Statement by Experts
Not applicable.
Documents on Display
We are subject to the periodic reporting and other informational requirements of the Exchange Act. Under the Exchange Act, we are
required to file reports and other information with the SEC. Specifically, we are required to file annually a Form 20-F no later than four months after the
close of each fiscal year. The SEC maintains a web site at www.sec.gov that contains reports, proxy and information statements, and other information
regarding registrants that make electronic filings with the SEC using its EDGAR system. As a foreign private issuer, we are exempt from the rules under
the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are
exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.
We will furnish Deutsche Bank Trust Company Americas, the depositary of the ADSs, with our annual reports, which will include a
review of operations and annual audited consolidated financial statements prepared in conformity with U.S. GAAP, and all notices of shareholders’
meetings and other reports and communications that are made generally available to our shareholders. The depositary will make such notices, reports
and communications available to holders of ADSs and, upon our request, will mail to all record holders of ADSs the information contained in any notice
of a shareholders’ meeting received by the depositary from us.
In accordance with Nasdaq Stock Market Rule 5250(d), we will post this annual report on Form 20-F on our website at
www.yunjiglobal.com. In addition, we will provide hardcopies of our annual report free of charge to shareholders and ADS holders upon request.
I.
Subsidiary Information
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Inflation
To date, inflation in China has not materially impacted our results of operations. According to the National Bureau of Statistics of China,
the year-over-year percent changes in the consumer price index for December 2018, 2019 and 2020 were increases of 1.9%, 4.5% and 0.2%,
respectively. Although we have not been materially affected by inflation in the past, we can provide no assurance that we will not be affected by higher
rates of inflation in China in the future.
Market Risks
Foreign Exchange Risk
The conversion of Renminbi into foreign currencies, including U.S. dollars, is based on rates set by the People’s Bank of China. The
Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. It is difficult to predict how market forces or PRC or U.S.
government policy may impact the exchange rate between Renminbi and the U.S. dollar in the future.
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To the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar
would have an adverse effect on the RMB amount we receive from the conversion. Conversely, if we decide to convert Renminbi into U.S. dollars for
the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the
Renminbi would have a negative effect on the U.S. dollar amounts available to us.
All of our revenues are denominated in RMB, while a portion of our financial assets are denominated in U.S. dollars. To date, we have
entered into cross currency swap contracts with fix exchange rate between U.S. dollar and Renminbi to help hedge our exposure to foreign currency risk.
We do not believe that we currently have any significant direct foreign exchange risk. Although our exposure to foreign exchange risks should be
limited in general, the value of your investment in our ADSs will be affected by the exchange rate between U.S. dollar and Renminbi because the value
of our business is effectively denominated in RMB, while our ADSs will be traded in U.S. dollars.
As of December 31, 2020, we had Renminbi-denominated cash, cash equivalents and restricted cash of RMB389.5 million, U.S. dollar-
denominated cash, cash equivalents and restricted cash of US$122.3 million. Assuming we had converted RMB389.5 million into U.S. dollars at the
exchange rate of RMB6.5250 for US$1.00 as of December 31, 2020, our U.S. dollar-denominated cash, cash equivalents and restricted cash would have
been US$182.0 million. If the RMB had depreciated by 10% against the U.S. dollar, our U.S. dollar cash, cash equivalents and restricted cash would
have been US$176.6 million instead. Assuming we had converted US$122.3 million into RMB at the exchange rate of RMB6.5250 for US$1.00 as of
December 31, 2020, our Renminbi-denominated cash, cash equivalents and restricted cash would have been RMB1,187.4 million. If the RMB had
depreciated by 10% against the U.S. dollar, our Renminbi-denominated cash, cash equivalents and restricted cash would have been RMB1,267.2 million
instead.
Interest rate risk
Our exposure to interest rate risk primarily relates to the interest income generated by excess cash, which is mostly held in interest-bearing
bank deposits. Interest-earning instruments carry a degree of interest rate risk. We have not been exposed to material risks due to changes in interest
rates, and we have not used any derivative financial instruments to manage our interest risk exposure.
We may invest the net proceeds in interest-earning instruments. Investments in both fixed rate and floating rate interest earning
instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates,
while floating rate securities may produce less income than expected if interest rates fall.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A.
B.
C.
Debt Securities
Not applicable.
Warrants and Rights
Not applicable.
Other Securities
Not applicable.
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D.
American Depositary Shares
Fees and Charges the ADS Holders May Have to Pay
As an ADS holder, you will be required to pay the following service fees to the depositary bank and certain taxes and governmental
charges (in addition to any applicable fees, expenses, taxes and other governmental charges payable on the deposited securities represented by any of
your ADSs):
Service
•
To any person to which ADSs are issued or to any person to which a
distribution is made in respect of ADS distributions pursuant to stock
dividends or other free distributions of stock, bonus distributions, stock
splits or other distributions (except where converted to cash)
Up to US$0.05 per ADS issued
Fees
•
Cancellation of ADSs, including the case of termination of the deposit
Up to US$0.05 per ADS cancelled
agreement
•
•
•
•
Distribution of cash dividends
Up to US$0.05 per ADS held
Distribution of cash entitlements (other than cash dividends) and/or cash
Up to US$0.05 per ADS held
proceeds from the sale of rights, securities and other entitlements
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
Up to US$0.05 per ADS held
additional ADSs
•
Depositary services
Up to US$0.05 per ADS held on the applicable record date(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
governmental charges (in addition to any applicable fees, expenses, taxes and other governmental charges payable on the deposited securities
represented by any of your ADSs) such as:
•
•
•
•
•
•
•
Fees for the transfer and registration of ordinary shares charged by the registrar and transfer agent for the ordinary shares in the
Cayman Islands (i.e., upon deposit and withdrawal of ordinary shares).
Expenses incurred for converting foreign currency into U.S. dollars.
Expenses for cable, telex and fax transmissions and for delivery of securities.
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).
Fees and expenses incurred in connection with the delivery or servicing of ordinary shares on deposit.
Fees and expenses incurred in connection with complying with exchange control regulations and other regulatory requirements
applicable to ordinary shares, deposited securities, ADSs and ADRs.
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 their clients) receiving the newly issued ADSs from the depositary bank and by the brokers (on behalf of their clients) delivering the ADSs to the
depositary bank for cancellation. The brokers in turn charge these fees to their clients. Depositary fees payable in connection with distributions of cash
or securities to ADS holders 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.
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The depositary fees payable for cash distributions are generally deducted from the cash being distributed or by selling a portion of
distributable property 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 ADS record date holders concurrent with the distribution. In the case of ADSs registered in the name of the investor (whether certificated or
uncertificated in direct registration), 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 in DTC) from the brokers and custodians holding ADSs in their DTC accounts. The brokers and custodians who
hold their clients’ ADSs in DTC accounts in turn charge their clients’ accounts the amount of the fees paid to the depositary banks.
In the event of refusal to pay the depositary fees, the depositary bank may, under the terms of the deposit agreement, refuse the requested
service until payment is received or may set off the amount of the depositary fees from any distribution to be made to the ADS holder.
Fees and Other Payments Made by the Depositary to Us
The depositary may make payments to us or reimburse us for certain costs and expenses, by making available a portion of the ADS fees
collected in respect of the ADR program or otherwise, upon such terms and conditions as we and the depositary bank agree from time to time. For the
year ended December 31, 2020, we received reimbursement in the amount of approximately RMB0.1 million (US$0.02 million) from the depositary.
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ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
PART II.
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
securities holders, 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 333-230424) in
relation to our initial public offering, which was declared effective by the SEC on May 2, 2019. Our initial public offering closed in May 2019. Morgan
Stanley & Co. LLC, Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC and China International Capital Corporation Hong Kong
Securities Limited were the representatives of the underwriters for our initial public offering. Counting in the ADSs sold upon the exercise of the over-
allotment option by the underwriters, we offered and sold an aggregate of 110,000,000 ADSs representing 1,100,000,000 Class A ordinary shares, at an
initial public offering price of US$11.00 per ADS, and received approximately US$109.0 million of proceeds after deducting underwriting discounts
commissions and other offering expenses payable by us.
For the period from May 2, 2019, the date that the F-1 Registration Statement was declared effective by the SEC, to December 31, 2020,
the total expenses incurred for our company’s account in connection with our initial public offering was approximately US$14.4 million, which included
US$9.0 million in underwriting discounts and commissions for the initial public offering and approximately US$5.5 million in other costs and expenses
for our initial public offering. None of the transaction expenses included payments to directors or officers of our company or their associates, persons
owning more than 10% 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 our directors or officers or their associates, persons owning 10% or more of our equity securities or our affiliates.
For the period from May 2, 2019, the date that the F-1 Registration Statement was declared effective by the SEC, to December 31, 2020,
US$77.6 million of the net proceeds received from our initial public offering were used for investment in business operations, research and
development, and for general corporate purpose. There is no material change in the use of proceeds as described in the F-1 Registration statement. We
still intend to use the remainder of the proceeds from our initial public offering, as disclosed in our registration statements on Form F-1.
ITEM 15. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our chief executive officer, has performed an evaluation of the effectiveness
of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report, as
required by Rule 13a-15(b) under the Exchange Act.
Based upon that evaluation, our management, with the participation of our chief executive officer, has concluded that, as of December 31, 2020,
our disclosure controls and procedures were effective in ensuring that the information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that the
information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our
management, including our chief executive officer, as appropriate, to allow timely decisions regarding required disclosure.
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Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules
13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in
accordance with Generally Accepted Accounting Principles (GAAP) in the United States of America and includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our
company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in
accordance with GAAP, and that receipts and expenditures of our company are being made only in accordance with authorizations of our management
and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of the unauthorized acquisition, use or disposition of our
company’s assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect all potential misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As required by Section 404 of the Sarbanes-Oxley Act of 2002 and related rules as promulgated by the Securities and Exchange
Commission, our management, including our chief executive officer, assessed the effectiveness of internal control over financial reporting as of
December 31, 2020 using the criteria set forth in the report “Internal Control—Integrated Framework (2013)” published by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this evaluation, the management concluded that our internal control over financial
reporting was effective as of December 31, 2020.
Remediation of the Material Weaknesses in Internal Control over Financial Reporting Reported in 2018 and 2019
As of December 31, 2020, based on an assessment performed by our management on the performance of certain remediation measures
(specified below), we determined that the material weaknesses in our internal control over financial reporting previously identified by us and our
independent registered public accounting firm in connection with the audits of our consolidated financial statements for the years ended December 31,
2018 and 2019 had been remediated.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely
basis. The material weaknesses identified related to (i) our lack of sufficient financial accounting staff and management with appropriate levels of
accounting knowledge and experience to address complex U.S. GAAP accounting issues and to prepare and review financial statements and related
disclosures under U.S. GAAP and SEC reporting and compliance requirements and (ii) our lack of sufficient documented financial closing policies and
procedures, especially those related to period end expenses cut-off and accruals.
We have implemented a number of remedial measures to address the material weaknesses that were identified, including (1) establishing
clear roles and responsibilities in our accounting and financial reporting function to address accounting and financial reporting issues; (2) strengthening
our financial reporting team by hiring additional personnel with experiences in U.S. GAAP and SEC reporting; (3) increasing the accounting and SEC
reporting acumen and accountability of our finance organization employees through training programs designed to enhance these employees’ knowledge
and competency with respect to U.S. GAAP and SEC reporting; (4) formalizing the procedures and controls relating to our financial closing and
reporting process, including a formal documented accounting manual, period-end closing and disclosure checklists, and a set of accounting policies that
are U.S. GAAP compliant; (5) enhancing our monitoring controls over financial reporting, including review by our financial vice president, and other
senior finance staff over the application of U.S. GAAP accounting requirements, the selection and evaluation of U.S. GAAP accounting policies, critical
accounting judgments and estimates, reporting and disclosures; and (6) engaging an external consulting firm to assist us in improvement of overall
internal controls in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act.
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Attestation Report of the Registered Public Accounting Firm
Our independent registered public accounting firm, PricewaterhouseCoopers Zhong Tian LLP, has audited the effectiveness of our
company’s internal control over financial reporting as of December 31, 2020, as stated in its report, which appears on page F-2 of this annual report on
Form 20-F.
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 this annual report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
See “Item 6. Directors, Senior Management and Employees—C. Board Practices.”
ITEM 16B. CODE OF ETHICS
Our board of directors adopted a code of business conduct and ethics that applies to our directors, officers and employees in March 2019.
We have posted a copy of our code of business conduct and ethics on our website at www.yunjiglobal.com.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by
PricewaterhouseCoopers Zhong Tian LLP and its affiliates, our principal external auditors, for the periods indicated. We did not pay any other fees to
our principal auditor during the periods indicated below.
Audit fees(1)
Tax fees(2)
All other fees
Notes:
For the Year Ended December 31,
2020
2019
(in thousands of RMB)
6,000
1,223
—
8,680
477
—
(1)
(2)
“Audit fees” means the aggregate fees billed for professional services rendered by our principal auditors for the audit of our annual financial
statements and the review of our comparative interim financial statements, including audit fees relating to our initial public offering in 2019.
“Tax fee” means the aggregate fees billed in each of the fiscal years listed for professional services rendered by our principal auditors for tax
compliance, tax advice, and tax planning.
The policy of our audit committee is to pre-approve all audit and other service provided by PricewaterhouseCoopers Zhong Tian LLP and
its affiliates as described above, other than those for de minimis services which are approved by the audit committee prior to the completion of the audit.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
On August 28, 2019, our board of directors authorized a share repurchase program, under which we may repurchase up to US$20 million
of our ADSs over the following six months through February 28, 2020. The share repurchase program was publicly announced on August 28, 2019. We
accumulatively repurchased approximately US$20 million of ADSs under the share repurchase program and closed the share repurchase program in
January 2020.
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The table below is a summary of the ADSs repurchased by us in 2020. All shares were repurchased in the open market pursuant to the
share repurchase program that was announced on August 28, 2019 and closed in January 2020.
Period
January 2020
Total Number of
ADSs Purchased
624,641
Average Price
Paid per ADSs
(US$)
5.36
Total Number of
ADSs Purchased
as Part of Share
Repurchase
Program
624,641
Approximate Dollar
Value of ADSs that
May Yet Be Purchased
Under Share
Repurchase Program
(US$, in millions)
0
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 16G CORPORATE GOVERNANCE
As a Cayman Islands company listed on the Nasdaq Global Market, we are subject to Nasdaq’s corporate governance requirements.
However, Nasdaq rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate
governance practices in the Cayman Islands, which is our home country, may differ significantly from Nasdaq’s corporate governance requirements.
Nasdaq Rule 5620 requires each issuer to hold an annual meeting of shareholders no later than one year after the end of the issuer’s fiscal year-end.
However, Nasdaq Rule 5615(a)(3) permits foreign private issuers like us to follow “home country practice” in certain corporate governance matters.
Maples and Calder (Hong Kong) LLP, our Cayman Islands counsel, has provided a letter to the Nasdaq Stock Market certifying that neither the
Companies Act of the Cayman Islands nor our memorandum and articles of association requires we hold annual shareholders meetings every year. We
followed home country practice and did not hold an annual meeting of shareholders in 2019 and 2020. We may, however, hold annual shareholders
meetings in the future. As a result of this and other home country practice we may follow in the future, our shareholders may be afforded less protection
than they otherwise would under Nasdaq’s corporate governance requirements applicable to U.S. domestic issuers. See “Item 3. Key Information—D.
Risk Factors —Risks Related to Our ADSs—As an exempted company incorporated in the Cayman Islands, we are permitted to adopt certain home
country practices in relation to corporate governance matters that differ significantly from Nasdaq’s corporate governance requirements; these practices
may afford less protection to shareholders than they would enjoy if we complied fully with Nasdaq’s corporate governance requirements.”
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
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PART III.
ITEM 17. FINANCIAL STATEMENTS
We have elected to provide financial statements pursuant to “Item 18. Financial Statements.”
ITEM 18. FINANCIAL STATEMENTS
The consolidated financial statements of Yunji Inc. are included at the end of this annual report.
ITEM 19. EXHIBITS
Exhibit
Number
1.1
2.1
2.2
2.3
2.4
Description of Document
Third Amended and Restated Memorandum and Articles of Association of the Registrant (incorporated herein by reference to Exhibit 3.2
to the Form F-1 filed on March 21, 2019 (File No. 333-230424))
Registrant’s Specimen American Depositary Receipt (included in Exhibit 2.3) (incorporated herein by reference to Exhibit 4.3 to the Form
S-8 filed on August 30, 2019 (File No. 333-233539))
Registrant’s Specimen Certificate for Class A Common Shares (incorporated herein by reference to Exhibit 4.2 to the Form F-1 filed on
March 21, 2019 (File No. 333-230424))
Deposit Agreement among the Registrant, the depositary and holder of the American Depositary Receipts (incorporated herein by reference
to Exhibit 4.3 to the Form S-8 filed on August 30, 2019 (File No. 333-233539))
Amended and Restated Shareholders Agreement between the Registrant and other parties thereto dated June 4, 2018 (incorporated herein
by reference to Exhibit 4.4 to the Form F-1 filed on March 21, 2019 (File No. 333-230424))
2.5
Description of Securities (incorporated herein by reference to Exhibit 2.5 to the Form 20-F filed on April 24, 2020 (File No. 001-38877))
4.1
4.2
4.3
4.4*
4.5*
4.6*
2019 Share Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the Form F-1 filed on March 21, 2019 (File
No. 333-230424))
Form of Indemnification Agreement between the Registrant and its directors and executive officers (incorporated herein by reference to
Exhibit 10.2 to the Form F-1 filed on March 21, 2019 (File No. 333-230424))
Form of Employment Agreement between the Registrant and its executive officers (incorporated herein by reference to Exhibit 10.3 to the
F-1 filed on March 21, 2019 (File No. 333-230424))
English translation of the executed form of Proxy Agreement and Power of Attorney by and among a VIE of the Registrant, its
shareholders and the WFOE of the Registrant, as currently in effect, and a schedule of all executed Proxy Agreements and Powers of
Attorney adopting the same form in respect of each of the VIEs of the Registrant
English translation of the executed form of Equity Pledge Agreement by and among a VIE of the Registrant, its shareholders and the
WFOE of the Registrant, as currently in effect, and a schedule of all executed Equity Pledge Agreements adopting the same form in respect
of each of the VIEs of the Registrant
English translation of the executed form of Exclusive Service Agreement by and between a VIE of the Registrant and the WFOE of the
Registrant, as currently in effect, and a schedule of all executed Exclusive Service Agreements adopting the same form in respect of each of
the VIEs of the Registrant
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Exhibit
Number
4.7*
4.8
4.9
4.10
8.1*
11.1
12.1*
12.2*
13.1**
13.2**
15.1*
15.2*
15.3*
Description of Document
English translation of the executed form of Exclusive Option Agreement by and among a VIE of the Registrant, its shareholders and the
WFOE of the Registrant, as currently in effect, and a schedule of all executed Exclusive Option Agreements adopting the same form in
respect of each of the VIEs of the Registrant
English translation of Loan Agreement among Mr. Shanglue Xiao, Mr. Huan Hao and the WFOE of the Registrant, dated December 14,
2018 (incorporated herein by reference to Exhibit 10.12 to the F-1 filed on March 21, 2019 (File No. 333-230424))
Preferred Share Purchase Agreement among the Registrant, Yunji Sharing and certain other parties thereto dated February 12, 2018
(incorporated herein by reference to Exhibit 10.13 to the F-1 filed on March 21, 2019 (File No. 333-230424))
Preferred Share Purchase Agreement among the Registrant, the WFOE of the Registrant, Yunji Sharing and certain other parties thereto
dated June 4, 2018 (incorporated herein by reference to Exhibit 10.14 to the F-1 filed on March 21, 2019 (File No. 333-230424))
Principal Subsidiaries of the Registrant
Code of Business Conduct and Ethics of the Registrant (incorporated herein by reference to Exhibit 99.1 to the F-1 filed on March 21,
2019 (File No. 333-230424))
Certification by Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification by Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification by Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification by Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Consent of PricewaterhouseCoopers Zhong Tian LLP, an independent registered public accounting firm
Consent of Han Kun Law Offices
Consent of Maples and Calder (Hong Kong) LLP
101.INS*
Inline XBRL Instance Document – this instance document does not appear in the Interactive Data File because its XBRL tags are not
embedded within the Inline XBRL document
101.SCH*
Inline XBRL Taxonomy Extension Scheme Document
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
*
**
Cover Page Interactive Data File (embedded within the Inline XBRL document)
Filed with this Annual Report on Form 20-F.
Furnished with this Annual Report on Form 20-F.
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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
undersigned to sign this annual report on its behalf.
Yunji Inc.
By: /s/ Shanglue Xiao
Name: Shanglue Xiao
Title:
Founder, Chairman, and Chief Executive
Officer
Date: April 26, 2021
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YUNJI INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2019 and 2020
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2018, 2019 and 2020
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2018, 2019 and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2019 and 2020
Notes to the Consolidated Financial Statements
F-1
F-
2
F-
4
F-
7
F-
9
F-
12
F-
15
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Yunji Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Yunji Inc. and its subsidiaries (the “Company”) as of December 31, 2020 and 2019,
and the related consolidated statements of comprehensive loss, of shareholders’ equity and of cash flows for each of the three years in the period ended
December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s
internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of
December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in
conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the COSO.
Changes in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for credit losses on certain
financial instruments in 2020.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal
Control over Financial Reporting appearing under Item 15. Our responsibility is to express opinions on the Company’s consolidated financial statements
and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether
effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements 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 disclosures in 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.
Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
F-2
Table of Contents
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was
communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated
financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does
not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter
below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Refund payable to members
As described in Notes 2.17 and 14 to the consolidated financial statements, the Company provided a cash incentive to members upon a successful
referral that resulted in a sale of merchandise by the Company. The cash incentive was considered payment to a customer and accounted for as a refund
to the referring member. Such refund payable was estimated when the membership fees were received, or at the time that the members made
merchandise purchases. Management estimated the refund payable based on historical data of the incentives earned by the referring members within
their active life cycle. Management applied significant judgment in determining the expected future referral incentives, which involved the use of
significant assumptions, including the members’ active life cycle and the expected number of members who will earn the incentive. The Company
recorded refund payable to members of RMB 4,398 thousands as of December 31, 2020, and recognized reductions of RMB 23,521 thousands to refund
payable to members for the year ended December 31, 2020 as changes in estimate. The reductions to refund payable to members were recorded as
increases in sales of merchandise.
The principal considerations for our determination that performing procedures relating to refund payable to members is a critical audit matter are there
was significant judgment by management in estimating the refund payable to members. This in turn led to significant auditor judgment, subjectivity and
effort in performing procedures and evaluating audit evidence relating to management’s significant assumptions, including the active life cycle of
members and the percentage of referring members.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the
consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s estimation of the refund
payable to members. These procedures also included, among others, testing management’s process for estimating the refund payable to members by (i)
testing the completeness and accuracy of the data used; (ii) assessing the appropriateness of the calculation of member’s active life cycle based on
historical data; and (iii) evaluating the reasonableness of management’s significant assumption relating to the expected number of members who will
earn the incentive based on historical data of members’ behavior.
/s/ PricewaterhouseCoopers Zhong Tian LLP
Shanghai, the People’s Republic of China
April 26, 2021
We have served as the Company’s auditor since 2018.
F-3
Table of Contents
ASSETS
Current assets:
YUNJI INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2019 AND 2020
(All amounts in thousands, except for share and per share data, unless otherwise noted)
As of December 31,
2020
RMB
US$
2019
RMB
Cash and cash equivalents
Restricted cash
Short-term investments
Accounts receivable, net (Allowance for credit losses of nil and RMB 8,603, respectively)
Advance to suppliers
Inventories, net
Amounts due from related parties
Prepaid expenses and other current assets (Allowance for credit losses of nil and RMB 2,972, respectively)
Total current assets
Non-current assets:
Property, equipment and software, net
Long-term investments
Deferred tax assets
Operating lease right of use assets, net
Other non-current assets (Allowance for credit losses of nil and RMB 1,514, respectively)
Total non-current assets
Total assets
883,369 1,063,900 163,050
84,374 125,844 19,287
774,736 134,146 20,559
28,527 164,733 25,246
87,289 103,836 15,914
428,322 135,245 20,727
1,202
567,432 410,423 62,899
2,860,879 2,145,968 328,884
6,830
7,841
45,344
26,010
3,986
198,860 158,931 24,357
9,112
97,792
43,043
1,735
56,281 148,793 22,804
441,320 404,513 61,994
3,302,199 2,550,481 390,878
59,455
11,324
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Table of Contents
YUNJI INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
AS OF DECEMBER 31, 2019 AND 2020
(All amounts in thousands, except for share and per share data, unless otherwise noted)
LIABILITIESAND SHAREHOLDERS’ EQUITY
Current liabilities (including amounts of the consolidated VIEs and VIEs’ subsidiaries without recourse to the
primary beneficiary of RMB 818,634 and RMB 635,467 as of December 31, 2019 and 2020, respectively)
As of December 31,
2020
RMB
US$
2019
RMB
Accounts payable
Deferred revenue
Incentive payables to members
Refund payable to members
Member management fees payable
Other payable and accrued liabilities
Amounts due to related parties
Operating lease liabilities, current
Total current liabilities
Non-current liabilities
Operating lease liabilities, non-current
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Commitments and contingencies (Note 28)
50,951
26,883
78,355
741,959 501,549 76,866
181,828
7,809
384,486 312,170 47,842
674
7,025
349,111 280,586 43,002
3,523
1,071
1,798,477 1,225,472 187,812
18,296
17,559
22,989
6,988
4,398
45,841
27,734
11,329
39,063
1,273
281
1,554
1,837,540 1,235,613 189,366
8,309
1,832
10,141
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Table of Contents
YUNJI INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
AS OF DECEMBER 31, 2019 AND 2020
(All amounts in thousands, except for share and per share data, unless otherwise noted)
As of December 31,
2019
RMB
2020
RMB
US$
Shareholders’ equity
Ordinary shares (US$0.000005 par value 20,000,000,000 shares authorized as of December 31, 2019
and 2020; 1,208,831,222 Class A ordinary shares and 949,960,000 Class B ordinary shares issued as
of December 31, 2019 and 2020; 1,179,445,572 and 1,183,305,412 Class A ordinary shares and
949,960,000 and 949,960,000 Class B ordinary shares outstanding as of December 31, 2019 and
2020, respectively)
Additional paid-in capital
Statutory reserve
Accumulated other comprehensive income
Less: Treasury stock (29,385,650 and 25,525,810 shares as of December 31, 2019 and 2020,
respectively)
Accumulated deficit
Total Yunji Inc. shareholders’ equity
Non-controlling interests
Total shareholders’ equity
Total liabilities and shareholders’ equity
70
70
11
7,255,404 7,327,148 1,122,935
1,934
1,449
11,633
88,863
12,624
9,452
(85,202)
(96,669)
(13,058)
(5,805,332) (5,952,085) (912,197)
1,453,969 1,312,007 201,074
438
1,464,659 1,314,868 201,512
3,302,199 2,550,481 390,878
10,690
2,861
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Table of Contents
YUNJI INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020
(All amounts in thousands, except for share and per share data, unless otherwise noted)
Revenues:
Sales of merchandise, net
Membership program revenue
Marketplace revenue
Other revenues
Total revenues
Operating cost and expenses:
Cost of revenues
Fulfilment
Sales and marketing
Technology and content
General and administrative
Total operating cost and expenses
Other operating income
Loss from operations
Financial income/(expense), net
Foreign exchange loss, net
Other non-operating income/(loss), net
Loss before income tax expense, and equity in income of affiliates, net of tax
Income tax (expense)/benefit
Equity in income/(loss) of affiliates, net of tax
Net loss
Less: net income/(loss) attributable to non- controlling interests shareholders
Net loss attributable to YUNJI INC.
2018
RMB
2019
RMB
2020
RMB
US$
11,388,425
1,552,437
—
74,363
13,015,225
10,548,322
776,839
311,914
34,949
11,672,024
4,829,397
42,438
599,895
58,527
5,530,257
740,138
6,503
91,938
8,970
847,549
(10,706,596)
(1,162,051)
(955,128)
(143,645)
(147,208)
(13,114,628)
7,048
(92,355)
46,068
(685)
—
(46,972)
(12,346)
2,992
(56,326)
3,362
(59,688)
(9,249,474)
(965,883)
(1,187,462)
(315,167)
(277,487)
(11,995,473)
68,646
(254,803)
121,370
(12,397)
8,497
(137,333)
16,720
(3,221)
(123,834)
1,928
(125,762)
(3,939,997)
(450,104)
(806,140)
(202,817)
(261,877)
(5,660,935)
33,218
(97,460)
(8,571)
(919)
(1,610)
(108,560)
(39,298)
(3,834)
(151,692)
(5,346)
(146,346)
(603,830)
(68,981)
(123,546)
(31,083)
(40,135)
(867,575)
5,091
(14,935)
(1,314)
(141)
(247)
(16,637)
(6,022)
(586)
(23,245)
(819)
(22,426)
The accompanying notes are an integral part of these consolidated financial statements.
F-7
Table of Contents
YUNJI INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020
(All amounts in thousands, except for share and per share data, unless otherwise noted)
Accretion on convertible redeemable preferred shares to redemption value
Re-designation to Series A convertible redeemable preferred shares from
Initial Ordinary Shareholders’ contribution, including beneficial conversion
feature
Deemed dividend from preferred shareholders
Net loss attributable to ordinary shareholders
Net loss
Other comprehensive income
Foreign currency translation adjustment
Total comprehensive loss
Less: total comprehensive income/(loss) attributable to non-controlling
interests shareholders
Total comprehensive loss attributable to YUNJI INC.
Net loss attributable to ordinary shareholders
Weighted average number of ordinary shares used in computing net loss per
2018
RMB
(2,187,633)
2019
RMB
(1,532,013)
RMB
2020
—
US$
—
(60,796)
107
(2,308,010)
—
—
(1,657,775)
—
—
(146,346)
(56,326)
(123,834)
(151,692)
55,565
(761)
3,362
(4,123)
33,298
(90,536)
(79,411)
(231,103)
1,928
(92,464)
(5,346)
(225,757)
(2,308,010)
(1,657,775)
(146,346)
—
—
(22,426)
(23,245)
(12,170)
(35,415)
(819)
(34,596)
(22,426)
share, basic and diluted
1,165,136,438 1,818,487,917 2,125,906,398 2,125,906,398
Net loss per share attributable to ordinary shareholders
- Basic
- Diluted
(1.98)
(1.98)
(0.91)
(0.91)
(0.07)
(0.07)
(0.01)
(0.01)
The accompanying notes are an integral part of these consolidated financial statements.
F-8
Table of Contents
YUNJI INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020
(All amounts in thousands, except for share and per share data, unless otherwise noted)
Balance as of January 1, 2018
Net loss
Foreign currency translation
adjustments
Accretion on convertible
redeemable preferred
shares to redemption value
Appropriation to statutory
reserves
Issuance of ordinary shares at
par value
Deemed dividend from
Preferred Shareholders
(Note 23)
Capital injection from
non-controlling interests
Re-designation to Series A
convertible redeemable
preferred shares from
Initial Ordinary
Shareholders’ contribution,
including beneficial
conversion feature (Note
23)
Share based compensation
Balance as of December 31, 2018
Ordinary share
(US$0.000005 par value)
Number of
Shares issued Amount
RMB
—
—
1,268,000,000
—
Additional
paid-in
capital
Statutory
reserve
Accumulated
other
comprehensive
income
Accumulated
deficit
Total Yunji
Inc.
shareholders’
deficit
Non-
controlling
interest
Total
shareholders’
deficit
RMB
—
—
RMB
4,227
—
RMB
RMB
(1,922,828)
(59,688)
RMB
(1,918,601)
(59,688)
—
—
RMB
—
3,362
RMB
(1,918,601)
(56,326)
—
—
—
—
55,565
—
55,565
—
55,565
—
—
(54,193)
—
—
(2,133,440)
(2,187,633)
—
(2,187,633)
—
—
—
4,277
—
36
—
—
—
—
(107)
—
—
—
—
—
—
—
—
—
(4,277)
—
107
—
—
36
—
—
—
36
—
—
—
—
3,000
3,000
(116,600,000)
—
1,151,400,000
—
—
36
—
54,300
—
—
—
8,504
—
—
55,565
(60,796)
—
(4,180,922)
(60,796)
54,300
(4,116,817)
—
—
6,362
(60,796)
54,300
(4,110,455)
F-9
Table of Contents
Balance as of January 1,
2019
Net loss
Foreign currency
translation
adjustments
Accretion on
convertible
redeemable
preferred shares to
redemption value
Appropriation to
statutory reserves
Issuance of ordinary
shares upon Initial
Public Offering
(Note 22)
Conversion of
redeemable
preferred shares
(Note 22)
Repurchasing
common stock
(Note 22)
Issuance of ordinary
shares due to the
exercise of share
option (Note 24)
Issuance of restricted
shares (Note 24)
Capital injection from
non-controlling
interests
Share based
compensation
Balance as of
YUNJI INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020
(All amounts in thousands, except for share and per share data, unless otherwise noted)
Ordinary share
(US$0.000005 par value)
Number of
Shares issued Amount
RMB
Treasury stock
Number of
Shares
Additional
Statutory
paid-in
Amount
reserve
capital
RMB RMB RMB
Accumulated
other
comprehensive
income
RMB
Accumulated
deficit
RMB
Total Yunji
Inc.
shareholders’
deficit
RMB
Non-
controlling
interest
RMB
Total
shareholders’
deficit
RMB
1,151,400,000
—
36
—
—
—
—
—
—
—
8,504
—
55,565
—
(4,180,922)
(125,762)
(4,116,817)
(125,762)
6,362
1,928
(4,110,455)
(123,834)
—
—
—
—
—
—
33,298
—
33,298
—
33,298
—
—
—
—
(36,494)
—
—
(1,495,519)
(1,532,013)
—
(1,532,013)
—
—
—
—
—
3,129
—
(3,129)
—
—
—
112,174,470
4
—
—
737,293
—
—
—
737,297
—
737,297
895,216,752
30
—
— 6,446,030
—
—
—
6,446,060
—
6,446,060
—
— (33,829,860) (117,371)
—
—
—
—
(117,371)
—
(117,371)
—
— 1,407,920
5,769
(4,689)
—
—
— 3,036,290 14,933
(14,933)
—
—
—
—
—
—
—
—
—
—
—
128,197
—
—
—
—
—
—
—
1,080
—
—
—
1,080
—
—
—
2,400
2,400
—
128,197
—
128,197
December 31, 2019
2,158,791,222
70 (29,385,650) (96,669) 7,255,404
11,633
88,863
(5,805,332)
1,453,969
10,690
1,464,659
The accompanying notes are an integral part of these consolidated financial statements.
F-10
Table of Contents
Balance as of
January 1, 2020
Net loss
Foreign currency
translation
adjustments
Appropriation to
statutory reserves
Repurchasing
common stock
(Note 22)
Issuance
of ordinary
shares due to the
exercise of share
option (Note 24)
Issuance
of restricted
shares (Note 24)
Capital injection
from
non-controlling
interests
Share based
compensation
Disposal of a
subsidiary
Dividend to
non-controlling
interest
shareholders
Balance as of
December 31,
2020
YUNJI INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020
(All amounts in thousands, except for share and per share data, unless otherwise noted)
Ordinary share
(US$0.000005 par value)
Number of
Shares issued Amount
RMB
Treasury stock
Number of
Shares
Additional
Statutory
paid-in
Amount
reserve
capital
RMB RMB RMB
Accumulated
other
comprehensive
income
RMB
Accumulated
deficit
RMB
Total Yunji
Inc.
shareholders’
deficit
RMB
Non-
controlling
interest
RMB
Total
shareholders’
deficit
RMB
2,158,791,222
70 (29,385,650) (96,669) 7,255,404
11,633
88,863
(5,805,332)
1,453,969
10,690
1,464,659
—
—
— —
—
—
—
(146,346)
(146,346)
(5,346)
(151,692)
—
—
— —
—
—
(79,411)
—
(79,411)
—
(79,411)
—
—
— —
—
6,467
—
(6,467)
—
—
—
—
— (6,246,410) (23,171)
—
—
—
—
(23,171)
—
(23,171)
—
— 9,151,290 31,489
(23,485)
—
—
—
8,004
—
8,004
—
—
954,960
3,149
(3,149)
—
—
—
—
—
—
—
—
— —
—
—
—
—
—
2,300
2,300
—
—
— —
98,378
—
—
—
98,378
—
98,378
—
—
— —
—
(5,476)
—
6,060
584
(3,583)
(2,999)
—
—
— —
—
—
—
—
—
(1,200)
(1,200)
2,158,791,222
70 (25,525,810) (85,202) 7,327,148
12,624
9,452
(5,952,085)
1,312,007
2,861
1,314,868
The accompanying notes are an integral part of these consolidated financial statements.
F-11
Table of Contents
YUNJI INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020
(All amounts in thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash generated from/(used in) operating activities:
2018
RMB
2019
RMB
2020
RMB
US$
(56,326)
(123,834) (151,692) (23,245)
Depreciation and amortization
Shared-based compensation
Loss/(gain) from disposal of property, equipment and software
Equity in (income)/loss of affiliates
Changes in fair value for equity securities with readily determinable fair value
Inventory write-downs
Foreign exchange loss
Amortization of right of use assets
Change in estimate of refund payable to members
Loss on disposal of long-term investments and the subsidiary
Allowance for credit losses
Cash dividend received
Deferred income tax
9,306
54,300
871
(2,992)
—
2,540
190
—
—
—
—
—
(13,067)
674
3,834
(1,518)
3,221
19,888 21,054 3,228
128,197 98,378 15,077
105
586
(68,555) 53,683 8,227
3,608 40,609 6,224
13,706
(983)
19,430 15,732 2,411
(379,370) (23,521) (3,605)
—
247
1,610
— 13,089 2,006
31
190
(30,020) 28,840 4,420
(6,417)
204
Changes in operating assets and liabilities:
Increase in accounts receivable
(Increase)/decrease in inventories
Increase in advance to suppliers
(Increase)/decrease in prepaid expenses and other current assets
Increase in other non-current assets
Decrease/(increase) in amounts due from related parties
Increase/(decrease) in accounts payable
Increase in refund payable to members
Increase/(decrease) in incentive payables to members
Increase/(decrease) in member management fees payable
Increase/(decrease) in deferred revenue
Increase in amount due to related parties
Increase/(decrease) in other payable and accrued liabilities
Net cash generated from/(used in) operating activities
(4,867)
1,793
(278)
(6,453)
(6,658)
(4,525) (154,413) (23,665)
(345,305)
243,613 251,998 38,620
(25,285)
(38,773) (16,547) (2,536)
(184,341)
60,654 78,143 11,976
—
(746)
773
275
662,249
(674,414) (205,824) (31,544)
248,081
159
10,229
182,105
(37,459) (72,316) (11,083)
8,417
(30,029) (32,514) (4,983)
223,424
(365,147) (130,853) (20,054)
8,248
719
133,972 (77,920) (11,942)
116,507
883,037 (1,116,816) (261,514) (40,075)
6,851
1,036
4,693
The accompanying notes are an integral part of these consolidated financial statements.
F-12
Table of Contents
YUNJI INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2018, 2019 and 2020
(All amounts in thousands)
2018
RMB
2019
RMB
2020
RMB
US$
Cash flows from investing activities:
Purchase of property, equipment and software
Proceeds from disposal of property, equipment and software
Cash paid for short term investments
Cash received from maturity of short-term investments
Cash paid to merchants for factorings services
Cash received from merchants for factorings services
Cash paid for loans provided to third parties
Cash received from repayment of loans provided to third parties
Cash received from disposal of long-term investments
Impact to cash resulting from deconsolidation of a subsidiary
Cash paid for long-term investments
Net cash (used in)/generated from investing activities
1,845
(28,731)
17
(84,403) (12,938)
(28,184)
283
3,041
(11,539,398) (4,793,867) (1,774,781) (271,998)
11,124,565 5,028,793 2,492,613 382,010
(8,876)
(42,467)
(57,913)
36,407
10,000
5,580
(93,755) (14,369)
(171,855)
9,482
61,869
—
512
3,344
—
(1,095)
(7,144)
—
(27,067)
(120,944)
(4,148)
551,015 84,443
(115,483)
—
—
—
—
—
—
(14,500)
(458,047)
The accompanying notes are an integral part of these consolidated financial statements.
F-13
Table of Contents
YUNJI INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2018, 2019 and 2020
(All amounts in thousands)
Cash flows from financing activities:
Proceeds from issuance of convertible redeemable preferred shares, net of issuance
costs
744,921
—
— —
Proceeds from issuance of ordinary shares upon Initial Public Offering, net of
2018
RMB
2019
RMB
2020
RMB
US$
issuance costs
Net proceeds from exercise of share options
Cash paid for repurchase of common stocks
Capital injection from non-controlling shareholders
Net cash generated from/(used in) financing activities
Effect of exchange rate changes on cash, cash equivalents and restricted cash
Net increase/(decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of the year
Cash, cash equivalents and restricted cash at the end of the year
Supplemental disclosure of cash flow information
Cash paid for income tax
Supplemental schedule of non-cash investing and financing activities
Accretion on convertible redeemable preferred shares to redemption value
Re-designation to Series A convertible redeemable preferred shares from Initial
Ordinary Shareholders’ contribution, including beneficial conversion feature
Deemed dividend from convertible redeemable preferred shareholders
Issuance of Series B convertible redeemable preferred shares to the funder with no
3,000
— 737,297
—
1,080
— (117,371)
2,400
747,921 623,406
11,390
— —
1,072
(3,551)
352
(2,127)
(8,217)
1,207,505 (597,503) 222,001 34,024
357,741 1,565,246 967,743 148,313
1,565,246 967,743 1,189,744 182,337
6,995
(23,171)
2,300
(13,876)
(53,624)
34,594
18,978
13,413
4,251
651
2,187,633 1,532,013
— —
60,796
(107)
—
—
— —
— —
consideration
Payable for capital expenditure
Net settlement between factoring receivables and payables
Note 23
6,421
209
—
—
94
15,901
— —
— —
3,603
23,507
Cash and cash equivalents
Restricted cash (Note 2.9)
Total cash, cash equivalents and restricted cash shown in the statement of cash flows
2018
RMB
As of December 31,
2019
RMB
RMB
US$
1,519,146 883,369 1,063,900 163,050
46,100 84,374 125,844 19,287
1,565,246 967,743 1,189,744 182,337
2020
The accompanying notes are an integral part of these consolidated financial statements.
F-14
Table of Contents
YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
1. PRINCIPAL ACTIVITIES AND ORGANIZATION
(a)
Principal activities
Yunji Inc. (“Yunji”, or “the Company”) was incorporated under the laws of the Cayman Islands in November 2017, as an exempted company with
limited liability.
The Company, through its subsidiaries, consolidated variable interest entities (“VIEs”) and VIE’s subsidiaries (collectively, the “Group”), offers a
selection of high-quality products covering a broad range of categories at attractive prices through its e-commerce platform, Yunji App. In 2019, the
Company integrated its original two e-commerce platforms, Yunji VIP App and Yunji Flagship App into one platform, Yunji App, with both basic
features for all its users and exclusive features for the members of the Group’s membership program. Starting from first quarter of 2019, the Group
started to operate Yunji App as a marketplace platform for third party merchants to sell their merchandise to Yunji App users. Starting from third quarter
of 2020, the Group expanded to operate its business, including marketplace, on a diverse range of sales channels and on other platforms. The Group’s
principal operation and geographic market is in the People’s Republic of China (“PRC”).
On May 3, 2019, the Company completed its initial public offering (IPO) of 11,000,000 American Depositary Shares (“ADSs”), each representing ten
Class A ordinary shares of the Company, at the price of US$11.00 per ADS. On June 4, 2019, the Company’s underwriters exercised their over-
allotment option to purchase an additional 217,447 ADSs. The Company received US$109 million (equivalent to RMB 737 million) of proceeds after
deducting underwriting discounts commissions and other offering expense from its IPO and related over-allotment option arrangement. Immediately
prior to the completion of the IPO, all classes of preferred shares of the Company, which were originally classified as Mezzanine Equity, were converted
and re-designated as 895,216,752 Class A ordinary shares on a one-for-one basis.
(b) History of the Group and Basis of Presentation for the Reorganization
Prior to the incorporation of the Company and starting in May 2015, the Group’s business was carried out under subsidiaries (“Operating Entities”) of
Yunji Sharing Technology Co., Ltd. (“Yunji Sharing”), previously known as Hangzhou Bolue Biology Technology Co., Ltd. (“Bolue”). Mr. Xiao
Shanglue is the co-founder of Bolue (the “Co-Founder”). The Co-Founder, Mr. Wang Peng, and the other two institutional investors were initial ordinary
shareholders of Yunji Sharing (the four parties were collectively named as the “Initial Ordinary Shareholders”). After Yunji Inc. was established in
Cayman Island in November 2017, Yunji Holdings Limited (“Yunji Holding”) was incorporated in Hong Kong as a wholly owned subsidiary of the
Company, and Hangzhou Yunchuang Sharing Network Technology Co., Ltd. (“Yunchuang Sharing” or “WFOE”) was established as a wholly owned
subsidiary of Yunji Holding in the PRC. Thereafter, the new PRC subsidiaries and Zhejiang Yunji Preferred E-commerce Co., Ltd., (“Yunji Preferred”),
which is a VIE to hold Internet Content Provider (“ICP”) license, were established. Consequently, a series of contractual agreements were entered into
among Yunchuang Sharing, Yunji Sharing, Yunji Preferred and its existing shareholders, including loan agreement, exclusive service agreement, equity
interest pledge agreement, exclusive option agreement, proxy agreement and power of attorney, spousal consent letters that irrevocably authorized the
existing shareholders designated by Yunchuang to exercise the equity owner’s rights over Yunji Sharing and Yunji Preferred.
In preparation of its initial public offering, the Group underwent a reorganization (the “Reorganization”) starting from December 2017. After the
Reorganization, the prior shareholding interests at Yunji Sharing were mirrored to the shareholding interests of the Group.
F-15
Table of Contents
YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
1. PRINCIPAL ACTIVITIES AND ORGANIZATION (CONTINUED)
(b) History of the Group and Basis of Presentation for the Reorganization (continued)
The Group’s consolidated financial statements include the financial statements of the Company, its subsidiaries, consolidated VIEs and VIE’s
subsidiaries.
As of December 31, 2020, the Company’s principal subsidiaries are as follows:
Subsidiaries
Yunji Holding Limited
Chuangke Information Technology (Shenzhen)
Co., Ltd.
Zhejiang Youji Supply Chain Management Co.,
Ltd.
Anhui Delue Network Technology Co., Ltd.
Zhejiang Jiyuan Network Technology Co., Ltd.
Zhejiang Zhelue Network Technology Co., Ltd.
Hangzhou Jichuang Network Technology Co., Ltd.
Yunji Hongkong Limited
Ningbo Yunchu Trading Co., Ltd.
Hangzhou Yunchuang Sharing Network
Technology Co., Ltd.
Desking technology (HK) Co., Limited
Jironghuishang Commercial Factoring (Tianjin)
Co., Ltd
Zhejiang Yunxuan Supply Chain Management Co.,
Place of
incorporation
Date of
incorporation or
acquisition
December 20,
Percentage
of direct or
indirect
Hong Kong
2017
Shenzhen
Huzhou
Hefei
Hangzhou
August 28, 2018
November 30,
2016
January 15, 2017
August 14, 2018
Hangzhou
Hangzhou
Hong Kong
Ningbo
May 23, 2016
May 23, 2016
August 25, 2015
May 10, 2018
Hangzhou
June 13, 2018
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Hong Kong
July 26, 2016
100%
Principal activities
Investment holding
Technology
development
Procurement
Customer service
Procurement
Sales of
merchandise
Investment holding
Procurement
Custom clearance
Investment holding
Investment holding
and
Financing solution
Tianjin
October 16, 2018
100%
Financing solution
Ltd
Hangzhou
August 9, 2018
100%
Procurement
F-16
Table of Contents
YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
1. PRINCIPAL ACTIVITIES AND ORGANIZATION (CONTINUED)
(b) History of the Group and Basis of Presentation for the Reorganization (continued)
As of December 31, 2020, the Company’s principal consolidated VIEs and VIE’s subsidiaries are as follows:
VIEs and VIE subsidiaries
Yunji Sharing Technology Co., Ltd.
Zhejiang Yunji Preferred E-Commerce Co., Ltd.
Zhejiang Jishang Preferred E-Commerce Co., Ltd.
Zhejiang Jixiang E-commerce Co., Ltd.
Hangzhou Fengjing Network Technology Co.,
Ltd.
Ningbo Meishan Bonded Port Area Jichuang
Taihong Venture Capital Partnership (LP)
(“Jichuang Taihong”)
Hangzhou Heyi e-commerce Co., Ltd.
Anhui Yunhe Network Technology Co., Ltd.
(“Yunhe”)
Place of
incorporation
Date of
incorporation or
acquisition
Percentage
of direct or
indirect
Hangzhou
March 5,2018
Hangzhou
Hangzhou
Hangzhou
Hangzhou
June 13, 2018
April 22, 2016
August 14, 2018
December 18,
2020
Ningbo
Hangzhou
January 15, 2019
August 5, 2020
100%
100%
100%
100%
100%
100%
100%
Hefei
March 28, 2019
100%
Principal activities
Investment
holding
Investment
holding
Procurement
E-Commerce
Investment
holding
Investment
holding
E-Commerce
Customer
service and
Procurement
Starting from third quarter of 2020, Yunhe and Jichuang Taihong, which were originally subsidiaries of the Company, became subsidiaries the
Company’s consolidated VIEs as a result of equity transactions within the Group.
F-17
Table of Contents
YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
1. PRINCIPAL ACTIVITIES AND ORGANIZATION (CONTINUED)
(c) Consolidated variable interest entities
In order to comply with the PRC laws and regulations which prohibit or restrict foreign investments into companies involved in restricted businesses,
the Group operates its Apps and other restricted businesses in the PRC through certain PRC domestic companies, whose equity interests are held by
certain management members of the Company or onshore nominees of the Company (“Nominee Shareholders”). The Company obtained control over
these PRC domestic companies by entering into a series of Contractual Arrangements with these PRC domestic companies and their respective Nominee
Shareholders. These contractual agreements cannot be unilaterally terminated by the Nominee Shareholders or the PRC domestic companies. As a
result, the Company maintains the ability to control these PRC domestic companies and is entitled to substantially all of the economic benefits from
these PRC domestic companies. Management concluded that these PRC domestic companies are VIEs of the Company, of which the Company is the
ultimate primary beneficiary. As such, the Group consolidated financial results of these PRC domestic companies and their subsidiaries in the Group’s
consolidated financial statements. The principal terms of the agreements entered into amongst the VIEs, their respective shareholders and the WFOE are
further described below.
Loan Agreements
Pursuant to the relevant loan agreements, the WFOE has granted interest-free loans to the relevant Nominee Shareholders of the relevant VIEs with the
sole purpose of providing funds necessary for the capital injection to the relevant VIEs. Only the WFOE can require the Nominee Shareholders to settle
the loan amount with the equity interests of relevant VIEs, subject to any applicable PRC laws, rules and regulations. The relevant Nominee Shareholder
has agreed that any proceeds from sale of the Nominee Shareholder’s equity interest in the relevant VIE should be used to repay the loan amount to the
WFOE. The term of the loan agreements is ten years and can be extended with the written consent of both parties before expiration.
Exclusive Option Agreements
Pursuant to the exclusive option agreement, the Nominee Shareholders of the VIEs have granted the WFOE the exclusive and irrevocable right to
purchase or to designate one or more person(s) at its discretion to purchase part or all of the equity interests in the VIEs (the “Target Equity”) from the
Nominee Shareholders at any time, and the VIEs have granted the WFOE the exclusive and irrevocable right to purchase or to designate one or more
person(s) at its discretion to purchase part or all of the assets of the VIEs (the “Target Assets”) at any time. The total transfer price for the Target Equity
and/or the Target Assets shall be equal to the loan provided by the WFOE to the Nominee Shareholders under the Loan Agreements. The VIEs and their
Nominee Shareholders have agreed that without prior written consent of the WFOE, the Nominee Shareholders shall not sell, transfer, pledge or dispose
of their equity interests, and the VIEs shall not sell, transfer, pledge or dispose of their assets, including but not limit to significant assets, significant
revenue and significant business. In addition, the VIEs covenant that they shall not declare any dividend or change capitalization structure of the VIEs or
enter into any loan or investment agreements.
Proxy Agreement and Power of Attorney
Pursuant to the Proxy Agreement and Power of Attorney, each of the Nominee Shareholders appointed the WFOE as their attorney-in-fact to exercise all
shareholder rights under PRC law and the relevant articles of association, including but not limited to, calling and attending shareholders meetings,
voting on their behalf on all matters requiring shareholder approval, including but not limited to the appointment and removal of directors, as well as the
sale, transfer and disposal of all or part of the equity interests owned by such shareholders. The powers of attorney will remain effective for a given
Nominee Shareholders until such shareholder ceases to be a shareholder of the relevant VIE or otherwise instructed by the WFOE.
F-18
Table of Contents
YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
1. PRINCIPAL ACTIVITIES AND ORGANIZATION (CONTINUED)
(c) Consolidated variable interest entities (continued)
Exclusive Service Agreement
Pursuant to the exclusive service agreement, the WFOE has agreed to provide to the VIEs services, including, but not limited to, development,
maintenance and update of technology, design, installation, daily management, maintenance and updating of the network system, hardware design, and
marketing. The VIEs shall pay to the WFOE service fees determined by the WFOE in its sole discretion. The agreement has a term of 10 years and shall
automatically renew at the end of each term for a further term of ten years, unless otherwise terminated by the WFOE in its sole discretion with 30 days’
prior written notice.
Equity Interest Pledge Agreements
Pursuant to the relevant equity interest pledge agreements, the Nominee Shareholders of the VIEs have pledged 100% equity interests in relevant VIEs
to the WFOE to guarantee performance by the Nominee Shareholders of their obligations under the exclusive option agreements, the proxy agreement
and power of attorney and the loan agreements, as well as the performance by the VIEs of their obligations under the exclusive option agreements and
the exclusive service agreements. All of the equity interest pledge agreements shall remain valid until the pledges are released. In the event of a breach
by the VIEs or any of their Nominee Shareholders of contractual obligations under the exclusive option agreements, the proxy agreement and power of
attorney, the exclusive service agreements, the loan agreements and the equity interest pledge agreements, as the case may be, the WFOE, as pledgee,
will have the right to dispose of the pledged equity interests in the relevant VIE and will have priority in receiving the proceeds from such disposal. The
Nominee Shareholders of the VIEs also covenant that, without the prior written consent of the WFOE, they will not dispose of, create or allow any
encumbrance on the pledged equity interests. In October and December 2018, the equity pledge registrations of Yunji Preferred and Yunji Sharing with
the relevant office of the State Administration for Market Regulation were completed, respectively. The equity pledge registrations of Hangzhou
Chuanchou and Hangzhou Fengjing are in the process of application.
Spousal Consent Letters
Pursuant to the Spousal Consent Letters, each Nominee Shareholder (except for Mr. Wenwei Shu, the shareholder of both Hangzhou Chuanchou and
Hangzhou Fengjing, who has no spouse yet), who is a natural person, and his or her spouse unconditionally and irrevocably agreed that the equity
interests in the VIEs held by such Nominee Shareholder will be disposed of pursuant to the equity interest pledge agreements, the exclusive option
agreements, the loan agreement and the proxy agreement and power of attorney. Each of their spouses agreed not to assert any rights over the equity
interests in the VIEs held by their respective spouses. In addition, in the event that any spouse obtains any equity interests in any VIE held by his or her
spouse for any reason, he or she agreed to be bound by the contractual arrangements.
(d) Risks in relations to the VIE structure
The following table set forth the assets, liabilities, results of operations and changes in cash, cash equivalents and restricted cash of the consolidated
VIEs and their subsidiaries taken as a whole, which were included in the Group’s consolidated financial statements with intercompany transactions
eliminated (It should be noted that the VIEs were not established until 2018 as the Reorganization occurred. The following disclosures present the
operations and financial positions of the businesses that currently constitute the VIE entities as of and for the respective periods.):
F-19
Table of Contents
YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
1. PRINCIPAL ACTIVITIES AND ORGANIZATION (CONTINUED)
(d) Risks in relations to the VIE structure (continued)
As of December 31,
2020
2019
RMB
RMB
Cash and cash equivalents
Restricted cash
Accounts receivable, net
Advance to suppliers
Inventories, net
Amounts due from the Group companies (2)
Amounts due from related parties (1)
Prepaid expense and other current assets
Property, equipment and software, net
Long-term investments
Operating lease right-of-use assets
Deferred tax assets
Other non-current assets
Total assets
Accounts payable
Deferred revenue
Incentive payables to members
Refund payable to members
Members management fee payable
Other payable and accrued liabilities
Amounts due to the Group companies (3)
Amounts due to related parties (1)
Operating lease liabilities, current
Operating lease liabilities, non-current
Deferred Tax Liability
Total liabilities (4)
5,809
30,057
—
8,774
58,613
4,804
139,323 137,994
80,289 125,844
12,204
5,271
18,334
21,393
3,500
19,403
2,872,259 3,909,067
6,603
171,498 195,428
23,698
34,625
8,612
44,674
7,553
3,417,493 4,528,136
326,014 296,640
35,412
158,942
8,212
—
4,398
26,883
45,841
13,805
282,189 228,321
2,846,591 4,142,953
11,483
6,039
5,160
4,762
4,265
3,735
1
—
3,668,961 4,782,685
Information related to VIEs’ transactions with related parties is included in Note 27.
(1)
(2) Amounts due from the Group companies primarily consisted of inter-company receivables for the sales of goods and the rendering of services
made by the VIEs and their subsidiaries on behalf of other Group companies.
(3) Amounts due to the Group companies primarily consisted of inter-company payables for the purchase of goods and services made by other Group
companies on behalf of the VIEs and their subsidiaries.
(4) Amounts of the consolidated VIEs and VIEs’ subsidiaries without recourse to the primary beneficiary is RMB 818,634 and RMB 635,467 as of
December 31, 2019 and 2020, respectively
F-20
Table of Contents
YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
1. PRINCIPAL ACTIVITIES AND ORGANIZATION (CONTINUED)
(d) Risks in relations to the VIE structure (continued)
Total revenues
Cost of revenues
Net (loss)/income
Net cash generated by/(used in) operating activities
Net cash (used in)/generated by investing activities
Net cash (used in)/generated by financing activities
Effect of exchange rate changes on cash, cash equivalents and restricted cash
Net increase/(decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of year
Cash, cash equivalents and restricted cash at end of year
F-21
2018
RMB
2020
RMB
(364)
Year Ended December 31,
2019
RMB
2,551,221 4,570,774 3,122,086
(593,605) (2,550,386) (1,693,547)
6,826
61,434
(18,347)
2,300
(1,161)
44,226
219,612
263,838
16,071
778,728 (1,019,175)
440,033
—
288
(578,854)
798,466
219,612
(25,014)
(208,982)
(2,302)
542,430
256,036
798,466
Table of Contents
YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
1. PRINCIPAL ACTIVITIES AND ORGANIZATION (CONTINUED)
(d) Risks in relations to the VIE structure (continued)
Under the Contractual Arrangements with the consolidated VIEs, the Company has the power to direct activities of the consolidated VIEs and VIEs’
subsidiaries through the Group’s relevant PRC subsidiaries, and can have assets transferred freely out of the consolidated VIEs and VIEs’ subsidiaries
without restrictions. Therefore, the Company considers that there is no asset of the consolidated VIEs and VIEs’ subsidiaries that can only be used to
settle obligations of the respective VIEs and VIEs’ subsidiaries except for registered capital of VIEs and VIEs’ subsidiaries amounting to RMB 33,797
and RMB 33,797 as of December 31, 2019 and 2020, respectively. Since the consolidated VIEs and VIEs’ subsidiaries are incorporated as limited
liability companies under the PRC Law, the creditors of the consolidated VIEs and VIEs’ subsidiaries do not have recourse to the general credit of the
Company.
The Group believes that the Group’s relevant PRC subsidiaries’ Contractual Arrangements with the consolidated WFOEs, VIEs and VIEs’ subsidiaries
and the Nominee Shareholders are in compliance with PRC laws and regulations, as applicable, and are legally enforceable. However, uncertainties in
the PRC legal system could limit the Company’s ability to enforce these Contractual Arrangements.
In addition, if the current structure of any of the Contractual Arrangements were found to be in violation of any existing PRC laws, the Company may be
subject to penalties, which may include but not be limited to, the cancellation or revocation of the Company’s business and operating licenses, being
required to restructure the Company’s operations or terminate the Company’s operating activities. The imposition of any of these or other penalties may
result in a material and adverse effect on the Company’s ability to conduct its operations. In such case, the Company may not be able to operate or
control the VIEs and VIEs’ subsidiaries, which may result in deconsolidation of the VIEs and VIEs’ subsidiaries.
There are, however, substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations. Accordingly, the
Company cannot be assured that the PRC government authorities will not ultimately take a view that is contrary to the Company’s belief and the opinion
of its PRC legal counsel. In March 2019, the draft Foreign Investment Law was submitted to the National People’s Congress for review and was
approved on March 15, 2019, which came into effect from January 1, 2020. The approved Foreign Investment Law does not touch upon the relevant
concepts and regulatory regimes that were historically suggested for the regulation of VIE structures, and thus this regulatory topic remain unclear under
the Foreign Investment Law. Since the Foreign Investment Law is new, there are substantial uncertainties exist with respect to its implementation and
interpretation and the possibility that such entities will be deemed as foreign-invested enterprise and subject to relevant restrictions in the future shall not
be excluded. If the contractual arrangements establishing the Company’s VIE structure are found to be in violation of any existing law and regulations or
future PRC laws and regulations, the relevant PRC government authorities will have broad discretion in dealing with such violation, including, without
limitation, levying fines, confiscating income or the income of these affiliated Chinese entities, revoking business licenses or the business licenses of
these affiliated Chinese entities, requiring the Company and its affiliated Chinese entities to restructure their ownership structure or operations and
requiring the Company or its affiliated Chinese entities to discontinue any portion or all of the Company’s value-added businesses. Any of these actions
could cause significant disruption to the Company’s business operations, and have a severe adverse impact on the Company’s cash flows, financial
position and operating performance. If the imposing of these penalties cause the Company to lose its rights to direct the activities of and receive
economic benefits from the VIEs, which in turn may restrict the Company’s ability to consolidate and reflect in its financial statements the financial
position and results of operations of its VIEs.
F-22
Table of Contents
YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
2. PRINCIPAL ACCOUNTING POLICIES
2.1 Basis of presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America (“US GAAP”).
Significant accounting policies followed by the Group in the preparation of its accompanying consolidated financial statements are summarized below.
2.2 Basis of consolidation
The consolidated financial statements include the financial statements of the Company, its subsidiaries, the consolidated VIEs and VIEs’ subsidiaries for
which the Company is the ultimate primary beneficiary.
A subsidiary is an entity in which the Company, directly or indirectly, controls more than one half of the voting power, has the power to appoint or
remove the majority of the members of the board of directors, to cast a majority of votes at the meeting of the board of directors or to govern the
financial and operating policies of the investee under a statute or agreement among the shareholders or equity holders.
A consolidated VIE is an entity in which the Company, or its subsidiary, through contractual arrangements, bears the risks of, and enjoys the rewards
normally associated with, ownership of the entity, and therefore the Company or its subsidiary is the primary beneficiary of the entity.
All transactions and balances between the Company, its subsidiaries, VIEs and VIEs’ subsidiaries have been eliminated upon consolidation.
2.3 Non-controlling interests
For the Company’s consolidated subsidiaries, VIEs and VIEs’ subsidiaries, non-controlling interests are recognized to reflect the portion of their equity
that is not attributable, directly or indirectly, to the Company as the controlling shareholder. Non-controlling interests are classified as a separate line
item in the equity section of the Group’s Consolidated Balance Sheets and have been separately disclosed in the Group’s Consolidated Statements of
Comprehensive Loss to distinguish the interests from that of the Company.
2.4 Use of estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and liabilities at the balance sheet date, and the reported revenues and expenses during
the reporting periods in the consolidated financial statements and accompanying notes. Significant accounting estimates reflected in the Group’s
consolidated financial statements include, but are not limited to the valuation and recognition of refund payable to members, share-based compensation,
reserve for excess and obsolete inventories and credit losses for financial instruments. Estimates are based on historical experiences and on various
assumptions that the Group believes are reasonable under current circumstances. As of December 31, 2020, the Group considered the economic
implications of the COVID-19 on its significant judgments and estimates. Given that changes in circumstances, facts and experience may cause the
Group to revise its estimates, actual results could differ materially from those estimates. Actual results could differ from those estimates.
The estimation of refunds payable to members is based upon the historical data of referral incentives earned by referring members within their estimated
active life cycle. On a quarterly basis, the Company revisits the estimation with a consistently applied approach and the most up-to-date data, and any
change in accounting estimate will be reflected in relevant revenue streams in current period (Note 14).
F-23
Table of Contents
YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
2.5 Foreign currencies
The Group’s reporting currency is Renminbi (“RMB”). The functional currency of the Group’s holding entities incorporated in Cayman Islands and
Hong Kong, China (“HK”) is the United States dollars (“US$”). The Group’s PRC subsidiaries, consolidated VIEs and VIEs’ subsidiaries and the other
HK subsidiary determined their functional currency to be RMB. The determination of the respective functional currency is based on the criteria of ASC
830, Foreign Currency Matters and is based primarily on the currency the entity conducts its business in.
Transactions denominated in other than the functional currencies are translated into the functional currency of the entity at the exchange rates quoted by
authoritative banks prevailing on the transaction dates. Exchange gains and losses resulting from those foreign currency transactions denominated in a
currency other than the functional currency are recorded in the Consolidated Statements of Comprehensive Loss. Total exchange loss were RMB 685,
RMB 12,397 and RMB 919 for the years ended December 31, 2018, 2019 and 2020, respectively.
The financial statements of the Group are translated from the functional currency into RMB. Assets and liabilities denominated in foreign currencies are
translated into RMB using the applicable exchange rates at the balance sheet date. Equity accounts other than earnings generated in current period are
translated into RMB at the appropriate historical rates. Revenues, expenses, gain and loss are translated into RMB using the periodic average exchange
rates. The resulting foreign currency translation adjustments are recorded in other comprehensive income as a component of shareholders’ equity. Total
foreign currency translation adjustments to the Group’s other comprehensive income were a gain of RMB 55,565, RMB 33,298 and a loss of RMB
79,411, for the years ended December 31, 2018, 2019 and 2020, respectively.
2.6 Convenience translation
Translations of the Consolidated Balance Sheets, the Consolidated Statements of Comprehensive Loss and the Consolidated Statements of Cash Flows
from RMB into US$ as of and for the year ended December 31, 2020 are solely for the convenience of the readers and were calculated at the rate of
US$1.00=RMB 6.5250, representing the index rates stipulated by the federal reserve board. No representation is made that the RMB amounts could
have been, or could be, converted, realized or settled into US$ at that rate on December 31, 2020, or at any other rate.
2.7 Fair value measurements
Accounting guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. When determining the fair value measurement for assets and liabilities required or permitted to be
recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and it considers assumptions that
market participants would use when pricing the asset or liability.
Accounting guidance establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of
input that is significant to the fair value measurement. Accounting guidance establishes three levels of inputs that may be used to measure fair value:
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.
F-24
Table of Contents
YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
2.7 Fair value measurements (continued)
Accounting guidance also describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach, (2) income
approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical
or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The
measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that
would currently be required to replace an asset.
Financial assets and liabilities of the Group mainly consist of cash and cash equivalents, restricted cash, short-term investments, accounts receivable,
amounts due from related parties, prepaid expenses and other current assets, equity securities with readily determinable fair values included in long-term
investments, accounts payable, amounts due to related parties, accruals and other liabilities. As of December 31, 2019 and 2020, except for short-term
investments and equity securities with readily determinable fair values included in long-term investments, the carrying values of cash and cash
equivalents, restricted cash, trade receivables, amounts due from related parties, prepayments and other current assets, trade payables, amounts due to
related parties, accruals and other liabilities are approximated to their fair values due to the short-term maturity of these instruments. The Group reports
short-term investments at fair value and discloses the fair value of these investments based on level 2 measurement, reports equity securities with readily
determinable fair values included in long-term investments at fair value based on level 1 measurement (Note 9).
2.8 Cash and cash equivalents
Cash includes currency on hand and deposits held by financial institutions that can be added to or withdrawn without limitation. Cash equivalents
represent short-term, highly liquid investments that are readily convertible to known amounts of cash and with original maturities from the date of
purchase of three months or less.
2.9 Restricted cash
Cash that is restricted as to withdrawal or for use or pledged as security is reported separately on the face of the Consolidated Balance Sheets. The
Group’s restricted cash mainly represents i) security deposits held in designated bank accounts for issuance of bank acceptance and letter of guarantee,
ii) deposits held in the Group’s own bank accounts designated by the customs authorities that the Group makes for cross-border comprehensive tax for
imported merchandise, iii) cash held in the Group’s own bank accounts, the use of which is restricted to collecting cash on behalf of the merchants for
products sold on Yunji App and transferring these cash receipts to the merchants under the bank’s custody. Restricted cash with the restriction period
lapsing within one year are classified as current assets in the Consolidated Balance Sheets.
2.10 Short-term investments
Short-term investments are comprised of i) time deposits placed with banks with original maturities longer than three months but less than one year, ii)
wealth management products issued by PRC banks or other financial institutions, which contains fixed or variable interest with original maturities
within one year. Such investments are generally not permitted to be redeemed early or are subject to penalties for redemption prior to maturities. These
investments are stated at fair value. Changes in the fair value are reflected in Financial income/(expense), net in the Consolidation Statements of
Comprehensive Loss.
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YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
2.11 Accounts receivable, net
Accounts receivables, net mainly represent amounts due from customers, including the funds extended by the Group to qualified customers, including
the merchants, through its factoring arrangements (the “factoring receivables”) and are recorded net of allowance for credit losses. As of December 31,
2019 and 2020, the balance of the factoring receivables was RMB 17,041 and RMB 122,089, respectively (Note 5).
Allowance for expected credit losses
Starting from January 1, 2020, the Group adopted ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments” (“ASC Topic 326”), which amends previously issued guidance regarding the impairment of financial instruments by
creating an impairment model that is based on expected losses rather than incurred losses. Upon adoption of the new standard on January 1, 2020, there
was no material cumulative effect of the adoption.
The Group’s accounts receivable, prepaid expenses and other current assets, amounts due from related parties and other non-current assets are within the
scope of ASC Topic 326.
To estimate expected credit losses, the Group has identified the relevant risk characteristics of its customers, the related receivables and other receivables
which include size, type of the services, the counterparty or the products the Group provides, or a combination of these characteristics. Receivables with
similar risk characteristics have been grouped into pools. For each pool, the Group considers the past collection experience, current economic
conditions, future economic conditions (external data and macroeconomic factors) and changes in the Group’s customer collection trends. This is
assessed at each quarter based on the Group’s specific facts and circumstances. No significant impact of changes in the assumptions since adoption.
The following table summarized the details of the Company’s allowance for expected credit losses:
Balance at beginning of year
Allowance for credit losses
Balance at end of year
2.12 Inventories, net
2020
2018 2019
— — —
— — 13,089
— — 13,089
Inventories, consisting of products available for sale, are stated at the lower of cost and net realizable value. Cost of inventory is determined using the
weighted average cost method. Adjustments are recorded to write down the cost of inventory to the estimated net realizable value due to slow-moving
merchandise and damaged goods, which is dependent upon factors such as historical and forecasted consumer demand, and promotional environment.
Write downs of RMB 2,540, RMB 3,608 and RMB 40,609 are recorded in Cost of revenues in the Consolidated Statements of Comprehensive Loss for
the years ended December 31, 2018, 2019 and 2020, respectively.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
2.13 Property, equipment and software, net
Property, equipment and software are stated at cost less accumulated depreciation. Property, equipment and software are depreciated at rates sufficient to
write off their costs less impairment and residual value, if any, over the estimated useful lives on a straight-line basis. The estimated useful lives are as
follow:
Category
Leasehold improvement
Electronic equipment
Furniture
Software
Vehicles
Estimated useful lives
Shorter of the term of the lease or the estimated useful lives of the assets
3 years
3 years
3 years
3 years
Repairs and maintenance costs are charged to expenses as incurred, whereas the costs of renewals and betterment that extend the useful lives of property,
equipment and software are capitalized as additions to the related assets. The Group recognized the gain or loss on the disposal of property, equipment
and software in the Consolidated Statements of Comprehensive Loss.
Construction in progress represents direct costs that are related to the construction of property, equipment and software and incurred in connection with
bringing the assets to their intended use. Construction in progress is transferred to specific property, equipment and software items and the depreciation
of these assets commences when the assets are ready for their intended use.
2.14 Long-term investments
The Group’s investments include equity method investments, equity securities with readily determinable fair values and equity securities without readily
determinable fair values.
The Group has investments in privately held companies. The Group applies the equity method of accounting to account for an equity investment, in
common stock or in-substance common stock, according to ASC 323 “Investment—Equity Method and Joint Ventures”, over which it has significant
influence but does not own a majority equity interest or otherwise control.
An investment in in-substance common stock is an investment in an entity that has risk and reward characteristics that are substantially similar to that
entity’s common stock. The Group considers subordination, risks and rewards of ownership and obligation to transfer value when determining whether
an investment in an entity is substantially similar to an investment in that entity’s common stock.
Under the equity method, the Group’s share of the post-acquisition profits or losses of the equity investees are recorded in Equity in income of affiliates,
net of tax in the Consolidated Statements of Comprehensive Loss. The excess of the carrying amount of the investment over the underlying equity in net
assets of the equity investee, if any, represents goodwill and intangible assets acquired. When the Group’s share of losses in the equity investee equals or
exceeds its interest in the equity investee, the Group does not recognize further losses, unless the Group has incurred obligations or made payments or
guarantees on behalf of the equity investee.
Equity securities with readily determinable fair values are measured and recorded at fair value on a recurring basis with changes in fair value, whether
realized or unrealized, recorded in Financial income/(expense),net through the Consolidated Statements of Comprehensive Loss.
For other equity investments that are not considered as debt securities or equity securities that have readily determinable fair values and over which the
Group has neither significant influence nor control through investments in common stock or in-substance common stock, the Group makes the election
for these investments whereby investment is carried at cost and adjusted in subsequent periods for any impairment or changes in observable prices of
identical or similar investments.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
2.15 Impairment of long-lived assets
Long-lived assets are evaluated for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions
that will impact the future use of the assets) indicate that the carrying value of an asset may not be fully recoverable or that the useful life is shorter than
the Group had originally estimated. When these events occur, the Group evaluates the impairment for the long-lived assets by comparing the carrying
value of the assets to an estimate of future undiscounted cash flows expected to be generated from the use of the 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 Group recognizes an impairment loss based on
the excess of the carrying value of the assets over the fair value of the assets.
2.16 Revenue recognition
The Group adopted ASC Topic 606, “Revenue from Contracts with Customers,” for all periods presented. Consistent with the criteria of Topic 606, the
Group recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the
Group expects to receive in exchange for those goods or services.
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 the
performance 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. The Group assesses its revenue arrangements against
specific criteria in order to determine if it is acting as principal or agent. Revenue arrangements with multiple performance obligations are divided into
separate distinct goods or services. The Group allocates 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 is recorded net of value-added tax.
Revenue recognition policies for each type of revenue steam are as follows:
Sales of merchandise
The Group primarily sells merchandise through its Yunji App. 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 direct the use of goods to obtain substantially all the benefits. In making this determination,
the Group also assesses whether it is primarily obligated in these transactions, is subject to inventory risk, has latitude in establishing prices, or has met
several but not all of these indicators. The cash collected from the sales of merchandise is initially recorded in Deferred revenue in the Consolidated
Balance Sheets and subsequently recognized as revenue when the receipt of merchandise is confirmed by the customers, which is the point that the
control of the merchandise is transferred to the customer. The revenue is recorded net of value-added tax, discounts, coupons, incentives and return
allowances. Return allowances are estimated based on historical experiences and updated at the end of each reporting period.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
2.16 Revenue recognition (continued)
Membership program
Before January 2020, the Group earns membership fees from its members, who pay a fixed fee in exchange for (1) a merchandise gift package, (2) the
right to receive member exclusive discounts for merchandise sold on the Yunji App, (3) access rights to the member-exclusive features on Yunji App,
(4) the right to receive units of Yunbi (meaning Yun coin) upon a successful new member referral (“Referral Yunbi”), (5) member exclusive training,
and (6) units of Yunbi (“New member Yunbi”). Each of these items represents a separate performance obligation. Yunbi can be used as coupons for the
member’s future purchases on Yunji App and therefore reflect material rights. In order to promote its membership program, the Group, at its discretion,
allows its users to join the membership program by purchasing any merchandise of equivalent value of the membership fee via Yunji App within a
defined period as an alternative way of paying the upfront fixed membership fee, or allows individuals that meet certain requirements to become
members without paying membership fee. When users become members in this manner, they are not entitled to the merchandise gift package and
member exclusive training. The Group allocates the transaction price to each performance obligation, after taking into consideration expected refunds
payable to members (Note 2.17), based on their relative standalone selling price. When the standalone selling price of a performance obligation is not
directly observable, it is estimated by the Group by using an expected cost plus a margin approach.
For the merchandise gift package, revenue is recognized when the receipt of the gift package is confirmed by the members, which were RMB 1,197,890,
RMB 557,936 and nil for the years ended December 31, 2018, 2019 and 2020, respectively. For the right to receive Referral Yunbi, revenue is
recognized when Referral Yunbi is used and redeemed, or upon expiration if not redeemed. For New member Yunbi, revenue is recognized when the
New member Yunbi is used and redeemed, or upon expiration if not redeemed. The allocated amounts of the transaction price to the right to receive
Referral Yunbi and New Member Yunbi incorporate estimation of breakages based upon historical data, and are deferred on the balance sheet upon the
collection of the upfront membership fees, which was RMB 108,634 and RMB159,024, RMB 22,104 and RMB 80,553, and nil, for the years ended
December 31, 2018, 2019 and 2020, respectively. For member exclusive training, revenue is recognized when the training courses are delivered over the
service period by the third-party vendors engaged by the Group. For the remaining performance obligations, revenue is recognized over the period of the
active life cycle of the Group’s members on a straight-line basis. The active life cycle of the Group’s members is estimated based on historical behavior
of these members, which is approximately one year.
In addition, when members subsequently purchase merchandise, the members initially pay for their purchases at non-member regular prices, and then
are issued refunds equal to the member-exclusive discounts from the Group as a credit upon the members confirming receipt of the merchandise. The
Group records such anticipated refunds as a reduction of revenue and discounts payables to the members.
Starting from January 2020, the Group has allowed any user to become its member free of charge for one year by simply registering for an account on
Yunji App. When users become members in this manner, they are still entitled to enjoy the right to receive member exclusive discounts for merchandise
sold on the Yunji App.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
2.16 Revenue recognition (continued)
Marketplace
In 2019, the Group launched its marketplace business model, under which the Group operates its e-commerce platform, Yunji App, as a marketplace for
third party merchants to sell their merchandise to the Yunji App users. When the transactions are completed on Yunji App, the Group charges merchants
commissions at their respective agreed percentage of the amount of merchandise sold by merchants. The Group acts as an agent in these transactions and
does not control the underlying merchandise provided by merchants before they are transferred to users, as the Group is not responsible for fulfilling the
promise to provide the merchandise to users and has no inventory risk before the merchandise are transferred to the users or after the control is
transferred to the users. In addition, the Group has no discretion in establishing prices of the merchandise provided by merchants. Revenues are
recognized on a net basis to the extent of the commission the Group earns at the point of users’ acceptance of merchandise.
Remaining performance obligations
The remaining performance obligations associated with the Group’s sale of merchandise represents the cash collected upfront from the customers for
their purchase of merchandise on Yunji App, but the underlying merchandise has not yet been received by the customers, which is included in the
presentation of Deferred revenue (Note 12). As of December 31, 2019 and 2020, the remaining performance obligation for sales of merchandise were
RMB 129,224 and RMB 40,645, respectively, which are expected to be recognized as revenue when the receipt of merchandise is confirmed by the
customers.
Revenue allocated to remaining performance obligations of the Group’s membership program represents that portion of the overall transaction price that
has been received (or for which the Group has an unconditional right to payment) allocated to obligations under the membership program that the Group
has not yet fulfilled, which is included in the presentation of Deferred revenue (Note 12). As of December 31, 2019 and 2020, the aggregate amount of
the transaction price allocated to remaining performance obligations were RMB 42,438 and nil, respectively, which are expected to be recognized as
revenue within 12 months.
The remaining performance obligations associated with the Group’s marketplace revenue represents the portion of commission fee included in the
payment collected from the users for their purchase of merchandise on Yunji App on behalf of the merchants, but the underlying merchandise has not
yet been received by the users, which is included in the presentation of Deferred revenue (Note 12). As of December 31, 2019 and 2020, the remaining
performance obligation for marketplace revenue was RMB 9,800 and RMB 9,113, which are expected to be recognized as revenue when the transactions
are completed.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
2.16 Revenue recognition (continued)
Other goods and services
The Group offers products such as air tickets, tourist attractions tickets, cruise, group tour, hotel reservation and car insurance through Yunji App. The
Group presents the revenue generated from such sales on a net basis as the Group does not have control of the goods or services or have the ability to
direct the use of the goods or services and obtain substantially all of their benefits. Revenue is recognized when the Group has fulfilled its selling
performance obligations on behalf of the principal in the transaction, which is either when the products are accepted by the customer, or once the order
of the products become non-cancellable on Yunji App, depending on the terms of the particular agreement.
The Group also offers loans to qualified customers, including the merchants, and charges an interest based on the principal through factoring
arrangements. The Group extends loans to merchants for their expected orders in addition to the loans to the same merchants who factored their
accounts receivable generated from their transactions completed on Yunji App with recourse. The Group also extends loans to unrelated customers who
factored their accounts receivable derived from their own business with recourse. The Group records factoring receivables, which is included in
accounts receivable, when the cash is advanced to its customers (Note 2.11). The interests are recognized over the term of loans, normally within one
year. From cash flow perspective, when the Group has legal rights to net settle the factoring receivables from merchants with its payable to merchants,
the Group settles such factoring receivables with the payables to the same merchant respectively, provided by the legal rights as per agreement between
the two parties.
2.17 Refund payable to members
After joining the Group’s membership program, members are able to make referrals to other users through their social networks. The Group provides
incentives to those referring members by paying a cash refund upon a successful merchandise referral.
Since customers are only able to receive referral incentives after they become members. When the member become a customer of the Group by either
paying the membership fees or making purchase of merchandise sold on Yunji App after they register as a member, the incentives related to merchandise
referral are considered payments to customers (and are not payment for a distinct good or service) and accounted for as a refund payable to members.
Such refunds are estimated at the time the membership fee is received or at the time that the members make merchandise purchases, and recorded as
Refund payable to members, and reduce the transaction price (that the Group expects to be entitled to keep) for the membership fee revenue recognition
calculation described above accordingly. Any amount of referral incentives expected to be paid in excess of the initial membership fee received is
recorded as Refund payable to members (and reduces merchandise revenue subsequently generated from those members) at the time they make
subsequent merchandise purchases, up to the amount of the expected future referral incentives.
The estimation of refund payable to members involves the assumption of the members’ active life cycle and the expected number of members who will
earn referral incentives, based upon the historical data of referral incentives earned by referring members within their active life cycle (Note 2.4). Once
the referral incentives are earned by the referring members, the amounts are transferred to the members’ individual Yunji App accounts and reclassified
from Refund payable to members to Incentive payables to members.
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YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
2.18 Users incentive programs
The Group grants certain units of Yunbi and other coupons (collectively referred to as coupons), from time to time, to its customers at its discretion in
different situations. Yunbi are not redeemable for cash and can be used as a coupon for the customer’s future purchase on the Yunji App. The value of
one unit of Yunbi is equivalent to one RMB yuan. The coupons granted can be categorized into 1) coupons granted concurrent with a revenue
transaction and 2) coupons granted not concurrent with a revenue transaction. When the coupon is granted concurrent with a revenue transaction, the
Group determine whether the coupon represents a material right of the current transaction. If the coupon represents a material right, the transaction price
is allocated between merchandise sale and the coupon based on the estimated standalone selling price taking into consideration the coupon’s forfeiture
rate. If the coupon does not represent a material right, it is recognized as a reduction of revenue when they are applied in the future sales. When the
coupon is not granted concurrent with a revenue transaction, the Company assesses whether the coupons were granted in exchange for a distinct service
at fair value. When the coupons are granted in exchange for a distinct service at fair value, they are recorded as expense upon grant. In this case, the
person granted coupons in return for their service activities does not need to be a member. When the coupons are not granted in exchange for a distinct
service, they can only be applied to the future purchase of certain specified merchandise. These coupons are not accounted for when they are granted
and are recognized as a reduction of revenue when they are applied in future sales.
Starting from 2019, in order to promote its marketplace business, from time to time, the Group at its own discretion issues coupons in various forms to
users without any concurrent transactions in place or any substantive action needed from the recipient. These coupons can be used in purchase of goods
in a broad range of merchants as an immediate discount of their next purchase, some of which can only be used when the purchase amount exceeds
pre-defined threshold. The Group settles with the merchants in cash for the coupons used by the users. As the users are required to make purchases of
the merchants’ merchandises to redeem the coupons, the Group recognizes the amounts of redeemed coupons as Sales and marketing expenses when the
purchases are made.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
2.19 Cost of revenues
Cost of revenues consists of purchase price of merchandise, inbound shipping charges, write-downs of inventory and member training costs. Inbound
shipping charges to receive merchandise from suppliers are included in the inventories and recognized as cost of revenues upon sale of the merchandise
to the customers.
2.20 Fulfilment
Fulfilment expenses represent packaging material costs and those costs incurred in outbound shipping, operating and staffing the Group’s fulfilment and
customer service centers, including costs attributable to buying, receiving, inspecting and warehousing inventories, picking, packaging and preparing
customer orders for shipment, processing payment and related transaction costs and responding to inquiries from customers, depreciation expenses,
payroll costs including share-based compensation expenses, and other daily expenses which are related to the purchasing functions. Fulfilment costs also
contain third party payment transaction fees, such as bank card processing and debit card processing fees.
2.21 Sales and marketing
Sales and marketing expenses comprise primarily of member management fees, promotion expenses, marketplace coupons, payroll costs including
share-based compensation expenses, depreciation expenses and other daily expenses which are related to the sales and marketing functions.
The Group engages third party vendors to provide member management services, which are ultimately performed by service managers who enter into
employment contract with the third party vendors. Certain of the Group’s members (customers) have been engaged by third party vendors to serve as
service managers. The Group has concluded that the member management services provided by the service managers, including those who are also
members, are for distinct services at fair value, and records the member management fees paid to the third party vendors as Sales and marketing
expenses.
2.22 Technology and content
Technology and content expenses are expensed as incurred and primarily consist of payroll costs including share-based compensation expenses, rental
expenses, costs associated with the computing, storage and telecommunications infrastructure for internal use that support the Group’s system and Yunji
App services and other expenses which are related to the technology and content functions, which are responsible for technology research and
development and content editing in the Group. The Group accounts for internal use software development costs in accordance with guidance on
intangible assets and internal use software. This requires capitalization of qualifying costs incurred during the software’s application development stage
and to expense costs as they are incurred during the preliminary project and post implementation/operation stages. Costs capitalized for developing such
software application were not material for the periods presented.
2.23 General and administrative
General and administrative expenses consist of payroll costs including share-based compensation expenses and other expenses which are related to the
general corporate functions, including accounting, finance, tax, legal and human relations, costs associated with use by these functions of facilities and
equipment, such as depreciation expenses, rental and other general corporate related expenses.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
2.24 Share-based compensation
The Company grants restricted share units (“RSUs”) and share options of the Company to eligible employees and accounts for these share-based awards
in accordance with ASC 718 Compensation — Stock Compensation.
Employees’ share-based awards are measured at the grant date fair value of the awards and recognized as expenses a) immediately at grant date if no
vesting conditions are required, or b) using a straight-line method over the requisite service period, which is the vesting period.
For nonemployees’ share-based awards, the Group adopted ASU 2018-07 in 2019, according to ASU 2018-07, Improvements to Nonemployee Share-
Based Payment Accounting, it clarifies that equity-classified nonemployee share-based payment awards are measured at the grant date. The definition of
the term grant date is amended to generally state the date at which a grantor and a grantee reach a mutual understanding of the key terms and conditions
of a share-based payment award. Nonemployees’ are measured at the grant date fair value of the awards and recognized as expenses using a straight-line
method over the requisite service period, which is the vesting period.
All transactions in which goods or services are received in exchange for equity instruments are accounted for based on the fair value of the consideration
received or the fair value of the equity instrument issued, whichever is more reliably measurable.
Before the Group’s initial public offering, the fair value of RSUs were assessed using the income approach/discounted cash flow method, with a
discount for lack of marketability given that the shares underlying the awards were not publicly traded at the time of grant. This assessment required
complex and subjective judgments regarding the Company’s projected financial and operating results, its unique business risks, the liquidity of its
ordinary shares and its operating history and prospects at the time the grants were made. After the Group’s initial public offering, the fair value of the
RSUs is determined based on the quoted market price of Yunji’s ordinary shares on the grant date.
In addition, the binomial option-pricing model is used to measure the value of share options. The determination of the fair value is affected by the fair
value of the ordinary shares as well as assumptions regarding a number of complex and subjective variables, including the expected share price
volatility, actual and projected employee and nonemployee share option exercise behavior, risk-free interest rates and expected dividend yield. Binomial
option-pricing model incorporates the assumptions about grantees’ future exercise patterns. The fair value of these awards was determined by
management with the assistance from an independent valuation firm using management’s estimates and assumptions.
The assumptions used in share-based compensation expense recognition represent management’s best estimates, but these estimates involve inherent
uncertainties and application of management judgment. If factors change or different assumptions are used, the share-based compensation expenses
could be materially different for any period. Moreover, the estimates of fair value of the awards are not intended to predict actual future events or the
value that ultimately will be realized by grantees who receive share-based awards, and subsequent events are not indicative of the reasonableness of the
original estimates of fair value made by the Company for accounting purposes.
In accordance with ASU 2016-09, the Group made an entity-wide accounting policy election to account for forfeitures when they occur.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
2.25 Employee benefits
Full time employees of the Group in the PRC participate in a government mandated defined contribution plan, pursuant to which certain pension
benefits, medical care, employee housing fund and other welfare benefits are provided to the employees. Chinese labor regulations require that the PRC
subsidiaries and VIE of the Group make contributions to the government for these benefits based on certain percentages of the employees’ salaries, up to
a maximum amount specified by the local government. The Group has no legal obligation for the benefits beyond the contributions made. Total amounts
of such employee benefit expenses, which were expensed as incurred, were RMB 299,341, RMB 553,175 and RMB 403,031 for the years ended
December 31, 2018, 2019 and 2020, respectively.
2.26 Operating leases
The Company applied ASC 842, Leases, on January 1, 2019 on modified retrospective basis and has elected not to recast comparative periods. The
Company determines if an arrangement is a lease at inception. Operating leases are primarily for office and warehouse and are included in Operating
lease right of use assets, net, Operating lease liabilities, current and Operating lease liabilities, non-current on its Consolidated Balance Sheets.
Operating lease right of use assets represent the Group’s right to use an underlying asset for the lease term and Operating lease liabilities represent
obligation to make lease payment arising from the lease. The operating lease right of use assets and liabilities are recognized at lease commencement
date based on the present value of lease payment over the lease term. As most of the Group’s leases do not provide an implicit rate, the Group uses its
incremental borrowing rate based on the information available at lease commencement date in determining the present value of lease payments. The
Operating lease right of use assets also includes any lease payments made and excludes lease incentives. The Group’s lease term may include options to
extend or terminate the lease. Renewal options are considered within the Operating lease right of use assets and liabilities when it is reasonably certain
that the Group will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
For operating lease with a term of one year or less, the Group has elected to not recognize a lease liability or lease right of use asset on its Consolidated
Balance Sheets. Instead, it recognizes the lease payment as expense on a straight-line basis over the lease term. Short-term lease costs are immaterial to
its Consolidated Statements of Comprehensive Loss. The Group has operating lease agreements with insignificant non-lease components and have
elected the practical expedient to combine and account for lease and non-lease components as single lease component.
Upon the adoption of the new lease standard, on January 1, 2019, the Group recognized operating lease assets of RMB 27,653 and total operating lease
liabilities of RMB 28,261 (including current liabilities of RMB 11,876) on the Consolidated Balance Sheets. There was no impact to Accumulated
deficit at adoption.
2.27 Government grant
Government grants are recognized as Other income, net or as a reduction of specific costs and expenses for which the grants are intended to compensate.
Such amounts are recognized in the Consolidated Statements of Comprehensive Loss upon receipts and all conditions attached to the grants are fulfilled.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
2.28 Income tax
Current income taxes are recorded in accordance with the regulations of the relevant tax jurisdiction. The Group accounts for income taxes under the
asset and liability method in accordance with ASC 740, Income Tax. Under this method, deferred tax assets and liabilities are recognized for the tax
consequences attributable to differences between carrying amounts of existing assets and liabilities in the financial statements and their respective tax
basis, and operating loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized
in the Consolidated Statements of Comprehensive Loss in the period of change. Valuation allowances are established when necessary to reduce the
amount of deferred tax assets if it is considered more likely than not that amount of the deferred tax assets will not be realized.
The Group recognizes in its consolidated financial statements the benefit of a tax position if the tax position is “more likely than not” to prevail based on
the facts and technical merits of the position. Tax positions that meet the “more likely than not” recognition threshold are measured at the largest amount
of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement. The Group estimates its liability for unrecognized tax
benefits which are periodically assessed and may be affected by changing interpretations of laws, rulings by tax authorities, changes and/or
developments with respect to tax audits, and expiration of the statute of limitations. The ultimate outcome for a particular tax position may not be
determined with certainty prior to the conclusion of a tax audit and, in some cases, appeal or litigation process. The actual benefits ultimately realized
may differ from the Group’s estimates. As each audit is concluded, adjustments, if any, are recorded in the Group’s consolidated financial statements in
the period in which the audit is concluded. Additionally, in future periods, changes in facts, circumstances and new information may require the Group
to adjust the recognition and measurement estimates with regard to individual tax positions. Changes in recognition and measurement estimates are
recognized in the period in which the changes occur. As of December 31, 2019 and 2020, the Group did not have any significant unrecognized uncertain
tax positions.
F-36
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YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
2.29 Treasury stocks
The Company accounts for treasury stocks using the cost method. Under this method, the cost incurred to purchase the shares is recorded in the treasury
stocks account on the Consolidated Balance Sheets.
2.30 Statutory reserves
The Company’s subsidiaries, consolidated VIEs and VIEs’ subsidiaries established in the PRC are required to make appropriations to certain
non-distributable reserve funds.
In accordance with the laws applicable to the Foreign Investment Enterprises established in the PRC, the Group’s subsidiaries registered as wholly-
owned foreign enterprise have to make appropriations from their after-tax profits (as determined under generally accepted accounting principles in the
PRC (“PRC GAAP”)) to reserve funds including general reserve fund, enterprise expansion fund and staff bonus and welfare fund. The appropriation to
the general reserve fund must be at least 10% of the after-tax profits calculated in accordance with PRC GAAP. Appropriation is not required if the
general reserve fund has reached 50% of the registered capital of the company. Appropriations to the enterprise expansion fund and staff bonus and
welfare fund are made at the respective company’s discretion.
In addition, in accordance with the PRC Company Laws, the Group’s consolidated VIEs and VIEs’ subsidiaries, registered as Chinese domestic
companies, must make appropriations from their after-tax profits as determined under the PRC GAAP to non-distributable reserve funds including
statutory surplus fund and discretionary surplus fund on an annual basis. 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 discretionary surplus fund is made at the discretion of the respective company.
The use of the statutory surplus fund and discretionary surplus fund are restricted to the offsetting of losses or increasing of the registered capital of the
respective company. The staff bonus and welfare fund is a liability in nature and is restricted to fund payments of special bonus to employees and for the
collective welfare of employees. None of these reserves are allowed to be transferred to the company in terms of cash dividends, loans or advances, nor
can they be distributed except under liquidation.
For the years ended December 31, 2018, 2019 and 2020, profit appropriation to statutory surplus fund for the Group’s entities incorporated in the PRC
was approximately RMB 4,227, RMB 3,129 and RMB 6,467 respectively.
F-37
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YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
2.31 Comprehensive loss
Comprehensive loss is defined as the changes in equity of the Group during a period from transactions and other events and circumstances excluding
transactions resulting from investments from shareholders and distributions to shareholders. Comprehensive loss for the periods presented includes net
loss and foreign currency translation adjustments.
2.32 Net loss per share
Basic net loss per share is computed by dividing net loss attributable to holders of ordinary shares, considering the accretions to redemption value of the
preferred shares, deemed dividend from/to preferred shareholders, including beneficial conversion feature, by the weighted average number of ordinary
shares outstanding during the period, if applicable.
Diluted net loss per share is calculated by dividing net loss attributable to ordinary shareholders, as adjusted for the accretion and deemed dividend and
allocation of net income related to the preferred shares, if any, by the weighted average number of ordinary and dilutive ordinary equivalent shares
outstanding during the period. Ordinary equivalent shares consist of shares issuable upon the conversion of the preferred shares using the if-converted
method, restricted share units and ordinary shares issuable upon the exercise of outstanding share options using the treasury stock method. Ordinary
equivalent shares are not included in the denominator of the diluted earnings per share calculation when inclusion of such shares would be anti-dilutive.
2.33 Segment reporting
ASC 280, Segment Reporting, establishes standards for companies to report in their financial statements information about operating segments,
products, services, geographic areas, and major customers.
Based on the criteria established by ASC 280, the Group’s chief operating decision maker (“CODM”) has been identified as the Chief Executive Officer,
who reviews consolidated results when making decisions about allocating resources and assessing performance of the Group. As a whole and hence, the
Group has only one reportable segment. The Group does not distinguish between markets or segments for the purpose of internal reporting. As the
Group’s long-lived assets are substantially located in the PRC and substantially all the Group’s revenue are derived from within the PRC, no
geographical segments are presented.
F-38
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YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
2.34 Recent accounting pronouncements
In December 2019, the FASB issued ASU 2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU provides an
exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.
This update also (1) requires an entity to recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account
for any incremental amount incurred as a non-income-based tax, (2) requires an entity to evaluate when a step-up in the tax basis of goodwill should be
considered part of the business combination in which goodwill was originally recognized for accounting purposes and when it should be considered a
separate transaction, and (3) requires that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation
in the interim period that includes the enactment date. The standard is effective for the Company for fiscal years beginning after December 15, 2020,
with early adoption permitted. The Company is currently evaluating the impact.
In January 2020, the FASB issued Accounting Standards Update No. 2020-01, Investments— Equity Securities (Topic 321), Investments—Equity
Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic
815. The amendments clarified that an entity should consider observable transactions that require it to either apply or discontinue the equity method of
accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing
the equity method. The amendments also clarified that for the purpose of applying paragraph 815-10-15-141(a) an entity should not consider whether,
upon the settlement of the forward contract or exercise of the purchased option, individually or with existing investments, the underlying securities
would be accounted for under the equity method in Topic 323 or the fair value option in accordance with the financial instruments guidance in Topic
825. An entity also would evaluate the remaining characteristics in paragraph 815-10-15-141 to determine the accounting for those forward contracts
and purchased options. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2020, and
interim periods within those fiscal years. The standard is effective for the Company for fiscal years beginning after December 15, 2020, with early
adoption permitted. The Company is currently evaluating the impact.
3. CONCENTRATION AND RISKS
3.1 Concentration of credit risk
Financial instruments that potentially subject the Group to the concentration of credit risks consist of cash and cash equivalents, restricted cash, and
short-term investments. The maximum exposures of such assets to credit risk is their carrying amounts as of the balance sheet dates. The Group deposits
its cash and cash equivalents, restricted cash and short-term investments with financial institutions located in jurisdictions where the subsidiaries are
located. The Company believes that no significant credit risk exists as these financial institutions have high credit quality.
3.2 Concentration of customers and suppliers
Substantially all revenue was derived from customers located in China. There are no customers or suppliers from whom revenues or purchases
individually represent greater than 10% of the total revenues or the total purchases of the Group in any of the periods presented.
F-39
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YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
3. CONCENTRATION AND RISKS (CONTINUED)
3.3 Foreign currency exchange rate risk
In July 2005, the PRC government changed its decades-old policy of pegging the value of the RMB to the US$, and the RMB appreciated more than
20% against the US$ over the following three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the RMB
and the US$ remained within a narrow band. Since June 2010, the RMB has fluctuated against the US$, at times significantly and unpredictably. The
depreciation of the RMB against the US$ was approximately 5.0% in 2018. The appreciation of the RMB against the US$ was approximately 1.6% in
2019. The appreciation of the RMB against the US$ was approximately 6.5% in 2020. It is difficult to predict how market forces or PRC or U.S.
government policy may impact the exchange rate between the RMB and the US$ in the future.
4. SHORT TERM INVESTMENT
Time deposits
Wealth management products
As of December 31,
2020
2019
RMB
RMB
593,954 134,146
180,782 —
774,736 134,146
The Group’s wealth management products mainly consisted of financial products issued by commercial banks in China with a variable interest rate
indexed to the performance of underlying assets and a maturity date within one year when purchased or revolving terms. For the years ended
December 31, 2018, 2019 and 2020, the weighted average return of the wealth management products were 4.1%, 3.4% and 3.4%, respectively.
5. ACCOUNTS RECEIVABLE, NET
Factoring receivables
Receivables from sales channels on other platforms
Receivables from merchants under marketplace business
Receivables from other revenue
Less: allowance for credit losses
F-40
As of December 31,
2019
2020
RMB
RMB
17,041 122,089
— 35,950
8,439
3,015
6,858
8,471
—
(8,603)
28,527 164,733
Table of Contents
YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
6. PREPAID EXPENSES AND OTHER CURRENT ASSETS, NET
Prepaid expenses and other current assets consist of the following:
Prepaid member training costs (1)
Receivables from third-party payment settlement platform (2)
Deposits (3)
Prepaid rental expenses
Prepaid advertising expenses
Short-term loan receivables (4)
Share transfer consideration receivable (5)
VAT-input deductible
Staff advance
Receivables from disposal of a subsidiary (6)
Others
Less: allowance for credit losses
As of December 31,
2020
2019
RMB
RMB
36,669 —
71,202 33,154
86,796 62,540
412
617
5,482
4,085
121,949 130,629
97,667 —
115,252 126,455
640
151
— 26,676
32,555 27,896
—
(2,972)
567,432 410,423
(1)
The Group engages third party vendors to provide sales and marketing related training to its members, including on-line training courses to
facilitate product sales, updated features on Yunji App, etc. According to the member agreement, all members of the Group, except for those
joined the Group’s membership program without paying upfront membership fee, are eligible to attend the training courses provided by these third
party vendors. In case when the Group should make prepayments for the training costs to these third party vendors, the prepaid amounts are
amortized over relevant period of the training courses provided by the third party vendors. For the years ended December 31, 2018, 2019 and
2020, member training costs were RMB 423,586, RMB 356,283 and RMB 37,147, presented in Cost of revenues in the Consolidation Statements
of Comprehensive Loss.
(2) Receivables from third-party payment settlement platform represent cash due from the third party on-line payment service providers in relation to
their processing of payments to the Group.
(3) Deposits mainly represent the customs deposits held in customs bank accounts, which were RMB 65,000 and RMB 38,000 as of December 31,
(4)
(5)
2019 and 2020, respectively.
Short-term loan receivables represent the principal and interest to be collected on three loans provided by the Group to a customer. As of
December 31, 2020, the loans include one principal amount of US$ 10.3 million (equivalent to RMB 67,206), one principal amount of US$
4.7 million (equivalent to RMB 30,667) and the other with principal amount of US$ 5.0 million (equivalent to RMB 32,625). As of December 31,
2019, the loans include one principal amount of US$ 10.3 million, which was renewed in 2020, and include the other with principal amount of
RMB 50,000. The terms of loans are of one-year term and with fixed annual interest at approximately 4% within the market rate range, and mature
within one year. The loans are pledged by gold bullion with value no less than the loan principal provided to this customer, and the loan
arrangements were entered into separately from regular sales business with this customer.
Share transfer consideration receivable represents the consideration to be collected for transferring of a third party company’s ADSs. In November
2019, the Group subscribed 820,000 ADSs of a third party company with a total consideration of US$ 13.94 million upon its initial public offering
in NASDAQ. According to a shares transfer agreement that the Group entered into, the Group sold and transferred all these ADSs to another third
party with a fixed consideration of US$ 13.99 million (equivalent to RMB 97.67 million) in December 2019 and the gain of US$50 was recorded
in Financial income, net. The Group received the consideration in January 2020.
F-41
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YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
6. PREPAID EXPENSES AND OTHER CURRENT ASSETS, NET (CONTINUED)
(6)
In the fourth quarter of 2020, the Group disposed a subsidiary, Wuhan Yunteng Logistics Co., Ltd. (“Wuhan Yunteng”), to a third party for a total
cash consideration of RMB 26,676, with a loss of RMB 1.0 million recorded in other non-operating income/(loss) (Note 19).
7. INVENTORIES, NET
Merchandise and packing materials
Less: inventory write-downs
Inventories, net
8. PROPERTY, EQUIPMENT AND SOFTWARE, NET
Property, equipment and software, net, consist of the following:
Leasehold improvement
Electronic equipment
Furniture
Software
Vehicles
Construction in progress
Subtotal
Less: accumulated depreciation
Property, equipment and software, net
As of December 31,
2020
2019
RMB
RMB
428,763 145,773
(441) (10,528)
428,322 135,245
As of December 31,
2020
2019
RMB
RMB
29,421 32,417
25,990 21,932
10,117 6,669
2,441 4,336
1,101 1,101
874
3,144
72,214 67,329
(26,870) (41,319)
45,344 26,010
Depreciation expenses were RMB 9,306, RMB 18,021 and RMB 21,054 for the years ended December 31, 2018, 2019 and 2020, respectively. No
impairment charges were recorded for the years ended December 31, 2018, 2019 and 2020.
As of December 31, 2019 and 2020, the balances of construction in progress were RMB 3,144 and RMB 874 which were primarily relating to the
leasehold improvements of office buildings.
F-42
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YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
9. LONG-TERM INVESTMENTS
The Group’s long-term investments consist of the following:
Equity method investments
Equity securities accounted for under alternative measurement
Equity securities with readily determinable fair values
Long-term investments
As of December 31,
2020
2019
RMB
RMB
36,588 58,479
5,900
158,072 94,552
198,860 158,931
4,200
Major investments made by the Company during the years ended December 31, 2018, 2019 and 2020 are summarized as follows:
Investments accounted for using equity method
The investments accounted for using equity method represent the Group’s equity investment over which the Group is able to exercise significant
influence in the form of ordinary shares of the investee. The investments accounted for under equity methods are individually immaterial for the periods
presented.
The carry amount and unrealized securities holding gain/ (loss) for the investments under equity method as of December 31, 2020 was as follows,
Total value booked under equity method as of December 31,
2018
Addition
Dividends received
Share of cumulative loss for the year ended December 31, 2019
Total value booked under equity method as of December 31,
2019
Addition
Dividends received
Disposal of long-term investments
Share of cumulative loss for the year ended December 31, 2020
Total value booked under equity method as of December 31,
2020
Equity method investments
16,799
23,200
(190)
(3,221)
36,588
28,883
(204)
(2,954)
(3,834)
58,479
Equity securities accounted for under alternative measurement
The investments accounted for under alternative measurement represent the Group’s equity investment over which the Group is not able to exercise
significant influence in the form of ordinary shares of the investee. The equity investments accounted for under alternative measurement are individually
immaterial for the periods presented.
F-43
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YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
9. LONG-TERM INVESTMENTS (CONTINUED)
Equity securities with readily determinable fair values
Investment in GXG
In May 2019, the Group purchased 22,740,000 ordinary shares of a Hong Kong listed Company - GXG (1817. HK) - with a total consideration of US$
13 million, and recorded its investment in GXG with initial cost of US$ 13 million (equivalent to approximately RMB 89,517). As of December 31,
2019 and 2020, based on the market price, the Group re-measured the investment at a fair value of RMB 158,072 and RMB 94,552, respectively, and
recorded the unrealized changes in fair value with a gain of RMB 68,555 and a loss of RMB 56,383 in Financial income/(expense), net in the
Consolidation Statements of Comprehensive Loss for years ended December 31, 2019 and 2020, respectively. This investment is classified as equity
securities with readily determinable fair values.
10. OTHER NON-CURRENT ASSESTS
Other non-current assets consist of the following:
Long-term loan receivable (1)
Prepayment of an office building (2)
Others
Less: allowance for doubtful accounts
As of December 31,
2019
2020
RMB
RMB
50,278 53,612
— 78,000
6,003 18,695
(1,514)
56,281 148,793
(1)
(2)
Long-term loan receivable represents the principal and interest to be collected of a loan provided by the Group to a third party. The loan was of
principal amount of RMB 50,000, three-year term starting from December 2019, and with a lump sum interest rate of 20% at maturity.
The Group purchased an office building from a third party and paid the full amount in advance with consideration of USD$11.25 million
(equivalent RMB 78,000). This office building is expected to be used by the Group to relocate its customer service center in the future.
F-44
Table of Contents
11. ACCOUNTS PAYABLE
YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
Merchandise purchase payables
Warehouse and logistic fees payables
Payable to merchants (1)
As of December 31,
2020
2019
RMB
RMB
548,427 292,515
48,327
7,512
145,205 201,522
741,959 501,549
(1)
Payable to merchants represents the unpaid balances to the merchants of cash collected by the Group on behalf of the merchants for products sold
on Yunji App when the Group is viewed as the agent in the sales arrangement.
12. DEFERRED REVENUE
Deferred merchandise revenue
Deferred membership program revenue
Deferred marketplace revenue
Deferred other revenue
As of December 31,
2020
2019
RMB RMB
129,224 40,645
42,438 —
9,800 9,113
366 1,193
181,828 50,951
The revenue recognized in the years ended December 31, 2018, 2019 and 2020 that was included in deferred revenue as of the beginning of each
respective period were RMB 323,551, RMB 546,975 and RMB 181,828, respectively.
F-45
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YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
13. INCENTIVE PAYABLES TO MEMBERS
Accruals of Yunbi granted under member incentive program
Discounts and referral incentive payable (1)
Total incentive payables to members
As of December 31,
2020
2019
RMB
RMB
251 —
384,235 312,170
384,486 312,170
(1) Discounts and referral incentive payable represents unpaid balances of discounts granted to members for their self-purchase and referral incentives
earned by the members for their referral efforts and is transferred to the members’ individual Yunji App accounts. These unpaid balances are
maintained collectively in the members’ Yunji App accounts and can be withdraw as cash upon the members’ requests.
14. REFUND PAYABLE TO MEMBERS
Refund payable to members
2019
As of December 31,
2020
RMB RMB
26,883 4,398
Refund payable to members represents the estimated referral incentives expected to be refunded to referring members from the upfront membership fees
paid and the merchandise purchases for their own accounts (Note 2.17). The movement of refund payable to members during the periods presented are
as follows:
Balance as of December 31, 2017
Estimated referral incentives to be refunded
Referral incentives earned (1)
Balance as of December 31, 2018
Balance as of December 31, 2018
Estimated referral incentives to be refunded
Referral incentives earned (1)
Change in estimate (2)
Balance as of December 31, 2019
Balance as of December 31, 2019
Estimated referral incentives to be refunded
Referral incentives earned (1)
Change in estimate (2)
Balance as of December 31, 2020
Refund payable to members
147,943
626,853
(378,772)
396,024
396,024
132,989
(122,760)
(379,370)
26,883
26,883
8,021
(6,985)
(23,521)
4,398
(1) Once the referral incentives are earned by the referring members, the amounts are transferred to the members’ individual Yunji App accounts and
recorded as Incentive payables to members (Note 13).
F-46
Table of Contents
YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
14. REFUND PAYABLE TO MEMBERS (CONTINUED)
(2)
The estimation of refund payable to members is based upon the historical data of referral incentives earned by referring members within their
active life cycle. The balance of the payable was RMB 26,883 and RMB 4,398 as of December 31, 2019 and 2020, respectively, and reflected the
Company’s member’s referral behavior in light of its ongoing refinement of its membership enrollment system.
In June 2019, the Company, at its discretion, launched a series of promotion activities which allowed non-member users to join the Group’s
membership program without having to purchase membership packages. The non-paid membership is available to new members as long as they
meet a certain cumulative spending threshold, or certain other requirements, within a given period of time. These promotion activities enlarged the
Group’s member base in 2019 by attracting more non-member users to become members. It further encouraged an increasing percentage of
members to purchase more merchandise to meet the cumulative spending threshold and enjoy the member exclusive discounts under the
membership program. Upon the successful launch of these promotion activities, the amount of revenue earned from referring members, and the
commissions paid to them, decreased since late of the second quarter of 2019. Starting from January 2020, the Company launched free
membership program (Note 2.16) and the refund payable further decreased. Based on these new patterns of activity, and the continuing expansion
of the promotion activities, the Company recognized a change in estimate to reduce the Refund Payable to Members by RMB 379,370 and RMB
23,521 during 2019 and 2020, respectively. The adjustment was recorded as an increase in revenue, reflecting the original establishment of the
refund payable as a reduction in revenue (as a form of variable revenue consideration). The balance of the refund payable as of December 31,
2019 and 2020 reflected the Company’s best estimate of its liability based on historical patterns of earnings and redemptions, after the introduction
of the aforementioned promotion activities.
F-47
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YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
15. MEMBER MANAGEMENT FEES PAYABLE
Member management fees payable
2019
As of December 31,
2020
RMB RMB
78,355 45,841
The Group engages third party vendors to provide management service in the member’s community, including organizing product launch events,
collecting members or Yunji App users’ feedbacks, etc. Member management fees payable represents the Group’s unpaid balance of such service fees to
the third party vendors. For the years ended December 31, 2018, 2019 and 2020, member management fees were RMB 834,576, RMB 876,769 and
RMB 418,194, presented in Sales and marketing expenses in the Consolidation Statements of Comprehensive Loss.
16. OPERATING LEASE
The Company has operating leases primarily for office and operation space. The Company’s operating lease arrangements have remaining terms of one
year to five years with no variable lease costs.
Operating lease costs were RMB 19,135 and 15,732 for the years ended December 31, 2019 and 2020.
Supplemental cash flow information related to leases were as follows:
Cash paid for amounts included in the measurement of lease
liabilities
Right-of-use assets obtained in exchange for operating lease
liabilities
Year Ended
December 31, 2019
RMB
Year Ended
December 31, 2020
RMB
17,528
46,551
14,686
—
Supplemental consolidated balance sheet information related to leases were as follows:
Right-of-use assets
Operating lease liabilities - current
Operating lease liabilities – non-current
Total lease liabilities
Weighted average remaining lease term
Weighted average discount rate
F-48
As of December 31,
2019
RMB
43,043
17,559
27,734
45,293
2020
RMB
11,324
6,988
8,309
15,297
3
4.75%
1.7
4.75%
Table of Contents
YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
16. OPERATING LEASE (CONTINUED)
Maturities of lease liabilities are as follows:
2021
2022
2023
2024
2025
Total operating lease payments
Less: imputed interest
Total
As of December 31, 2020
RMB
7,316
5,392
3,454
61
—
16,223
(926)
15,297
For the years ended December 31, 2018, the Company recognized lease expense of RMB 17,522 respectively, under ASC 840.
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YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
17. OTHER PAYABLE AND ACCRUED LIABILITIES
Supplier deposits (1)
Merchants deposits (2)
Rental fee payables
IT related service fees
Accrued professional fees
Salaries and welfare payable
Taxes payable
Accrued marketing and other operational expenses
Others
As of December 31,
2020
2019
RMB
RMB
86,132 86,759
80,643 68,903
720
438
2,913
22,937
9,106
8,179
94,973 60,737
40,498 19,044
13,963 21,576
1,348 10,828
349,111 280,586
(1)
(2)
The deposit obtained from the suppliers is to ensure inventory level ready for the Group to purchase and good product quality under the Group’s
sales of merchandise business model.
The deposit obtained from the merchants is to ensure implementation of Yunji App’s platform policy and good product quality to be sold by the
merchants on Yunji App under the Group’s marketplace business model. The deposit can be withdrawn immediately after the merchants terminate
its online shop on Yunji App.
18. OTHER OPERATING INCOME
VAT-in super deduction (1)
Government grants (2)
Others
Year Ended
December 31,
2018
RMB
Year Ended
December 31,
2019
RMB
Year Ended
December 31,
2020
RMB
—
7,048
—
7,048
25,047
43,599
—
68,646
4,830
25,172
3,216
33,218
(1)
From 2019, in accordance with “the Announcement on Relevant Policies for Deepening the Value-added Tax Reform” and relevant government
policies announced by the Ministry of Finance, the State Taxation Administration and the General Administration of Customs of China, one China
VIE of the Company, as a consumer service company, is allowed to enjoy additional 10% VAT-in deduction for any services or products it
purchased (“VAT-in super deduction”) from April 1, 2019 to December 31, 2021. The VAT-in super deduction obtained is considered as operating
given that all VAT-in were derived from the purchases for that VIE’s daily operations in nature, and therefore is presented in Other operating
income in the Consolidation Statements of Comprehensive Loss.
(2) Government grants mainly represent cash subsidies received from PRC local governments for companies operating a business in their jurisdictions
and compliance with specific policies promoted by the local governments. Starting from January 2020, the Company presents government grants
as Other operating income. The relevant item in the prior years of RMB 7,048 and RMB 43,599 for the years ended December 31, 2018 and 2019
are also classified from Other non-operating income/(loss), net, to be in conformity with the current period presentation in the Consolidated
Statements of Comprehensive Loss. These cash subsidies were not subject to meeting any specific future conditions.
F-50
Table of Contents
YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
19. OTHER NON-OPERATING INCOME/(LOSS), NET
Loss on disposal of long-term investments and a subsidiary
Others
20. FINANCIAL INCOME/(EXPENSE), NET
Interest income
Interest expense
Gains/(loss) from fair value change of equity securities with readily
determinable fair value (1)
Bank charges
Others
Year Ended
December 31,
2018
RMB
—
—
—
Year Ended
December 31,
2019
RMB
—
8,497
8,497
Year Ended
December 31,
2020
RMB
1,610
—
1,610
Year Ended
December 31,
2018
RMB
Year Ended
December 31,
2019
RMB
Year Ended
December 31,
2020
RMB
46,919
—
—
(851)
—
46,068
52,889
—
68,555
(444)
370
121,370
46,667
(6,383)
(53,683)
(709)
5,537
(8,571)
(1) Gain from fair value change of equity securities with readily determinable fair value represents the unrealized changes of fair value of investment
in GXG (Note 9).
F-51
Table of Contents
YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
21. TAXATION
(a) Value added tax (“VAT”) and surcharges
The Group is subject to statutory VAT rate of 11% prior to May 1, 2018, 10% between May 1, 2018 and April 1, 2019, and 9% since April 1, 2019 for
revenues from sales of agricultural products, and 17% prior to May 1, 2018 and 16% between May 1, 2018 and April 1, 2019, and 13% since April 1,
2019 for sales of other products, respectively, in the PRC. The Group is exempted from VAT for revenues from sales of vegetables and contraceptives.
The Group is subject to VAT at the rate of 11% prior to May 1, 2018, 10% between May 1, 2018 and April 1, 2019, and 9% since April 1, 2019 for the
logistics services.
(b) Income tax
Cayman Islands
Under the current laws of the Cayman Islands, the Company and its subsidiaries incorporated in the Cayman Islands are not subject to tax on income or
capital gain. Additionally, the Cayman Islands does not impose a withholding tax on payments of dividends to shareholders.
Hong Kong
Under the current Hong Kong Inland Revenue Ordinance, the Group’s subsidiaries in Hong Kong are subject to 16.5% Hong Kong profit tax on its
taxable income generated from operations in Hong Kong. Additionally, payments of dividends by the subsidiaries incorporated in Hong Kong to the
Company are not subject to any Hong Kong withholding tax.
F-52
Table of Contents
YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
21. TAXATION (CONTINUED)
China
On March 16, 2007, the National People’s Congress of PRC enacted a new Enterprise Income Tax Law (“new EIT law”), under which Foreign
Investment Enterprises (“FIEs”) and domestic companies would be subject to enterprise income tax at a uniform rate of 25%. The new EIT law became
effective on January 1, 2008. In accordance with the implementation rules of EIT Law, a qualified “High and New Technology Enterprise” (“HNTE”) is
eligible for a preferential tax rate of 15%. The HNTE certificate is effective for a period of three years. An entity could re-apply for the HNTE certificate
when the prior certificate expires.
Zhejiang Jishang Preferred E-Commerce Co., Ltd. (“Jishang Preferred”) obtained its HNTE certificate on November 30, 2018 and was eligible to enjoy
a preferential tax rate of 15% from 2018 to 2020 to the extent it has taxable income under the EIT Law, as long as it maintains the HNTE qualification
and duly conducts relevant EIT filing procedures with the relevant tax authority. From July 2019, Jishang Preferred started to function as a Procurement
company within the Group and is not able to continue its status as an HNTE to enjoy a preferential tax rate of 15% since 2019.
The Group’s other PRC subsidiaries, VIEs and VIEs’ subsidiaries are subject to the statutory income tax rate of 25%.
According to relevant laws and regulations promulgated by the State Administration of Tax of the PRC effective from 2008 onwards, enterprises
engaging in research and development activities are entitled to claim 150% of their qualified research and development expenses so incurred as tax
deductible expenses when determining their assessable profits for the year (‘Super Deduction’). The additional deduction of 50% of qualified research
and development expenses can only be claimed directly in the annual EIT filing and subject to the approval from the relevant tax authorities. Effective
from 2018 onwards, enterprises engaging in research and development activities are entitled to claim 175% of their qualified research and development
expenses so incurred as tax deductible expenses. The additional deduction of 75% of qualified research and development expenses can be directly
claimed in the annual EIT filing.
Withholding tax on undistributed dividends
The new EIT Law also provides that an enterprise established under the laws of a foreign country or region but whose “actual management body” is
located in 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
global income. The Implementing Rules of the EIT Law merely define the location of the “actual management body” as “the place where the exercising,
in substance, of the overall management and control of the production and business operation, personnel, accounting, property, etc., of a non-PRC
company is located.” Based on a review of surrounding facts and circumstances, the Group does not believe that it is likely that its operations outside of
the PRC should be considered a resident enterprise for PRC tax purposes. However, due to limited guidance and implementation history of the EIT Law,
there is uncertainty as to the application of the EIT Law. Should the Company be treated as a resident enterprise for PRC tax purposes, the Company
will be subject to PRC income tax on worldwide income at a uniform tax rate of 25%.
F-53
Table of Contents
YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
21. TAXATION (CONTINUED)
Withholding tax on undistributed dividends (continued)
The new EIT law also imposes a withholding income tax of 10% on dividends distributed by an FIE to its immediate holding company outside of China,
if such immediate holding company is considered as a non-resident enterprise without any establishment or place within China or if the received
dividends have no connection with the establishment or place of such immediate holding company within China, unless such immediate holding
company’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. According to the arrangement
between Mainland China and Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion in
August 2006, dividends paid by an FIE in China to its immediate holding company in Hong Kong will be subject to withholding tax at a rate of no more
than 5% if the foreign investor owns directly at least 25% of the shares of the FIE and if Hong Kong company is a beneficial owner of the dividend. The
State Taxation Administration (“SAT”) further promulgated SAT Public Notice [2018] No.9 regarding the assessment criteria on beneficial owner status.
As of December 31, 2019 and 2020, the Group does not have any plan to require its PRC subsidiaries to distribute their retained earnings and intends to
retain them to operate and expand its business in the PRC. Accordingly, no deferred income tax liabilities on withholding tax were provided as of
December 31, 2019 and 2020.
Composition of income tax
The components of loss before tax are as follow:
Loss before tax
Loss from PRC entities
Income/(loss) from overseas entities
Total loss before tax
Current income tax expense
Deferred income tax (benefit)/expense
Year Ended
December 31,
2018
RMB
Year Ended
December 31,
2019
RMB
Year Ended
December 31,
2020
RMB
(61,767)
14,795
(46,972)
(204,937)
67,604
(137,333)
(5,399)
(103,161)
(108,560)
Year Ended
December 31,
2018
RMB
Year Ended
December 31,
2019
RMB
25,413
(13,067)
12,346
13,300
(30,020)
(16,720)
Year Ended
December 31,
2020
RMB
10,458
28,840
39,298
F-54
Table of Contents
YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
21. TAXATION (CONTINUED)
Reconciliation of the differences between statutory tax rate and the effective tax rate
Reconciliation of the differences between the statutory EIT rate applicable to losses of the consolidated entities and the income tax expenses of the
Group:
PRC Statutory income tax rate
Effect on tax rates in different tax jurisdiction
The effect of change in the tax rate of Jishang Preferred
Difference in EIT rates of PRC entities
Non-deductible expenses
Additional deduction for research and development
expenditures
Share-based compensation
Non-taxable income
Permanent book-tax differences
Change in valuation allowance
Effective tax rates
Year Ended
December 31,
2018
Year Ended
December 31,
2019
Year Ended
December 31,
2020
25%
3%
-76%
9%
-4%
25%
-17%
7%
0%
2%
-26%
25%
8%
26%
0%
-2%
16%
-23%
0%
2%
-40%
12%
25%
-9%
0%
0%
-1%
48%
-23%
0%
7%
-83%
-36%
(c) Deferred tax assets and deferred tax liabilities
The following table sets forth the significant components of the deferred tax assets:
Deferred tax assets
Net accumulated losses-carry forward
Deferred membership program revenue
Refund payable to members
Inventory write-downs
Allowance for credit losses
Others
Less: valuation allowance
Total deferred tax assets
F-55
As of December 31,
2019
RMB
2020
RMB
150,990
10,610
6,721
110
—
6,961
(65,225)
110,167
205,487
—
1,100
2,632
3,272
4,101
(156,150)
60,442
Table of Contents
YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
21. TAXATION (CONTINUED)
(c) Deferred tax assets and deferred tax liabilities (continued)
Deferred tax liabilities
Prepaid member training costs
Gain or loss from changes in fair values
Others
Total deferred tax liabilities
Movement of valuation allowance
Balance at beginning of the year
Changes of valuation allowance(1)
Balance at end of the year
As of December 31,
2020
RMB RMB
2019
9,288 —
11,312 2,684
3,104 135
23,704 2,819
Year Ended
December 31,
2018
RMB
(11,153)
1,149
(10,004)
Year Ended
December 31,
2019
RMB
(10,004)
(55,221)
(65,225)
Year Ended
December 31,
2020
RMB
(65,225)
(90,925)
(156,150)
(1) Valuation allowances have been provided against deferred tax assets when the Group determines that it is more likely than not that the deferred tax
assets will not be utilized in the future. In making such determination, the Group evaluates a variety of factors including the Group’s entities’
operating history, accumulated deficit, existence of taxable temporary differences and reversal periods. As of December 31, 2019 and 2020,
valuation allowances on a large part of deferred tax assets were provided because it was more likely than not that the Group will not be able to
utilize tax loss carry forwards generated by certain unprofitable subsidiaries. As of December 31, 2019 and 2020, valuation allowances of RMB
55,221 and RMB 90,925 were provided against deferred tax assets because it was more likely than not that such portion of deferred tax will not be
realized based on the Company’s estimate of future taxable incomes of all its subsidiaries.
As of December 31, 2020, net operating loss carry forwards from PRC entities will expire as follows:
At December 31,
2021
2022
2023
2024
2025
RMB
41
11,832
484
356,494
258,501
627,352
As of December 31, 2020, the Group had tax losses carry forwards of approximately RMB 627,352 which mainly arose from its subsidiaries,
consolidated VIEs and VIEs’ subsidiaries established in the PRC. The tax losses carry forwards from PRC entities will expire during the period from
2021 to 2025.
F-56
Table of Contents
22. ORDINARY SHARES
YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
In November 2017, the Company was incorporated as limited liability company with authorized share capital of US$50 divided into 500,000,000 shares
with par value US$0.0001 each. As of December 31, 2017, 1 ordinary share was issued and outstanding.
In January 2018, the shares were subdivided into 10,000,000,000 shares with par value US$0.000005 each. 1 ordinary share was subdivided into 20
ordinary shares (the “Share Split”) and was therefore after issued and outstanding.
As of December 31, 2019 and 2020, 20,000,000,000 ordinary shares had been authorized and a total of 2,158,791,222 ordinary shares, consists of
1,208,831,222 Class A ordinary shares and 949,960,000 Class B ordinary shares, had been issued. A total of 2,133,265,412 ordinary shares, consists of
1,183,305,412 Class A ordinary shares and 949,960,000 Class B ordinary shares, had been outstanding as of December 31, 2020. A total of
2,129,405,572 ordinary shares, consists of 1,179,445,572 Class A ordinary shares and 949,960,000 Class B ordinary shares, had been outstanding as of
December 31, 2019.
Immediately prior to the completion of the IPO, all classes of preferred shares of the Company were converted and re-designated as 895,216,752
Class A ordinary shares on a one-for-one basis. 201,440,000 ordinary shares of the Company were re-designated as Class A ordinary share and
949,960,000 ordinary shares were re-designated as Class B ordinary shares with super voting power (one share with ten votes). Mr. Xiao Shanglue,
founder, chairman and chief executive officer of the Company, will be deemed to beneficially own all of the issued Class B ordinary shares.
On May 3, 2019, the Company completed its IPO on NASDAQ Global Select Market. The Company offered 110,000,000 Class A ordinary shares
which represented 11,000,000 ADSs.
Subsequently on June 4, 2019, over-allotment option were electedly exercised and the Company issued additional 2,174,470 shares of Class A Ordinary
Shares issued at a price of US$1.10 per share.
On August 28, 2019, the Company was authorized by the Board of Directors to, from time to time, acquire up to an aggregate of US$20 million of its
shares in the form of ADSs and/or the ordinary shares of the Company over the next six months in the open market and through privately negotiated
transactions, in block trades and/or through other legally permissible means, depending on market conditions and in accordance with applicable rules
and regulations. As of December 31, 2020, the Company cumulatively repurchased 40,076,270 Class A ordinary shares at price of US$0.40 to $0.70.
23. CONVERTIBLE REDEEMABLE PREFERRED SHARES
In July 2015, pursuant to an investment agreement, the Company issued 373,000,000 Series Seed Preferred Shares with total cash of RMB50,000, and
incurred issuance cost of RMB1,000.
In November 2016 and January 2017, pursuant to an investment agreement, the Company issued 272,600,000 Series A Preferred Shares with total
consideration of RMB33,160 and US$20,000 (RMB 138,532 equivalent) as well as the full exercise of the Series Seed Warrant at fair value of RMB644
and the full exercise of Series A Warrant at fair value of RMB1,754. Total issuance cost in the amount of RMB8,095 was incurred for the Former Series
A Capital Contribution, including a finder’s commission of RMB 6,509.
Furthermore, the Company issued 116,600,000 Series A Preferred Shares with the subscription price at US$0.000005 per share to two of the
institutional investors of the Initial Ordinary Shareholders, which was accounted for as a modification/extinguishment to Series A Preferred Shares from
the Initial Ordinary Shareholders’ contributions.
F-57
Table of Contents
YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
23. CONVERTIBLE REDEEMABLE PREFERRED SHARES (CONTINUED)
In February 2018, pursuant to a share purchase agreement, the Company issued 110,803,324 shares of Series B Preferred Shares for cash of
US$100,000(RMB 630,010 equivalent). Total issuance cost in the amount of RMB14,062 was incurred for the Series B Preferred Shares, including a
finder’s commission of US$2,000 (RMB12,600 equivalent). The Company paid 50% of the commission in cash amounted US$1,000 and the remaining
50% by issuance of 1,108,033 shares of Series B Preferred Shares for no consideration to the finder, a financial advisor in June 2018. The total of the
finder’s commission was also recorded as an issuance cost as a deduction of the preferred shares.
In June and November 2018, pursuant to a share purchase agreement, the Company issued 21,105,395 shares of Series B+ Preferred Shares for cash of
US$20,000 (RMB 128,416 equivalent) with issuance cost in the amount of RMB5,867.
The Series Seed, Series A, Series B and Series B+ Preferred Shares are collectively referred to as the “Preferred Shares”. All series of Preferred Shares
have the same par value of US0.000005 per share.
All of Preferred Shares were converted into Class A ordinary shares immediately upon the completion of the Company’s initial public offerings on
May 3, 2019 (Note 22). Prior to their conversion, Preferred Shares were entitled to certain preference with respect to conversion, redemption, dividends
and liquidation.
24. SHARE-BASED COMPENSATION
On December 19, 2017, the Company adopted the 2017 Share Incentive Plan (“the 2017 Plan”), which allows the compensation committee to grant
options and restricted share units (“RSU”) of the Company to its directors, employees, and etc. (collectively, the “Grantees”) to acquire ordinary shares
of the Company at an exercise price as determined by the Compensation Committee at the time of grant. The 2017 Plan was amended and restated in its
entirety in March 2019 and referred to as the 2019 Plan. The awards granted and outstanding under the 2017 Plan survive the termination of the 2017
Plan and remain effective and binding under the 2019 Plan. According to the 2019 Plan, 227,401,861 ordinary shares were authorized and reserved for
the issuance.
Since adoption of the 2017 Plan, the Company granted options and RSUs to employees. All options and RSUs granted have a contractual term of six
years from the grant date, and the vest over a period of four years of continuous service, half (1/2) of which vest upon the second anniversary of the
stated vesting commencement date and one-fourth (1/4) of the remaining will vest upon the third and fourth anniversaries of the stated vesting
commencement date. Under the option plan, options are exercisable subject to the grantee’s continuous service.
The Company accounted for the share-based compensation costs on a straight-line bases over the requisite service period for the award based on the fair
value on their respectively grant date.
On December 19, 2017, June 30, 2018, November 28, 2018, and January 31, 2019 the Company granted 73,225,200, 12,021,500, 5,540,000 and
4,968,000 stock options to its directors and employees, respectively. In addition, on December 19, 2017, November 28, 2018 and January 31, 2019, the
Company granted 5,000,000, 19,800,000 and 14,925,000 RSUs to its directors and employees, respectively. On May 3, 2019, the Company granted
720,000 stock options to its two independent directors. In addition, on May 3, 2019, the Company was authorized by its Board of Directors to grant
stock options and RSUs to non-employees under the 2019 Plan, and granted total 10,409,050 stock options and 3,332,040 RSUs to non-employees by
batches during the year ended December 31, 2019.
On January 1 2020, the Company granted 356,210 and 49,964,000 RSUs to its two external consultants and employees, respectively. In addition, on
July 1, 2020, the Company granted 13,890,000 RSUs to its directors and employees.
F-58
Table of Contents
YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
24. SHARE-BASED COMPENSATION (CONTINUED)
(a) Options
The following table sets forth the stock options activity for the years ended December 31, 2018, 2019 and 2020:
Outstanding as of December 31, 2018
Granted
Forfeited
Exercised
Outstanding as of December 31, 2019
Granted
Forfeited
Exercised
Expired
Outstanding as of December 31, 2020
Vested and expected to vest as of December 31, 2020
Exercisable as of December 31, 2020
Number of
shares
87,112,400
16,097,050
(7,954,980)
(1,407,920)
93,846,550
—
(16,014,140)
(9,151,290)
(115,200)
68,565,920
68,565,920
53,535,110
Weighted-
average
exercise price
US$
0.12
0.61
0.31
0.09
0.19
—
0.11
0.10
0.14
0.22
—
Weighted
average
remaining
contractual term
5.09
Aggregate
intrinsic
value
000’US$
60,399
3.77
30,442
2.65
2,826
—
—
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the estimated fair value of the
underlying stock at each reporting date (December 31, 2019: US$0.46, December 31, 2020: US$ 0.19).
The Group uses the Binominal option pricing model to estimate the fair value of stock options. The assumptions used to value the Company’s options
grants were as follow:
Exercise price (US$)
Exercise multiple
Risk-free interest rate
Expected term (in years)
Expected dividend yield
Expected volatility
Expected forfeiture rate (post-vesting)
Fair value of the underlying shares on the date of options grants (US$)
Fair value of share option (US$)
F-59
2019
0.1~0.7
2.2~2.8
1.68%~2.47%
6
—
39.91%~41.29%
0%/5%
0.46~1.42
0.11~1.32
2020
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Table of Contents
YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
24. SHARE-BASED COMPENSATION (CONTINUED)
(a) Options (continued)
Risk-free interest rate is estimated based on the yield curve of US Sovereign Bond as of the option valuation date. The expected volatility at the grant
date and each option valuation date is estimated based on annualized standard deviation of daily stock price return of comparable companies with a time
horizon close to the expected expiry of the term of the options. The Company has never declared or paid any cash dividends on its capital stock, and the
Group does not anticipate any dividend payments in the foreseeable future. Expected term is the contract life of the options.
Share-based compensation expense is recorded on a straight-line basis over the requisite service period, which is generally four years from the date of
grant. The Company recognized share-based compensation expenses of RMB48,298, RMB66, 190 and RMB52,870 for share options granted under the
2017 Plan and the 2019 Plan in the Consolidated Statements of Comprehensive Loss for the years ended 2018, 2019 and 2020, respectively.
As of December 31, 2019 and 2020, there was RMB137,487 and RMB40,192, respectively, in total unrecognized compensation expense, related to
unvested share options, which is expected to be recognized over a weighted average period of 1.97 and 0.8 years, respectively. The unrecognized
compensation expense may be adjusted for future changes in actual forfeitures.
(b) Restricted share units
A summary of activities of the service-based RSUs for the years ended December 31, 2018, 2019 and 2020 is presented below:
Unvested at December 31, 2018
Granted
Vested
Forfeited
Unvested at December 31, 2019
Granted
Vested
Forfeited
Expired
Unvested at December 31, 2020
Number of
RSUs
24,800,000
18,257,040
(3,036,290)
(3,185,900)
36,834,850
64,210,210
(954,960)
(51,629,000)
(500,000)
47,961,100
Weighted-Average
Grant-Date Fair Value
US$
0.74
0.68
0.76
0.43
0.63
The fair value of each restricted share units granted with service conditions is estimated based on the fair market value of the underlying ordinary shares
of the Company on the date of grant.
As of December 31, 2019 and 2020 3,036,290 RSUs and 954,960 RSUs were vested.
For the years ended December 31, 2018, 2019 and 2020, total share-based compensation expenses recognized by the Group for the RSUs granted were
RMB6,002, RMB62,007 and RMB45,508, respectively.
F-60
Table of Contents
YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
24. SHARE-BASED COMPENSATION (CONTINUED)
(b) Restricted share units (continued)
As of December 31, 2019 and 2020, there was RMB138,441 and RMB112,376 in total unrecognized compensation expense, related to unvested RSUs,
which is expected to be recognized over a weighted average period of 2.60 and 2.51 years, respectively.
25. FAIR VALUE MEASUREMENTS
As of December 31, 2019 and 2020, information about inputs into the fair value measurement of the Group’s assets and liabilities that are measured or
disclosed at fair value on a recurring basis in periods subsequent to their initial recognition is as follows:
Description
Assets:
Short-term investments
Time deposits
Wealth management products
Long-term investments
Equity securities with readily
determinable fair value
Total assets
Description
Assets:
Short-term investments
Time deposits
Long-term investments
Equity securities with readily
determinable fair value
Total assets
Fair value measurement at reporting date using
Fair value
as of
December 31,
2019
RMB
Quoted Prices in Active
Markets for Identical
Assets
(Level 1)
RMB
Significant Other
Observable Inputs
(Level 2)
RMB
Significant
Unobservable
Inputs
(Level 3)
RMB
593,954
180,782
158,072
932,808
—
—
158,072
158,072
593,954
180,782
—
774,736
—
—
—
—
Fair value measurement at reporting date using
Fair value
as of
December 31,
2020
RMB
Quoted Prices in Active
Markets for Identical
Assets
(Level 1)
RMB
Significant Other
Observable Inputs
(Level 2)
RMB
Significant
Unobservable
Inputs
(Level 3)
RMB
134,146
—
134,146
94,552
228,698
94,552
94,552
—
134,146
—
—
—
When available, the Group uses quoted market prices to determine the fair value of an asset or liability. If quoted market prices are not available, the
Group will measure fair value using valuation techniques that use, when possible, current market-based or independently sourced market parameters,
such as interest rates and currency rates. Following is a description of the valuation techniques that the Group uses to measure the fair value of assets
that the Group reports in its Consolidated Balance Sheets at fair value on a recurring basis.
F-61
Table of Contents
YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
25. FAIR VALUE MEASUREMENTS (CONTINUED)
Short-term investments
Short-term investment consists of wealth management products and time deposits, which are valued by the Group on a recurring basis. The Group
values its short-term wealth management products investments held in certain banks using model-derived valuations based upon discounted cash flow,
in which significant inputs, mainly including expected return, are observable or can be derived principally from, or corroborated by, observable market
data, and accordingly, the Group classifies the valuation techniques that use these inputs as Level 2. The expected return of the financial products were
determined based on the prevailing interest rates in the market.
Long-term investments
Equity securities with readily determinable fair values are measured and recorded at fair value on a recurring basis with changes in fair value. The Group
values these equity securities at its quoted prices in stock market, and accordingly the Group classifies the valuation techniques that use these inputs as
Level 1.
F-62
Table of Contents
YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
26. NET LOSS PER SHARE
Basic and diluted net loss per share for each of the years/periods presented are calculated as follows:
Numerator:
Net loss attributable to YUNJI INC.
Accretion on convertible redeemable Preferred Shares to redemption value
Re-designation to Series A Preferred Shares from Initial Ordinary
Shareholders’ contribution, including beneficial conversion feature
Deemed dividend from convertible redeemable preferred shares holders
Net loss attributable to ordinary shareholders
Denominator:
Year Ended
December 31,
2018
RMB
Year Ended
December 31,
2019
RMB
Year Ended
December 31,
2020
RMB
(59,688)
(2,187,633)
(125,762)
(1,532,013)
(146,346)
—
(60,796)
107
(2,308,010)
—
—
(1,657,775)
—
—
(146,346)
Weighted average number of ordinary shares used in computing net loss per
share, basic and diluted
1,165,136,438 1,818,487,917 2,125,906,398
Net loss per share attributable to ordinary shareholders:
- Basic
- Diluted
(1.98)
(1.98)
(0.91)
(0.91)
(0.07)
(0.07)
Basic net loss per share is computed using the weighted average number of ordinary shares outstanding during the period. Diluted net loss per share is
computed using the weighted average number of ordinary shares and dilutive potential ordinary shares outstanding during the period.
For the years ended December 31, 2018, 2019 and 2020, assumed conversion of the Preferred Shares have not been reflected in the dilutive calculations
pursuant to ASC 260, “Earnings Per Share,” due to the anti-dilutive effect. The effects of all outstanding share options and RSUs have also been
excluded from the computation of diluted loss per share for the years ended December 31, 2018, 2019 and 2020 as their effects would be anti-dilutive.
For the years ended December 31, 2018, 2019 and 2020, the Company had potential ordinary shares, including non-vested restricted shares, option
granted and Preferred Shares respectively. As the Group incurred losses for the years ended December 31, 2018, 2019 and 2020, these potential ordinary
shares were anti-dilutive and excluded from the calculation of diluted net loss per share of the Company. The weighted-average numbers of non-vested
restricted shares, options granted and Preferred Shares excluded from the calculation of diluted net loss per share of the Company were 20,003,824,
31,314,375 and 859,677,553 as of December 31, 2018, 2,777,428, 27,628,529 and 299,223,134 as of December 31, 2019, nil, 78,973 and nil as of
December 31, 2020.
F-63
Table of Contents
YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
27. RELATED PARTY BALANCES AND TRANSACTIONS
The table below sets forth the major related parties and their relationships with the Group as of December 31, 2020:
Relationship with the Group
Founder and CEO of the Group
Controlled by Mr. Xiao Shanglue, Founder and CEO of the Group
Non-controlling interest (prior to disposal of Wuhan Yunteng in 2020)
An associate of the Group (incorporated in 2018)
An associate of the Group (incorporated in 2017)
An associate of the Group (incorporated in 2018)
An associate of the Group (incorporated in 2018)
An associate of the Group (incorporated in 2018)
An associate of the Group (incorporated in 2018)
An associate of the Group (incorporated in 2019)
An associate of the Group (incorporated in 2019)
An associate of the Group (incorporated in 2019)
An associate of the Group (incorporated in 2019)
Name of related parties
Xiao Shanglue
Small Ye Group
Wuhan Dahong enterprise management partnership(LP)
Hangzhou Jixi Internet Technology Co., Ltd.(“Jixi”)
Hangzhou Tianshi Technology Co., Ltd (“Tianshi”)
Hangzhou Zhangtaihe Health Technology Co., Ltd(“Zhangtaihe”)
Guangdong Weixin Technology Co., Ltd (“Weixin”)
Beijing Siwei Technology and Culture Co., Ltd(“Siwei”)
Hangzhou Adopt A Cow Biological Technology Co., Ltd (“Zhaomu”)
Hangzhou Bixin Biotechnology Co., Ltd.(“Bixin”)
Hunan Haomei Haomei Cosmetics Co., Ltd.(“Haomei”)
Ningbo Langfei Life Electric Co., Ltd.(“Langfei”)
Shenzhen Liumang Yike Food & Beverage Management Co., Ltd.(“Liumang
Yike”)
Guangzhou Misili Personal Care Products Co., Ltd.(“Misili”)
Shanxi Yunnong Logistic Management Co., Ltd.(“Yunnong”)
Zhejiang Zhengdao Fengju Supply Chain Management Co., Ltd.
(“Zhengdao”)
An associate of the Group (incorporated in 2020)
Hangzhou Yuncheng Brand Management Co., Ltd(“Yuncheng”)
An associate of the Group (incorporated in 2020)
Zhejiang Jimi E-commerce Co., Ltd (“Jimi”)
An associate of the Group (incorporated in 2020)
Hangzhou Huaji Brand Marketing Management Co., Ltd (“Huaji”)
An associate of the Group (incorporated in 2020)
Zhejiang Jibi Technology Co., Ltd. (“Jibi”)
An associate of the Group (incorporated in 2020)
Huzhou Boyun e-commerce Co., Ltd (“Poyun”)
An associate of the Group (incorporated in 2020)
Yunmu Dairy (Jiangsu) Co., Ltd (“Yunmu”)
Hangzhou Jiao sanitary products Co., Ltd (“Ji’Ao”)
An associate of the Group (incorporated in 2020)
Hangzhou Xingsheng Brand Marketing Management Co., Ltd.(“Xingsheng”) An associate of the Group (incorporated in 2020)
An associate of the Group (incorporated in 2020)
Hainan Yunding Supply Chain Management Co., Ltd (“Yunding”)
An associate of the Group (incorporated in 2019)
An associate of the Group (incorporated in 2019)
An associate of the Group (incorporated in 2019)
F-64
Table of Contents
YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
27. RELATED PARTY BALANCES AND TRANSACTIONS (CONTINUED)
The Group entered into agreements with aforementioned equity method classified investees as related party transactions, including purchase of
merchandise from them and marketplace services provided to them. Details of related party balances and transactions as of December 31, 2018, 2019
and 2020 are as follows:
Advance to related parties and amounts due from related parties
Advance to related parties
Weixin
Amounts due from related parties
Wuhan Dahong enterprise management partnership(LP)
Jixi
Yuncheng
Others
Total
Amounts due to related parties
Zhaomu
Bixin
Jimi
Zhengdao
Jixi
Haomei
Small Ye Group
Huaji
Tianshi
Zhangtaihe
Yunnong
Jibi
Xingsheng
Poyun
Others
F-65
As of December 31,
2020
2019
RMB
RMB
5,799
3,682
20
1,011
—
—
1,031
6,830
—
3,012
971
176
4,159
7,841
As of
December 31,
2019
2020
RMB RMB
4,888 4,180
303 3,423
— 2,542
5,997 2,227
— 1,828
455 1,703
967
658
889
—
840
179
641
359
605
4,681
466
—
343
—
309
—
776 2,026
18,296 22,989
Table of Contents
YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
27. RELATED PARTY BALANCES AND TRANSACTIONS (CONTINUED)
The terms of the agreements the Group entered into with the related parties are comparable to the terms in arm’s-length transactions with third-party
customers and vendors.
Transactions with related parties
Payment on behalf of the related parties
Xiao Shanglue
Purchase of merchandise
Zhaomu
Bixin
Zhengdao
Yunnong
Tianshi
Haomei
Weixin
Siwei
Yunmu
Misili
Huaji
Yuncheng
Ji’Ao
Yunding
Langfei
Xingsheng
Zhangtaihe
Small Ye Group
Others
Year Ended
December 31,
2018
RMB
Year Ended
December 31,
2019
RMB
Year Ended
December 31,
2020
RMB
588
588
—
—
—
—
469
—
—
—
39,776
—
36,958
307
—
—
—
—
—
—
—
—
32,110
—
—
109,620
103,269
69,311
31,418
8,006
25,295
13,443
79,309
5,626
—
8,230
—
—
—
—
3,507
—
16,400
3,097
431
367,342
53,790
31,825
28,372
21,453
17,021
16,404
9,214
7,710
4,543
3,315
2,573
2,239
1,712
1,652
1,117
600
482
307
946
205,275
F-66
Table of Contents
YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
27. RELATED PARTY BALANCES AND TRANSACTIONS (CONTINUED)
Transactions with related parties (continued)
Marketplace service provided to related parties
Yuncheng
Bixin
Jimi
Zhangtaihe
Jixi
Jibi
Liumang Yike
Others
Other goods and services provided to related parties
Yuncheng
Zhaomu
Weixin
Bixin
Others
Year Ended
December 31,
2018
RMB
Year Ended
December 31,
2019
RMB
Year Ended
December 31,
2020
RMB
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
373
—
—
—
—
301
91
765
—
—
—
—
—
—
2,932
2,759
2,379
876
574
522
227
701
10,970
171
73
58
31
60
393
28. COMMITMENTS AND CONTINGENCIES
(a) Operating commitments
As of December 31, 2020, the Company had outstanding operating commitments totaling RMB 226, which was the short-term lease payments.
(b) Contingencies
In the ordinary course of business, the Group is from time to time involved in legal proceedings and litigations. Starting in November 2019, the Group
and certain of their officers and directors and others have been named as defendants in putative securities class actions. The actions allege that
defendants made misstatements and omissions in connection with the initial public offering in May 2019 in violation of the Securities Act of 1933.The
cases are still at the preliminary stage, therefore the Group is unable to predict the outcome of these cases, or reasonably estimate a range of possible
loss, if any, given the current status of the litigation.
The Group records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The
Group reviews the need for any such liability on a regular basis. The Group has not recorded material liabilities in this regard as of December 31, 2018,
2019 and 2020.
F-67
Table of Contents
29. SUBSEQUENT EVENTS
YUNJI INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, unless otherwise noted)
The Company has evaluated subsequent events through April 26, 2021, which is the date these consolidated financial statements are available to be
issued.
In January and February 2021, the Company granted total 55,988,000 RSUs under the 2019 Plan to its employees, which is only subject to service
conditions. As a result of this RSU grant, the Company estimated total share-based compensation expense of approximately US$9.6 million to be
recorded in its consolidated financial statements over the vesting period of four years starting from 2021.
30. STATUTORY RESERVES AND RESTRICTED NET ASSETS
Pursuant to laws applicable to entities incorporated in the PRC, the Group’s subsidiaries and consolidated VIE in the PRC must make appropriations
from after-tax profit to non-distributable reserve funds. These reserve funds include one or more of the following: (i) a general reserve, (ii) an enterprise
expansion fund and (iii) a staff bonus and welfare fund. Subject to certain cumulative limits, the general reserve fund requires an annual appropriation of
10% of after tax profit (as determined under accounting principles generally accepted in the PRC at each year-end) until the accumulative amount of
such reserve fund reaches 50% of a company’s registered capital, the other fund appropriations are at the subsidiaries’ discretion. These reserve funds
can only be used for specific purposes of enterprise expansion and staff bonus and welfare and are not distributable as cash dividends. During the years
ended December 31, 2018, 2019 and 2020, appropriations to the statutory reserve have been made by the Group, which was RMB 4,277, RMB 3,129
and RMB 6,467, respectively.
In addition, due to restrictions on the distribution of share capital from the Group’s subsidiaries and consolidated VIE in PRC and also as a result of
these entities’ unreserved accumulated losses, total restrictions placed on the distribution of the Group’s PRC subsidiaries’ and consolidated VIEs’ net
assets was RMB 229,527, or 17% of the Group’s total consolidated net assets as of December 31, 2020.
The Company performed a test on the restricted net assets of consolidated subsidiaries and VIEs in accordance with Securities and Exchange
Commission Regulation S-X Rule 4-08 (e) (3), “General Notes to Financial Statements” and concluded that it was not applicable for the Company to
disclose the financial statements for the parent company.
F-68
This Proxy Agreement and Power of Attorney (this “Agreement”) is entered into as of [Execution Date] by and among the following parties:
PROXY AGREEMENT AND POWER OF ATTORNEY
Exhibit 4.4
(1)
(2)
(3)
[Name of the WFOE] (the “WFOE”);
[Name of the VIE] (the “Company”);
[Name of the VIE Shareholder(s)] (the “Shareholder(s)”). (Each of the WFOE, the Company, and each of the Shareholder(s), a “Party”, and
collectively, the “Parties”.)
RECITALS
(A) WHEREAS, the Shareholder(s) collectively hold(s) 100% equity interests in the Company.
(B) WHEREAS, the WFOE and the Company have entered into an exclusive service agreement dated [Execution Date] (the “Service Agreement”),
pursuant to which the Company shall pay service fees to the WFOE for the service provided by it.
(C) WHEREAS, the WOFE, the Company, and the Shareholder(s) have/has entered into an equity pledge agreement dated [Execution Date] (the
“Equity Pledge Agreement”).
(D) WHEREAS, The WFOE, the Company, and the Shareholder(s) have/has entered into an exclusive option agreement dated [Execution Date] (the
“Exclusive Option Agreement”).
NOW, THEREFORE, the Parties hereby agree as follows:
AGREEMENT
Section 1
The Shareholder(s) hereby irrevocably appoint(s) the WFOE as their/its Attorney-in-Fact (the “Attorney-in-Fact,” which shall include any
substitute attorney-in-fact appointed pursuant to this Agreement) to exercise on its behalf any and all rights that such Shareholder has in respect of its
equity interests in the Company conferred by relevant laws and regulations and the articles of association of the Company, including without limitation,
the following rights (collectively, the “Shareholder Rights”):
(a)
to call and attend shareholders’ meeting of the Company;
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
to execute and deliver any and all written resolutions in the name and on behalf of the Shareholder(s);
to vote by himself/herself or by proxy on any matters discussed on shareholders’ meetings, including without limitation, the sale, transfer,
mortgage, pledge or disposal of any or all of the assets of the Company;
to sell, transfer, pledge or dispose of any or all of the equity interests in the Company;
to nominate, appoint or remove the directors of the Company when necessary;
to oversee the economic performance of the Company;
to have full access to the financial information of the Company at any time;
to file any shareholder lawsuits or take other legal actions against the Company’s directors or senior management members when such
directors or members are acting to the detriment of the interest of the Company or its Shareholder(s);
to approve annual budgets or declare dividends; and
any other rights conferred by the articles of association of the Company or the relevant laws and regulations on the Shareholder(s).
Each Shareholder further agrees and undertakes that without the WFOE’s prior written consent, he/she shall not exercise any of the Shareholder Rights.
Section 2
The WFOE agrees to accept the appointment as an Attorney-in-Fact. In addition, the WFOE has the right to appoint, at its sole discretion, a
substitute or substitutes to perform any or all of its rights of the Attorney-in-Fact under this Agreement, and to revoke the appointment of such substitute
or substitutes. The WFOE has the right to make such appointment or revocation of such appointment without prior notice to the Company or
Shareholder(s) or any consent or instruction from the Company or Shareholder(s).
Section 3
The Company confirms, acknowledges and agrees to the appointment of the Attorney-in-Fact to exercise any and all of the Shareholder Rights on
behalf of the Shareholder(s). The Company further confirms and acknowledges that any and all acts done or to be done, decisions made or to be made,
and instruments or other documents executed or to be executed by the Attorney-in-Fact, shall therefore be as valid and effective as if it is done, made or
executed by the Shareholder(s).
2
Section 4
(a)
Each Shareholder hereby acknowledges that, if the Shareholder increases its equity interest in the Company, whether by subscribing
additional amount of equity interests or otherwise, any such additional equity interests acquired by the Shareholder shall be automatically
subject to this Agreement and the Attorney-in-Fact shall have the right to exercise the Shareholder Rights as described in Section 1
hereunder with respect to such additional equity interests on behalf of the Shareholder. Likewise, if the Shareholder’s equity interest in the
Company is transferred to any other party, whether by voluntary transfer, judicial sale, foreclosure sale, or otherwise, any such equity
interest in the Company so transferred remains subject to this Agreement and the Attorney-in-Fact shall continue to have the right to
exercise the Shareholder Rights with respect to such equity interest in the Company so transferred.
(b)
Furthermore, for the avoidance of any doubt, if any equity transfer to the WFOE, or its affiliates is contemplated under any Exclusive
Option Agreement and Equity Pledge Agreement(s) that the Shareholder(s) enters into for the benefits of the WFOE, or its designees (as
the same may be amended from time to time), the Attorney-in-Fact shall, on behalf of the Shareholder(s), have the right to sign the equity
transfer agreement and other relevant agreements and to perform the Exclusive Option Agreement and the Equity Pledge Agreement(s). If
required by the WFOE, the Shareholder(s) shall sign any documents and fix the chops and/or seals thereon and the Shareholder(s) shall
take any other actions as necessary for purposes of consummation of the aforesaid equity transfer. The Shareholder(s) shall ensure that
such equity transfer be consummated and any transferee shall sign an agreement with the WFOE in a form substantially the same as this
Agreement for the same purposes hereof.
Section 5
Each Shareholder further agrees, and undertakes to the WFOE that, if the Shareholder(s) receive(s) any dividends, interest, any other forms of
capital distributions, residual assets upon liquidation, or proceeds or consideration from the transfer of equity interest as a result of, or in connection
with, such Shareholders’(‘s) equity interests in the Company, the Shareholder shall, to the extent permitted by applicable laws, remit all such dividends,
interest, capital distributions, assets, proceeds or consideration to the WFOE without any compensation.
Section 6
Each Shareholder hereby authorizes the Attorney-in-Fact to exercise the Shareholder Rights according to its own judgment without any oral or
written instruction from the Shareholder(s). Each Shareholder undertakes to ratify any acts which the Attorney-in-Fact or any substitutes or agents
appointed by the Attorney-in-Fact may lawfully do or cause to be done by the Shareholder(s) pursuant to this Agreement.
3
Section 7
This Agreement shall become effective as of the date hereof when it is duly executed by the Parties’ authorized representatives and shall remain
effective as long as the Company exists. The Shareholder(s) shall not have the rights to revise or terminate this Agreement or revoke the appointment of
the Attorney-in-Fact without the prior written consent of the WFOE. This Agreement shall be binding upon and shall inure to the benefit of the Parties
and their successors and assignees.
Section 8
This Agreement constitutes the entire agreement between the Parties with respect to the subject matter hereof.
Section 9
This Agreement shall be construed in accordance with and governed by the laws of the China.
Section 10
Any dispute arising from or in connection with this Agreement shall be submitted to China International Economic and Trade Arbitration
Commission (CIETAC) for arbitration which shall be conducted in accordance with the CIETAC’s arbitration rules in effect at the time of applying for
arbitration. The arbitral award is final and binding upon all Parties. The place of arbitration shall be in Beijing.
Section 11
This Agreement shall be executed in [Party number] originals by all Parties, with each Party keeping one original. All originals shall have the
same legal effect. The Agreement may be executed in one or more counterparts.
[Signature pages follow]
4
IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.
[Name of the WFOE]
Signature:
Name:
Position:
[Signature Page to Proxy Agreement and Power of Attorney]
IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.
[Name of the VIE]
Signature:
Name:
Position:
[Signature Page to Proxy Agreement and Power of Attorney]
IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.
[Name of the VIE Shareholder]
Signature:
Name:
Position:
[Signature Page to Proxy Agreement and Power of Attorney]
Power of Attorney
The undersigned, [Name of the VIE Shareholder], a limited liability company established under the laws of the PRC/a Chinese citizen and a
holder of [•]% of the registered capital (corresponding to the capital contribution of [•] RMB) in [Name of the VIE] (the “Company”) (“My
Shareholding”), as of [Execution Date], hereby irrevocably authorize [Name of the WFOE] (the “WFOE”) to exercise the following rights relating to
My Shareholding during the term of this Power of Attorney:
The WFOE is hereby authorized to act on behalf of myself as my exclusive agent and attorney with respect to all matters concerning My
Shareholding, including without limitation to: 1) to execute and deliver any and all written resolutions in the name and on behalf of the Shareholder(s);
2) to vote by itself or by proxy on any matters discussed on shareholders’ meetings, including without limitation, the sale, transfer, mortgage, pledge or
disposal of any or all of the assets of the Company; 3) to sell, transfer, pledge or dispose of any or all of the equity interests in the Company; 4)
nominate, appoint or remove the directors of the Company when necessary; 5) to oversee the economic performance of the Company; 6) to have full
access to the financial information of the Company at any time; 7) to file any shareholder lawsuits or take other legal actions against the Company’s
directors or senior management members when such directors or members are acting to the detriment of the interest of the Company or its
Shareholder(s); 8) to approve annual budgets or declare dividends; and 9) any other rights conferred by the articles of association of the Company and/or
the relevant laws and regulations on the Shareholder(s).
Without limiting the generality of the powers granted hereunder, the WFOE shall have the power and authority under this Power of Attorney to
execute the Transfer Contracts stipulated in Exclusive Option Agreement, to which I am required to be a party, on behalf of myself, and to perform the
terms of the Share Pledge Agreement and Exclusive Option Agreement, both dated the date hereof, to which I am a party.
All the actions associated with My Shareholding conducted by the WFOE shall be deemed as my own actions, and all the documents related to
My Shareholding executed by the WFOE shall be deemed to be executed by me. The WFOE has the right to make the aforesaid actions according to its
own judgment without my prior consent. I hereby acknowledge and ratify those actions and/or documents by the WFOE.
The WFOE is entitled to re-authorize or assign its rights related to the aforesaid matters to any other person or entity at its own discretion and
without giving prior notice to me or obtaining my consent.
Provided that I am a shareholder of the Company, this Power of Attorney shall be irrevocable and continuously effective as of the date of
execution, unless written instructions to the contrary are given by the WFOE. Once the WFOE notice me in writing to terminate this Power of Attorney
in whole or in part, I will immediately withdraw the entrustment and authorization under this Power of Attorney, and immediately sign a power of
attorney in the same format as this Power of Attorney to authorize the same right as provided under this Power of Attorney to other persons nominated
by the WFOE.
During the term of this Power of Attorney, I hereby waive all the rights associated with My Shareholding, which have been authorized to the
WFOE through this Power of Attorney, and shall not exercise such rights by myself.
[Signature page follow]
2
[Name of the VIE Shareholder]
Signature:
Name:
Title:
[Signature Page to Proxy Agreement and Power of Attorney]
The VIE Shareholder and the VIE as set out below entered into proxy agreement and power of attorney with Hangzhou Yunchuang Gongxiang Network
Technology Co., Ltd., the WFOE, using this form, respectively. Pursuant to Instruction ii to Item 601 of Regulation S-K, the Registrant may only file
this form as an exhibit with a schedule setting forth the material details in which the executed agreements differ from this form:
Schedule of Material Differences
No.
1
2
3
Name of
VIE
Shareholder
Xiao Shanglue
Name of
Variable
Interest
Entity
(the
“VIE”)
Zhejiang Yunji
Youxuan
E-commerce Co.,
Ltd.
Version of Proxy
Agreement
and
Power of
Attorney
Amended and
Restated Proxy
Agreement and
Power Of Attorney
% of VIE
Shareholder’s
Equity
Interest
in the VIE
99.0099%
Hao Huan
Zhejiang Yunji
Youxuan
E-commerce Co.,
Ltd.
Amended and
Restated Proxy
Agreement and
Power Of Attorney
Daqiao Network
Technology
(Hangzhou) Co.,
Ltd.
Yunji Sharing
Technology Co.,
Ltd.
Amended and
Restated Proxy
Agreement and
Power Of Attorney
0.9901%
65.5346%
Execution
Date
December 14,
2018
December 14,
2018
December 17,
2018
Material
Differences
This Agreement
replace the proxy
agreement and
power of attorney
entered into by and
among the Parties
on June 13, 2018.
This Agreement
replace the proxy
agreement and
power of attorney
entered into by and
among the Parties
on June 13, 2018.
This Agreement
replace the proxy
agreement and
power of attorney
entered into by and
among the Parties
on April 16, 2018.
4
5
6
7
8
Hangzhou Yuepeng
Trading Co., Ltd.
Yunji Sharing
Technology Co.,
Ltd.
Amended and
Restated Proxy
Agreement and
Power Of Attorney
Deqing Jijie
Investment
Management
Partnership
(Limited
Partnership)
Shu Wenwei
Ding Panyan
Shu Wenwei
Yunji Sharing
Technology Co.,
Ltd.
Amended and
Restated Proxy
Agreement and
Power Of Attorney
Hangzhou
Chuanchou
Network
Technology Co.,
Ltd.
Hangzhou Fengjing
Network
Technology Co.,
Ltd.
Hangzhou Fengjing
Network
Technology Co.,
Ltd.
Proxy Agreement
and Power of
Attorney
Proxy Agreement
and Power of
Attorney
Proxy Agreement
and Power of
Attorney
2
28.0862%
6.3792%
100%
This Agreement
replace the proxy
agreement and
power of attorney
entered into by and
among the Parties
on April 16, 2018.
This Agreement
replace the proxy
agreement and
power of attorney
entered into by and
among the Parties
on April 16, 2018.
N/A
60%
N/A
40%
N/A
December 17,
2018
December 17,
2018
October 23, 2020
December 18,
2020
December 18,
2020
This Equity Pledge Agreement (this “Agreement”) is entered into as of [Execution Date] by and among the following parties:
EQUITY PLEDGE AGREEMENT
[Name of the WFOE] (the “Pledgee”);
[Name of the VIE] (the “Company”);
[Name of the VIE Shareholder(s)] (the “Pledgor(s)”) (Each of the Pledgee, the Company and the Pledgor(s), a “Party”, and collectively, the
“Parties”.)
(1)
(2)
(3)
Exhibit 4.5
RECITALS
(A) WHEREAS, the Pledgor(s) hold [•]% equity interest, representing RMB[•] million of the registered capital of the Company;
(B) WHEREAS, the Pledgee and the Company entered into an exclusive service agreement dated [Execution Date] (the “Service Agreement”),
pursuant to which the Company shall pay service fees to the Pledgee for the services provided by the Pledgee;
(C) WHEREAS, the Pledgee, the Pledgor(s), and the Company entered into an exclusive option agreement dated [Execution Date] (the “Exclusive
Option Agreement”), pursuant to which each of the Pledgor(s) and the other shareholders of the Company agrees to grant the Pledgee an
exclusive right to purchase all of the equity interest of the Company held by it on the terms and conditions therein.
NOW, THEREFORE, the Parties hereby agree as follows:
1.
Principal Agreements
AGREEMENT
Each Party acknowledges and confirms that the Principal Agreements for which the security of pledge is provided hereunder include the Service
Agreement, the Exclusive Option Agreement, and the agreements to be executed among the Pledgor, the Company and the Pledgee from time to
time.
2.
2.1
The Pledge
The Pledgor(s) hereby unconditionally and irrevocably agree to pledge all of the equity interest of the Company held by it (including any and all
interest or dividend accrued on such equity interest) (the “Pledged Equity”) to the Pledgee, as a security for the performance of the obligations
by the Pledgor(s) and the Company under the Principal Agreements (the “Pledge”).
3.
3.1
4.
4.1
4.2
4.3
5.
5.1
The Scope of Pledge
The obligations secured by the Pledge under this Agreement include all obligations of the Pledgor(s) and the Company, including without
limitation, loan and the interest (if applicable), all service fees payable to the Pledgee, all indebtedness, obligations and liabilities (including but
not limited to any amounts payable to the relevant person), damages (if any), compensation, any fees and expenses for enforcing the creditor’s
rights and the Pledge (including but not limited to the attorneys’ fees, arbitration fees, the assessment and auction fees related to the Pledged
Equity) and any other related cost. For the avoidance of doubt, the scope of the Pledge shall not be limited by the amount of the shareholders’
capital contribution.
The Term of Pledge
The Pledge shall be continuously valid and the term of the Pledge ends at the earliest of the following three dates: (1) the date on which the
unpaid secured obligation has been fully settled or otherwise repaid; (2) the date on which the Pledgee exercises the Pledge in accordance with
the terms and conditions of this Agreement to fully realize its rights to the secured obligation and the Pledged Equity; or (3) the date on which
the Pledgor(s) have/has transferred all of its equity to a third party (natural or legal person) and no longer holds the Company’s equity in
accordance with the Exclusive Option Agreement.
During the term of the Pledge, in the event the Pledgee or the Company fail to perform any of their respective obligations in accordance with the
Principal Agreements, the Pledgee shall have the right to dispose of the Pledged Equity in accordance with the provisions of this Agreement.
The Pledgee shall have the right to collect any and all dividends or other distributable benefits accrued on the equity and distribute or dispose
such dividends or other distributable benefits at its sole discretion.
Registration
The Company shall upon execution of this Agreement, record the Pledge in the shareholders’ register of the Company and provide the
shareholder’s register to the Pledgee. The parties covenant that the parties hereto have executed and submitted to administration of industry and
commerce (the “AIC”) an equity interest pledge contract in the form required by the AIC at the location of the Company (the “AIC Pledge
Contract”) to register the Pledge with AIC. For matters not specified in the AIC Pledge Contract, the Parties shall be bound by the provisions of
this Agreement. In case of any ambiguities or inconsistencies between the AIC Pledge Contract and this Agreement, provisions of this
Agreement shall prevail.
2
5.2 Without limitation to any provision of this Agreement, during the term of the Pledge, the original of the register of members of the Company
shall be kept by the Pledgee or its designated person.
5.3 With the prior consent of the Pledgee, the Pledgor(s) may increase its capital contribution to the Company, provided that any capital contribution
by the Pledgor(s) to the Company shall be subject to this Agreement and any such capital increase shall be part of the Pledged Equity. The
Company shall immediately amend the register of member and register the change to the Pledge with the AIC pursuant to this Section 5 within
five (5) working days after the increase of capital contribution.
6.
6.1
6.2
6.3
7.
7.1
The Pledgors’(‘s) Representations and Warranties
The Pledgor(s) are/is the sole legal owner(s) of the Pledged Equity.
No security interest or other encumbrance has been created on the Pledged Equity.
The Company is a limited liability company established and validly existing under the PRC laws. The registered capital of the Company is
RMB[•] million.
The Pledgors’(‘s) Covenants and Further Assurance
The Pledgor(s) hereby covenant to the Pledgee, that during the term of this Agreement, the Pledgor(s) shall:
7.1.1
7.1.2
without the Pledgee’s prior written consent, not transfer the Pledged Equity, create or permit to create any security interest or other
encumbrance on the Pledged Equity, or dispose of the Pledged Equity in any other means, except for the performance of the Exclusive
Option Agreement;
comply with any or all laws and regulations applicable to the Pledge, and within five (5) working days of receipt of any notice, order or
recommendation issued or prepared by relevant competent authorities regarding the Pledge, provide the aforementioned notice, order or
recommendation to the Pledgee, and shall comply with the requirements set forth in the aforementioned notice, order or
recommendation, or submit claims and representations with respect to the aforementioned matters upon the Pledgee’s reasonable
request or with consent of the Pledgee;
7.1.3
promptly notify the Pledgee of any event or notice received that may have an impact on Pledgee’s rights to the Pledged Equity or any
portion thereof or other obligations of the Pledgor(s) arising out of this Agreement.
7.2
The Pledgor(s) agree that the rights acquired by the Pledgee in accordance with this Agreement with respect to the Pledge shall not be
interrupted or harmed by the Company, the Pledgor(s) or any heirs or representatives of the Pledgor(s) or any other persons (collectively, the
“Relevant Persons”) through any legal proceedings.
3
7.2.1 Without the prior written consent of the Pledgee, the Relevant Persons shall not in any manner supplement, change or amend the articles
of association and bylaws of the Company, increase or decrease its registered capital, or change its structure of registered capital in
other manners;
7.2.2 Without the prior written consent of the Pledgee, after the execution of this Agreement, the Relevant Persons shall not in any manner
sell, transfer, pledge or dispose any assets of the Company or any of its subsidiaries or any statutory or beneficiary interest derived from
the business or income of the Company and shall not create any relevant security interest.
7.2.3 Without the prior written consent of the Pledgee, the Relevant Persons shall ensure that the Company shall not in any manner distribute
dividends to its shareholder(s), make assets distributions or conduct capital reduction or initiate liquidation procedures or make any
other distributions. Any distributions, including without limitation, the distributed assets or the residual assets in liquidation shall be
deemed as part of the Pledge; or
7.2.4 Without the prior written consent of the Pledgee, the Relevant Persons shall not take actions which result in or may result in the
decrease of value of Pledged Equity or jeopardize the validity of Pledge under this Agreement. In the event that the value of Pledged
Equity decreases significantly and impairs the rights of the Pledgee, the Relevant Persons shall notify the Pledgee immediately, provide
other assets as security as reasonably requested by and to the satisfaction of the Pledgee, and take necessary actions to resolve the
foresaid events or reduce their adverse impact.
7.3
To protect or perfect the security interest granted by this Agreement for the payment obligation under the Principal Agreements, the Pledgor(s)
hereby undertake(s) to execute in good faith and to cause other parties who have interests in the Pledge to execute all certificates, agreements,
deeds and/or covenants required by the Pledgee. The Pledgor(s) also undertake(s) to perform and to cause other parties who have interests in the
Pledge to perform actions required by the Pledgee, to facilitate the exercise by the Pledgee of its rights and authority granted thereto by this
Agreement, and to enter into all relevant documents regarding ownership of the Pledged Equity with the Pledgee or designee(s) of the Pledgee.
The Pledgor(s) undertake(s) to provide the Pledgee within a reasonable time with all notices, orders and decisions regarding the Pledge that are
required by the Pledgee.
7.4
The Pledgor(s) hereby undertake(s) to comply with and perform all guarantees, promises, agreements, representations and conditions under this
Agreement. In the event of failure or partial performance of its guarantees, promises, agreements, representations and conditions, the Pledgor(s)
shall indemnify the Pledgee for all losses resulting therefrom.
4
8.
8.1
Exercise of Pledge
Each of the following shall constitute an event of default (“Event of Default”) hereunder (and an Event of Default is “continuing” if it has not
been remedied or waived):
8.1.1
any statement, warranty or representation made by the Pledgor(s) or the Company, under this Agreement or any of the Principal
Agreements are not true, complete or accurate in any aspect; or the Pledgor(s) or the Company breaches or fails to fulfill any obligation
or abide by any covenants and undertakings under this Agreement or any Principal Agreements; or
8.1.2
any obligation of the Pledgor(s) or the Company under this Agreement or any of the Principal Agreements is deemed as unlawful or
void.
8.2
Upon the occurrence and during the continuance of an Event of Default, the Pledgee shall have the right to exercise all such rights as a secured
party under any applicable Chinese law, including the PRC Guarantee Law and the PRC Property Law, as in effect from time to time, including
without limitations:
8.2.1
8.2.2
to sell all or any part of the Pledged Equity in one or more public or private sales upon three (3) days’ written notice to Pledgor(s), and
any such sale or sales may be made for cash, upon credit, or for future delivery; or
to execute an agreement with the Pledgor(s) to acquire the Pledged Equity based on its monetary value which shall be determined by
referencing the market price of the pledged property;
The Pledgee has priority to the proceeds obtained by disposition of the Pledged Equity according to the aforesaid means for repayment of fees
listed under Section 3 of this Agreement.
The Pledgor(s) and the Company, at the request of the Pledgee, shall take all lawful and appropriate actions to ensure the Pledgee’s exercise of
the Pledge right. For the purpose of the foregoing, the Pledgor(s) and the Company should sign all the documents and materials and take all
actions and measures reasonably required by the Pledgee.
Assignment
None of the Company and the Pledgor(s) shall assign any of its rights or obligations under this Agreement to any third party without the prior
written consent of the Pledgee.
The Company and the Pledgor(s) hereby agree(s) that the Pledgee may assign its rights and obligations under this Agreement as the Pledgee may
decide, at its sole discretion, and such transfer shall only be subject to a written notice sent to the Company and the Pledgor(s).
5
8.3
9.
9.1
9.2
10.
Termination
This Agreement is terminated after the expiration of the term of the Pledge in accordance with Section 4 of this Agreement.
11.
Entire Agreement and Amendment to Agreement
11.1
This Agreement and all agreements and/or documents mentioned or included explicitly by this Agreement constitute the complete agreement
with respect to the subject matter of this Agreement and shall supersede any and all prior oral agreements, contracts, understandings and
communications made by Parties with respect to the subject matter of this Agreement.
11.2 Any modification of this Agreement shall be made in a written form and shall only become effective upon the signature by all Parties of the
Agreement. Amendments and supplemental agreements to this Agreement duly executed by Parties shall be parts of this Agreement and shall
have the same legal effect as this Agreement.
12.
Governing Law and Dispute Resolution
12.1
This Agreement shall be construed in accordance with and governed by the PRC laws.
12.2 Any dispute arising from or in connection with this Agreement shall be submitted to China International Economic and Trade Arbitration
Commission (CIETAC) for arbitration which shall be conducted in accordance with the CIETAC’s arbitration rules in effect at the time of
applying for arbitration. The arbitral award is final and binding upon all Parties. The place of arbitration shall be in Beijing.
13.
Effective Date and Term
13.1
This Agreement shall be signed and take effect as of the date first set forth above.
13.2
The term of this Agreement shall remain effective as long as the Pledge exists.
14.
Notices
Notices or other communications required to be given by any party pursuant to this Agreement shall be written in Chinese and delivered
personally or sent by registered mail or postage prepaid mail or by a recognized courier service or by facsimile transmission to the address of
each relevant party as specified by such party from time to time. The date when the notice is deemed to be duly served shall be determined as
follows: (a) a notice delivered personally is deemed duly served upon delivery; (b) a notice sent by mail is deemed duly served the tenth (10th)
day after the date when the postage prepaid registered airmail was sent out (as is shown on the postmark), or the fourth (4th) day after the
delivery date to the courier service company; and (c) a notice sent by facsimile transmission is deemed duly served upon the receipt time as is
shown on the transmission confirmation for relevant documents.
6
15.
Severability
If any provision of this Agreement is deemed to be invalid or unenforceable because it is inconsistent with applicable laws, such invalidity or
unenforceability shall be limited to such laws, and the validity, legality and enforceability of the other provisions hereof shall not be affected.
16.
Counterparts
This Agreement shall be executed in [Party number] originals by all Parties, with each Party holding one original. All originals shall have the
same legal effect. The Agreement may be executed in one or more counterparts.
[The Remainder of this page is intentionally left blank]
7
IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.
[Name of the WFOE]
Signature:
Name:
Title:
[Signature Page to Equity Pledge Agreement]
IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.
[Name of the VIE]
Signature:
Name:
Title:
[Signature Page to Equity Pledge Agreement]
IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.
[Name of the VIE Shareholder]
Signature:
Name:
Title:
[Signature Page to Equity Pledge Agreement]
The VIE Shareholder and the VIE as set out below entered into equity pledge agreement with Hangzhou Yunchuang Gongxiang Network Technology
Co., Ltd., the WFOE, using this form, respectively. Pursuant to Instruction ii to Item 601 of Regulation S-K, the Registrant may only file this form as an
exhibit with a schedule setting forth the material details in which the executed agreements differ from this form:
Schedule of Material Differences
No.
1
Name of
VIE
Shareholder
Xiao
Shanglue
Name of
Variable Interest
Entity (the
“VIE”)
Zhejiang Yunji
Youxuan
E-commerce
Co., Ltd.
Version of Equity
Pledge
Agreement
Amended And
Restated Equity
Pledge
Agreement
% of VIE
Shareholder’s
Pledged
Equity
Interest in
the VIE
99.0099%
2
Hao Huan
Zhejiang Yunji
Youxuan
E-commerce
Co., Ltd.
Amended And
Restated Equity
Pledge
Agreement
0.9901%
Material
Differences
This Agreement replace the proxy agreement and
power of attorney entered into by and among the
Parties on June 13, 2018.
Execution
Date
December
14, 2018
The recital also references that “ the Pledgee and
the Pledgors entered into a loan contract dated
December 14, 2018 (the “Loan Contract”),
pursuant to which the Pledgee has provided a loan
to the Pledgors.”
Each Party acknowledges and confirms that the
Principal Agreements for which the security of
pledge is provided hereunder include the Service
Agreement, the Exclusive Option Agreement, the
Loan Contract and the agreements to be executed
among the Pledgor, the Company and the Pledgee
from time to time.
This Agreement replace the proxy agreement and
power of attorney entered into by and among the
Parties on June 13, 2018.
December
14, 2018
The recital also references that “ the Pledgee and
the Pledgors entered into the Loan Contract,
pursuant to which the Pledgee has provided a loan
to the Pledgors.”
Each Party acknowledges and confirms that the
Principal Agreements for which the security of
pledge is provided hereunder include the Service
Agreement, the Exclusive Option Agreement, the
Loan Contract and the agreements to be executed
among the Pledgor, the Company and the Pledgee
from time to time.
3
Daqiao
Network
Technology
(Hangzhou)
Co., Ltd.
Yunji Sharing
Technology Co.,
Ltd.
Amended And
Restated Equity
Pledge
Agreement
65.5346%
This Agreement replace the proxy agreement and
power of attorney entered into by and among the
Parties on April 16, 2018.
December
17, 2018
The Company shall (1) upon execution of this
Agreement, record the Pledge in the shareholders’
register of the Company and provide the
shareholder’s register to the Pledgee, and
(2) submit an application to the AIC for the
registration of the Pledge as soon as practicable
following the execution of this Agreement and
obtain evidencing documents of such registration.
The parties covenant that for the purpose of
registration of the Pledge, the parties hereto shall
submit to the AIC this Agreement or an equity
interest pledge contract in the form required by
the AIC at the location of the Company which
shall truly reflect the information of the AIC
Pledge Contract. For matters not specified in the
AIC Pledge Contract, the Parties shall be bound
by the provisions of this Agreement. In case of
any ambiguities or inconsistencies between the
AIC Pledge Contract and this Agreement,
provisions of this Agreement shall prevail. The
Pledgee and the Company shall submit all
necessary documents and complete all necessary
procedures, as required by the PRC laws and
regulations and the AIC, to ensure that the Pledge
shall be registered with the AIC as soon as
possible after the filing of application.
4
Hangzhou
Yuepeng
Trading Co.,
Ltd.
Yunji Sharing
Technology Co.,
Ltd.
Amended And
Restated Equity
Pledge
Agreement
28.0862%
This Agreement replace the proxy agreement and
power of attorney entered into by and among the
Parties on April 16, 2018.
December
17, 2018
The Company shall (1) upon execution of this
Agreement, record the Pledge in the shareholders’
register of the Company and provide the
shareholder’s register to the Pledgee, and
(2) submit an application to the AIC for the
registration of the Pledge as soon as practicable
following the execution of this Agreement and
obtain evidencing documents of such registration.
The parties covenant that for the purpose of
registration of the Pledge, the parties hereto shall
submit to the AIC this Agreement or an equity
interest pledge contract in the form required by
the AIC at the location of the Company which
shall truly reflect the information of the AIC
Pledge Contract. For matters not specified in the
AIC Pledge Contract, the Parties shall be bound
by the provisions of this Agreement. In case of
any ambiguities or inconsistencies between the
AIC Pledge Contract and this Agreement,
provisions of this Agreement shall prevail. The
Pledgee and the Company shall submit all
necessary documents and complete all necessary
procedures, as required by the PRC laws and
regulations and the AIC, to ensure that the Pledge
shall be registered with the AIC as soon as
possible after the filing of application.
5
6
7
8
Yunji Sharing
Technology Co.,
Ltd.
Amended And
Restated Equity
Pledge
Agreement
6.3792%
Deqing Jijie
Investment
Management
Partnership
(Limited
Partnership)
This Agreement replace the proxy agreement and
power of attorney entered into by and among the
Parties on April 16, 2018.
December
17, 2018
The Company shall (1) upon execution of this
Agreement, record the Pledge in the shareholders’
register of the Company and provide the
shareholder’s register to the Pledgee, and
(2) submit an application to the AIC for the
registration of the Pledge as soon as practicable
following the execution of this Agreement and
obtain evidencing documents of such registration.
The parties covenant that for the purpose of
registration of the Pledge, the parties hereto shall
submit to the AIC this Agreement or an equity
interest pledge contract in the form required by the
AIC at the location of the Company which shall
truly reflect the information of the AIC Pledge
Contract. For matters not specified in the AIC
Pledge Contract, the Parties shall be bound by the
provisions of this Agreement. In case of any
ambiguities or inconsistencies between the AIC
Pledge Contract and this Agreement, provisions of
this Agreement shall prevail. The Pledgee and the
Company shall submit all necessary documents and
complete all necessary procedures, as required by
the PRC laws and regulations and the AIC, to
ensure that the Pledge shall be registered with the
AIC as soon as possible after the filing of
application.
Shu Wenwei
Ding Panyan
Shu Wenwei
Hangzhou
Chuanchou
Network
Technology Co.,
Ltd.
Hangzhou
Fengjing
Network
Technology Co.,
Ltd.
Hangzhou
Fengjing
Network
Technology Co.,
Ltd.
Equity Pledge
Agreement
100%
N/A
Equity Pledge
Agreement
60%
N/A
Equity Pledge
Agreement
40%
N/A
October
23, 2020
December
18, 2020
December
18, 2020
EXCLUSIVE SERVICE AGREEMENT
Exhibit 4.6
This Exclusive Service Agreement (this “Agreement”) is entered into as of [Execution Date] by and among the following parties:
[Name of the WFOE] (“Party A”), a domestic company registered in the People’s Republic of China (“China” or the “PRC”), under the laws of
the PRC; and
[Name of the VIE] (“Party B”), a domestic company registered in China, under the laws of the PRC. (Each of Party A and Party B, a “Party”,
and collectively, the “Parties”.)
After friendly consultations conducted on the principle of equality and mutual benefit, the Parties hereby agree as follows:
Provision of Services
In accordance with the terms and conditions set forth in this Agreement, Party B hereby irrevocably appoints and designates Party A as their
exclusive service provider to provide the technical and business support services as set forth in Schedule 1.
Party A has the right to designate and appoint, at its sole discretion, any affiliate of Party A to provide any and all services set forth in this
Section.
During the term of this Agreement, Party B shall not, without Party A’s written consent, directly and indirectly, obtain the same or similar
services as provided under this Agreement from any third party, or enter into any similar service agreement with any third party.
To ensure that the cash flow requirements of Party B’s ordinary operations are met and/or to set off any loss accrued during such operations,
Party A is obligated, only to the extent permissible under PRC law, to provide financing support for Party B, whether or not Party B actually
incurs any such operational loss. Party A’s financing support for Party B may take the form of bank entrusted loans or borrowings. Contracts for
any such entrusted loans or borrowings shall be executed separately. Party A will not require Party B to repay the loans or borrowings when
Party B has no ability to repay.
Service Fee and Payment
Party A shall have the right to determine, at its sole discretion, the service fee and proper payment manners for Party B. The calculation and
payment manners of the service fee are stipulated in Schedule 2 of this Agreement.
If Party A, at its sole discretion, determines that the fee calculation mechanism specified herein shall no longer apply for any reasons at any time
or from time to time during the term of this Agreement, Party A shall have the rights to adjust the fee by giving a 10-day written notice to Party
B in advance.
(1)
(2)
1.
1.1
1.2
1.3
1.4
2.
2.1
2.2
3.
3.1
3.2
Intellectual Property Rights
Any intellectual properties developed in the performance of this Agreement, including but not limited to copyrights, patents and knowhow, shall
belong to Party A, and Party B shall enjoy no rights other than those expressly provided herein.
If a development is based on the intellectual properties owned by Party B, Party B shall ensure and warrant that such intellectual properties are
flawless. Otherwise, Party B shall bear all damage and losses caused to Party A due to any flaw of such intellectual properties. If Party A are to
bear any liabilities to any third party thus caused, it has the right to claim recover all of its losses from Party B.
3.3
The Parties agree that this clause shall remain survive after the termination or expiration of this Agreement.
4.
4.1
Representations and Warranties
Party A hereby represents and warrants as follows:
(a)
(b)
(c)
(d)
(e)
It is a legal person duly incorporated and validly existing under PRC laws;
Its execution and performance of this Agreement are within Party A’s corporate power and business scope;
It has taken necessary corporate actions and obtained appropriate authorizations, and has obtained the necessary consents or approvals
from other third parties or government agencies;
The execution and performance of this Agreement by Party A do not violate the laws and contracts binding upon Party A; and
Upon execution, this Agreement will constitute a legal, valid and binding obligation of Party A enforceable against Party A in
accordance with its terms.
4.2
Party B hereby represents and warrants as follows:
(a)
(b)
(c)
It is a legal person duly incorporated and validly existing under PRC laws;
Its execution and performance of this Agreement are within its entity power and business scope;
It has taken necessary corporate actions and obtained appropriate authorizations, and has obtained the necessary consents or approvals
from other third parties or government agencies;
2
(d)
(e)
Its execution and performance of this Agreement do not violate the laws and contracts binding upon it; and
Upon execution, this Agreement will constitute a legal, valid and binding obligation of Party B enforceable against Party B in
accordance with its terms.
4.3
Party B further warrants Party A as follows:
(a)
(b)
Party B shall pay the service fee to Party A in full and in a timely manner according to this Agreement.
Within the term of this Agreement, Party B shall:
(i)
(ii)
maintain the continuous effectiveness of the permits and qualifications in relation to the business of Party B; and
cooperate with Party A in Party A’s provision of services, and take reasonable advices and suggestions given by Party A in
respect of the business of the Party B.
4.4
4.5
Party A shall have the right to examine the accounts of the Party B regularly or at any time. Within the term of this Agreement, the Party B shall
cooperate with Party A and its direct or indirect shareholders on audit or due diligence work and provide the auditor and/or other professionals
with the information and materials in respect of operation, business, clients, finance and employee. Furthermore, the Party B shall give consent
to Party A or its shareholders that for the purpose of listing, Party A or its shareholders may disclose such information and material when it is
necessary.
Each Party warrants to the other Party that, it will execute all the necessary documents and take all the necessary actions, including without
limitation, issue necessary power of attorney to the other Party for the purpose of carrying out this Agreement and achieving the purpose of this
Agreement.
5.
Confidentiality
Party B agrees to take all reasonable steps to protect and maintain the confidentiality of the confidential data and information received by Party B
in connection with the performance of this Agreement (collectively, the “Confidential Information”). Party B shall not disclose, give or transfer
any Confidential Information to any third party without Party A’s prior written consent. Upon termination of this Agreement, Party B shall, at
Party A’s request, return any and all documents, information or software containing any of such Confidential Information to Party A or destroy it
at its own discretion, and delete all of such Confidential Information from any memory devices, and cease to use such Confidential Information.
6.
6.1
Effective Date and Term
This Agreement shall be signed and take effect as of the date first set forth above.
3
6.2
7.
7.1
7.2
The term of this Agreement is ten (10) years and shall be automatically extended for successive ten (10) years unless terminated as provided
herein. Notwithstanding the foregoing provisions, Party A may terminate this Agreement, at its sole discretion, at any time with a written notice
to Party B given thirty (30) days in advance. Party B has no right to terminate this Agreement.
Governing Law and Dispute Resolution
This Agreement shall be construed with and governed by the laws of the PRC.
Any dispute arising from or in connection with this Agreement shall be submitted to China International Economic and Trade Arbitration
Commission (the “CIETAC”) for arbitration which shall be conducted in accordance with the CIETAC’s arbitration rules in effect at the time of
applying for arbitration. The arbitral award is final and binding upon all Parties. The place of arbitration shall be in Beijing.
8.
Notices
Notices or other communications required to be given by any party pursuant to this Agreement shall be written in Chinese and delivered
personally or sent by registered mail or postage prepaid mail or by a recognized courier service or by facsimile transmission to the address of
each relevant Party or both Parties set forth below or such other address or addressees as specified by such Party from time to time. The date
when the notice is deemed to be duly served shall be determined as follows: (a) a notice delivered personally is deemed duly served upon
delivery; (b) a notice sent by mail is deemed duly served the tenth (10th) day after the date when the postage prepaid registered airmail was sent
out (as is shown on the postmark), or the fourth (4th) day after the delivery date to the internationally-recognized courier service agency; and
(c) a notice sent by facsimile transmission is deemed duly served upon the receipt time as is shown on the transmission confirmation for relevant
documents.
9.
9.1
Assignment
Party B shall not assign any of its respective rights or obligations under this Agreement to any third party without the prior written consent of
Party A.
9.2
Party B hereby agrees that Party A may assign its rights and obligations under this Agreement, only be subject to a written notice to Party B.
10.
Severability
If any provision of this Agreement is judged to be invalid or unenforceable because it is inconsistent with applicable laws, such invalidity or
unenforceability shall be only with respect to such laws, and the validity, legality and enforceability of the other provisions hereof shall not be
affected.
4
11.
Amendment or Supplement
Any amendment or supplement to this Agreement shall be made by Parties in writing. The amendments or supplements duly executed by each
party shall form an integral part of this Agreement and shall have the same legal effect as this Agreement.
12.
Counterparts
This Agreement shall be executed in two originals by Parties, with Party A and Party B holding one original. All originals shall have the same
legal effect. The Agreement may be executed in one or more counterparts.
13.
Entire Agreement and Amendment to Agreement
This Agreement and all agreements and/ or documents mentioned or included explicitly by this Agreement constitute the complete agreement
with respect to the subject matter of this Agreement and shall substitute any and all prior oral agreements, contracts, understandings and
communications made by the Parties with respect to the subject matter of this Agreement.
[Signature pages follow]
5
IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.
[Name of the WFOE]
Authorized Representative:
Signature:
Seal:
[Name of the VIE]
Authorized Representative: Signature:
Seal:
[Signature Page to Exclusive Service Agreement]
SCHEDULE 1
Contents of Service
1.
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
Contents of Service
Providing the following technology development and transfer, technical consulting services:
(a)
(b)
(c)
(d)
Technology development of new business;
Technology support and maintenance of current business;
Periodical update of all the business content; and
Offering and maintaining the hardware and network which are necessary for the business operation.
Providing occupation and pre-occupation staff training services;
Providing public relation services;
Providing market investigation, research and consulting services;
Providing mid or short-term market development, market plan services;
Providing human resource management and internal information management;
Providing network development, updating and daily maintenance;
Licensing of software and trademark;
Other services determined from time to time by Party A according to the need of business and capacity of Party A.
SCHEDULE 2
Calculation and Payment of Service Fee
1.
1.1
Calculation and Payment of Service Fee
The fee for the services provided under this Agreement is calculated based on the revenue of Party B and the corresponding operating cost and
sales, management and other costs and expenses, and may be charged in the form of:
(a)
(b)
(c)
a percentage of the revenue of Party B;
a fixed license fee for certain software; and/or
other method determined from time to time by Party A according to the nature of services provided.
1.2
The specific amount of such fee shall be determined by Party A through taking account of the following factors, and Party A shall send Party B
written confirmation for service fee:
(a)
(b)
(c)
(d)
The technical difficulty and complexity of the services provided by Party A;
The time spent by employees of Party A concerning the services;
The contents and commercial value of the services provided by Party A;
The benchmark price of similar services in the market.
2.
Party A shall calculate service fee payable on a fixed term basis and deliver Party B corresponding invoices. Party B shall pay the service fee to
the bank account designated by Party A within 10 business days after receipt of such invoices, and deliver a copy of the remittance certificate by
facsimile or mail to Party A within 10 business days after payment. Party A shall issue a receipt within 10 business days after receipt of the
service fee.
The VIE Shareholder and the VIE as set out below entered into exclusive service agreement with Hangzhou Yunchuang Gongxiang Network
Technology Co., Ltd., the WFOE, using this form, respectively. Pursuant to Instruction ii to Item 601 of Regulation S-K, the Registrant may only file
this form as an exhibit with a schedule setting forth the material details in which the executed agreements differ from this form:
Schedule of Material Differences
No.
1
2
3
4
Name of Variable
Interest
Entity (the “VIE”)
Version of
Exclusive Service Agreement
Material Differences
Zhejiang Yunji Youxuan E-commerce
Co., Ltd.
Amended and Restated Exclusive
Service Agreement
Yunji Sharing Technology Co., Ltd.
Amended and Restated Exclusive
Service Agreement
This Agreement replace the proxy
agreement and power of attorney
entered into by and among the Parties
on June 13, 2018.
This Agreement replace the proxy
agreement and power of attorney
entered into by and among the Parties
on April 16, 2018.
Hangzhou Chuanchou Network
Technology Co., Ltd.
Hangzhou Fengjing Network
Technology Co., Ltd.
Exclusive Service Agreement
Exclusive Service Agreement
N/A
N/A
Execution
Date
December
14, 2018
December
17, 2018
October
23, 2020
December
18, 2020
This Exclusive Option Agreement (this “Agreement”) is entered into as of [Execution Date] by and among the following parties:
EXCLUSIVE OPTION AGREEMENT
Exhibit 4.7
(1)
(2)
(3)
[Name of the WFOE] (the “WFOE”);
[Name of the VIE Shareholder(s)] (the “Shareholder(s)”);
[Name of the VIE] (the “Company”).
(Each of WFOE, the Shareholder(s) and the Company individually being referred to as a “Party” and collectively the “Parties”.)
(A) WHEREAS, the Shareholder(s) hold 100% equity interest in the Company.
RECITALS
(B) WHEREAS, the WFOE and the Company entered into an exclusive service agreement (the “Exclusive Service Agreement”) dated [Execution
Date], pursuant to which the Company shall pay the WFOE for relevant services it received from the WFOE;
(C) WHEREAS, the WFOE, the Company and its shareholder(s) entered into an equity pledge agreement (the “Equity Pledge Agreement”) dated
[Execution Date].
THEREFORE, the Parties hereby agree as follows:
Target Equity Interest
AGREEMENT
The Shareholder(s) agree(s) and irrevocably, unconditionally and exclusively grants the WFOE an option to require such Shareholder to transfer
any and all of the equity interest of the Company held by such Shareholder (“Target Equity”) to the WFOE or a third party designated by the
WFOE (“Designee”), in whole or in part, subject to the WFOE’s specific requirements (“Equity Transfer Option”) in the following
circumstances:
1.1.1
The WFOE and/or the Designee are permitted to own lawfully all or part of the Target Equity under the PRC laws and regulations; or
1.
1.1
1.1.2
Any other circumstances deemed as appropriate or necessary by the WFOE in its sole discretion.
1.2
The Company hereby agrees the Shareholder(s) to grant this option to the WFOE.
1.3
1.4
1.5
2.
2.1
2.2
2.3
2.4
2.5
3.
3.1
3.2
The WFOE shall have the right to exercise its purchase right in whole or in part and to acquire the Target Equity in whole or in part without any
limit at any time and from time to time.
The WFOE may designate any third party to acquire the Target Equity in whole or in part and the Shareholder(s) shall not refuse and shall
transfer the Target Equity in whole or in part to such Designee as requested by the WFOE.
Prior to the transfer of the Target Equity to the WFOE or the Designee according to this Agreement, the Shareholder(s) shall not transfer any
Target Equity without the WFOE’s prior written consent.
Target Assets
The Company hereby agrees and irrevocably, unconditionally and exclusively grants the WFOE an option to require the Company to transfer any
and all of the assets of the Company (“Target Assets”) to the WFOE or the Designee, in whole or in part, subject to the WFOE’s specific
requirements (“Assets Transfer Option”), in the following circumstances:
2.1.1
The WFOE and/or the Designee are permitted to own lawfully all or part of the Target Assets under the PRC laws and regulations; or
2.1.2
Any other circumstances deemed as appropriate or necessary by the WFOE in its sole discretion.
The Shareholder(s) hereby agree(s) the Company to grant this option.
The WFOE shall have the right to exercise its purchase right in whole or in part and to acquire the Target Assets in whole or in part without any
limit at any time and from time to time.
The WFOE may designate any third party to acquire the Target Equity in whole or in part and the Company and the Shareholder(s) shall not
refuse and shall transfer the Target Assets in whole or in part to such Designee as requested by the WFOE.
Prior to the transfer of the Target Assets to the WFOE or the Designee according to this Agreement, the Company and the Shareholder(s) shall
not transfer the Target Assets without the WFOE’s prior written consent.
Procedures for the Exercise of Equity Transfer Option
Upon execution of this Agreement, the Shareholder(s) shall have duly executed an equity interest transfer agreement in the format set forth in
APPENDIX 1 attached hereto and deliver the said document to the WFOE.
If the WFOE decides to exercise the Equity Transfer Option pursuant to Section 1.1 hereinabove, it shall send written notice to the Company and
the Shareholder(s) specifying the proportion of the Target Equity to be acquired and the identity of the transferee (“Equity Purchase Notice”).
2
3.3
3.4
3.5
4.
4.1
4.2
4.3
4.4
The Company and the Shareholder(s) shall furnish all materials and documents necessary for the registration of the aforesaid equity interest
transfer within 30 days after the date of Equity Purchase Notice, take all necessary actions and measures, including but not limited to holding
shareholders meetings and board meetings, and obtain other shareholders’ written consent to waive any preemptive right that they may have with
respect to the transfer of the Target Equity.
The Company shall cause the shareholder’ of the Company, the WFOE and/or the Designees to sign an equity transfer agreement in substantially
the form attached hereto as APPENDIX 1 with respect to any transfer of Target Equity Interest carried out pursuant to this Agreement and the
Equity Purchase Notice; provided, however, if there is specific requirements for the form and substance of the equity transfer agreement under
the PRC laws, such specific requirement shall be followed.
If the event the WFOE decides to exercise its equity interest purchase right pursuant to Section 1.1, the relevant Parties shall execute all the
necessary contracts, agreements or documents, obtain all the necessary government licenses and permits and take all necessary actions to transfer
the effective ownership of the Target Equity to the WFOE and/or the Designee(s), without any encumbrance, and cause the WFOE and/or the
Designee(s) to become the registered owner(s) of such Target Equity. For the purpose of this section and this Agreement, “Encumbrance” shall
mean any security, mortgage, third party’s rights or interests, any stock options, acquisition right, right of first refusal, right to offset, ownership
retention or other security arrangements, excluding any encumbrance created under this Agreement, the Equity Pledge Agreement and the
Exclusive Service Agreement.
Procedures for the Exercise of Assets Transfer Option
Upon execution of this Agreement, the Company shall have executed the Assets Transfer Agreement in the format set forth in APPENDIX
2 attached hereto and deliver the aforesaid document to the WFOE.
If the WFOE decides to exercise the Assets Transfer Option pursuant to Section 2.1 hereinabove, it shall send written notice to the Company
specifying the Target Assets to be transferred and the identity of the transferee (“Assets Purchase Notice”).
The Company and the Shareholder(s) shall furnish all materials and documents necessary for the assets transfer and the registration thereof (if
any) within 30 days after the date of the Assets Purchase Notice, and take all necessary actions and measure, including but not limited to holding
shareholders meetings or board meetings to approve the transactions.
The Company and the Shareholder(s) shall cause the Company to sign an asset transfer agreement with the WFOE and/or the Designees in
substantially the form attached hereto as APPENDIX 2 with respect to any transfer of Target Assets carried out pursuant to this Agreement and
the Asset Purchase Notice; provided, however, if there is specific requirements for the form and substance of the asset transfer agreement under
the PRC laws, such specific requirement shall be followed.
3
4.5
5.
5.1
5.2
6.
6.1
The relevant Parties shall execute all other necessary contracts, agreements or documents, obtain all necessary government licenses and permits
and take all necessary actions to transfer the effective ownership of the Target Assets to the WFOE and/or the Designee(s), without any
Encumbrance, and cause the WFOE and/or the Designee(s) to become the registered owner(s) of the Target Assets.
The total transfer price for the Target Equity and/or the Target Assets shall be RMB 1 yuan. If the PRC law or relevant regulations impose
mandatory requirements on the purchase price of such Target Equity and/or the Target Assets, the purchase price shall be such minimum price
permitted by PRC law or relevant regulations (“Transfer Price”). If any of the Target Equity and/or the Target Assets is transferred in
installments, the amount payable for each installment shall be determined in accordance with the proportion of Target Equity and/or the Target
Assets to be transferred.
All the taxes, fees and expenses arising from the transfer of the Target Equity and/or the Target Assets shall be borne by all Parties in accordance
with the PRC laws.
Covenants
Covenants of the Company and the shareholder(s)
The Shareholder(s) and the Company hereby covenant as follows:
6.1.1 Without the prior written consent of the WFOE, they shall not in any manner supplement, change or amend the articles of association
and bylaws of the Company, increase or decrease its registered capital, or change its structure of registered capital in other manners;
6.1.2
They shall maintain the Company’s corporate existence in accordance with good financial and business standards and practices by
prudently and effectively operating its business and handling its affairs;
6.1.3 Without the prior written consent of the WFOE, they shall not at any time following the date hereof, sell, transfer, mortgage, pledge or
dispose of in any manner any assets of the Company or any of the Company’s subsidiaries, as amended from time to time, or legal or
beneficial interest in the business (except in the ordinary course of business) or revenues of the Company, or allow the encumbrance
thereon of any security interest;
6.1.4 Without the prior written consent of the WFOE, they shall not incur, inherit, guarantee or suffer the existence of any debt, except for
debts incurred in the ordinary course of business;
4
6.1.5
They shall always operate all of the Company’s businesses during the ordinary course of business to maintain the asset value of the
Company and refrain from any action/omission that may affect the Company’s operating status and asset value;
6.1.6 Without the prior written consent of the WFOE, they shall not cause the Company to execute any material contract, except the contracts
in the ordinary course of business;
6.1.7 Without the prior written consent of the WFOE, they shall not cause the Company to provide any person or business with any loan or
credit other than in the course of ordinary business;
6.1.8
They shall provide the WFOE with information on the Company’s business operations and financial condition at the WFOE’s request;
6.1.9
If requested by the WFOE, they shall procure and maintain insurance in respect of the Company’s assets and business from an insurance
carrier acceptable to the WFOE, at an amount and type of coverage typical for companies that operate similar businesses;
6.1.10 Without the prior written consent of the WFOE, they shall not cause or permit the Company to merge, consolidate with, acquire or
invest in any person;
6.1.11 They shall immediately notify the WFOE of the occurrence or possible occurrence of any litigation, arbitration or administrative
proceedings relating to the Company’s assets, business or revenue;
6.1.12 To maintain the ownership by the Company of all of its assets, they shall execute all necessary or appropriate documents, take all
necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and appropriate defenses against all
claims;
6.1.13 Without the prior written consent of the WFOE, they shall ensure that the Company shall not in any manner distribute dividends, assets
or any distributable benefit to the Shareholder(s), provided that upon the WFOE’s written request, the Company shall immediately
distribute part or all distributable profits to the Shareholder(s) who shall in turn immediately and unconditionally pay or transfer to the
WFOE any such distribution;
6.1.14
If the aggregate amount of the Transfer Price received by it in respect of the transfer of the Target Equity it holds is higher than its
contribution to the Company, or it receives any form of profit distribution, dividend or bonus from the Company, then the Shareholder
agrees to waive, to the extent not in violation of the PRC Laws, the proceeds from such premium and any such profit distribution,
dividend or bonus, and the WFOE shall be entitled to such part of proceeds, otherwise the Shareholder shall make compensation to the
WFOE and/or the Designees to recover any damage that may arise from such circumstances; and
5
6.1.15 At the request of the WFOE, they shall appoint any person designated by the WFOE as the director and/or executive director of the
Company.
6.2
Covenants related to Equity of the Company
Each Shareholder hereby covenants as follows:
6.2.1 Without the prior written consent of the WFOE, each Shareholder shall not sell, transfer, pledge or dispose of in any other manner any
legal or beneficial interest in the Target Equity or allow the encumbrance thereon of any security interest, except for the pledge placed
on the Target Equity in accordance with the Equity Pledge Agreement;
6.2.2 Without the prior written consent of the WFOE, each Shareholder shall cause the shareholders’ meeting and/or the board of directors
and/or executive director of the Company not to approve the sale, transfer, pledge or disposition in any other manner of any legal or
beneficial interest in the Target Equity or allow the encumbrance thereon of any security interest, except for the pledge placed on the
Target Equity in accordance with the Equity Pledge Agreement;
6.2.3
6.2.4
6.2.5
6.2.6
6.2.7
6.2.8
The Shareholder shall cause the shareholders’ meeting or the board of directors and/or executive director of the Company not to
approve the merger or consolidation with any person, or the acquisition of or investment in any person, without the prior written consent
of the WFOE;
The Shareholder shall immediately notify the WFOE of the occurrence or possible occurrence of any litigation, arbitration or
administrative proceedings relating to the Target Equity;
At the request of the WFOE at any time, the Shareholder shall promptly and unconditionally cause the transfer of the Target Equity to
be approved and consummated as set forth in this Agreement;
To the extent necessary to maintain the Shareholder’s ownership in the Company, the Shareholder shall execute all necessary or
appropriate documents, take all necessary or appropriate actions and file all necessary or appropriate complaints or raise necessary and
appropriate defenses against all claims;
The Shareholder shall appoint any designee of the WFOE as the director and/or executive director of the Company, at the request of the
WFOE;
The Shareholder shall strictly abide by the provisions of this Agreement and other contracts jointly or separately executed by and
among the Shareholder, the WFOE, and the Company, perform the obligations hereunder and thereunder, and refrain from any
action/omission that may affect the effectiveness and enforceability thereof. To the extent that the Shareholder has any remaining rights
with respect to the equity interests subject to this Agreement hereunder or under the Equity Pledge Agreement or under the proxy
agreement and power of attorney granted in favor of the Shareholder, the Shareholder shall not exercise such rights except in
accordance with the written instructions of the WFOE.
6
7.
Representations and Warranties
The Shareholder(s) and the Company hereby represent and warrant to the WFOE, jointly and severally, as of the date of this Agreement and each
date of transfer of the Target Equity, that:
7.1
7.2
7.3
7.4
7.5
The Shareholder(s) and the Company have the authority to execute and deliver this Agreement and any relevant Equity Interest Transfer
Agreement concerning the Target Equity to be transferred thereunder, and to perform their obligations under this Agreement and any Equity
Interest Transfer Agreements;
The execution and delivery of this Agreement or any Equity Interest Transfer Agreements and the obligations under this Agreement or any
Equity Interest Transfer Agreements: (i) do not cause any violation of any applicable laws of PRC; (ii) are not inconsistent with the articles of
association, bylaws or other organizational documents of the Company; (iii) do not cause the violation of any contracts or instruments to which
they are a party or which are binding on them, or constitute any breach under any contracts or instruments to which they are a party or which are
binding on them; (iv) do not cause any violation of any condition for the grant and/or continued effectiveness of any licenses or permits issued to
either of them; and (v) do not cause the suspension or revocation of or imposition of additional conditions to any licenses or permits issued to
either of them;
The Shareholder(s) have/has good and merchantable title to the Target Equity. Except for the Equity Pledge Agreement, the Shareholder(s)
have/has not placed any security interest on the Target Equity;
The Company has a good and merchantable title to all of its assets, and has not placed any security interest on the aforementioned assets, except
for encumbrance disclosed to the WFOE for which the WFOE’s written consent has been obtained;
The Company does not have any outstanding debts, except for (i) debt incurred in the ordinary course of business; and (ii) debts disclosed to the
WFOE for which the WFOE’s written consent has been obtained; and
7.6
The Company has complied with all laws and regulations of PRC that are applicable to asset acquisitions.
7
8.
Taxes and Fees
Each Party shall pay any and all transfer and registration tax, expenses and fees incurred thereby or levied thereon in accordance with the laws of
the PRC in connection with the preparation and execution of this Agreement and the Equity Interest Transfer Agreement, as well as the
consummation of the transactions contemplated under this Agreement and the Equity Interest Transfer Agreement.
9.
Confidentiality
The Parties acknowledge that any oral or written information exchanged among them with respect to this Agreement is confidential information.
Each Party shall maintain the confidentiality of all such information, and without obtaining the written consent of other Parties, it shall not
disclose any relevant information to any third parties, except in the following circumstances: (a) such information is or will be in the public
domain (provided that this is not the result of a public disclosure by the receiving party); (b) information disclosed as required by applicable laws
or regulations or requirements of any stock exchange; or (c) information required to be disclosed by any Party to its legal counsel or financial
advisor regarding the transaction contemplated hereunder, and such legal counsel or financial advisor are also bound by confidentiality duties
similar to the duties in this section. Disclosure of any confidential information by the staff members or agency hired by any Party shall be
deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This Section
shall survive the termination of this Agreement for any reason.
10.
Assignment
10.1
10.2
The Company and the Shareholder(s) shall not assign any of their respective rights or obligations under this Agreement to any third party without
the prior written consent of the WFOE.
The Company and the Shareholder(s) hereby agree that the WFOE may assign its rights and obligations under this Agreement as the WFOE may
decide at its sole discretion, and such assignment shall only be subject to a written notice sent to the Company and the Shareholder(s).
11.
Entire Agreement and Amendment to Agreement
11.1
This Agreement and all agreements and/ or documents mentioned or included explicitly by this Agreement constitute the complete agreement
with respect to the subject matter of this Agreement and shall substitute any and all prior oral agreements, contracts, understandings and
communications made by the Parties with respect to the subject matter of this Agreement.
11.2
The Company and the Shareholder(s) shall not have the right to amend, supplement or cancel this Agreement in any manner without the prior
written consent of the WFOE.
11.3
The appendix is an integral part of this Agreement and has the same legal effects as the other parts of the Agreement.
8
12.
Governing Law and Dispute Resolution
12.1
This Agreement shall be construed in accordance with and governed by the laws of the PRC.
12.2 Any dispute arising from or in connection with this Agreement shall be submitted to China International Economic and Trade Arbitration
Commission (CIETAC) for arbitration which shall be conducted in accordance with the CIETAC’s arbitration rules in effect at the time of
applying for arbitration. The arbitral award is final and binding upon all Parties. The place of arbitration shall be in Beijing.
13.
Effective Date and Term
13.1
This Agreement shall be signed and take effect as of the date first set forth above.
13.2 Unless terminated in accordance with the provisions herein, this Agreement is valid for ten(10) years, and may automatically be extended for
another ten(10) years when expires. This agreement may be extended for unlimited times.
Termination
14.
Neither the Company nor the Shareholder(s) shall have the right to terminate this Agreement. Notwithstanding the foregoing provisions, the
WFOE may terminate this Agreement at any time in its sole discretion by giving the Company and the Shareholder(s) ten (10) days prior written
notice.
15.
Notices
Notices or other communications required to be given by any party pursuant to this Agreement shall be written in Chinese and delivered
personally or sent by registered mail or postage prepaid mail or by a recognized courier service or by facsimile transmission to the address of
each relevant party as specified by such party from time to time. The date when the notice is deemed to be duly served shall be determined as
follows: (a) a notice delivered personally is deemed duly served upon delivery; (b) a notice sent by mail is deemed duly served the tenth (10th)
day after the date when the postage prepaid registered airmail was sent out (as is shown on the postmark), or the fourth (4th) day after the
delivery date to the courier service company; and (c) a notice sent by facsimile transmission is deemed duly served upon the receipt time as is
shown on the transmission confirmation for relevant documents.
16.
Severability
If any provision of this Agreement is judged to be invalid or unenforceable because it is inconsistent with applicable laws, such invalidity or
unenforceability shall be only limited to such laws, and the validity, legality and enforceability of the other provisions hereof shall not be
affected.
9
17.
Counterparts
This Agreement shall be executed in [Party number] originals, with each Party holding one original. All originals shall have the same legal
effect. The Agreement may be executed in one or more counterparts.
[Signature pages follow]
10
IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.
[Name of the WFOE]
Signature:
Name:
Title:
[Signature Page to Exclusive Option Agreement]
IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.
[Name of the VIE]
Signature:
Name:
Title:
[Signature Page to Exclusive Option Agreement]
IN WITNESS WHEREOF, the Parties have duly executed this Agreement on the date appearing at the head hereof.
[Name of the VIE Shareholder]
Signature:
Name:
Title:
[Signature Page to Exclusive Option Agreement]
Equity Interest Transfer Agreement
This Equity Interest Transfer Agreement (“Agreement”) is entered into in China by:
APPENDIX 1
Transferor:
Transferee:
NOW, the parties hereto agree as follows concerning the equity interest transfer:
1.
2.
3.
4.
5.
The transferor agrees to transfer to the transferee % of equity interest of [Name of the VIE] held by the transferor, and the transferee
agrees to accept said equity interest.
After the closing of equity interest transfer, the transferor shall not have any rights and obligations as a shareholder with regard to the
transferred shares, and the transferee shall have such rights and obligations as a shareholder of [Name of the VIE]
Any matter not covered by this Agreement may be further agreed on by the parties hereto by signing supplementary agreements.
This Agreement shall be effective from the signing day.
This Agreement is executed in four originals, with each party holding one original. The remaining originals will be used for the filing
with the administration of industry and commerce.
Transferor:
Signature:
Date:
Transferee:
Signature:
Date:
APPENDIX 2
Assets Transfer Agreement
This Assets Transfer Agreement (“Agreement”) is entered into in China by:
Transferor: [Name of the VIE]
Transferee:
NOW, the Parties agree as follows concerning the assets transfer:
1.
2.
3.
4.
5.
The transferor agrees to transfer to the transferee the assets set forth in Schedule-1 hereto, and the transferee agrees to accept the said
assets.
After the closing of assets transfer, the transferor shall not have any rights and obligations as an owner with regard to the transferred
assets, and the transferee shall have such rights and obligations as an owner of the transferred assets.
Any matter not covered by this Agreement may be determined by the Parties by way of signing supplementary agreements.
This Agreement shall be effective from the signing day.
This Agreement is executed in four originals, with each party holding one original. The remaining originals will be used for the filing
with the administration of industry and commerce.
Transferor:
[Name of the VIE]
Signature:
Name:
Title: Date:
Transferee:
Signature:
Date:
Schedule - List of Assets
The VIE Shareholder and the VIE as set out below entered into exclusive option agreement with Hangzhou Yunchuang Gongxiang Network Technology
Co., Ltd., the WFOE, using this form, respectively. Pursuant to Instruction ii to Item 601 of Regulation S-K, the Registrant may only file this form as an
exhibit with a schedule setting forth the material details in which the executed agreements differ from this form:
Schedule of Material Differences
No.
1
Name of
VIE
Shareholder
Xiao
Shanglue
Name of Variable
Interest
Entity (the “VIE”)
Zhejiang Yunji
Youxuan
E-commerce Co.,
Ltd.
Version of Exclusive
Option Agreement
Amended and
Restated Exclusive
Option Agreement
% of VIE
Shareholder’s
Equity Interest
in the VIE
99.0099%
Execution
Date
December 14,
2018
Material Differences
The total transfer price for the Target Equity and/or the
Target Assets shall be equal to the loan provided by the
WFOE to the Shareholders under the Loan Contract.
This Agreement replace the proxy agreement and power
of attorney entered into by and among the Parties on
June 13, 2018.
The recital also references that “the WFOE, the Company
and its shareholders entered into a loan contract (the
“Loan Contract”) dated December 14, 2018.”
2
Hao Huan
Zhejiang Yunji
Youxuan E-
commerce Co.,
Ltd.
Amended and
Restated Exclusive
Option Agreement
This Agreement replace the proxy agreement and power
of attorney entered into by and among the Parties on
June 13, 2018.
0.9901%
December 14,
2018
3
4
5
6
7
8
Daqiao
Network
Technology
(Hangzhou)
Co., Ltd.
Hangzhou
Yuepeng
Trading Co.,
Ltd.
Deqing Jijie
Investment
Management
Partnership
(Limited
Partnership)
Shu Wenwei
Ding Panyan
Shu Wenwei
Yunji Sharing
Technology Co.,
Ltd.
Amended and
Restated Exclusive
Option Agreement
This Agreement replace the proxy agreement and
power of attorney entered into by and among the
Parties on April 16, 2018.
65.5346%
December 17,
2018
Yunji Sharing
Technology Co.,
Ltd.
Amended and
Restated Exclusive
Option Agreement
This Agreement replace the proxy agreement and
power of attorney entered into by and among the
Parties on April 16, 2018.
28.0862%
December 17,
2018
Yunji Sharing
Technology Co.,
Ltd.
Amended and
Restated Exclusive
Option Agreement
This Agreement replace the proxy agreement and
power of attorney entered into by and among the
Parties on April 16, 2018.
6.3792%
December 17,
2018
Exclusive Option
Agreement
N/A
Exclusive Option
Agreement
N/A
Exclusive Option
Agreement
N/A
Hangzhou
Chuanchou
Network
Technology Co.,
Ltd.
Hangzhou
Fengjing
Network
Technology Co.,
Ltd.
Hangzhou
Fengjing
Network
Technology Co.,
Ltd.
100%
October 23,
2020
60%
December 18,
2020
40%
December 18,
2020
List of Principal Subsidiaries of the Registrant
Exhibit 8.1
Subsidiary
Yunji Holding Limited
Yunji Hongkong Limited
Hangzhou Yunchuang Sharing Network Technology Co., Ltd.
Zhejiang Jiyuan Network Technology Co., Ltd.
Zhejiang Youji Supply Chain Management Co., Ltd.
Consolidated Variable Interest Entity
Yunji Sharing Technology Co., Ltd.
Zhejiang Yunji Preferred E-Commerce Co., Ltd.
Hangzhou Fengjing Network Technology Co., Ltd
Hangzhou Chuanchou Network Technology Co., Ltd.
Subsidiary of Consolidated Variable Interest Entity
Zhejiang Jishang Preferred E-Commerce Co., Ltd.
Zhejiang Jixiang E-commerce Co., Ltd
Shanghai Suye Cosmetics Co., Ltd.
Hangzhou Heyi e-commerce Co., Ltd
Place of Incorporation
Hong Kong
Hong Kong
People’s Republic of China
People’s Republic of China
People’s Republic of China
Place of Incorporation
People’s Republic of China
People’s Republic of China
People’s Republic of China
People’s Republic of China
Place of Incorporation
People’s Republic of China
People’s Republic of China
People’s Republic of China
People’s Republic of China
Certification by the Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 12.1
I, Shanglue Xiao, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 20-F of Yunji Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) 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)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by
the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial
reporting; and
5.
The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal
control over financial reporting.
Date: April 26, 2021
/s/ Shanglue Xiao
Signature
Chief Executive Officer
Title
Certification by the Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 12.2
I, Chengqi Zhang, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 20-F of Yunji Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) 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)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by
the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial
reporting; and
5.
The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal
control over financial reporting.
Date: April 26, 2021
/s/ Chengqi Zhang
Signature
Vice President of Finance
Title
Certification by the Principal Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 13.1
In connection with the Annual Report of Yunji Inc. (the “Company”) on Form 20-F for the year ended December 31, 2020 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Shanglue Xiao, Chief Executive Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Company.
Date: April 26, 2021
/s/ Shanglue Xiao
Signature
Chief Executive Officer
Title
Certification by the Principal Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 13.2
In connection with the Annual Report of Yunji Inc. (the “Company”) on Form 20-F for the year ended December 31, 2020 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Chengqi Zhang, Vice President of Finance of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Company.
Date: April 26, 2021
/s/ Chengqi Zhang
Signature
Vice President of Finance
Title
Consent of Independent Registered Public Accounting Firm
EXHIBIT 15.1
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (File No. 333-233539) of Yunji Inc. of our report
dated April 26, 2021 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this annual
report on Form 20-F.
/s/ PricewaterhouseCoopers Zhong Tian LLP
PricewaterhouseCoopers Zhong Tian LLP
Shanghai, the People’s Republic of China
April 26, 2021
33/F, HKRI Centre Two, HKRI Taikoo Hui, 288 Shimen Road (No. 1), Jing’an District
Shanghai 200041, PRC
Tel: +86 21 6080 0909 Fax: +86 21 6080 0999
Beijing · Shanghai · Shenzhen · Hong Kong
www.hankunlaw.com
EXHIBIT 15.2
Date: April 26, 2021
Yunji Inc.
15/F, South Building
Hipark Phase2, Xiaoshan District
Hangzhou, Zhejiang, 310000
People’s Republic of China
Dear Sir/Madam:
We hereby consent to the use of our name and the summary of our opinion under the headings, “Item 3. Key Information—D. Risk Factors,”
“Item 4. Information on the Company—B. Business Overview—Regulations” and “Item 4. Information on the Company—C. Organizational
Structure,” included in Yunji Inc.’s Annual Report on Form 20-F for the year ended December 31, 2020 (the “Annual Report”), which will be
filed with the Securities and Exchange Commission (the “SEC”) in the month of April 2021, and further consent to the incorporation by reference
of the summaries of our opinions under these headings into the Registration Statement on Form S-8 (File No. 333-233539) of Yunji Inc. We also
consent to the filing of this consent letter with the SEC as an exhibit to the Annual Report.
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 Act of 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 Offices
Han Kun Law Offices
CONFIDENTIALITY. This document contains confidential information which may be protected by privilege from disclosure. Unless you are the
intended or authorized recipient, you shall not copy, print, use or distribute it or any part thereof or carry out any act pursuant thereto and shall advise
Han Kun Law Offices immediately by telephone, e-mail or facsimile and return it promptly by mail. Thank you.
EXHIBIT 15.3
Yunji Inc.
15/F, South Building
Hipark Phase2, Xiaoshan District
Hangzhou, Zhejiang, 310000
People’s Republic of China
26 April 2021
Dear Sirs and/or Madams,
Yunji Inc.
We have acted as legal advisers as to the laws of the Cayman Islands to Yunji Inc., an exempted company incorporated in the Cayman Islands with
limited liability (the “Company”), in connection with the filing by the Company with the United States Securities and Exchange Commission (the
“SEC”) of an annual report on Form 20-F for the year ended 31 December 2020 (the “Annual Report”).
We hereby consent to the reference to our firm under the heading “Item 16G. Corporate Governance” in the Annual Report and further consent to the
incorporation by reference of the summary of our opinion under those headings into the Company’s registration statement on Form S-8 (File
No. 333-233539) that was filed on 30 August 2019.
We consent to the filing with the SEC of this consent letter as an exhibit to the Annual Report. 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 Act of 1933, or under the Securities Exchange Act of
1934, in each case, as amended, or the regulations promulgated thereunder.
Yours faithfully,
/s/ Maples and Calder (Hong Kong) LLP
Maples and Calder (Hong Kong) LLP