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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, 2022.
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)
Peng 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 8920
Email: zhangpeng@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, 2022, there were 2,018,397,352 ordinary shares outstanding, par value US$0.000005 per share, being the sum of 1,068,437,352
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
☐
Accelerated filer ☒
Non-accelerated filer
Emerging growth company
☐
☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected
not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of
the Exchange Act. ☐
†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting
Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☒
International Financial Reporting Standards as issued
by the International Accounting Standards Board
☐
Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to
follow. ☐ Item 17 ☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). ☐ Yes ☒ No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ☐ Yes ☐ No
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TABLE OF CONTENTS
INTRODUCTION
FORWARD-LOOKING STATEMENTS
PART I
ITEM 1.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 4A.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 8.
ITEM 9.
ITEM 10.
ITEM 11.
ITEM 12.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
OFFER STATISTICS AND EXPECTED TIMETABLE
KEY INFORMATION
INFORMATION ON THE COMPANY
UNRESOLVED STAFF COMMENTS
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
FINANCIAL INFORMATION
THE OFFER AND LISTING
ADDITIONAL INFORMATION
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
PART II
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
ITEM 13.
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
ITEM 14.
ITEM 15.
CONTROLS AND PROCEDURES
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
ITEM 16B. CODE OF ETHICS
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
ITEM 16G. CORPORATE GOVERNANCE
ITEM 16H. MINE SAFETY DISCLOSURE
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
PART III
ITEM 17.
ITEM 18.
ITEM 19.
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
EXHIBITS
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Unless otherwise indicated or the context otherwise requires, references in this annual report on Form 20-F to:
INTRODUCTION
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“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;
“Average spending per buyer” in a given period is calculated by dividing total GMV in that period by the number of buyers in the same
period;
“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 or mini program and satisfies certain requirements;
“mini program” or “mini programs” are to services run on third-party platforms, such as WeChat, that provide functions similar to those of
standalone mobile applications;
“ordinary shares” are to our ordinary shares, par value US$0.000005 per share;
“our WFOE” or “WFOE” are to Hangzhou Yunchuang Sharing Network Technology Co., Ltd. or Yunchuang Sharing;
“repeat purchase rate” in a given period are calculated as the number of transacting members who purchased not less than twice divided by
the total number of transacting members during such period;
“RMB” and “Renminbi” are to the legal currency of China;
“SPUs” are to standard product units offered on our platform. The number of SPUs does not represent the number of distinct products
offered on our platform. We assign the same SPU to the same type of product without distinguishing product specifics such as colors and
sizes;
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“transacting member” in a given period are to a member who successfully promotes our products to generate at least one order or places at
least one order on our platform, regardless of whether any product in such order is ultimately sold or delivered or whether any product in
such order is returned;
“US$,” “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;
“VIE” are to variable interest entity, and “the VIEs” or “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 (iv) Hangzhou Fengjing Network Technology Co., Ltd., or Hangzhou Fengjing;
“Yunji,” “we,” “us,” “our company,” “our” and “Group” are to Yunji Inc., our Cayman Islands holding company and its subsidiaries, and,
in the context of describing our operations and consolidated financial information, including the VIEs and the subsidiaries of the VIEs; 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 RMB6.8972 to US$1.00, the exchange rate in effect as of the end of December 30, 2022, 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:
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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 us, and their future development.
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.
PART I.
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3.
KEY INFORMATION
Our Holding Company Structure and Contractual Arrangements with the VIEs
Yunji Inc. is not an operating company in China but a Cayman Islands holding company with no equity ownership in the VIEs. We conduct our
business in China through (i) our PRC subsidiaries and (ii) the VIEs with which we have maintained contractual arrangements. PRC laws and
regulations restrict and impose conditions on foreign investment in value-added telecommunication services, audio and video services and certain other
businesses. Accordingly, we operate these businesses in China through the VIEs, and rely on contractual arrangements among our PRC subsidiaries, the
VIEs and their respective shareholders to direct the business operations of the VIEs. Revenues contributed by the VIEs accounted for 24.4%, 23.8% and
30.3% of our total revenues for the years of 2020, 2021 and 2022, respectively. As used in this annual report, “we,” “us,” “our company” and “our”
refers to Yunji Inc., our Cayman Islands holding company and its subsidiaries, and, in the context of describing our operations and consolidated financial
information, the VIEs and the subsidiaries of the VIEs. Holders of our ADSs hold equity interest in Yunji Inc., our Cayman Islands holding company,
and do not have direct or indirect equity interest in the VIEs.
A series of contractual agreements, including proxy agreement and powers of attorney, equity interest pledge agreement, exclusive service
agreement, and exclusive option agreement, have been entered into by and among our wholly owned PRC subsidiary, Yunchuang Sharing, the VIEs and
their respective shareholders. Terms contained in each set of contractual arrangements with the VIEs and their respective shareholders are substantially
similar. As a result of the contractual arrangements, we are able to direct the activities of and derive economic benefits from the VIEs. We are
considered the primary beneficiary of the VIEs for accounting purposes, and we have consolidated the financial results of the VIEs in our consolidated
financial statements. Neither we nor our investors has an equity ownership in, direct foreign investment in, or control through such ownership or
investment of, the variable interest entities, and the contractual arrangements are not equivalent to an equity ownership in the business of the variable
interest entities. For more details of these contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure.”
However, the contractual arrangements may not be as effective as direct ownership and we may incur substantial costs to enforce the terms of the
arrangements. There are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules
regarding the status of the rights of our Cayman Islands holding company with respect to its contractual arrangements with the VIEs and their respective
shareholders. It is uncertain whether any new PRC laws or regulations relating to VIE structures will be adopted or if adopted, what they would provide.
If we or the 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. Our holding
company, our PRC subsidiaries and the VIEs, and investors of our company face uncertainty about potential future actions by the PRC government that
could affect the enforceability of the contractual arrangements with the VIEs and, consequently, significantly affect the financial performance of the
VIEs and our company as a whole. In addition, these agreements have not been tested in China courts. For a detailed description of the risks associated
with our corporate structure, please refer to risks disclosed under “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate
Structure.”
PRC government’s significant authority in regulating our operations and its oversight and control over offerings conducted overseas by, and
foreign investment in, China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors.
Implementation of industry-wide regulations, including data security or anti-monopoly related regulations, in this nature may cause the value of such
securities to significantly decline. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The
PRC government’s significant oversight over our business operations could result in a material adverse change in our operations and the value of our
ADSs.”
Risks and uncertainties arising from the legal system in China, including risks and uncertainties regarding the enforcement of laws and quickly
evolving rules and regulations in China, could result in a material adverse change in our operations and the value of our ADSs. For more details, 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.”
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The chart below summarizes our corporate structure, including our principal subsidiaries, the VIEs and the VIEs’ principal subsidiaries, as of the
date of this annual report:
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.
(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 is a beneficial owner of the shares of our company and served as the chief
technology officer of our Company until his resignation on April 1, 2022.
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(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.
Permissions Required from the PRC Authorities for Our Operations
Our operations in China are governed by PRC laws and regulations. As of the date of this annual report, our PRC subsidiaries and the VIEs have
obtained the requisite licenses and permits from the PRC government authorities that are material for the business operations of our holding company
and the VIEs in China, including, among others, the VATS License and the Production and Operation of Broadcasting and Television Programs Permit.
Given the uncertainties of interpretation and implementation of relevant laws and regulations and the enforcement practice by relevant government
authorities, we may be required to obtain additional licenses, permits, filings or approvals for the functions and services of our platform in the future.
For more detailed information, see “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,” and “Item 3. Key Information—D. Risk Factors—Risks
Related to Doing Business in China—We and the VIEs may be adversely affected by the complexity, uncertainties and changes in PRC regulation of
internet-related businesses and companies.”
Furthermore, in connection with our historical issuance of securities to foreign investors, we, our PRC subsidiaries and the VIEs, (i) are not
required to obtain permissions from the China Securities Regulatory Commission, or the CSRC, (ii) are not required to go through cybersecurity review
by the Cyberspace Administration of China, or the CAC, and (iii) have not been asked to obtain such permissions by any PRC government authority.
Meanwhile, the PRC government has recently indicated an intent to exert more oversight and control over offerings that are conducted overseas
and/or foreign investment in China-based issuers. On February 17, 2023, the CSRC promulgated the Circular of the People’s Republic of China on
Administrative Arrangements for Filing of Overseas Offering and Listing of Domestic Enterprises, or the Circular of Overseas Listing and Offering, and
the Trial Administrative Measures of the Overseas Securities Offering and Listing by Domestic Companies and five relevant guidelines, or the Overseas
Listing Trial Measures. The Overseas Listing Trial Measures became effective on March 31, 2023. Pursuant to the Overseas Listing Trial Measures,
PRC domestic companies that seek to offer and list securities in overseas markets, either in direct or indirect means, are required to fulfill the filing
procedure with the CSRC and report relevant information. According to the Circular of Overseas Listing and Offering, issuers that have already been
listed in an overseas market by March 31, 2023, such as our company, are not required to make any immediate filing. However, under the Overseas
Listing Trial Measures, such issuers will be required to complete certain filing procedures with the CSRC in connection with future securities offerings
and listings outside of mainland China, including follow-on offerings, issuance of convertible bonds, offshore relisting after going-private transactions,
and other equivalent offering activities. There remain substantial uncertainties about the interpretation, application and implementation of the Overseas
Listing Trial Measures. If we fail to obtain required approval or complete other review or filing procedures, under the Overseas Listing Trial Measures
or otherwise, for any future securities offerings and listings outside of mainland China, we may face sanctions by the CSRC or other PRC regulatory
authorities, which may include fines and penalties on our operations in mainland China, limitations on our operating privileges in mainland China,
restrictions on or prohibition of the payments or remittance of dividends by our subsidiaries in mainland China, restrictions on or delays to our future
financing transactions offshore, or other actions that could have a material and adverse effect on our business, financial condition, results of operations,
reputation and prospects, as well as the trading price of our ADSs. For more detailed information, see “Item 3. Key Information—D. Risk Factors—
Risks Related to Doing Business in China—The approval and/or other requirements of the CSRC or other PRC governmental authorities may be
required in connection with an offering under PRC rules, regulations or policies, and, if required, we cannot predict whether or how soon we will be able
to obtain such approval or complete such other requirements.”
If (i) we do not receive or maintain any permits or approvals required of us, (ii) we inadvertently concluded that certain permits or approvals have
been acquired or are not required, or (iii) applicable laws, regulations, or interpretations thereof change and we become subject to the requirement of
additional permits or approvals in the future, we cannot assure you that we will be able to obtain such permissions or approvals in a timely manner, or at
all, and such approvals may be rescinded even if obtained. Any such circumstance could subject us to penalties, including fines, suspension of business
and revocation of required licenses, which could materially and adversely affect our business, financial condition and results of operations. For more
detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Relating 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.”
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The Holding Foreign Companies Accountable Act
Pursuant to the Holding Foreign Companies Accountable Act, or the HFCAA, if the Securities and Exchange Commission, or the SEC,
determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspections by the Public Company
Accounting Oversight Board, or the PCAOB, for two consecutive years, the SEC will prohibit our shares or the ADSs from being traded on a national
securities exchange or in the over-the-counter trading market in the United States. On December 16, 2021, the PCAOB issued a report to notify the SEC
of its determination that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland
China and Hong Kong, including our auditor. In May 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA
following the filing of our annual report on Form 20-F for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB issued a report
that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to
inspect or investigate completely registered public accounting firms. For this reason, we do not expect to be identified as a Commission-Identified Issuer
under the HFCAA after we file this annual report on Form 20-F. Each year, the PCAOB will determine whether it can inspect and investigate completely
audit firms in mainland China and Hong Kong, among other jurisdictions. If the PCAOB determines in the future that it no longer has full access to
inspect and investigate completely accounting firms in mainland China and Hong Kong and we continue to use an accounting firm headquartered in one
of these jurisdictions to issue an audit report on our financial statements filed with the SEC, we would be identified as a Commission-Identified Issuer
following the filing of the annual report on Form 20-F for the relevant fiscal year. There can be no assurance that we would not be identified as a
Commission-Identified Issuer for any future fiscal year, and if we were so identified for two consecutive years, we would become subject to the
prohibition on trading under the HFCAA. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China
—The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability
of the PCAOB to conduct inspections of our auditor in the past has deprived our investors with the benefits of such inspections” and “Item 3. Key
Information—D. Risk Factors—Risks Related to Doing Business in China—Our ADSs may be prohibited from trading in the United States under the
HFCAA in the future if the PCAOB is unable to inspect or investigate completely auditors located in mainland China and Hong Kong. The delisting of
the ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.”
Cash Flows through Our Organization
Yunji Inc. is a holding company with no operations of its own. We conduct our business in China through our subsidiaries and the VIEs in China.
As a result, although other means are available for us to obtain financing at the holding company level, Yunji Inc.’s ability to pay dividends to the
shareholders and to service any debt it may incur may depend upon dividends paid by our PRC subsidiaries and license and service fees paid by the
VIEs. If any of our subsidiaries incurs debt on its own behalf in the future, the instruments governing such debt may restrict its ability to pay dividends
to Yunji Inc. In addition, our PRC subsidiaries are permitted to pay dividends to Yunji Inc. only out of their retained earnings, if any, as determined in
accordance with PRC accounting standards and regulations. Further, our PRC subsidiaries and the VIEs are required to make appropriations to certain
statutory reserve funds or may make appropriations to certain discretionary funds, which are not distributable as cash dividends except in the event of a
solvent liquidation of the companies. For more details, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources
—Holding Company Structure.”
Under PRC laws and regulations, our PRC subsidiaries and the VIEs are subject to certain restrictions with respect to paying dividends or
otherwise transferring any of their net assets to us. Remittance of dividends by a wholly foreign-owned enterprise out of China is also subject to
examination by the banks designated by State Administration of Foreign Exchange, or the SAFE. The amounts restricted include the paid-up capital and
the statutory reserve funds of our PRC subsidiaries and the net assets of the VIEs in which we have no legal ownership, totaling RMB229.5 million,
RMB451.4 million and RMB453.4 million (US$65.7 million) as of December 31, 2020, 2021 and 2022, respectively. Furthermore, cash transfers from
our PRC subsidiaries and the VIEs to entities outside of China are subject to PRC government controls on currency conversion. To the extent cash in our
business is in the PRC or a PRC entity, such cash may not be available to fund operations or for other use outside of the PRC due to restrictions and
limitations imposed by the governmental authorities on currency conversion, cross-border transactions and cross-border capital flows. Shortages in the
availability of foreign currency may temporarily delay the ability of our PRC subsidiaries and the VIEs to remit sufficient foreign currency to pay
dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations. In view of the foregoing, to the extent cash in
our business is held in China or by a PRC entity, such cash may not be available to fund operations or for other use outside of the PRC. For risks relating
to the fund flows of our operations in China, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—We may rely
on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any
limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business”
and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Governmental control of currency conversion may limit
our ability to utilize our revenues effectively and affect the value of your investment.”
7
Table of Contents
Under PRC law, Yunji Inc. may provide funding to our PRC subsidiaries only through capital contributions or loans, and to the VIEs only through
loans, subject to satisfaction of applicable government registration and approval requirements. For the years ended December 31, 2020, 2021 and 2022,
Yunji Inc. extended loans with principal amount of RMB91.3 million, nil, and nil respectively, to our intermediate holding companies and subsidiaries
and received repayments of nil, RMB294.8 million and RMB19.7 million (US$2.9 million), respectively. For the years ended December 31, 2020, 2021
and 2022, Yunji Inc. didn’t make capital contributions to our intermediate holding companies and subsidiaries. For the years ended December 31, 2020,
2021 and 2022, the VIEs didn’t receive any loans from Yunji Inc. and Yunji Inc. didn’t receive any repayments from the VIEs. The VIEs may transfer
cash to our WFOE by paying service fees according to the exclusive service agreements. For the years ended December 31, 2020, 2021 and 2022, no
service fees were paid by the VIEs to our WFOE under the exclusive service agreements.
Yunji Inc. has not declared or paid any cash dividends, nor does it has any present plan to pay any cash dividends on our ordinary shares in the
foreseeable future. We currently intend to retain all of our available funds and any future earnings to operate and expand our business. We currently do
not have any plan to require our PRC subsidiaries to distribute their retained earnings and intend to retain them to operate and expand our business in the
PRC. See “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Dividend Policy.” For PRC and United States
federal income tax considerations of an investment in our ADSs, see “Item 10. Additional Information—E. Taxation.”
For purposes of illustration, the following discussion reflects the hypothetical taxes that might be required to be paid within mainland China,
assuming that: (i) we have taxable earnings, and (ii) we determine to pay a dividend in the future:
Hypothetical pre-tax earnings(2)
Tax on earnings at statutory rate of 25%(3)
Net earnings available for distribution 75%
Withholding tax at standard rate of 10%(4)
Net distribution to Parent/Shareholders
Tax calculation(1)
100%
(25)%
75%
(7.5)%
67.5%
Notes:
(1)
For purposes of this example, the tax calculation has been simplified. The hypothetical book pre-tax earnings amount, not considering timing
differences, is assumed to equal taxable income in China.
(2) Under the terms of VIE contractual arrangements, our WFOE may charge the VIEs for services provided to VIEs. These service fees shall be
recognized as expenses of the VIEs, with a corresponding amount as service income by our WFOE and eliminate in consolidation. For income tax
purposes, our WFOE and the VIEs file income tax returns on a separate company basis. The service fees paid are recognized as a tax deduction by
the VIEs and as income by our WFOE and are tax neutral.
(3) Certain of our subsidiaries and the VIEs qualifies for a 15% preferential income tax rate in China. However, such rate is subject to qualification, is
(4)
temporary in nature, and may not be available in a future period when distributions are paid. For purposes of this hypothetical example, the table
above reflects a maximum tax scenario under which the full statutory rate would be effective.
The PRC Enterprise Income Tax Law imposes a withholding income tax of 10% on dividends distributed by a foreign invested enterprise, or FIE,
to its immediate holding company outside of China. A lower withholding income tax rate of 5% is applied if the FIE’s immediate holding
company is registered in Hong Kong or other jurisdictions that have a tax treaty arrangement with China, subject to a qualification review at the
time of the distribution. For purposes of this hypothetical example, the table above assumes a maximum tax scenario under which the full
withholding tax would be applied.
The table above has been prepared under the assumption that all profits of the VIEs will be distributed as fees to our WFOE under tax neutral
contractual arrangements. If, in the future, the accumulated earnings of the VIEs exceed the service fees paid to our WFOE (or if the current and
contemplated fee structure between the intercompany entities is determined to be non-substantive and disallowed by Chinese tax authorities), the VIEs
could make a non-deductible transfer to our WFOE for the amounts of the stranded cash in the VIEs. This would result in such transfer being
non-deductible expenses for the VIEs but still taxable income for the WFOE. Such a transfer and the related tax burdens would reduce our after-tax
income to approximately 50.6% of the pre-tax income. Our management believes that there is only a remote possibility that this scenario would happen.
Financial Information Related to the VIEs
The following tables provide condensed consolidating schedules depicting the financial position, cash flows, and results of operations for Yunji
Inc., its subsidiaries, the VIEs and their subsidiaries, and any eliminating adjustments and consolidated totals (in thousands of RMB) as of and for the
dates presented.
8
Table of Contents
Selected Condensed Consolidating Statements of Comprehensive (Loss)/Income Information
Revenues
Third-party revenues
Intra-Group revenues(3)
Total revenues
Operating cost and expenses
Third-party operating cost and expenses
Intra-Group operating cost and expenses(3)
Total operating cost and expenses
Other operating income, net
(Loss)/income from operations
Other non-operating (loss)/income
Share of loss from investments in VIEs and subsidiaries
Loss before income tax expense, and equity in income of affiliates,
For the Year Ended December 31, 2022
Yunji
Inc.
Primary
Beneficiary
of VIEs
VIEs and
their
subsidiaries
Other
subsidiaries
Eliminating
adjustments
Consolidated
Totals
(RMB in thousands)
—
—
—
— 1,154,114
— 349,259 804,855
— 229,562 179,546 (409,108)
—
— 578,821 984,401 (409,108) 1,154,114
(10,706)
(2,825) (478,245) (762,504)
— (1,254,280)
(10,706)
—
—
(10,706)
(2,825)
(12,387) (34,347)
(115,080) (91,001)
(178,573) (230,535) 409,108
—
(2,825) (656,818) (993,039) 409,108 (1,254,280)
21,599
11,642
(78,567)
3,004
(27,981)
10,505
—
—
—
—
— (128,815) 334,896
9,957
(68,040)
8,248
net of tax
Income tax expense
Equity in loss of affiliates, net of tax
Net loss
(138,173) (128,173)
—
(642)
(138,173) (128,815)
—
—
(59,792) (115,306) 334,896
—
(14,575)
(10,216)
(5,321)
—
(1,088)
(75,329) (130,969) 334,896
(106,548)
(24,791)
(7,051)
(138,390)
Less: Net loss from operations attributable to non-controlling
interests shareholders
Net loss attributable to Yunji Inc.
—
—
(138,173) (128,815)
(217)
—
(75,112) (130,969) 334,896
—
(217)
(138,173)
Revenues
Third-party revenues
Intra-Group revenues(3)
Total revenues
Operating cost and expenses
Third-party operating cost and expenses
Intra-Group operating cost and expenses(3)
Total operating cost and expenses
Other operating income, net
(Loss)/income from operations
Other non-operating (loss)/income
Share of income from investments in VIEs and subsidiaries
Income before income tax expense, and equity in income of
affiliates, net of tax
Income tax expense
Equity in loss of affiliates, net of tax
Net income
For the Year Ended December 31, 2021
Yunji
Inc.
Primary
Beneficiary
of VIEs
VIEs and
their
subsidiaries
Other
subsidiaries
Eliminating
adjustments
Consolidated
Totals
(RMB in thousands)
—
—
—
— 2,155,361
—
—
—
— 1,014,467 1,764,377 (623,483) 2,155,361
513,299 1,642,062
501,168
122,315 (623,483)
(4,161)
(22)
(906,559) (1,262,021)
(118,456)
(19,684)
—
(19,684)
—
—
(19,684)
(4,183)
(15,794) 10,098
167,444 183,097
— (2,192,425)
—
(4,183) (1,025,015) (1,767,026) 623,483 (2,192,425)
54,416
17,352
191,670
—
—
—
—
181,454 (531,995)
27,953
17,405
196,399
—
26,463
23,814
967
(505,005) 623,483
131,966 189,012
(1,441)
—
—
(6,117)
131,966 181,454
213,804
(40,299)
(8,555)
164,950
206,235 (531,995)
—
(18,761)
—
(1,565)
185,909 (531,995)
209,022
(60,501)
(16,237)
132,284
Less: Net income from operations attributable to non-controlling
interests shareholders
Net income attributable to Yunji Inc.
—
—
131,966 181,454
59
164,891
259
—
185,650 (531,995)
318
131,966
9
Table of Contents
Revenues
Third-party revenues
Intra-Group revenues(3)
Total revenues
Operating cost and expenses
Third-party operating cost and expenses
Intra-Group operating cost and expenses(3)
Total Operating cost and expenses
Other operating income, net
(Loss)/income from operations
Other non-operating income/(loss)
Share of loss from investments in VIEs and subsidiaries
(Loss)/income before income tax expense, and equity in income
For the Year Ended December 31, 2020
Yunji Inc.
Primary
Beneficiary
of VIEs
VIEs and
their
subsidiaries
Other
subsidiaries
Eliminating
adjustments
Consolidated
Totals
(RMB in thousands)
—
—
— 1,351,842 4,178,415
— 1,770,244
622,286 (2,392,530)
— 5,530,257
—
—
— 3,122,086 4,800,701
(2,392,530) 5,530,257
-
(18,016)
—
(18,016)
—
(18,016)
—
(3,500)
3,105 (34,086)
(131,435) (36,242)
— (5,660,935)
(1,022) (2,566,806) (3,075,091)
(2,478)
—
(565,409) (1,824,643) 2,392,530
(3,500) (3,132,215) (4,899,734) 2,392,530 (5,660,935)
33,218
14,902
(97,460)
(84,131)
(11,100)
(64,224)
—
(13,264)
—
—
—
180,941
18,316
8,187
15,933
—
of affiliates, net of tax
Income tax expense
Equity in loss of affiliates, net of tax
Net (loss)/income
(146,346)
—
—
(5,656)
(7,363)
(245)
(146,346) (13,264)
24,120
(13,989)
(3,305)
6,826
(161,619)
(17,946)
(284)
(179,849)
180,941
—
—
180,941
(108,560)
(39,298)
(3,834)
(151,692)
Less: Net loss from operations attributable to non-controlling
interests shareholders
Net (loss)/income attributable to Yunji Inc.
—
—
(146,346) (13,264)
(1,312)
8,138
(4,034)
(175,815)
—
180,941
(5,346)
(146,346)
10
Table of Contents
Selected Condensed Consolidating Balance Sheets Information
Yunji Inc.
Primary
Beneficiary
of VIEs
VIEs and
their
subsidiaries
Other
Subsidiaries
Eliminating
adjustments
Consolidated
Totals
As of December 31, 2022
(RMB in thousands)
Cash and cash equivalents
Restricted cash
Short-term investments
Inventories, net
Amounts due from the Group companies(1)
Prepaid expenses and other current assets
Other current assets
Total current assets
Investment in subsidiaries and VIEs(2)
Long-term investments
Other non-current assets
Total non-current assets
Total assets
Accounts payable
Deferred revenue
Incentive payables to members
Amounts due to the Group companies(1)
Other payable and accrued liabilities
Other liabilities
Total liabilities
Total shareholders’ equity/(deficit)(2)
Total liabilities and shareholders’ equity/(deficit)
Cash and cash equivalents
Restricted cash
Short-term investments
Inventories, net
Amounts due from the Group companies(1)
Prepaid expenses and other current assets
Other current assets
Total current assets
Investment in subsidiaries and VIEs(2)
Long-term investments
Other non-current assets
Total non-current assets
Total assets
2,635
—
—
—
65,363
—
70,125
—
1,516 59,660
—
4,500 114,265 230,506
—
42,109
— 141,878
52,016
—
—
—
—
161,124 638,705 719,655 1,845,206 (3,364,690)
—
—
414,634
42,109
212,003
54,651
—
362,065
127,051
298,128 702,865 989,134 2,587,076 (3,364,690) 1,212,513
—
1,020,937 (49,134)
— 268,813 (1,240,616)
414,325
—
265,573
—
1,060,754 (37,150) 225,413 671,497 (1,240,616)
679,898
1,358,882 665,715 1,214,547 3,258,573 (4,605,306) 1,892,411
938 214,450 159,120
10,963 243,564
81,307 219,582
97,888
29,163
39,817
—
11,046
—
67,896
5,350
—
71,007
—
—
16,398
— 207,331
—
—
—
—
—
—
— 393,425 900,852 2,070,413 (3,364,690)
—
—
3,852 401,902 1,300,137 2,195,310 (3,364,690)
138,903
21,748
207,331
—
145,527
23,002
536,511
1,355,030 263,813
(85,590) 1,063,263 (1,240,616) 1,355,900
1,358,882 665,715 1,214,547 3,258,573 (4,605,306) 1,892,411
91,469
13,080
41,729
9,922
8,477
—
3,852
—
Yunji Inc.
Primary
Beneficiary
of VIEs
VIEs and
their
subsidiaries
Other
Subsidiaries
Eliminating
adjustments
Consolidated
Totals
As of December 31, 2021
1,694
8,923
—
—
—
(RMB in thousands)
70,599 479,004
285
62,243
— 184,373
82,806
8,678
—
195,679
—
4,113 16,662 158,148 251,794
16,007 164,128
—
—
—
—
110,729 763,134 520,888 1,281,468 (2,676,219)
—
—
567,204
62,528
380,052
84,500
—
430,717
180,135
319,199 788,719 829,579 2,443,858 (2,676,219) 1,705,136
—
1,114,353 12,364
381,401
263,433
1,160,915
644,834
1,480,114 859,837 1,077,560 3,098,519 (4,166,060) 2,349,970
— 363,124 (1,489,841)
—
3,388 215,293 116,158
—
32,688 175,379
71,118 247,981 654,661 (1,489,841)
— 55,366
46,562
—
—
Accounts payable
Deferred revenue
Incentive payables to members
Amounts due to the Group companies(1)
Other payable and accrued liabilities
Other liabilities
254,839
105,752
265,612
—
202,786
42,466
871,455
Total liabilities
Total shareholders’ equity/(deficit)(2)
(43,987) 1,171,323 (1,489,841) 1,478,515
Total liabilities, mezzanine equity and shareholders’ (deficit)/equity 1,480,114 859,837 1,077,560 3,098,519 (4,166,060) 2,349,970
—
—
—
—
—
—
— 488,223 793,245 1,394,751 (2,676,219)
—
—
2,218 496,713 1,121,547 1,927,196 (2,676,219)
— 121,347 133,492
21,058
—
84,694
6,085 259,527
—
8,490 156,509
23,303
1,477,896 363,124
35,569
19,163
2,218
—
—
11
Table of Contents
Yunji Inc.
Primary
Beneficiary
of VIEs
VIEs and
their
subsidiaries
Other
Subsidiaries
Eliminating
adjustments
Consolidated
Totals
As of December 31, 2020
(RMB in thousands)
Cash and cash equivalents
Restricted cash
Short-term investments
Inventories, net
Amounts due from the Group companies(1)
Prepaid expenses and other current assets
Other current assets
Total current assets
Investment in subsidiaries and VIEs(2)
Long-term investments
Other non-current assets
Total non-current assets
Total assets
Accounts payable
Deferred revenue
Incentive payables to members
Amounts due to the Group companies(1)
Other payable and accrued liabilities
Other liabilities
Total liabilities
Total shareholders’ (deficit)/equity(2)
Total liabilities, mezzanine equity and shareholders’
(deficit)/equity
3,654
—
—
—
— 125,844
—
—
8,853 26,156 195,428 179,986
37,141 238,789
7,172 137,994 915,080
—
— 134,146
3,500 131,745
— 1,063,900
125,844
—
134,146
—
135,245
—
—
422,980 721,329 3,909,067 4,625,824 (9,679,200)
410,423
—
276,410
—
435,487 755,137 4,408,974 6,225,570 (9,679,200) 2,145,968
—
879,587 (148,786)
— 186,923
158,931
— 16,418
34,625 107,888
245,582
— 53,612
84,537 107,433
879,587 (78,756) 119,162 402,244
404,513
1,315,074 676,38 4,528,136 6,627,814 (10,596,924) 2,550,481
(917,724)
—
—
(917,724)
480
—
— 296,640 204,909
35,412
—
15,539
8,212 303,958
—
—
—
—
—
—
—
— 482,871 4,142,953 5,053,376 (9,679,200)
—
—
501,549
50,951
312,170
—
280,586
90,357
3,067 489,458 4,782,685 5,639,603 (9,679,200) 1,235,613
(917,724) 1,314,868
6,587 228,321
71,147
42,611
19,210
3,067
—
—
1,312,007 186,923 (254,549) 988,211
1,315,074 676,381 4,528,136 6,627,814 (10,596,924) 2,550,481
12
Table of Contents
Selected Condensed Consolidating Cash Flows Information
Yunji Inc.
Primary
Beneficiary
of VIEs
VIEs and
their
subsidiaries
Other
Subsidiaries
Eliminating
adjustments
Consolidated
Total
For the Year Ended December 31, 2022
Net cash (used in)/ provided by transactions with external parties
Net cash (used in)/ provided by transactions with intra-Group
entities
Net cash (used in)/ provided by operating activities
Net cash provided by /(used in) transactions with external parties
Net cash provided by/(used in) transactions with intra-Group
entities
Net cash generated from/(used in) investing activities
Net cash (used in)/ provided by transactions with external parties
Net cash provided by/(used in) transactions with intra-Group
entities
Net cash (used in)/generated from 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
(9,075)
1,202
651,432
(860,381)
—
(216,822)
(RMB in thousands)
—
(9,075)
134,871
19,681
154,552
(94,752)
—
(94,752)
5,960
56,685
8,678
65,363
—
1,202
1,612
(698,690)
(47,258)
5,216
698,690
(161,691)
(49,134)
—
—
—
(216,822)
92,565
(7,577)
(5,965)
—
285
285
55
60,000
65,216
197
4,250
4,447
1,127
(4,535)
(53,669)
—
(72,104)
(72,104)
38,681
(67,569)
(67,569)
—
67,569
67,569
—
—
92,565
(94,555)
—
(94,555)
45,823
(4,423)
8,923
4,500
23,532
132,842
156,374
(248,783)
479,289
230,506
—
—
—
(172,989)
629,732
456,743
For the Year Ended December 31, 2021
Yunji Inc.
Primary
Beneficiary
of VIEs
VIEs and
their
subsidiaries
Other
Subsidiaries
Eliminating
adjustments
Consolidated
Total
(RMB in thousands)
Net cash (used in)/ provided by transactions with external parties
Net cash (used in)/ provided by transactions with intra-Group entities
Net cash (used in)/ provided by operating activities
Net cash (used in)/ provided by transactions with external parties
Net cash provided by/(used in) transactions with intra-Group entities
Net cash generated from/(used in) investing activities
Net cash provided by/(used in) transactions with external parties
Net cash provided by/(used in) transactions with intra-Group entities
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
—
42,483
8,102 (270,975)
(23,226) 23,972 539,673 (566,410)
— (497,190) 497,190
(69,220)
(23,226) 23,972
(264,919) 13,997
294,838 (41,556) (180,000)
(5,352)
29,919 (27,559) (171,898) (276,327)
(53)
(1,198)
(73,282)
—
(73,335)
(1,198)
(16,909)
(383)
1,751 (130,996) (435,791)
7,172 263,838 915,080
8,923 132,842 479,289
788
—
788
(2,457)
5,024
3,654
8,678
—
5,352
5,352
(14)
—
—
—
(25,991)
—
(25,991)
(513,795)
—
(67,930)
(513,795)
(67,930)
(463)
—
—
67,930
(463)
67,930
(19,763)
—
—
(560,012)
— 1,189,744
629,732
—
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Net cash (used in)/ provided by transactions with external parties
Net cash (used in)/ provided by transactions with intra-Group entities
Net cash (used in)/generated from operating activities
Net cash provided by/(used in) transactions with external parties
Net cash (used in)/ provided by transactions with intra-Group entities
Net cash generated from/(used in) investing activities
Net cash (used in)/ provided by transactions with external parties
Net cash provided by/(used in) transactions with intra-Group entities
Net cash (used in)/generated from financing activities
Effect of exchange rate changes on cash and cash equivalents
Net (decrease)/increase 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, 2020
Yunji Inc.
Primary
Beneficiary
of VIEs
VIEs and
their
subsidiaries
Other
Subsidiaries
Eliminating
adjustments
Consolidated
Totals
(RMB in thousands)
(261,514)
—
(29,257) 29,329 2,426,562 (2,688,148)
—
—
— (2,365,128) 2,365,128
—
(261,514)
—
(323,020)
(29,257) 29,329
551,015
480,353
97,666
—
(8,657)
—
(361,307) 835,448
(91,294) (382,847)
551,015
119,046 835,448
6,372 (391,504)
(13,876)
(16,176)
—
—
—
474,141 (835,448)
— 361,307
(13,876)
474,141 (835,448)
(16,176) 361,307
(53,624)
—
(52,260)
(40)
222,001
—
217,907
(908)
—
697,173
8,080
967,743
— 1,189,744
915,080
7,172
61,434
(18,347)
—
(18,347)
2,300
—
2,300
(1,161)
44,226
219,612
263,838
(163)
(39,224)
42,878
3,654
—
14
Table of Contents
Notes:
(1) Represents the elimination of intercompany balances among Yunji Inc., the Primary Beneficiary of VIEs, the Other Subsidiaries, and the VIEs and
their subsidiaries that we consolidate.
(2) Represents the elimination of investments among Yunji Inc., the Primary Beneficiary of VIEs, the Other Subsidiaries, and VIEs and their
subsidiaries that we consolidate.
(3) Represents the elimination of the intercompany sales of goods and rendering of services at the consolidation.
A.
B.
[Reserved]
Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Summary of Risk Factors
Investing in our ADSs involves significant risks. You should carefully consider all of the information in this annual report before making an
investment in our ADSs. Below is a summary of material risks we and the VIEs face, organized under relevant headings. These risks are discussed more
fully in Item 3. Key Information—D. Risk Factors.
Risks Related to Our Business and Industry
We and the VIEs are subject to risks and uncertainties related to our business and industry, including, but not limited to, the following:
•
•
•
•
•
•
•
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.
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.
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.
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.
Any harm to our Yunji brand or reputation may materially and adversely affect our business and results of operations.
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.
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.
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•
•
•
•
Our and the VIEs’ business generates and processes a large amount of data, and we are required to comply with PRC and other applicable
laws relating to data privacy and cybersecurity. Many of these laws and regulations are subject to change and uncertain interpretation, and
improper use or disclosure of data could have a material and adverse effect on our business and prospects.
We face risks related to natural disasters, health epidemics and other outbreaks, which could significantly disrupt our operations.
We face intense competition. We may lose market share and users if we fail to compete effectively.
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.
Risks Related to Our Corporate Structure
We and the VIEs are also subject to risks and uncertainties related to our corporate structure, including, but not limited to, the following:
•
•
•
•
Yunji Inc. is a Cayman Islands holding company with no equity ownership in the VIEs, and we conduct our operations in China primarily
through (i) our PRC subsidiaries and (ii) the VIEs with which we have maintained contractual arrangements. Holders of our ADSs hold
equity interest in Yunji Inc., our Cayman Islands holding company, and do not have direct or indirect equity interest in the VIEs. If the
PRC government finds that the agreements that establish the structure for operating some of our business 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 and the VIEs could be subject to severe penalties, or be forced to relinquish our interest in those operations. Our holding
company in the Cayman Islands, the VIEs, and investors of Yunji face uncertainty about potential future actions by the PRC government
that could affect the enforceability of the contractual arrangements with the VIEs and, consequently, significantly affect the financial
performance of the VIEs and our company as a whole.
We rely on contractual arrangements with the VIEs and their respective shareholders for a large portion of our business operations, which
may not be as effective as direct ownership.
Any failure by the 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.
The shareholders of the VIEs may have potential conflicts of interest with us, which may materially and adversely affect our business and
financial condition.
Risks Related to Doing Business in China
We and the VIEs face risks and uncertainties related to doing business in China in general, including, but not limited to, the following:
•
•
Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business
and operations.
Risks and uncertainties arising from the legal system in China, including risks and uncertainties regarding the enforcement of laws and
quickly evolving rules and regulations in China, could result in a material adverse change in our operations and the value of our ADSs. For
more details, 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” and “Item 3. Key Information—D. Risk
Factors—Risks Related to Doing Business in China—We and the VIEs may be adversely affected by the complexity, uncertainties and
changes in PRC regulation of internet-related businesses and companies.”
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•
The PRC government’s significant authority in regulating our operations and its oversight and control over offerings conducted overseas
by, and foreign investment in, China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer
securities to investors. Implementation of industry-wide regulations in this nature may cause the value of such securities to significantly
decline. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The PRC
government’s significant oversight over our business operations could result in a material adverse change in our operations and the value of
our ADSs.”
•
The approval and/or other requirements of the CSRC or other PRC governmental authorities may be required in connection with an
offering under PRC rules, regulations or policies, and, if required, we cannot predict whether or how soon we will be able to obtain such
approval or complete such other requirements. Any failure to obtain or delay in obtaining such approval for this offering, or a rescission of
obtained approval, would subject us to sanctions imposed by the CSRC or other PRC government authorities. For more details, see “Item
3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The approval and/or other requirements of the CSRC
or other PRC governmental authorities may be required in connection with an offering under PRC rules, regulations or policies, and, if
required, we cannot predict whether or how soon we will be able to obtain such approval or complete such other requirements.”
•
Our ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or fully
investigate auditors located in mainland China and Hong Kong. The PCAOB had historically been unable to inspect our auditor in relation
to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections of our auditor in the past
has deprived our investors with the benefits of such inspections. The delisting of our ADSs, or the threat of their being delisted, may
materially and adversely affect the value of your investment. For more details, see “Item 3. Key Information—D. Risk Factors—Risks
Related to Doing Business in China—The PCAOB had historically been unable to inspect our auditor in relation to their audit work
performed for our financial statements and the inability of the PCAOB to conduct inspections of our auditor in the past has deprived our
investors with the benefits of such inspections” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in
China—Our ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect
or investigate completely auditors located in mainland China and Hong Kong. The delisting of the ADSs, or the threat of their being
delisted, may materially and adversely affect the value of your investment.”
Risks Related to our ADSs
We face risks and uncertainties related to our ADSs, including, but not limited to, the following:
•
•
•
•
Our ADSs may be delisted from the Nasdaq Global Market as a result of our failure of meeting the Nasdaq Global Market continued
listing requirements.
The trading price of our ADSs may be volatile, which could result in substantial losses to you.
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.
It is likely that we will be classified as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for the taxable
year ended December 31, 2022, and possibly for the current taxable year and future taxable years, which could result in adverse U.S.
federal income tax consequences to U.S. holders of our ADSs or ordinary shares.
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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 RMB5,530.3 million in 2020 to
RMB2,155.4 million in 2021 and further to RMB1,154.1 million (US$167.3 million ) in 2022. The decrease in total revenues in 2021 was 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. The decrease in total revenues in 2022 was primarily due to the negative impact of the COVID-19 on our operations
and the continued strategy to refine our product selection across all categories and optimize our selection of suppliers and merchants, causing near-term
decreases in 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. The decrease in total revenues in 2021 was primarily due to our strategy to refine our product selection
across all categories and carefully curate products to implement our megahit product pool initiative focusing on the development of private labels and
exclusive products and our long-term growth strategy to focus on profitability, which lead to optimization of selection of suppliers and merchants during
this refinement process, causing near-term decreases in both our marketplace business and merchandise sales.
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 was approximately 29.5 million as of December 31, 2022. 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. Our membership system has experienced
various changes in the past few years. Currently, one can become a member of our platform 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 or mini program, and continued membership eligibility
will be contingent upon meeting a certain cumulative spending threshold or certain other requirements. See “Item 4. Information on the Company—B.
Business Overview—Our Member Community—Members” for more details of the previous changes in our membership system. 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.
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 on 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.
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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:
•
•
•
•
•
•
•
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.
Our and the VIEs’ business generates and processes a large amount of data, and we are required to comply with PRC and other applicable laws
relating to data privacy and cybersecurity. Many of these laws and regulations are subject to change and uncertain interpretation, and improper use
or disclosure of data could have a material and adverse effect on our business and prospects.
Our and the VIEs’ 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
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•
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.
In general, we expect that data security and data protection compliance will receive greater attention and focus from regulators, both domestically
and globally, as well as attract continued or greater public scrutiny and attention going forward, which could increase our compliance costs and subject
us to heightened risks and challenges associated with data security and protection. If we are unable to manage these risks, we could become subject to
penalties, including fines, suspension of business and revocation of required licenses, and our reputation and results of operations could be materially
and adversely affected.
The PRC regulatory and enforcement regime with regard to data security and data protection is evolving and may be subject to different
interpretations or significant changes. Moreover, different PRC regulatory bodies, including the Standing Committee of the NPC, the Ministry of
Industry and Information Technology, or the MIIT, the CAC, the Ministry of Public Security of the PRC, or the MPS, and the SAMR, have enforced
data privacy and protections laws and regulations with varying standards and applications. See “Item 4. Information on the Company—B. Business
Overview—Regulations—Regulations Relating to Cyber Security, Data Security, National Security and Personal Information Protection.” The following
are examples of certain recent PRC regulatory activities in this area:
Data Security
•
In June 2021, the Standing Committee of the NPC promulgated the Data Security Law, which took effect in September 2021. The Data
Security Law, among other things, provides for security review procedure for data-related activities that may affect national security. In
July 2021, the state council promulgated the Regulations on Protection of Critical Information Infrastructure, which became effective on
September 1, 2021. Pursuant to this regulation, critical information infrastructure means key network facilities or information systems of
critical industries or sectors, such as public communication and information service, energy, transportation, water conservation, finance,
public services, e-government affairs and national defense science, the damage, malfunction or data leakage of which may endanger
national security, people’s livelihoods and the public interest. In December 2021, the CAC, together with other authorities, jointly
promulgated the Cybersecurity Review Measures, which became effective on February 15, 2022 and replaces its predecessor regulation.
Pursuant to the Cybersecurity Review Measures, critical information infrastructure operators that procure internet products and services
must be subject to the cybersecurity review if their activities affect or may affect national security. The Cybersecurity Review Measures
further stipulates that critical information infrastructure operators or network platform operators that hold personal information of over one
million users shall apply with the Cybersecurity Review Office for a cybersecurity review before any public offering at a foreign stock
exchange. Based on an expert interpretation published on the CSRC’s official website in connection with the implementation of the
Cybersecurity Review Measures, a CSRC official indicated that relevant operators that have been listed abroad before the implementation
of the Cybersecurity Review Measures do not need to apply for the cybersecurity review; however, the secondary listing and the dual
primary listing of a listed company in foreign countries belong to newly launched “foreign listing” activities, and if it meets the application
requirements, it shall take the initiative to apply for the cybersecurity review. As of the date of this annual report, no detailed rules or
implementation rules have been issued by any authority and we have not been informed that we are a critical information infrastructure
operator by any government authorities. Furthermore, the exact definition, scope or criteria of “critical information infrastructure
operators”, “network platform operators” and “users’ personal information” under the current regulatory regime remains unclear, and the
PRC government authorities may have wide discretion in the interpretation and enforcement of the applicable laws. Therefore, it is
uncertain whether we would be deemed to be a critical information infrastructure operator or network platform operator under PRC law. If
we are deemed to be a critical information infrastructure operator or network platform operator under the PRC cybersecurity laws and
regulations, we may be subject to obligations in addition to what we have fulfilled under the PRC cybersecurity laws and regulations.
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•
•
In November 2021, the CAC released the Regulations on the Network Data Security Management (Draft for Comments), or the Draft
Regulations. The Draft Regulations provide that data processors refer to individuals or organizations that, during their data processing
activities such as data collection, storage, utilization, transmission, publication and deletion, have autonomy over the purpose and the
manner of data processing. In accordance with the Draft Regulations, data processors shall apply for a cybersecurity review for certain
activities, including, among other things, (i) the listing abroad of data processors that process the personal information of more than one
million users and (ii) any data processing activity that affects or may affect national security. However, there have been no clarifications
from the relevant authorities as of the date of this annual report as to the standards for determining whether an activity is one that “affects
or may affect national security.” In addition, the Draft Regulations requires that data processors that process “important data” or are listed
overseas must conduct an annual data security assessment by itself or commission a data security service provider to do so, and submit the
assessment report of the preceding year to the municipal cybersecurity department by the end of January each year. As of the date of this
annual report, the Draft Regulations was released for public comment only, and their respective provisions and anticipated adoption or
effective date may be subject to change with substantial uncertainty.
In July 2022, the CAC promulgated the Measures for the Security Assessment of Cross-border Data Transfer, which became effective on
September 1, 2022. In accordance with such measures, data processors will be subject to security assessment conducted by the CAC prior
to any cross-border transfer of data if the transfer involves (i) important data; (ii) personal information transferred overseas by operators of
critical information infrastructure or a data processor that has processed personal data of more than one million persons; (iii) personal
information transferred overseas by a data processor which has already provided personal data of 100,000 persons or sensitive personal
data of 10,000 persons overseas since January 1 of the preceding year; or (iv) other circumstances as required by the CAC. In addition, any
cross-border data transfer activities conducted in violation of the Measures for the Security Assessment of Cross-border Data Transfer
before the effectiveness of such measures are required to be rectified within 6 months of the effectiveness date thereof. Since these
measures are relatively new, there are still substantial uncertainties with respect to the interpretation and implementation of these measures
in practice and how they will affect our business operation.
•
In December 2022, the MIIT promulgated the Administrative Measures for Data Security in the Field of Industry and Information
Technology (Trial), which came into effect on January 1, 2023. Pursuant to these measures, data in the field of industry and information
technology shall include industrial data, telecoms data, etc., and data processors in the field of industry and information technology shall
further implement data classification and hierarchical management and take necessary measures to ensure that data remains effectively
protected and being lawfully applied, and conduct data security risk monitoring. These measures also provide the definitions of “core data”
and “important data” in the field of industry and information technology.
Personal Information and Privacy
•
•
The Anti-monopoly Guidelines for the Platform Economy Sector published by the Anti-monopoly Committee of the State Council,
effective on February 7, 2021, prohibits collection of user information through coercive means by online platforms operators.
In August 2021, the Standing Committee of the NPC promulgated the Personal Information Protection Law, which integrates the scattered
rules with respect to personal information rights and privacy protection and took effect on November 1, 2021. We update our privacy
policies from time to time to meet the latest regulatory requirements of PRC government authorities and adopt technical measures to
protect data and ensure cybersecurity in a systematic way. Nonetheless, the Personal Information Protection Law elevates the protection
requirements for personal information processing, and many specific requirements of this law remain to be clarified by the CAC, other
regulatory authorities, and courts in practice. We may be required to make further adjustments to our business practices to comply with the
personal information protection laws and regulations.
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•
On June 24, 2022, the CAC promulgated the Administrative Provisions on Mobile Internet Application Information Services, which
became effective on August 1, 2022. Pursuant to these provisions, the mobile internet applications providers shall acquire relevant
qualifications required by laws and regulations and implement the information security management responsibilities strictly and fulfill their
obligations, including, among others, adopting a real-name system, protection of users’ information, examination and management of
information content, and shall comply with relevant provisions on the scope of necessary personal information when engaging in personal
information processing activities. In addition, such providers shall not compel the user to agree to the processing of personal information
for any reason and refuse the user to use its basic functions and services as the user does not agree to provide non-essential personal
information.
Many of the data-related legislations are relatively new and certain concepts thereunder remain subject to interpretation by the regulators. If any
data that we possess belongs to data categories that are subject to heightened scrutiny, we may be required to adopt stricter measures for protection and
management of such data. The Cybersecurity Review Measures and the Draft Regulations remain unclear on whether the relevant requirements will be
applicable to companies that are already listed in the United States, such as us. We cannot predict the impact of the Cybersecurity Review Measures and
the Draft Regulations, if any, at this stage, and we will closely monitor and assess any development in the rule-making process. If the Cybersecurity
Review Measures and the enacted version of the Draft Regulations mandate clearance of cybersecurity review and other specific actions to be taken by
issuers like us, we face uncertainties as to whether these additional procedures can be completed by us timely, or at all, which may subject us to
government enforcement actions and investigations, fines, penalties, suspension of our non-compliant operations, or removal of our app from the
relevant application stores, and materially and adversely affect our business and results of operations. As of the date of this annual report, we have not
been involved in any formal investigations on cybersecurity review made by the CAC on such basis.
While we take all reasonable measures to comply with applicable data privacy and protection laws and regulations, we cannot guarantee the
effectiveness of the measures undertaken by us and business partners, and such measures may still be determined as insufficient, improper, or even as
user-privacy invasive, by the relevant authorities, which may result in penalties against us. The activities of third parties such as our customers and
business partners are beyond our control. If our business partners violate the PRC Cyber Security Law and other laws and regulations relating to the
protection of personal information, or fail to fully comply with the service agreements with us, or if any of our employees fail to comply with our
internal control measures and misuse the information, we may be subject to penalties and other legal liabilities. Any failure or perceived failure to
comply with all applicable data privacy and protection laws and regulations or to take prompt rectification actions as required by the enforcement
authorities, or any failure or perceived failure of our business partners to do so, or any failure or perceived failure of our employees to comply with our
internal control measures, may result in negative publicity and legal proceedings or regulatory actions against us, and could damage our reputation,
discourage current and potential users and customers from using our products or services and subject us to fines, damages and rectification, which could
have a material adverse effect on our business and results of operations.
In general, compliance with the existing PRC laws and regulations, as well as additional laws and regulations that PRC regulatory bodies may
enact in the future, related to data security and personal information protection, may be costly and result in additional expenses to us, and subject us to
negative publicity, which could harm our reputation and business operations. There are also uncertainties with respect to how such laws and regulations
will be implemented and interpreted in practice.
In addition, regulatory authorities around the world have 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 and policies, which could have an adverse effect on our business and
results of operations. The European Union General Data Protection Regulation (“GDPR”), which came into effect on May 25, 2018, includes
operational requirements for companies that receive or process personal data of residents of the European Economic Area. The GDPR establishes new
requirements applicable to the processing of personal data, affords new data protection rights to individuals and imposes penalties for serious data
breaches. Individuals also have a right to compensation under the GDPR for financial or non-financial losses. Although we do not conduct any business
in the European Economic Area, in the event that residents of the European Economic Area access our website or our mobile platform and input
protected information, we may become subject to provisions of the GDPR.
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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 2020, outbreaks of COVID-19 resulted in the temporary closure of many corporate offices, retail stores, and
manufacturing facilities across China. Normal economic life throughout China was sharply curtailed. 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. The operations of our business partners in China were also impacted. The population in most of the major cities was locked down to a
greater or lesser extent at various times and opportunities for discretionary consumption were extremely limited. In particular, these restrictions have
caused various degrees of temporary shutdowns and delays in production and operation of our suppliers (especially private label suppliers), third-party
merchants, third-party logistics service providers and other business partners, leading to temporary shortages of certain merchandises and delays in
logistics services as well as delays in the research and development and new product launch processes associated with our private label suppliers. These
events have adversely affected our results of operations since 2020, particularly in 2022.
China began to modify its zero-COVID policy at the end of 2022, and most of the travel restrictions and quarantine requirements were lifted in
December. There were surges of cases in many cities during this time which caused disruption to our operations, and there remains uncertainty as to the
future impact of the virus, especially in light of this change in policy. The extent to which the pandemic impacts our results of operations going forward
will depend on future developments which are highly uncertain and unpredictable, including the frequency, duration and extent of outbreaks of
COVID-19, the appearance of new variants with different characteristics, the effectiveness of efforts to contain or treat cases, and future actions that
may be taken in response to these developments. China may experience lower domestic consumption, higher unemployment, severe disruptions to
exporting of goods to other countries and greater economic uncertainty, which may impact our business in a materially negative way as consumers
curtail their retail consumption behavior in response to potential economic hardship. Since the modification of the zero-COVID policy, we have resumed
our new product launch processes associated with our private label suppliers that were previous stalled by COVID-related restrictions. Nonetheless, we
expect that it will take some time for us to gradually restore consumer confidence and spending vigor. Consequently, the COVID-19 pandemic may
continue to materially and adversely affect our business, financial condition and results of operations in the current and future years.
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.”
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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 experience losses in the future.
We incurred a net loss of RMB138.4 million (US$20.1 million) in 2022, compared to a net income of RMB132.3 million and a net loss of
RMB151.7 million in 2021 and 2020, respectively. In the years ended December 31, 2020, 2021 and 2022, 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, 2022, we had 1,048 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. For example, the compulsory quarantine and other restrictions imposed as a result of the COVID-19 pandemic in early
2022 have caused various degrees of temporary shutdowns and delays in production and operation of our suppliers (especially private label suppliers)
and third-party merchants, leading to temporary supply shortages of certain merchandises and delays in the research and development and new product
launch processes associated with our private label suppliers.
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.
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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
Suye (素野) and Qing Zi Yang (轻姿养). If there is any adverse change to the nature of our relationship with the manufacturer of Suye or Qing Zi Yang
or if the manufacturer of Suye or Qing Zi Yang 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, 2022, there were 644 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.
Any harm to the operations and reputation of our private label brands could have a material adverse effect on our results of operations.
We sell an increasing amount of products under our private label brands such as Suye, Qing Zi Yang, Yuan Sheng Huang, Unibeauty, P&S, Li Ba
Tian, and Bai Yue Shan, both on our platform and through external channels. Maintaining consistent product quality, competitive pricing and availability
of these products is essential to developing and maintaining consumer loyalty to these brands.
If our private label brands experience any material disruption in its operations or a loss of consumer acceptance or confidence, our revenues and
operating results could be adversely affected. Negative public perception of our private labels could reflect negatively on our platform, the other
products sold on our platform and harm our business reputation. While we have not experienced any significant problems affecting the products,
operations or business reputation of our private labels, we cannot assure you that we will not face such problems in the future.
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.
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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. As of December 31, 2022, we had outsourced 63 customer service representatives to provide real-time
assistance to our users. 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.
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 four 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 no detailed interpretation and implementation rules have been promulgated, 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.
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In April 2021, the 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. We have not been imposed with any penalties or
requested to take any further rectifications.
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 404 suppliers as of December 31, 2022. Third-party merchants under our marketplace business are separately
responsible for sourcing the products they sell on our platform. As of December 31, 2022, we had 644 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 and the VIEs 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 RMB135.2 million as of December 31, 2020 to RMB84.5 million as of December 31,
2021, and further to RMB54.7 million (US$7.9 million) as of December 31, 2022. Our inventory turnover days were 25.7 days in 2020, 29.7 days in
2021 and 38.4 days in 2022. The decreases in net inventories in 2021 and 2022 are primarily due to the decreases in merchandise sales during the same
periods. 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.
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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.
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 refining 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.
Allegations or lawsuits against us or our management may harm our reputation and business.
We have been, and may in the future be, subject to allegations or lawsuits in the ordinary course of our business brought by our competitors,
customers, employees or other individuals or entities, including, among others, those involving our marketing practices and labor related disputes. If we
are deemed to have violated relevant labor laws and regulations or if potential allegation or lawsuits, with or without merit, or any perceived unfair,
unethical, fraudulent or inappropriate business practice by us or perceived malfeasance by our management could harm our reputation and customer
base and distract our management from our daily operations. The outcome of any allegations or lawsuits is inherently uncertain, and in any event
defending against these claims could be both costly and time-consuming, and could significantly divert the efforts and resources of our management and
other personnel. An adverse determination in any allegations or lawsuits against us could cause us to pay damages, incur legal and other costs and may
also generate negative publicity that significantly harms our reputation, which may materially and adversely affect our customer base and our ability to
attract app developers and members. There can be no assurance that we will prevail in any of these cases, and any adverse outcome of any allegations or
lawsuits could have a material adverse impact on our business, results of operation and cash flows.
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If we fail to implement and maintain effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act
of 2002, 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.
Our management conducted an evaluation of the effectiveness of our internal control over financial reporting and concluded that our internal
control over financial reporting was effective as of December 31, 2022. In addition, our independent registered public accounting firm attested and
reported the effectiveness of our internal control. See the attestation report on page F-2 issued by our independent registered public accounting firm for
further details. If we fail to maintain the effectiveness of our internal control over financial reporting, we may not be able to conclude on an ongoing
basis that we have effective internal control over financial reporting in accordance with the Sarbanes-Oxley Act. Moreover, effective internal control
over financial reporting is necessary for us to produce reliable financial reports. As a result, any failure to maintain effective internal control over
financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could negatively impact the
trading price of our ADSs or ordinary shares. Furthermore, we may need to incur additional costs and use additional management and other resources in
an effort to comply with Section 404 of the Sarbanes-Oxley Act and other requirements going forward.
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 the MOFCOM, the MIIT, the SAMR, the CAC, 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, including, among others, the VATS
license, the Production and Operation of Broadcasting and Television Programs Permit, internet drug information service qualification certificate, the
record-filing of third-party platforms providing online trading service for medical devices, record-filing for business operations of class two medical
devices, and publication operation permit, we can not guarantee that we have obtained all licenses, permits and filings for selling certain specific
products or services on our platform from time to time. 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, and as of the date of this annual report, we have not been informed that
we shall make such filing by any government authorities. 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 engaged in sales promotion activities through our live streaming sessions on our Yunji app, on our Yunji Endorsement app
and through our official account on other live streaming platforms, and they interacted and exchanged information with our users and generated and
distributed content. However, because a majority of the communications through our live streaming sessions and on our platforms was conducted in real
time, we were unable to verify the sources of all information communicated or posted thereon or examine the content generated by our members and
users before they were posted. We also allowed 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.
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.
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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;
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.
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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.
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.
We lease properties in China, mainly for offices and warehouse facilities. 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 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, the 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.
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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 most of 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.
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,
2023, the awards that had been granted to our directors, officers, employees, consultants and other personnel and remained outstanding included (i)
15,424,750 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 50,881,030 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 decreases in our total revenues from quarter to quarter in 2020
and 2021 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 2020 and 2021. The decrease in our total revenues from quarter
to quarter in 2022 was primarily due to the negative impact of COVID-19 and the continued strategy to refine our product selection across all categories
and optimize our selection of suppliers and merchants, causing near-term decreases in sales. 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. The decreases in our total
revenues from quarter to quarter in 2021 were primarily due to our strategy to refine our product selection across all categories and carefully curate
products to implement our megahit product pool initiative focusing on the development of private labels and exclusive products and our long-term
growth strategy to focus on profitability, which led to optimization of our suppliers and merchants during this refinement process, causing decreases in
both our marketplace business and merchandise sales. 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.
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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.
We may need additional capital, and financing may not be available on terms acceptable to us, or at all.
In the years ended December 31, 2020, 2021 and 2022, 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.
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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.
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.
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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 and mini program. 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.
Our employees or business partners or other parties with whom we maintain business relationship may engage in misconduct or other improper
activities, which may disrupt our business, hurt our reputation and results of operations.
Our employees or business partners, including suppliers, third-party merchants, third-party logistics service providers and other business partners,
may be subject to regulatory penalties or punishments or other legal proceedings because of their wrongdoings or regulatory compliance failures, which
may disrupt our business and harm our reputation. Although any existing or alleged non-compliance behaviors of our business partners are not under our
control, and we are not directly involved in such existing or alleged non-compliance behaviors, our business operation and reputation may still be
adversely affected. In August 2021, one of our business partners from whom we received certain payments for goods during our ordinary course of
business was subject to an administrative investigation due to certain alleged non-compliance in its business activities, which led to the freezing of a
couple of its business-related bank accounts for a total amount of RMB120 million by a competent PRC court. Due to our business relationship with
such company at the time, the competent PRC court also froze certain amount of money in our bank accounts during such administrative investigation.
In November 2021, the competent PRC court revoked all the freezing decisions associated with such administrative investigation, and our bank accounts
were released from the freezing activities. Since then, we have terminated our business relationship with such company. The temporary freezing of our
bank accounts and the subsequent termination of business relationship with such company did not materially negatively impact our business operations
and results of operations.
We are exposed to the risk of fraud or other misconduct by our employees or third parties partners with whom we have business arrangements.
Misconduct by employees or third-party partners could include inadvertent or intentional failures to comply with the laws and regulations to which we
are subject or with our policies, provide accurate information to regulatory authorities, comply with ethical, social, product, labor and environmental
standards, comply with fraud and abuse laws and regulations, report financial information or data accurately, or disclose unauthorized activities to us.
We have no control over the off-work time and behaviors of our employees and the operations of our third-party partners. Any legal liabilities of, or
regulatory actions against, our employees, especially key employees, or business partners may affect our business activities and reputation and, in turn,
our results of operations.
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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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. COVID-19 has had a severe and negative impact on the Chinese and global economy since early 2020. Whether this will lead to a
prolonged downturn in the economy is still unknown, especially considering the multiple recent outbreaks in various countries and regions as well as the
uncertainties brought by the vaccination programs. Even before the outbreak of COVID-19, the global macroeconomic environment had been facing
challenges. The growth of the Chinese economy has gradually slowed down in recent years and the trend may continue. There is considerable
uncertainty over the long-term effects of the 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. The war in Ukraine and the imposition of broad economic sanctions on Russia could raise
energy prices and disrupt global markets. There have been concerns over unrest and terrorist threats in the Middle East, Europe and Africa. There have
also been concerns on the relationship between China and other countries, including surrounding Asian countries, which may potentially lead to foreign
investors closing down their businesses or withdrawing their investments in China and, thus, exiting the China market, and other 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 have a negative impact on our business, results of operations and financial condition, and continued turbulence in the international
markets may adversely affect our ability to access the capital markets to meet liquidity needs. Our customers may reduce or delay spending with us,
while we may have difficulty expanding our customer base fast enough, or at all, to offset the impact of decreased spending by our existing customers.
In addition, to the extent we offer credit to any customer and the customer experiences financial difficulties due to the economic slowdown, we could
have difficulty collecting payment from the customer.
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, domestic multi-parties communications, storage and forwarding categories, call centers),
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 2021.
We are a Cayman Islands holding company with no equity ownership in the VIEs and we conduct our operations in China through (i) our PRC
subsidiaries and (ii) the VIEs with which we have maintained contractual arrangements. Holders of our ADSs hold equity interest in Yunji Inc., our
Cayman Islands holding company, and do not have direct or indirect equity interest in the VIEs. If the PRC government deems that our contractual
arrangements with the VIEs do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or
the interpretation of existing regulations change or are interpreted differently in the future, we and the VIEs could be subject to severe penalties or be
forced to relinquish our interests in those operations. Our holding company in the Cayman Islands, the VIEs, and investors of us face uncertainty about
potential future actions by the PRC government that could affect the enforceability of the contractual arrangements with the VIEs and, consequently,
significantly affect the financial performance of the VIEs and our company as a group.
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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 the 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 and our former chief technology officer. 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 the
VIEs (including Yunji Preferred and Hangzhou Chuanchou) and their respective shareholders, which enable us to:
•
•
•
direct the activities of the VIEs;
receive substantially all of the economic benefits and bear the obligation to absorb substantially all of the losses of the VIEs; and
have an exclusive option to purchase all or part of the equity interests in the VIEs when and to the extent permitted by PRC law.
As a result of these contractual arrangements, we are the primary beneficiary of the VIEs and hence consolidate their financial results and their
subsidiaries into our consolidated financial statements under U.S. GAAP. In 2020, 2021 and 2022, we derived 24.4%, 23.8% and 30.3% of our total
revenues from the VIEs, respectively.
In the opinion of Han Kun Law Offices, our PRC legal counsel, (i) the ownership structures of our WFOE and the VIEs in China are not in
violation of PRC laws and regulations currently in effect; and (ii) the contractual arrangements between our WFOE, the 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, including, but not limited to, the laws and regulations governing our and the VIEs’ business, or the enforcement
and performance of our contractual arrangements with the VIEs and their perspective shareholders. These laws and regulations may be subject to
change, and their official interpretation and enforcement may involve substantial uncertainty. New laws and regulations that affect existing and proposed
future businesses may also be applied retroactively. Accordingly, the PRC regulatory authorities may take a view that is contrary to the opinion of our
PRC legal counsel. Due to the uncertainty and complexity of the regulatory environment, we cannot assure you that we and the VIEs would always be in
full compliance with applicable laws and regulations, the violation of which may have a material and adverse effect on our and the VIEs’ business and
our reputation.
Although we believe we, our PRC subsidiaries and the VIEs are not in violation of current PRC laws and regulations, we cannot assure you that
the PRC government would agree that our contractual arrangements comply with PRC licensing, registration or other regulatory requirements, with
existing policies or with requirements or policies that may be adopted in the future. The PRC government has broad discretion in determining rectifiable
or punitive measures for non-compliance with or violations of PRC laws and regulations. If the PRC government determines that we or the VIEs do not
comply with applicable law, it could revoke the VIEs’ business and operating licenses, require the VIEs to discontinue or restrict the VIEs’ operations,
restrict the VIEs’ right to collect revenues, block the VIEs’ websites, require the VIEs to restructure our operations, impose additional conditions or
requirements with which the VIEs may not be able to comply, impose restrictions on the VIEs’ business operations or on their customers, or take other
regulatory or enforcement actions against the VIEs that could be harmful to their business. Any of these or similar occurrences could significantly
disrupt our or the VIEs’ business operations or restrict the VIEs from conducting a substantial portion of their business operations, which could
materially and adversely affect the VIEs’ business, financial condition and results of operations. If any of these occurrences results in our inability to
direct the activities of any of the VIEs that most significantly impact its economic performance, and/or our failure to receive the economic benefits from
any of the VIEs, we may not be able to consolidate these entities in our consolidated financial statements in accordance with U.S. GAAP. In addition,
our shares may decline in value or become worthless if we are unable to assert our contractual control rights over the assets of our PRC subsidiaries that
conduct a significant part of our operations.
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Our current corporate structure and business operations may be affected by the Foreign Investment Law.
On March 15, 2019, the NPC 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 the variable
interest entities that we direct business operations 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 ability to direct the business operations of the 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 the 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 ability to direct the
business operations of the VIEs through contractual arrangements are deemed as foreign investment in the future, and any business of the 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 direct the business operations of the 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 the VIEs and their respective shareholders for a large portion of our business operations, which may not
be as effective as direct ownership.
We have relied and expect to continue to rely on contractual arrangements with the 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. For example, the 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.
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If we had direct ownership of the VIEs, we would be able to exercise our rights as a shareholder to effect changes in the board of directors of the
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 the VIEs and their respective shareholders of their obligations under the contracts to direct the
business operations of the VIEs. The shareholders of the 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 the
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 “—Any failure by the 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 the VIEs may not be as effective in ensuring the relevant portion of our business operations as direct
ownership would be.
Any failure by the 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 the 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 the VIEs were to refuse to transfer their equity interest in the 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 “—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 the 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) and our Production and Operation of Broadcasting
and Television Programs Permit. In the event we are unable to enforce our contractual arrangements, we may not be able to direct the activities of and
derive economic benefits from Yunji Preferred, and our ability to conduct these businesses may be negatively affected.
The shareholders of the VIEs may have potential conflicts of interest with us, which may materially and adversely affect our business and financial
condition.
The shareholders of the 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 the 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 and our former chief technology officer. The shareholders may breach, or cause the VIEs
to breach, or refuse to renew, the existing contractual arrangements we have with them and the VIEs, which would have a material and adverse effect on
our ability to direct the business operations of the VIEs and receive substantially all the economic benefits from them. For example, the shareholders
may be able to cause our agreements with the 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 the 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 the VIEs. If we cannot resolve any conflict of interest or dispute between us and the
shareholders of the 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 the 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 the 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 our ability to direct the activities of and derive economic benefits from
the relevant VIE. Similarly, if any of the equity interests of the VIEs is inherited by a third party with whom the current contractual arrangements are not
binding, we could lose our ability to direct the business operations of the relevant VIE or have to maintain such ability 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 the 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.
We may lose the ability to use and enjoy assets held by the VIEs that are critical to the operation of our business if the VIEs declare bankruptcy or
become subject to a dissolution or liquidation proceeding.
The VIEs hold certain assets that may be critical to the operation of our business. If the shareholders of any of the VIEs breach the contractual
arrangements and voluntarily liquidate any VIE, or if any VIE declares bankruptcy or all or part of its assets become subject to liens or rights of third-
party creditors or is otherwise disposed of without our consent, we may be unable to continue some or all of our business operations, which could
materially and adversely affect our business, financial condition and results of operations. In addition, if any of the VIEs or their subsidiaries undergoes
a voluntary or involuntary liquidation proceeding, their shareholders or unrelated third-party creditors may claim rights to some or all of their assets,
thereby hindering our ability to operate our business, which could materially or adversely affect our business, financial condition and results of
operations.
Contractual arrangements in relation to the VIEs may be subject to scrutiny by the PRC tax authorities and they may determine that we or the 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 the 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 the VIEs for PRC tax purposes, which could in turn increase their tax liabilities. In
addition, the PRC tax authorities may impose punitive interest on the 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 the VIEs’ tax liabilities increase or if they are required to pay punitive interest.
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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.
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. Any adverse changes in economic conditions in China, in the policies of the PRC government or in the laws and
regulations in China could have a material adverse effect on the overall economic growth of China. Such developments could adversely affect our
business and operating results, lead to reduction in demand for our solutions and services and adversely affect our competitive position. The Chinese
government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may
benefit the overall Chinese economy, but may have a negative effect on us. For example, our financial condition and results of operations may be
adversely affected by government control over capital investments or changes in tax regulations. In addition, in the past the PRC government has
implemented certain measures, including interest rate adjustment, to control the pace of economic growth. These measures may cause decreased
economic activity in China, which may adversely affect our business and results of operations.
Furthermore, the growth rate of the Chinese economy has gradually slowed since 2010, and the impact of COVID-19 on the global and Chinese
economy in 2021 is severe. Any prolonged slowdown in the global and Chinese economy may reduce the demand for our products and services and
materially and adversely affect our business and results of operations.
Uncertainties with respect to the PRC legal system and changes in laws and regulations in China could adversely affect us.
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.
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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.
PRC government has significant oversight over the conduct of our business and it has recently indicated an intent to exert more oversight over
offerings that are conducted overseas and/or foreign investment in China-based issuers. Any such action could significantly limit or completely hinder
our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline.
The PRC government’s significant oversight over our business operations could result in a material adverse change in our operations and the value
of our ADSs.
We conduct our business in China. Our operations in China are governed by PRC laws and regulations. The PRC government has significant
oversight over the conduct of our business, and it may intervene or influence our operations as the government deems appropriate to advance regulatory
and societal goals and policy positions. The PRC government has recently published new policies that significantly affected certain industries and we
cannot rule out the possibility that it will in the future release regulations or policies that directly or indirectly affect our industry or require us to seek
additional permission to continue our operations, which could result in a material adverse change in our operation and/or the value of our ADSs.
The approval and/or other requirements of the CSRC or other PRC governmental authorities may be required in connection with an offering under
PRC rules, regulations or policies, and, if required, we cannot predict whether or how soon we will be able to obtain such approval or complete such
other requirements.
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, requires an overseas special purpose vehicle formed for listing purposes through acquisitions of PRC domestic
companies and controlled by PRC persons or entities to obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicle’s
securities on an overseas stock exchange. The interpretation and application of the regulations remain unclear, and our offshore offerings may ultimately
require approval of the CSRC. If the CSRC approval is required, it is uncertain whether we can or how long it will take us to obtain the approval and,
even if we obtain such CSRC approval, the approval could be rescinded. Any failure to obtain or delay in obtaining the CSRC approval for any of our
offshore offerings, or a rescission of such approval if obtained by us, would subject us to sanctions imposed by the CSRC or other PRC regulatory
authorities, which could include fines and penalties on our operations in China, restrictions or limitations on our ability to pay dividends outside of
China, and other forms of sanctions that may materially and adversely affect our business, financial condition, and results of operations.
On July 6, 2021, the relevant PRC government authorities issued Opinions on Strictly Cracking Down Illegal Securities Activities in Accordance
with the Law. These opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas
listings by China-based companies and proposed to take effective measures, such as promoting the construction of relevant regulatory systems to deal
with the risks and incidents faced by China-based overseas-listed companies.
On February 17, 2023, the CSRC issued the Overseas Listing Trial Measures, which became effective on March 31, 2023, under which PRC
domestic companies that seek to offer and list securities in overseas markets, either in direct or indirect means, are required to fulfill the filing procedure
with the CSRC and report relevant information. According to the Circular of Overseas Listing and Offering, issuers that have already been listed in an
overseas market by March 31, 2023, such as our company, are not required to make any immediate filing. However, under the Overseas Listing Trial
Measures, such issuers will be required to complete certain filing procedures with the CSRC in connection with future securities offerings and listings
outside of mainland China, including follow-on offerings, issuance of convertible bonds, offshore relisting after going-private transactions, and other
equivalent offering activities. There remain substantial uncertainties about the interpretation, application and implementation of the Overseas Listing
Trial Measures. For more details of the Overseas Listing Trial Measures, please refer to “Item 4.B. Information on the Company—Business Overview—
Regulation—Regulations Relating to Overseas Listings and M&A.”
Furthermore, on February 24, 2023, the CSRC released the Provisions on Strengthening the Confidentiality and Archives Administration Related
to the Overseas Securities Offering and Listing by Domestic Enterprises, or, the Confidentiality Provisions, which came into effect on March 31, 2023.
Pursuant to the Confidentiality Provisions, any future inspection or investigation conducted by overseas securities regulator or the relevant competent
authorities on our PRC domestic companies with respect to our overseas issuance and listing shall be carried out in the manner in compliance with PRC
laws and regulations.
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On December 27, 2021, the NDRC and the MOFCOM jointly issued the Special Administrative Measures (Negative List) for Foreign Investment
Access (2021 Version), or the 2021 Negative List, which became effective on January 1, 2022. Pursuant to the Special Administrative Measures, if a
domestic company engaging in the prohibited business stipulated in the 2021 Negative List seeks an overseas offering and listing, it shall obtain the
approval from the competent governmental authorities. Besides, the foreign investors of the company shall not be involved in the company’s operation
and management, and their shareholding percentages shall be subject, mutatis mutandis, to the relevant regulations on the domestic securities
investments by foreign investors. There remain substantial uncertainties as to the interpretation and implementation of these requirements, and it is
unclear as to whether and to what extent listed companies like us will be subject to these new requirements. If we are required to comply with these
requirements and fail to do so on a timely basis, if at all, our business operation, financial conditions and business prospect may be adversely and
materially affected.
In addition, we cannot assure you that any new rules or regulations promulgated in the future will not impose additional requirements on us. If it is
determined in the future that approval and filing from the CSRC or other regulatory authorities or other procedures, including the cybersecurity review
under the enacted version of the Cybersecurity Review Measures and the Regulations on the Network Data Security Management (Draft for Comments),
are required for our offshore offerings, it is uncertain whether we can or how long it will take us to obtain such approval or complete such filing
procedures and any such approval or filing could be rescinded or rejected. Any failure to obtain or delay in obtaining such approval or completing such
filing procedures for our offshore offerings, or a rescission of any such approval or filing if obtained by us, would subject us to sanctions by the CSRC
or other PRC regulatory authorities for failure to seek CSRC approval or filing or other government authorization for our offshore offerings. These
regulatory authorities may impose fines and penalties on our operations in China, limit our ability to pay dividends outside of China, limit our operating
privileges in China, delay or restrict the repatriation of the proceeds from our offshore offerings into China or take other actions that could materially
and adversely affect our business, financial condition, results of operations, and prospects, as well as the trading price of our listed securities. The CSRC
or other PRC regulatory authorities also may take actions requiring us, or making it advisable for us, to halt our offshore offerings before settlement and
delivery of the shares offered. Consequently, if investors engage in market trading or other activities in anticipation of and prior to settlement and
delivery, they do so at the risk that settlement and delivery may not occur. In addition, if the CSRC or other regulatory authorities later promulgate new
rules or explanations requiring that we obtain their approvals or accomplish the required filing or other regulatory procedures for our prior offshore
offerings, we may be unable to obtain a waiver of such approval requirements, if and when procedures are established to obtain such a waiver. Any
uncertainties or negative publicity regarding such approval requirement could materially and adversely affect our business, prospects, financial
condition, reputation, and the trading price of our listed securities.
We and the VIEs 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.
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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 CAC (with the involvement of the State Council Information Office, MIIT, and the MPS).
The primary role of the CAC 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.
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.
The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the
inability of the PCAOB to conduct inspections of our auditor in the past has deprived our investors with the benefits of such inspections.
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. The auditor is located in mainland China, a
jurisdiction where the PCAOB was historically unable to conduct inspections and investigations completely before 2022. As a result, we and investors
in the ADSs were deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in mainland
China and Hong Kong in the past has made 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 mainland China and Hong Kong that are subject to the PCAOB inspections.
On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong
from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. However, if the PCAOB
determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong, and
we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the SEC, we and
investors in our ADSs would be deprived of the benefits of such PCAOB inspections again, which could cause investors and potential investors in the
ADSs to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.
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Our ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or investigate
completely auditors located in mainland China and Hong Kong. The delisting of the ADSs, or the threat of their being delisted, may materially and
adversely affect the value of your investment.
Pursuant to the HFCAA, if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been
subject to inspections by the PCAOB for two consecutive years, the SEC will prohibit our shares or ADSs from being traded on a national securities
exchange or in the over-the-counter trading market in the United States.
On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or investigate
completely registered public accounting firms headquartered in mainland China and Hong Kong, and our auditor was subject to that determination. In
May 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA following the filing of our annual report on Form 20-F
for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB removed mainland China and Hong Kong from the list of
jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. For this reason, we do not expect to be identified
as a Commission-Identified Issuer under the HFCAA after we file this annual report on Form 20-F for the fiscal year ended December 31, 2022.
Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among
other jurisdictions. If the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in
mainland China and Hong Kong and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial
statements filed with the SEC, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the
relevant fiscal year. In accordance with the HFCAA, our securities would be prohibited from being traded on a national securities exchange or in the
over-the-counter trading market in the United States if we are identified as a Commission-Identified Issuer for two consecutive years in the future. If our
shares and ADSs are prohibited from trading in the United States, there is no certainty that we will be able to list on a non-U.S. exchange or that a
market for our shares will develop outside of the United States. A prohibition of being able to trade in the United States would substantially impair your
ability to sell or purchase our ADSs when you wish to do so, and the risk and uncertainty associated with delisting would have a negative impact on the
price of our ADSs. Also, such a prohibition would significantly affect our ability to raise capital on terms acceptable to us, or at all, which would have a
material adverse impact on our business, financial condition, and prospects.
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. The Confidentiality Provisions which took effect on March 31, 2023 also provide that where an overseas securities
regulator and a competent overseas authority requests to inspect, investigate or collect evidence from a domestic company concerning its overseas
offering and listing, such inspection, investigation and evidence collection shall be conducted under a cross-border regulatory cooperation mechanism,
and the domestic company shall first obtain approval from the CSRC or other competent PRC authorities before cooperating with the inspection and
investigation by the overseas securities regulator or competent overseas authority, or providing documents and materials requested in such inspection
and investigation. While detailed interpretation of or implementation relevant rules 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.
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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.
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.
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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. We are currently not a party to any hedging transactions that are
conducted in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future,
the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition, our
currency exchange losses may be magnified by 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. To the extent cash in our business is in the PRC or a PRC entity, such cash may not be available to fund operations or for other
use outside of the PRC due to restrictions and limitations imposed by the governmental authorities on currency conversion, cross-border transactions
and cross-border capital flows.
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 the 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.
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 utilize cash held in China or generated by a PRC entity to fund our operations
outside of China or pay dividends in foreign currencies to our shareholders, including holders of our ADSs.
Uncertainties exist with respect to the interpretation and implementation of Anti-Monopoly Guidelines for Internet Platforms and how it may impact
our business operations.
In February 2021, the Anti-Monopoly Guidelines for Internet Platforms was promulgated by the Anti-monopoly Commission of the State Council.
The Anti-Monopoly Guidelines for Internet Platforms is consistent with the Anti-Monopoly Law of PRC and prohibits monopoly agreements, abuse of
dominant position and concentration of undertakings that may have the effect of eliminating or restricting competitions in the field of platform economy.
More specifically, the Anti-Monopoly Guidelines for Internet Platforms outlines certain practices that may, if without justifiable reasons, constitute
abuse of dominant position, including without limitation, tailored pricing using big data and analytics, actions or arrangements seen as exclusivity
arrangements, using technology means to block competitors’ interface, using bundled services to sell services or products, and compulsory collection of
user data. Besides, Anti-Monopoly Guidelines for Internet Platforms expressly states that concentration involving VIE will also be subject to antitrust
filing requirements.
In April 2021, the SAMR together with certain other PRC government authorities convened an administrative guidance meeting, focusing on
unfair competition acts in community group buying, self-inspection and rectification by major internet companies of possible violations of anti-
monopoly, anti-unfair competition, tax and other related laws and regulations, and requesting such companies to comply with relevant laws and
regulations strictly and be subject to public supervision. In addition, many internet companies, including the over 30 companies which attended such
administrative guidance meeting, are required to conduct a comprehensive self-inspection and make necessary rectification accordingly. The SAMR has
stated it will organize and conduct inspections on the companies’ rectification results. We have not been imposed with any penalties or requested to take
any further rectifications.
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On June 24, 2022, the Standing Committee of the National People’s Congress adopted the Decision to Amend the Anti-Monopoly Law, which
became effective on August 1, 2022. Such amendment stipulates that where a concentration of undertakings does not meet the threshold for declaration
set by the State Council, but there is evidence that the concentration of undertakings has or may have the effect of excluding or limiting competition, the
law enforcement agencies may order the relevant participants to file the concentration of undertakings. Enforcement agencies have a wide discretion in
their enforcement actions. Certain transactions may not trigger reporting requirements prima facie but turn out to be subject to relevant reporting
obligations. Not only ongoing transactions, but also historical transactions are subject to their enforcement review. Due to the enhanced implementation
of the Anti-Monopoly Law, we may be under heightened regulatory scrutiny, which will increase our compliance costs and subject us to heightened
risks and challenges.
Since the Anti-Monopoly Guidelines for Internet Platforms and the amendments to the Anti-Monopoly Law are relatively new, uncertainties still
exist in relation to their interpretation and implementation. Although we do not believe we engage in any foregoing situations, we cannot assure you that
our business operations will comply with such regulations in all respects, and any failure or perceived failure by us to comply with such regulations may
result in governmental investigations, fines and/or other sanctions on us.
MOFCOM approvals may be required for our acquisitions of certain PRC subsidiaries.
Pursuant to the M&A Rules, if an overseas company established or controlled by PRC companies or individuals, or the 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 the
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 approvals, but were not submitted to the MOFCOM for approval. There is no definite penalty provided under
M&A Rules for failure to obtain the MOFCOM approval in any transaction 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 the 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 approvals, but were not submitted to the 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.
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.
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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.”
In addition, the State Administration of Taxation, or the 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.”
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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 the 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 the VIEs. We may make loans to our
PRC subsidiaries and the 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.
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).
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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, which was last amended in December 2019, 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 the 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 the 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.
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.
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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 the 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 relations, particularly between the United States and China, but also as a result
of the conflict in Ukraine and sanctions on Russia. These tensions have affected both diplomatic and economic ties between the two countries.
Heightened tensions could reduce levels of trade, investments, technological exchanges, and other economic activities between the two major
economies. The existing tensions and any further deterioration in the relationship between the United States and China may have a negative impact on
the general, economic, political, and social conditions in both countries and, given our reliance on the Chinese market, adversely impact our business,
financial condition, and results of operations.
Risks Related to Our ADSs
Our ADSs may be delisted from the Nasdaq Global Market as a result of our failure of meeting the Nasdaq Global Market continued listing
requirements.
Our ADSs are currently listed on the Nasdaq Global Market under the symbol “YJ.” On September 27, 2021, we received a letter from the Listing
Qualifications Department of Nasdaq, notifying us that because the closing bid price of our ADSs for the last 30 consecutive business days was below
US$1.00 per share, we did not meet the Nasdaq minimum bid price requirement, set forth in Nasdaq Listing Rule 5450(a)(1). On March 23, 2022, we
received a letter from the Listing Qualifications Department of Nasdaq, indicating that the closing bid price of our ADSs has been at $1.00 per ADS or
greater for 10 consecutive business days, and we have regained compliance with the Nasdaq Listing Rule 5450(a)(1). On January 11, 2023, we received
another letter from the Listing Qualifications Department of Nasdaq, notifying us that we no longer meet the Nasdaq minimum bid price requirement,
set forth in Nasdaq Listing Rule 5450(a)(1). We have until July 10, 2023 to regain compliance with Nasdaq’s minimum bid price requirement.
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Although we are monitoring the closing bid price of our ADSs, there can be no assurance that we will be able to regain compliance with the
Nasdaq minimum bid price requirement or our ADSs will remain in compliance with the Nasdaq Global Market continued listing requirements going
forward. If Nasdaq determines to delist our ADSs, or if we fail to list our ADSs on other stock exchanges or find alternative trading venue for our ADSs,
the market liquidity and the value of an investment in our ADSs will be materially and adversely affected.
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 fluctuated significantly. 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, 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:
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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;
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;
our share repurchase program;
litigation, government investigation or other legal or regulatory proceedings;
fluctuations of exchange rates between the RMB and the U.S. dollar;
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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 were 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.
It is likely that we will be classified as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for the taxable year
ended December 31, 2022, and possibly for the current taxable year and future taxable years, which could result in adverse U.S. federal income tax
consequences to U.S. Holders of our ADSs or ordinary shares.
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 (the “income test”) 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”). Based upon
our current and expected income and assets, including unbooked goodwill (the value of which is determined by reference to the market value of our
ADSs), it is likely that we were a PFIC for the taxable year ended December 31, 2022, and could continue to be a PFIC for the current and subsequent
taxable years. In addition, it is possible that any subsidiary that we own or are treated as owning for U.S. federal income tax purposes would also be a
PFIC for such taxable years.
If we are a PFIC in any taxable year during which a U.S. holder (as defined in “Item 10. Additional Information—E. Taxation—United States
Federal Income Tax Considerations”) holds our ADSs or ordinary shares, such holder may incur significantly increased U.S. income tax on gain
recognized on the sale or other disposition of the ADSs or ordinary shares and on the receipt of distributions on the ADSs or 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 ordinary shares, we will
generally continue to be treated as a PFIC for all succeeding years during which such holder holds our ADSs or ordinary shares, even if we subsequently
cease to be a PFIC. For more information see “Item 10. Additional Information—E. Taxation—United States Federal Income Tax Considerations—
Passive Foreign Investment Company Considerations.”
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.
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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 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.
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, 2023, our executive officers, directors, and principal shareholders and their affiliated entities together beneficially own
approximately 85.6% 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.
We cannot guarantee that any share repurchase program will be fully consummated or that any share repurchase program will enhance long-term
shareholder value, and share repurchases could increase the volatility of the price of our ADSs and could diminish our cash reserves.
On March 16, 2022, our board of directors authorized a share repurchase program to repurchase up to US$20 million of our ordinary shares
(including in the form of ADSs) over the next six months through September 15, 2022. On August 25, 2022, our board of directors approved to extend
the term of the share repurchase program for another six months through March 15, 2023. The share repurchase program, authorized by our board of
directors, does not obligate us to repurchase any specific dollar amount or to acquire any specific number of ADSs. The share repurchase program could
affect the price of our ADSs and increase volatility and may be suspended or terminated at any time, which may result in a decrease in the trading price
of our ADSs.
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.
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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, 2023, 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 90.5% of our total voting power. Therefore, Mr. Shanglue Xiao has 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.
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 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.
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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.
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:
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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.
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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.
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.
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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.
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.
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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 (As Revised) of the Cayman Islands and the common law of the Cayman Islands. The
rights of shareholders to take action against our directors, actions by our minority shareholders and the fiduciary responsibilities of our directors to us
under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived
in part from comparatively limited judicial 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.
Our third amended and restated 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.
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.
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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. 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. We followed home
country practice and did not hold an annual meeting of shareholders in 2020, 2021 and 2022. 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.
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.
We were 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.
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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 the
ability to direct the business operations of 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 the ability to direct the business operations of 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—Material Cash Requirements” 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. We have also developed several private labels in the mass consumption field, which are
sold on our own platform as well as offered and sold through external channels. 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.
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Members are the key participants on our platform and drivers of our substantial growth. Our members gain access to a dedicated app and mini
program that provides access to a curated selection of products, exclusive membership benefits and features, including discounted prices. Our
membership system has experienced various changes in the past few years. Currently, one can become a member of our platform by accepting invitation
from existing members, and continued membership eligibility will be contingent upon meeting a certain cumulative spending threshold or certain other
requirements. In addition, 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. See “—Our Member Community—Members” for more details of the previous changes in our
membership system.
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.
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 strategically work with manufacturers directly to develop private labels and exclusive differentiated products.
In particular, we engage in minority-interest equity investments in high-quality innovative manufacturers to develop private labels, combining their
unique manufacturing capabilities and supply channels with our deep understanding of end customers through our various user analytics to develop
innovative and differentiated products specifically designed to meet the demands of our members and users. In this way, we empower our manufacturer
and brand partners, especially our private labels, 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 17,090, 10,919 and 7,631 SPUs on our platform on a daily basis in December 2020, December 2021 and December 2022, respectively.
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. Our total revenues were RMB5,530.3 million,
RMB2,155.4 million and RMB1,154.1 million (US$167.3 million) in 2020, 2021 and 2022, respectively. We recorded net loss of RMB138.4 million
(US$20.1 million) in 2022, net income of RMB132.3 million 2021 and net loss of RMB151.7 million in 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. We have also developed several private labels whose products are sold both on our own platform and external sales channels
through our merchandise sales business.
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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 and develop
private labels.
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.
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 decrease in total revenues in 2021 was primarily due to our strategy to refine our product selection across
all categories and carefully curate products to implement our megahit product pool initiative focusing on the development of private labels and exclusive
products and our long-term growth strategy to focus on profitability, which lead to optimization of selection of suppliers and merchants during this
refinement process, causing near-term decreases in both our marketplace business and merchandise sales.
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. To
reach a wider audience, we collaborate with content creators and post content on lifestyle platforms and live streaming platforms, such as Xiaohongshu
and Douyin, to promote certain of our products or items. 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.
•
One can become a member of our platform 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 or mini program. We require renewing members to meet a certain cumulative
spending threshold or certain other requirements to continue as a member and enjoy membership benefits. In addition, 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. We modified the rules that administrated our membership system in the past few years. See “—Our
Member Community—Members” for more details of the previous changes in our membership system.
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The member can choose to view our product offerings on our user-friendly app interface by accessing our various sales formats, such as
flash sale (特卖), channels (频道) and Yunji Dynamic Showcase. See “—Our Product Offerings—Sales Formats.”
The member can click on the desired product to view detailed product description and a short video that showcases the product 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, short videos 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.
•
We also provide our members with community features to see what other members are buying and the sharing of their shopping
experience, 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. In 2022, we strategically upgraded live streaming by emphasizing the development of short videos and content
marketing in order to improve viewer conversion efficiency. By creating shorter, more digestible videos, we effectively retain those
viewers who may not have enough time or patience to watch longer content.
•
We cater to the needs of our members. Due to the COVID-related restrictions in 2022, there has been a significant shift in consumer
demand towards food and other essential items. We addressed this demand by placing the food channel under recommended channels,
making it easier for members to find food-related content and 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. We have also established professional vertical product category communities in food, beauty and healthcare
based on our insights on the members’ interests and brought well-trained service managers to these communities to increase engagement of our
members.
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Members
One can become a member of our platform 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, 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 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 and required new users and renewing members to
pay an annual membership fee to become or continue as a member and enjoy membership benefits until September 2022. Starting from October 2022,
one can become a member of our platform by accepting invitation from existing members, and continued membership eligibility will be contingent upon
meeting a certain cumulative spending threshold or certain other requirements. In addition, 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. 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. The cumulative number of our members was approximately 29.5 million as of December 31, 2022.
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.
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. In 2022, we had approximately 81.8% 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.
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We promote the use of short videos 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 create content-driven short videos introducing and selling the products on our
platform. Other service managers could also share the short videos to members to promote sales.
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, 2022, our members were served by more than 110,000 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. 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. In addition, users could also purchase our
private label products through third-party channels, and they are also considered our non-member users.
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, food and fresh produce, apparel, bags and cases, computer and electronics and online virtual services in 2020,
(ii) beauty and personal care, food and fresh produce, apparel, bags and cases in 2021, and (iii) beauty and personal care, food and fresh produce,
apparel, bags and cases in 2022, while each of the other product categories contributed less than 10% of our GMV in each of 2020, 2021 and 2022.
Within each product category, we offer carefully curated items meeting the preferences of our users with attractive pricing. In December 2020,
December 2021 and December 2022, we offered an average of 17,090, 10,919 and 7,631 SPUs for sale on our platform on a daily basis, respectively. In
December 2021 and December 2022, products offered under our marketplace business accounted on average for 87% and 83% 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 183 employees as of December 31, 2022, 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 and
when developing our private labels. 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.
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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 various sales formats on our platform, such as flash sale, channels and Yunji Dynamic Showcase, through each of which
users could view our product offerings.
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.
Channels (频道). We organize all of our product offerings on our Yunji app and mini programs based on product characteristics such as category,
functionality and brand into different channels on our Yunji app and mini programs to facilitate easy browsing by our users. Specifically, we operate
category-based channels such as food, beauty and personal care, apparel and overseas products.
Yunji Dynamic Showcase. We create short promotional videos for our featured products. The showcase features a wide range of products selected
from our private labels, gourmet food, and trending mega-hit products from the live streaming channels. Service managers can explore the showcase’s
products, choose the ones they are interested in, and conveniently generate product-related content to share with members or on social media.
In addition to sales on our own platform, our private label products are also sold through external sales channels such as third-party e-commerce
platforms and live streaming platforms, such as Tmall and Douyin.
Pricing
We strive to offer attractive pricing for all the products offered on our platform and our private label products offered through external channels.
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.
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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 and selling through other platforms, in the case of our private labels. 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.
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 through private labels 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 Suye, Qing Zi Yang, Yuan Sheng
Huang, Unibeauty, P&S Li Ba Tian, and Bai Yue Shan, among others. In particular, in 2021, we launched several private label food brands to sell high-
quality food products and strengthen our food category offerings. As our private labels continue to grow and expand, some of their products are also
now offered and sold on other third-party e-commerce platforms and live streaming platforms such as Tmall and Douyin.
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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.
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.
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, 2022, warehouse facilities in our fulfillment network included one central warehouse, seven
regional warehouses, with an aggregate gross floor area of approximately 30,755 square meters in seven 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.
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We cooperate with third-party vendors to operate our warehouse facilities. As of December 31, 2022, all of the 8 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.
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 team. We have a customer service team in our Hangzhou headquarters 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, 2022, 37% of our customer service representatives were
outsourced from third-party BPO companies and 63% 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.
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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.
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 RMB202.8 million, RMB124.9 million and RMB81.4 million (US$11.8 million) of technology and content expenses in 2020, 2021 and
2022, 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,
2022, our technology team had a total of 101 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.
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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 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” 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, 2022, we owned 101 computer software copyrights in China relating to
various aspects of our operations and maintained 1,131 trademark registrations inside China and 23 trademark registrations outside China. As of
December 31, 2022, we had 288 trademark applications inside China. As of December 31, 2022, we had 27 patent applications pending in China. As of
December 31, 2022, we had registered 43 domain names, including www.yunjiglobal.com, among others.
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.
Moreover, to promote our private label brands such as Suye, Qing Zi Yang and Yuan Sheng Huang, we have launched various marketing
initiatives, including appointing celebrity brand ambassadors, featuring them in promotional materials, conducing marketing events through video and
short-video platforms, KOL promotion on livestreams and offline advertising activities.
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.
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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) our private labels established based on our understanding of market trends and
insights on customer behavior, (ii) differentiated, reliable and flexible supply chain with customer-to-manufacturer (C2M) capability and strong
manufacturing partner network, (iii) our ability to attract, cultivate and retain a large number of well-trained service managers who are highly effective
in and passionate about fostering our close-knit community and promoting our products, (iv) 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, (v) our full-serviced
platform that enables users to buy products easily, and (vi) 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.
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.
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Regulations Relating to Foreign Investment
Guidance Catalog of Industries for Foreign Investment
Investments in the PRC by foreign investors and foreign-invested enterprises were regulated by the Guidance Catalog of Industries for Foreign
Investment jointly promulgated by the MOFCOM, and the NDRC on June 28, 1995, as amended. The Guidance Catalog of Industries for Foreign
Investment was repealed by (i) the 2021 Negative List, which was jointly promulgated by the MOFCOM and the NDRC on December 27, 2021 and
took effect on January 1, 2022, and (ii) the Catalog of Industries for Encouraged Foreign Investment (2022 Version), or the 2022 Encouraged Catalog,
which was jointly promulgated by the MOFCOM and the NDRC on October 26, 2022 and took effect on January 1, 2023. Industries that are not listed in
either the 2021 Negative List or the 2022 Encouraged Catalog are permitted areas for foreign investments, and are generally open to foreign investment
unless specifically restricted by other PRC regulations. According to the 2021 Negative List, foreign equity ownership in any given value-added
telecommunications services provider shall not exceed 50% (excluding e-commerce, domestic multi-party telecommunication, storage and forwarding
business, and call center). 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 the MOFCOM and the 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 the 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.
Pursuant to the Provisions on Administration of Foreign-Invested Telecommunications Enterprises, or the FITE Regulation, promulgated by the
State Council in December 2001 and most recently amended in March 2022 and which became effective on May 1, 2022, the ultimate foreign equity
ownership in a value-added telecommunications services provider may not exceed 50%, except as otherwise stipulated by the state. The foreign
investors must apply for VATs license to operate value-added telecommunications services from the MIIT. The Ministry of Information Industry of the
PRC, or the MII (which is the predecessor of the MIIT) issued the Notice of the Ministry of Information Industry on Strengthening the Administration
of Foreign Investment in Value-added Telecommunications Business, or the MII Notice, in July 2006. The MII Notice 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 MII Notice, a domestic
company that holds operating license for telecommunications business is prohibited from leasing, transferring or selling the license to foreign investors
in any form, and is prohibited 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 the VIEs 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 the VIEs and their
respective shareholders for a large portion of our business operations, which may not be as effective as direct ownership.”
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Foreign Investment Law
On March 15, 2019, the NPC, 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” refers 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.
Furthermore, the Foreign Investment Law provides that foreign invested enterprises established before the implementation of the Foreign
Investment Law 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, the MIIT, the
MOFCOM, the 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:
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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. MIIT released the Catalog of Telecommunication Business (2015
Revision), or the 2015 Telecom Catalog, on December 28, 2015 and implemented on March 1, 2016, and most recently amended on June 6, 2019. 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 most recently amended on July 3, 2017 and became effective on September 1, 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 License 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
foreign investment in telecommunications business with post-registration approval requirement.
In September 2000, the State Council promulgated the Administrative Measures on Internet Information Services, or the Internet Measures, which
was 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.
Jishang Preferred, a wholly-owned subsidiary of Yunji Preferred, one of the VIEs, 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). 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 services such as online lending information intermediaries) and information services (internet
information services only, excluding information search and query services, information community services, timely information interaction services
and information protection and processing services). Hangzhou Chuanchou, one of the VIEs, hold a VATS License for information services (internet
information services only).
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 the 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.
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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 and has not completed on-line platform filing for distributing publications on the online platform, since such filing for online distribution
business has not been open for trading platform services provided through mobile applications like Yunji app in practice. Zhejiang Jixiang will submit
its record-filing application with the competent authority for providing services for distribution of publications as soon as practical.
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, which was most recently amended on February 9, 2021
and became effective on June 1, 2021, 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 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 drug regulatory department of the
municipal government 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 drug regulatory department of the
municipal government and provide supporting materials to satisfy the relevant conditions of engaging in the operation of medical devices. Zhejiang
Jixiang completed the record-filing of third-party platforms providing online trading service for medical devices in August 2020. Zhejiang Jiyuan
completed the record-filing for its operation of class two medical devices in September 2020. Zhejiang Jixiang completed the record-filing for its
operation of class two medical devices in October 2021.
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 April 2019.
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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 the VIEs holds the Food Operation
Permit.
Filing by Third-Party Platform Providers for Food Online Trading
The CFDA promulgated the Measures for Investigation and Handling of Illegal Acts Involving Online Food Safety in July 2016, implemented on
October 1, 2016 and most recently amended on June 1, 2021, pursuant to which a third-party platform provider for online food trading in the PRC shall
file a record with the provincial administration for market regulation to obtain a filing number. within 30 working days upon approval by the competent
communications authorities. 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 administration for market regulation, 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” means “editing and arranging the internet audio-visual programs on the same website and providing searching and
watching services to public users”, which 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.
According to the Administrative Regulations on Production of Broadcasting and Television Programs, which was promulgated by the SARFT on
July 19, 2004 and partly amended by the Decision of the State Administration of Press, Publication, Radio, Film and Television on Revising Certain
Regulations and Normative Documents on August 28, 2015 and the Decision of NRTA on the First Batch of Departmental Rules to be Repealed or
Amended on October 29, 2020, 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, which was renewed on May 23, 2022 and will be valid until May 23, 2024. Zhejiang Jixiang obtained the Production and Operation of
Broadcasting and Television Programs Permit in April 2021.
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The State Administration of Press, Publication, Radio, Film and Television, which is the predecessor of NRTA, 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 CAC 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 the CAC 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 the CAC, and local branch
of the CAC shall take the initiative to notify online live-streaming service enterprises within their jurisdiction to conduct record-filing, and urge the
relevant enterprises to submit materials on site within 30 days upon receipt of the notice. As of the date of this annual report, we have not been informed
that we shall make such record-filing by any government authorities. According to the Circular on Strengthening the Administration of Online Live
Services which was issued jointly by National Working Group of Attacking Pornography and Illegal Publications, the MIIT, the MPS, the Ministry of
Culture and Tourism, the SARFT and the CAC 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. Moreover, the CAC, the MPS, the MOFCOM, the Ministry of Culture and Tourism, the SAT, the SAMR,
the NRTA jointly issued Administrative Measures for Online Live Streaming Marketing (Trial) on April 23, 2021, pursuant to which online live
streaming marketing platforms are required, among other things, to set up a system to internally rank streamers by metrics such as views and transaction
volumes, and take heightened regulatory measures in relation to key live streaming operators. In addition, online live streaming marketing platforms are
also required to establish and maintain risk management systems to guard against high-risk marketing activities, including taking measures such as
pop-up warnings, limiting traffic, and suspending live streaming. On October 29, 2019, SARFT issued the Notice on Strengthening Administration of
Online Audio-visual and E-commerce Live Programs and Advertising Programs During the “Double 11” Period, pointing out that online audio-visual
e-commerce live programs and advertising programs (including information services, product placement, creative interpolation, live streaming
shopping, short-video shopping, etc.) are important components of online audio-visual program services, and the content of the programs shall comply
with both advertising management laws and regulations and relevant regulations on the management of online audio-visual programs. However, there
are substantial uncertainties as to the interpretation and implementation of this notice, and it is unclear as to whether and to what extent companies
engaged in live streaming shopping will be subject to these new requirements. We have no longer provided the live-stream shopping service on our own
platforms, and we strategically upgraded live streaming by emphasizing the development of short videos and content marketing since 2022.
On June 8, 2022, the NRTA and the Ministry of Culture and Tourism jointly released the Code of Conduct for Live Streaming Hosts, which came
into effect on the same day. According to such code, online performance platforms, online audio-visual platforms and brokerage agencies must strictly
perform their statutory obligations, establish and improve the entry, training, daily management, performance scoring files and management and other
internal systems and norms on live streaming hosts. The live streaming hosts who violate the applicable regulations and rules should be warned, and the
live streaming hosts with serious problems and repeated indiscipline shall be included in the “blacklist” or “warning list” and be prohibited from
conducting any live streaming activities by use of any account of any platform.
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Zhejiang Jixiang updated ICP filling in August 2022, and obtained the VATS License for online data processing and transaction processing
business (operating e-commerce, excluding internet finance services such as online lending information intermediaries) and information services
(internet information services only, excluding information search and query services, information community services, timely information interaction
services and information protection and processing services) on May 22, 2019. Zhejiang Jixiang obtained the Production and Operation of Broadcasting
and Television Programs Permit in April 2021.
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.
Regulations Relating to Financing Lease
On September 18, 2013, the 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:
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(i)
(ii)
(iii)
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 National Medical Products Administration, or 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.
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.
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. The Administrative Measures on the Labeling of Cosmetics, which was promulgated in May 31, 2021 by the NMPA and became
effective on May 1, 2022, further requires labels of cosmetic products to contain basic product information, characteristics and safety warnings.
Cosmetic products shall have Chinese labels, which shall contain information such as the Chinese name of the products, special cosmetic registration
certificate number, name and address of the registrants and the filers, name and address of the producers, standard number of product implementation,
full components, net contents, expiry date, necessary safety warnings, etc.
Regulations Relating to E-Commerce
On March 24, 2016, 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%.
On March 15, 2021, the SAMR issued the Measures for the Supervision and Management of Online Trading, or the Online Trading Measures,
which became effective from May 1, 2021 and replaced the Administrative Measures for Online Trading adopted by the State of Administration of
Industry and Commerce (which is the predecessor of SAMR) in January 2014. The Online Transactions Measures implements relevant legislative
principles and purpose of the E-Commerce Law and refines a series of relevant laws and regulations. It further specifies the responsibilities of online
trading platform operators and the requirements for protecting online consumers’ rights and interests.
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 Cyber Security, Data Security, National Security and Personal Information Protection
Internet information in China is regulated from a national security standpoint. 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 MPS has promulgated the Administrative Measures for the Computer
Information Network and Internet Security Protection in December 1997 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.
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In December 2012, the Standing Committee of the NPC promulgated the Decision on Strengthening Network Information Protection, or the
Network Information Protection Decision, to enhance the legal protection of information security and privacy on the internet. The Network Information
Protection Decision also requires internet operators to take measures to ensure confidentiality of information of users. According to the PRC National
Security Law issued by the SCNPC on February 22, 1993 and latest revised on July 1, 2015, China shall establish systems and mechanisms for national
security review and supervision, conduct national security review on key technology, network information technology products and services related to
national security to prevent and neutralize national security risks in an effective way. In July 2013, the MIIT promulgated the Provisions on Protection of
Personal Information of Telecommunication and Internet Users to regulate the collection and use of users’ personal information in the provision of
telecommunication service and internet information service in China. In August 2015, the Standing Committee of the NPC promulgated the Ninth
Amendment to the Criminal Law, which became effective in November 2015 and amended the standards of crime of infringing citizens’ personal
information and reinforced the criminal culpability of unlawful collection, transaction, and provision of personal information. It further provides that any
ICP provider that fails to fulfill the obligations related to internet information security administration as required by applicable laws and refuses to
rectify upon orders will be subject to criminal liability. In November 2016, the Standing Committee of the NPC promulgated the PRC Cyber Security
Law, which requires, among others, that network operators take security measures to protect the network from unauthorized interference, damage and
unauthorized access and prevent data from being divulged, stolen or tampered with. Network operators are also required to collect and use personal
information in compliance with the principles of legitimacy, properness and necessity, and strictly within the scope of authorization by the subject of
personal information unless otherwise prescribed by laws or regulations. 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. 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. The Civil Code promulgated in 2020 also provides specific provisions regarding the
protection of personal information.
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.
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.
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On November 28, 2019, the SAMR, the Office of the Central Cyberspace Affairs Commission, the MIIT and the MPS jointly issued the Notice on
the Method for Identifying the Illegal Collection and Use of Personal Information by Apps, which aims to provide reference for supervision and
administration departments, provide guidance for APP operators’ self-examination and self-correction, as well as social supervision by netizens. The
Method further elaborates the forms of behavior constituting illegal collection and use of the personal information, which include: (i) failing to publish
the rules on the collection and use of personal information; (ii) failing to explicitly explain the purposes, methods and scope of the collection and use of
personal information; (iii) collecting and using personal information without the users’ consent; (iv) collecting personal information unrelated to the
services they provide and beyond the necessary principle; (v) providing personal information to others without the users’ consent; (vi) failing to provide
the function of deleting or correcting the personal information according to the laws or failing to publish information such as ways of filing complaints
and reports.
On May 28, 2020, the NPC of the PRC approved the PRC Civil Code, 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. 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. Pursuant to the PRC Civil Code, the collection, storage,
use, process, transmission, provision and disclosure of personal information should follow the principles of legitimacy, properness and necessity.
According to the PRC Civil Code, 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.
In addition, according to the Administrative Provisions on Mobile Internet Application Information Services, or the Mobile Application
Administrative Provisions, which was promulgated by the CAC in 2016, the mobile internet applications providers shall acquire relevant qualifications
required by laws and regulations and implement the information security management responsibilities strictly and fulfill their obligations, including,
among others, adopting a real-name system, protection of users’ information, and examination and management of information content. The CAC
amended the Mobile Application Administrative Provisions in June 2022, which effective from August 1, 2022, and emphasizes that mobile internet
applications providers shall comply with relevant provisions on the scope of necessary personal information when engaging in personal information
processing activities. The application providers shall not compel the user to agree to the processing of personal information for any reason, and shall not
refuse the user to use its basic functions and services as the user does not agree to provide non-essential personal information.
On June 27, 2022, the CAC promulgated the Administrative Provisions on the Account Information of Internet Users, or the Account Information
Provisions, which became effective from August 1, 2022. The Account Information Provisions apply to the registration, use, and management of
internet users’ account information by internet information service providers. The Account Information Provisions stipulate that internet information
service providers shall, in accordance with laws, administrative regulations and relevant state regulations, formulate and disclose internet user account
management rules and platform conventions, sign service agreements with internet users, and clarify the rights and obligations related to account
information registration, use, and management. The Account Information Provisions also requires that the internet information service providers shall
protect and handle internet users’ account information in accordance with law, and take measures to prevent unauthorized access and leakage,
tampering, and loss of personal information. The internet information service providers shall set up convenient complaints and reporting portals in
prominent locations, publicize complaints and reporting methods, improve mechanisms for acceptance, screening, disposal, and feedback, clarify
processing procedures and time limits for feedback, and promptly handle complaints and reports from users and the public. Failure to comply with the
above requirements may subject to warning, be ordered to rectify within a prescribed time limit and may be imposed a fine ranging from RMB10,000 to
RMB100,000.
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On June 10, 2021, the Standing Committee of the PRC National People’s Congress published the PRC Data Security Law, which took effect on
September 1, 2021. The PRC Data Security Law requires data processing, (which includes the collection, storage, use, processing, transmission,
provision, publication of data, etc.) to be conducted in a legitimate and proper manner. The PRC Data Security Law provides for data security and
privacy obligations on entities and individuals carrying out data activities. The PRC Data Security Law also introduces a data classification and
hierarchical protection system based on the importance of data in economic and social development, and the degree of harm it shall cause to national
security, public interests, or legitimate rights and interests of individuals or organizations if such data are tampered with, destroyed, leaked, illegally
acquired or illegally used. The appropriate level of protection measures is required to be taken for each respective category of data. For example, a
processor of important data is required to designate the personnel and the management body responsible for data security, carry out risk assessments of
its data processing activities and file the risk assessment reports with the competent authorities. Moreover, the PRC Data Security Law provides a
national security review procedure for those data activities which may affect national security and imposes export restrictions on certain data and
information.
In addition, the PRC Data Security Law also provides that any organization or individual within the territory of the PRC shall not provide any
foreign judicial body and law enforcement body with any data without the approval of the competent PRC governmental authorities. On July 6, 2021,
certain PRC regulatory authorities issued Opinions on Severely Cracking Down on Illegal Securities Activities, which, among others, provides for
improving relevant laws and regulations on data security, cross-border data transmission, and confidential information management. It provided that
efforts will be made to revise the regulations on strengthening the confidentiality and file management relating to the offering and listing of securities
overseas, to implement the responsibility on information security of overseas listed companies, and to strengthen the standardized management of cross-
border information provision mechanisms and procedures.
On July 30, 2021, the State Council promulgated the Regulations on Security Protection of Critical Information Infrastructure, which became
effective on September 1, 2021. Pursuant to such regulation, critical information infrastructure refers to any important network facilities and information
systems of an important industry and field such as public communication and information service, energy, transport, water conservation, finance, public
services, e-government affairs and national defense related science and technology industry, and other industries and fields that may seriously endanger
national security, people’s livelihood and public interest in case of damage, function loss or data leakage. In addition, relevant administration
departments of each important industry and field are responsible for formulating eligibility criteria and determining the critical information
infrastructure in the respective industry or field. The operators will be informed by the relevant regulatory authority about the final determination as to
whether they are categorized as “critical information infrastructure operators.”
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On August 20, 2021, the Standing Committee of the National People’s Congress of China promulgated the PRC Personal Information Protection
Law, which integrates the scattered rules with respect to personal information rights and privacy protection and took effect on November 1, 2021.
Pursuant to the PRC Personal Information Protection Law, “personal information” refers to any kind of information related to an identified or
identifiable individual as electronically or otherwise recorded but excluding the anonymized information. The processing of personal information
includes the collection, storage, use, processing, transmission, provision, disclosure and deletion of personal information. The PRC Personal Information
Protection Law applies to the processing of personal information of individuals within the territory of the PRC, as well as personal information
processing activities outside the territory of PRC, for the purpose of providing products or services to natural persons located within China, for
analyzing or evaluating the behaviors of natural persons located within China, or for other circumstances as prescribed by laws and administrative
regulations. The PRC Personal Information Protection Law provides a personal information processor may process the personal information of this
individual only under the following circumstances: (i) where consent is obtained from the individual; (ii) where it is necessary for the execution or
performance of a contract to which the individual is a party, or where it is necessary for carrying out human resource management pursuant to
employment rules legally adopted or a collective contract legally concluded; (iii) where it is necessary for performing a statutory responsibility or
statutory obligation; (iv) where it is necessary in response to a public health emergency, or for protecting the life, health or property safety of a natural
person in the case of an emergency; (v) where the personal information is processed within a reasonable scope to carry out any news reporting,
supervision by public opinions or any other activity for public interest purposes; (vi) where the personal information, which has already been disclosed
by an individual or otherwise legally disclosed, is processed within a reasonable scope; or (vii) any other circumstance as provided by laws or
administrative regulations. In principle, the consent of an individual must be obtained for the processing of his or her personal information, except under
the circumstances of the aforementioned items (ii) to (vii). Where personal information is to be processed based on the consent of an individual, such
consent shall be a voluntary and explicit indication of intent given by such individual on a fully informed basis. If laws or administrative regulations
provide that the processing of personal information shall be subject to the separate consent or written consent of the individual concerned, such
provisions shall prevail. In addition, the processing of the personal information of a minor under 14 years old must obtain the consent by a parent or a
guardian of such minor and the personal information processors must adopt special rules for processing personal information of minors under 14 years
old. It also stipulates certain specific provisions with respect to the obligations of a personal information processor. In addition, it imposes further
obligations on a personal information processor that provides for basic internet platform services, has large amount of users and carries out complicated
business activities, including the establishment of an independent institution mainly composed of external personnel to supervise its personal
information processing, termination of provisions with providers on the platform whose personal information processing activities are in material
violation of laws and regulations, and issuing personal information protection social responsibilities reports regularly. Furthermore, the PRC Personal
Information Protection Law stipulates the rules for cross-border transfer of personal information. Any cross-border transfer of personal information is
subject to the condition that it is necessary to provide the personal information to a recipient outside the territory of the PRC due to any business need or
any other need, as well as the satisfaction of at least one of the following conditions: (i) where a security assessment organized by the national
cyberspace administration has been passed; (ii) where a certification of personal information protection has been passed from a professional institution
in accordance with the provisions issued by the national cyberspace administration; (iii) where a standard contract formulated by the national cyberspace
administration has been entered into with the overseas recipient; or (iv) any other condition prescribed by laws, administrative regulations or any other
requirements by the national cyberspace administration. Critical information infrastructure operators and personal information processors who have
processed personal information in an amount reaching a threshold prescribed by the national cyberspace administration, must store in the territory of the
PRC the personal information collected or generated within the territory of the PRC. If it is necessary to provide such information to an overseas
recipient, a security assessment organized by the national cyberspace administration must be passed.
On November 14, 2021, the CAC released the Regulations on the Network Data Security Management (Draft for Comments). Such draft
regulation provides that data processors refer to individuals or organizations that autonomously determine the purpose and the manner of processing
data, and the data processors conducting the following activities shall apply for cybersecurity review in accordance with the relevant regulations:
(i) merger, reorganization or separation of Internet platform operators that have acquired a large number of data resources related to national security,
economic development or public interests affects or may affect national security; (ii) listing abroad of data processors processing over one million users’
personal information; (iii) listing in Hong Kong which affects or may affect national security; (iv) other data processing activities that affect or may
affect national security. In addition, such draft regulation also provides that (i) the operators of large Internet platforms who set up headquarters or,
operation centers or R&D centers overseas shall report to the national cyberspace administration and competent authorities and (ii) a data processor
processing important data or going public overseas shall conduct an annual data security assessment by themselves or entrust a data security service
institution to do so, and submit the data security assessment report of the previous year to the local branch of the CAC before January 31 of each year.
As of the date of this annual report, the Regulations on the Network Data Security Management (Draft for Comments) has not been formally adopted.
On December 28, 2021, the CAC and other PRC governmental authorities jointly released the Measures for Cyber Security Review, which took
effect on February 15, 2022. Pursuant to the Measures for the Cyber Security Review, operators of “critical information infrastructure” or data
processors holding over one million users’ personal information which intends to be listed in a foreign country are subject to a cybersecurity review. The
cybersecurity review will evaluate, among others, the risk of critical information infrastructure, core data, important data, or the risk of a large amount of
personal information being influenced, controlled or maliciously used by foreign governments after going public, and cyber information security risk.
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The PRC government authorities also further enhanced the supervision and regulation of cross-border data transmission. On July 7, 2022, the
CAC promulgated the Measures for the Security Assessment of Cross-border Data Transfer, which became effective on September 1, 2022. In
accordance with such measures, data processors will be subject to security assessment conducted by the CAC prior to any cross-border transfer of data if
the transfer involves (i) important data; (ii) personal information transferred overseas by operators of critical information infrastructure or a data
processor that has processed personal data of more than one million persons; (iii) personal information transferred overseas by a data processor which
has already provided personal data of 100,000 persons or sensitive personal data of 10,000 persons overseas since January 1 of the preceding year; or
(iv) other circumstances as required by the CAC. In addition, any cross-border data transfer activities conducted in violation of the Measures for the
Security Assessment of Cross-border Data Transfer before the effectiveness of such measures are required to be rectified within 6 months of the
effectiveness date thereof. Since these measures are relatively new, there are still substantial uncertainties with respect to the interpretation and
implementation of these measures in practice and how they will affect our business operation.
On December 8, 2022, the MIIT published of the Administrative Measures for Data Security Management Measures in the Field of Industry and
Information Technology (Trial), or the Data Security Measures in the IT Field, which came into effect on January 1, 2023. The Data Security Measures
in the IT Field requires the industrial and telecom data processors to further implement data classification and hierarchical management, take necessary
measures to ensure that data remains effectively protected and being lawfully applied, and conduct data security risk monitoring. It also provides the
definitions of “core data” and “important data” in the field of industry and information technology.
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 the Notice on Further Enhancing the Rectification of Unlicensed Operation of Payment Services, 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 was promulgated by the SCNPC in August 1982 and last amended in April 2019, and the Implementation Rules of the
PRC Trademark Law was promulgated by the State Council in August 2002 and last amended in April 2014. 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 was last amended on November 11, 2020, and became effective on June 1, 2021, 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. 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 promulgated by the SCNPC on March 12, 1984 with the current effective version took effect from June 1, 2021,
and the Implementation Rules of the PRC Patent Law, which was promulgated by the State Council in June 2001 and last amended in January 2010, 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. The protection period is 20
years for an invention patent and 10 years for a utility model patent and 15 years for a design patent, commencing from their respective application
dates. Any individual or entity that utilizes a patent or conducts any other activities that infringe a patent without prior authorization of the patent holder
shall pay compensation to the patent holder and is subject to a fine imposed by relevant administrative authorities and, if constituting a crime, shall be
held criminally liable in accordance with the law. According to the PRC Patent Law, any organization or individual that applies for a patent in a foreign
country for an invention or utility model patent established in China is required to report to the National Intellectual Property Administration for
confidentiality examination.
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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 and 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.
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, which was amended on December 29, 2018, 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 last
amended in March 2019, 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.
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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.
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” test 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, or the VAT Regulation, were implemented in January 1, 2009 and latest amended on
November 19, 2017. 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%.
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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.
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 and was amended on June 15, 2018. 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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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 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, October 10, 2018 and December 30, 2019, 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.
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 and latest amended in March 23, 2023,
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.
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According to the FIE Record-filing Interim Measures, the Regulations on the Registration of Market Entities, which was promulgated by the State
Council on July 27, 2021, and became effective on March 1, 2022, 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 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.
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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Regulations on Anti-monopoly
On August 30, 2007, the SCNPC adopted the PRC Anti-Monopoly Law, which was recently amended on June 24, 2022 and became effective on
August 1, 2022. According to the Anti-Monopoly Law of the PRC and other relevant regulations, the relevant operators of a concentration of
undertakings which reaches the standard for declaration shall make an advance declaration to the PRC Anti-Monopoly Law enforcement authority under
the State Council. The fines for illegal concentration of business operators shall be “no more than ten percent of its preceding year’s sales revenue if the
concentration of business operator has or may have an effect of excluding or limiting competition; or a fine of up to RMB5 million if the concentration
of business operator does not have an effect of excluding or limiting competition.” Pursuant to the PRC Anti-Monopoly Law, the relevant authority may
require the operators to make a declaration where there is evidence that the concentration has or may have the effect of eliminating or restricting
competition, even if such concentration does not reach the filing threshold.
Regulations Relating to Overseas Listings and M&A
On August 8, 2006, six PRC governmental and regulatory agencies, including the MOFCOM and the CSRC, jointly promulgated the M&A Rules,
a new regulation with respect to the mergers and acquisitions of domestic enterprises by foreign investors that became effective on September 8, 2006
and revised on June 22, 2009. Foreign investors shall comply with the M&A rules when they purchase equity interests of a domestic company or
subscribe for the increased capital of a domestic company, and thus changing the nature of the domestic company into a foreign- invested enterprise; or
when the foreign investors establish a foreign-invested enterprise in the PRC for the purpose of purchasing the assets of a domestic company and
operating the asset; or when the foreign investors purchase the asset of a domestic company, establish a foreign-invested enterprise by injecting such
assets, and operate the assets. The M&A rules, among other things, purports to require that an offshore special vehicle, or a special purpose vehicle,
formed for listing purposes and controlled directly or indirectly by PRC companies or individuals, shall obtain the approval of the CSRC prior to the
listing and trading of such special purpose vehicle’s securities on an overseas stock exchange.
On July 6, 2021, the relevant PRC government authorities issued Opinions on Strictly Cracking Down Illegal Securities Activities in Accordance
with the Law. These opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas
listings by China-based companies and proposed to take effective measures, such as promoting the construction of relevant regulatory systems to deal
with the risks and incidents faced by China-based overseas-listed companies.
On December 27, 2021, the NDRC and the MOFCOM jointly issued the 2021 Negative List, which became effective on January 1, 2022. Pursuant
to such Special Administrative Measures, if a domestic company engaging in the prohibited business stipulated in the 2021 Negative List seeks an
overseas offering and listing, it shall obtain the approval from the competent governmental authorities. Besides, the foreign investors of the company
shall not be involved in the company’s operation and management, and their shareholding percentage shall be subject, mutatis mutandis, to the relevant
regulations on the domestic securities investments by foreign investors.
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On February 17, 2023, the CSRC, as approved by the State Council, released the Overseas Listing Trial Measures. According to the Overseas
Listing Trial Measures, domestic companies in the Chinese mainland that directly or indirectly offer or list their securities in an overseas market, are
required to file with the CSRC. Specifically, the securities under the Overseas Listing Trial Measures refer to stocks, depositary receipts, convertible
corporate bonds, exchangeable bonds and other equity-linked securities to be issued and offered in overseas markets by domestic companies directly or
indirectly, while a direct offering and listing refers to the overseas offering and listing of a joint-stock company incorporated in the Chinese mainland,
and an indirect offering and listing refers to the overseas offering and listing of a domestic company which conducts its business operations primarily in
the Chinese mainland, in the name of an offshore company and based on the underlying equities, assets, earnings or similar interests of the domestic
company. In particular, the determination of an indirect offering and listing will be conducted on a “substance over form” basis, and an offering and
listing should be considered as an indirect overseas offering and listing by a domestic company if the issuer meets both of the following conditions: (i)
any of the revenue, profits, total assets or net assets of such domestic company in the most recent financial year account for more than 50% of the
corresponding data in the issuer’s audited consolidated financial statements for the same period; and (ii) the majority of its business operations are
conducted in the Chinese mainland or its principal place of business is located in the Chinese mainland, or the majority of senior management in charge
of business operations are Chinese citizens or have domicile in the Chinese mainland. According to the Overseas Listing Trial Measures, an overseas
offering and listing is prohibited under any of the following circumstances: (i) if the intended securities offering and listing is specifically prohibited by
the laws, administrative regulations and relevant national provisions; (ii) if the intended securities offering and listing may constitute a threat to or
endangers national security as reviewed and determined by competent authorities under the State Council in accordance with law; (iii) the domestic
companies or their controlling shareholders or actual controllers have committed corruption, bribery, embezzlement, misappropriation of property, or
other criminal offenses disruptive to the order of the socialist market economy in the past three years; (iv) the domestic companies are currently under
investigations in connection with suspicion of having committed criminal offenses or material violations of applicable laws and regulations, and there is
still no explicit conclusion; (v) there are material ownership disputes over the shareholdings held by the controlling shareholder or the shareholder under
the control of the controlling shareholder or the actual controllers. According to the Overseas Listing Trial Measures, the issuer or its affiliated domestic
company, as the case may be, is required to file with the CSRC (i) with respect to its initial public offering and listing and its subsequent securities
offering in an overseas market different from the market where it has listed, within three business days after its submission of listing application
documents to the relevant regulator in the place of intended listing, (ii) with respect to its follow-on offering in the same overseas market where it has
listed (including issuance of any corporate convertible bonds, exchangeable bonds and other equity-linked securities, but excluding the offering for
employees incentive, dividend distribution by shares and share split), within three business days after completion of such follow-on offering, (iii) with
respect to listing by means of single or multiple acquisitions, share swap, transfers of shares and similar transactions, within three business days after its
initial filing of the listing application or the first public announcement of the transaction, as case may be. Failure to comply with the filing requirements
may result in an order of rectification, a warning and fines up to RMB10 million to the non-compliant domestic companies, and the directly responsible
persons of the companies will be warned and fined between RMB500,000 and RMB5 million. Furthermore, if the controlling shareholder and the actual
controller of the non-compliant companies organizes or instigates the breach, they will be fined between RMB1 million and RMB10 million. In addition
to above filing requirements, the Filings Rules also requires an issuer to report to the CSRC within three business days after occurrence of any the
following events: (i) its change of control; (ii) its being subject to investigation or sanctions by any overseas securities regulators or overseas authorities;
(iii) its change of listing status or listing segment; (iv) voluntary or mandatory delisting; and (v) material change of its principal business operations to
the extent that it ceases to be subject to the filing requirements of the Overseas Listing Trial Measures.
On February 24, 2023, the CSRC and several other administrations jointly released the Provisions on Strengthening Confidentiality and Archives
Administration of Overseas Securities Offering and Listing by Domestic Companies, or the Confidentiality Provisions, which became effective on
March 31, 2023. The Confidentiality Provisions includes both overseas direct offerings and overseas indirect offerings. The Confidentiality Provisions
provide that, among other things, (i) in relation to the overseas listing activities of domestic enterprises, the domestic enterprises are required to strictly
comply with the relevant requirements on confidentiality and archives management, establish a sound confidentiality and archives system, and take
necessary measures to implement their confidentiality and archives management responsibilities; (ii) during the course of an overseas offering and
listing, if a domestic enterprise needs to publicly disclose or provide to securities companies, accounting firms or other securities service providers and
overseas regulators, any materials that contain relevant state secrets or that have a sensitive impact (i.e. be detrimental to national security or the public
interest if divulged), the domestic enterprise should complete the relevant approval/filing and other regulatory procedures; and (iii) working papers
produced in the PRC by securities companies and securities service institutions, which provide domestic enterprises with securities services during their
overseas issuance and listing, should be stored in the PRC, and the transmission of all such working papers to recipients outside of the PRC is required
to be approved by competent authorities of the PRC. Since the Confidentiality Provisions are relatively new, as of the date of this annual report,
substantial uncertainties exist with respect to the interpretations and implementations of the Archives Rules.
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C. Organizational Structure
The chart below summarizes our corporate structure, including our principal subsidiaries, the VIEs and the VIEs’ principal subsidiaries, as of the
date of this annual report:
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.
(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 is a beneficial owner of the shares of our company and served as the chief
technology officer of our Company until his resignation on April 1, 2022.
(3) Mr. Wenwei Shu holds 100% of equity interests in Hangzhou Chuanchou. Mr. Wenwei Shu is a nominee of our company.
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(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.
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 the VIEs 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 the VIEs based on a series of contractual arrangements by and among Yunchuang Sharing, the VIEs and their shareholders.
Our contractual arrangements with the VIEs and their respective shareholders allow us to (i) direct the activities of the VIEs, (ii) receive
substantially all of the economic benefits of the VIEs, and (iii) have an exclusive option to purchase all or part of the equity interests in the 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 the VIEs, we are regarded as the primary beneficiary of
the VIEs, and we treat them and their subsidiaries as the consolidated VIEs under U.S. GAAP. We have consolidated the financial results of the VIEs
and their subsidiaries in our consolidated financial statements in accordance with U.S. GAAP.
Agreements that enable us to direct the activities of the 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.
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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.
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 interests pledged under the amended and restated equity interest pledge agreements in relation to
each of Yunji Preferred, Yunji Sharing, Hangzhou Chuanchou and Hangzhou Fengjing with the relevant office of the State Administration of Market
Regulation.
Agreements that allow us to receive economic benefits from the 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 the 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.
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In the opinion of Han Kun Law Offices, our PRC legal counsel:
•
•
the ownership structures of the VIEs in China and our WFOE are not in violation of applicable PRC laws and regulations currently in
effect; and
the contractual arrangements between our WFOE, the 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 the 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 9,943 square meters of office space in Hangzhou. We
also own an aggregate of approximately 4,259 square meters of office space in Hangzhou, which we bought on June 28, 2021 with total consideration of
RMB 161.9 million paid separately in 2021 and 2022 and expect to move into by the second quarter of 2023. As of the date of this annual report, we
have also leased an aggregate of approximately 2,188 square meters of office space in Shenzhen, China.
As of December 31, 2022, warehouse facilities in our fulfillment network included one central warehouse and seven regional warehouses in
China. We engage third-party vendors for all of our warehouse facilities in seven cities with an aggregate floor area of approximately 30,755 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.
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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 RMB5,530.3 million, RMB2,155.4 million and RMB1,154.1 million (US$167.3 million) in 2020, 2021 and 2022,
respectively. The decrease in total revenues in 2022 was primarily due to the negative impact of the outbreaks of the highly transmissible Delta and
Omicron variants of COVID-19 in 2022 on the Company’s operations and the continued strategy to refine our product selection across all categories and
optimize our selection of suppliers and merchants, causing near-term decreases in 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. The decrease in total
revenues in 2021 was primarily due to our strategy to refine our product selection across all categories and carefully curate products to implement our
megahit product pool initiative focusing on the development of private labels and exclusive products and our long-term growth strategy to focus on
profitability, which lead to optimization of selection of suppliers and merchants during this refinement process, causing near-term decreases in both our
marketplace business and merchandise sales. We recorded net loss of RMB138.4 million (US$20.1 million) in 2022, net income of RMB132.3 million
in 2021 and net loss of RMB151.7 million in 2020, respectively.
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 engage and retain members and users and increase their activities
Engaging and retaining users have been one of our key focuses since our inception. Starting from 2020, we have placed increasing emphasis on
enhancing member and user loyalty and activities. Starting in 2021, in order to better engage and retain members and users and enhance member and
user activities and loyalty, we have further upgraded our strategy to carefully curate products and launched our megahit product pool initiative, which
focused on introducing more products with strong repurchase potential and developing private labels and exclusive product. We measure our
effectiveness in engaging and retaining users through the key performance indicator of average spending per buyer, which is calculated by dividing total
GMV in that period by the number of buyers in the same period. We believe this metric more accurately reflects our ability to increase member and user
activities and loyalty and bring value to members and users through carefully curated products, compared to other metrics we historically used such as
number of buyers and number of orders fulfilled. Our average spending per buyer was RMB2,061 and RMB1,975, and RMB1,658 in 2020, 2021 and
2022, respectively. As a result of our emphasis on enhancing member and user loyalty and activities, our average spending per buyer remained relatively
stable from 2020 to 2021. Our average spending per buyer decreased from 2021 to 2022, primarily due to the negative impact of COVID-19 on the
Chinese economy in 2022 which led to a reduction in consumer demand, and consumers were more inclined to stock up on necessities with lower unit
prices.
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Our ability to engage and retain users and increase user activities and loyalty 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 keep our user base
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 2022, we offered an average of 7,631 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.
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 refine our product selection across
all categories and carefully curate products to implement our megahit product pool initiative focusing on the development of private labels and exclusive
products.
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.
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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, 2022, warehouse facilities in our fulfillment network included one central warehouse and seven regional warehouses,
with an aggregate gross floor area of approximately 30,755 square meters in seven 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 will continue to develop 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.
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, and 2022 were affected by the outbreak of COVID-19 that severely impacted China and the rest of the world
beginning in January 2020. The population in most of the major cities was locked down to a greater or lesser extent at various times and opportunities
for discretionary consumption were extremely limited. In particular, these restrictions have caused various degrees of temporary shutdowns and delays
in production and operation of our suppliers (especially private label suppliers), third-party merchants, third-party logistics service providers and other
business partners, leading to temporary shortages of certain merchandises and delays in logistics services as well as delays in the research and
development and new product launch processes associated with our private label suppliers. Our operations and results of operations for the second half
of 2020 and 2021 were not materially affected by the COVID-19 pandemic.
China began to modify its zero-COVID policy at the end of 2022, and most of the travel restrictions and quarantine requirements were lifted in
December. There were surges of cases in many cities during this time which caused disruption to our operations, and there remains uncertainty as to the
future impact of the virus, especially in light of this change in policy. The extent to which the pandemic impacts our results of operations going forward
will depend on future developments which are highly uncertain and unpredictable, including the frequency, duration and extent of outbreaks of
COVID-19, the appearance of new variants with different characteristics, the effectiveness of efforts to contain or treat cases, and future actions that
may be taken in response to these developments. Since the modification of the zero-COVID policy, we have resumed our new product launch processes
associated with our private label suppliers that were previous stalled by COVID-related restrictions. Nonetheless, we expect that it will take some time
for us to gradually restore consumer confidence and spending vigor. We cannot guarantee you that the COVID-19 pandemic will not further escalate or
have a material adverse effect on our results of operations, especially our product mix, our financial condition, our cash flows or our prospects in the
future.
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As of December 31, 2022, we had cash, cash equivalents and restricted cash of RMB456.7 million (US$66.2 million). We believe this level of
liquidity is sufficient to successfully navigate an extended period of uncertainty. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our
Business and Industry—We face risks related to natural disasters, health epidemics and other outbreaks, which could significantly disrupt our
operations.”
Key Components of Results of Operations
Revenues
Revenues are comprised of sale of merchandise, net, marketplace revenue and other revenues. The following table sets forth the components of
our revenues by amounts and percentages of our total revenues for the periods presented:
2020
2021
For the Year Ended December 31,
RMB
%
RMB
%
(in thousands, except for percentages)
RMB
2022
US$
%
Revenues:
Sale of merchandise, net
Marketplace revenue
Other revenues(1)
Total
Notes:
4,829,397 87.3 1,798,882 83.5 965,796 140,027 83.7
599,895 10.8 321,844 14.9 170,561 24,729 14.8
100,965
1.5
5,530,257 100.0 2,155,361 100.0 1,154,114 167,330 100.0
34,635
17,757
2,574
1.9
1.6
(1)
Starting from 2021, revenue from membership program is combined into other revenues and is no longer a separate revenue line. Revenue
breakdown for previous years presented in this annual report have been adjusted to be presented in the same manner.
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. For our private label
products, we acquire products from suppliers and sell them to users both on our platform and through external channels. We expect revenues generated
from sale of merchandise will continue to account for a majority of our total revenues.
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 are recognized on a net basis.
Other revenues include revenues from membership program and revenues earned on net basis from sales of certain products on our platform, such
as air tickets. 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, 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 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 and required new users and renewing members to pay
an annual membership fee to become or continue as a member and enjoy membership benefits until September 2022. Starting from October 2022, one
can become a member of our platform by accepting invitation from existing members, and continued membership eligibility will be contingent upon
meeting a certain cumulative spending threshold or certain other requirements. In addition, 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. As a result, during the
period from April 1, 2021 to September 30, 2022, revenues from the membership program were from paying members who joined the new membership
program and during the period from October 1, 2022 to December 31, 2022, revenues from the membership program were from deferred revenue of
paying members who joined the new membership program.
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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:
2020
2021
For the Year Ended December 31,
RMB
%
RMB
%
(in thousands, except for percentages)
RMB
2022
US$
%
Operating Cost and Expenses:
Cost of revenues
Fulfillment
Sales and marketing
Technology and content
General and administrative
Total
8.1 202,026
3,939,997 71.2 1,343,386 62.3 651,578 94,470 56.5
450,104
9.4 160,680 23,296 13.9
806,140 14.6 296,049 13.7 214,783 31,141 18.6
3.7 124,854
202,817
7.1
4.7 226,110 10.5 145,857 21,147 12.6
261,877
5,660,935 102.3 2,192,425 101.7 1,254,280 181,853 108.7
81,382 11,799
5.8
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.
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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.
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%, subject to preferential tax treatments available to qualified enterprises in certain encouraged sectors of
the economy. 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 “High and
New Technology Enterprise” to enjoy a preferential tax rate of 15% since 2019.
Our other PRC subsidiaries, the 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.
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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.”
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.
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For the Year Ended December 31,
2020
RMB
2021
RMB
2022
RMB
US$
(In thousands, except for per share data)
Consolidated Statements of Operations Data:
Revenues:
Sale of merchandise, net
Marketplace revenue
Other revenues(1)
Total revenues
Operating cost and expenses(2):
Cost of revenues
Fulfilment
Sales and marketing
Technology and content
General and administrative
Total operating cost and expenses
Other Operating Income(3)
(Loss)/income from operations
Financial (expense)/income, net
Foreign exchange loss, net
Other non-operating (loss)/income, net
4,829,397 1,798,882
321,844
34,635
965,796 140,027
170,561 24,729
2,574
5,530,257 2,155,361 1,154,114 167,330
599,895
100,965
17,757
(450,104)
(806,140)
(202,817)
(261,877)
(3,939,997) (1,343,386)
(202,026)
(296,049)
(124,854)
(226,110)
(651,578) (94,470)
(160,680) (23,296)
(214,783) (31,141)
(81,382) (11,799)
(145,857) (21,147)
(5,660,935) (2,192,425) (1,254,280) (181,853)
21,599
3,132
(78,567) (11,391)
(2,081)
(14,356)
(2,276)
(15,697)
300
2,072
54,416
17,352
80,061
(1,300)
112,909
33,218
(97,460)
(8,571)
(919)
(1,610)
(Loss)/income before income tax expense, and equity in income of affiliates,
net of tax
Income tax benefit/(expense)
Equity in loss of affiliates, net of tax
Net (loss)/income
Notes:
(108,560)
(39,298)
(3,834)
(151,692)
209,022
(60,501)
(16,237)
132,284
(106,548) (15,448)
(3,594)
(1,022)
(138,390) (20,064)
(24,791)
(7,051)
(1)
(2)
Starting from 2021, revenue from membership program is combined into other revenues and is no longer a separate revenue line. Revenue
breakdown for previous years presented in this annual report have been adjusted to be presented in the same manner.
Share-based compensation expenses were allocated as follows:
Sales and marketing
Technology and content
General and administrative
Fulfillment
Total
For the Year Ended December 31,
2020
RMB
2021
RMB
2022
RMB
US$
12,362
8,887
71,777
5,352
98,378
(In thousands)
1,550
4,378
49,052
930
55,910
539
4,388
23,994
1,229
30,150
78
636
3,479
178
4,371
(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 (loss)/income, net.
Year ended December 31, 2022 compared to year ended December 31, 2021
Revenues
Our revenues decreased by 46.5% from RMB2,155.4 million in 2021 to RMB1,154.1 million (US$167.3 million) in 2022, primarily due to
decreases in both our revenue from sale of merchandise and revenue from marketplace business, which were primarily driven by our decision to upgrade
our strategy to refine our product selection across all categories as well as the negative impact of the outbreaks of the highly transmissible Delta and
Omicron variants of COVID-19 in 2022 on our operations. In line with our long-term growth strategy to focus on profitability, we optimized our
selection of suppliers and merchants across our platform, which caused sales decreases in both marketplace business and merchandise sales.
Our average spending per buyer decreased from RMB1,975 in 2021 to RMB1,658 in 2022, primarily due to the negative impact of COVID-19 on
the Chinese economy in 2022 which led to reduced consumer demand and consumers were more inclined to stock up on necessities with lower unit
prices.
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•
•
•
Revenue from sale of merchandise, net. Our revenue from sale of merchandise, net decreased by 46.3% from RMB1,798.9 million in 2021
to RMB965.8 million (US$140.0 million) in 2022, primarily due to our decision to upgrade our strategy to refine our product selection
across all categories as well as the negative impact of COVID-19 outbreak in 2022 on our operations as discussed above.
Revenue from marketplace business. Revenue from the marketplace business decreased by 47.0% from RMB321.8 million in 2021 to
RMB170.6 million (US$24.7 million) in 2022, primarily due to due to our decision to upgrade our strategy to refine our product selection
across all categories as well as the negative impact of COVID-19 outbreak in 2022 on our operations as discussed above.
Other revenues. Other revenues decreased by 48.7% from RMB34.6 million in 2021 to RMB17.8 million (US$2.6 million) in 2022.
Operating cost and expenses
Our total operating cost and expenses decreased by 42.8% from RMB2,192.4 million in 2021 to RMB1,254.3 million (US$181.9 million) in 2022.
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 51.5% from RMB1,343.4 million, representing 62.3% of our total revenues, in 2021
to RMB651.6 million (US$94.5 million), representing 56.5% of our total revenues, in 2022, which was mainly attributable to the decline in
merchandise sales, for which revenues are recognized on a gross basis. Total cost of revenues was mainly comprised of the costs related to
the sales of merchandise.
•
Fulfillment expenses. Our fulfillment expenses decreased by 20.5% from RMB202.0 million, representing 9.4% of our total revenues, in
2021 to RMB160.7 million (US$23.3 million), representing 13.9% of our total revenues, in 2022. This decrease was primarily attributable
to (i) reduced warehousing and logistics expenses due to lower merchandise sales, and (ii) decreased service fees charged by third-party
payment settlement platforms.
•
•
•
Sales and marketing expenses. Our sales and marketing expenses decreased by 27.5% from RMB296.0 million, representing 13.7% of our
total revenues, in 2021 to RMB214.8 million (US$31.1 million), representing 18.6% of our total revenues, in 2022. The decrease in sales
and marketing expenses was primarily attributable to (i) the reduction in personnel costs as a result of staffing structure refinements, (ii) a
decrease in member management fees, and (iii) a decrease in marketplace business platform promotion expenses, partially offset by an
increase in private label promotion expenses.
Technology and content expenses. Our technology and content expenses decreased by 34.8% from RMB124.9 million, representing 5.8%
of our total revenues, in 2021 to RMB81.4 million (US$11.8 million), representing 7.1% of our total revenues, in 2022, primarily due to
(i) the reduction in personnel costs as a result of staffing structure refinements, and (ii) reduced cloud services costs.
General and administrative expenses. Our general and administrative expenses decreased by 35.5% from RMB226.1 million, representing
10.5% of our total revenues, in 2021 to RMB145.9 million (US$21.1 million), representing 12.6% of our total revenues, in 2022. The
decrease was primarily attributable to (i) reduced personnel costs as a result of staffing structure refinements, (ii) lower professional
service fees, and (iii) a decrease in share-based compensation expenses.
Income/(loss) from operations
Our loss from operations was RMB78.6 million (US$11.4 million) in 2022, compared to our income from operations RMB17.4 million in 2021 as
a result of a decrease in revenues, partially offset by improvements in our operating efficiency and increased gross margin.
Financial (expense)/income, net
Our financial expense, net was RMB14.4 million (US$2.1 million) in 2022, compared to financial income, net of RMB80.1 million in 2021 as a
result of a decrease in fair value changes of equity securities investments.
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Foreign exchange loss, net
We recorded foreign exchange loss, net of RMB15.7 million (US$2.3 million) in 2022, compared to RMB1.3 million in 2021, as a result of
fluctuations of the exchange rates of Renminbi against U.S. dollars.
Other non-operating (loss)/income, net
We recorded other non-operating income, net of RMB2.1 million (US$0.3 million) in 2022, compared to other non-operating income, net of
RMB112.9 million in 2021.
Income tax expense
We recorded income tax expense of RMB24.8 million (US$3.6 million) in 2022, compared to income tax expense of RMB60.5 million in 2021,
primarily due to the decrease in our income before income tax expense.
Net income/(loss)
As a result of the foregoing, we recorded net loss of RMB138.4 million (US$20.1 million) in 2022, compared to net income of RMB132.3 million
in 2021.
Year ended December 31, 2021 compared to year ended December 31, 2020
For a detailed description of the comparison of our operating results for the year ended December 31, 2021 to the year ended December 31, 2020,
see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Results of Operations—Year Ended December 31, 2021 Compared
to Year Ended December 31, 2020” of our annual report on Form 20-F filed with the Securities and Exchange Commission on April 26, 2022.
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.
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 control of the
merchandise is transferred to the customer. For products sold through independent distributors (the “distribution sales”), control is transferred upon
shipment or acceptance, based on the contract terms. 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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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. 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 commissions 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.
The remaining performance obligations associated with our marketplace revenue represents the portion of commissions 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 businesses
We 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 accounts 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 one year or less. 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.
We also provide technical services, advertising services and membership services to customers. The service revenues mainly represent the service
fees from third parties that are recognized over the service period.
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
coupons granted are not concurrent with a revenue transaction, thus 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.
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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 RMB40.6 million, RMB25.7 million and RMB4.8 million are recorded in cost of revenues in the consolidated statements
of comprehensive (loss)/income for the years ended December 31, 2020, 2021 and 2022, respectively.
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 amended and restated in its entirety in March 2019, and is 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.
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 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 January 31, 2019, we granted 4,968,000 stock options and 14,925,000 restricted share units to our directors and employees.
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.
On January 1, 2021 and February 1, 2021, we granted 29,170,000 and 26,818,000 RSUs to our employees, respectively. In addition, on
February 1, 2021, we modified the exercise price and vesting schedules of certain stock options.
On January 1, 2022 and August 1, 2022, we granted 8,690,000 and 1,160,000 RSUs to our employees, respectively.
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(a) Options
The following table sets forth the stock options activity for the years ended December 31, 2020, 2021 and 2022:
Outstanding as of December 31, 2020
Granted
Forfeited
Exercised
Expired
Outstanding as of December 31, 2021
Granted
Forfeited
Exercised
Expired
Outstanding as of December 31, 2022
Vested and expected to vest as of December 31, 2022
Exercisable as of December 31, 2022
Weighted-
average
exercise
price
US$
0.22
—
0.26
0.10
0.28
0.21
—
0.20
0.09
—
0.22
Number of
shares
68,565,920
—
(5,655,230)
(748,730)
(231,520)
61,930,440
—
(64,980)
(773,640)
—
61,091,820
61,091,820
60,169,040
Weighted
average
remaining
contractual
term
2.65
Aggregate
intrinsic
value
000’US$
2,826
1.73
—
0.89
—
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, 2021: US$0.06, December 31, 2022: US$0.08).
We use the Binominal option pricing model to estimate the fair value of stock options. The assumptions used to value our options modified were
as follow:
Exercise price (US$)
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$)
Fair value of share option (US$)
2020
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
2021
0.0925
2.2/2.8
0.24%/0. 33%
6
0.00%
52.96%/55.13%
5%
0.23
0.15
2022
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 RMB52.9 million, RMB20.8 million and RMB1.8 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)/income for the years ended 2020, 2021 and 2022, respectively.
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As of December 31, 2020, 2021 and 2022, there were RMB40.2 million, RMB2.6 million and RMB0.6 million, respectively, in total unrecognized
compensation expense, related to unvested share options, which is expected to be recognized over a weighted average period of 0.8, 0.95 and 0.4 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, 2020, 2021 and 2022 is presented below:
Unvested at December 31, 2020
Granted
Vested
Forfeited
Unvested at December 31, 2021
Granted
Vested
Forfeited
Unvested at December 31, 2022
Number of
RSUs
47,961,100
55,988,000
(12,908,750)
(45,336,000)
45,704,350
9,850,000
(10,326,250)
(20,306,000)
24,922,100
Weighted-
Average Grant-
Date Fair Value
US$
0.63
0.21
0.45
0.63
0.45
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, 2020, 2021 and 2022, 954,960 restricted share units, 12,908,750 restricted share units and 10,326,250 restricted share units
were vested. For the years ended December 31, 2020, 2021 and 2022, our total share-based compensation expenses recognized for the restricted share
units granted were RMB45.5 million, RMB35.1 million and RMB28.3 million, respectively.
As of December 31, 2020, 2021 and 2022, there were RMB112.4 million, RMB60.2 million and RMB14.6 million in total unrecognized
compensation expense, related to unvested RSUs, which is expected to be recognized over a weighted average period of 2.51, 2.55 and 1.87 years,
respectively.
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Fair Value Measurements
As of December 31, 2021 and 2022, 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
Equity securities accounted for under alternative
measurement
Total assets
Description
Assets:
Short-term investments
Time deposits
Wealth management products
Long-term investments
Equity securities with readily determinable fair value
Equity securities accounted for under alternative measurement
Total assets
Fair value measurement at reporting date using
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
RMB
Fair value as
of December
31, 2021
RMB
Significant
Other
Observable
Inputs
(Level 2)
RMB
Significant
Unobservable
Inputs
(Level 3)
RMB
167,781
212,271
—
—
167,781
212,271
153,326
153,326
—
196,296
729,674
—
153,326
196,296
576,348
—
—
—
—
—
Fair value measurement at reporting date using
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
RMB
Fair value as of
December 31,
2022
RMB
Significant
Other
Observable
Inputs
(Level 2)
RMB
Significant
Unobservable
Inputs
(Level 3)
RMB
142,357
69,646
189,885
207,771
609,659
—
—
142,357
69,646
189,885
—
189,885
—
207,771
419,774
—
—
—
—
—
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.
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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.
We use measurement alternative for recording equity investments without readily determinable fair values at cost, less impairment, adjusted for
subsequent observable price changes. Based on ASU 2016-01, entities that elect the measurement alternative will report changes in the carrying value of
the equity investments in current earnings. If measurement alternative is used, changes in the carrying value of the equity investment will be recognized
whenever there are observable price changes in orderly transactions for the identical or similar investment of the same issuer, and impairment charges
will be recorded when any impairment indicators are noted and the fair value is lower than the carrying value. We classify the valuation techniques on
investments that use similar identifiable transaction prices as Level 2 of fair value measurements.
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
Inflation in China has not materially impacted our results of operations in recent years. According to the National Bureau of Statistics of China,
the year-over-year percent changes in the consumer price index for December 2020, 2021 and 2022 were increases of 0.2%, 1.5% and 1.8%,
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 used in operating activities
Net cash generated from/(used in) investing activities
Net cash 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
128
For the Year Ended December 31,
2020
RMB
2021
RMB
2022
RMB
US$
(in thousands)
(13,876)
(53,624)
(261,514)
(25,991) (216,822) (31,433)
551,015 (513,795) 92,565 13,419
(463) (94,555) (13,710)
(19,763) 45,823 6,642
222,001 (560,012) (172,989) (25,082)
967,743 1,189,744 629,732 91,303
1,189,744 629,732 456,743 66,221
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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, 2022, our cash, cash equivalents and restricted cash were RMB456.7 million (US$66.2 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.
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, 2020, 2021 and 2022, our accounts payable amounted to RMB501.5 million, RMB254.8 million, and
RMB138.9 (US$20.1 million), respectively. These changes were primarily contributed by the changes in merchandise purchase payables, which
decreased from RMB292.5 million as of December 31, 2020 to RMB150.2 million as of December 31, 2021 and further decreased to RMB87.5 million
(US$12.7 million) as of December 31, 2022. These decreases were primarily due to decreases in merchandise sales.
Our merchandise purchase payable turnover days were 38.4 days in 2020, 59.3 days in 2021, and 65.7 days in 2022. 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, 2020, 2021 and 2022, our net inventories amounted to RMB135.2 million, RMB84.5 million and RMB54.7 (US$7.9 million),
respectively. These decreases were primarily due to decreases in merchandise sales. Our inventory turnover days were 25.7 days in 2020, 29.4 days in
2021, and 38.4 days in 2022.
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, 2022, we had RMB456.7 million (US$66.2 million) in cash, cash equivalents and restricted cash, of which approximately
54.5% were held in Renminbi, 44.9% in U.S. dollars, and the remainder in other currencies.
Although we consolidate the results of the VIEs and their subsidiaries, we only have access to the assets or earnings of the VIEs and their
subsidiaries through our contractual arrangements with the VIEs and their shareholders. See “Item 4. Information on the Company—C. Organizational
Structure—Contractual Arrangements with the VIEs 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.
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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.
Operating activities
Net cash used in operating activities in 2022 was RMB216.8 million (US$31.4 million), as compared to net loss of RMB138.4 million (US$20.1
million) in the same period. In 2022, 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 RMB108.0 million (US$15.7 million), (ii) a decrease in deferred revenue of RMB84.0 million (US$12.2
million) and (iii) a decrease in incentive payables to members of RMB58.3 million (US$8.5 million), partially offset by (i) a decrease in prepaid
expenses and other current assets of RMB95.2 million (US$13.8 million) and (ii) a non-cash changes in fair value for equity securities of
RMB35.2 million (US$5.1 million). The decrease in accounts payable was primarily due to the decrease in merchandise sales. The decrease in deferred
revenue was primarily due to the decrease in deferred merchandise revenue.
Net cash used in operating activities in 2021 was RMB26.0 million, as compared to net income of RMB132.3 million in the same period. In 2021,
the principal items accounting for the difference between our net cash used in operating activities and our net income were (i) a decrease in accounts
payable of RMB212.7 million, (ii) a non-cash gain on disposal of long-term investments and subsidiaries of RMB112.4 million and (iii) a decrease in
other payable and accrued liabilities of RMB84.9 million, partially offset by (i) a non-cash shared-based compensation of RMB55.9 million and (ii) an
increase in deferred revenue of RMB54.9 million. The decrease in accounts payable was primarily due to the decrease in merchandise sales. The gain on
disposal of long-term investments and subsidiaries was primarily due to our investment in a fast-growing dairy company in China.
Net cash used in operating activities in 2020 was RMB261.5 million, as compared to net loss of RMB151.7 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, (ii) an increase in accounts receivable of RMB154.4 million, (iii) a decrease in deferred revenue of RMB130.9 million,
partially offset by (i) a decrease in inventories of RMB252.0 million and (ii) a non-cash share-based compensation of RMB98.4 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 was primarily due to increased funds extended by us to qualified customers and increased receivables
from sales channels on other platforms.
Investing activities
Net cash generated from investing activities in 2022 was RMB92.6 million (US$13.4 million), primarily due to (i) cash received from maturity of
short-term investments of RMB651.4 million (US$94.4 million) and (ii) cash received from factorings services of RMB102.4 million (US$14.8
million), partially offset by cash paid for short term investments of RMB465.2 million (US$67.5 million).
Net cash used in investing activities in 2021 was RMB513.8 million, primarily due to (i) cash paid for short-term investments of
RMB377.8 million, (ii) cash paid for long-term investments of RMB198.8 million, (iii) cash paid for factorings services of RMB194.1 million and
(iv) cash paid for loans provided to third parties of RMB159.2 million, partially offset by (i) cash received from factorings services of
RMB169.0 million, (ii) cash received from disposal of long-term investments of RMB135.9 million and (iii) cash received from maturity of short-term
investments of RMB126.6 million.
Net cash generated from investing activities in 2020 was RMB551.0 million, primarily due to cash received from maturity of short-term
investments of RMB2,492.6 million, partially offset by cash paid for short-term investments of RMB1,774.8 million.
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Financing activities
Net cash used in financing activities in 2022 was RMB94.6 million (US$13.7 million), primarily due to cash paid for repurchase of common
stocks of RMB95.4 million (US$13.8 million).
Net cash used in financing activities in 2021 was RMB463 thousand, primarily due to cash paid to non-controlling shareholders for acquisition of
equity shares in subsidiaries of RMB1.2 million, partially offset by net proceeds from exercise of share options of RMB1.0 million.
Net cash used in financing activities in 2020 was RMB13.9 million, primarily due to cash paid for repurchase of common stocks of
RMB23.2 million.
Material Cash Requirements
Our material cash requirements as of December 31, 2022 and any subsequent interim period mainly include capital expenditures and operating
lease obligations.
Our capital expenditures were RMB84.4 million, RMB87.0 million and RMB92.3 million (US$13.4 million) in 2020, 2021 and 2022,
respectively. In June 2021, we purchase an aggregate of approximately 4,259 square meters of office space in Hangzhou for RMB161.9 million. As of
December 31, 2021, we paid RMB81.2 million out of the RMB 161.9 million. The remainder has been paid by March 2022.
Our operating lease obligations relate to our leases of offices and operation space. The following table sets forth our operating lease obligations as
of December 31, 2022.
Operating lease
Payment Due by Period
Total
Less than 1
year
1-3 years
(in RMB thousands)
3-5 years
More than 5
years
3,396
3,338
58
—
—
We intend to fund our existing and future material cash requirements with our existing cash balance and cash flow from operating activities. We
will continue to make cash commitments, including capital expenditures, to meet the expected growth of our business.
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.
Other than as shown above, we did not have any significant capital and other commitments, long-term obligations or guarantees as of
December 31, 2022.
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, the
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 the 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 the 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.
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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, 2022 that are reasonably likely to have a material adverse effect on our net sales or revenues, income from continuing
operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future
operating results or financial condition.
E.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations relates to our consolidated financial statements, which have been
prepared in accordance with United States of America generally accepted accounting principles (“U.S. GAAP”). The preparation of these financial
statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related
disclosures. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources.
We consider an accounting estimate to be critical if: (1) the accounting estimate requires us to make assumptions about matters that were highly
uncertain at the time the accounting estimate was made, and (2) changes in the estimate that are reasonably likely to occur from period to period or use
of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of
operations. There are other items within our financial statements that require estimation but are not deemed critical, as defined above. Changes in
estimates used in these and other items could have a material impact on our financial statements.
For a detailed discussion of our significant accounting policies and related judgments, please see “Note 2—Summary of Significant Accounting
Policies” of our consolidated financial statements included elsewhere in this annual report. You should read the following description of critical
accounting estimates in conjunction with our consolidated financial statements and other disclosures included in this annual report.
Allowance for credit losses
The allowance for credit losses represents our estimate of the expected lifetime credit losses over the remaining expected life of our financial
assets measured at amortized cost as of the balance sheet date. The allowance for credit losses comprises:
•
•
The allowance for credit losses on accounts receivable;
The allowance for credit losses on prepaid expenses and other current assets and other non-current assets.
Nature of Estimates Required. The allowance for credit losses involves significant judgment on a number of matters including development and
weighting of macroeconomic forecasts, incorporation of historical loss experience, assessment of risk characteristics, assignment of risk ratings,
valuation of collateral, non-performing loan ratio of commercial banks by industry and the forward-looking macroeconomic conditions. Refer to Note
2.12 of our consolidated financial statements included elsewhere in this annual report for further information on these judgments as well as our policies
and methodologies used to determine the allowance for credit losses.
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Assumptions Used. Our allowance for credit losses is based on our assumptions regarding:
•
•
•
•
Probability of default. The expected probability of payment and time to default, which include assumptions about macroeconomic factors
and recent performance; and
Loss given default. The percentage of the expected balance due at default that is not recoverable. The loss given default takes into account
expected collateral value and future recoveries; and
Non-performing loan ratio of commercial banks by industry; and
Forward-looking macroeconomic conditions used in our models are country specific and include variables such as consumer price index,
producer price index, and gross domestic product.
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
Dan Li
Li-Lan Cheng
Gao Wang
Suqin Xi
Peng Zhang
Position/Title
Age
44 Chairman of the Board of Directors and Chief Executive Officer
41 Director
58 Independent Director
58 Independent Director
67 Independent Director
42 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.
Ms. Dan Li has served as our director since October 2021. Ms. Li is a managing director at CDH Investments Management (Hong Kong) Limited,
where she has been employed since August 2014. Ms. Li served as a senior manager and director in Dinghui Investment Management (Tianjin)
Company Limited from May 2012 to July 2014 and as a manager in the private asset management department of Ping An Trust from October 2010 to
April 2012. Ms. Li obtained her bachelor’s degree in accounting from the Civil Aviation University of China in 2003 and her Master of Business
Administration degree from Concordia University in Canada in 2007. Ms. Li is a Chartered Financial Analyst with the CFA Institute and a Hong Kong
SFC licensed representative (Type 1 and 4).
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).
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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, the independent director of Phoenix
Bicycle Co. 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. Peng Zhang has served as our vice president of finance since May 2022. Mr. Zhang served as our senior financial director from April 2018 to
May 2022. Prior to joining the Company, he served as director of financial planning and analysis at Otis Electric, a leading elevator and escalator
manufacturing, installation, and service company, from 2016 to 2018, and as works controller at the same company from 2014 to 2015. Mr. Zhang was a
financial manager at Bosch Power Tools (China) Co., Ltd., a leading global supplier of technology and services, from 2011 to 2013. Prior to that, he was
a senior financial analyst at Alipay (China) Network Technology Co., Ltd., a subsidiary of Alibaba Group Holding Limited, from 2010 to 2011.
Mr. Zhang served as a financial analyst at Hangzhou Huasan Communication Technology Co., Ltd., from 2006 to 2010. Mr. Zhang received his
bachelor’s degree in business administration and his master’s degree in financial management from Xiamen University in 2003 and 2006, respectively.
B.
Compensation of Directors and Executive Officers
For the fiscal year ended December 31, 2022, we paid an aggregate of RMB2.7 million (US$0.4 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 the 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.
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.
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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, 2023,
options to purchase a total of 50,881,030 Class A ordinary shares and 15,424,750 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.
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.
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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, 2023, 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
Li-Lan Cheng
Gao Wang
Suqin Xi
Peng Zhang
All directors and executive officers as a group
Ordinary Shares
Underlying
Options and
Restricted Share
Units
20,000,000
*
*
*(1)
*
*(1)
*(1)
*(1)
*(1)
22,500,000
Exercise Price
(US$/Share)
0.0925
0.1
0.1
—
0.2
—
—
—
—
Date of Grant
December 19, 2017
May 3, 2019
May 3, 2019
January 1, 2020
June 30, 2018
January 31, 2019
January 1, 2020
July 1, 2020
February 1, 2021
Date of Expiration
December 18, 2023
May 2, 2025
May 2, 2025
December 31, 2025
May 31, 2024
January 30, 2025
December 31, 2025
June 30, 2026
January 31, 2027
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.
As of February 28, 2023, our employees, other than our directors and executive officers held options to purchase 9,310,360 Class A ordinary
shares, with exercise prices ranging from US$0.0925 per share to US$0.5 per share and 11,817,500 restricted share units.
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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 established 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- 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;
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.
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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;
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.
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Our officers are appointed by and serve at the discretion of the board of directors, and may be removed by our board of directors.
Board Diversity Matrix
Board Diversity Matrix (As of February 28, 2023)
Country of Principal Executive Offices
Foreign Private Issuer
Disclosure Prohibited Under Home Country Law
Total Number of Directors
Part I: Gender Identity
Directors
Part II: Demographic Background
Underrepresented Individual in Home Country Jurisdiction
LGBTQ+
Did Not Disclose Demographic Background
D.
Employees
PRC
Yes
No
5
Did Not
Disclose
Gender
0
Female
Male
Non-
Binary
1
4
0
0
0
0
As of December 31, 2022, we had a total of 493 employees. We had a total of 1,036 and 655 employees as of December 31, 2020 and 2021,
respectively. The following table gives breakdowns of our employees as of December 31, 2022 by function:
Function
Procurement
Operations, including customer service
Technology
Sales and Marketing
General and Administrative
Total
As of December 31, 2022
183
48
101
77
84
493
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,
2022, 63 of our customer service personnel were outsourced from third-party BPO companies, representing 37% 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, 2022, our members were served by more than 110,000 service managers. We currently work with four third-party
service companies and enter into agreements with them on an annual basis. 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.
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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.
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 major labor disputes in the past. 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, 2023 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 1,966,089,832 ordinary shares as of February 28, 2023, including (i) 1,208,831,222 Class A
ordinary shares (excluding the company’s repurchase of 192,701,390 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.
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Directors and Executive Officers**:
Shanglue Xiao(1)
Dan Li(2)
Li-Lan Cheng(3)
Gao Wang(4)
Suqin Xi(5)
Peng 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)
Ordinary Shares Beneficially Owned
Class A
Ordinary
Shares
Class B
Ordinary
Shares
Total
Ordinary
Shares
% of Total
Ordinary
Shares
35,000,000
—
*
*
*
*
36,810,000
949,960,000
—
—
—
—
—
949,960,000
984,960,000
—
*
*
*
*
986,770,000
49.6
—
*
*
*
*
49.6
% of
Aggregate
Voting
Power***
90.5
—
*
*
*
*
90.5
—
134,600,340
215,800,000
146,202,410
110,803,324
107,250,000
949,960,000
—
—
—
—
—
949,960,000
134,600,340
215,800,000
146,202,410
110,803,324
107,250,000
47.8
6.8
10.9
7.4
5.6
5.4
90.2
1.3
2.0
1.4
1.1
1.0
*
**
Less than 1% of our total outstanding shares.
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.
(1) Represents (i) 949,960,000 Class B ordinary shares held by Lanlan Ltd., a BVI business company, (ii) 20,000,000 Class A ordinary shares issuable
to Mr. Shanglue Xiao upon exercise of options within 60 days after February 28, 2023, and (iii) 15,000,000 Class A ordinary shares issuable to
Mr. Shanglue Xiao upon vesting of restricted share units within 60 days after February 28, 2023. 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 Ms. Dan Li is 3/F, Vstone Building, 1 Yan’an Dong Road, Huangpu District, Shanghai, 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 650 Biyun Road, 28-102, 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.
(2)
(3)
(4)
(5)
(6) 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.
(7) Represents (i) 13,394,961 ADSs, representing 133,949,610 Class A Ordinary Shares held by Eastern Bell XIX Investment Limited, a company
incorporated in the British Virgin Islands, and (ii) 65,073 ADSs, representing 650,730 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.
(8) Represents (i) 115,800,000 Class A ordinary shares and (ii) 10,000,000 ADSs, representing 100,000,000 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.
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(9) Represents (i) 126,820,000 Class A ordinary shares and (ii) 1,938,241 ADSs, representing 19,382,410 Class A ordinary shares, held by Fasturn
Overseas Limited, a BVI business company. Information regarding beneficial ownership is reported as of December 31, 2022, based on the
information contained in the Schedule 13G/A filed by Fasturn Overseas Limited with the SEC on February 8, 2023. 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.
(10) 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.
(11) Represents (i) 94,350,000 Class A ordinary shares and (ii) 1,290,000 ADSs, representing 12,900,000 Class A ordinary shares, held by Trustbridge
Partners IV, LP a Cayman Islands limited partnership. Information regarding beneficial ownership is reported as of December 31, 2022, based on
the information contained in the Schedule 13G/A filed by TB Alternative Assets Ltd with the SEC on February 8, 2023. 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, 2023, 731,057,880 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.
F.
Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation
None.
ITEM 7.
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
Please refer to “Item 6. Directors, Senior Management and Employees—E. Share Ownership.”
B.
Related Party Transactions
Contractual Arrangements with the VIEs and Their Shareholders
See “Item 4. Information on the Company—C. Organizational Structure—Contractual Arrangements with the VIEs 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.
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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.
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 Share 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
2020, 2021 and 2022, we purchased products from Small Ye in the amount of RMB0.3 million, nil and nil, respectively. As of December 31, 2020, 2021
and 2022, we had RMB1.0 million, RMB0.7 million and RMB0.7 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 2020,
2021 and 2022, we purchased products from Beijing Siwei in the amount of RMB7.7 million, RMB2.4 million and nil, respectively. As of December 31,
2020, 2021 and 2022, we had RMB0.3 million, RMB0.1 million and nil, respectively, due to Beijing Siwei, representing the payments due to Beijing
Siwei for products purchased from Beijing Siwei.
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Transaction with Guangdong Weixin Technology Co Ltd., or Guangdong Weixin. Guangdong Weixin is our equity investee and our supplier. In
2020, 2021 and 2022, we purchased products from Guangdong Weixin in the amount of RMB9.2 million, RMB14.5 million and RMB32 thousand,
respectively. As of December 31, 2020, 2021 and 2022, we had RMB0.1 million, RMB5.4 million and RMB5.4 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, 2020, 2021 and 2022, we had RMB3.7 million, nil and nil, respectively, advance to Guangdong Weixin, representing the advance
payment for products purchased from Guangdong Weixin. In 2020, 2021 and 2022, we provided factoring services to Guangdong Weixin in the amount
of RMB58 thousand, nil and nil, respectively.
Transaction with Guangzhou Misili Personal care Co., Ltd., or Guangzhou Misili. Guangzhou Misili is our equity investee and our supplier. In
2020, 2021 and 2022, we purchased products from Guangzhou Misili in the amount of RMB3.3 million, RMB1.1 million and nil, respectively. As of
December 31, 2020, 2021 and 2022, we had RMB0.3 million, RMB0.1 million and nil, 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 2020, 2021 and 2022, we purchased products from Hainan Yunding in the amount of RMB1.7 million, RMB0.9 million and nil, 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 2020, 2021 and 2022, we purchased products from Hangzhou Biological Technology in the amount of
RMB53.8 million, nil and nil, respectively. As of December 31, 2020, 2021 and 2022, we had RMB4.2 million, nil and nil, respectively, due to
Hangzhou Biological Technology, representing the payments due to Hangzhou Biological Technology for products purchased from Hangzhou
Biological Technology. In 2020, 2021 and 2022, we provided factoring services to Hangzhou Biological Technology in the amount of RMB73 thousand,
nil and nil, respectively.
Transaction with Hangzhou Bixin Biology Technology Co., Ltd., or Hangzhou Bixin. Hangzhou Bixin is our equity investee and our supplier. In
2020, 2021 and 2022, we purchased products from Hangzhou Bixin in the amount of RMB31.8 million, RMB7.6 million and RMB3.3 million,
respectively. As of December 31, 2020, 2021 and 2022, we had RMB3.4 million, RMB1.2 million and RMB0.4 million, respectively, due to Hangzhou
Bixin, representing the payments due to Hangzhou Bixin for products purchased from Hangzhou Bixin. In 2020, 2021 and 2022, we provided
marketplace service to Hangzhou Bixin in the amount of RMB2.8 million, RMB2.3 million, and RMB1.2 million respectively. In 2020, 2021 and 2022,
we provided factoring services to Hangzhou Bixin in the amount of RMB31 thousand, nil and nil, respectively.
Transaction with Hangzhou Dianhua Technology Co., Ltd., or Hangzhou Dianhua. Hangzhou Dianhua is our equity investee and our supplier. As
of December 31, 2020, 2021 and 2022, we had RMB0.1 million, nil and nil, 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 2020, 2021 and 2022, we purchased products from Hangzhou Huaji in the amount of RMB2.6 million, RMB 4.3 million and nil,
respectively. As of December 31, 2020, 2021 and 2022, we had RMB0.9 million, RMB0.2 million and nil, 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 2020,
2021 and 2022, we purchased products from Hangzhou Ji’ao in the amount of RMB1.7 million, nil and nil, 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, 2020, 2021 and 2022, we had RMB3.0 million, RMB1.1 million and nil, respectively, due from Hangzhou Jixi representing an one-year
interest free loan. As of December 31, 2020, 2021 and 2022, we had RMB1.8 million, RMB1.3 million and nil, respectively, due to Hangzhou Jixi,
representing the payments due to Hangzhou Jixi for products purchased from Hangzhou Jixi. In 2020, 2021 and 2022, we provided marketplace service
to Hangzhou Jixi in the amount of RMB0.6 million, nil and nil, respectively.
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Transaction with Hangzhou Tianshi Technology Co. Ltd., or Tianshi. Tianshi is our equity investee and our supplier. In 2020, 2021 and 2022, we
purchased products from Tianshi in the amount of RMB17.0 million, RMB11.3 million and RMB2.7 million, respectively. As of December 31, 2020,
2021 and 2022, we had RMB0.8 million, RMB1.0 million and RMB0.9 million, respectively, due to Tianshi, representing the payments due to Tianshi
for products purchased from Tianshi. In 2020, 2021 and 2022, we provided factoring services to Tianshi in the amount of nil, nil and RMB0.1 million,
respectively.
Transaction with Hangzhou Yuncheng Brand Management Co., Ltd, or Hangzhou Yuncheng. Hangzhou Yuncheng is our equity investee and our
supplier. In 2020, 2021 and 2022, we purchased products from Hangzhou Yuncheng in the amount of RMB2.2 million, RMB13.1 million and nil,
respectively. As of December 31, 2020, 2021 and 2022, we had RMB0.1 million, RMB0.4 million and nil, respectively, due to Hangzhou Yuncheng,
representing the payments due to Hangzhou Yuncheng for products purchased from Hangzhou Yuncheng. In 2020, 2021 and 2022, we provided
marketplace service to Hangzhou Yuncheng in the amount of RMB2.9 million, RMB3.3 million and nil, respectively. In 2020, 2021 and 2022, we
provided factoring services to Hangzhou Yuncheng in the amount of RMB0.2 million, RMB0.2 million and nil, respectively. As of December 31, 2020,
2021 and 2022, we had RMB1.0 million, RM1.2 million and nil, respectively, due from Hangzhou Yuncheng, representing factoring receivables due to
offering loans.
Transaction with Hangzhou Zhangtaihe Health Technology Co., Ltd, or Zhangtaihe. Zhangtaihe is our equity investee and our supplier. In 2020,
2021 and 2022, we purchased products from Zhangtaihe in the amount of RMB0.5 million, nil and nil, respectively. As of December 31, 2020, 2021 and
2022, we had RMB0.6 million, nil and nil, respectively, due to Zhangtaihe, representing the payments due to Zhangtaihe for products purchased from
Zhangtaihe. In 2020, 2021 and 2022, we provided marketplace service to Zhangtaihe in the amount of RMB0.8 million, nil and nil, respectively.
Transaction with Hunan Haomeihaomei Cosmetics Co., Ltd., or Hunan Haomeihaomei. Hunan Haomeihaomei is our equity investee and our
supplier. In 2020, 2021 and 2022, we purchased products from Hunan Haomeihaomei in the amount of RMB16.4 million, nil and nil, respectively. As of
December 31, 2020, 2021 and 2022, we had RMB1.7 million, nil and nil, 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 2020, 2021
and 2022, we purchased products from Huzhou Boyun in the amount of RMB0.3 million, RMB0.8 million and nil, respectively. As of December 31,
2020, 2021 and 2022, we had RMB0.3 million, RMB0.4 million and nil, 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
2020, 2021 and 2022, we purchased products from Ningbo Langfei in the amount of RMB1.1 million, nil and nil, respectively. As of December 31,
2020, 2021 and 2022, we had RMB0.1 million, nil and nil, 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 2020, 2021 and 2022, we purchased products from Shanxi Yunnong in the amount of RMB21.5 million, RMB4.3 million and nil,
respectively. As of December 31, 2020, 2021 and 2022, we had RMB0.6 million, RMB1.2 million and RMB0.7 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, 2020, 2021 and 2022, we had RMB0.2 million, RMB0.1 million and nil, respectively, due to
Shenzhen Liumangyike, representing the payments due to Shenzhen Liumangyike for products purchased from Shenzhen Liumangyike. In 2020, 2021
and 2022, we purchased products from Shenzhen Liumangyike in the amount of nil, RMB1.5 million and nil, respectively. In 2020, 2021 and 2022, we
provided marketplace service to Shenzhen Liumangyike in the amount of RMB0.2 million, RMB49 thousand and nil, respectively.
Transaction with Yunmu Dairy (Jiangsu) Co., Ltd, or Yunmu Dairy. Yunmu Dairy is our equity investee and our supplier. In 2020, 2021 and 2022,
we purchased products from Yunmu Dairy in the amount of RMB4.5 million, nil and nil, respectively.
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Transaction with Zhejiang Jimi E-commerce Co., Ltd, or Zhejiang Jimi. Zhejiang Jimi is our equity investee and our supplier. As of December 31,
2020, 2021 and 2022, we had RMB2.5 million, RMB0.8 million and RMB0.1 million, respectively, due to Zhejiang Jimi, representing the payments due
to Zhejiang Jimi for products purchased from Zhejiang Jimi. In 2020, 2021 and 2022, we purchased products from Zhejiang Jimi in the amount of nil,
RMB17.5 million and RMB7.6 million, respectively. In 2020, 2021 and 2022, we provided marketplace service to Zhejiang Jimi in the amount of
RMB2.4 million, RMB5.6 million and RMB1.7 million, respectively. In 2020, 2021 and 2022, we provided factoring services to Zhejiang Jimi in the
amount of nil, RMB0.3 million and RMB0.1 million, respectively.
Transaction with Zhejiang Jibi Technology Co., Ltd., or Zhejiang Jibi. Zhejiang Jibi is our equity investee and our supplier. As of December 31,
2020, 2021 and 2022, we had RMB0.5 million, RMB0.7 million and RMB0.6 million, respectively, due to Zhejiang Jibi, representing the payments due
to Zhejiang Jibi for products purchased from Zhejiang Jibi. In 2020, 2021 and 2022, we provided marketplace service to Zhejiang Jibi in the amount of
RMB0.5 million, RMB36 thousand and nil, 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 2020, 2021 and 2022, we purchased products from Zhejiang Zhengdao Fengju in the amount of
RMB28.4 million, nil and nil, respectively. As of December 31, 2020, 2021 and 2022, we had RMB2.2 million, nil and nil, 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 2020, 2021 and 2022, we purchased products from Xingsheng in the amount ofRMB0.6 million, RMB11.8 million and RMB7.4 million, respectively.
As of December 31, 2020, 2021 and 2022, we had RMB0.3 million, RMB1.5 million and RMB1.2 million, respectively, due to Xingsheng, representing
the payments due to Xingsheng for products purchased from Xingsheng. In 2020, 2021 and 2022, we provided factoring services to Xingsheng in the
amount of nil, nil and RMB0.6 million, respectively.
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 were 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 alleged 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 31,
2021, the Court granted our motion to dismiss the Federal Court Action. In November 2021, Plaintiffs in the Lindholm Case, the Guilford Case, and the
Ng Case voluntarily discontinued their actions, and all four of the above-described securities class actions are now considered closed.
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 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.”
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B.
Plan of Distribution
Not applicable.
C. Markets
The ADSs have been listed on Nasdaq since May 3, 2019. The ADSs trade under the symbol “YJ.”
D.
Selling Shareholders
Not applicable.
E.
Dilution
Not applicable.
F.
Expenses of the Issue
Not applicable.
ITEM 10.
ADDITIONAL INFORMATION
A.
Share Capital
Not applicable.
B. Memorandum and Articles of Association
The following are summaries of material provisions of our current 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.
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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.
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
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•
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.
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.
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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
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.
Exchange Controls
See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations Relating to Foreign Exchange.”
E.
Taxation
The following summary of certain Cayman Islands, PRC and U.S. federal income tax considerations of an investment in our ADSs or 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 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 SAT 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 SAT’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. Further to the SAT
Circular 82, the SAT issued the SAT Bulletin 45, which became effective since September 2011, to provide more guidance on the implementation of the
SAT Circular 82. The SAT Bulletin 45 provides for detailed procedures and administration with respect to determination of residence status and
administration of post-determination matters.
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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;
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•
•
•
•
•
•
•
•
•
•
•
•
•
•
insurance companies;
pension plans;
cooperatives;
regulated investment companies;
real estate investment trusts;
broker-dealers;
traders that elect to use a mark-to-market method of accounting;
certain former U.S. citizens or long-term residents;
tax-exempt entities (including private foundations);
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 should 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.
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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.
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 generally treated 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 the VIEs and their subsidiaries as being owned by us for U.S. federal income tax
purposes because we have the ability to direct 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 and include their assets and income in
calculations for purposes of the tests described above. If it were determined, however, that we are not the owner of the VIEs for U.S. federal income tax
purposes, it may increase the likelihood that we will be classified as a PFIC for a given taxable year.
Based upon our income and assets (including unbooked goodwill), as well as the market price of our ADSs, we believe we will likely be classified
as a PFIC for the taxable year ended December 31, 2022. Depending upon the composition of our income and assets and the market price of our ADSs
and ordinary shares during the current and subsequent taxable years, we could continue to be classified as a PFIC for such years; however, PFIC status is
a factual determination made annually that is not generally determinable until the close of each taxable year. Furthermore, even if the composition of our
assets and income were to change such that we did not believe we were a PFIC, there are uncertainties in the application of the relevant rules, and it is
possible that the IRS may challenge our classification of certain income or assets as non-passive, or our valuation of our goodwill and other unbooked
intangibles, each of which may increase the likelihood of us becoming classified as a PFIC for the current or subsequent taxable years. Accordingly,
there can be no assurance regarding our PFIC status for our current or subsequent taxable years, and U.S. Holders of our ADSs or ordinary shares should
be willing to assume the risks of investing in a PFIC.
If we are a PFIC for any year during which a U.S. Holder holds our ADSs or ordinary shares, the PFIC rules discussed below under “Passive
Foreign Investment Company Rules” will generally apply to such U.S. Holder for such taxable year, and in the absence of certain elections will continue
to apply in future years even if we cease to be a PFIC.
Dividends
As noted above, we were likely a PFIC for our most recent taxable year ended December 31, 2022, and may also be a PFIC for our current taxable
year. Accordingly, the treatment most likely to apply to a U.S. Holder is set forth below in “Passive Foreign Investment Company Rules.” If our ADSs
or ordinary shares are not treated as stock of a PFIC with respect to a particular U.S. Holder, the following rules generally apply. 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.
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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 and other requirements are met.
For this purpose, ADSs listed on the Nasdaq Global Market will generally be considered to be readily tradable on an established securities market
in the United States, although there can be no assurances that the ADS will continue to be so listed. Although the law in this regard is not entirely clear,
since we do not expect our ordinary shares will be listed on any securities market, we do not believe that ordinary shares that are not represented by
ADSs will generally be considered to be readily tradable on an established securities market in the United States. Moreover, as discussed above, we
believe we will likely be classified as a PFIC for the taxable year ended December 31, 2022.
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 should 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 income taxes paid or withheld 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 should
consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.
Sale or Other Disposition
Subject to the discussion below under “Passive Foreign Investment Company Rules,” 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. Pursuant to recently issued United
States Treasury regulations, however, if a U.S. Holder is not eligible for the benefits of the Treaty or does not elect to apply the United States-PRC
income tax treaty, 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. 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, the 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 should consult their tax advisors regarding the application of the PFIC rules to any of our
subsidiaries, the 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 if our ADSs are listed on the Nasdaq Global Market. If the
Nasdaq Global Market delists our ADSs, the ADSs will not be treated as marketable stock for the purposes of the mark-to-market election. If our ADSs
continue to be listed 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.
Dividends and Paying Agents
Not applicable.
G.
Statement by Experts
Not applicable.
H. 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.
J.
Annual Report to Security Holders
Not applicable.
ITEM 11.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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. We are currently not a party
to any hedging transactions that are entered into in an effort to reduce our exposure to foreign currency exchange 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, 2022, we had Renminbi-denominated cash, cash equivalents and restricted cash of RMB299.2 million, U.S. dollar-
denominated cash, cash equivalents and restricted cash of US$22.6 million. Assuming we had converted RMB299.2 million into U.S. dollars at the
exchange rate of RMB6.8972 for US$1.00 as of December 31, 2022, our U.S. dollar-denominated cash, cash equivalents and restricted cash would have
been US$66.0 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$62.1 million instead. Assuming we had converted US$22.6 million into RMB at the exchange rate of RMB6.8972 for US$1.00 as of
December 31, 2022, our Renminbi-denominated cash, cash equivalents and restricted cash would have been RMB455.2 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 RMB470.8 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. Debt Securities
Not applicable.
B. Warrants and Rights
Not applicable.
C. Other Securities
Not applicable.
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):
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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
agreement
Up to US$0.05 per ADS cancelled
Distribution of cash dividends
Distribution of cash entitlements (other than cash dividends) and/or cash
proceeds from the sale of rights, securities and other entitlements
Up to US$0.05 per ADS held
Up to US$0.05 per ADS held
Distribution of ADSs pursuant to exercise of rights
Up to US$0.05 per ADS held
Distribution of securities other than ADSs or rights to purchase
additional ADSs
Up to US$0.05 per ADS held
•
Depositary services
Up to US$0.05 per ADS held on the applicable record date(s) established
by the 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.
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.
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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, 2022, we did not receive any reimbursement 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.
For the period from May 2, 2019, the date that the F-1 Registration Statement was declared effective by the SEC, to December 31, 2022,
US$109 million of the net proceeds received from our initial public offering were fully utilized 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.
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, 2022,
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.
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.
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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, 2022 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, management concluded that our internal control over financial reporting was effective as of
December 31, 2022.
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, 2022, 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
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,
2021
2022
(in thousands of RMB)
8,680
866
—
8,680
612
—
(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.
“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.
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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 March 16, 2022, our board of directors authorized a share repurchase program to repurchase up to US$20 million of our ordinary shares
(including in the form of ADSs) over the next six months through September 15, 2022. On August 25, 2022, our board of directors approved to extend
the term of the share repurchase program for another six months through March 15, 2023.
As of December 31, 2022, we had repurchased a total of approximately 13.9 million ADSs under this share repurchase program. The table below
is a summary of the shares repurchased by us.
Period
March 16, 2022—March 31, 2022
April 1, 2022—April 30, 2022
May 1, 2022—May 31, 2022
Jun 1, 2022—June 30, 2022
July 1, 2022—Junly 31, 2022
August 1, 2022—August 31, 2022
September 1, 2022—September 30, 2022
October 1, 2022—October 31, 2022
November 1, 2022—November 30, 2022
December 1, 2022—December 31, 2022
Total
Total Number of
ADSs Purchased
Average Price
Paid Per ADS ($)
239,800
4,142,601
1,842,900
—
2,192,062
1,340,701
403,919
2,510,348
1,132,293
109,759
13,914,383
1.14
1.10
1.18
—
1.01
0.83
0.82
0.88
0.80
1.14
0.98
Total Number of
ADSs Purchased
as Part of the
Publicly
Announced Plan
239,800
4,382,401
6,225,301
6,225,301
8,417,363
9,758,064
10,161,983
12,672,331
13,804,624
13,914,383
13,914,383
Approximate
Dollar Value of
ADSs that May
Yet Be Purchased
Under the Plan ($)
19,727,725
15,156,987
12,987,251
12,987,251
10,655,650
9,302,654
8,968,676
6,909,206
5,907,897
5,820,635
5,820,635
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.
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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 general meetings every year. We
followed home country practice and did not hold an annual meeting of shareholders in 2022. 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.
ITEM 16I.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
In May 2022, we were conclusively listed by the SEC as a Commission-Identified Issuer under the HFCAA following the filing of our annual
report on Form 20-F for the fiscal year ended December 31, 2021. Our auditor, a registered public accounting firm that the PCAOB was unable to
inspect or investigate completely in 2021, issued the audit report for us for the fiscal year ended December 31, 2021. On December 15, 2022, the
PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions
where it is unable to inspect or investigate completely registered public accounting firms. For this reason, we do not expect to be identified as a
Commission-Identified Issuer under the HFCAA after we file this annual report on Form 20-F.
As of the date of this annual report, to our knowledge, (i) no governmental entities in the Cayman Islands or in China own shares of Yunji Inc. or
the VIEs in China, (ii) the governmental entities in China do not have a controlling financial interest in Yunji Inc. or the VIEs, (iii) none of the members
of the board of directors of Yunji Inc. or our operating entities, including the VIEs, is an official of the Chinese Communist Party, and (iv) none of the
currently effective memorandum and articles of association (or equivalent organizing document) of Yunji Inc. or the VIEs contains any charter of the
Chinese Communist Party.
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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 Ordinary 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, 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 (incorporated herein by reference to Exhibit 4.4 to the Form 20-F filed on April 26, 2021
(File No. 001-38877))
English translation of the executed form of Equity Pledge Agreement by and among a VIE, 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 (incorporated herein by reference to Exhibit 4.5 to the Form 20-F filed on April 26, 2021 (File No. 001-38877))
English translation of the executed form of Exclusive Service Agreement by and between a VIE 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
(incorporated herein by reference to Exhibit 4.6 to the Form 20-F filed on April 26, 2021 (File No. 001-38877))
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Exhibit
Number
4.7
4.8
4.9
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, 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 (incorporated herein by reference to Exhibit 4.7 to the Form 20-F filed on April 26, 2021 (File No. 001-38877))
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))
English translation of Commodity Premises Subscription Form and two supplementary agreements to the Commodity Premises
Subscription Form between a subsidiary of the Registrant, Zhejiang Fengji Technology Co., Ltd., and Hangzhou Shimao Ruiying Real
Estate Co., Ltd., dated June 28, 2021 (incorporated herein by reference to Exhibit 4.9 to the Form 20-F filed on April 26, 2022
(File No. 001-38877))
Principal Subsidiaries and Consolidated Variable Interest Entities 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
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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The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the
undersigned to sign this annual report on its behalf.
SIGNATURES
Date: April 26, 2023
Yunji Inc.
By: /s/ Shanglue Xiao
Name: Shanglue Xiao
Title: Founder, Chairman, and Chief Executive Officer
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YUNJI INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID:1424)
Consolidated Balance Sheets as of December 31, 2021 and 2022
Consolidated Statements of Comprehensive (Loss)/Income for the years ended December 31, 2020, 2021 and 2022
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2020, 2021 and 2022
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2021 and 2022
Notes to the Consolidated Financial Statements
F-2
F-4
F-7
F-9
F-12
F-15
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Table of Contents
To the Board of Directors and Shareholders of Yunji Inc.
Report of Independent Registered Public Accounting Firm
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, 2022 and 2021,
and the related consolidated statements of comprehensive (loss)/income, of shareholders’ equity and of cash flows for each of the three years in the
period ended December 31, 2022, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 Also
in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on
criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
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.
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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.
Allowance for credit losses – factoring receivables and receivables from the distribution sales
As described in Notes 2 and 5 to the consolidated financial statements, the Company’s balances of factoring receivables and receivables from the
distribution sales were RMB80,484 thousand and RMB23,018 thousand, respectively, as of December 31, 2022. The allowance for credit losses for
these balances made up the majority of the allowance for credit losses for accounts receivable of RMB16,762 thousand as of December 31, 2022.
Management determined the allowance for credit losses for factoring receivables on a collective (pooled) basis that share similar risk characteristics. The
assumptions considered when determining the allowance for credit losses for factoring receivables include probability of default (“PD”) and loss given
default (“LGD”), adjusted for forward-looking macroeconomic conditions. Management determined the allowance for credit losses for receivables from
the distribution sales on an individual basis, using the non-performing loan ratio (“NPLR”) of commercial banks by industry, adjusted for forward-
looking macroeconomic conditions.
The principal considerations for our determination that performing procedures relating to the allowance for credit losses for factoring receivables and
receivables from the distribution sales is a critical audit matter are (i) the significant judgement and estimation by management in determining PD, LGD,
NPLR, as applicable for the relevant allowance, and the forward-looking macroeconomic conditions, which in turn led to a high degree of auditor
judgment, subjectivity, and effort in performing procedures and in evaluating the audit evidence obtained, and (ii) the audit effort involved the use of
professionals with specialized skill and knowledge.
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 the allowance for credit losses for factoring
receivables and receivables from the distribution sales. These procedures also included, among others, (i) evaluating the appropriateness of the models
and methodologies used in management’s credit loss estimates, (ii) evaluating the reasonableness of certain assumptions, including PD, LGD and NPLR
as applicable for the relevant allowance, (iii) evaluating the reasonableness of the forward-looking macroeconomic conditions used in the models, and
(iv) testing the completeness, accuracy and relevance of data used in the estimation process. These procedures also included the use of professionals
with specialized skill and knowledge to assist in evaluating the appropriateness and mathematical accuracy of the models and methodologies, the
reasonableness of the PD, LGD, NPLR, as applicable, and the forward-looking macroeconomic conditions.
/s/PricewaterhouseCoopers Zhong Tian LLP
Shanghai, the People’s Republic of China
April 26, 2023
We have served as the Company’s auditor since 2018.
F-3
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YUNJI INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2021 AND 2022
(All amounts in thousands, except for share and per share data, unless otherwise noted)
As of December 31,
2022
RMB
US$
2021
RMB
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash
Short-term investments
Accounts receivable, net (Allowance for credit losses of RMB 7,225 and RMB 16,762, respectively)
Advance to suppliers
Inventories, net
Amounts due from related parties
Prepaid expenses and other current assets (Allowance for credit losses of RMB 4,791 and RMB 14,510,
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 RMB 488 and RMB 2,091, respectively)
Total non-current assets
Total assets
42,109
62,528
567,204 414,634 60,116
6,105
380,052 212,003 30,738
94,111 13,645
118,166
4,747
32,738
59,437
7,924
54,651
84,500
29
202
2,532
430,717 362,065 52,494
1,705,136 1,212,513 175,798
12,842 168,928 24,492
381,401 414,325 60,071
— —
17,497
34
231
5,420
227,674
96,414 13,979
644,834 679,898 98,576
2,349,970 1,892,411 274,374
The accompanying notes are an integral part of these consolidated financial statements.
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YUNJI INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
AS OF DECEMBER 31, 2021 AND 2022
(All amounts in thousands, except for share and per share data, unless otherwise noted)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities (including amounts of the consolidated VIEs and VIEs’ subsidiaries without recourse to the primary
beneficiary of RMB 326,899 and RMB 399,285 as of December 31, 2021 and 2022, respectively)
2021
2022
RMB RMB US$
Accounts payable
Deferred revenue
Incentive payables 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)
The accompanying notes are an integral part of these consolidated financial statements.
F-5
254,839 138,903 20,139
105,752 21,748 3,153
265,612 207,331 30,060
15,570 11,087 1,607
202,786 145,527 21,099
15,630 10,608 1,538
169
865,760 536,366 77,765
5,571
1,162
145
21
3,123
2,572 — —
21
5,695
871,455 536,511 77,786
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Table of Contents
YUNJI INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
AS OF DECEMBER 31, 2021 AND 2022
(All amounts in thousands, except for share and per share data, unless otherwise noted)
2021
RMB
2022
RMB
US$
Shareholders’ equity
Ordinary shares (US$0.000005 par value 20,000,000,000 shares authorized as of December 31, 2021
and 2022; 1,208,831,222 Class A ordinary shares and 949,960,000 Class B ordinary shares issued as
of December 31, 2021 and 2022; 1,196,575,392 and 1,068,437,352 Class A ordinary shares and
949,960,000 and 949,960,000 Class B ordinary shares outstanding as of December 31, 2021 and
2022, respectively)
Additional paid-in capital
Statutory reserve
Accumulated other comprehensive (loss)/income
Less: Treasury stock (12,255,830 and 140,393,870 shares as of December 31, 2021 and 2022,
respectively)
Accumulated deficit
Total Yunji Inc. shareholders’ equity
Non-controlling interests
Total shareholders’ equity
Total liabilities and shareholders’ equity
70
70
10
7,342,344 7,333,144 1,063,206
2,331
9,151
14,019
(15,664)
16,078
63,113
(44,228)
(98,709)
(14,311)
(5,818,645) (5,958,666) (863,925)
1,477,896 1,355,030 196,462
126
1,478,515 1,355,900 196,588
2,349,970 1,892,411 274,374
870
619
The accompanying notes are an integral part of these consolidated financial statements.
F-6
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YUNJI INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME
FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022
(All amounts in thousands, except for share and per share data, unless otherwise noted)
2020
RMB
2021
RMB
2022
RMB
US$
Revenues:
Sales of merchandise, net
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)/income from operations
Financial (expense)/income, net
Foreign exchange loss, net
Other non-operating (loss)/income, net
(Loss)/income before income tax expense, and equity in income of affiliates, net of tax
Income tax expense
Equity in loss of affiliates, net of tax
Net (loss)/income
Less: net (loss)/income attributable to non-controlling interests shareholders
Net (loss)/income attributable to YUNJI INC.
4,829,397 1,798,882
321,844
34,635
965,796 140,027
170,561 24,729
2,574
5,530,257 2,155,361 1,154,114 167,330
599,895
100,965
17,757
(450,104)
(806,140)
(202,817)
(261,877)
(3,939,997) (1,343,386)
(202,026)
(296,049)
(124,854)
(226,110)
(651,578) (94,470)
(160,680) (23,296)
(214,783) (31,141)
(81,382) (11,799)
(145,857) (21,147)
(5,660,935) (2,192,425) (1,254,280) (181,853)
21,599
3,132
(78,567) (11,391)
(2,081)
(14,356)
(2,276)
(15,697)
300
2,072
(106,548) (15,448)
(3,594)
(1,022)
(138,390) (20,064)
(31)
(138,173) (20,033)
33,218
(97,460)
(8,571)
(919)
(1,610)
(108,560)
(39,298)
(3,834)
(151,692)
(5,346)
(146,346)
54,416
17,352
80,061
(1,300)
112,909
209,022
(60,501)
(16,237)
132,284
318
131,966
(24,791)
(7,051)
(217)
The accompanying notes are an integral part of these consolidated financial statements.
F-7
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YUNJI INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022
(All amounts in thousands, except for share and per share data, unless otherwise noted)
Net (loss)/income
Other comprehensive (loss)/income
Foreign currency translation adjustment
Total comprehensive (loss)/income
Less: total comprehensive (loss)/income attributable to non-controlling
interests shareholders
Total comprehensive (loss)/income attributable to YUNJI INC.
Net (loss)/income attributable to ordinary shareholders
Weighted average number of ordinary shares used in computing net
(loss)/income per share
- Basic
- Diluted
Net (loss)/income per share attributable to ordinary shareholders
- Basic
- Diluted
2020
RMB
(151,692)
2021
RMB
132,284
2022
RMB
(138,390)
US$
(20,064)
(79,411)
(231,103)
(25,116)
107,168
(5,346)
(225,757)
(146,346)
318
106,850
78,777
(59,613)
(217)
(59,396)
11,422
(8,642)
(31)
(8,611)
131,966
(138,173)
(20,033)
2,125,906,398 2,139,963,573 2,088,319,721 2,088,319,721
2,125,906,398 2,147,205,590 2,088,319,721 2,088,319,721
(0.07)
(0.07)
0.06
0.06
(0.07)
(0.07)
(0.01)
(0.01)
The accompanying notes are an integral part of these consolidated financial statements.
F-8
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YUNJI INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022
(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
Amount
RMB
Additional
paid-in
capital
RMB
Statutory
reserve
RMB
Accumulated
other
comprehensive
income
RMB
Accumulated
deficit
RMB
Total Yunji
Inc.
shareholders’
equity
RMB
Non-
controlling
interest
RMB
sha
Balance as of January 1, 2020
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
—
(146,346)
(146,346)
(5,346)
Net loss
Foreign currency translation
adjustments
Appropriation to statutory
reserves
Repurchasing common stock
(Note 21)
Issuance of ordinary shares
due to the exercise of share
option (Note 23)
Issuance of restricted shares
(Note 23)
Capital injection from
non-controlling interests
Share based compensation
Disposal of a subsidiary
Dividend to non-controlling
interest shareholders
— —
— —
— —
(79,411)
—
(79,411)
—
— —
— —
— 6,467
—
(6,467)
—
—
— — (6,246,410) (23,171)
— —
—
—
(23,171)
—
— — 9,151,290 31,489
(23,485) —
—
—
8,004
—
— —
954,960 3,149
(3,149) —
—
—
—
—
— —
— —
— —
— —
— —
— —
— —
98,378 —
— (5,476)
—
—
—
—
—
6,060
—
98,378
584
2,300
—
(3,583)
Balance as of December 31, 2020 2,158,791,222
— —
— —
70 (25,525,810) (85,202) 7,327,148 12,624
— —
—
—
—
9,452 (5,952,085) 1,312,007
(1,200)
2,861 1
The accompanying notes are an integral part of these consolidated financial statements.
F-9
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YUNJI INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022
(All amounts in thousands, except for share and per share data, unless otherwise noted)
Balance as of January 1, 2021
2,158,791,222
Ordinary share
(US$0.000005 par value)
Treasury stock
Number of
Shares issued Amount
RMB
— —
Number of
Shares
Statutory
reserve
RMB
70 (25,525,810) (85,202) 7,327,148 12,624
— —
— —
Amount
RMB
Additional
paid-in
capital
RMB
Accumulated
other
comprehensive
income/(loss)
RMB
Accumulated
deficit
RMB
Total Yunji
Inc.
shareholders’
equity
RMB
Non-
controlling
interest
RMB
shar
9,452 (5,952,085) 1,312,007
131,966
131,966
—
2,861 1
318
Net loss
Foreign currency translation
adjustments
Appropriation to statutory
reserves
Repurchasing common stock
(Note 21)
Issuance of ordinary shares
due to the exercise of share
option (Note 23)
Issuance of restricted shares
(Note 23)
Capital injection from
non-controlling interests
Acquisition of additional
shares in subsidiaries from
non-controlling interest
shareholders
Share based compensation
Disposal of a subsidiary
Dividend to non-controlling
interest shareholders
— —
— —
— —
(25,116)
—
(25,116)
—
— —
— —
— 1,395
—
(1,395)
—
—
— —
(387,500)
(220)
— —
—
—
(220)
—
— —
748,730 2,124
(1,644) —
—
—
480
—
— — 12,908,750 39,070
(39,070) —
—
—
—
—
— —
— —
— —
—
—
—
208
— —
— —
— —
— —
— —
— —
— —
55,910 —
— —
—
—
—
—
—
2,869
—
55,910
2,869
(1,198)
—
(1,309)
Balance as of December 31, 2021 2,158,791,222
— —
— —
70 (12,255,830) (44,228) 7,342,344 14,019
— —
—
—
(15,664) (5,818,645) 1,477,896
—
(261)
619 1
The accompanying notes are an integral part of these consolidated financial statements.
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YUNJI INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022
(All amounts in thousands, except for share and per share data, unless otherwise noted)
Balance as of January 1, 2022
2,158,791,222
Ordinary share
(US$0.000005 par value)
Treasury stock
Number of
Shares issued Amount
RMB
— —
Number of
Shares
Statutory
reserve
RMB
70 (12,255,830) (44,228) 7,342,344 14,019
— —
— —
Amount
RMB
Additional
paid-in
capital
RMB
Accumulated
other
comprehensive
(loss)/income
RMB
(15,664) (5,818,645) 1,477,896
(138,173)
(138,173)
Total Yunji
Inc.
shareholders’
equity
RMB
Accumulated
deficit
RMB
—
Non-
controlling
interest
RMB
sh
619
(217)
— —
— —
— —
78,777
—
78,777
—
— —
— —
— 2,059
—
(2,059)
—
—
— — (139,237,930) (95,436)
— —
—
—
(95,436)
—
— —
773,640 2,903
(2,390) —
—
—
513
—
— — 10,326,250 38,052
(38,052) —
—
—
—
—
— —
— —
— —
—
—
—
197
— —
— —
— —
—
—
—
1,577
Net income
Foreign currency translation
adjustments
Appropriation to statutory
reserves
Repurchasing common stock
(Note 21)
Issuance of ordinary shares
due to the exercise of share
option (Note 23)
Issuance of restricted shares
(Note 23)
Capital injection from
non-controlling interests
Conversion of liabilities to
NCI of subsidiaries to
capital
Acquisition of additional
shares in subsidiaries from
non-controlling interest
shareholders
Share based compensation
Disposal of subsidiaries
Balance as of December 31, 2022 2,158,791,222
— —
— —
— —
1,099 —
30,150 —
(7) —
70 (140,393,870) (98,709) 7,333,144 16,078
— —
— —
— —
—
—
—
1,099
30,150
204
63,113 (5,958,666) 1,355,030
—
—
211
(1,099)
—
(207)
870
The accompanying notes are an integral part of these consolidated financial statements.
F-11
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YUNJI INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022
(All amounts in thousands)
Cash flows from operating activities:
Net (loss)/income
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Shared-based compensation
Loss/(gain) from disposal of property, equipment and software
Equity in loss of affiliates
Changes in fair value for equity securities
Inventory write-downs
Foreign exchange (income)/loss
Amortization of right of use assets
Change in estimate of refund payable to members
Loss/(gain) on disposal of long-term investments and subsidiaries
Allowance for credit losses
Cash dividend received
Deferred income tax
Changes in operating assets and liabilities:
(Increase)/decrease in accounts receivable
Decrease in inventories
(Increase)/decrease in advance to suppliers
Decrease in prepaid expenses and other current assets
Increase in other non-current assets
Decrease in amounts due from related parties
Decrease in accounts payable
Decrease in incentive payables to members
Decrease in member management fees payable
(Decrease)/increase in deferred revenue
Increase/(decrease) in amount due to related parties
(Decrease)/increase in other payable and accrued liabilities
Net cash used in operating activities
2020
RMB
2021
RMB
2022
RMB
US$
(151,692) 132,284 (138,390) (20,064)
674
21,054 15,985
7,718 1,119
98,378 55,910 30,150 4,371
(143)
(21)
667
7,051 1,022
3,834 16,237
53,683 (59,690) 35,198 5,103
695
40,609 25,696
6,701 (15,582) (2,259)
402
3,908
(186)
(2,617)
260
1,610 (112,354)
13,089 24,045 21,233 3,079
— —
—
28,840 42,698 14,925 2,164
(6,417)
15,732
(23,521)
2,774
(1,282)
1,792
4,792
204
(4,867)
1,793
(1,592)
2,574
(154,413) 39,516 (20,886) (3,028)
251,998 25,036 25,057 3,633
(16,547) 39,005 26,699 3,872
78,143 47,602 95,158 13,797
(199)
107
(205,824) (212,735) (108,003) (15,659)
(72,316) (46,558) (58,281) (8,450)
(32,514) (30,271)
(650)
(130,853) 54,884 (84,004) (12,179)
(728)
(76,884) (85,563) (52,659) (7,634)
(261,514) (25,991) (216,822) (31,433)
(1,373)
739
(7,359)
(5,022)
(4,483)
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, 2020, 2021 AND 2022
(All amounts in thousands)
2020
RMB
2021
RMB
2022
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 for factorings services
Cash received from 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 subsidiaries
Cash paid for long-term investments
Cash dividends received from long-term investments
Net cash generated from/(used in) investing activities
976
1,845
(84,403) (86,983) (92,256) (13,377)
142
2,383
(1,774,781) (377,756) (465,242) (67,454)
2,492,613 126,598 651,402 94,444
(57,913) (194,070) (73,322) (10,631)
36,407 169,000 102,409 14,848
(145)
(93,755) (159,200)
61,869 65,023 25,790 3,739
291
3,344 135,864
(7,144)
224
4,123
(27,067) (198,777) (60,000) (8,699)
37
551,015 (513,795) 92,565 13,419
2,009
1,545
(1,000)
—
254
—
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, 2020, 2021 AND 2022
(All amounts in thousands)
2020
RMB
2021
RMB
2022
RMB
US$
Cash flows from financing activities:
Net proceeds from exercise of share options
Cash paid for repurchase of common stocks
Cash paid to non-controlling shareholders for acquisition of equity shares in subsidiaries
Cash dividend paid to a non-controlling shareholder
Capital injection from non-controlling shareholders
Net cash 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
Net settlement between factoring receivables and payables
Cash and cash equivalents
Restricted cash (Note 2.9)
Total cash, cash equivalents and restricted cash shown in the statement of cash flows
684
6,995
(23,171)
—
—
2,300
(13,876)
(53,624)
99
1,008
(220) (95,436) (13,837)
— —
(1,198)
— —
(261)
208
28
197
(463) (94,555) (13,710)
(19,763) 45,823 6,642
222,001 (560,012) (172,989) (25,082)
967,743 1,189,744 629,732 91,303
1,189,744 629,732 456,743 66,221
4,251
7,979 20,868 3,026
23,507
33,182
3,441
499
2020
RMB
As of December 31,
2021
RMB
2022
RMB
US$
1,063,900 567,204 414,634 60,116
125,844
62,528 42,109 6,105
1,189,744 629,732 456,743 66,221
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. 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”).
(b) History of the Group and Basis of Presentation
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 (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, 2022, the Company’s principal subsidiaries are as follows:
Subsidiaries
Yunji Holding Limited
Zhejiang Youji Supply Chain Management Co., Ltd.
Zhejiang Jiyuan Network Technology Co., Ltd.
Zhejiang Zhelue Network Technology Co., Ltd.
Hangzhou Jichuang Network Technology Co., Ltd.
Yunji Hongkong Limited
Hangzhou Yunchuang Sharing Network Technology Co., Ltd.
Desking technology (HK) Co., Limited
Place of
incorporation
Date of
incorporation or
acquisition
Percentage
of direct or
indirect
Hong Kong December 20, 2017
Hangzhou November 30, 2016
August 14, 2018
Hangzhou
May 23, 2016
Hangzhou
May 23, 2016
Hangzhou
August 25, 2015
Hong Kong
June 13, 2018
Hangzhou
July 26, 2016
Hong Kong
100%
100%
100%
100%
100%
100%
100%
100%
Jironghuishang Commercial Factoring (Tianjin) Co., Ltd.
Zhejiang Yunxuan Supply Chain Management Co., Ltd.
Tianjin
Hangzhou
October 16, 2018
August 9, 2018
100%
100%
F-16
Principal activities
Investment holding
Procurement
Sales of merchandise
Sales of merchandise
Investment holding
Sales of merchandise
Investment holding
Investment holding and
Financing solution
Financing solution
Procurement
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 (continued)
As of December 31, 2022, 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. (“Jixiang”)
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
Principal activities
March 5,2018
Hangzhou
June 13, 2018
Hangzhou
April 22, 2016
Hangzhou
Hangzhou
August 14, 2018
Hangzhou December 18, 2020
100%
100%
100%
100%
100%
Investment holding
Investment holding
Procurement
E-Commerce
Investment holding
Ningbo
Hangzhou
Hefei
January 15, 2019 99.75%
100%
100%
August 5, 2020
March 28, 2019
Investment holding
E-Commerce
Customer service
and Procurement
Distribution sales
Hangzhou Jiweixiang Food Co., Ltd.
Hangzhou
May 8, 2020
100%
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)
Cash and cash equivalents
Restricted cash
Accounts receivable, net
Advance to suppliers
Inventories, net
Amounts due from the Group companies (1)
Amounts due from related parties
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
Members management fee payable
Other payable and accrued liabilities
Amounts due to the Group companies (2)
Amounts due to related parties
Operating lease liabilities, current
Operating lease liabilities, non-current
Total liabilities (3)
1,178
158,148
11,191
As of December 31,
2022
2021
RMB
RMB
70,599 114,265
42,109
62,243
23,683
4,028
5,434
10,801
2,635
1,694
520,888 719,655
46
81,307
4,546
215,293 214,450
—
—
6,417
1,077,560 1,214,547
71,007
121,347
21,058
16,398
6,085 207,331
4,997
7,328
156,509
91,469
793,245 900,852
8,083
—
—
1,121,547 1,300,137
3,852
4,463
13,182
11,804
2,768
1,403
(1) 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.
(2) 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.
(3) Amounts of the consolidated VIEs and VIEs’ subsidiaries without recourse to the primary beneficiary is RMB 326,899 and RMB 399,285 as of
December 31, 2021 and 2022, 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)
Revenues:
Third-party revenues
Intra-Group revenue
Total revenues
Operating cost and expenses:
Third-party operating cost and expenses
Intra-Group operating cost and expenses
Total operating cost and expenses
Net income/(loss)
Net cash provided by transactions with external parties
Net cash used in transactions with intra-Group entities
Net cash generated by/(used in) operating activities
Net cash (used in)/ provided by transactions with external parties
Net cash (used in)/generated by transactions with intra-Group entities
Net cash (used in)/generated by investing activities
Net cash provided by/(used in) transactions with external parties
Net cash provided by transactions with intra-Group entities
Net cash generated by/(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 year
Cash, cash equivalents and restricted cash at end of year
F-21
Year Ended December 31,
2021
RMB
2022
RMB
2020
RMB
513,299 349,259
1,351,842
1,770,244
501,168 229,562
3,122,086 1,014,467 578,821
(2,566,806)
(565,409)
(906,559) (478,245)
(118,456) (178,573)
(3,132,215) (1,025,015) (656,818)
164,950 (75,329)
539,673 651,432
(497,190) (698,690)
42,483 (47,258)
5,216
8,102
(180,000) 60,000
(171,898) 65,216
197
4,250
4,447
1,127
(130,996) 23,532
263,838 132,842
132,842 156,374
6,826
2,426,562
(2,365,128)
61,434
(18,347)
—
(18,347)
2,300
—
2,300
(1,161)
44,226
219,612
263,838
(1,198)
—
(1,198)
(383)
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 restriction requiring that any asset of the consolidated VIEs and VIEs’
subsidiaries can only be used to settle obligations of the respective VIEs and VIEs’ subsidiaries except for paid-in capital of VIEs and VIEs’ subsidiaries
amounting to RMB 33,797 and RMB 33,797 as of December 31, 2021 and 2022, 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
any assets of the WFOE or the Company for the debt settlement purpose. In the event that the shareholders of the VIEs breach the terms of the
contractual arrangements and voluntarily liquidate the VIE, or the VIE declares bankruptcy and all or part of its assets become subject to liens or rights
of third-party creditors, or are otherwise disposed of without our consent, the Company may be unable to conduct some or all of our business operations
or otherwise benefit from the assets held by the VIEs.
The chairman of the board of directors and the chief executive officer along with other nominees of the Company own the majority of the voting shares
of the VIEs. The enforceability, and therefore the benefits, of the contractual agreements between the Company and the VIEs depend on these
individuals enforcing the contracts. There is a risk that the benefits of ownership between the Company and the VIE may not be aligned in the
future. Given the significance and importance of the VIEs, there would be a significant negative impact to the Company if these contracts were
not enforced.
The Group’s operations depend on the VIEs to honour their contractual agreements with the Group and the Company’s ability to control the VIEs also
depends on the authorization by the shareholders of the VIEs to exercise voting rights on all matters requiring shareholder approval in the VIEs. The
Company believes that the agreements on authorization to exercise shareholder’s voting power are legally enforceable and the possibility that it will no
longer be able to control and consolidate the VIEs as a result of the aforementioned risks and uncertainties is remote.
In addition, if the current structure of any of the contractual arrangements were found to be in violation of any existing PRC laws, or if the regulations or
the interpretation of existing regulations change or are interpreted differently in the future, 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.
The Group’s operations and businesses rely on the operations and businesses of its VIEs, which hold certain recognized and unrecognized revenue-
producing assets. The recognized revenue-producing assets mainly include electronic equipment recorded in property, equipment and software.
Unrecognized revenue-producing assets mainly consist of licenses and intellectual property. Licenses include operations licenses, such as licenses for
online data processing and transaction processing business and internet content-related services. Intellectual property developed by the Group mainly
consists of patents, copyrights, trademarks, and domain names. The Group’s operations and businesses may be adversely impacted if the Group loses the
ability to use and benefit from assets held by these 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)/Income 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. Accounting estimates reflected in the Group’s consolidated
financial statements include, but are not limited to valuation allowance of deferred tax assets, share-based compensation, allowances for credit losses,
valuation and recognition of refund payable to members, the estimated useful lives of assets, long-term investments and reserve for excess and obsolete
inventories. Estimates are based on historical experiences and on various assumptions that the Group believes are reasonable under current
circumstances. Actual results could differ from those estimates.
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$”). The Group’s PRC subsidiaries, consolidated VIEs and VIEs’ subsidiaries and the other
HK subsidiary determined their functional currency to be RMB. The determination of the respective functional currency is based on the criteria of
ASC 830, Foreign Currency Matters and is based primarily on the currency the entity conducts its business in.
Transactions denominated in other than the functional currencies are translated into the functional currency of the entity at the exchange rates quoted by
authoritative banks prevailing on the transaction dates. Exchange gains and losses resulting from those foreign currency transactions denominated in a
currency other than the functional currency are recorded in the Consolidated Statements of Comprehensive (Loss)/Income. Total exchange loss were
RMB 919, RMB 1,300 and RMB 15,697 for the years ended December 31, 2020, 2021 and 2022, respectively.
The financial statements of the Group are translated from the functional currency into RMB. Assets and liabilities denominated in foreign currencies are
translated into RMB using the applicable exchange rates at the balance sheet date. Equity accounts other than earnings generated in current period are
translated into RMB at the appropriate historical rates. Revenues, expenses, gain and loss are translated into RMB using the periodic average exchange
rates. The resulting foreign currency translation adjustments are recorded in other comprehensive (loss)/income as a component of shareholders’ equity.
Total foreign currency translation adjustments to the Group’s other comprehensive (loss)/income were a loss of RMB 79,411, RMB 25,116 and a gain of
RMB 78,777, for the years ended December 31, 2020, 2021 and 2022, respectively.
2.6 Convenience translation
Translations of the Consolidated Balance Sheets, the Consolidated Statements of Comprehensive (Loss)/Income and the Consolidated Statements of
Cash Flows from RMB into US$ as of and for the year ended December 31, 2022 are solely for the convenience of the readers and were calculated at
the rate of US$1.00=RMB 6.8972, representing the index rates stipulated by the federal reserve board. No representation is made that the RMB amounts
could have been, or could be, converted, realized or settled into US$ at that rate on December 31, 2022, 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.
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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)
2.7 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, other receivables, 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, 2021 and 2022, 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, other receivables, 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, and for those investments without readily determinable fair values, the Group elects
to record these investments at cost, less impairment, plus or minus subsequent adjustments for observable price changes (referred to as the measurement
alternative). Under this measurement alternative, changes in the carrying value of the investments will be recognized in Consolidated Statements of
Comprehensive (Loss)/Income, whenever there are observable price changes in orderly transactions for the identical or similar investment of the same
issuer. The Group classifies the valuation techniques on investments that use similar identifiable transaction prices as Level 2 of fair value
measurements. (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 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.
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 (expense)/income, net in the Consolidation Statements of
Comprehensive (Loss)/Income.
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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)
2.11 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,
2021 and 2022, the balance of the factoring receivables was RMB 115,924 and RMB 80,484, respectively (Note 5).
2.12 Allowance for 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.
The key factors considered when determining the above allowances for credit losses include probability of default, loss given default and the non-
performing loan ratio of commercial banks by industry, adjusted for forward-looking macroeconomic conditions.
The following table summarized the details of the Company’s allowance for credit losses:
Balance at beginning of year
Allowance for credit losses
Write-offs
Balance at end of year
2.13 Inventories, net
2020
2022
2021
— 13,089 12,504
13,089 24,045 21,233
(374)
— (24,630)
13,089 12,504 33,363
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 40,609, RMB 25,696 and RMB 4,792 are recorded in cost of revenues in the Consolidated Statements of Comprehensive
(Loss)/Income for the years ended December 31, 2020, 2021 and 2022, 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)
2.14 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)/Income.
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.
2.15 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)/Income. 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.
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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 Long-term investments (continued)
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 (expense)/income, net through the Consolidated Statements of Comprehensive (Loss)/Income.
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.
2.16 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.
2.17 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. For products sold through independent distributors (the “distribution sales”), control is
transferred upon shipment or acceptance, based on the contract terms. 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)
2.17 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. 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 commissions 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, 2021 and 2022, the remaining performance obligation for sales of merchandise were
RMB 99,213 and RMB 18,106, respectively, which are expected to be recognized as revenue when the receipt of merchandise is confirmed by the
customers.
The remaining performance obligations associated with the Group’s marketplace revenue represents the portion of commissions 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, 2021 and 2022, the remaining
performance obligation for marketplace revenue was RMB 4,402 and RMB 2,596, which are expected to be recognized as revenue when the
transactions are completed.
Other businesses
The Group 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 or less, as per agreement between the two parties.
The Group also provides technical services, advertising services and membership services to customers. The service revenues mainly represent the
service fees from third parties that are recognized over the service 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)
2.18 Users incentive programs
The Group provides incentives to those referring members by paying a cash refund upon a successful merchandise referral (“Referral Incentives”); and
those members for their self-purchase (“Self-purchase Incentives”). These unpaid balances recorded in incentive payables to members are maintained
collectively in the members’ Yunji App accounts and can be withdraw in cash upon the members’ requests. For years ended December 31, 2020, 2021
and 2022, the long-aged balances of incentive payables to members of nil, nil and RMB 48,709, respectively, were derecognized when the Company’s
payable obligations along with extinguished, and revenue was recognized accordingly.
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 coupons
granted are not concurrent with a revenue transaction, thus 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.
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.
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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)
2.21 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 403,031, RMB 273,773 and RMB 228,685 for the years ended
December 31, 2020, 2021 and 2022, 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)/Income. 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.
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)/Income upon receipts and all conditions attached to the grants
are fulfilled.
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)/Income 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.
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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 (continued)
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, 2021 and 2022, the Group did not have any significant unrecognized uncertain
tax positions.
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, 2020, 2021 and 2022, profit appropriation to statutory surplus fund for the Group’s entities incorporated in the PRC
was approximately RMB 6,467, RMB 1,395 and RMB 2,059 respectively.
F-34
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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)/income per share
Basic net (loss)/income per share is computed by dividing net (loss)/income attributable to holders of ordinary shares, considering the accretions to
redemption value of the preferred shares, by the weighted average number of ordinary shares outstanding during the period, if applicable.
Diluted net (loss)/income per share is calculated by dividing net (loss)/income 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-35
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)
2.34 Recent accounting pronouncements
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from
Contracts with Customers (ASU 2021-08), which clarifies that an acquirer of a business should recognize and measure contract assets and contract
liabilities in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. The new amendments are effective for us
are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The amendments should be applied
prospectively to business combinations occurring on or after the effective date of the amendments, with early adoption permitted. The Company will
adopt this update in the first quarter of 2023 and does not expect the adoption to have a material impact to the Company’s Consolidated Financial
Statements.
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 are their carrying amounts as of the balance sheet dates. As of December
31, 2020, 2021 and 2022, substantially all of the Company’s cash and cash equivalents, restricted cash and short-term investments were held in major
financial institutions located in Mainland China and Hong Kong, which management considers to be of high credit quality based on their credit ratings.
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 suppliers from whom purchases individually represent greater than
10% of the total purchases of the Group in any of the periods presented.
Customers contributed more than 10% of total revenues are as below:
Customer A
F-36
Year ended December 31,
2020
RMB
—
2021
RMB
—
2022
RMB
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)
3.3 Foreign currency exchange rate risk
Since June 2010, the RMB has fluctuated against the US$, at times significantly and unpredictably. The appreciation of the RMB against the US$ was
approximately 6.5%, 2.3% and 9.24% for the years ended December 31, 2020, 2021 and 2022, respectively. 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
Total short-term investment
As of December 31,
2022
2021
RMB
RMB
167,781 142,357
212,271 69,646
380,052 212,003
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, 2020, 2021 and 2022, the weighted average return of the wealth management products were 3.4%, 5.2% and 2.04%, respectively.
5. ACCOUNTS RECEIVABLE, NET
Factoring receivables
Receivables from the distribution sales
Receivables from merchants under marketplace business
Receivables from sales channels on other platforms
Receivables from other revenue
Less: allowance for credit losses
Total accounts receivable, net
F-37
As of December 31,
2021
2022
RMB
RMB
115,924 80,484
— 23,018
5,898 4,590
231 1,699
3,338 1,082
(7,225) (16,762)
118,166 94,111
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:
Receivables from third-party payment settlement platform (1)
Deposits
Prepaid advertising expenses
Short-term loan receivables (2)
VAT-input deductible
Receivables from disposal of a subsidiary (3)
Others
Less: allowance for credit losses
Total prepaid expenses and other current assets, net
As of December 31,
2022
2021
RMB
RMB
35,682 34,179
24,572 13,917
7,840 —
221,211 269,314
103,519 25,708
16,713
1,964
25,971 31,493
(4,791) (14,510)
430,717 362,065
(1) Receivables from third-party payment settlement platform represent cash due from the third party on-line payment service providers in relation to
(2)
(3)
their processing of payments to the Group.
Short-term loan receivables represent the principal and interest to be collected on loans provided by the Group to third-party companies. As of
December 31, 2022, the loans include six loans to six companies, four-sixths of which were renewed in 2022 with principal amount of US$
20 million (equivalent to RMB 139,292), RMB 800, RMB 30,000, RMB 40,000, respectively. One loan was of principal amount of RMB 50,000,
four-year term starting from December 2019, and with a lump sum interest rate of 20% at maturity within one year. The remaining loan was the
one to a customer with total principal amount of RMB 1,000. As of December 31, 2021, the loans include seven loans to six companies with
principal amount of US$ 15.3 million (equivalent to RMB 97,548), US$ 4.7 million (equivalent to RMB 29,966), RMB 800, RMB 12,000, RMB
10,000, RMB 30,000 and RMB 40,000, respectively. The terms of loans are of one-year term and with fixed annual interest at approximately
4%~12% within the market rate range and mature within one year.
In the fourth quarter of 2020, the Group disposed of 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 million recorded in other non-operating (loss)/income, net (Note 18). Based on the
agreement reached in 2022, the third party and the Group re-negotiated the payment schedule. As of December 31, 2022, an amount of RMB
1,964 will be collected within one year and the remaining amount of RMB 13,137 is recorded in other non-current assets (Note 10).
7. INVENTORIES, NET
As of December 31,
Merchandise and packing materials
Less: inventory write-downs
Total inventories, net
F-38
2021
RMB
2022
RMB
91,496 60,043
(5,392)
84,500 54,651
(6,996)
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)
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 (1)
Subtotal
Less: accumulated depreciation (2)
Total property, equipment and software, net
As of December 31,
2022
2021
RMB
RMB
33,417 32,240
21,193 16,471
3,728
5,892
6,747
7,092
690
690
245 163,696
68,184 224,017
(55,342) (55,089)
12,842 168,928
(1)
In June 2021, the Group entered into a purchase agreement with a third-party company to purchase an office building. The Group paid 50% of the
total amount with consideration of RMB 81,125 in 2021 and paid the remaining 50% in amount of RMB 80,732 in 2022. In June 2022, the new
office building has been delivered by the third-party company to the Group and all prepayment except for the value added tax of the office
building were recorded as construction in progress upon delivery in 2022.
As of December 31, 2021 and 2022, the balances of construction in progress were RMB 245 and RMB 163,696 which were primarily relating to
the new office building under decoration.
(2) Depreciation expenses were RMB 21,054, RMB 15,985 and RMB 7,718 for the years ended December 31, 2020, 2021 and 2022, respectively. No
impairment charges were recorded for the years ended December 31, 2020, 2021 and 2022.
F-39
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)
9. LONG-TERM INVESTMENTS
The Group’s long-term investments consist of the following:
Equity method investments (a)
Equity securities accounted for under alternative measurement (b)
Equity securities with readily determinable fair values (c)
Total long-term investments
As of December 31,
2022
2021
RMB
RMB
31,779 16,669
196,296 207,771
153,326 189,885
381,401 414,325
Major investments made by the Company during the years ended December 31, 2020, 2021 and 2022 are summarized as follows:
(a) 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, 2022 was as follows,
Total value booked under equity method as of December 31, 2020
Addition
Disposal of long-term investments
Share of cumulative loss for the year ended December 31, 2021
Total value booked under equity method as of December 31, 2021
Dividends received
Disposal of long-term investments (i)
Others (ii)
Share of cumulative loss for the year ended December 31, 2022
Total value booked under equity method as of December 31, 2022
Equity method investments
58,479
630
(16,793)
(10,537)
31,779
(254)
(2,805)
(5,000)
(7,051)
16,669
(i)
The Company disposed of several investments that were accounted for under the equity method in 2022 and recorded the loss from the disposal of
RMB 1,796 in other non-operating (loss)/income, net (Note 18).
(ii) The Company lost significant influence in the form of ordinary shares of two investees with total amount of RMB 5,000 in December 2022 and
accounted for two investments using alternative measurement.
F-40
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)
9. LONG-TERM INVESTMENTS (CONTINUED)
(b) 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.
Change from equity method investment to equity securities accounted for under alternative measurement
The Group previously accounted for the investment in the investee A using equity method. In 2021, Yunji disposed of the investment in investee A with
a gain of RMB 110.5 million recorded in other non-operating (loss)/income, net (Note 18), and injected the same amount of consideration into the parent
holding company of investee A (“the Enlarged A Group”). Yunji’s share of equity interest was 2.26% without board seat. Since Yunji lost significant
influence, the Company recorded the new investment in the Enlarged A Group under alternative measurement.
In November 2021, with a new series of external financing of the enlarged A Group, the Company remeasured its investment to fair market value and
recorded the unrealized changes in fair value with a gain of RMB 79,541 in Financial (expense)/income, net in the Consolidation Statements of
Comprehensive (Loss)/Income based on the new investors’ purchase price.
In July 2022, with a new series of external financing of the investee B, the Company remeasured its investment to fair market value and recorded the
unrealized changes in fair value with a gain of RMB 6,475 in Financial (expense)/income, net in the Consolidation Statements of Comprehensive
(Loss)/Income based on the new investors’ purchase price.
(c) Equity securities with readily determinable fair values
Investment in GXG, Tencent and Meituan
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).
In February 2021, the Group purchased 106,600 and 55,000 ordinary shares of two Hong Kong listed Company- Meituan (3690. HK) and Tencent
(0700. HK) – with a total consideration of HKD$ 77.3 million (equivalent to approximately RMB 65,065).
In 2022, the Group invested two private funds with a total consideration of RMB 60,000.
As of December 31, 2021 and 2022, based on the market price, the Group re-measured the investments at a fair value of RMB 153,326 and RMB
189,885, respectively, and recorded the unrealized changes in fair value with a loss of RMB 19,851 and a loss of RMB 34,801 in financial
(expense)/income, net in the Consolidation Statements of Comprehensive (Loss)/Income for years ended December 31, 2021 and 2022, respectively.
F-41
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)
10. OTHER NON-CURRENT ASSETS
Other non-current assets consist of the following:
Long-term loan receivable (1)
Prepayment of commercial properties (2)
Long-term receivables from disposal of a subsidiary (Note 6)
Others
Less: allowance for doubtful accounts
Total other non-current assets
As of December 31,
2021
RMB
2022
RMB
55,802 —
159,125 78,000
— 13,137
13,235 7,368
(488) (2,091)
227,674 96,414
(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, four-year term starting from December 2019, and with a lump sum interest rate of 20% at maturity. As of
December 31, 2022, this loan was due for repayment within one year and was recorded in Prepaid expense and other current assets, net (Note 6).
In 2020, the Group purchased commercial properties from a third party and paid the full amount in advance with consideration of USD$
11.25 million (equivalent RMB 78,000).
F-42
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)
11. ACCOUNTS PAYABLE
Merchandise purchase payables
Warehouse and logistic fees payables
Payable to merchants (1)
Total accounts payable
As of December 31,
2022
2021
RMB
RMB
150,241 87,489
1,311
99,814 50,103
254,839 138,903
4,784
(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 marketplace revenue
Deferred other revenue
Total deferred revenue
As of December 31,
2021
2022
RMB RMB
99,213 18,106
4,402 2,596
2,137 1,046
105,752 21,748
The revenue recognized in the years ended December 31, 2020, 2021 and 2022 that was included in deferred revenue as of the beginning of each
respective period were RMB 181,828, RMB 50,951 and RMB 105,752, respectively.
13. INCENTIVE PAYABLES TO MEMBERS
Incentive payables to members
As of December 31,
2022
2021
RMB
RMB
265,612 207,331
Incentive payable to members 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.
F-43
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. MEMBER MANAGEMENT FEES PAYABLE
Member management fees payable
2021
As of December 31,
2022
RMB RMB
15,570 11,087
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, 2020, 2021 and 2022, member management fees were RMB 418,194, RMB 174,798 and
RMB 101,984, presented in sales and marketing expenses in the Consolidation Statements of Comprehensive (Loss)/Income.
15. OPERATING LEASE
The Group has operating leases primarily for office and operation space. The Group’s operating lease arrangements have remaining terms of one year to
five years with no variable lease costs.
Operating lease costs were RMB 3,909 and 2,774 for the years ended December 31, 2021 and 2022.
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
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-44
Year Ended
December 31,
2021
RMB
3,555
2,732
Year Ended
December 31,
2022
RMB
4,184
—
As of December 31,
2021
RMB
5,420
5,571
3,123
8,694
2022
RMB
231
1,162
145
1,307
1.61
4.75%
1.18
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)
15. OPERATING LEASE (CONTINUED)
Maturities of lease liabilities are as follows:
2023
2024
Total operating lease payments
Less: imputed interest
Total operating lease
16. OTHER PAYABLE AND ACCRUED LIABILITIES
Merchants deposits (1)
Supplier deposits (2)
Salaries and welfare payable
Taxes payable
Accrued marketing and other operational expenses
Accrued professional fees
IT related service fees
Others
Total other payable and accrued liabilities
As of December 31, 2022
RMB
1,434
58
1,492
(185)
1,307
As of December 31,
2022
2021
RMB
RMB
56,335 42,452
51,181 32,997
36,054 28,735
26,396 15,531
14,844 12,682
8,030 10,165
2,839
4,621
126
5,325
202,786 145,527
(1)
(2)
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.
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.
F-45
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)
17. OTHER OPERATING INCOME
VAT-in super deduction and other tax returns (1)
Government grants (2)
Others
Total other operating income
Year Ended
December 31,
2020
RMB
Year Ended
December 31,
2021
RMB
4,830
25,172
3,216
33,218
2,323
48,180
3,913
54,416
Year Ended
December 31,
2022
RMB
2,369
15,110
4,120
21,599
(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, 2023. The VAT-in super deduction 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)/Income.
(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. These cash subsidies were not subject to meeting any specific future
conditions.
18. OTHER NON-OPERATING (LOSS)/ INCOME, NET
(Loss)/gains from fair value changes of equity securities investments, net
(Note 9)
Others
Total other non-operating (loss)/income, net
19. FINANCIAL (EXPENSE)/INCOME, NET
Interest income
Interest expense
(Loss)/gains from fair value changes of equity securities investments (Note 9)
Bank charges
Others
Total financial (expense)/income, net
F-46
Year Ended
December 31,
2020
RMB
Year Ended
December 31,
2021
RMB
Year Ended
December 31,
2022
RMB
(1,610)
—
(1,610)
112,354
555
112,909
(1,792)
3,864
2,072
Year Ended
December 31,
2020
RMB
Year Ended
December 31,
2021
RMB
Year Ended
December 31,
2022
RMB
46,667
(6,383)
(53,683)
(709)
5,537
(8,571)
15,947
(4,181)
59,690
(529)
9,134
80,061
1,606
(2,462)
(28,326)
(276)
15,102
(14,356)
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)
20. TAXATION
(a) Value added tax (“VAT”) and surcharges
The Group is subject to statutory VAT rate of 9% since April 1, 2019 for revenues from sales of agricultural products, 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 9% since April 1, 2019 for the logistics services and 6% for revenues from other 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 subsidiaries of the Group incorporated in Hong Kong are subject to 8.25% profit tax on
the first HKD2 million taxable income and 16.5% profit tax on the remaining 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.
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.
Jixiang obtained its HNTE certificate on December 16, 2021 and was eligible to enjoy a preferential tax rate of 15% from 2021 to 2023 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.
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.
F-47
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)
20. TAXATION (CONTINUED)
(b) Income tax (continued)
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%.
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, 2021 and 2022, 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, 2021 and 2022.
F-48
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)
20. TAXATION (CONTINUED)
(b) Income tax (continued)
Composition of income tax
The components of (loss)/income before tax are as follow:
(Loss)/income before tax
(Loss)/income from PRC entities
(Loss)/Income from overseas entities
Total (loss)/income before tax
Current income tax expense
Deferred income tax expense
Total income tax expense
Year Ended
December 31,
2020
RMB
Year Ended
December 31,
2021
RMB
Year Ended
December 31,
2022
RMB
(5,399)
(103,161)
(108,560)
244,163
(35,141)
209,022
(113,848)
7,300
(106,548)
Year Ended
December 31,
2020
RMB
Year Ended
December 31,
2021
RMB
10,458
28,840
39,298
17,803
42,698
60,501
Year Ended
December 31,
2022
RMB
9,866
14,925
24,791
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 subsidiaries
Non-deductible expenses
Additional deduction for research and development expenditures
Share-based compensation
Non-taxable income
Permanent book-tax differences
Change in valuation allowance (1)
Effective tax rates
Year Ended
December 31,
2020
Year Ended
December 31,
2021
Year Ended
December 31,
2022
25%
-9%
0%
-1%
48%
-23%
0%
7%
-83%
-36%
25%
5%
0%
1%
-6%
4%
-2%
4%
-2%
29%
25%
-10%
4%
-1%
8%
-4%
1%
-3%
-43%
-23%
(1)
Included the impact of the valuation allowance decrease due to disposal of subsidiaries and tax losses forfeiture in 2022.
F-49
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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)
20. TAXATION (CONTINUED)
(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
Gain or loss from changes in fair values
Others
Less: valuation allowance
Total deferred tax assets
Deferred tax liabilities
Gain or loss from changes in fair values
Others
Total deferred tax liabilities
As of December 31,
2021
2022
RMB
RMB
108,667 130,370
31
212
6
172
1,348
1,749
7,717
2,813
1,142
—
69
1,021
(96,489) (140,189)
494
18,145
As of December 31,
2022
2021
RMB
RMB
2,572 —
494
648
494
3,220
The Group offsets deferred tax assets and deferred tax liabilities relating to income taxes levied by the same tax authority on same tax payee, and
presents the net amount of deferred tax assets and deferred tax liabilities on its consolidated balance sheets. The net deferred tax assets were
RMB 17,497 and nil as of December 31, 2021 and 2022, respectively, and the net deferred tax liabilities were RMB 2,572 and nil as of December 31,
2021 and 2022, respectively.
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)
20. TAXATION (CONTINUED)
Movement of valuation allowance
Balance at beginning of the year
Changes of valuation allowance (1)
Balance at end of the year
Year Ended
December 31,
2020
RMB
(65,225)
(90,925)
(156,150)
Year Ended
December 31,
2021
RMB
(156,150)
59,661
(96,489)
Year Ended
December 31,
2022
RMB
(96,489)
(43,700)
(140,189)
(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 as of December 31, 2021 and 2022, the Group evaluates a variety of factors
supporting the utilization of carry-forwards through a forecast of future taxable profits for each impacted entity within a specific tax jurisdiction,
including: the Group’s entities’ operating history and forecast, accumulated deficit, existence of taxable temporary differences and reversal
periods. As of December 31, 2020 and 2021, valuation allowances on a large part of deferred tax assets were provided 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, 2022, net operating loss carry forwards from PRC entities will expire as follows:
At December 31,
2023
2024
2025
2026
2027
RMB
484
284,447
202,548
20,002
194,021
701,502
As of December 31, 2022, the Group had tax losses carry forwards of approximately RMB 701,502 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
2023 to 2027.
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. ORDINARY SHARES
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 (the “2019 Share Repurchase Program”). Under the 2019 Share Repurchase Program, the Company cumulatively repurchased
40,076,270 and 40,463,770 Class A ordinary shares at price ranging from US$0.09 to $0.70 as of December 31, 2020 and 2021, respectively.
On March 17, 2022, 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. Subsequently, on August 25, 2022, the Company announced this stock repurchase program of up to US$20 million has been extended
for another six months, which was starting from September 16, 2022 and up to March 15, 2023 (collectively, the “2022 Share Repurchase Program”).
Under the 2022 Share Repurchase Program, the Company cumulatively repurchased 179,701,700 Class A ordinary shares at price ranging from
US$0.07 to $0.12 as of December 31, 2022.
22. 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 RMB 50,000, and
incurred issuance cost of RMB 1,000.
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 RMB 33,160 and US$20,000 (RMB 138,532 equivalent) as well as the full exercise of the Series Seed Warrant at fair value of
RMB 644 and the full exercise of Series A Warrant at fair value of RMB 1,754. Total issuance cost in the amount of RMB 8,095 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-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)
22. 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 RMB 14,062 was incurred for the Series B Preferred Shares, including a
finder’s commission of US$2,000 (RMB 12,600 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 RMB 5,867.
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 21). Prior to their conversion, Preferred Shares were entitled to certain preference with respect to conversion, redemption, dividends
and liquidation.
23. 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.
On January 1, 2021 and February 1, 2021, the Company granted 29,170,000 and 26,818,000 RSUs to its employees, respectively. Meanwhile, the
Company modified the exercise price and vesting schedules of certain stock options on February 1, 2021.
On January 1, 2022 and August 1, 2022, the Company granted 8,690,000 and 1,160,000 RSUs to its employees, respectively.
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)
23. SHARE-BASED COMPENSATION (CONTINUED)
(a) Options
The following table sets forth the stock options activity for the years ended December 31, 2020, 2021 and 2022:
Outstanding as of December 31, 2020
Granted
Forfeited
Exercised
Expired
Outstanding as of December 31, 2021
Granted
Forfeited
Exercised
Expired
Outstanding as of December 31, 2022
Vested and expected to vest as of December 31, 2022
Exercisable as of December 31, 2022
Weighted
average
remaining
contractual
term
2.65
Aggregate
intrinsic
value
000’US$
2,826
1.73
—
0.89
—
Weighted-
average
exercise price
US$
0.22
—
0.26
0.10
0.28
0.21
—
0.20
0.09
—
0.22
Number of
shares
68,565,920
—
(5,655,230)
(748,730)
(231,520)
61,930,440
—
(64,980)
(773,640)
—
61,091,820
61,091,820
60,169,040
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, 2021: US$ 0.06, December 31, 2022: US$ 0.08).
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
modified 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-54
2021
0.0925
2.2/2.8
0.24%/0.33%
6
0.00%
52.96%/55.13%
5%
0.23
0.15
2022
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)
23. 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 RMB 52,870, RMB 20,782 and RMB 1,828 for share options granted under the
2017 Plan and the 2019 Plan in the Consolidated Statements of Comprehensive (Loss)/Income for the years ended 2020, 2021 and 2022, respectively.
As of December 31, 2021 and 2022, there was RMB 2,573 and RMB 616, respectively, in total unrecognized compensation expense, related to unvested
share options, which is expected to be recognized over a weighted average period of 0.95 and 0.4 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, 2020, 2021 and 2022 is presented below:
Unvested at December 31, 2020
Granted
Vested
Forfeited
Unvested at December 31, 2021
Granted
Vested
Forfeited
Unvested at December 31, 2022
Number of RSUs
47,961,100
55,988,000
(12,908,750)
(45,336,000)
45,704,350
9,850,000
(10,326,250)
(20,306,000)
24,922,100
Weighted-Average
Grant-Date Fair Value
US$
0.63
0.21
0.45
0.63
0.45
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, 2021 and 2022, 12,908,750 RSUs and 10,326,250 RSUs were vested.
For the years ended December 31, 2020, 2021 and 2022, total share-based compensation expenses recognized by the Group for the RSUs granted were
RMB 45,508, RMB 35,128 and RMB 28,322, respectively.
As of December 31, 2021 and 2022, there was RMB 60,217 and RMB 14,592 in total unrecognized compensation expense, related to unvested RSUs,
which is expected to be recognized over a weighted average period of 2.55 and 1.87 years, respectively.
F-55
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. FAIR VALUE MEASUREMENTS
As of December 31, 2021 and 2022, 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
Equity securities accounted for under alternative
measurement
Total assets
Description
Assets:
Short-term investments
Time deposits
Wealth management products
Long-term investments
Equity securities with readily determinable fair value
Equity securities accounted for under alternative
measurement
Total assets
Fair value measurement at reporting date using
Fair value
as of
December 31,
2021
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
167,781
212,271
153,326
196,296
729,674
—
—
153,326
—
153,326
167,781
212,271
—
196,296
576,348
—
—
—
—
—
Fair value measurement at reporting date using
Fair value
as of
December 31,
2022
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
142,357
69,646
189,885
207,771
609,659
—
—
189,885
—
189,885
142,357
69,646
—
207,771
419,774
—
—
—
—
—
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-56
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. 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.
The Group used measurement alternative for recording equity investments without readily determinable fair values at cost, less impairment, adjusted for
subsequent observable price changes. Based on ASU 2016-01, entities that elect the measurement alternative will report changes in the carrying value of
the equity investments in current earnings. If measurement alternative is used, changes in the carrying value of the equity investment will be recognized
whenever there are observable price changes in orderly transactions for the identical or similar investment of the same issuer, and impairment charges
will be recorded when any impairment indicators are noted and the fair value is lower than the carrying value. The Group classifies the valuation
techniques on investments that use similar identifiable transaction prices as Level 2 of fair value measurements.
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)
25. NET (LOSS)/INCOME PER SHARE
Basic and diluted net loss per share for each of the years/periods presented are calculated as follows:
Numerator:
Net (loss)/income attributable to YUNJI INC’s ordinary shareholders
Denominator:
Denominator for basic earnings per ordinary share
-Weighted average ordinary shares outstanding
Dilutive effect of share options
Denominator for diluted earnings per ordinary share
Net (loss)/income per share attributable to ordinary shareholders:
- Basic
- Diluted
Year Ended
December 31,
2020
RMB
Year Ended
December 31,
2021
RMB
Year Ended
December 31,
2022
RMB
(146,346)
131,966
(138,173)
2,125,906,398 2,139,963,573
7,242,017
2,125,906,398 2,147,205,590
—
2,088,319,721
—
2,088,319,721
(0.07)
(0.07)
0.06
0.06
(0.07)
(0.07)
Basic net (loss)/income per share is computed using the weighted average number of ordinary shares outstanding during the period. Diluted net
(loss)/income per share is computed using the weighted average number of ordinary shares and dilutive potential ordinary shares outstanding during the
period.
For the year ended December 31, 2019, 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, 2019 and 2020 as their effects would be anti-dilutive. For the year ended
December 31, 2021, the Company had potential ordinary shares, including non-vested restricted shares, and option granted which were included in the
computation of diluted EPS in 2021. As the Group incurred losses for the years ended December 31, 2020 and 2022, these potential ordinary shares
were anti-dilutive and excluded from the calculation of diluted net loss per share of the Company.
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)
26. RELATED PARTY BALANCES AND TRANSACTIONS
The table below sets forth the major related parties and their relationships with the Group as of December 31, 2022:
Name of related parties
Relationship with the Group
Controlled by Mr. Xiao Shanglue, Founder and CEO of the Group
Small Ye Group
An associate of the Group (incorporated in 2018)
Hangzhou Jixi Internet Technology Co., Ltd. (“Jixi”)*
An associate of the Group (incorporated in 2017)
Hangzhou Tianshi Technology Co., Ltd. (“Tianshi”)
An associate of the Group (incorporated in 2018)
Guangdong Weixin Technology Co., Ltd. (“Weixin”)
An associate of the Group (incorporated in 2018)
Hangzhou Adopt A Cow Biological Technology Co., Ltd. (“Zhaomu”)*
An associate of the Group (incorporated in 2019)
Hangzhou Bixin Biotechnology Co., Ltd. (“Bixin”)
An associate of the Group (incorporated in 2019)
Hunan Haomei Haomei Cosmetics Co., Ltd. (“Haomei”)*
Shanxi Yunnong Logistic Management Co., Ltd. (“Yunnong”)
An associate of the Group (incorporated in 2019)
Zhejiang Zhengdao Fengju Supply Chain Management Co., Ltd. (“Zhengdao”)* An associate of the Group (incorporated in 2019)
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)
Hangzhou Xingsheng Brand Marketing Management Co., Ltd. (“Xingsheng”)
* The investments in these associates were disposed by the Group in 2021 and 2022.
F-59
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. 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, 2020, 2021
and 2022 are as follows:
Advance to related parties and amounts due from related parties
Amounts due from related parties
Jixi
Yuncheng
Others
Total
Amounts due to related parties
Weixin
Xingsheng
Yunnong
Bixin
Tianshi
Jimi
Jibi
Small Ye Group
Jixi
Others
F-60
As of December 31,
2022
RMB
2021
RMB
1,112
1,179
241
2,532
—
—
202
202
2021
As of December 31,
2022
RMB RMB
5,413 5,382
1,515 1,209
728
1,249
376
1,150
884
1,037
125
756
618
749
691
691
1,270 —
595
1,800
15,630 10,608
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. 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
Purchase of merchandise
Jimi
Weixin
Yuncheng
Xingsheng
Tianshi
Bixin
Yunnong
Huaji
Zhaomu
Zhengdao
Haomei
Others
Year Ended
December 31,
2020
RMB
Year Ended
December 31,
2021
RMB
Year Ended
December 31,
2022
RMB
—
9,214
2,239
600
17,021
31,825
21,453
2,573
53,790
28,372
16,404
21,784
205,275
17,519
14,508
13,147
11,768
11,256
7,637
4,301
4,265
—
—
—
7,714
92,115
7,572
32
—
7,384
2,722
3,328
—
—
—
—
—
472
21,510
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)
26. RELATED PARTY BALANCES AND TRANSACTIONS (CONTINUED)
Transactions with related parties (continued)
Marketplace service provided to related parties
Jimi
Yuncheng
Bixin
Others
Other goods and services provided to related parties
Xingsheng
Jimi
Tianshi
Yuncheng
Others
Year Ended
December 31,
2020
RMB
Year Ended
December 31,
2021
RMB
Year Ended
December 31,
2022
RMB
2,379
2,932
2,759
2,900
10,970
—
—
—
171
222
393
5,637
3,309
2,322
815
12,083
—
313
—
208
18
539
1,699
—
1,234
172
3,105
554
131
114
—
24
823
27. COMMITMENTS AND CONTINGENCIES
(a) Operating commitments
As of December 31, 2022, the Company had outstanding operating commitments totaling RMB 1,904, which was the short-term lease payments.
(b) Capital commitments
As of December 31, 2022, the Company had outstanding capital commitments totaling RMB 5,223, which was the payment of office building
decoration improvement and furniture.
(b) Contingencies
In the ordinary course of business, the Group is from time to time involved in legal proceedings and litigations. As of December 31, 2021 and 2022, the
Group was not involved in any legal or administrative proceedings that the Group believes may have a material adverse impact on the Group’s business,
balance sheets or results of operations and cash flows.
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)
28. SUBSEQUENT EVENTS
From December 31, 2022 to the date of publication of this report, there was no subsequent event which had a material impact on the Group.
29. 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, 2020, 2021 and 2022, appropriations to the statutory reserve have been made by the Group, which was RMB 6,467, RMB 1,395
and RMB 2,059 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 453,428, or 33% of the Group’s total consolidated net assets as of December 31, 2022.
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 applicable for the Company to
disclose the financial statements for the parent company.
The subsidiaries did not pay any dividend to the Company for the periods presented. For the purpose of presenting parent only financial information, the
Company records its investments in its subsidiaries under the equity method of accounting. Such investments are presented on the separate condensed
balance sheets of the Company as “investments in subsidiaries and VIEs” and the loss of the subsidiaries is presented as “share of loss of subsidiaries”.
Certain information and footnote disclosures generally included in financial statements prepared in accordance with US GAAP have been condensed
and omitted.
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)
30. CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
Balance sheets of the parent company
ASSETS
Current assets:
Cash and cash equivalents
Short-term investment
Amounts due from the group companies
Prepaid expenses and other current assets
Total current assets
Non-current assets:
Long-term investments
Investment in subsidiaries and VIEs
Total non-current assets
Total assets
LIABILITIES AND EQUITY
Current liabilities
Other payables and accruals
Total liabilities
Shareholders’ equity
As of December 31,
2021
RMB
As of December 31,
2022
RMB
8,678
195,679
110,729
4,113
319,199
46,562
1,114,353
1,160,915
1,480,114
65,363
70,125
161,124
1,516
298,128
39,817
1,020,937
1,060,754
1,358,882
2,218
2,218
3,852
3,852
Ordinary shares (US$0.000005 par value 20,000,000,000 shares authorized as of December 31,
2021 and 2022; 1,208,831,222 Class A ordinary shares and 949,960,000 Class B ordinary
shares issued as of December 31, 2021 and 2022; 1,196,575,392 and 1,068,437,352 Class A
ordinary shares and 949,960,000 and 949,960,000 Class B ordinary shares outstanding as of
December 31, 2021 and 2022, respectively)
Additional paid-in capital
Accumulated other comprehensive (loss)/income
Less: Treasury stock (12,255,830 and 140,393,870 shares as of December 31, 2021 and 2022,
respectively)
Accumulated deficit
Total shareholders’ equity
70
7,342,344
(42,645)
(44,228)
(5,777,645)
1,477,896
70
7,332,098
91,498
(98,709)
(5,969,927)
1,355,030
Total liabilities and shareholders’ equity
1,480,114
1,358,882
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)
30. CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY (CONTINUED)
Statements of comprehensive (loss)/income of the parent company
Operation expense
Sales and marketing
General and administrative
Total operating expenses
Share of (loss)/income of subsidiaries and VIEs
Financial income/(expense), net
Foreign exchange loss
Other non-operating income, net
(Loss)/income before income tax expense
Net (loss)/income
Net (loss)/income attributable to ordinary shareholders
Net (loss)/income
Other comprehensive (loss)/income
Foreign currency translation
Total comprehensive (loss)/income
Statements of cash flows of the parent company
Net cash used in operating activities
Net cash generated from investing activities
Net cash (used in)/generated from financing activities
Effect of exchange rate changes on cash, cash equivalents and restricted cash
Net (decrease)/increase 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
F-65
Year Ended
December 31,
2020
RMB
Year Ended
December 31,
2021
RMB
Year Ended
December 31,
2022
RMB
(2,927)
(15,089)
(18,016)
(131,435)
3,303
(198)
—
(146,346)
(146,346)
(146,346)
(2,052)
(17,632)
(19,684)
167,444
(15,883)
(466)
555
131,966
131,966
131,966
—
(10,706)
(10,706)
(115,080)
(12,283)
(134)
30
(138,173)
(138,173)
(138,173)
(146,346)
131,966
(138,173)
110,010
(36,336)
35,433
167,399
134,143
(4,030)
Year Ended
December 31,
2020
RMB
Year Ended
December 31,
2021
RMB
Year Ended
December 31,
2022
RMB
(29,257)
6,372
(16,176)
(163)
(39,224)
42,878
3,654
(23,226)
29,919
788
(2,457)
5,024
3,654
8,678
(9,075)
154,552
(94,752)
5,960
56,685
8,678
65,363
List of Principal Subsidiaries and Consolidated Variable Interest Entities 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. I have reviewed this annual report on Form 20-F of Yunji Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying 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) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
(b) 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;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered
by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal
control over financial reporting.
Date: April 26, 2023
/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, Peng Zhang, certify that:
1. I have reviewed this annual report on Form 20-F of Yunji Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying 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) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
(b) 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;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered
by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal
control over financial reporting.
Date: April 26, 2023
/s/ Peng 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, 2022 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) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: April 26, 2023
/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, 2022 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Peng 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) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: April 26, 2023
/s/ Peng 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, 2023 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, 2023
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, 2023
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, 2022 (the “Annual Report”), which will be filed with the
Securities and Exchange Commission (the “SEC”) in the month of April 2023, 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 authorised 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 2023
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 2022 (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
Maples and Calder (Hong Kong) LLP
26th Floor Central Plaza 18 Harbour Road Wanchai Hong Kong
Tel +852 2522 9333 Fax +852 2537 2955 maples.com
Resident Hong Kong Partners: Everton Robertson (Cayman Islands), Aisling Dwyer (British Virgin Islands)
Ann Ng (Victoria (Australia)), John Trehey (New Zealand), Matthew Roberts (Western Australia (Australia)), Terence Ho (New South Wales
(Australia))
L.K. Kan (England and Wales), W.C. Pao (England and Wales), Richard Spooner (England and Wales), Sharon Yap (New Zealand), Nick Stern
(England and Wales)
Juno Huang (Queensland (Australia)), Karen Pallaras (Victoria (Australia)), Joscelyne Ainley (England and Wales), Andrew Wood (England and Wales)
Non-Resident Partners: Jonathan Green (Cayman Islands), Kieran Walsh (Cayman Islands)
Cayman Islands Attorneys at Law | British Virgin Islands Solicitors | Irish Solicitors