UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F / A
(Amendment No. 1)
(Mark One)
| ¨ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2017. |
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO |
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
Commission file number: 001-36140
58.com 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)
Building 105, 10 Jiuxianqiao North
Road Jia
Chaoyang District, Beijing 100015
People’s Republic of China
(Address of principal executive offices)
Hao Zhou, Chief Financial Officer
Telephone: +86 10 5956-5858
Building 105, 10 Jiuxianqiao North Road Jia
Chaoyang District, Beijing 100015
People’s Republic of China
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
|
Title of each class |
Name of each exchange on which registered | |
| American depositary shares, each representing two Class A ordinary shares | New York Stock Exchange | |
| Class A ordinary shares, par value US$0.00001 per share* | New York Stock Exchange* |
| * | Not for trading, but only in connection with the listing on the New York Stock Exchange of American depositary shares. |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
293,965,131 ordinary shares, par value US$0.00001 per share, being the sum of 245,924,871 Class A ordinary shares (not including 2,589,192 Class A ordinary shares issued to the depositary bank of the Issuer and reserved for future exercise or vesting of equity incentive awards) and 48,040,260 Class B ordinary shares as of December 31, 2017.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ¨ No x
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 x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x 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 x | Accelerated filer ¨ | |
| Non-accelerated filer ¨ | Emerging growth company ¨ |
If an emerging growth company that prepare its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not 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 which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| U.S. GAAP | x | International Financial Reporting Standards as 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 x No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ¨ Yes ¨ No
Explanatory Note
This Amendment No. 1 on Form 20-F/A (the “Amendment”) amends the Annual Report on Form 20-F for the year ended December 31, 2017 of 58.com Inc. (“58.com”), as originally filed with the U.S. Securities and Exchange Commission on April 30, 2018 (the “Original Filing”). 58.com is filing the Amendment solely to include the financial statements and related notes of 58 Daojia Inc. (“58 Home”), an unconsolidated subsidiary of 58.com incorporated in the British Virgin Islands, as required by Rule 3-09 of Regulation S-X under the Securities Exchange Act of 1934, as amended (“Rule 3-09”).
58.com owns 61.7% of the total outstanding shares of 58 Home on an as-converted basis. As certain rights provided to the non-controlling Series A preferred shareholders of 58 Home would be viewed as substantive participating rights under U.S. GAAP, 58.com has ceased consolidating the financial results of 58 Home in its consolidated financial statements in accordance with U.S. GAAP since November 27, 2015. 58.com accounts for its investment in 58 Home using equity method. As 58 Home is considered to be a significant equity method investee of 58.com, its financial statements are included as an exhibit to the Annual Report of 58.com on Form 20-F in accordance with Rule 3-09.
The Original Filing is being amended by this Amendment to include as exhibits: (i) the 58 Home audited financial statements for the periods presented, (ii) the consent of the independent auditor of 58 Home and (iii) certifications by the Chief Executive Officer and Chief Financial Officer of 58.com. This Amendment does not affect any other parts of, or exhibits to, the Original Filing, nor does it reflect events occurring after the date of the Original Filing. Accordingly, this Amendment should be read in conjunction with the Original Filing and any documents filed with or furnished to the Securities and Exchange Commission by 58.com subsequent to April 30, 2018.
TABLE OF CONTENTS
| Item 19. Exhibits | 1 |
| ITEM 19. | EXHIBITS |
| 1 |
| 2 |
| * | Filed or furnished with the Original Filing |
| ** | Filed herewith |
| 3 |
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing its annual report on Form 20-F/A and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| 58.com Inc. | |||
| By: | /s/ Jinbo Yao | ||
| Name: | Jinbo Yao | ||
| Title: | Chairman and Chief Executive Officer | ||
Date: June 29, 2018
| 4 |
Exhibit 12.1
Certification by the Principal Executive
Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Jinbo Yao, certify that:
| 1. | I have reviewed this Annual Report on Form 20-F, as amended by Amendment No.1 thereto, of 58.com Inc. (the “Company”); |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the 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 period 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: June 29, 2018 | ||
| /s/ Jinbo Yao | ||
| Name: | Jinbo Yao | |
| Title: | Chief Executive Officer | |
Exhibit 12.2
Certification by the Principal Financial
Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Hao Zhou, certify that:
| 1. | I have reviewed this Annual Report on Form 20-F, as amended by Amendment No.1 thereto, of 58.com Inc. (the “Company”); |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the 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 period 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 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: June 29, 2018 | ||
| /s/ Hao Zhou | ||
| Name: | Hao Zhou | |
| Title: | Chief Financial Officer | |
Exhibit 13.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of 58.com Inc. (the “Company”) on Form 20-F for the fiscal year ended December 31, 2017 as filed with the Securities and Exchange Commission on April 30, 2018, as amended by Amendment No.1 thereto (the “Report”), I, Jinbo Yao, 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. |
June 29, 2018
| /s/ Jinbo Yao | ||
| Name: | Jinbo Yao | |
| Title: | Chief Executive Officer | |
Exhibit 13.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of 58.com Inc. (the “Company”) on Form 20-F for the fiscal year ended December 31, 2017 as filed with the Securities and Exchange Commission on April 30, 2018, as amended by Amendment No.1 thereto (the “Report”), I, Hao Zhou, Chief Financial 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. |
June 29, 2018
| /s/ Hao Zhou | ||
| Name: | Hao Zhou | |
| Title: | Chief Financial Officer | |
Exhibit 15.3
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-194873 and No. 333-205011) of 58.com Inc. of our report dated June 29, 2018 relating to the financial statements of 58 Daojia Inc., which appears in this Amendment No.1 to Form 20-F.
| /s/ PricewaterhouseCoopers Zhong Tian LLP | |
| Beijing, the People’s Republic of China | |
| June 29, 2018 |
Exhibit 99.1
FINANCIAL STATEMENTS OF SIGNIFICANT EQUITY METHOD INVESTEE
58 Daojia Inc.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Consolidated Financial Statements | |
| Report of Independent Auditors | F-2 |
| Consolidated Balance Sheets as of December 31, 2016 and 2017 | F-3 |
| Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2016 and 2017 | F-4 |
| Consolidated Statements of Changes in Shareholders’ Deficit for the Years Ended December 31, 2016 and 2017 | F-5 |
| Consolidated Statements of Cash Flows for the Years Ended December 31, 2016 and 2017 | F-6 |
| Notes to the Consolidated Financial Statements | F-7 |
| F-1 |
Report of Independent Auditors
To the Board of Directors of 58 Daojia Inc.
We have audited the accompanying consolidated financial statements of 58 Daojia Inc. and its subsidiaries which comprise the consolidated balance sheets as of December 31, 2017 and 2016, and the related consolidated statements of comprehensive loss, of shareholders’ deficit and of cash flows for the years then ended.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of 58 Daojia Inc. and its subsidiaries as of December 31, 2017 and 2016, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
/s/ PricewaterhouseCoopers Zhong Tian LLP
Beijing, the People’s Republic of China
June 29, 2018
| F-2 |
58 Daojia Inc.
CONSOLIDATED BALANCE SHEETS
As of December 31, 2016 and 2017
(in thousands, except share data, unless otherwise noted)
| As of December 31, | ||||||||||||
| 2016 | 2017 | 2017 | ||||||||||
| RMB | RMB | US$ | ||||||||||
| Note 2 (c) | ||||||||||||
| ASSETS | ||||||||||||
| Current assets: | ||||||||||||
| Cash | 187,156 | 482,652 | 73,866 | |||||||||
| Term deposits | 601,207 | 132,355 | 20,256 | |||||||||
| Short-term investments | 402,000 | - | - | |||||||||
| Accounts receivable (net of allowance for doubtful accounts of RMB nil and RMB123 as of December 31, 2016 and 2017, respectively) | 3,893 | 46,063 | 7,050 | |||||||||
| Prepayments and other current assets | 92,602 | 217,300 | 33,255 | |||||||||
| Total current assets | 1,286,858 | 878,370 | 134,427 | |||||||||
| Non-current assets: | ||||||||||||
| Property and equipment, net | 45,437 | 42,336 | 6,479 | |||||||||
| Intangible assets, net | 3,482 | 150,809 | 23,080 | |||||||||
| Long-term investments | 49,940 | 51,150 | 7,828 | |||||||||
| Long-term prepayments | 19,374 | 6,927 | 1,060 | |||||||||
| Deferred tax assets | - | 7,735 | 1,184 | |||||||||
| Goodwill | - | 1,017,474 | 155,715 | |||||||||
| Total non-current assets | 118,233 | 1,276,431 | 195,346 | |||||||||
| Total assets | 1,405,091 | 2,154,801 | 329,773 | |||||||||
| LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS’ DEFICIT | ||||||||||||
| Current liabilities: | ||||||||||||
| Accounts payable (including accounts payable of the consolidated variable interest entity (“VIEs”) without recourse to the Company of RMB1,044 and RMB22,948 as of December 31, 2016 and 2017, respectively) | 18,441 | 37,452 | 5,732 | |||||||||
| Customer advances (including customer advances of the consolidated VIEs without recourse to the Company of RMB690 and RMB12,406 as of December 31, 2016 and 2017, respectively) | 30,201 | 116,475 | 17,825 | |||||||||
| Taxes payable (including taxes payable of the consolidated VIEs without recourse to the Company of RMB5,119 and RMB7,371 as of December 31, 2016 and 2017, respectively) | 6,846 | 10,218 | 1,564 | |||||||||
| Salary and welfare payable (including salary and welfare payable of the consolidated VIEs without recourse to the Company of RMB9,758 and RMB15,605 as of December 31, 2016 and 2017, respectively) | 42,882 | 63,580 | 9,730 | |||||||||
| Accrued expenses and other current liabilities (including accrued expenses and other current liabilities of the consolidated VIEs without recourse to the Company of RMB141,922 and RMB272,036 as of December 31, 2016 and 2017, respectively) | 277,804 | 501,826 | 76,800 | |||||||||
| Total current liabilities | 376,174 | 729,551 | 111,651 | |||||||||
| Non-current liabilities: | ||||||||||||
| Deferred tax liabilities | - | 31,899 | 4,882 | |||||||||
| Total liabilities | 376,174 | 761,450 | 116,533 | |||||||||
| Commitments and contingencies (Note 19) | ||||||||||||
| Mezzanine equity | 2,081,100 | 1,960,260 | 300,000 | |||||||||
| Shareholders’ deficit: | ||||||||||||
| 58 Daojia Inc. shareholders’ deficit | ||||||||||||
| Ordinary shares | 6 | 6 | 1 | |||||||||
| Additional paid-in capital | 834,096 | 1,726,125 | 264,168 | |||||||||
| Accumulated deficit | (1,817,626 | ) | (2,553,278 | ) | (390,756 | ) | ||||||
| Accumulated other comprehensive (loss)/income | (68,659 | ) | 17,975 | 2,751 | ||||||||
| Total 58 Daojia Inc. shareholders’ deficit | (1,052,183 | ) | (809,172 | ) | (123,836 | ) | ||||||
| Noncontrolling interests | - | 242,263 | 37,076 | |||||||||
| Total shareholders’ deficit | (1,052,183 | ) | (566,909 | ) | (86,760 | ) | ||||||
| Total liabilities, mezzanine equity and shareholders’ deficit | 1,405,091 | 2,154,801 | 329,773 | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-3 |
58 Daojia Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
For the Years Ended December 31, 2016 and 2017
(in thousands, except share data, unless otherwise noted)
| For the Year Ended December 31, | ||||||||||||
| 2016 | 2017 | 2017 | ||||||||||
| RMB | RMB | US$ | ||||||||||
| Note 2 (c) | ||||||||||||
| Revenues | 114,484 | 484,952 | 74,218 | |||||||||
| Cost of revenues(1) | (23,957 | ) | (178,745 | ) | (27,356 | ) | ||||||
| Gross profit | 90,527 | 306,207 | 46,862 | |||||||||
| Operating expenses(1): | ||||||||||||
| Sales and marketing expenses | (759,389 | ) | (740,996 | ) | (113,403 | ) | ||||||
| Research and development expenses | (133,496 | ) | (157,589 | ) | (24,118 | ) | ||||||
| General and administrative expenses | (173,000 | ) | (171,671 | ) | (26,272 | ) | ||||||
| Total operating expenses | (1,065,885 | ) | (1,070,256 | ) | (163,793 | ) | ||||||
| Loss from operations | (975,358 | ) | (764,049 | ) | (116,931 | ) | ||||||
| Other income/(expenses): | ||||||||||||
| Interest income | 13,734 | 7,144 | 1,093 | |||||||||
| Investment income | 3,008 | 10,277 | 1,573 | |||||||||
| Impairment of long-term investments | (69,049 | ) | (19,040 | ) | (2,914 | ) | ||||||
| Foreign currency exchange (loss)/gain, net | (2,526 | ) | 642 | 98 | ||||||||
| Others, net | 14,982 | (2,622 | ) | (401 | ) | |||||||
| Loss before tax | (1,015,209 | ) | (767,648 | ) | (117,482 | ) | ||||||
| Income tax expenses | - | (2,191 | ) | (335 | ) | |||||||
| Net loss | (1,015,209 | ) | (769,839 | ) | (117,817 | ) | ||||||
| Exclude: Net loss attributable to noncontrolling interests | - | 34,187 | 5,232 | |||||||||
| Net loss attributable to 58 Daojia Inc. | (1,015,209 | ) | (735,652 | ) | (112,585 | ) | ||||||
| Net loss | (1,015,209 | ) | (769,839 | ) | (117,817 | ) | ||||||
| Other comprehensive (loss)/income: | ||||||||||||
| Foreign currency translation adjustment, net of nil tax | (61,517 | ) | 86,634 | 13,259 | ||||||||
| Total comprehensive loss | (1,076,726 | ) | (683,205 | ) | (104,558 | ) | ||||||
Note
Note:
| (1) | Share-based compensation expenses were allocated in operating expenses as follows: |
| For the Year Ended December 31, | ||||||||||||
| 2016 | 2017 | 2017 | ||||||||||
| RMB | RMB | US$ | ||||||||||
| Note 2(c) | ||||||||||||
| Cost of revenue | - | 284 | 43 | |||||||||
| Sales and marketing expenses | 65 | 398 | 61 | |||||||||
| Research and development expenses | 1,390 | 55 | 8 | |||||||||
| General and administrative expenses | 88,179 | 2,317 | 355 | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
58 Daojia Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT
For the Years Ended December 31, 2016 and 2017
(in thousands, except share data, unless otherwise noted)
| Ordinary shares | Additional paid-in | Accumulated | Accumulated other comprehensive | Noncontrolling | Total
shareholders’ | |||||||||||||||||||||||
Shares* | Amount | capital | deficit | (loss)/income | interest | deficit | ||||||||||||||||||||||
| RMB | RMB | RMB | RMB | RMB | RMB | |||||||||||||||||||||||
| Balance as of December 31, 2015 (unaudited) | 363,920,000 | 6 | 754,462 | (802,417 | ) | (7,142 | ) | - | (55,091 | ) | ||||||||||||||||||
| Share-based compensation** | - | - | 89,634 | - | - | - | 89,634 | |||||||||||||||||||||
| Net loss | - | - | - | (1,015,209 | ) | - | - | (1,015,209 | ) | |||||||||||||||||||
| Foreign currency translation adjustment, net of nil tax | - | - | - | - | (61,517 | ) | - | (61,517 | ) | |||||||||||||||||||
| Repurchase of ordinary shares | (12,400,000 | ) | - | (10,000 | ) | - | - | - | (10,000 | ) | ||||||||||||||||||
| Restricted shares vested** | 12,400,000 | - | - | - | - | - | - | |||||||||||||||||||||
| Balance as of December 31, 2016 | 363,920,000 | 6 | 834,096 | (1,817,626 | ) | (68,659 | ) | - | (1,052,183 | ) | ||||||||||||||||||
| Share-based compensation | - | - | 3,054 | - | - | - | 3,054 | |||||||||||||||||||||
| Change in 58 Daojia Inc.’s ownership interest in 58 Freight Inc. | - | - | 888,975 | - | - | - | 888,975 | |||||||||||||||||||||
| Issuance of subsidiary shares for business combination | - | - | - | - | - | 277,100 | 277,100 | |||||||||||||||||||||
| Net loss | - | - | - | (735,652 | ) | - | (34,187 | ) | (769,839 | ) | ||||||||||||||||||
| Foreign currency translation adjustment, net of nil tax | - | - | - | - | 86,634 | (650 | ) | 85,984 | ||||||||||||||||||||
| Balance as of December 31, 2017 | 363,920,000 | 6 | 1,726,125 | (2,553,278 | ) | 17,975 | 242,263 | (566,909 | ) | |||||||||||||||||||
* Ordinary shares include Class A ordinary shares, Class B ordinary shares and Class C ordinary shares. The number of ordinary shares is presented on stock split basis, please refer to Note 16.
** Out of RMB89,634, RMB81,899 was recognized for restricted shares vested, please refer to Note 17.
The accompanying notes are an integral part of these consolidated financial statements.
| F-5 |
58 Daojia Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2016 and 2017
(in thousands, except share data, unless otherwise noted)
For the Year Ended December 31, | ||||||||||||
| 2016 | 2017 | 2017 | ||||||||||
| RMB | RMB | US$ | ||||||||||
| Note 2(c) | ||||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net loss | (1,015,209 | ) | (769,839 | ) | (117,817 | ) | ||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
| Share-based compensation expenses | 89,634 | 3,054 | 467 | |||||||||
| Depreciation and amortization expenses | 11,581 | 30,399 | 4,652 | |||||||||
| Investment income | (3,008 | ) | (10,277 | ) | (1,573 | ) | ||||||
| Impairment of long-term investments | 69,049 | 19,040 | 2,914 | |||||||||
| Impairment of prepayments and other current assets and bad debt allowance for accounts receivables | - | 24,320 | 3,721 | |||||||||
| Loss on disposal of property and equipment | 99 | - | - | |||||||||
| Impairment of intangible assets | - | 2,696 | 413 | |||||||||
| Foreign currency exchange loss/(gain), net | 2,526 | (642 | ) | (98 | ) | |||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Accounts receivable | (1,259 | ) | 9,591 | 1,468 | ||||||||
| Prepayments and other assets | (53,940 | ) | (139,367 | ) | (21,329 | ) | ||||||
| Accounts payable | 15,850 | (1,400 | ) | (214 | ) | |||||||
| Customer advances | 29,465 | 86,268 | 13,203 | |||||||||
| Salary and welfare payable | 20,936 | 16,209 | 2,481 | |||||||||
| Taxes payable | 3,562 | 284 | 43 | |||||||||
| Accrued expenses and other liabilities | 140, 210 | 202,017 | 30,917 | |||||||||
| Net cash used in operating activities | (690,504 | ) | (527,647 | ) | (80,752 | ) | ||||||
| Cash flows from investing activities: | ||||||||||||
| Purchase of property and equipment | (48,152 | ) | (13,603 | ) | (2,082 | ) | ||||||
| Purchase of intangible assets | (4,007 | ) | (339 | ) | (52 | ) | ||||||
| Cash received for disposal of property and equipment | 20 | 289 | 44 | |||||||||
| Increase of receivable from equity investee | (14,500 | ) | - | - | ||||||||
| Purchase of long-term investments | (23,667 | ) | (2,500 | ) | (383 | ) | ||||||
| Purchase of term deposits | (130,128 | ) | (718,439 | ) | (109,951 | ) | ||||||
| Proceeds from maturity of term deposits | 1,001,522 | 1,163,888 | 178,122 | |||||||||
| Purchase of short-term investments | (814,500 | ) | (2,344,000 | ) | (358,728 | ) | ||||||
| Proceeds from maturity of short-term investments | 625,508 | 2,756,277 | 421,823 | |||||||||
| Cash received from acquisition of GoGoVan | - | 9,246 | 1,416 | |||||||||
| Net cash provided by investing activities | 592,096 | 850,819 | 130,209 | |||||||||
| Cash flows from financing activities: | ||||||||||||
| Repurchase of ordinary shares | (9,523 | ) | (477 | ) | (73 | ) | ||||||
| Net cash used in financing activities | (9,523 | ) | (477 | ) | (73 | ) | ||||||
| Effect of exchange rate changes on cash | 3,772 | (27,199 | ) | (4,161 | ) | |||||||
| Net (decrease)/increase in cash | (104,159 | ) | 295,496 | 45,223 | ||||||||
| Cash at the beginning of the year | 291,315 | 187,156 | 28,643 | |||||||||
| Cash at the end of the year | 187,156 | 482,652 | 73,866 | |||||||||
| Supplemental disclosure of non-cash activities: | ||||||||||||
| Property and equipment in accounts payable | 399 | 514 | 79 | |||||||||
| Consideration payable for acquisition of GoGoVan | - | 1,166,075 | 178,457 | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-6 |
58 Daojia Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data, unless otherwise noted)
1. Organization and principal activities
a. Background
58 Daojia Inc. (the "Company" or "58 Home"), through its consolidated subsidiaries, including wholly-foreign owned enterprises (“WFOEs”), variable interest entities ("VIEs") and VIEs’ subsidiaries (collectively, the "Group"), operates a mobile-based closed-loop transactional platform for home services, which directly connects consumers and individual service providers for local services such as domestic services, ad-hoc delivery services and platform services provided at home.
b. History of the Group and basis of presentation
The Company was incorporated in British Virgin Islands on January 26, 2015.
The Group began its operations in China in August 2014 through Tianjin 58 Home, a limited liability company registered in the People’s Republic of China (“PRC”) and founded by Mr. Xiaohua Chen, the CEO of the Group, Mr. Jinbo Yao, the CEO of 58.com Inc. and 58.Co. Ltd.
In July 2015, the Company, through Beijing 58 Home, entered into a series of contractual agreements with Tianjin 58 Home whereby Tianjin 58 Home became the 100% consolidated VIE of the Company (“the reorganization”) (See Note d.).
On November 27, 2015, the Company completed a Series A round of equity financing, with participation from Alibaba Group Holding Limited, global investment firm KKR, and Ping An Group. Following the closing of the Series A round of equity financing of the Company, 58.com Inc. held 87.9% of the total outstanding ordinary shares of the Company and 61.7% of the total outstanding shares of the Company on an as-converted basis.
In August 2017, the Company, through Tianjin Technology, entered into a series of contractual agreements with Tianjin Freight. As the Company held 77.78% of the shares of Tianjin Technology, it owns 77.78% equity interest of Tianjin Freight. (See Note d.)
58.com Inc. accounted for its investment in 58 Home using the equity method. As 58 Home is considered to be a significant equity method investee, its financial statements are included as an exhibit to the Annual Report of 58.com Inc. on Form 20-F in accordance with Securities and Exchange Commission (“SEC”) Rule 3-09 of Regulation S-X.
| F-7 |
58 Daojia Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, unless otherwise noted)
c. Major subsidiaries and VIEs
In 2017, the Company's major subsidiaries, VIEs and VIEs’ subsidiaries are as follows:
| Percentage of | ||||||||
| direct or indirect | ||||||||
| Date of | economic ownership | |||||||
| incorporation or | Place of | as of | ||||||
| Name | acquisition | incorporation | December 31, 2017 | |||||
| Subsidiaries of the Company: | ||||||||
| Beijing 58 Daojia Information Technology Co., Ltd. (“Beijing 58 Home”) | Incorporated on July 10, 2015 | The PRC | 100 | % | ||||
| 58 Daojia Holding Limited. (“Daojia Holding”) | Incorporated on February 12, 2015 | Hong Kong | 100 | % | ||||
| 58 Freight Inc. (“58 Freight”) | Incorporated on June 8, 2017 | Cayman Islands | 77.78 | % | ||||
| 58 Freight Holdings Limited (“Freight Holding”) | Incorporated on June 26, 2017 | Hong Kong | 77.78 | % | ||||
| Tianjiin 58 Daojia Technology Limited Company (“Tianjin Technology”) | Incorporated on July 26, 2017 | The PRC | 77.78 | % | ||||
| GoGo Energy Limited | Acquired on August 29, 2017 | Hong Kong | 77.78 | % | ||||
| GoGo Tech Limited | Acquired on August 29, 2017 | Hong Kong | 77.78 | % | ||||
| GoGoVan Singapore Pte Ltd. | Acquired on August 29, 2017 | Singapore | 77.78 | % | ||||
| GoGoVan Korea Corp | Acquired on August 29, 2017 | Korea | 77.78 | % | ||||
| VIEs and VIEs’ subsidiaries: | ||||||||
| Tianjin 58 Daojia Life Services Co., Ltd. (“Tianjin 58 Home”) | Incorporated on August 19, 2014 | The PRC | 100 | % | ||||
| 58 Daojia Co., Ltd. (“Changsha 58 Home”) | Incorporated on August 13, 2015 | The PRC | 100 | % | ||||
| Zhenjiang 58 Daojia Supply Chain Management Limited Company (“Zhenjiang Supply Chain”) | Incorporated on March 20, 2017 | The PRC | 77.78 | % | ||||
| Tianjiin 58 Daojia Freight Service Limited Company (“Tianjin Freight”) | Incorporated on July 10, 2017 | The PRC | 77.78 | % | ||||
| Shanghai GoGo Information Technology Limited Company | Acquired on August 29, 2017 | The PRC | 77.78 | % | ||||
| F-8 |
58 Daojia Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, unless otherwise noted)
d. Contractual arrangements with the Group’s VIEs
| (i) | Contractual Arrangements with Beijing 58 home |
The Company has through Beijing 58 Home entered into contractual arrangements with Tianjin 58 Home and its shareholders described below, which are referred to as the Tianjin 58 Home Agreements. Through the Tianjin 58 Home Agreements, Beijing 58 Home exercises control over the operations of Tianjin 58 Home and receives substantially all its economic benefits and residual returns. Through the exclusive business cooperation agreement between Beijing 58 Home and Tianjin 58 Home, Beijing 58 Home agrees to provide certain technical and business support and related consulting services to Tianjin 58 Home in exchange for service fees. In addition, pursuant to the exclusive option agreements, Tianjin 58 Home is prohibited from declaring and paying any dividends without Beijing 58 Home’s prior consent and Beijing 58 Home enjoys an irrevocable and exclusive option to purchase Tianjin 58 Home shareholders’ equity interests, to the extent permitted by applicable PRC laws, at a specified price equal to the loan amount provided by Beijing 58 Home to the shareholders. If the lowest price permitted under PRC law is higher than the above price, the lowest price permitted under PRC law shall apply. Through these arrangements, 58 Home can obtain all of the income and the residual interests of Tianjin 58 Home, such as undistributed earnings, either through dividend distributions or purchase of equity interests of Tianjin 58 Home from its existing shareholders. As a result of the contractual arrangements, 58 Home consolidates the financial results of Tianjin 58 Home in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). In July 2016, one shareholder of Tianjin 58 Home transferred his equity interest in Tianjin 58 Home to 58 Co., Ltd. As a result, Beijing 58 Home amended and restated its contractual arrangements with Tianjin 58 Home to reflect the change in shareholding of Tianjin 58 Home.
Exclusive Business Cooperation Agreement
Under the exclusive business cooperation agreement between Tianjin 58 Home and Beijing 58 Home, Beijing 58 Home has the exclusive right to provide, among other things, technical support and business support and related consulting services to Tianjin 58 Home and Tianjin 58 Home agrees to accept all the consultation and services provided by Beijing 58 Home. Without Beijing 58 Home’s prior written consent, Tianjin 58 Home is prohibited from engaging any third party to provide any of the services under this agreement. In addition, Beijing 58 Home exclusively owns all intellectual property rights arising out of or created during the performance of this agreement. Tianjin 58 Home agrees to pay a monthly service fee to Beijing 58 Home at an amount determined solely by Beijing 58 Home after taking into account factors including the complexity and difficulty of the services provided, the time consumed, the seniority of the Beijing 58 Home employees providing services to Tianjin 58 Home, the value of services provided, the market price of comparable services and the operating conditions of Tianjin 58 Home. This agreement will remain effective unless Beijing 58 Home terminates the agreement in writing or a competent governmental authority rejects the renewal applications by either Tianjin 58 Home or Beijing 58 Home to renew its respective business license upon expiration. Tianjin 58 Home is not permitted to terminate this agreement in any event unless required by applicable laws. Beijing 58 Home did not collect any service fee payments from Tianjin 58 Home in 2016 and 2017.
Powers of Attorney
Pursuant to the powers of attorney, the shareholders of Tianjin 58 Home each irrevocably appointed Beijing 58 Home as the attorney-in-fact to act on their behalf on all matters pertaining to Tianjin 58 Home and to exercise all of their rights as a shareholder of Tianjin 58 Home, including but not limited to attend shareholders’ meetings, vote on their behalf on all matters of Tianjin 58 Home requiring shareholders’ approval under PRC laws and regulations and the articles of association of Tianjin 58 Home, designate and appoint directors and senior management members. Beijing 58 Home may authorize or assign its rights under this appointment to any other person or entity at its sole discretion without prior notice to the shareholders of Tianjin 58 Home. Each power of attorney will remain in force until the shareholder ceases to hold any equity interest in Tianjin 58 Home.
| F-9 |
58 Daojia Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, unless otherwise noted)
Equity Interest Pledge Agreements
Under the equity interest pledge agreements between Beijing 58 Home, Tianjin 58 Home and the shareholders of Tianjin 58 Home, the shareholders pledged all of their equity interests in Tianjin 58 Home to Beijing 58 Home to guarantee Tianjin 58 Home’s and Tianjin 58 Home’s shareholders’ performance of their obligations under the contractual arrangements including, but not limited to, the payments due to Beijing 58 Home for services provided. If Tianjin 58 Home or any of Tianjin 58 Home’s shareholders breaches its contractual obligations under the contractual arrangements, Beijing 58 Home, as the pledgee, will be entitled to certain rights and entitlements, including receiving proceeds from the auction or sale of whole or part of the pledged equity interests of Tianjin 58 Home in accordance with legal procedures. Beijing 58 Home has the right to receive dividends generated by the pledged equity interests during the term of the pledge. If any event of default as provided in the contractual arrangements occurs, Beijing 58 Home, as the pledgee, will be entitled to dispose of the pledged equity interests in accordance with PRC laws and regulations. The pledge will become effective on the date when the pledge of equity interests contemplated in these agreements are registered with the relevant local administration for industry and commerce and will remain binding until Tianjin 58 Home and its shareholders discharges all their obligations under the contractual arrangements. These equity interest pledge agreements are registered with the Tianjin Binhai New Area Market and Quality Supervision and Administration Bureau on September 8, 2015.
Exclusive Option Agreements
Under the exclusive option agreements among Beijing 58 Home, Tianjin 58 Home and each of the shareholders of Tianjin 58 Home, each of the shareholders irrevocably granted Beijing 58 Home or its designated representative(s) an exclusive option to purchase, to the extent permitted under PRC law, all or part of his, her or its equity interests in Tianjin 58 Home. In addition, Beijing 58 Home has the option to acquire all the equity interests held by the shareholders in Tianjin 58 Home at a specified price equal to the loan amount provided by Beijing 58 Home to the individual shareholders. At the moment, 58 Home cannot exercise the exclusive options to purchase the current shareholders’ equity interests in Tianjin 58 Home due to the PRC regulatory restrictions on foreign ownership in the value-added telecommunications services. 58 Home may exercise the options if China opens up these industries to foreign investment.
Loan Agreements
Pursuant to the loan agreements between Beijing 58 Home and each individual shareholder of Tianjin 58 Home, Beijing 58 Home would provide interest-free loans with an aggregate amount of approximately RMB100 million to the individual shareholders of Beijing 58 Home for the sole purpose of funding the capital increase of Tianjin 58 Home. The loans can be repaid by transferring the individual shareholders’ equity interest in Tianjin 58 Home to Beijing 58 Home or its designated person pursuant to Exclusive Option Agreements. The term of each loan agreement is ten years from the date of the agreement expiring on August 25, 2025 and can be extended with the written consent of both parties before expiration.
| F-10 |
58 Daojia Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, unless otherwise noted)
| (ii) | Contractual arrangements with Tianjin Technology |
The Company has through Tianjin Technology entered into contractual arrangements with Tianjin Freight and its shareholders described below, which are referred to as the Tianjin Freight Agreements. Through the Tianjin Freight Agreements, Tianjin Technology exercises control over the operations of Tianjin Freight and receives substantially all its economic benefits and residual returns. Through the exclusive business cooperation agreement between Tianjin Technology and Tianjin Freight, Tianjin Technology agrees to provide certain technical and business support and related consulting services to Tianjin Freight in exchange for service fees. In addition, pursuant to the exclusive option agreements, Tianjin Freight is prohibited from declaring and paying any dividends without Tianjin Technology’s prior consent and Tianjin Technology enjoys an irrevocable and exclusive option to purchase Tianjin Freight shareholders’ equity interests, to the extent permitted by applicable PRC laws, at a specified price equal to zero or the lowest price permitted under PRC law. Through these arrangements, 58 Home can obtain all of the income and the residual interests of Tianjin Freight, such as undistributed earnings, either through dividend distributions or purchase of equity interests of Tianjin Freight from its existing shareholders. As a result of the Tianjin Freight Agreements, 58 Home consolidates the financial results of Tianjin Freight in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”).
Exclusive Business Cooperation Agreement
Under the exclusive business cooperation agreement between Tianjin Freight and Tianjin Technology, Tianjin Technology has the exclusive right to provide, among other things, technical support and business support and related consulting services to Tianjin Freight and Tianjin Freight agrees to accept all the consultation and services provided by Tianjin Technology. Without Tianjin Technology’s prior written consent, Tianjin Freight is prohibited from engaging any third party to provide any of the services under this agreement. In addition, Tianjin Technology exclusively owns all intellectual property rights arising out of or created during the performance of this agreement. Tianjin Freight agrees to pay service fee to Tianjin Technology at an amount determined solely by Tianjin Technology after taking into account factors including the complexity and difficulty of the services provided, the time consumed, the seniority of the Tianjin Technology employees providing services to Tianjin Freight, the value of services provided, the market price of comparable services and the operating conditions of Tianjin Freight. This agreement will remain effective unless Tianjin Technology terminates the agreement in writing or either the expiration of the operation period of Tianjin Freight or Tianjin Technology. Tianjin Freight is not permitted to terminate this agreement in any event unless required by applicable laws. Tianjin Technology did not collect any service fee payments from Tianjin Freight in 2017.
Powers of Attorney
Pursuant to the powers of attorney, the shareholders of Tianjin Freight each irrevocably appointed Tianjin Technology as the attorney-in-fact to act on their behalf on all matters pertaining to Tianjin Freight and to exercise all of their rights as a shareholder of Tianjin Freight, including but not limited to attend shareholders’ meetings, vote on their behalf on all matters of Tianjin Freight requiring shareholders’ approval under PRC laws and regulations and the articles of association of Tianjin Freight, designate and appoint directors and senior management members. Tianjin Technology may authorize or assign its rights under this appointment to any other person or entity at its sole discretion without prior notice to the shareholders of Tianjin Freight. Each power of attorney will remain in force until the shareholder ceases to hold any equity interest in Tianjin Freight.
| F-11 |
58 Daojia Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, unless otherwise noted)
Equity Interest Pledge Agreements
Under the equity interest pledge agreements between Tianjin Technology, Tianjin Freight and the shareholders of Tianjin Freight, the shareholders pledged all of their equity interests in Tianjin Freight to Tianjin Technology to guarantee Tianjin Freight’s and its shareholders’ performance of their obligations under the Tianjin Freight Agreements including, but not limited to, the payments due to Tianjin Technology for services provided. If Tianjin Freight or any of Tianjin Freight’s shareholders breaches its contractual obligations under the Tianjin Freight Agreements, Tianjin Technology, as the pledgee, will be entitled to certain rights and entitlements, including receiving proceeds from the auction or sale of whole or part of the pledged equity interests of Tianjin Freight in accordance with legal procedures. Tianjin Technology has the right to receive dividends generated by the pledged equity interests during the term of the pledge. If any event of default as provided in the Tianjin Freight Agreements occurs, Tianjin Technology, as the pledgee, will be entitled to dispose of the pledged equity interests in accordance with PRC laws and regulations. The pledge will become effective on the date when the pledge of equity interests contemplated in these agreements are registered with the relevant local administration for industry and commerce and will remain binding until Tianjin Technology has exercised the right of pledge under the equity interest pledge agreement or Tianjin Freight and its shareholders discharges all their obligations under the Tianjin Freight Agreements.
Exclusive Option Agreements
Under the exclusive option agreements among Tianjin Technology, Tianjin Freight and each of the shareholders of Tianjin Freight, each of the shareholders irrevocably granted Tianjin Technology or its designated representative(s) an exclusive option to purchase, to the extent permitted under PRC law, all or part of his, her or its equity interests in Tianjin Freight. In addition, Tianjin Technology has the option to acquire all the equity interests held by the shareholders in Tianjin Freight at the less of zero and the lowest price permitted under PRC law. At the moment, Tianjin Technology cannot exercise the exclusive options to purchase the current shareholders’ equity interests in Tianjin Freight due to the PRC regulatory restrictions on foreign ownership in the value-added telecommunications services. Tianjin Technology may exercise the options if China opens up these industries to foreign investment.
Loan Agreements
Pursuant to the loan agreements between Tianjin Technology and each individual shareholder of Tianjin Freight, Tianjin Technology provided interest-free loans with an aggregate amount of approximately RMB1 million to the individual shareholders of Tianjin Freight for the sole purpose of funding the capital increase of Tianjin Freight. The loans can be repaid by transferring the individual shareholders’ equity interest in Tianjin Freight to Tianjin Technology or its designated person pursuant to Exclusive Option Agreements. The term of each loan agreement is five years from the date of the agreement expiring on July 28, 2022 and can be extended with the written consent of both parties before expiration.
| F-12 |
58 Daojia Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, unless otherwise noted)
Risks in Relation to the VIE Structure
As of December 31, 2017, the aggregate accumulated losses of VIEs and VIEs’ subsidiaries of Tianjin 58 Home and 58 Freight were RMB1,255,410 which has been included in the consolidated financial statements.
The following financial statement amounts and balances of the Group's VIEs and VIEs’ subsidiaries were included in the accompanying consolidated financial statements as of December 31, 2016 and 2017 and for the years ended December 31, 2016 and 2017. All intercompany transactions have been eliminated in consolidated financial statements.
| As of December 31, | ||||||||
| 2016 | 2017 | |||||||
| RMB | RMB | |||||||
| Cash | 21,183 | 241,305 | ||||||
| Short-term investments | 352,000 | - | ||||||
| Accounts receivable, net | 2,555 | 28,417 | ||||||
| Inter-company receivable | - | 34,336 | ||||||
| Prepayments and other current assets | 40,931 | 106,602 | ||||||
| Property and equipment, net | 7,437 | 4,546 | ||||||
| Long-term investments | 30,900 | 51,150 | ||||||
| Intangible assets, net | 3,482 | 83,131 | ||||||
| Long-term prepayments | 341 | 1,100 | ||||||
| Total assets | 458,829 | 550,587 | ||||||
| Accounts payable | 1,044 | 22,948 | ||||||
| Customer advances | 690 | 12,406 | ||||||
| Taxes payable | 5,119 | 7,371 | ||||||
| Salary and welfare payable | 9,758 | 15,605 | ||||||
| Inter-company payable | 486,513 | 647,534 | ||||||
| Accrued expenses and other current liabilities | 141,922 | 272,036 | ||||||
| Deferred tax liabilities | - | 20,771 | ||||||
| Total liabilities | 645,046 | 998,671 | ||||||
| For the year ended December 31, | ||||||||
| 2016 | 2017 | |||||||
| RMB | RMB | |||||||
| Revenue | 35,149 | 246,588 | ||||||
| Net loss | (220,897 | ) | (260,609 | ) | ||||
| Net cash provided by/(used in) operating activities | 373,990 | (175,566 | ) | |||||
| Net cash (used in)/provided by investing activities | (375,525 | ) | 345,298 | |||||
| Net cash provided by financing activities | - | 126,686 | ||||||
Under the contractual arrangements with the VIEs and through its respective equity interest in its subsidiary, the Group has the power to direct activities of the VIEs and the VIEs’ subsidiaries and direct the transfer of assets out of the VIEs and the VIEs’ subsidiaries. Therefore the Group considers that there is no asset of the VIEs and the VIEs’ subsidiaries that can be used only to settle their obligations. As the consolidated VIEs and VIEs’ subsidiaries are incorporated as limited liability companies under the PRC Company Law, the creditors do not have recourse to the general credit of the Company for the liabilities of the consolidated VIEs and the VIEs’ subsidiaries.
| F-13 |
58 Daojia Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, unless otherwise noted)
The Group believes that the contractual arrangements among VIEs, its respective shareholders and relevant WFOE are in compliance with PRC law and are legally enforceable. However, uncertainties in the PRC legal system could limit the Company’s ability to enforce these contractual arrangements and if the shareholders of VIEs were to reduce their interest in the Company, their interests may diverge from that of the Company and that may potentially increase the risk that they would seek to act contrary to the contractual terms.
Through the design of the power of attorney agreements, the shareholders of the VIEs effectively assigned their full voting rights to WFOE, which gives WFOE the power to direct the activities of VIEs and VIEs’ subsidiaries. As noted above, the Company believes this power of attorney is legally enforceable but may not be as effective as direct equity ownership.
It is possible that the Group’s operation of certain of its businesses through the VIEs could be found by PRC authorities to be in violation of PRC law and regulations prohibiting or restricting foreign ownership of companies that engage in such operations and businesses. While the Group’s management considers the possibility of such a finding by PRC regulatory authorities under current PRC law and regulations to be remote, on January 19, 2015, the Ministry of Commerce of the PRC, or (the “MOFCOM”) released on its Website for public comment a proposed PRC law (the “Draft FIE Law”) that appears to include VIEs within the scope of entities that could be considered to be foreign invested enterprises (or “FIEs”) that would be subject to restrictions under existing PRC law and regulations on foreign investment in certain categories of industry. Specifically, the Draft FIE Law introduces the concept of “actual control” for determining whether an entity is considered to be an FIE. In addition to control through direct or indirect ownership or equity, the Draft FIE Law includes control through contractual arrangements within the definition of “actual control.” If the Draft FIE Law is passed by the People’s Congress of the PRC and goes into effect in its current form, these provisions regarding control through contractual arrangements could be construed to apply to the Group’s VIE arrangements, and as a result the Group’s VIEs could become explicitly subject to the current restrictions on foreign investment in certain categories of industries. The Draft FIE Law includes provisions that would exempt from the definition of foreign invested enterprises entities where the ultimate controlling shareholders are either entities organized under PRC law or individuals who are PRC citizens. The Draft FIE Law is silent as to what type of enforcement action might be taken against existing VIEs that operate in restricted or prohibited industries and are not controlled by entities organized under PRC law or individuals who are PRC citizens. If a finding were made by PRC authorities, under existing law and regulations or under the Draft FIE Law if it becomes effective, that the Group’s operation of certain of its operations and businesses through the VIE is prohibited, the regulatory authorities with jurisdiction over the licensing and operation of such operations and businesses would have broad discretion in dealing with such a violation, including levying fines, confiscating the Group’s income, revoking the business or operating licenses of the affected businesses, requiring the Group to restructure its ownership structure or operations, or requiring the Group to discontinue any or all portion of its operations. Any of these actions could cause significant disruption to the Group’s business operations, and have a severe adverse impact on the Group’s cash flows, financial position and operating performance.
| F-14 |
58 Daojia Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, unless otherwise noted)
In addition, if the legal structure and contractual arrangements were found to be in violation of any other existing PRC laws and regulations, the PRC government could:
| • | revoke the Group’s business and operating licenses; |
| • | require the Group to discontinue or restrict operations; |
| • | restrict the Group’s right to collect revenues; |
| • | block the Group’s websites; |
| • | require the Group to restructure the operations in such a way as to compel the Group to establish a new enterprise, re-apply for the necessary licenses or relocate its businesses, staff and assets; |
| • | impose additional conditions or requirements with which the Group may not be able to comply; or |
| • | take other regulatory or enforcement actions against the Group that could be harmful to the Group’s business. |
The imposition of any of these penalties may result in a material and adverse effect on the Group’s ability to conduct the Group’s business. In addition, if the imposition of any of these penalties causes the Group to lose the right to direct the activities of any of the VIEs (through its equity interest in its subsidiaries) or the right to receive their economic benefits, the Group would no longer be able to consolidate the relevant VIE and its subsidiaries, if any. In the opinion of management, the likelihood of loss in respect of the Group's current ownership structure or the contractual arrangements with its VIEs is remote.
There is no VIE for which the Company has variable interest but is not the primary beneficiary.
Currently there is no contractual arrangement that could require the Company to provide additional financial support to VIEs. As the Company is conducting its business mainly through VIEs, the Company may provide such support on a discretionary basis in the future, which could expose the Company to a loss.
The Company’s VIEs’ assets are comprised of recognized and unrecognized revenue-producing assets. The recognized revenue producing assets mainly include purchased servers, which were in the line of “Property and equipment, net” in the table above. The unrecognized revenue-producing assets mainly consist of the Internet Content Provider license (“ICP” license), trademarks, copyrights and registered patents, which have no recorded value.
The VIEs’ business operations rely in part on the technologies covered by the registered patents to generate revenues. Such technologies include (1) the data verification and processing technology used to verify and process local merchant information; (2) the data researching technology provided to end-users enable them to find the exact information they want in the shortest time; (3) the data publishing technology provided to merchants to help them to publish their service information more efficiently.
| F-15 |
58 Daojia Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, unless otherwise noted)
e. Liquidity
The Group's consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities during the normal course of operations. The Group incurred net loss of RMB1,015,209 and RMB769,839 during the years ended December 31, 2016 and 2017, respectively, and the net cash used in operating activities was RMB690,058 and RMB527,840 during the year ended December 31, 2016 and 2017, respectively. Accumulated deficit was RMB1,817,626 and RMB2,553,278 as of December 31, 2016 and 2017, respectively. As of December 31, 2017, the Group’s total current assets exceeded the current liabilities by RMB148,819. The Group believes that the available cash, term deposits and cash generated from operations will be sufficient to meet the working capital requirements and capital expenditures in the ordinary course of business for the next twelve months. The Group regularly monitors current and expected liquidity requirements to ensure that it maintains sufficient cash balances to meet its liquidity requirements in the short and long term. The Group has adopted Accounting Standards Update (“ASU”) No.2014-15 “Presentation of Financial Statements – Going Concern” which addresses management’s responsibility to evaluate whether there is a substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures if the substantial doubt exists. Based on the Group’s operating plan without considering any mitigating plan as discussed in ASU No. 2014-15, or any guarantee by related party, the management is of the opinion that, the Group’s current cash and anticipated cash flow from operations provide sufficient funds to meet the working capital requirements to fund planned operations and other commitments for at least the next twelve months from the date the consolidated financial statements for the year ended December 31, 2017 are issued. As a result, the consolidated financial statements of the Group for the year ended December 31, 2017 have been prepared on a going concern basis.
2. Principal accounting policies
| (a) | Principles of consolidation |
The consolidated financial statements of the Group have been prepared in accordance with U.S. GAAP. The consolidated financial statements include the financial statements of the Company, its subsidiaries, the VIEs and VIEs’ subsidiaries for which the Company is the ultimate primary beneficiary.
Subsidiaries are those entities in which the Company, directly or indirectly, controls more than one half of the voting power; or has the power to govern the financial and operating policies, to appoint or remove the majority of the members of the board of directors, or to cast a majority of votes at the meeting of directors.
A 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 significant transactions and balances among the Company, its subsidiaries, the VIEs and VIEs’ subsidiaries have been eliminated upon consolidation.
| (b) | Use of estimates |
The preparation of the Group’s consolidated financial statements in conformity with the U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities. Actual results could differ materially from those estimates. Significant accounting estimates reflected in the Group’s consolidated financial statements mainly include the determination of the fair value of identifiable assets and liabilities acquired through business combination, the determination of the fair value of mezzanine equity, the valuation allowance of deferred tax assets, the determination of uncertain tax position, the valuation and recognition of share-based compensation, impairment of long-term investments and other long-lived assets and the determination of the estimated useful lives of property and equipment and intangible assets.
| F-16 |
58 Daojia Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, unless otherwise noted)
| (c) | Functional currency and foreign currency translation |
The functional currency of the Company and its subsidiaries incorporated outside of PRC is the United States dollar (“US$”), while the functional currency of the PRC entities in the Group is Chinese Renminbi ("RMB") as determined based on ASC 830, “Foreign Currency Matters”. Effective December 31, 2017, the Group changed its reporting currency from US$ to RMB. Assets and liabilities are translated at the exchange rates on the balance sheet date, equity amounts are translated at historical exchange rates, and revenues, expenses, gains and losses are translated using the average rate for the periods. Translation adjustments arising from these are reported as foreign currency translation adjustments and are shown as a component of other comprehensive loss in the consolidated statement of changes in shareholders’ deficit. Total foreign currency translation loss adjustments, net of nil tax were RMB61,517 for the year ended December 31, 2016. Total foreign currency translation gain adjustments, net of nil tax was RMB86,634 for the year ended December 31, 2017.
Foreign currency transactions denominated in currencies other than the functional currency are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are included in the consolidated statements of comprehensive income/(loss). Total foreign currency exchange loss was RMB2,526 for the year ended December 31, 2016 and total foreign currency exchange gain was RMB642 for the year ended December 31, 2017.
Translations of amounts from RMB into US$ for the convenience of the reader were calculated at the exchange rate of RMB6.5342 per US$1.00, the middle rate on December 29, 2017, the last business day in fiscal year 2017, as published on the website of the State Administration of Foreign Exchange of the PRC. No representation is made that the RMB amounts could have been, or could be converted into U.S. dollars at such rate.
| (d) | Fair value of financial instruments |
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 measurements 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
The Group’s financial instruments mainly include term deposits, short-term investments, accounts receivable, accounts payable, customer advances, and accrued expenses and other current liabilities. The carrying value of the Company’s short-term financial instruments approximates their fair value because of their short maturities. The Company measures certain financial assets, including the investments under the cost method, intangible assets and fixed assets on other-than-temporary basis, which are marked to fair value when an impairment charge is recognized. Please see Note 13 for additional information.
| F-17 |
58 Daojia Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, unless otherwise noted)
| (e) | Cash and cash equivalents |
Cash and cash equivalents represent cash on hand, demand deposits and highly liquid investments placed with banks or other financial institutions, which are unrestricted as to withdrawal or use, and which have original maturities of three months or less and are readily convertible to known amounts of cash. As of December 31, 2016 and 2017, majority of the Group’s cash and cash equivalents were held by major financial institutions located in the PRC and Hong Kong which management believes are of high credit quality.
| (f) | Term deposits |
Term deposits represent time deposits placed with banks with original maturities of more than three months. Interest earned is recorded as interest income in the consolidated statements of comprehensive income/(loss) during the periods presented.
| (g) | Short-term investments |
Short-term investments include wealth management products with variable interest rates which were purchased from commercial banks. The Group carries these investments at fair value. Changes in the fair value are reflected in the consolidated statements of comprehensive income/(loss) as investment income. Fair value is estimated based on quoted prices of similar products provided by banks at the end of each period. The Group classifies the valuation techniques that use these inputs as Level 2 of fair value measurements. Please see Note 13 for additional information.
| (h) | Accounts receivable, net |
The carrying value of accounts receivable is reduced by an allowance that reflects the Group’s best estimate of the amounts that will not be collected. The Group makes estimations for the collectability of accounts receivable considering many factors including but not limited to reviewing accounts receivable balances, historical bad debt rates, accounts aging, repayment patterns, customer credit worthiness, financial conditions of the customers and industry trend analysis, resulting in their inability to make payments due to the Group. An accounts receivable is written off after all collection effort has ceased. The Group recognized RMB nil and RMB123 allowance for doubtful accounts for the years ended December 31, 2016 and 2017, respectively.
| (i) | Property and equipment, net |
Property and equipment are stated at cost less accumulated depreciation and impairment. Property and equipment are depreciated over the estimated useful lives on a straight-line basis. The estimated useful lives are as follows:
| Computers and equipment | 3 years |
| Furniture and fixtures | 5 years |
| Leasehold improvements |
Over the shorter of lease terms or the estimated useful lives of assets |
| Software | 1-3 years |
| Vehicles | 4 years |
Expenditures for maintenance and repairs are expensed as incurred. The gain or loss on the disposal of property and equipment is the difference between the net sales proceeds and the carrying amount of the relevant assets and is recognized under others, net in the consolidated statements of comprehensive income/(loss).
| (j) | Intangible assets, net |
Intangible assets acquired through business acquisitions are recognized as assets separate from goodwill if they satisfy either the "contractual legal" or "separability" criterion. Intangible assets purchased are recognized and measured at fair value upon acquisition.
| F-18 |
58 Daojia Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, unless otherwise noted)
Intangible assets with finite lives are carried at cost less accumulated amortization. Separately identifiable intangible assets that have determinable lives continue to be amortized over their estimated useful lives using the straight-line method as follows:
| Domain names | 3 - 10 years |
| Software | 3 years |
| Trademark | 10 years |
| Customer relationship | 6 years |
| License | 15 years |
Intangible assets with infinite lives are evaluated to determine the fair value annually. An impairment loss is recognized if the carrying amount exceeds the fair value. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of any impairment loss for identifiable intangible assets is based on the amount by which the carrying amount of the assets exceeds the fair value of the asset. Accordingly the Group recognized RMB nil and RMB2,696 impairment loss of intangible assets for the years ended December 31, 2016 and 2017, respectively.
| (k) | Goodwill |
Goodwill represents the excess of the purchase consideration over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed of the acquired entity as a result of the Company's acquisitions of interests in its subsidiaries and VIEs. Goodwill is not amortized but is tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that it might be impaired. The Company first assesses qualitative factors to determine whether it is necessary to perform the two step quantitative goodwill impairment test. In the qualitative assessment, the Company considers primary factors such as industry and market considerations, overall financial performance of the reporting unit, and other specific information related to the operations. Based on the qualitative assessment, if it is more likely than not that the fair value of each reporting unit is less than the carrying amount, the quantitative impairment test is performed.
In performing the two step quantitative impairment test, the first step is to compare the fair values of each reporting unit to its carrying amount, including goodwill. If the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required. If the carrying amount of a reporting unit exceeds its fair value, the second step is to compare the implied fair value of goodwill to the carrying value of a reporting unit's goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a business combination with the allocation of the assessed fair value determined in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. This allocation process is only performed for the purposes of evaluating goodwill impairment and does not result in an entry to adjust the value of any assets or liabilities. Application of a goodwill impairment test requires significant management judgment, including the identification of reporting units, assigning assets, liabilities and goodwill to reporting units, and determining the fair value of each reporting unit.
The Group performs impairment tests in the fourth quarter of each year. No impairment loss was recognized for all periods presented.
| (l) | Long-term investments |
Long-term investments represent the Group’s investments in privately held companies.
In accordance with ASC 323 “Investment-Equity Method and Joint Ventures”, the Group applies the equity method of accounting to equity investments, in common stock or in-substance common stock, over which it has significant influence but does not own a majority equity interest or otherwise control.
| F-19 |
58 Daojia Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, unless otherwise noted)
An investment in in-substance common stock is an investment 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.
As the Group's investments were not considered as in-substance common stock and have no readily determinable fair value, the cost method of accounting is used.
The Company assesses its long-term investments accounted for under the cost method for other-than-temporary impairment by considering factors including, but not limited to, current economic and market conditions, operating performance of the companies, including current earnings trends and undiscounted cash flows, and other company-specific information, such as recent financing rounds. The fair value determination, particularly for investments in privately-held companies whose revenue model is still evolving, requires significant judgment to determine appropriate estimates and assumptions. Changes in these estimates and assumptions could affect the calculation of the fair value of the investments and the determination of whether any identified impairment is other-than-temporary. If any impairment is considered other-than-temporary, the Company will write down the asset to its fair value and take the corresponding change to the consolidated comprehensive income/(loss).
The Group performs impairment assessment of its investments under the cost method and equity method whenever events or changes in circumstances indicate that the carrying value of the investment may not be fully recoverable. Impairment charges in connection with the cost method investments of RMB69,049 and RMB19,040 were recorded in the consolidated statements of comprehensive loss for the years ended December 31, 2016 and 2017, respectively.
| (m) | Customer advances |
Customers pay in advance for domestic services. The cash proceeds received from customers are initially recorded as customer advances and then transferred to revenues when the services are provided.
| (n) | Impairment of other long-lived assets |
The carrying amounts of long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of assets to future undiscounted net cash flows expected to be generated by the assets. Such assets are considered to be impaired if the sum of the expected undiscounted cash flow is less than the carrying amount of the assets. The impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets. No impairment of other long-lived assets was recognized for the years ended December 31, 2016 and 2017, respectively.
| (o) | Revenue recognition |
Revenue is recognized when persuasive evidence of an arrangement exists, service has been rendered, the price is fixed or determinable and collectability is reasonably assured. Revenue is deferred until these criteria are met as described below.
Revenue presented in the consolidated statements of comprehensive income/(loss) include revenue from domestic services primarily consisting of cleaning services and nursing services, ad-hoc delivery services and platform services. For revenue contract in which 58 Home was assessed as primary obligor, revenue is recognized on gross basis, while for revenue contracts, in which 58 Home was assessed as agent, revenue is recognized on net basis.
| F-20 |
58 Daojia Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, unless otherwise noted)
The Group earns commission revenue from service providers for cleaning services orders, ad-hoc delivery orders and other service orders placed through the Group’s website and mobile platforms. Commission revenue is recognized upon the completion of the services provided by the services providers. The commission is generally determined based on certain percentage of service fees charged by service providers.
For nursing services, the Group earns service fees from nurses and end customers. Service revenue from nurses is recognized when the Group successfully helps nurses match with end customers. Service revenue from end consumers is recognized ratably over the contract period when nursing services are provided.
| (p) | Cost of revenues |
Costs of revenues mainly consist of costs associated with the production and operation of websites and app, which include fees paid to third parties for internet connection and services, insurance cost, payroll-related expenses, equipment depreciation associated with the website production and operation, etc.
| (q) | Advertising expenses |
Advertising expenses are generally prepaid to the third parties for television, internet and outdoor advertising services. Advertising costs are expensed when the services are received. For the years ended December 31, 2016 and 2017, advertising expenses recognized under sales and marketing expenses in the consolidated statements of comprehensive loss were RMB132,203 and RMB195,807, respectively.
| (r) | Research and development expenses |
Research and development expenses mainly consist of personnel, rent and depreciation expenses associated with the development of and enhancement to the Group’s websites and expenses associated with research and development. The research and development expenses are expensed as incurred for all the periods presented.
Costs incurred for the preliminary project stage of internal use software are expensed when incurred in research and development expenses. Costs incurred during the application development stage are capitalized when certain criteria are met as stated in ASC 350-40. Costs incurred during the post-implementation-operation stage are also expensed as incurred. As the period qualified for capitalization has historically been very short and the development costs incurred during this period have been insignificant, development costs of internal use software to date have been expensed when incurred.
| (s) | Operating leases |
Leases where substantially all the rewards and risks of ownership of assets remain with the lessors are accounted for as operating leases. Payments made under operating leases are charged to the operating expenses in the consolidated statements of comprehensive income/(loss) on a straight-line basis over the terms of underlying lease.
| (t) | Share-based compensation |
The Group has incentive plans for the granting of share based awards, including share options and restricted shares (“RSs”), to its employees and directors. Share-based compensation expenses are recognized as costs and expenses on a straight-line basis over the vesting period in the consolidated statements of comprehensive income/(loss) based on the fair value of the related share-based awards on their grant date, if no performance conditions are required. Under ASC 718, compensation cost should be accrued if it is probable that the performance condition will be achieved and should not be accrued if it is not probable that the performance condition will be achieved. As a result, the Group recognizes no compensation expense for share-based awards with performance conditions unless the performance conditions become probable of being achieved.
| F-21 |
58 Daojia Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, unless otherwise noted)
The Group uses the binominal option pricing model to determine the fair value of share options and account for share-based compensation expenses using an estimated forfeiture rate at the time of grant and revising the rate, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. Share-based compensation expenses are recorded net of estimated forfeitures such that expenses are recorded only for those share-based awards that are expected to vest.
See Note 17 for further information regarding share-based compensation assumptions and expenses.
| (u) | Income taxes |
Current income taxes are provided on the basis of net income for financial reporting purposes, adjusted for income and expense items which are not assessable or deductible for income tax purposes, in accordance with the regulations of the relevant tax jurisdictions. Deferred income taxes are provided using the asset and liability method. Under this method, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes. The effect on deferred taxes of a change in tax rates is recognized under income tax expense in the consolidated statements of comprehensive income/(loss) in the period of change. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all of the deferred tax assets will not be realized.
Uncertain tax positions
The guidance prescribes a more likely than not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Guidance was also provided on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.
In order to assess uncertain tax positions, the Group applies a more likely than not threshold and a two-step approach for the tax position measurement and financial statement recognition. Under the two-step approach, the first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. Significant judgment is required in evaluating the Group’s uncertain tax positions and determining its provision for income taxes. The Group recognizes interest and penalties, if any, under accrued expenses and other current liabilities on its consolidated balance sheets and under others, net in its statements of comprehensive income/(loss). The Group did not have any interest or penalties associated with tax positions as of December 31, 2016 and 2017. As of December 31, 2016 and 2017, the Group did not have any significant unrecognized uncertain tax positions.
| (v) | Employee benefits |
Full-time employees of the Group in mainland China are entitled to staff welfare benefits including pension, work-related injury benefits, maternity insurance, medical insurance, unemployment benefit and housing fund plans through a PRC government-mandated defined contribution plan. Chinese labor regulation requires that the Group makes contributions to the government for these benefits based on certain percentage of the employees’ salaries, up to a maximum amount specified by the local government. Currently, the Group is paying contributions to the social insurance plan for all full-time employees and to the housing fund plans for some employees, but the amounts paid for these employees may not be sufficient as required by the PRC laws and regulations, for which the Group have made provision based on its best estimate. The Group has no legal obligation for the benefits beyond the required contributions.
The Group recorded employee benefit expenses of RMB67,442 and RMB96,210 for the years ended December 31, 2016 and 2017, respectively.
| F-22 |
58 Daojia Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, unless otherwise noted)
| (w) | Government grants |
Grants from the government are recognized at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions.
Government grants relating to costs are deferred and recognized under others, net in the consolidated statements of comprehensive income/(loss) over the period necessary to match them with the costs that they are intended to compensate.
Government grants relating to the property, plant and equipment and other non-current assets are presented in the consolidated balance sheet by deducting the grants in arriving at the assets carrying amount and are credited to operating expenses in the consolidated statements of comprehensive income/(loss) on a straight-line basis over the expected lives of the related assets.
For the years ended December 31, 2016 and 2017, the Group recognized government grants of RMB14,523 and RMB10,860, respectively, as other, net in the consolidated statements of comprehensive loss.
| (x) | Ordinary shares |
The Company accounts for repurchased ordinary shares under the cost method and includes such treasury stock as a component of the common shareholders’ equity. Cancellation of treasury stock is recorded as a reduction of ordinary shares, additional paid-in capital and retained earnings, as applicable. An excess of purchase price over par value is allocated to additional paid-in capital first with any remaining excess charged entirely to retained earnings.
| (y) | Business combination, noncontrolling interests and mezzanine classified noncontrolling interests |
The Company accounts for its business combinations using the acquisition method of accounting in accordance with ASC 805 "Business Combinations". The cost of an acquisition is measured as the aggregate of the acquisition date fair values of the assets transferred and liabilities incurred by the Company to the sellers and equity instruments issued. Transaction costs directly attributable to the acquisition are expensed as incurred. Identifiable assets and liabilities acquired or assumed are measured separately at their fair values as of the acquisition date. The excess of (i) the total costs of acquisition, fair value of the noncontrolling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference will be recognized directly in the consolidated statements of comprehensive income/(loss). During the measurement period, which can be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of comprehensive income/(loss).
In a business combination achieved in stages, the Company remeasures the previously held equity interest in the acquiree immediately before obtaining control at its acquisition date fair value and the remeasurement gain or loss, if any, is recognized in the consolidated statements of comprehensive income/(loss).
| (z) | Statutory reserves |
The Group’s PRC subsidiaries, the VIEs and VIEs’ subsidiaries in China are required to make appropriations to certain non-distributable reserve funds.
| F-23 |
58 Daojia Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, unless otherwise noted)
In accordance with China’s Company Laws, the Company’s PRC subsidiary, the VIEs and VIEs’ subsidiaries that are Chinese companies, must make appropriations from their after-tax profit as determined under the Accounting Standards for Business Enterprises as promulgated by the Ministry of Finance of the People’s Republic of China (“PRC GAAP”) to non-distributable reserve funds including (i) statutory surplus fund and (ii) discretionary surplus fund. The appropriation to the statutory surplus fund must be at least 10% of the after-tax profits calculated in accordance with PRC GAAP. Appropriation is not required if the statutory surplus fund has reached 50% of the registered capital of the respective company. Appropriation to the discretionary surplus fund is made at the discretion of the respective company.
Pursuant to the laws applicable to China’s Foreign Investment Enterprises, the Company’s subsidiaries that are foreign investment enterprises in China have to make appropriations from their after-tax profit as determined under PRC GAAP to reserve funds including (i) general reserve fund, (ii) enterprise expansion fund and (iii) 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 reserve fund has reached 50% of the registered capital of the respective company. Appropriations to the other two reserve funds are at the respective company’s discretion. The use of the general reserve fund, statutory surplus fund and discretionary surplus fund are restricted to the offsetting of losses to increase the registered capital of the respective company. These reserves are not allowed to be transferred out as cash dividends, loans or advances, nor can they be distributed except under liquidation.
As of December 31, 2017, the Group’s PRC entities were in an accumulated loss position and no statutory reserve was made accordingly.
| (aa) | Related parties |
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or significant influence of the same party, such as a family member or relative, shareholder, or a related corporation.
| (ab) | Comprehensive income/(loss) |
Comprehensive income/(loss) is defined as the change in equity of the Group during a period arising from transactions and other events and circumstances excluding transactions resulting from investments by shareholders and distributions to shareholders. Comprehensive income/(loss) is reported in the consolidated statements of comprehensive income/(loss). Accumulated other comprehensive income/(loss), as presented on the accompanying consolidated balance sheets, consists of accumulated foreign currency translation adjustment, net of tax.
| (ac) | Recently issued accounting pronouncements |
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”. This guidance supersedes current guidance on revenue recognition in Topic 605, “Revenue Recognition”. In addition, there are disclosure requirements related to the nature, amount, timing, and uncertainty of revenue recognition. In August 2015, the FASB issued ASU No. 2015-14 to defer the effective date of ASU No. 2014-09 for all entities by one year. For publicly-traded business entities that follow U.S. GAAP, the deferral results in the new revenue standards’ being effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted for interim and annual periods beginning after December 15, 2016. The Group will apply the new revenue standard under the modified retrospective approach, effective January 1, 2018. The cumulative effect of initially applying the guidance will be recognized at the date of initial application. The Group analyzed each category of the revenues in accordance with the new revenue standard to determine the impact on its consolidated financial statements. The Group is continuing to analyse each category of its revenues in accordance with ASU No. 2014-09 (including those subsequently issued updates that clarify ASU 2014-09’s provisions) to determine the impact on its consolidated financial statements. Based on the current analysis, the Group does not expect the adoption of the new revenue standard to have a material adjustment recorded on January 1, 2018.
| F-24 |
58 Daojia Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, unless otherwise noted)
In January 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities”, which provides guidance for the recognition, measurement, presentation, and disclosure of financial assets and liabilities. This amendment requires all equity investments to be measured at fair value, with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The guidance will be effective for the fiscal year beginning after December 15, 2017, including interim periods within that year. The Group will adopt ASU No. 2016-01 effective January 1, 2018. For equity investments measured at fair value, the Group will recognize the changes in fair value through net income/(loss); and for equity investments that lacked readily determinable fair values, the Group will elect to use the measurement alternative defined as cost, less impairments, adjusted by observable price changes. The Group anticipates that the adoption of ASU No. 2016-01 will increase the volatility of its other income (expense), net, as a result of the remeasurement of its equity securities upon the occurrence of observable price changes and impairments.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”, which amends the existing accounting standards for lease accounting. For operating leases, ASU No. 2016-02 requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet with terms of more than twelve months. Lessees are permitted to make an accounting policy election to not recognize the asset and liability for leases with a term of twelve months or less. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. In addition, this standard requires both lessees and lessors to disclose certain key information about lease transactions. The amendments in this Update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Group is currently assessing the potential effects the adoption of this update will have on its consolidated financial statements and related disclosures.
In March 2016, the FASB issued ASU No. 2016-09, “Compensation—Stock Compensation (Topic 718)”, which intends to improve the accounting for employee share-based payments. This standard addresses several aspects of the accounting for share-based payment award transactions, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; (c) classification on the statement of cash flows; and (d) accounting for forfeitures of share-based payments. This standard will be effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods, with early adoption permitted. The Group has adopted the new standard effective January 1, 2017 and no impact on its consolidated financial statements due to the Group elected to continue estimating the number of awards that are expected to vest.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326)”, which requires entities to measure all expected credit losses for financial assets held at the reporting date. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. For available-for-sale debt securities, entities will be required to record allowances rather than reduce the carrying amount, as they do today under other-than-temporary impairment model. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Group is currently evaluating the impact that the adoption of this update will have on its consolidated financial statements and related disclosures.
| F-25 |
58 Daojia Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, unless otherwise noted)
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments”, which addresses the following eight specific cash flow issues: debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (COLIs) (including bank-owned life insurance policies (BOLIs)); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Group is currently evaluating the impact that the adoption of this update will have on its consolidated financial statements and related disclosures.
In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”. The guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The standard should be applied using a retrospective transition method to each period presented. The Group does not expect the standard to have any material impact on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. Public business entities should apply the amendments in this Update to annual periods beginning after December 15, 2017, including interim periods within those periods. Early application of the amendments in this Update is allowed as follows: 1. For transactions for which the acquisition date occurs before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance; 2. For transactions in which a subsidiary is deconsolidated or a group of assets is derecognized that occur before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance. The standard should be applied prospectively on or after the effective date. The Group will evaluate the impact of adopting this standard prospectively upon any transactions of acquisitions or disposals of assets or businesses.
In January 2017, the FASB issued ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment.” The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance should be adopted on a prospective basis for the annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Group is currently evaluating the impact that the adoption of this update will have on its consolidated financial statements.
In May 2017, the FASB issue ASU No. 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting,” which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This standard is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period for public business entities for reporting periods for which financial statements have not yet been issued. The Group is currently evaluating the impact that the adoption of this update will have on its consolidated financial statements.
| F-26 |
58 Daojia Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, unless otherwise noted)
3. Credit risks and concentration
| (a) | Credit risk |
The Group’s credit risk arises from cash, term deposits, short-term investments, as well as credit exposures to receivables due from its customers, equity investee and other parties.
The Group believes that there is no significant credit risk associated with cash and term deposits which were held by reputable financial institutions in the jurisdictions where the Company, its subsidiaries, the VIEs and VIEs’ subsidiaries are located.
The Group has no significant concentrations of credit risk with respect to its customers. The Group assesses the credit quality of and sets credit limits on its customers by taking into account their financial position, the availability of guarantees from third parties, their credit history and other factors such as current market conditions.
| (b) | Major customers |
There was no customer whose revenue represented over 10% of total revenues for the years ended December 31, 2016 and 2017, respectively.
The accounts receivable from one Internet Company represented approximately 65% and 40% of total accounts receivable as of December 31, 2016 and 2017, respectively. No other customer has receivables representing over 10% of total accounts receivable.
| (c) | Foreign currency risk |
The Group’s operating transactions are mainly denominated in RMB. RMB is not freely convertible into foreign currencies. The value of the RMB is subject to changes by the central government policies and to international economic and political developments. In the PRC, certain foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (the “PBOC”). Remittances in currencies other than RMB by the Group in China must be processed through the PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation in order to effect the remittance.
4. Acquisition of GoGo Tech Holdings Limited’s subsidiaries (“GoGoVan Business”)
58 Freight Inc. (“58 Freight”) was a subsidiary of the Group incorporated in the Cayman Islands in July 2017. 58 Freight and its subsidiaries and VIEs are principally engaged in operating ad-hoc delivery services. In August, 2017, the Company and 58 Freight, entered into an agreement with GoGo Tech Holdings Limited (GoGoVan Cayman) where the Company sold 22.22% of its equity interests in 58 Freight to GoGoVan Cayman and 58 Freight acquired 100% equity interests of GoGoVan Cayman’s wholly-owned subsidiaries and VIEs (collectively referred to as “GoGoVan”) through a series of planned and integrated transactions. The transactions were completed on August 29, 2017. This arrangement is intended to enable the Group to expand into overseas markets and business line by combining the Group’s Ad-Hoc delivery service with GoGoVan’s platform. Total consideration for this acquisition was 88,888,888 newly issued ordinary shares of the 58 Freight to GoGoVan Cayman. The Company owned 77.78% equity interest in 58 Freight, which owned 100% of equity interest in GoGoVan after the acquisition. The Company considered that it had a controlling financial interest over the equity interest of GoGoVan through 58 Freight under the voting interest model, and as a result consolidated GoGoVan since August 29, 2017.
| F-27 |
58 Daojia Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, unless otherwise noted)
The acquisition had been accounted for as a business acquisition and the results of operations of GoGoVan from the acquisition date have been included in the Group’s consolidated financial statements. The Group made estimates and judgments in determining the fair value of acquired assets and liabilities, with the assistance of an independent valuation firm and management’s experience with similar assets and liabilities. In performing the purchase price allocation, the Group considered the analyses of historical financial performance and estimates of future performance of GoGoVan.
The allocation of the preliminary purchase price is as follows:
| Amounts | Amortization Years | |||||||
| RMB | ||||||||
| Net assets acquired | 14,108 | |||||||
| Amortizable intangible assets: | ||||||||
| Domain names and trademarks | 96,100 | 10 | ||||||
| Software | 15,000 | 3 | ||||||
| Customer relationship | 47,600 | 6 | ||||||
| Goodwill | 1,017,474 | |||||||
| Deferred tax assets | 9,397 | |||||||
| Deferred tax liabilities | (33,604 | ) | ||||||
| Total | 1,166,075 | |||||||
| Total purchase price | ||||||||
| -Equity consideration | 1,166,075 | |||||||
| Total | 1,166,075 | |||||||
The excess of purchase price over net tangible assets and identifiable intangible assets acquired were recorded as goodwill. Goodwill primarily represented the expected synergies from combining the Group’s ad-hoc delivery business with GoGoVan’s platform. The goodwill was not expected to be deductible for tax purposes. Up to the date of this report, no subsequent purchase price adjustment has been made.
5. Accounts receivable, net
Accounts receivable, net, consists of the following:
| As of December 31, | ||||||||
| 2016 | 2017 | |||||||
| RMB | RMB | |||||||
| Accounts receivable | 3,893 | 46,186 | ||||||
| Allowance for doubtful accounts | - | (123 | ) | |||||
| Accounts receivable, net | 3,893 | 46,063 | ||||||
Movement of allowance for doubtful accounts is as follows:
| As of December 31, | ||||||||
| 2016 | 2017 | |||||||
| RMB | RMB | |||||||
| Balance at beginning of year | - | - | ||||||
| Provisions | - | (123 | ) | |||||
| Balance at end of year | - | (123 | ) | |||||
| F-28 |
58 Daojia Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, unless otherwise noted)
6. Prepayments and other current assets
The following is a summary of prepayments and other current assets:
| As of December 31, | ||||||||
| 2016 | 2017 | |||||||
| RMB | RMB | |||||||
| Receivables from online payment platforms | 16,973 | 90,063 | ||||||
| Loan receivables from an equity investee | 14,500 | - | ||||||
| Freight disbursement on behalf of customers | 12,432 | 57,387 | ||||||
| Input value-added tax | 11,124 | 16,802 | ||||||
| Consumables | 1,925 | 6,197 | ||||||
| Rental and other deposits | 10,241 | 20,971 | ||||||
| Prepaid advertising fees | 7,875 | 4,790 | ||||||
| Interest receivable | 7,682 | 1,419 | ||||||
| Advances to suppliers | 1,349 | 1,367 | ||||||
| Others | 8,501 | 18,304 | ||||||
| Total | 92,602 | 217,300 | ||||||
7. Property and equipment, net
The following is a summary of property and equipment, net:
| As of December 31, | ||||||||
| 2016 | 2017 | |||||||
| RMB | RMB | |||||||
| Computers and equipment | 17,450 | 27,621 | ||||||
| Furniture and fixtures | 1,674 | 3,183 | ||||||
| Leasehold improvements | 38,212 | 47,362 | ||||||
| Vehicles | - | 519 | ||||||
| Software | 1,322 | 3,005 | ||||||
| Total | 58,658 | 81,690 | ||||||
| Less: Accumulated depreciation | (13,221 | ) | (39,354 | ) | ||||
| Net book value | 45,437 | 42,336 | ||||||
Depreciation expenses for the years ended December 31, 2016 and 2017 were RMB10,810 and RMB22,359, respectively.
8. Intangible assets, net
The following is a summary of intangible assets, net:
| As of December 31, | ||||||||
| 2016 | 2017 | |||||||
| RMB | RMB | |||||||
| Software | - | 14,932 | ||||||
| Trademark | - | 95,661 | ||||||
| License | - | 294 | ||||||
| Customer relationship | - | 47,455 | ||||||
| Domain names | 4,730 | 4,736 | ||||||
| Less: Impairment of domain names | - | (2,696 | ) | |||||
| Total | 4,730 | 160,382 | ||||||
| Less: Accumulated depreciation | (1,248 | ) | (9,573 | ) | ||||
| Net book value | 3,482 | 150,809 | ||||||
| F-29 |
58 Daojia Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, unless otherwise noted)
Amortization expenses for the years ended December 31, 2016 and 2017 were RMB771 and RMB8,040, respectively. The Company recorded RMB nil and RMB2,696 impairment loss for intangible assets for the years ended December 31, 2016 and 2017, respectively.
The estimated aggregate amortization expenses for each of the five succeeding fiscal years and thereafter are as follows:
| Amounts | ||||
| RMB | ||||
| For the year ended December 31, 2017 | ||||
| 2018 | 22,518 | |||
| 2019 | 22,472 | |||
| 2020 | 22,472 | |||
| 2021 | 22,472 | |||
| 2022 | 22,472 | |||
| Thereafter | 38,403 | |||
| Total | 150,809 | |||
9. Long-term investments
The following is a summary of long-term investments:
| As of December 31, | ||||||||
| 2016 | 2017 | |||||||
| RMB | RMB | |||||||
| Cost method investments: | ||||||||
| Investee A (a) | 12,000 | 13,500 | ||||||
| Investee B (b) | 11,300 | 11,300 | ||||||
| Investee C (c) | 19,040 | - | ||||||
| Investee D (d) | - | 18,750 | ||||||
| Investee E (e) | - | - | ||||||
| Others (f) | 7,600 | 7,600 | ||||||
| Total cost method long-term investments | 49,940 | 51,150 | ||||||
(a) In 2015, the Group acquired shares of investee A for cash consideration of RMB12,000. In 2017, the Group acquired additional shares of investee A with a total cash consideration of RMB1,500. Investee A is mainly engaged in the business of providing make up services. The investment is accounted for under cost method as the shares invested by the Group were not considered as in-substance common stock and the shares do not have readily determinable fair value.
(b) In 2015, the Group acquired shares of investee B for cash consideration of RMB11,300. Investee B is mainly engaged in the business of providing health care services. The investment is accounted for under cost method as the shares invested by the Group were not considered as in-substance common stock and the shares do not have readily determinable fair value.
(c) In 2016, the Group acquired shares of investee C for cash consideration of RMB19,040. Investee C is mainly engaged in the business of providing catering services. The investment is accounted for under cost method as the shares invested by the Group were not considered as in-substance common stock and the shares do not have readily determinable fair value. After the completion of the impairment analysis, the Group noted that the fair value of investee C decreased significantly and such decrease was considered to be other than temporary. As a result, investment in investee C was fully impaired in 2017.
| F-30 |
58 Daojia Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, unless otherwise noted)
(d) In 2017, the Group acquired shares of investee D for total consideration of RMB18,750. Investee D is mainly engaged in the business of providing logistics services for enterprises. The investment is accounted for under cost method as the shares invested by the Group were not considered as in-substance common stock and the shares do not have readily determinable fair value.
(e) In 2015, the Group acquired shares of investee E for cash consideration of RMB60,000. In 2016, the Group acquired additional shares of investee E with a total consideration of RMB 9,049. Investee E is mainly engaged in the business of providing car wash services. The investment is accounted for under cost method as the shares invested by the Group were not considered as in-substance common stock and the shares do not have readily determinable fair value as of December 31, 2016. In the fourth quarter of 2016, the Group assessed its investment in investee E for impairment due to the deterioration of Company E’s economic performance and it was not expected to be recovered in the foreseeable future considering the overall performance of the car wash industry. After the completion of the impairment analysis with the assistance of a third party valuation specialist, the Group noted that the fair value of investee E decreased significantly and such decrease was considered to be other than temporary. As a result, the Group recognized a full impairment of RMB69,049 in 2016.
(f) Others represent other cost method investments, the shares of which the Group invested were not considered as in-substance common stock and the shares do not have readily determinable fair value. As a result, the Group accounted for its investments in these investees using cost method.
10. Long-term prepayments
The following is a summary of long-term prepayments:
| As of December 31, | ||||||||
| 2016 | 2017 | |||||||
| RMB | RMB | |||||||
| Long-term prepaid advertising fees | 14,151 | - | ||||||
| Long-term prepaid rental | 3,235 | 4,289 | ||||||
| Prepayment for purchase of property and equipment | 1,988 | 2,638 | ||||||
| Total | 19,374 | 6,927 | ||||||
11. Accounts payable
The following is a summary of accounts payable:
| As of December 31, | ||||||||
| 2016 | 2017 | |||||||
| RMB | RMB | |||||||
| Payable for advertising fees | 10,008 | 18,273 | ||||||
| Payable for services fees | 7,124 | 8,317 | ||||||
| Payable for drivers | - | 5,821 | ||||||
| Payable for purchase of property and equipment | 399 | 913 | ||||||
| Others | 910 | 4,128 | ||||||
| Total | 18,441 | 37,452 | ||||||
| F-31 |
58 Daojia Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, unless otherwise noted)
12. Accrued expenses and other current liabilities
The following is a summary of accrued expenses and other current liabilities:
| As of December 31, | ||||||||
| 2016 | 2017 | |||||||
| RMB | RMB | |||||||
| Payable to 58 Home service providers | 145,047 | 263,356 | ||||||
| Customer membership card deposits | 64,814 | 95,203 | ||||||
| Deposits from service providers | 51,617 | 108,447 | ||||||
| Accrued office expenses | 2,080 | 12,879 | ||||||
| Others | 14,246 | 21,941 | ||||||
| Total | 277,804 | 501,826 | ||||||
13. Fair value measurements
Measured on recurring basis
The Group measured its financial assets including term deposits and short-term investments at fair value on a recurring basis as of December 31, 2016 and 2017. The following table sets forth the financial instruments, measured at fair value at recurring basis, by level within the fair value hierarchy:
| As of December 31, | ||||||||||
| Financial instruments | Fair value hierarchy | 2016 | 2017 | |||||||
| RMB | RMB | |||||||||
| Term deposits | Significant other observable inputs (Level 2) | 601,207 | 132,355 | |||||||
| Short-term investments: | ||||||||||
| - Variable-rate financial instruments | Significant other observable inputs (Level 2) | 402,000 | - | |||||||
Term deposits and variable-rate financial instruments
The Group measures term deposits and variable-rate financial instruments at fair value based on the pervasive interest rates in the market, which are also the interest rates as stated in the contracts with the banks. The Group classifies the valuation techniques that use the pervasive interest rates input as Level 2 of fair value measurements. Generally there are no quoted prices in active markets for identical time deposits at the reporting date. In order to determine the fair value, the Group must use the discounted cash flow method and observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
The variable-rate financial instruments represent investments in wealth management products with variable interest rates or principal non-guaranteed which were purchased from commercial banks and other financial institutions. The fair values are based on cash flow discounted using the judgment that expected return will be obtained upon maturity. The Group classifies the valuation techniques as Level 2 of fair value measurement.
The following are other financial instruments not measured at fair value in the balance sheets but for which the fair value is estimated for disclosure purposes.
| F-32 |
58 Daojia Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, unless otherwise noted)
Short-term receivables and payables
Accounts receivable and prepaid expenses and other current assets are financial assets with carrying values that approximate fair value due to their short term nature. Accounts payable and accrued expenses and other current liabilities are financial liabilities with carrying values that approximate fair value due to their short term nature. The Group estimates fair values of short-term receivables and payables and classifies the valuation technique as Level 3 of fair value measurement, as it uses estimated cash flow input which is unobservable in the market.
Non-current assets
Non-current assets of receivables for rental deposits is a financial asset with carrying value that approximate fair value due to the impact of discounting is immaterial. The Group estimated fair values of non-current assets using the discounted cash flow method. The Group classifies the valuation technique as Level 3 of fair value measurement, as it uses estimated cash flow input which is unobservable in the market.
Measured on non-recurring basis
The Group’s non-financial assets, such as long-term investments and intangible assets would be measured at fair value only if they were determined to be impaired.
Long-term investments
As of December 31, 2016 and 2017, the Group had RMB49,940 and RMB51,150, respectively, long-term investments in equity securities of privately-held companies. Such investments are reviewed periodically for impairment using fair value measurement which requires significant unobservable inputs (Level 3). Impairment loss of RMB69,049 and RMB19,040 was recorded in the consolidated statements of comprehensive loss for the years ended December 31, 2016 and 2017, respectively.
14. Income taxes
British Virgin Islands (“BVI”)
The Group is exempted from income tax in the BVI on its foreign-derived income. There are no withholding taxes in the BVI.
Hong Kong
Entities incorporated in Hong Kong are subject to Hong Kong profit tax at a rate of 16.5% since January 1, 2010. The Hong Kong entity operations were immaterial for the years ended December 31, 2016 and 2017. The Company's subsidiaries incorporated in other jurisdictions such as the Australia, Singapore, Korea, India and Taiwan were subject to income tax charges calculated on the basis of the tax laws enacted or substantially enacted in the countries where the Company's subsidiaries operate and generate income.
PRC
On March 16, 2007, the National People’s Congress of PRC enacted an Enterprise Income Tax Law (“EIT Law”), under which FIEs and domestic companies would be subject to EIT at a uniform rate of 25%. The EIT law became effective on January 1, 2008.
According to a policy promulgated by the State Tax Bureau of the PRC and effective from 2008 onwards, enterprises engaging in research and development activities are entitled to claim 150% of the research and development expenses so incurred in a year as tax deductible expenses in determining its tax assessable profits for that year (“Super Deduction”). Beijing 58 home and Tianjin 58 home had claimed such Super Deduction in ascertaining its tax assessable income for the years ended December 31, 2016 and 2017, respectively.
| F-33 |
58 Daojia Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, unless otherwise noted)
The EIT Law also provides that an enterprise established under the laws of a foreign country or region but whose “de facto 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 “de facto management body” as “the place where the exercising, in substance, of the overall management and control of the production and business operation, personnel, accounting, properties, etc., of a non-PRC company is located.” Based on a review of surrounding facts and circumstances, the Company does not believe that it is likely that its operations outside of the PRC should be considered a resident enterprise for PRC tax purposes.
The 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. The British Virgin Island, where the Company was incorporated, does not have such tax treaty with China. 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). The Group’s subsidiaries and the VIEs were in accumulated loss positions as of December 31, 2017. Accordingly, no deferred income tax was accrued as of December 31, 2017.
The provisions for income tax expenses are summarized as follows:
| For the year ended December 31, 2016 | For the year ended December 31, 2017 | |||||||
| RMB | RMB | |||||||
| Current tax expenses | - | (2,191 | ) | |||||
| Deferred tax expenses | - | - | ||||||
| Income tax expenses | - | (2,191 | ) | |||||
The following table sets forth reconciliation between the statutory EIT rate and the effective tax rate:
| For the year ended December 31, 2016 | For the year ended December 31, 2017 | |||||||
| Statutory income tax rates | 25.0 | % | 25.0 | % | ||||
| Change in valuation allowance | (13.9 | )% | (19.7 | )% | ||||
| Permanent book-tax differences | (9.1 | )% | (5.0 | )% | ||||
| Effect of lower tax rates in other jurisdictions | (2.0 | )% | (0.6 | )% | ||||
| Effective tax rate | - | (0.3 | )% | |||||
| F-34 |
58 Daojia Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, unless otherwise noted)
Deferred tax assets and liabilities
The following table sets forth the significant components of the aggregate deferred tax assets and liabilities:
| As of December 31, | ||||||||
| 2016 | 2017 | |||||||
| RMB | RMB | |||||||
| Deferred tax assets | ||||||||
| Accrued payroll and other expenses | 1,324 | 2,636 | ||||||
| Bad debt provision | - | 6,081 | ||||||
| Intangible Assets impairment and disposal | - | 674 | ||||||
| Net operating losses carried forwards | 269,169 | 409,687 | ||||||
| Advertising expenses in excess of deduction limits | 32,149 | 70,077 | ||||||
| Total deferred tax assets | 302,642 | 489,155 | ||||||
| Less: valuation allowance | (302,642 | ) | (481,420 | ) | ||||
| Total deferred tax assets, net | - | 7,735 | ||||||
| Deferred tax liabilities | ||||||||
| Acquired intangible assets | - | 31,899 | ||||||
| Total deferred tax liabilities, net | - | 31,899 | ||||||
A valuation allowance is provided against deferred tax assets when the Group determines that it is more likely than not that the deferred tax assets will not be utilized in the future. In making such determination, the Group evaluates a variety of factors including the Group’s operating history, accumulated deficit, existence of taxable temporary differences and reversal periods.
As of December 31, 2017, the net operating losses carried forward in overseas jurisdictions, subject to the tax laws enacted or substantially enacted in the countries where the Company's subsidiaries operate and generate income, of RMB156 million, are allowed to be carried forward to offset against future taxable profits. Such carry forward of tax losses of RMB122 million has no time limit, while the tax losses of RMB34 million will expire, if unused, in the years ending December 31, 2018 through 2025. As of December 31, 2017, the Group had net operating losses carried forward of subsidiaries incorporated in the PRC and subject to the agreement of the PRC tax authorities of RMB1.5 billion which will expire during the period between December 31, 2018 and December 31, 2022. There is no expiration for the advertising expenses that were in excess of annual deduction limits and carried forward.
The Group has incurred net accumulated operating losses for income tax purposes since its inception. The Group believes that except for subsidiaries in Hong Kong and Taiwan, it is more likely than not that these net accumulated operating losses and other deferred tax assets will not be utilized in the future. Therefore, the Group had provided valuation allowances of RMB302,642 and RMB481,420 for the deferred tax assets as of December 31, 2016 and 2017, respectively.
Movement of valuation allowance
| For the year ended December 31, 2016 | For the year ended December 31, 2017 | |||||||
| RMB | RMB | |||||||
| Balance at beginning of the period | 160,676 | 302,642 | ||||||
| Provision | 141,966 | 178,778 | ||||||
| Balance at the end of the period | 302,642 | 481,420 | ||||||
| F-35 |
58 Daojia Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, unless otherwise noted)
15. Preferred shares
On November 27, 2015, the Company completed a Series A round of equity financing, with participation from Alibaba Group Holding Limited, global investment firm KKR, and Ping An Group. Following the closing of the Series A financing, 58.com Inc. holds 87.9% of the total outstanding ordinary shares of the Company and 61.7% of the total outstanding shares of the Company on an as-converted basis.
On July 8, 2016, a 4-for-1 stock split for all ordinary shares and Series A preferred shares was approved by the shareholders. While the stock split increased the number of shares for each shareholder, the percentage of their ownership in the Company was not affected. This share split has been retrospectively reflected for all periods presented.
The Group’s preference shares comprised the following:
| Shares | ||||||||||||||||||
| Series | Date of Issuance | Issue Price Per Share | Authorized | Issued and Outstanding | Carrying Amount | |||||||||||||
| US$ | US$ | |||||||||||||||||
| A | November 27, 2015 | 1.8382 | 163,200,000 | 163,200,000 | 300,000 | |||||||||||||
Key terms of the Series A Preferred Shares are summarized as follows:
Dividend rights
The holders of the Series A Shares shall be entitled to noncumulative dividends in preference to any dividend on the ordinary shares at the rate of 5% per annum of Series A Shares issue price. After payment of all declared dividends on the Series A Shares has been paid or set aside for payment to the holders of Series A Shares in a calendar year, any additional dividends declared shall be distributed among all holders of Ordinary Shares. All Shareholders shall also be entitled to receive any non-cash dividends declared by the Board pursuant to the foregoing distribution priority.
Liquidation preference
In the event of a liquidation, each holder of the Series A Shares then outstanding shall be entitled to receive, prior to any distribution or payment to any holder of Ordinary Shares or any other shares, an amount per Series A Preferred Share equal to the greater of (i) the sum of (a) one hundred and twenty percent (120%) of Series A Preferred Share Issue Price, plus (b) any dividends declared and unpaid with respect to each Series A Share, and (ii) such amount per share as would have been payable had all funds and assets legally available for distribution to the shareholders been distributed pro rata among the holders of Series A Shares (on an as converted basis) and Ordinary Shares immediately following the liquidation. In the event that available assets are insufficient to permit payment of the Series A Preferred Share Preference Amount in full to all holders of Series A Shares, then the assets of the Company shall be distributed ratably to the Series A Preferred Shares holders based on their proportionate share ownership.
Redemption rights
There is no redemption right with respect to the Series A Preferred Share. However, if the Company grants any investor redemption rights in any future financing, each holder of Series A Preferred Shares shall have the same redemption rights automatically without further consideration.
Conversion rights
Each of the Series A Preferred Shares is convertible into the number of fully-paid ordinary shares as determined by dividing the original issue price applicable to such preferred shares by the conversion price in effect at that time. The initial conversion ratio for Series A Preferred Shares to Class A ordinary shares shall be 1:1 adjusted for share splits, share dividends, recapitalization and similar transactions.
| F-36 |
58 Daojia Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, unless otherwise noted)
The Series A Preferred Shares shall automatically be converted into ordinary shares at the conversion price in effect upon the closing of a Qualified IPO.
Voting rights
Each Series A Preferred Share conveys the voting right of one vote for each Class A ordinary share into which such Series A Preferred Shares can be converted.
16. Ordinary shares
The Company was incorporated in the British Virgin Islands in January 2015. The Company is authorized to issue a maximum of 640,800,000 shares with a par value of US$0.00001 per share. As of December 31, 2015, 83,100,000 Class A ordinary shares, 1,880,000 Class B ordinary shares and 6,000,000 Class C ordinary shares were issued.
On July 8, 2016, a 4-for-1 stock split for all ordinary shares and Series A preferred shares was approved by the shareholders. While the stock split increased the number of shares for each shareholder, the percentage of their ownership in the Company was not affected. This share split has been retrospectively reflected for all periods presented. The authorized 640,800,000 shares were divided into 2,563,200,000 shares including 163,200,000 preferred shares in connection with the issuance of Series A preferred shares with a par value of US$0.0000025 per share.
Under share repurchase agreement approved by the Company’s board of directors on July 4, 2016, the Company repurchased 12,400,000 Class A ordinary shares from a shareholder for total considerations of RMB10,000.
In September 2016, the Company granted 12,400,000 fully vested RSs to a senior management member of the Company.
As of December 31, 2017, 332,400,000 Class A ordinary shares, 7,520,000 Class B ordinary shares and 24,000,000 Class C ordinary shares were issued.
17. Share-based compensation
In February 2015, the Company adopted its 2015 Share Incentive Plan, or the 58 Home 2015 Plan. The maximum aggregate number of shares which may be issued pursuant to all awards under the 58 Home 2015 Plan is 80,000,000 ordinary shares of 58 Home. The 58 Home 2015 Plan permits the awards of options and restricted shares. Unless terminated earlier, the 58 Home 2015 Plan will terminate automatically in 2025. In connection with the Series A round of equity financing closed on November 27, 2015, the maximum aggregate number of shares which may be issued under the 58 Home 2015 Plan was increased by 8,000,000 ordinary shares of 58 Home.
A summary of the 58 Home’s share option activities for the year ended December 31, 2017 is presented below:
| Number of Options | Weighted Average Exercise Price per share | Weighted Average Remaining Contractual Life | Aggregate Intrinsic Value | |||||||||||||
| US$ | In years | US$ | ||||||||||||||
| Outstanding as of December 31, 2016 | 36,816,000 | 0.22 | 8.28 | 29,760 | ||||||||||||
| Granted | 4,934,000 | 1.04 | ||||||||||||||
| Forfeited | (13,206,500 | ) | 0.02 | |||||||||||||
| Outstanding as of December 31, 2017 | 28,543,500 | 0.46 | 7.82 | 61,149 | ||||||||||||
| F-37 |
58 Daojia Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, unless otherwise noted)
In 2016, the Company granted 8,016,000 share options to certain employees at the exercise price of US$0.92 per share, where 50% of the options shall be vested upon the second anniversary of grant date and remaining shall vest every six months thereafter in four equal installments. In September 2016, the Company granted 12,400,000 RSs to a senior management member of the Company at the fair value of US$0.99 per share. The RSs were fully vested on the grant date.
In October 2017, the Company granted 3,356,000 share options to certain employees at the exercise price of US$0.92 per share and 1,538,000 share options to certain employees at the exercise price of US$1.31 per share, where 50% of the options shall be vested upon the second anniversary of grant date and remaining shall vest every six months thereafter in four equal installments.
The weighted average grant date fair value of options granted for the year ended December 31, 2016 and 2017 was US$0.59 and US$1.84 per share, respectively.
Valuation Assumptions: The Group estimated the fair value of share options using the Binominal option-pricing model with the assistance from an independent valuation firm.
The fair value of each option granted under the 58 Home 2015 Plan was estimated on the date of grant with the following assumptions:
| 2016 | 2017 | |||
| Expected volatility | 56.90%-57.5% | 50.53% | ||
| Risk-free interest rate (per annum) | 2.27%-2.98% | 2.33% | ||
| Exercise multiple | 2.2-2.8 | 2.2 | ||
| Expected dividend yield | 0.00% | 0.00% | ||
| Expected term (in years) | 10 | 10 | ||
| Expected forfeiture rate (post-vesting) | 0.25% | 0.00% | ||
| Fair value per share of the underlying shares on the date of option grants (US$) | 0.99-1.03 | 1.75-1.88 |
The Group estimated the risk free rate based on the yield to maturity of US treasury bonds denominated in US$ at the option valuation date. The exercise multiple is estimated as the ratio of fair value of underlying shares over the exercise price as at the time the option is exercised, based on a consideration of research study regarding exercise pattern based on historical statistical data. Expected term is the contract life of the option. The expected volatility at the date of grant date and each option valuation date was estimated based on the historical stock prices of comparable companies. The Group has never declared or paid any cash dividends on its capital stock, and the Group does not anticipate any dividend payments on its ordinary shares in the foreseeable future.
Share-based compensation expenses for the share-based awards which are based on service conditions are recognized using the straight-line attribution approach. The Group recognizes no compensation expense for share-based awards with performance conditions unless the performance conditions become probable of being achieved.
For the years ended December 31, 2016 and 2017, the Group recognized share-based compensation expenses of RMB89,634 and RMB3,054, respectively for share options and RSs granted.
As of December 31, 2017, there were a total of RMB54,744 unrecognized compensation expenses, adjusted for estimated forfeitures, related to non-vested share-based compensation arrangement under the 2015 Plan. The expense is expected to be recognized over a weighted average period of 2.85 years. Total unrecognized compensation expenses may be adjusted for future changes in estimated forfeitures.
| F-38 |
58 Daojia Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, unless otherwise noted)
18. Related parties balances and transactions
Details of related party balances and transactions as of December 31, 2016 and 2017 are as follows:
| (1) | Amount due from related parties |
As of December 31, 2016 and 2017, amounts due from related parties were RMB2,544 and RMB2,320, respectively, and details are as follows. The amount due from Tianjin Jiabao Family Service Co. Ltd. was related to nursing services where the related party helped the Group to find nursing resources for its customers and the Group earned commission fee from the nurses.
| As of December 31, | ||||||||
| 2016 | 2017 | |||||||
| RMB | RMB | |||||||
| Tianjin Jiabao Family Service Co. Ltd | 2,521 | 2,320 | ||||||
| Other related parties | 23 | - | ||||||
| Total | 2,544 | 2,320 | ||||||
| (2) | Transactions with related parties for amount due from related parties |
| For the year ended of December 31, | ||||||||
| 2016 | 2017 | |||||||
| RMB | RMB | |||||||
| Tianjin Jiabao Family Service Co. Ltd | 4,764 | 3,432 | ||||||
| Other related parties | 216 | 78 | ||||||
| Total | 4,980 | 3,510 | ||||||
19. Commitments and contingencies
| (a) | Commitments |
The Group leases its facilities and offices under non-cancelable operating lease agreements. The rental expenses were RMB36,040 and RMB41,356 during the years ended December 31, 2016 and 2017, respectively, and were charged to the statements of comprehensive loss when incurred.
Certain of these arrangements have renewal or expansion options and adjustments for market provisions, such as free or escalating base monthly rental payments. The Group recognizes rental expense under such arrangements on the straight-line basis over the initial term of the lease. The difference between the straight-line expense and the cash paid for rent was recorded as prepaid rent.
As of December 31, 2017, future minimum commitments under non-cancelable agreements were as follows:
| 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | Total | ||||||||||||||||||||||
| RMB | RMB | RMB | RMB | RMB | RMB | RMB | ||||||||||||||||||||||
| Operating lease commitments | 43,533 | 24,766 | 18,865 | 13,309 | 106 | - | 100,579 | |||||||||||||||||||||
Other than those shown above, the Group did not have any significant capital or other commitments, long-term obligations, or guarantees as of December 31, 2017.
| F-39 |
58 Daojia Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data, unless otherwise noted)
| (b) | Contingencies |
The Group is not currently a party to, nor is aware of, any legal proceeding, investigation or claim which is likely to have a material adverse effect on the Group’s business, financial condition, results of operations, or cash flows. The Group did not record any legal contingencies as of December 31, 2017.
20. Subsequent Event
The Company has considered subsequent events through June 29, 2018, which was the date these financial statements were issued. No material events had occurred within this period.
| F-40 |