F-1 1 d935463df1.htm FORM F-1 Form F-1
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As filed with the Securities and Exchange Commission on May 13, 2021

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

ForU Worldwide Inc.

(Exact name of Registrant as specified in its charter)

 

 

Not Applicable

(Translation of Registrant’s name into English)

 

 

 

Cayman Islands   7389   Not Applicable
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

10/F, Unit A, Jinyu Jiahua Mansion,

No. 9 Shangdi 3rd Street

Haidian District, Beijing 100085

People’s Republic of China

+86 10 8266-5652

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

Cogency Global Inc.

122 East 42nd Street, 18th Floor

New York, NY 10168 (800) 221-0102

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Z. Julie Gao, Esq.

Skadden, Arps, Slate, Meagher & Flom LLP

c/o 42/F, Edinburgh Tower, The Landmark

15 Queen’s Road Central

Hong Kong

+852 3740-4700

 

Haiping Li, Esq.

Skadden, Arps, Slate, Meagher & Flom LLP

46/F, Tower 2, Jing An Kerry Center

1539 Nanjing West Road, Shanghai

People’s Republic of China

+86 (21) 6193-8200

 

Benjamin Su, Esq.

Zheng Wang, Esq.

Latham & Watkins LLP

18th Floor, One Exchange Square

8 Connaught Place, Central

Hong Kong

+852 2912-2500

 

 

Approximate date of commencement of proposed sale to the public:

As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.

Emerging growth company  

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act.  

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of securities
to be registered
  Proposed
maximum
aggregate
offering  price(2)(3)
  Amount of
registration fee
     

Class A Ordinary Shares, par value US$0.00005 per share(1)

  US$100,000,000   US$10,910

 

 

(1)

American depositary shares issuable upon deposit of class A ordinary shares registered hereby will be registered under a separate registration statement on Form F-6 (Registration No. 333-                ). Each American depositary share represents                class A ordinary shares.

(2)

Includes class A ordinary shares that are issuable upon the exercise of the underwriters’ option to purchase additional ADSs. Also includes class A ordinary shares initially offered and sold outside the United States that may be resold from time to time in the United States either as part of their distribution or within 40 days after the later of the effective date of this registration statement and the date the shares are first bona fide offered to the public. These class A ordinary shares are not being registered for the purpose of sales outside the United States.

(3)

Estimated solely for the purpose of determining the amount of registration fee in accordance with Rule 457(o) under the Securities Act of 1933.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

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.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS (Subject to Completion) Dated                , 2021.

American Depositary Shares

 

 

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ForU Worldwide Inc.

Representing     Class A Ordinary Shares

 

 

This is an initial public offering of American depositary shares, or ADSs, of ForU Worldwide Inc.

We are selling     ADSs. Each ADS represents        of our class A ordinary shares, par value US$0.00005 per share.

Prior to this offering, there has been no public market for the ADSs or our ordinary shares. We anticipate that the initial public offering price will be between US$     and US$        per ADS. We have submitted an application for the listing of the ADSs on Nasdaq Stock Market under the symbol “FOYO.”

Following the completion of this offering, our issued and outstanding share capital will consist of class A ordinary shares and class B ordinary shares. Ms. Dandan Shan, our founder, chairperson and chief executive officer, will beneficially own all of our issued class B ordinary shares and will be able to exercise        % of the total voting power of our issued and outstanding share capital immediately following the completion of this offering. Holders of class A ordinary shares and class B ordinary shares have the same rights except for voting and conversion rights. Each class A ordinary share is entitled to one vote, and each class B ordinary share is entitled to twenty votes and is convertible into one class A ordinary share. Class A ordinary shares are not convertible into class B ordinary shares under any circumstances.

We have granted the underwriters a 30-day option to purchase up to an additional      ADSs from us at the initial public offering less the underwriting discounts and commissions.

We are an “emerging growth company” under applicable U.S. federal securities laws and are eligible for reduced public company reporting requirements.

Investing in the ADSs involves risks. See “Risk Factors” beginning on page 19 for factors you should consider before buying the ADSs.

 

 

PRICE US$    PER ADS

 

 

Neither the United States Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

     Per ADS    Total

Initial public offering price

   US$            US$        

Underwriting discounts and commissions(1)

   US$            US$        

Proceeds, before expenses, to us

   US$            US$        

 

(1)

See “Underwriting” for additional information regarding compensation payable by us to the underwriters.

The underwriters expect to deliver the ADSs to purchasers on or about                , 2021.

 

 

 

Goldman Sachs

 

UBS Investment Bank

  CICC

The date of this prospectus is                , 2021.


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TABLE OF CONTENTS

 

Prospectus Summary

     1  

Risk Factors

     19  

Special Note Regarding Forward-Looking Statements

     62  

Use of Proceeds

     64  

Dividend Policy

     65  

Capitalization

     66  

Dilution

     69  

Enforceability of Civil Liabilities

     71  

Corporate History and Structure

     73  

Selected Consolidated Financial Data

     78  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     82  

Industry

     108  

Business

     116  

Regulation

     134  

Management

     148  

Principal Shareholders

     154  

Related Party Transactions

     157  

Description of Share Capital

     158  

Description of American Depositary Shares

     171  

Shares Eligible for Future Sale

     184  

Taxation

     186  

Underwriting

     193  

Expenses Related to this Offering

     200  

Legal Matters

     201  

Experts

     202  

Where You Can Find Additional Information

     203  

Index to Consolidated Financial Statements

     F-1  

 

 

Until      , 2021 (the 25th day after the date of this prospectus), all dealers that effect transactions in these ADSs, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as an underwriter and with respect to their unsold allotments or subscriptions.

You should rely only on the information contained in this prospectus or in any free writing prospectus that we authorize to be distributed to you. We and the underwriters have not authorized anyone to provide you with any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you, and neither we, nor the underwriters, take responsibility for any other information others may give you. We are offering to sell, and seeking offers to buy the ADSs, only in jurisdictions where such offers and sales are permitted. The information in this prospectus or any free writing prospectus is accurate only as of its date, regardless of its time of delivery or the time of any sale of the ADSs. Our business, financial condition, results of operations and prospectus may have changed since that date.

Neither we nor any of the underwriters has taken any action to permit a public offering of the ADSs outside the United States or to permit the possession or distribution of this prospectus or any filed free writing prospectus outside the United States. Persons outside the United States who come into possession of this prospectus or any filed free writing prospectus must inform themselves about and observe any restrictions relating to the offering of the ADSs and the distribution of the prospectus or any filed free writing prospectus outside the United States.


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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements appearing elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in the ADSs discussed under “Risk Factors” before deciding whether to invest in the ADSs. This prospectus contains information from an industry report commissioned by us dated April 16, 2021 and prepared by China Insights Industry Consultancy Limited, or CIC, an independent research firm, regarding our industry and our market position in China. We refer to this report as the “CIC Report.”

Our Mission and Aspiration

Our mission is to make road freight transportation simpler and smarter.

ForU was founded in 2015 by our founder, chairperson and CEO, Ms. Dandan Shan, and a group of accomplished logistics and technology industry veterans who aspire to transform the highly fragmented, underserved and inefficient road freight transportation industry in China. We are reshaping the future of the road freight transportation industry by fundamentally changing how freight orders are priced, dispatched and transported.

To achieve our mission, we have built our technology-driven road freight transportation platform connecting shippers and carriers to digitalize the entire road freight transportation process and redefine industry standards. In addition, we differentiate ourselves by controlling each step of the process, from pricing and route planning to dispatching, transportation and fee settlement. We remain committed to serving shippers with efficiency and reliability and empowering drivers with professional dignity.

Our Market Opportunity

We see great potential in China’s full truckload, or FTL, market, which is expected to grow from RMB3.8 trillion in 2020 to RMB 4.5 trillion in 2025, according to CIC.

China’s FTL market faces a number of challenges, including high fragmentation, inefficient transaction processes, opaque pricing mechanisms, and lack of service standards. Solving these challenges requires a new approach, one that starts with technology at its core, presenting tremendous growth potential for technology-driven road freight transportation platforms. The market of technology-driven road freight transportation platforms, as measured by gross transaction value of fully digitalized transactions, is expected to grow at a compound annual growth rate, or CAGR, of 57.9% to reach RMB666 billion in 2025, according to CIC.



 

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Our Platform

We are the largest technology-driven road freight transportation platform in China in terms of revenue in 2020, according to CIC. We have fully digitalized every single step of freight transportation from end to end, replacing old methods which are disconnected and human-driven. The foundation of our platform is our powerful data insights, superior technology capabilities, and strong operational know-hows. Our platform consists of Freight-as-a-Service, shippers, carriers, and our ForU Brain.

 

 

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Freight-as-a-Service

We offer Freight-as-a-Service, or FaaS, to our shippers. Every step of the entire freight transaction takes place on our standardized and fully digitalized platform. Leveraging our superior data insights and technology capabilities, we are able to allocate orders to the most suitable carriers on our platform with upfront pricing, and to track shipments in real time from end to end. As of March 31, 2021, we had delivered approximately 3.2 million loads cumulatively through our platform.

Powered by our smart pricing, smart dispatching and smart services, we provide efficient, transparent, and high-quality and reliable road freight transportation services to shippers through our trusted carrier network.

 

   

Efficient. Our services are highly automated and intelligent, guaranteeing an efficient transportation process.

 

   

Transparent. Our shippers have visibility on pricing, and the transportation of cargo is fully trackable.

 

   

High-quality and reliable. As we redefine industry standards and control each step of the transaction, we are able to assure high service quality and reliability for each order on our platform.

Our Shippers

Our platform serves shippers of all sizes and backgrounds. We categorize our shipper base into key account shippers, or KA Shippers, such as Deppon and Great Wall Motors, and small and medium



 

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enterprise shippers, or SME Shippers. Driven by the compelling value we provide, the cumulative number of shippers we served on our platform increased five-fold from 880 as of December 31, 2018 to 4,860 as of December 31, 2020, and further to 11,174 as of March 31, 2021.

We have accumulated years of experience serving KA Shippers, which typically have the most rigorous requirements such as on-demand capacity, timely transportation, and high shipment visibility. Such experience has helped us develop competitive advantages, including superior service quality, multi-dimensional data, a nationwide carrier network and powerful pricing capabilities.

Our track record in serving KA Shippers puts us in a uniquely strong position to serve SME Shippers, which have remained underserved despite their strong demand for quality service. Our SME Shippers contributed 22.8% of our total number of orders in March 2021, only nine months after the launch of the service.

Our Carriers

Our superior service capabilities and quality rely on our trusted carrier network, which predominantly consists of individual drivers connected to our platform. We believe that individual drivers make up the most efficient form of trucking capacity and are best suited for our on-demand freight orders. We engage, empower, and refine our carrier network through technology to meet the complicated and non-standard needs of our shippers.

We have provided our carriers with improved efficiency, greater earnings potential, fast payment and professional dignity. This has enabled us to develop a large, fast-growing and loyal driver base. As of March 31, 2021, approximately 905,500 drivers had registered on our platform and over 580,800 drivers had completed orders on our platform. The number of loyal drivers, defined as drivers who earned over RMB50,000 in a year from providing freight services on our platform, has increased from approximately 11,000 in 2018 to approximately 15,200 in 2020. Loyal drivers transported 69.8% of our shipments by order value in 2020, as compared to 52.9% in 2018.

Our ForU Brain

Built upon our powerful data insights, superior technology capabilities and strong operational know-hows, our advanced proprietary technology infrastructure, ForU Brain is comprised of machine learning algorithms, operation optimization, and big data computing power. It empowers our smart pricing, smart dispatching and smart services, allowing us to continuously optimize shippers’ and carriers’ experiences on our platform. As more data and operational know-hows are accumulated, our ForU Brain becomes smarter in performing pricing, dispatching and service functions.

Our Value Propositions

Value to Shippers:

 

   

Improved efficiency. Our intelligent and automated platform supports instant order placement and pricing, fast dispatching, and timely delivery, eliminating time-consuming manual processes.

 

   

Transparent pricing. We provide real-time and upfront pricing, removing offline price mark-ups from carriers.



 

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Reliable and high-quality services. Our service increases the success rate of order completion, ensures timely and safe delivery, and brings trackability to the whole transportation process. The accident rate for our freight transportation service was 0.02% in 2020.

 

   

Trusted carrier network. We implement rigorous onboarding and compliance procedures to engage a large carrier base. As of March 31, 2021, over 580,800 drivers had completed orders on our platform, with verification of licenses, permits, and insurance coverage.

Value to Carriers:

 

   

Improved efficiency. Our services optimize all aspects of a driver’s operation. Orders to drivers on our platforms are all verified, as opposed to noncommitted orders prevailing on traditional load boards and freight matching platforms. Carriers are able to view orders with transparent and upfront pricing, and can book suitable jobs 24/7 on our platform, reducing deadhead miles and waiting time.

 

   

Greater earnings potential. We bring more orders to drivers by connecting them to the massive network of shippers that have frequent freight transportation demands. This brings greater earnings potential to drivers, when combined with the improved efficiency on our platform.

 

   

Fast payment. We settle with our carriers directly, eliminating the possibility of unwarranted deduction and delay in payments. We typically complete payment to drivers within 24 hours upon delivery.

 

   

Care for drivers. We respect our drivers as our valuable business partners and treat them fairly. We have instituted various initiatives, such as compensation to drivers for delays and cancellation of orders, allocating home-returning orders and offering free medical examination for the parents of some of our drivers.

Our Achievements

We have experienced significant growth since our inception. As of March 31, 2021, we had cumulatively delivered approximately 3.2 million loads, served 11,174 shippers, connected over 580,800 drivers who had completed orders on our platform, and covered all cities in the PRC. The CAGR of our total order value from 2017 to 2020 was 29.0%. Our revenues increased from RMB3.4 billion in 2019 to RMB3.6 billion (US$544.3 million) in 2020, representing a growth rate of 5.2%, despite of the impact of COVID-19. Our revenues increased from RMB671.8 million for the three months ended March 31, 2020 to RMB1,183.4 million (US$180.6 million) for the three months ended March 31, 2021, representing a growth rate of 76.1%. Our net loss decreased by 50.5% from RMB233.9 million in 2019 to RMB115.8 million (US$17.7 million) in 2020, and increased by 8.6% from RMB50.2 million for the three months ended March 31, 2020 to RMB54.5 million (US$8.3 million) for the three months ended March 31, 2021.



 

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The diagram below illustrates our scale and efficiency.

 

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Notes:

1.

According to CIC

2.

As of March 31, 2021

3.

The difference between total order value and revenues derived from the orders is primarily attributable to output value-added tax, which is included in total order value but not in revenues

4.

As of December 31, 2020

5.

Deadhead miles traveled per order from the top 20 cities we covered in 2020 as compared with 2019

6.

In terms of average revenues generated by each of our employees

Our Competitive Strengths

We believe that the following competitive strengths contribute to our success:

 

   

the largest technology-driven road freight transportation platform to capture the massive market opportunity;

 

   

powerful data insights and superior technology capabilities;

 

   

extraordinary service capabilities and quality;

 

   

dual growth engines with strong synergies;

 

   

significant flywheel effect driving expansion at scale; and

 

   

visionary management team with deep logistics and technology industries experience.

Our Strategies

We will focus on the following key growth strategies to realize our mission:

 

   

enlarge wallet share from existing shippers;



 

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continue to diversify and enlarge our shipper base;

 

   

broaden our service offerings to cater to the diverse demand;

 

   

increase stickiness of existing carriers and further enlarge carrier base; and

 

   

continue to invest in R&D and technology innovations.

Recent Developments

In April 2021, the total order value on our platform amounted to RMB461.2 million (US$70.4 million), representing a 85.9% increase compared to the total order value in April 2020. The order value of our KA Shippers in April 2021 was RMB390.8 million (US$59.7 million), an increase of 57.6% compared to that in April 2020. The order value of our SME Shippers was RMB70.3 million (US$10.7 million) in April 2021, representing a 43.8% increase compared to the order value of our SME Shippers in March 2021, and the number of orders of SME Shippers accounted for 26.7% of our total number of orders in April 2021.

In April 2021, we signed the transaction documents for our Series E preferred shares financing and will issue Series E preferred shares for a total consideration of up to US$200,000,000. As of the date of this prospectus, we have issued 64,042,304 Series E preferred shares for a total consideration of US$70,000,000 and expect to fully close this transaction prior to the completion of this offering. See “Description of Share Capital—History of Securities Issuances.”

Corporate History and Structure

We launched our operations in March 2015 through Nanjing ForU Online Electronic Commerce Co., Ltd., or Nanjing ForU, which was incorporated in October 2013. Our holding company, ForU Worldwide Inc., was incorporated in November 2014. Shortly following its incorporation, ForU Worldwide Inc. established a wholly-owned subsidiary in Hong Kong, ForU Worldwide (HK) Limited, or ForU HK. In May 2015, ForU Worldwide (HK) Limited established a wholly-owned subsidiary in China, Beijing ForU Duoduo Information Technology Co., Ltd., or Beijing ForU Duoduo, which we refer to as our WFOE.

Due to the restrictions imposed by PRC laws and regulations on foreign ownership of companies engaged in value-added telecommunication services, our WFOE entered into a series of contractual arrangements with Nanjing ForU and its shareholders in March 2017, through which we obtained control over Nanjing ForU, or our VIE. As a result, we are regarded as the primary beneficiary of our VIE and its subsidiaries. We treat them as our consolidated affiliated entities under U.S. GAAP, and have consolidated the financial results of these entities in our consolidated financial statements in accordance with U.S. GAAP. For more details and risks related to our variable interest entity structure, please see “Corporate History and Structure—Contractual Arrangements with Our VIE and Its Shareholders” and “Risk Factors—Risks Related to Our Corporate Structure.” The contractual arrangements with our VIE were subsequently replaced and superseded by updated agreements as a result of change in our VIE’s shareholders in April 2021.

In September 2017, we established Tianjin Fuxin Finance Leasing Co., Ltd., which was 55% owned by Nanjing ForU and 25% owned by ForU HK, to engage in financial leasing services. In expanding our transportation services, Nanjing ForU established various subsidiaries, including its branches in Huai’an and Yancheng in April 2019 and Jiangsu Shunren Transportation Co., Ltd. in October 2019.



 

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The following diagram illustrates our corporate structure, including our principal subsidiaries, our VIE and its subsidiaries, as of the date of this prospectus:

 

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Notes:

(1)

Shareholders of Nanjing ForU and their respective shareholdings in the VIE and relationship with our company are Ms. Dandan Shan (99.6%), our founder, chairperson of the board of directors and chief executive officer, and Mr. Hongxin Wang (0.4%), spouse of Ms. Dandan Shan.

(2)

The remaining 20.0% of the equity interests in Tianjin Fuxin Finance Leasing Co., Ltd. is held by Nanjing Lihe Youfu I Technology Partnership (Limited Partnership), a limited partnership incorporated in the PRC, which is 74.0% owned by Mr. Yifei Ye, our beneficial shareholder, 25.0% owned by Mr. Boyang Wu, our employee, and 1.0% owned by Ms. Dandan Shan.



 

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Summary of Risk Factors

Investing in our ADSs involves significant risks. You should carefully consider all of the information in this prospectus before making an investment in our ADSs. Below please find a summary of the principal risks we face, organized under relevant headings. These risks are discussed more fully in the section titled “Risk Factors.”

Risks Related to Our Business and Industry

Risks and uncertainties related to our business and industry include, but are not limited to, the following.

 

   

Our business and growth are significantly affected by the development of the road freight transportation industry in China.

 

   

We have a limited operating history and an innovative business model, and our historical growth and performance may not be indicative of our future growth and financial results.

 

   

We have a history of net losses, which may continue in the future.

 

   

We have established long-term relationships with, and derived a significant portion of our revenues from, a number of major KA Shippers, and deterioration in our relationships with them may adversely affect us.

 

   

Our growth in business with SME Shippers may not be as strong as anticipated.

 

   

We may fail to cost-effectively attract and retain a large number of shippers or increase their utilization of our platform.

 

   

We may fail to cost-effectively attract and retain a large number of carriers in order to maintain and improve our transportation capabilities.

 

   

Our dependence on carriers to provide transportation services may impact the quality of our freight transportation services.

 

   

If our shippers or carriers engage in, or are subject to, criminal, violent, inappropriate, or dangerous activities, we may be subject to liabilities and our ability to attract and retain shippers and carriers may be harmed.

 

   

Our technology system is critical to our business operations.

 

   

We are subject to risks associated with the road freight transportation industry, including product damage, personal injury, and other transportation-related incidents.

Risks Related to Our Corporate Structure

We are also subject to risks and uncertainties related to our corporate structure, including, but not limited to, the following.

 

   

If the PRC government finds that the agreements that establish the structure for operating some of our operations in China do not comply with PRC regulations relating to the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.

 

   

The contractual arrangements with our VIE and its shareholders may not be as effective as direct ownership in providing operational control.



 

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Risks Related to Doing Business in China

We face risks and uncertainties related to doing business in China in general, including, but not limited to, the following.

 

   

Changes in China’s economic, political or social conditions or government policies could adversely impact our business.

 

   

Uncertainties with respect to the PRC legal system could adversely affect us.

 

   

The current tensions in international trade and rising political tensions, particularly between the United States and China, may adversely impact our business.

 

   

Our ADSs may be delisted under the Holding Foreign Companies Accountable Act if the PCAOB is unable to inspect auditors who are located in China. The delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment. Additionally, the inability of the PCAOB to conduct inspections deprives our investors with the benefits of such inspections.

Risks Related to Our ADSs and This Offering

Risks and uncertainties related to our ADSs and this offering include, but are not limited to, the following.

 

   

There has been no public market for our shares or ADSs prior to this offering, and you may not be able to resell our ADSs at or above the price you paid, or at all.

 

   

The trading price of the ADSs is likely to be volatile, which could result in substantial losses to investors.

Implication of Being an Emerging Growth Company

As a company with less than US$1.07 billion in revenue for our last fiscal year, we qualify as an “emerging growth company” pursuant to the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements compared to those that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002 in the assessment of the emerging growth company’s internal control over financial reporting. The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. Pursuant to the JOBS Act, we have elected to take advantage of the benefits of this extended transition period for complying with new or revised accounting standards. As a result, our operating results and financial statements may not be comparable to the operating results and financial statements of other companies who have adopted the new or revised accounting standards.

We will remain an emerging growth company until the earliest of (a) the last day of the fiscal year during which we have total annual gross revenues of at least US$1.07 billion; (b) the last day of our fiscal year following the fifth anniversary of the completion of this offering; (c) the date on which we have, during the preceding three-year period, issued more than US$1.0 billion in non-convertible debt; or (d) the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of the ADSs that are held by non-affiliates exceeds US$700 million as of the last business day of our most recently completed second fiscal quarter. Once we cease to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above.



 

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Corporate Information

Our principal executive offices are located at 10/F, Unit A, Jinyu Jiahua Mansion, No. 9 Shangdi 3rd Street, Haidian District, Beijing 100085, People’s Republic of China. Our telephone number at this address is +86 10 8266-5652. Our registered office in the Cayman Islands is located at the offices of Maricorp Services Ltd., P.O. Box 2075, George Town, Grand Cayman KY1-1105, Cayman Islands.

Investors should submit any inquiries to the address and telephone number of our principal executive offices. Our main website is www.for-u.com. The information contained on our website is not a part of this prospectus. Our agent for service of process in the United States is Cogency Global Inc., located at 122 East 42nd Street, 18th Floor, New York, NY 10168.

Conventions that Apply to this Prospectus

Unless otherwise indicated or the context otherwise requires, references in this prospectus to:

 

   

“ADSs” are to the American depositary shares, each of which represents              class A ordinary shares;

 

   

“CAGR” are to the compound annual growth rate;

 

   

“China” or the “PRC” are to the People’s Republic of China, excluding, for the purposes of this prospectus only, Hong Kong, Macau and Taiwan;

 

   

“class A ordinary shares” are to our class A ordinary shares, par value US$0.00005 per share;

 

   

“class B ordinary shares” are to our class B ordinary shares, par value US$0.00005 per share;

 

   

“ForU,” “we,” “us,” “our company” and “our” are to ForU Worldwide Inc., our Cayman Islands holding company and its subsidiaries, its consolidated variable interest entity and the subsidiaries of the consolidated variable interest entity;

 

   

“FTL” are to full truckload;

 

   

“KA Shippers” are to shippers as our key accounts, who are selected large-size enterprise shippers on our platform, with whom we enter into framework agreements and provide more favorable terms. The framework agreements with KA Shippers typically set forth service scope, payment terms, required qualification of trucks and service standards and do not include terms related to commitments or shipping minimums. “SME Shippers” are to other shippers on our platform, mostly small and mid-size enterprise, or SME, shippers;

 

   

“loyal drivers” are to drivers who generated freight service income of over RMB50,000 on our platform for a given year;

 

   

“our WFOE” or “Beijing ForU Duoduo” are to Beijing ForU Duoduo Information Technology Co., Ltd.;

 

   

“RMB” or “Renminbi” are to the legal currency of China;

 

   

“shares” or “ordinary shares” are to our ordinary shares, par value US$0.00005 per share, and, upon and after the completion of this offering, are to our class A and class B ordinary shares, par value US$0.00005 per share;

 

   

“US$,” “U.S. dollars,” “$,” and “dollars” are to the legal currency of the United States; and

 

   

“VIE” are to variable interest entity, and “our VIE” or “Nanjing ForU” are to Nanjing ForU Online Electronic Commerce Co., Ltd.



 

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Unless the context indicates otherwise, all information in this prospectus assumes no exercise by the underwriters of their option to purchase additional ADSs from us. Unless otherwise noted, all translations from Renminbi to U.S. dollars and from U.S. dollars to Renminbi in this prospectus are made at a rate of RMB6.5518 to US$1.00, the exchange rate in effect as of March 31, 2021 as set forth in the H.10 statistical release of The Board of Governors of the Federal Reserve System. We make no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, or at all.



 

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The Offering

 

Offering price

We currently estimate that the initial public offering price will be between US$                      and US$                      per ADS.

 

ADSs offered by us

                     ADSs (or                      ADSs if the underwriters exercise their option to purchase additional ADSs in full).

 

ADSs outstanding immediately after this offering

                     ADSs (or                      ADSs if the underwriters exercise their option to purchase additional ADSs in full).

 

Ordinary shares issued and outstanding immediately after this offering

                     class A ordinary shares (or                      class A ordinary shares if the underwriters exercise their option to purchase additional ADSs) and                      class B ordinary shares assuming the conversion, on a one-for-one basis, of all of our preferred shares into our class A ordinary shares immediately prior to the completion of this offering. This excludes 95,224,450 shares issuable upon exercise of outstanding options with an average exercise price of US$0.11 per share.

 

The ADSs

Each ADS represents                      class A ordinary shares, par value US$0.00005 per share.

 

  The depositary will hold class A ordinary shares underlying your ADSs. You will have rights as provided in the deposit agreement among us, the depositary and holders and beneficial owners of ADSs from time to time.

 

  We do not expect to pay dividends in the foreseeable future. If, however, we declare dividends on our class A ordinary shares, the depositary will pay you the cash dividends and other distributions it receives on our ordinary shares after deducting its fees and expenses in accordance with the terms set forth in the deposit agreement.

 

  You may surrender your ADSs to the depositary for cancellation in exchange for class A ordinary shares. The depositary will charge you fees for any cancellation.


 

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  We may amend or terminate the deposit agreement without your consent. If you continue to hold your ADSs after an amendment to the deposit agreement, you agree to be bound by the deposit agreement as amended.

 

  To better understand the terms of the ADSs, you should carefully read the “Description of American Depositary Shares” section of this prospectus. You should also read the deposit agreement, which is filed as an exhibit to the registration statement that includes this prospectus.

 

Option to purchase additional ADSs

We have granted to the underwriters an option, exercisable within 30 days from the date of this prospectus, to purchase up to an aggregate of                  additional ADSs.

 

Use of proceeds

We expect that we will receive net proceeds of approximately US$                  million from this offering, assuming an initial public offering price of US$                  per ADS, which is the midpoint of the estimated range of the initial public offering price, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

  We intend to use the net proceeds from this offering for developing our business with SME Shippers, research and development, and general corporate purposes, including working capital and operating expenses. See “Use of Proceeds” for more information.

 

Lock-up

We [and each of our officers, directors and existing shareholders] have agreed with the underwriters, subject to certain exceptions, not to sell, transfer or otherwise dispose of any ADSs, ordinary shares or similar securities for a period of 180 days after the date of this prospectus. See “Shares Eligible for Future Sale” and “Underwriting” for more information.

 

Listing

We have submitted an application to have the ADSs listed on the Nasdaq Stock Market under the symbol “ FOYO.” The ADSs and our ordinary shares will not be listed on any other stock exchange or traded on any automated quotation system.


 

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Payment and settlement

The underwriters expect to deliver the ADSs against payment therefor through the facilities of the Depository Trust Company on             , 2021.

 

Depositary

Citibank, N.A.


 

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SUMMARY CONSOLIDATED FINANCIAL DATA

The following summary consolidated statements of comprehensive loss data for the years ended December 31, 2019 and 2020, summary consolidated balance sheet data as of December 31, 2019 and 2020 (except the pro forma net loss, share and net loss per share information), and summary consolidated cash flow data for the years ended December 31, 2019 and 2020 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The following summary consolidated statements of comprehensive loss data for the three months ended March 31, 2020 and 2021, summary consolidated balance sheet data as of March 31, 2021 (except the pro forma net loss, share and net loss per share information), and summary consolidated cash flow data for the three months ended March 31, 2020 and 2021 have been derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements and include all adjustments, consisting only of normal and recurring adjustments, that we consider necessary for a fair statement of our financial position and results of operations for the periods presented. Our consolidated financial statements are prepared and presented in accordance with U.S. GAAP. Our historical results do not necessarily indicate results expected for any future periods. You should read this Selected Consolidated Financial Data section together with our consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.



 

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The following table presents our summary consolidated statements of comprehensive loss data for the periods indicated:

 

    For the Year Ended December 31,     For the Three Months Ended March 31,  
    2019     2020     2020     2021  
    RMB     RMB     US$     RMB     RMB     US$  
    (in thousands)  

Summary Consolidated Statements of Comprehensive Loss Data

           

Revenues:

           

Transportation services

    3,353,516       3,528,970       538,626       661,138       1,179,791       180,071  

Other services

    37,472       36,952       5,640       10,690       3,563       544  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    3,390,988       3,565,922       544,266       671,828       1,183,354       180,615  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Costs and expenses:

           

Cost of revenues

    (3,402,415     (3,458,276     (527,836     (657,986     (1,165,597     (177,905

Operations and support

    (22,656     (25,935     (3,958     (11,732     (6,100     (931

Sales and marketing

    (91,794     (97,694     (14,911     (21,890     (36,520     (5,574

General and administrative

    (117,758     (102,875     (15,702     (37,363     (40,415     (6,169

Research and development

    (75,502     (66,533     (10,155     (17,758     (17,091     (2,609
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    (3,710,125     (3,751,313     (572,562     (746,729     (1,265,723     (193,188

Other operating income

    111,975       79,473       12,130       32,954       31,297       4,777  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (207,162     (105,918     (16,166     (41,947     (51,072     (7,796

Interest income

    16,247       8,259       1,261       3,113       454       69  

Interest expenses

    (44,773     (27,326     (4,171     (9,472     (3,950     (603

Foreign currency exchange gain (loss)

    (3,601     (1,495     (228     (203     6       1  

Other income (loss), net

    10,964       13,130       2,004       (603     448       69  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income tax expense

    (228,325     (113,350     (17,300     (49,112     (54,114     (8,260

Income tax expense

    (5,565     (2,427     (370     (1,052     (385     (59
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (233,890     (115,777     (17,670     (50,164     (54,499     (8,319
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to ForU Worldwide Inc.’s ordinary shareholders, basic and diluted(1)

    (365,129     (258,386     (39,436     (84,316     (88,741     (13,545
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of ordinary shares used in computing net loss per share, basic and diluted(1)

    123,000,000       164,000,000       164,000,000       123,000,000       164,000,000       164,000,000  

Net loss per share attributable to ordinary shareholders

           

—Basic

    (2.97     (1.58     (0.24     (0.69     (0.54 )      (0.08

—Diluted

    (2.97     (1.58     (0.24     (0.69     (0.54 )      (0.08
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss attributable to ForU Worldwide Inc.’s ordinary shareholders, basic and diluted(1)

    (233,993     (114,579     (17,487     (49,583     (53,883     (8,225
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma weighted average number of ordinary shares used in computing net loss per share, basic and diluted(1)

    845,456,238       886,456,238       886,456,238       845,456,238       886,456,238       886,456,238  

Pro forma net loss per share attributable to ordinary shareholders(1)

           

— Basic

    (0.28     (0.13     (0.02     (0.06)       (0.06)       (0.01)  

— Diluted

    (0.28     (0.13     (0.02     (0.06)       (0.06)       (0.01)  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Note:

(1)

See note 2 to our consolidated financial statements included elsewhere in this prospectus for an explanation and calculation of historical loss per share, basic and diluted. Pro forma net loss attributable to ForU Worldwide Inc.’s ordinary shareholders, pro forma loss per share, basic and diluted, and pro forma weighted average ordinary shares outstanding, basic and diluted are each presented, after giving effect to the conversion of all of the issued and outstanding preferred shares of the Company into ordinary shares on a one-for-one basis, as if it had occurred at the beginning of the earliest period presented.



 

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The following table presents our summary consolidated balance sheet data as of the dates indicated:

 

     As of December 31,     As of March 31,  
     2019     2020     2021  
     RMB     RMB     US$     RMB     US$  
     (in thousands)  

Summary Consolidated Balance Sheet Data

      

Cash and cash equivalents

     450,153       489,207       74,668       519,179       79,242  

Restricted cash

     500,562       22,162       3,383       19,714       3,009  

Accounts receivable

     524,033       544,140       83,052       517,189       78,938  

Total current assets

     1,920,459       1,495,268       228,222       1,554,003       237,187  

Total assets

     2,042,543       1,544,477       235,733       1,591,854       242,964  

Accounts payable

     215,788       266,050       40,607       256,793       39,194  

Short-term borrowings

     750,992       344,012       52,506       310,989       47,466  

Total current liabilities

     1,161,286       829,485       126,604       923,404       140,939  

Total liabilities

     1,238,084       836,278       127,641       929,367       141,849  

Total mezzanine equity

     2,074,567       2,218,374       338,590       2,253,232       343,910  

Total shareholders’ deficit

     (1,270,108     (1,510,175     (230,498     (1,590,745     (242,795

Total liabilities, mezzanine equity and shareholders’ deficit

     2,042,543       1,544,477       235,733       1,591,854       242,964  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table presents our summary consolidated cash flow data for the periods indicated:

 

     For the Year Ended December 31,     For the Three Months Ended
March 31,
 
     2019     2020     2020     2021  
     RMB     RMB     US$     RMB     RMB     US$  
     (in thousands)  

Summary Consolidated Cash Flow Data:

            

Net cash provided by (used in) operating activities

     (506,766     44,045       6,723       81,080       (45,658     (6,969

Net cash provided by (used in) investing activities

     (17,140     8,168       1,247       (119,903     (47,564     (7,259

Net cash provided by (used in) financing activities

     284,179       (473,554     (72,278     (117,100     119,953       18,309  

Effect of exchange rate change on cash, cash equivalents and restricted cash

     3,249       (18,005     (2,748     9,475       793       119  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash, cash equivalents and restricted cash

     (236,478     (439,346     (67,056     (146,448     27,524       4,200  

Cash, cash equivalents and restricted cash at the beginning of the period

     1,187,193       950,715       145,107       950,715       511,369       78,051  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash, cash equivalents and restricted cash at the end of the period

     950,715       511,369       78,051       804,267       538,893       82,251  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Financial Measures

Adjusted net loss and adjusted EBITDA

In evaluating our business, we consider and use adjusted net loss and adjusted EBITDA, each a non-GAAP financial measure, to supplement the review and assessment of our operating performance. We have included these non-GAAP financial measures in this prospectus because they are key



 

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measures used by our management to evaluate our operating performance. Accordingly, we believe that they provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team and board of directors. Our calculation of these non-GAAP financial measures may differ from similarly-titled non-GAAP measures, if any, reported by our peer companies. They should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with U.S. GAAP.

We define adjusted net loss as net loss adjusted for the impact of share-based compensation expenses. We define adjusted EBITDA as net loss adjusted for the impact of (i) interest expense, net, (ii) income tax expense, (iii) share-based compensation expenses, (iv) depreciation of property and equipment, and (v) amortization of intangible assets. The following table sets forth the reconciliation of net loss, the most comparable measure prepared in accordance with U.S. GAAP, to adjusted net loss and adjusted EBITDA, respectively, for the periods presented:

 

     For the Year Ended December 31,     For the Three Months Ended
March 31,
 
     2019     2020     2020     2021  
     RMB     RMB     US$     RMB     RMB     US$  
     (in thousands, except for percentages)  

Net loss

     (233,890     (115,777     (17,670     (50,164     (54,499     (8,319

Add:

            

Share-based compensation expenses

     62,724       36,027       5,499       13,248       8,000       1,221  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net loss

     (171,166     (79,750     (12,171     (36,916     (46,499     (7,098

Total revenues

     3,390,988       3,565,922       544,266       671,828       1,183,354       180,615  

Net loss margin

     (6.9%     (3.2%     (3.2%     (7.5%     (4.6%     (4.6%

Adjusted net loss margin

     (5.0%     (2.2%     (2.2%     (5.5%     (3.9%     (3.9%
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (233,890     (115,777     (17,670     (50,164     (54,499     (8,319

Add:

            

Interest expense, net

     28,526       19,067       2,910       6,359       3,496       534  

Income tax expense

     5,565       2,427       370       1,052       385       59  

Depreciation of property and equipment

     2,520       2,840       433       732       583       89  

Amortization of intangible assets

     550       577       88       180       85       13  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     (196,729     (90,866     (13,869     (41,841     (49,950     (7,624

Add:

            

Share-based compensation expenses

     62,724       36,027       5,499       13,248       8,000       1,221  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

     (134,005     (54,839     (8,370     (28,593     (41,950     (6,403

Total revenues

     3,390,988       3,565,922       544,266       671,828       1,183,354       180,615  

EBITDA margin

     (5.8%     (2.5%     (2.5%     (6.2%     (4.2%     (4.2%

Adjusted EBITDA margin

     (4.0%     (1.5%     (1.5%     (4.3%     (3.5%     (3.5%
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


 

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RISK FACTORS

Investing in our ADSs involves a high degree of risk. You should carefully consider the following risks and uncertainties and all other information contained in this prospectus before investing in our ADSs. Our business, financial condition, results of operations or prospects could also be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material. If any of the risks actually occur, our business, financial condition, results of operations and prospects could be adversely affected. In that event, the market price of our ADSs could decline, and you could lose part or all of your investment.

Risks Related to Our Business and Industry

Our business and growth are significantly affected by the development of the road freight transportation industry in China.

We operate in the road freight transportation industry in China, the future growth and prosperity of which could be affected by many factors beyond our control.

A significant portion of the demand for road freight transportation is generated from logistics service providers delivering orders for merchants in the e-commerce business in China, and the development of the e-commerce industry in China is affected by factors such as the disposable income and consumption power of consumers in China, the potential continuing impact of the COVID-19 pandemic, the attractiveness and reliability of e-commerce platforms, the popularity, quality, and price of products offered by the merchants, and changes in regulatory regimes on the e-commerce industry. Our shippers also operate in other industries such as automobile parts, fast-moving consumer goods, and industrial and home appliances businesses. Unfavorable changes in any of these industries in China could significantly reduce the demand of road freight transportation in general, and in turn adversely affect our business.

The development of the road freight transportation industry also depends on costs of transportation, which is affected by factors including labor costs of carriers, the development of transportation infrastructure, sophistication of logistics technologies, fuel costs, and inventory management. Any unexpected increases in costs of transportation could increase our cost of revenues and adversely affect our profitability.

We have a limited operating history and an innovative business model, and our historical growth and performance may not be indicative of our future growth and financial results.

We commenced our operations in 2015. Our evaluations of the business and prediction about our future performance may not be as accurate as they would be if we had a longer operating history. In the event that actual results differ from our expectation or we adjust our estimates in future periods, the investors’ perceptions of our business and future prospects could change materially.

We have been actively exploring boundaries of our business and expanding our platform to connect more shippers and carriers. In 2020, we served around 230 KA Shippers and around 3,770 SME Shippers. As of March 31, 2021, cumulatively over 580,800 drivers had completed orders on our platform. We also expanded our services to cover SME Shippers in July 2020 and have constantly increased our geographic coverage. The innovative nature of our business model built on a fast-growing platform makes it difficult to evaluate the risks and challenges we may encounter.

We have a history of net losses, which may continue in the future.

We have incurred net losses since our inception and we may not be able to achieve or maintain profitability in the future. We incurred net losses of RMB233.9 million, RMB115.8 million (US$17.7

 

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million) and RMB54.5 million (US$8.3 million) in 2019 and 2020 and for the three months ended March 31, 2021, respectively. We anticipate that our cost of revenues and operating expenses will increase in the foreseeable future as we continue to grow our business, expand geographically, diversify and enlarge our shipper base, invest and innovate in our technology infrastructure, and further broaden our service offerings. Any of these efforts may incur significant capital investment and recurring costs, and there can be no assurance that we will achieve or maintain profitability in the near future.

We have established long-term relationships with, and derived a significant portion of our revenues from, a number of major KA Shippers, and deterioration in our relationships with them may adversely affect us.

Our business has benefited from our long-term relationships with a number of major KA Shippers, and we derive a significant portion of our revenues from them. Our top three shippers in 2020, Deppon Logistics, JD Logistics and SF Express, contributed 55.8% and 45.3% of our total revenues in 2020 and for the three months ended March 31, 2021, respectively. Although we have been actively expanding and diversifying our shipper base, we expect major KA Shippers to account for a large portion of our total revenues in the foreseeable future. We typically enter into one-year framework agreements with these shippers, but there is no guarantee that we will be able to renew the agreements at favorable terms to us, or at all, and it is also uncertain how many orders will be placed by these shippers each year within the framework of cooperation. If these shippers decide to grow their in-house logistics teams or they are able to find other transportation service providers, we may lose their business. Deterioration of our relationships with any major shipper, a decrease in the number of orders any major shipper places with us, or a material adverse change to the business of any major shipper could materially harm the demand for our freight transportation services.

Our growth in business with SME Shippers may not be as strong as anticipated.

We extended our transportation services in July 2020 to SME Shippers whose demand is relatively fragmented compared to that of our KA Shippers. Our business with SME Shippers has experienced rapid business growth since it was launched. Our SME Shippers contributed 22.8% of our total number of orders in March 2021, only nine months after the launch of the service.

We see great potential in our SME Shippers business, but its growth may not be as strong as anticipated. We may not be able to attract an increasing number of SME Shippers. Our policy of requiring prepayment for freight may not be well received by small-to-mid size enterprises, the typical SME Shippers. Our efforts in restructuring this scattered and fragmented market with a new business model also involve uncertainty. Consequently, our investment in expanding SME Shippers business may not be able to realize the anticipated benefits if we experience a decline in the growth momentum of this business.

We may fail to cost-effectively attract and retain a large number of shippers or increase their utilization of our platform.

The success of our business substantially hinges on the growth of our freight transportation services, which in turn depends our ability to attract and retain, in a cost-efficient way, a large number of shippers and engage them to utilize the freight transportation services on our platform. The attractiveness of our platform to shippers depends on a variety of factors, including our ability to punctually complete orders, reliability of our transportation services, our ability to offer competitive prices for shipment, and the efficiency and transparency of the whole freight transportation process on our platform. If our platform fails to provide attractive services comparable or superior to those of our competitors, or our shippers are not satisfied with our services or are involved in disputes with us, we

 

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may not be able to continue to grow our shipper base or further enhance the engagement of existing shippers.

In addition, we actively acquire shippers through online channels such as customer referral, targeted promotions, online advertisement and social network engagement. We are also deploying offline sales personnel with industry expertise and experience to acquire shippers across various industries as we diversify and expand our shipper base. These efforts on shipper acquisition may not yield the expected results or justify the acquisition costs we incur.

We may fail to cost-effectively attract and retain a large number of carriers in order to maintain and improve our transportation capabilities.

We rely on carriers to complete road freight transportation orders on our platform, and the number of carriers we connect and engage with significantly impacts our transportation capabilities. The attractiveness of our platform to carriers is affected by various factors, including the intensity and authenticity of orders on our platform, the level of prices we are able to offer to our carriers, the speed and easiness of payment settlement, and our ability to offer full-range services on assisting carriers in transporting shipment. Although we believe our promise to drivers, “authentic orders, fast payment,” significantly contributes to our ability to attract carriers to, and retain carriers on, our platform, any adverse change in the value propositions our platform offers to carriers could result in a decrease in our ability to attract and retain carriers, which would in turn adversely affect our transportation capabilities. In addition to the organic growth through word-of-mouth referral, we conduct online and offline carrier acquisition activities, such as providing incentives to existing drivers for successful referrals and hiring ground representatives to acquire drivers, which may not be as successful as expected.

Our dependence on carriers to provide transportation services may impact the quality of our freight transportation services.

We do not employ any carriers. We depend on external carriers to provide freight transportation services on our platform, and our commitment to high-quality and secure transportation substantially depends on external carriers whose actions are not fully controlled by us. Any shortcoming in services of external carriers, such as extended delays in transportation due to human error, loss of goods because of negligence or theft, inappropriate attitude toward shippers or receivers, or any other failure to meet customer expectations or requirements, may be attributed to us, resulting in disputes and harming our business and reputation.

Although we have established a comprehensive system of service protocols for our carriers and entered into contracts with them or agreed with them on terms for freight transportation, we may not be able to exercise the same level of supervision over their conduct as we would if they were our employees. In the event of any unsatisfactory performance, lack of certain qualifications or licenses, misconduct, or illegal actions by carries in completing orders on our platform, the disputes resulted from such actions may involve us and we may suffer reputational and incur liabilities.

We conduct thorough background checks for the drivers on our platform and implement strict driver management. We review the pictures of drivers together with their trucks, identity cards, driver’s licenses and transportation permits before they could register with our platform. We also continuously monitor driver behaviors. However, we cannot assure you that our background check process is able to verify the accuracy of all the information provided by drivers.

 

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If our shippers or carriers engage in, or are subject to, criminal, violent, inappropriate, or dangerous activities, we may be subject to liabilities and our ability to attract and retain shippers and carriers may be harmed.

We are not able to control or predict the actions of shippers or carriers, and we may be unable to protect or provide a safe environment for our freight transportation as a result of certain actions by shippers or carriers. Such actions may result in injuries, property damage, business interruption, brand and reputational damage, or significant liabilities for us. If the shippers or carriers on our platform engage in criminal, violent, inappropriate, or dangerous activities, transfer dangerous goods, or use our platform as a conduit for criminal activities, shippers may not consider our platform safe, and we may be subject to negative publicity as a result of our business relationship with such shipper or carrier, which would adversely impact our brand, reputation, and business.

Although we administer background checks on drivers and due diligence on shippers, these methods may not be effective in preventing such criminal, violent, inappropriate or dangerous activities.

Our technology system is critical to our business operations.

As a technology-driven freight platform, the satisfactory performance, reliability and availability of our technology infrastructure and algorithms are critical to our success. Leveraging our proprietary ForU Brain system, our smart pricing, smart dispatching and smart services have empowered every aspect of our road freight transportation. However, our technology infrastructure may not function properly at all times. We may be unable to monitor and ensure high-quality maintenance and upgrade of our technology infrastructure, and shippers and carriers may experience service outages and delays in accessing and using our platforms as we seek to source additional capacity.

Our technology systems may also experience telecommunications failures, computer viruses, failures during the process of upgrading or replacing software, databases or components, power outages, hardware failures, user errors, or cyber security attacks, including attempts to harm our technology systems, which may result in the unavailability or slowdown of our platform or certain functions, delays or errors in transaction processing, loss of data, inability to accept and complete orders, reduced transaction volume, and a decrease in the attractiveness of our platform. Hackers, acting individually or in coordinated groups, may also launch distributed denial of service attacks or other coordinated attacks that may cause service outages or other interruptions in our business.

We are subject to risks associated with the road freight transportation industry, including product damage, personal injury, and other transportation-related incidents.

We face risks associated with road freight transportation, which may result in property damages, personal injuries and fatal accidents. Shipments in transit may be stolen, damaged or lost for various reasons, and we may be found liable for such incidents. Our failure to detect and prevent dangerous goods from being transported may harm our reputation and business, as certain dangerous items may damage the trucks or other products and cause personal injury or fatal accidents. Transportation of goods also involves risks regarding transportation safety. From time to time, our carriers may be involved in transportation accidents. The carriers may also cause or suffer personal injuries or fatal accidents, while the insurance they maintain may not fully cover the damages caused.

Any of the foregoing risks could disrupt our services, cause us to incur expenses and divert the time and attention of our management. We may face claims and incur liabilities if found liable or partially liable for any product damage or personal injury. Claims against us may not be fully covered by insurance. Government authorities may also impose significant fines on us or require us to adopt costly preventive measures. Furthermore, if our shippers consider our freight transportation service unsafe, the attractiveness of our platform will be compromised.

 

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Any lack of, or failure to keep, requisite approvals, licenses or permits applicable to our business operations, including the internet-based road transportation operation permit, may harm our business.

Our business is subject to rigorous regulation, and we are required to obtain and maintain applicable licenses, permits and approvals to conduct our business, including the value-added telecommunication service license, or the ICP license, and road transportation operation permit. For our internet-based business of road freight transportation, we need to include the business scope of online freight transportation in our road transportation operation permits. These licenses are critical to our business operations. As of the date of this prospectus, we have obtained and maintained all licenses and permits material to our business as required by the PRC regulatory authorities, including an ICP license held by each of Nanjing ForU and Tianjin ForU and road transportation operation permits held by Nanjing ForU and certain other subsidiaries. The business scope of the road transportation operation permits held by Nanjing ForU covers online freight transportation.

We cannot assure you, however, that we will be able to maintain existing licenses and permits or renew any of them when their current term expires. We may also be required to obtain additional licenses and permits in expanding our business scope and geographic coverage. If we are unable to maintain and renew one or more of the current licenses and permits, or obtain such new ones required, the operations and prospects of our business could be materially disrupted.

We face intense competition.

The road freight transportation industry in China is intensely competitive. Although we believe our technology-driven road freight transportation platform operates under a disruptive business model, we compete with existing market players in road freight transportation industry, and there may be new entrants emerging in the market. Existing or potential competitors may have substantially greater brand recognition and possess more financial, marketing and research resources than we do. Our competitors may introduce platforms with more attractive features, services or solutions with competitive pricing or enhanced performance that we cannot match. Some of our competitors may have more resources to develop or acquire new technologies and react quicker to changing requirements of shippers and carriers.

Pressure on our pricing could adversely affect our profitability.

Our smart pricing enables us to propose fee quotes balancing the needs and benefits among shippers and carriers, while also optimizing the spread we are able to capture. However, many factors, including the availability of shippers and carriers on certain routes, our know-hows on pricing and routes, tax, operating costs and expenses, legal and regulatory requirements, and our current and future competitors’ pricing strategies, could significantly affect our pricing models and resulted fee quotes. For example, certain competitors may use marketing strategies that enable them to attract or retain carriers and shippers with attractive prices. We may be forced, through competition, regulation or otherwise, to reduce the price of freight transportation for shippers, increase the incentives we provide to carriers on our platform or reduce the fees we charge for other value-added services on our platform. Furthermore, the price sensitivity of our shippers and carriers may vary by geographic location, and as we expand, our pricing methodologies may not enable us to compete effectively in these geographic areas. As the overall profit margin in the road freight transportation industry remains generally thin, if we were forced to significantly and consistently lower the fee quotes to shippers or increase the fee quotes to carriers, we may not be able to maintain our profitability.

We may not be able to manage our growth.

We have experienced rapid growth since our inception, particularly in terms of the number and value of orders, the number of shippers and carriers we connect, and our geographical coverage.

 

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However, there is no assurance that we will be able to maintain our historical growth rates in future periods.

We cannot assure you that we will be able to effectively manage the future growth of our rapidly evolving business. We intend to achieve growth by further enlarging the wallet share of existing shippers, continuing to diversify and enlarge our shipper base, broadening our service offerings, expanding geographic coverage, improving digitalized carrier relationship management, and continuing to invest in research and development and technology innovations. We cannot assure you that our growth initiatives will succeed, and we may not be able to achieve the level of order volume and order density that are needed to optimize our smart dispatching capabilities.

The COVID-19 pandemic may continue to have a material adverse impact on our business, operating results and financial condition.

In early 2020, in response to intensifying efforts to contain the spread of COVID-19, the PRC government took a number of actions, which included extending the Chinese New Year holiday, quarantining individuals infected with or suspected of having COVID-19, locking down certain communities, encouraging employees of enterprises to work remotely from home and cancelling public activities, among others. As a result, our operations were impacted by a decline in demand for road freight transportation due to the reduced orders generated in the e-commerce and other industries. Our carriers were temporarily restrained from entering into certain areas and cargo in transportation were held for inspection for virus contamination, causing delays and interruptions in road freight transportation. General uncertainties surrounding the duration of the government’s extended business and travel restrictions also adversely impacted our operations. Moreover, certain shippers required and may require additional time to pay us, which temporarily increased the amount of accounts receivable and negatively affected our cash flows.

We took a series of measures in response to the epidemic to protect our employees, including, among others, temporary closure of our offices, remote working arrangements for our employees and travel restrictions or suspension. These measures reduced the capacity and efficiency of our operations. We have also provided our carriers with masks, hand sanitizers and other protective equipment after the outbreak, which had increased and may continue to increase our operational costs.

The global spread of COVID-19 pandemic in major countries of the world may also result in global economic distress, and the extent to which it may affect our results of operations will depend on future developments of the COVID-19 pandemic, which are highly uncertain and difficult to predict. There may be potential impacts on our results of operations if the pandemic and the resulting disruption were to extend over a prolonged period. If the global spread of COVID-19 cannot be contained, risks set forth in this prospectus may be exacerbated or accelerated at a heightened level.

A severe or prolonged downturn in the Chinese or global economy could materially and adversely affect our business and financial condition.

The COVID-19 pandemic had a severe and negative impact on the Chinese and the global economy in 2020. Whether this will lead to a prolonged downturn in the economy is still unknown. Even before the outbreak of COVID-19, the global macroeconomic environment was facing challenges, including the end of quantitative easing by the U.S. Federal Reserve, the economic slowdown in the Eurozone since 2014, uncertainties over the impact of Brexit and the ongoing global trade disputes and tariffs. The growth of China’s economy has slowed down since 2012 compared to the previous decade and the trend may continue. There is considerable uncertainty over the long-term effects of the monetary and fiscal policies adopted by the central banks and financial authorities of some of the

 

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world’s leading economies, including the United States and China. In addition, there have also been concerns about the relationship between China and the United States, resulted from the current trade and political tension between the two countries. Economic conditions in China are sensitive to global economic conditions, as well as changes in domestic economic and political policies and the expected or perceived overall economic growth rate in China. Any severe or prolonged slowdown in the global or Chinese economy may materially and adversely affect our business and financial condition.

Maintaining and enhancing our brand and corporate reputation is critical to the success of our platform. Any negative publicity could harm our brand and reputation.

The recognition and reputation of our “ForU” brand and the successful maintenance and enhancement of our brand and corporate reputation have contributed, and will continue to contribute, significantly to our success and growth.

Any negative perception and publicity, whether or not justified, such as accidents caused in our freight transportation services, complaints in relation to quality of services, disputes with our shippers, carriers, and other parties involved in our transportation, or illegal or inappropriate conduct of our employees, could tarnish our reputation and reduce the value of our brand. Further, our competitors may fabricate complaints or negative publicity about us for the purpose of vicious competition. With the increased use of social media, adverse publicity can be disseminated quickly and broadly, making it increasingly difficult for us to respond and mitigate effectively.

We are also subject to negative publicity about our shippers and carriers, whose activities are out of our control. Negative public perception that shippers on our platform do not place authentic orders or that carriers on our platform do not provide satisfactory freight transportation services, even if factually incorrect or based on isolated incidents, could undermine the trust and credibility we have established and have a negative impact on our ability to attract and retain shippers and carriers.

Failure to comply with PRC laws and regulations may materially and adversely impact our business.

Our business is subject to various governmental supervision and regulations.

Pursuant to the Administrative Provisions concerning the Running of Cargo Vehicles with Out-of-Gauge Goods promulgated by the PRC Ministry of Transport, which took effect in September 2016, cargo vehicles running on public roads shall not carry cargo weighing more than the limits prescribed by this regulation and their dimensions shall not exceed those as set forth in the same regulation. The trucks our carriers used in freight transportation are subject to such limits. We cannot assure that all of these trucks which are under our carriers’ control will be in full compliance with the regulation, and our carriers may be required to modify noncomplying trucks or purchase new ones to replace them.

In addition, new laws and regulations may be enforced from time to time and substantial uncertainties exist regarding the interpretation and implementation of current and any future PRC laws and regulations applicable to our businesses. For example, in February 2021, the Anti-monopoly Bureau of State Administration for Market Regulation promulgated the Guidelines on Anti-monopoly Issues in Platform Economy that aims at specifying some of the circumstances under which an activity of Internet platform may be identified as monopolistic act as well as setting out merger controlling filing procedures involving variable interest entities. Due to the uncertainties associated with the evolving legislative activities and varied local implementation practices of laws and regulations in the PRC, it may be costly to adjust some of our business practice in order to comply with these laws, regulations, rules, guidelines and implementations, and any incompliance or associated inquiries, investigations

 

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and other governmental actions may divert significant management time and attention and our financial resources, bring negative publicity, and subject us to liabilities or administrative penalties.

Our business is subject to seasonal fluctuations in the road freight transportation market.

Our operations are subject to seasonality of the road freight transportation market in China. Truckload volumes for the second half of a year are typically higher, while the volumes for the first quarter are typically lower, which corresponds to the activity level of commercial and consumer goods transaction in China. We typically experience a seasonal surge in order volumes in the fourth quarter of each year when major online retail and e-commerce platforms hold special promotional campaigns. In addition, our regional operations are subject to seasonal changes. For example, certain routes in north China may be blocked due to heavy snow in winter and certain routes in south China may be affected by typhoons in summer.

Seasonality also makes it challenging to accurately and timely estimate customer demands and manage our service accordingly. For example, with a surge of demand during the peak seasons of road freight transportation, we may find it challenging to align carriers with sufficient capacity to meet the demand. Failure to meet demand associated with the seasonality in a timely manner may adversely affect our business.

Our business generates and processes a large amount of data, and any improper use or leak of such data could subject us to significant consequences.

As a technology-driven platform, our business depends on, and collects, generates and processes, a large quantity of personal, road, transaction, and geographical data. We face risks inherent in handling and protecting large volumes of data, including protecting the data hosted in our system, detecting and prohibiting unauthorized data share and transfer, preventing attacks on our system by outside parties or improper use by our employees, and maintaining and updating our database. Any system failure, security breach or third-party attacks or attempts to illegally obtain the data that results in any actual or perceived release of user data could damage our reputation and brand, deter current and potential shippers or carriers from using our platform, damage our business, and expose us to potential legal liability.

We are subject to PRC laws and regulations relating to the collection, use, storage, transfer, disclosure and security of personally identifiable information with respect to drivers registered with our platform, our shippers, and our employees including any requests from regulatory and government authorities relating to this data. Further, PRC regulators have been increasingly focused on regulation in the areas of data security and data protection. For example, in July 2020 and April 2021, the Standing Committee of the National People’s Congress published for public comment a draft Data Security Law and its second draft, respectively, which provide that varying levels of data protection measures will be applied at the national level based on the level of importance of the data, and the collection and use of such data should not exceed the necessary limits. We expect that these areas will receive greater public scrutiny and attention from regulators and more frequent and rigid investigation or review by regulators, which will increase our compliance costs and subject us to heightened risks and challenges. We cannot assure you that our practice associated with data security and data protection, in particular personal data, will be in full compliance of relevant data security and protection laws.

We derive a substantial portion of our revenues from certain areas in China. Failure to further penetrate our coverage in those key areas or to effectively expand our coverage in other areas may negatively affect our business.

Although we have a nationwide coverage, we derive a substantial portion of our revenues from certain areas in China. In 2019 and 2020 and for the three months ended March 31, 2021, a

 

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substantial portion of our total revenues were generated from transportation activities in east China and south China. We expect these areas, with higher level of economic activities and more advanced transportation infrastructure, to continue to be important sources of revenues. If we fail to maintain our competitive positions in either area, or if either area encounters events which negatively impact the road freight transportation industry, such as a regional economic downturn, a natural disaster, or a decline in supply of carriers, our revenues and profitability could be adversely and materially impacted.

We have a track record of successfully expanding into new geographical areas. We cannot assure you, however, that we will be able to maintain this momentum in the future. As the conditions of local markets may vary significantly from where we currently operate, and inherently we need to achieve certain level of order volume and density in order to most efficiently utilize our smart dispatching, expansion into new geographical areas involves new risks and challenges. Our lack of familiarity with, as well as our lack of relevant transaction data relating to, these geographical areas may make it more difficult for us to keep pace with the evolving market conditions. In addition, there may be one or more existing market leaders in any geographical area that we decide to expand into. Such companies may be able to compete more effectively than we do by leveraging their experience and familiarity with the local customers.

We are subject to legal and regulatory proceedings from time to time in the ordinary course of our business.

We are, and may be, subject to claims, lawsuits, arbitration proceedings, government investigations and other legal and regulatory proceedings in the ordinary course of business, including those involving property damages, personal injuries, tax disputes, labor and employment, commercial disputes, user complaints, intellectual property disputes, compliance with regulatory requirements and other matters. We may become subject to additional types of legal or regulatory proceedings as our business grows. For example, some of our promotional activities may be subject to regulations on online advertising. See “Regulations on Online Advertising Services.”

We are also regularly subject to claims, lawsuits, arbitration proceedings, government investigations and other legal and regulatory proceedings seeking to hold us liable for the actions of carriers and shippers on our platforms as well as other external parties involved in our business. The results of any such claims, lawsuits, arbitration proceedings, government investigations or other legal or regulatory proceedings cannot be predicted with certainty. Any claims against us, whether meritorious or not, could be time-consuming, result in costly litigation, be harmful to our reputation, require significant management attention and divert significant resources. It is possible that a resolution of one or more such proceedings could result in substantial damages, settlement costs, fines and penalties.

We depend on navigation, communication, and other external applications and software.

We depend on several external applications and software to ensure the smooth performance of certain key functions of our business. For example, we depend on an external navigation application to provide real-time navigation service to our carriers, social media providers for embedding our mini-programs and public accounts, and online payment platforms for processing payments to and from us.

Any interruption, most of which are beyond our control, in the functionality of these external applications and software may lead to our system interruptions, slowdown or unavailability of our mobile apps or mini-programs, delays or errors in freight transportation, loss of data or an inability to accept and complete orders. In addition, if any external application provider withdraws its authorization to us, or its services become limited, restricted, curtailed or less effective in any way for any reason, our business may be materially and adversely affected. We may not be able to promptly find alternative ways to provide services in a timely, reliable and cost-effective manner, or at all.

 

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Our value-added services are subject to risks.

Our platform offers various value-added services to shippers and carriers. For example, we provide fuel services to drivers, where we collaborate with major fuel providers and recommend fuel stations down the route, and drivers could purchase fuels at discounted rates. We also provide financial leasing services and collaborate with insurance companies and agencies in offering insurance products for freight transportation. These value-added services may be subject to evolving regulations which we do not particularly received timely updates on and may not effectively satisfy the needs of shippers and carriers on our platform, and we may not be able to timely develop other value-added services in response of their evolving demand.

Any deficiencies in China’s telecommunication and internet infrastructure could impair the functioning of our technology system and the operation of our business.

Our business depends on the performance, reliability and security of the telecommunications and internet infrastructure in China. We may not have access to alternative networks in the event of disruptions, failures or other problems with the telecommunication and internet infrastructure in China, which is maintained through state-owned telecommunications carriers. The failure of telecommunication and internet network operators to provide us with the requisite bandwidth could also interfere with the speed and availability of our platform. Any of such occurrences could delay or prevent our shippers and carriers from accessing our online platform and mobile applications, and frequent interruptions could frustrate our shippers and carriers and discourage them from using our services, which could cause us to lose customers and harm our results of operations. In addition, we have limited control over the service fees charged by telecommunication and internet operators. If the prices we pay for telecommunications and internet services rise significantly, our results of operations may be materially and adversely affected.

We may fail to effectively prevent invalid orders.

We face risks with respect to invalid orders, which are not uncommon in the road freight transportation industry. For example, Information about orders may be inaccurate, duplicated or stale, causing difficulty or inefficiency for carriers in completing the order. Invalid orders may significantly obstruct the efficient matching between shippers and carriers as well as negatively impact transparency in the road freight transportation industry. Matching an invalid order between a shipper and a carrier also wastes our resources and efforts and could generate invalid data.

We believe that the authentic and accurate orders placed on our platform are critical for us to gain trust from our carriers, improve the efficiency of our freight transportation and maintain our competitive advantages. Although we have taken measures to secure authentic and accurate orders, such as requiring shippers to directly enter information of orders on our platform and requiring SME Shippers to make upfront payment, we cannot guarantee that these measures could fully prevent inauthentic or inaccurate orders from being placed on our platform. Any inauthentic or inaccurate order could severely damage our brand and reputation, discourage shippers and carriers from using our platform, cast doubt on our promise to provide “authentic orders, fast payment,” and adversely affect our business.

We have in the past offered, and may continue to offer, incentives for carriers and shippers, which may adversely affect our financial performance.

To remain competitive and generate network scale, we have in the past offered, and expect in the future to continue to offer, incentives for our carriers and shippers. For example, we have strategically provided promotional incentives for new shippers to place their first orders and for new carriers to

 

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complete their first orders. We have also provided incentives and privileges to drivers based on their ratings. We set up milestones for drivers, such as certain transport miles reached in completing orders on our platform, upon completion of which drivers will receive incentives and rating upgrade. Moreover, we encourage existing drivers to introduce new drivers, and provide incentives for both.

Financial incentives for carriers and shippers may negatively affect our performance. Our competitors may offer similar or greater incentives from time to time, and we may need to match or exceed these incentives in order to remain competitive. We cannot guarantee that the level of incentives we offer will not significantly increase, or stabilize at a competitive equilibrium that will allow us to realize and improve profitability.

Our insurance coverage may not be adequate to protect us from all business risks.

Alongside our freight transportation, we may be subject to claims of significant liability based on traffic accidents, deaths, injuries, or other incidents that are caused by our carriers while using our platform. Our auto liability insurance policies may not cover all potential claims to which we are exposed, and may not be adequate to indemnify us for all liability. Even if these claims do not result in liability to us, we will incur significant costs in investigating and defending against them.

We maintain certain insurance policies to safeguard us against risks and unexpected events, including carrier’s liability insurance and special cargo transportation insurance. We do not maintain any liability insurance or property insurance policies covering our equipment and facilities for injuries, death or losses due to fire, earthquake, flood or any other disaster. Consistent with customary industry practice in China, we do not maintain business interruption insurance, nor do we maintain key-man life insurance. We consider our insurance coverage to be sufficient for our business operations in China. However, we cannot assure you that our insurance coverage is sufficient to prevent us from any loss or that we will be able to successfully claim our losses under our current insurance policy on a timely basis, or at all. We may incur loss that is not covered by our insurance policies, and the compensated amount may be significantly less than our actual loss.

We may be unable to finance our capital needs in a timely manner or on acceptable terms, or at all.

We need to make continued investments in expanding our business, developing and upgrading our technology systems, and attracting and retaining talents to remain competitive. In addition, as we usually pay our carriers shortly after they complete their services while we grant KA Shippers certain credit terms for our service fees, our growth of scale requires us to invest more into our working capital. Due to the unpredictable nature of the capital markets and our industry, there can be no assurance that we will be able to raise additional capital on terms acceptable to us, or at all, if and when required, especially if we experience disappointing operating results. If adequate capital is not available to us as required, our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our technology infrastructure, or respond to competitive pressures could be significantly limited. If we do raise additional funds through the issuance of equity or convertible debt securities, the ownership interests of our shareholders could be significantly diluted. These newly issued securities may have rights, preferences or privileges on par with or senior to those of existing shareholders.

Our business depends substantially on the continuing efforts of our executive officers and other key employees.

Our success heavily depends upon the continuing efforts of our executive officers. In particular, we rely on the leadership, expertise, experience and vision of Ms. Dandan Shan, our founder, chairperson and chief executive officer, Dr. Guanling Chen, our director and chief technology officer,

 

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and other executive officers. If any of our executive officers were unable or unwilling to continue in their present positions, we might not be able to replace her or him in a timely manner, or at all. We may incur additional expenses to recruit and retain qualified replacements. Although our executive officers have entered into employment agreements and confidentiality and non-competition agreements with us, if any dispute arises between our officers and us, we may have to incur substantial costs and expenses in order to enforce such agreements or we may be unable to enforce them at all. In addition, we do not have key-man insurance for any of our executive officers or other key personnel. As a result, our business may be severely disrupted due to the loss of services of one or more members of our management.

Our business depends on retaining and attracting qualified personnel.

We believe our future success depends on our continued ability to attract, develop, motivate and retain qualified and skilled employees. Competition for personnel with expertise in freight transportation and technology infrastructure is extremely intense in China. We may not be able to hire and retain these personnel at compensation levels consistent with our existing compensation and salary structure. Some of the companies with which we compete for experienced employees have greater resources than we have and may be able to offer more attractive terms of employment. If we fail to retain our employees, we could incur significant expenses in hiring and training new employees, resulting in an adverse effect on our human capital and our business.

We have granted and expect to continue to grant share-based awards in the future under our share incentive plan, which may result in increased share-based compensation expenses.

We adopted our amended and restated 2018 Global Share Plan I, which we refer to as the 2018 Plan, to attract and retain the best available personnel for positions of substantial responsibility and to provide additional incentives to our employees, directors and consultants. We recognize expenses in our consolidated financial statements in accordance with U.S. GAAP. Under the 2018 Plan, we are authorized to grant options and share purchase rights to acquire restricted shares. As of the date of this prospectus, the maximum aggregate number of ordinary shares which may be issued pursuant to all awards under the 2018 Plan is 119,922,812 class A ordinary shares, and options to purchase a total of 95,224,450 ordinary shares are granted and outstanding under the 2018 Plan. We incurred share-based compensation expenses of RMB62.7 million in 2019, RMB36.0 million (US$5.5 million) in 2020 and RMB8.0 million (US$1.2 million) for the three months ended March 31, 2021. We expect to incur substantial share-based compensation expenses in the future. Further, we may re-evaluate the vesting schedules, lock-up period, exercise price or other key terms applicable to the grants under our equity incentive plan from time to time. If we choose to do so, we may experience substantial change in our share-based compensation charges in the reporting periods following this offering. For further information on our equity incentive plan and information on our recognition of related expenses, please see “Management—2018 Global Share Plan.”

We may be subject to negative impacts of extreme or unusual weather conditions and other catastrophic events.

Certain seasonal weather conditions, such as heavy snows in north China, and unusual catastrophic events, such as typhoons, earthquakes and landfalls, could cause delays or cancellations in our freight transportation. Any unusual or prolonged adverse weather conditions in our areas of operations, whether due to climate change or otherwise, can temporarily impact freight volumes and increase our costs. Other catastrophic events that result in the destruction or disruption of road transportation could also harm our ability to conduct our business.

 

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Increases in fuel costs and toll fees could adversely affect our profitability.

Our carriers use large quantities of fuel to operate vehicles and pay toll fees along their routes. Although we do not directly bear fuel costs and toll fees, these costs essentially act as a pass-through cost in our pricing to the carrier side. Any unexpected increase in fuel costs or toll fees, which is subject to factors outside of our control, could directly impact the willingness of our carriers to bid or take orders on our platform and force us to increase our proposed fee quote to our carriers. As a result, our profitability could decrease in relation to increases in fuel costs and toll fees.

We may be subject to intellectual property infringement claims.

We cannot be certain that our operations or any aspects of our business do not or will not infringe upon or otherwise violate trademarks, patents, copyrights, know-hows or other intellectual property rights held by external parties. We may be from time to time in the future, subject to legal proceedings and claims relating to the intellectual property rights of others. In addition, there may be third-party trademarks, patents, copyrights, know-hows or other intellectual property rights that are infringed by our services or other aspects of our business without our awareness. If any third-party infringement claims are brought against us, we may be forced to divert management’s time and other resources from our business and operations to defend against these claims, regardless of their merits.

We may fail to protect our intellectual property.

We regard our proprietary technologies, trademarks, copyrights, patents, domain names, know-hows and similar intellectual property as critical to our success. We rely on a combination of copyright and trademark laws and contractual arrangements, including confidentiality and non-compete agreements with our employees and others, to protect our proprietary rights. See “Business—Intellectual Property.” Despite these measures, any of our intellectual property rights could be challenged, invalidated, circumvented or misappropriated, or such intellectual property may not be sufficient to provide us with competitive advantages.

It is often difficult to maintain and enforce intellectual property rights in China. Statutory laws and regulations are subject to judicial interpretation and enforcement and may not be applied consistently. Confidentiality, invention assignment and non-compete agreements may be breached by counterparties, and there may not be adequate remedies available to us for any such breach. Accordingly, we may not be able to effectively protect our intellectual property rights or to enforce our contractual rights in China. Preventing any unauthorized use of our intellectual property is difficult and costly and the steps we take may be inadequate to prevent the misappropriation of our intellectual property. In the event that we resort to litigation to enforce our intellectual property rights, such litigation could result in substantial costs and a diversion of our managerial and financial resources. We can also provide no assurance that we will prevail in such litigation. In addition, our trade secrets may be leaked or otherwise become available to, or be independently discovered by, our competitors.

The wide variety of payment methods that we accept subjects us to third-party payment processing-related risks.

We accept a wide variety of payment methods, including bank transfers and online payments through various third-party online payment platforms such as Alipay, WeChat Pay and UnionPay, in order to ensure smooth user experience. For certain payment methods, we pay varying service fees, which may increase over time and raise our operating costs and lower our profit margins. We may also be subject to fraud, money laundering and other illegal activities in connection with the various payment methods we accept.

 

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We may fail to successfully make necessary or desirable strategic alliances, acquisitions or investments, and we may not be able to achieve the benefits we expect from the alliances, acquisition or investments we make.

We may pursue selected strategic alliances and potential strategic acquisitions that are supplemental to our business. However, strategic alliances with external parties could subject us to a number of risks, including risks associated with sharing proprietary information, non-performance or default by counterparties, and increased expenses in establishing these new alliances, any of which may materially and adversely affect our business. In addition, we may have limited ability to control or monitor the actions of our strategic partners. To the extent a strategic partner suffers any negative publicity as a result of its business operations, our reputation may be negatively affected by virtue of our association with such party. For example, we established a joint venture engaging in autonomous driving, where we provide smart dispatching capabilities and transportation network, and our joint venture partner provides autonomous driving technology. The development of autonomous driving technology, however, is expensive and time-consuming and may not be successful.

The costs of identifying and consummating strategic acquisitions may be significant and subsequent integrations of newly acquired companies, businesses, assets and technologies would require significant managerial and financial resources and could result in a diversion of resources from our existing business, which in turn could have an adverse effect on our growth and business operations. In addition, investments and acquisitions could result in the use of substantial amounts of cash, potentially dilutive issuances of equity securities and exposure to potential unknown liabilities of the acquired business. The acquired businesses or assets may not generate the financial results we expect and may incur losses. The cost and duration of integrating newly acquired businesses could also materially exceed our expectations.

Enforcement of stricter labor laws and regulations and increases in labor costs in China may adversely affect our business and results of operations.

China’s overall economy and the average wage have increased in recent years and are expected to continue to grow. The average wage level for our employees has also increased in recent years. We expect that our labor costs, including wages and employee benefits, will continue to increase.

In addition, under the PRC Social Insurance Law and the Administrative Measures on Housing Provident Fund, employees are required to participate in pension insurance, work-related injury insurance, medical insurance, unemployment insurance, maternity insurance, and housing provident funds, and employers are required, together with their employees or separately, to pay the contributions to social insurance and housing provident funds for their employees. The relevant government agencies may examine whether an employer has made adequate payments of the requisite statutory employee benefits, and employers who fail to make adequate payments may be subject to late payment fees, fines and/or other penalties. Our PRC subsidiaries and consolidated affiliated entities have failed to promptly make social insurance and housing fund contributions in full for all of our employees. If the relevant PRC authorities determine that we shall make supplemental social insurance and housing fund contributions or that we are subject to fines and legal sanctions in relation to our failure to make social insurance and housing fund contributions in full for our employees, our business and financial conditions may be adversely affected.

If we fail to implement and maintain an effective system of internal controls to remediate our material weakness over financial reporting, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud.

Prior to this offering, we have been a private company with limited accounting personnel and other resources with which to address our internal control over financial reporting. In connection with

 

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the audits of our consolidated financial statements included in this prospectus, we and our independent registered public accounting firm identified one material weakness in our internal control over financial reporting. As defined in the standards established by the U.S. Public Company Accounting Oversight Board, a “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

The material weakness that has been identified relates to our lack of sufficient resources regarding financial reporting and accounting personnel with appropriate knowledge and experience (i) to establish and implement formal period-end financial reporting policies and procedures and (ii) to address complex U.S. GAAP technical accounting issues and to prepare and review the Group’s consolidated financial statements and related disclosures in accordance with U.S. GAAP and financial reporting requirements set forth by the SEC. Neither we nor our independent registered public accounting firm undertook a comprehensive assessment of our internal controls for purposes of identifying and reporting material weaknesses and other deficiencies in our internal control over financial reporting. Had we performed a formal assessment of our internal control over financial reporting or had our independent registered public accounting firm performed an audit of our internal control over financial reporting, additional deficiencies may have been identified.

Following the identification of the material weakness and other deficiencies, we have taken measures and plan to continue to take measures to remediate these control deficiencies. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Internal Control Over Financial Reporting.” However, the implementation of these measures may not fully address the material weakness and other deficiencies in our internal control over financial reporting, and we cannot conclude that they have been fully remediated. Our failure to correct the material weakness and other deficiencies or our failure to discover and address any other deficiencies could result in inaccuracies in our financial statements and impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. Moreover, ineffective internal control over financial reporting could significantly hinder our ability to prevent fraud.

We will be subject to the reporting requirements of the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and the rules and regulations of the Nasdaq Stock Market after the completion of this offering. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls over financial reporting. We must perform system and process evaluation and testing of our internal controls over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting in our Form 20-F filing beginning with our second annual report after the completion of this offering, as required by Section 404 of the Sarbanes-Oxley Act. Prior to this offering, we were never required to test our internal controls within a specified period, and, as a result, we may experience difficulty in meeting these reporting requirements in a timely manner. In addition, once we cease to be an “emerging growth company” as such term is defined in the JOBS Act, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report with adverse opinion on our internal control over financial reporting if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us.

If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to maintain the adequacy of our internal control over financial

 

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reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to produce timely and accurate financial statements and may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. If that were to happen, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which could lead to a decline in the market price of our ADS and we could be subject to sanctions or investigations by the Nasdaq Stock Market, SEC or other regulatory authorities. We may also be required to restate our financial statements for prior periods.

Risks Related to Our Corporate Structure

If the PRC government finds that the agreements that establish the structure for operating some of our operations in China do not comply with PRC regulations relating to the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.

Foreign investment in the value-added telecommunication services in China is extensively regulated and subject to stringent requirements. Specifically, foreign ownership of a value-added telecommunication service provider may not exceed 50% (except for e-commerce, domestic multi-party communication, storage and forwarding classes and call centers) under the Special Administrative Measures for Access of Foreign Investment (Negative List) (2020 Edition), or the 2020 Negative List, which is jointly promulgated by the National Development and Reform Commission, or the NDRC, and the Ministry of Commerce and became effective on July 23, 2020.

We are an exempted company incorporated in the Cayman Islands and our PRC subsidiaries are considered foreign-invested enterprises. Accordingly, none of our wholly-owned PRC subsidiaries is eligible to provide value-added telecommunication services in China under PRC laws. To comply with the applicable PRC laws and regulations, we conduct such business through Nanjing ForU, our VIE, which holds an ICP license effective until June 24, 2025. Beijing ForU Duoduo, our WFOE, has entered into a series of contractual arrangements with our VIE and its shareholders, which enable us to:

 

   

exercise effective control over our VIE;

 

   

receive substantially all of the economic benefits and bear the obligation to absorb substantially all of the losses of our VIE; and

 

   

have an exclusive option to purchase all or part of the equity interests and assets in our VIE when and to the extent permitted by PRC law.

As a result of these contractual arrangements, we have control over and are the primary beneficiary of our VIE and hence consolidate financial results of our VIE and its subsidiaries into our consolidated financial statements under U.S. GAAP. For a detailed discussion of these contractual arrangements, see “Corporate History and Structure.”

In the opinion of our PRC counsel, CM Law Firm, (i) the ownership structures of our WFOE and our VIE in China, currently and immediately after giving effect to this offering are not in violation of any explicit provisions of PRC laws and regulations currently in effect; and (ii) the agreements under the contractual arrangements between our WFOE, our VIE and its shareholders governed by PRC law are valid, binding and enforceable against each party thereto in accordance with their terms. However, we have been further advised by our PRC counsel that there are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules. Thus, the PRC regulatory authorities may take a view contrary to the opinion of our PRC legal counsel. It is uncertain

 

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whether any new PRC laws or regulations relating to variable interest entity structure will be adopted or if adopted, what they would provide. If the ownership structures, contractual arrangements and business of our company, our PRC subsidiaries, our VIE or subsidiaries of our VIE are found to be in violation of any existing or future PRC laws or regulations, or fail to obtain or maintain any of the required permits or approvals to operate our business, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures, including:

 

   

revoking the business licenses and/or operating licenses of such entities;

 

   

imposing fines on us;

 

   

confiscating any of our income that they deem to be obtained through illegal operations;

 

   

discontinuing or placing restrictions or onerous conditions on our operations;

 

   

placing restrictions on our right to collect revenues;

 

   

shutting down our servers or blocking our app/websites;

 

   

requiring us to restructure our ownership structure or operations;

 

   

restricting or prohibiting our use of the proceeds from this offering or other of our financing activities to finance the business and operations of our VIE and its subsidiaries; or

 

   

taking other regulatory or enforcement actions that could be harmful to our business.

Any of these events could cause significant disruption to our business operations and severely damage our reputation, which would in turn have a material adverse effect on our financial condition and results of operations. If occurrences of any of these events results in our inability to direct the activities of our VIE and its subsidiaries in China that most significantly impact its economic performance, and/or our failure to receive the economic benefits and residual returns from our VIE and its subsidiaries, and we are not able to restructure our ownership structure and operations in a satisfactory manner, we may not be able to consolidate the financial results of our VIE or its subsidiaries in our consolidated financial statements in accordance with U.S. GAAP.

The contractual arrangements with our VIE and its shareholders may not be as effective as direct ownership in providing operational control.

We have to rely on the contractual arrangements with our VIE and its shareholders to operate our business in China, including provision of certain value-added telecommunication services. These contractual arrangements, however, may not be as effective as direct ownership in providing us with control over our VIE. For example, our VIE and its shareholders could breach their contractual arrangements with us by, among other things, failing to conduct the operations of our VIE in an acceptable manner or taking other actions that are detrimental to our interests.

If we had direct ownership of our VIE in China, we would be able to exercise our rights as a shareholder to effect changes in the board of directors of our VIE which in turn could implement changes, subject to any applicable fiduciary obligations, at the management and operational level. However, under the current contractual arrangements, we rely on the performance by our VIE and its shareholders of their obligations under the contracts to exercise control over our VIE. The shareholders of our VIE may not act in the best interests of our company or may not perform their obligations under these contracts. If any dispute relating to these contracts remains unresolved, we will have to enforce our rights under these contracts through the operations of PRC law and arbitration, litigation and other legal proceedings and therefore will be subject to uncertainties in the PRC legal system. See “—Any failure by our VIE or its shareholders to perform their obligations under our contractual arrangements with them would have a material and adverse effect on our business.”

 

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Any failure by our VIE or its shareholders to perform their obligations under our contractual arrangements with them would have a material and adverse effect on our business.

If our VIE or its shareholders fail to perform their respective obligations under the contractual arrangements, we could be limited in our ability to enforce the contractual arrangements that give us effective control over our business operations in China and may have to incur substantial costs and expend additional resources to enforce such arrangements. We may also have to rely on legal remedies under PRC law, including seeking specific performance or injunctive relief, and contractual remedies, which we cannot assure you will be sufficient or effective under PRC law. For example, if the shareholders of our VIE were to refuse to transfer their equity interests in our VIE to us or our designee if we exercise the purchase option pursuant to these contractual arrangements, or if they were otherwise to act in bad faith toward us, then we may have to take legal actions to compel them to perform their contractual obligations. In addition, if there are any disputes or governmental proceedings involving any interest in such shareholders’ equity interests in our VIE, our ability to exercise shareholders’ rights or foreclose the share pledges according to the contractual arrangements may be impaired. If these disputes or proceedings were to impair our control over our VIE, we may not be able to maintain effective control over our business operations in the PRC and thus would not be able to continue to consolidate our VIE’s financial results, which would in turn result in a material adverse effect on our business, operations and financial condition.

Our contractual arrangements are governed by PRC law. Accordingly, these contracts would be interpreted in accordance with PRC law, and any disputes would be resolved in accordance with PRC legal procedures, which may not protect you as much as those of other jurisdictions, such as the United States.

All the agreements under our contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in China. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal system in the PRC is not as developed as in some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements. See “—Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system could adversely affect us.” Meanwhile, there are very few precedents and little formal guidance as to how contractual arrangements in the context of a consolidated variable interest entity should be interpreted or enforced under PRC law. There remain significant uncertainties regarding the ultimate outcome of such arbitration should legal action become necessary. In addition, under PRC law, rulings by arbitrators are final, parties cannot appeal the arbitration results in courts, and if the losing parties fail to carry out the arbitration awards within a prescribed time limit, the prevailing parties may only enforce the arbitration awards in PRC courts through arbitration award recognition proceedings, which would require additional expenses and delay. In the event we are unable to enforce these contractual arrangements, or if we suffer significant delay or other obstacles in the process of enforcing these contractual arrangements, we may not be able to exert effective control over our VIE, and our ability to conduct our business may be negatively affected.

The shareholders of our VIE may have actual or potential conflicts of interest with us.

The shareholders of our VIE may have actual or potential conflicts of interest with us. These shareholders may breach, or cause our VIE to breach, or refuse to renew, the existing contractual arrangements we have with them and our VIE, which would have a material and adverse effect on our ability to effectively control our VIE and receive economic benefits from them. For example, the shareholders may be able to cause our agreements with our VIE to be performed in a manner adverse to us by, among other things, failing to remit payments due under the contractual arrangements to us on a timely basis. We cannot assure you that when conflicts of interest arise any or all of these shareholders will act in the best interests of our company or such conflicts will be resolved in our favor.

 

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Currently, we do not have any arrangements to address potential conflicts of interest between these shareholders and our company, except that we could exercise our purchase option under the exclusive option agreements with these shareholders to request them to transfer all of their equity interests in the VIE to a PRC entity or individual designated by us, to the extent permitted by PRC law. For individuals who are also our directors and officers, we rely on them to abide by the laws of the Cayman Islands, which provide that directors and officers owe a fiduciary duty to the company that requires them to act in good faith and in what they believe to be the best interests of the company and not to use their position for personal gains. The shareholders of our VIE have executed powers of attorney to appoint our WFOE or a person designated by our WFOE to vote on their behalf and exercise voting rights as shareholders of our VIE. If we cannot resolve any conflict of interest or dispute between us and the shareholders of our VIE, we would have to rely on legal proceedings, which could result in disruption of our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings.

The shareholders of our VIE may be involved in personal disputes with third-parties or other incidents that may have an adverse effect on their respective equity interests in our VIE and the validity or enforceability of our contractual arrangements with our VIE and its shareholders. For example, in the event that any of the shareholders of our VIE divorces his spouse, the spouse may claim that the equity interest of the VIE held by such shareholder is part of their community property and should be divided between such shareholder and his spouse. If such claim is supported by the court, the relevant equity interest may be obtained by the shareholder’s spouse or another third-party who is not subject to obligations under our contractual arrangements, which could result in a loss of the effective control over the VIE by us. Similarly, if any of the equity interests of our VIE is inherited by a third-party with whom the current contractual arrangements are not binding, we could lose our control over the VIE or have to maintain such control by incurring unpredictable costs, which could cause significant disruption to our business and operations and harm our financial condition and results of operations.

Although under our current contractual arrangements, (i) each of Ms. Dandan Shan and Mr. Hongxin Wang, being spouse of each other, has executed a spousal consent letter, under which each spouse agrees that he or she will not raise any claims against the equity interest, and will take every action to ensure the performance of the contractual arrangements, and (ii) the VIE and its shareholders shall not assign any of their respective rights or obligations to any third-party without the prior written consent of our WFOE, we cannot assure you that these undertakings and arrangements will be complied with or effectively enforced. In case any of them is breached or becomes unenforceable and leads to legal proceedings, it could disrupt our business, distract our management’s attention, and subject us to substantial uncertainties as to the outcome of any such legal proceedings.

Contractual arrangements in relation to our VIE may be subject to scrutiny by the PRC tax authorities and they may determine that we or our VIE owe additional taxes, which could negatively affect our financial condition and the value of your investment.

Under applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities. We could face material and adverse tax consequences if the PRC tax authorities determine that the contractual arrangements in relation to our VIE were not entered into on an arm’s length basis in such a way as to result in an impermissible reduction in taxes under applicable PRC laws, rules and regulations, and adjust income of our VIE in the form of a transfer pricing adjustment. A transfer pricing adjustment could, among other things, result in a reduction of expense deductions recorded by our VIE for PRC tax purposes, which could in turn increase its tax liabilities without reducing our PRC subsidiaries’ tax expenses. In addition, the PRC tax authorities may impose late payment fees and other penalties on our VIE for the adjusted but unpaid taxes according to the applicable regulations. Our financial position could be materially and adversely affected if our VIE’s tax liabilities increase or if they are required to pay late payment fees and other penalties.

 

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We may lose the ability to use and enjoy assets held by our VIE that are critical to the operation of our business if our VIE declare bankruptcy or become subject to a dissolution or liquidation proceeding.

Our VIE hold certain assets that may be critical to the operation of our business, including permits, domain names and most of our intellectual property rights. If the shareholders of our VIE breach the contractual arrangements and voluntarily liquidate the VIE or its subsidiaries, or if our VIE or its subsidiaries declare bankruptcy and all or part of their assets become subject to liens or rights of third-party creditors or are otherwise disposed of without our consent, we may be unable to continue some or all of our business activities, which could materially and adversely affect our business, financial condition and results of operations. In addition, if our VIE or its subsidiaries undergo an involuntary liquidation proceeding, third-party creditors may claim rights to some or all of their assets, thereby hindering our ability to operate our business, which could materially or adversely affect our business, financial condition and results of operations.

Our current corporate structure and business operations may be substantially affected by the Foreign Investment Law.

On March 15, 2019, the National People’s Congress promulgated the Foreign Investment Law, which took effect on January 1, 2020. On December 26, 2019, the PRC State Council approved the Implementation Rules of Foreign Investment Law, which came into effect on January 1, 2020. Since the Foreign Investment Law and its implementation rules are relatively new, substantially uncertainties exist in relation to its interpretation and implementation. The Foreign Investment law does not explicitly classify whether variable interest entities that are controlled through contractual arrangements would be deemed as foreign invested enterprises if they are ultimately “controlled” by foreign investors. However, it has a catch-all provision under definition of “foreign investment” that includes investments made by foreign investors in China through other means as provided by laws, administrative regulations or the State Council. Therefore, it still leaves leeway for future laws, administrative regulations or provisions of the State Council to provide for contractual arrangements as a form of foreign investment, at which time it will be uncertain whether our contractual arrangements will be deemed to be in violation of the market access requirements for foreign investment in the PRC and if yes, how our contractual arrangements should be dealt with.

The Foreign Investment Law grants national treatment to foreign-invested entities, except for those foreign-invested entities that operate in industries specified as either “restricted” or “prohibited” from foreign investment in the Negative List. Foreign investors are prohibited from making any investments in industries which are listed as “prohibited” in the Negative List. The Foreign Investment Law also provides that foreign-invested entities operating in “restricted” industries will require market entry clearance and other approvals from relevant PRC government authorities. If our control over our VIE through contractual arrangements are deemed as foreign investment in the future, and any business of our VIE is “restricted” or “prohibited” from foreign investment under the Negative List effective at the time, we may be deemed to be in violation of the Foreign Investment Law, the contractual arrangements that allow us to have control over our VIE may be deemed as invalid and illegal, and we may be required to unwind such contractual arrangements and/or restructure our business operations, any of which may have a material adverse effect on our business operation.

Furthermore, if future laws, administrative regulations or provisions mandate further actions to be taken by companies with respect to existing contractual arrangements, we may face substantial uncertainties as to whether we can complete such actions in a timely manner or at all. Failure to take timely and appropriate measures to cope with any of these or similar regulatory compliance challenges could materially and adversely affect our current corporate structure and business operations.

 

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If we exercise the option to acquire equity interest of the VIE, this equity interest transfer may subject us to certain limitations and substantial costs.

Under the current PRC laws, foreign investors are generally not allowed to hold more than 50% of the equity interest of any company providing certain value-added telecommunications services with certain exceptions and any such must have prior experience in operating value-added telecommunications businesses and a proven track record of business operations overseas, or the Qualification Requirements. Currently no applicable PRC laws or regulations provides clear guidance or interpretation on these requirements. We still face the risk of not satisfying the requirement promptly. If PRC laws change to allow foreign investors to invest in value-added telecommunications enterprises in the PRC, we may be unable to unwind our contractual arrangements with our VIE and its shareholders before we are able to comply with the Qualification Requirements and other requirements.

Pursuant to the contractual arrangements, our WFOE has the irrevocable and exclusive right to purchase all or any part of the relevant equity interest in our VIE from our VIE’s shareholders at any time and from time to time in their absolute discretion to the extent permitted by PRC laws. The consideration our WFOE pays for such purchases will be a nominal price or the lowest price as permitted under applicable PRC laws or an amount equal to the registered capital contributed by the relevant shareholder. This equity transfer may be subject to approvals from, filings with, or reporting to competent PRC authorities, such as the Ministry of Commerce, the MIIT, the State Administration of Market Regulation, and/or their local competent branches. In addition, the equity transfer price may be subject to review and tax adjustment by the relevant tax authorities. The shareholders of our VIE will pay the equity transfer price they received to our WFOE under the contracture arrangements. The amount to be received by our WFOE may also be subject to enterprise income tax, and these amounts could be substantial.

Risks Related to Doing Business in China

Changes in China’s economic, political or social conditions or government policies could adversely impact our business.

Substantially all of our assets and operations are located in China and our business may be influenced to a significant degree by economic, political and social conditions in China generally. The Chinese economy differs from the economies of most developed countries in many respects, including the level of development, growth rate, level of government involvement and control of foreign exchange and allocation of resources. The PRC government exercises significant control over China’s economic growth through allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries or companies.

While the Chinese economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy, and the rate of growth has been slowing since 2012. Any adverse changes in economic conditions in China, in the policies of the PRC government or in the laws and regulations in China could have a material adverse effect on the overall economic growth of China. Such developments could adversely affect our business and operating results, lead to reduction in demand for our services and adversely affect our competitive position. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources, some of which may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by changes in tax regulations. In addition, the increased global focus on social, ethical and environmental issues may lead to China’s adoption of more stringent standards in these areas, which may adversely impact the operations of China-based companies including us.

 

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Uncertainties with respect to the PRC legal system could adversely affect us.

The PRC legal system is a civil law system based on written statutes, where prior court decisions have limited precedential value. The PRC legal system is evolving rapidly, and the interpretations of many laws, regulations and rules may contain inconsistencies and enforcement of these laws, regulations and rules involves uncertainties.

From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. However, since the PRC judicial and administrative authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to predict the outcome of a judicial or administrative proceeding than in more developed legal systems. These uncertainties may impede our ability to enforce the contracts we have entered into or assert other claims to protect our interest.

Furthermore, the PRC legal system is based, in part, on government policies and internal rules, some of which are not published in a timely manner or at all, but which may have retroactive effect. As a result, we may not always be aware of any potential violation of these policies and rules. As of the date of this prospectus, we have not received any inquiries or notices from relevant governmental authorities or regulators regarding our ordinary operations. However, there is no assurance that we will not receive such inquiries or notices, be required to maintain periodical communications with regulators, or be ordered to rectify or modify certain ordinary business practices in the future. Such unpredictability towards our contractual, property (including intellectual property) and procedural rights could cause negative publicity, adversely affect our business and impede our ability to continue our operations.

The current tensions in international trade and rising political tensions, particularly between the United States and China, may adversely impact our business.

Recently there have been heightened tensions in international economic relations, such as the one between the United States and China. The U.S. government has recently imposed, and has recently proposed to impose additional, new, or higher tariffs on certain products imported from China to penalize China for what it characterizes as unfair trade practices. China has responded by imposing, and proposing to impose additional, new, or higher tariffs on certain products imported from the United States. Following mutual retaliatory actions for months, on January 15, 2020, the United States and China entered into the Economic and Trade Agreement between the United States of America and the People’s Republic of China as a phase one trade deal, effective on February 14, 2020.

In addition, political tensions between the United States and China have escalated due to, among other things, trade disputes, the COVID-19 outbreak, sanctions imposed by the U.S. Department of Treasury on certain officials of the Hong Kong Special Administrative Region and the PRC central government and the executive orders issued by the U.S. government in August 2020 that prohibit certain transactions with certain selected leading Chinese internet companies as well as their products. Rising political tensions could reduce levels of trades, investments, technological exchanges, and other economic activities between the two major economies. Such tensions between the United States and China, and any escalation thereof, may have a negative impact on the general, economic, political, and social conditions in China.

We may be adversely affected by the complexity, uncertainties and changes in PRC regulation of internet-related businesses and companies.

The PRC government extensively regulates the internet industry, including foreign ownership of, and the licensing and permit requirements pertaining to, companies operating in the internet industry.

 

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These internet-related laws and regulations are relatively new and evolving, and their interpretation and enforcement involve significant uncertainties. As a result, in certain circumstances it may be difficult to determine what actions or omissions may be deemed to be in violation of applicable laws and regulations. We only have contractual control over our VIE and its subsidiaries. Such corporate structure may subject us to sanctions, compromise enforceability of related contractual arrangements, which may result in significant disruption to our business.

The interpretation and application of existing PRC laws, regulations and policies and possible new laws, regulations or policies relating to the internet industry have created substantial uncertainties regarding the legality of existing and future foreign investments in, and the businesses and activities of, internet businesses in China, including our business. We cannot assure you that we have obtained all the permits or licenses required for conducting our business in China or will be able to maintain our existing licenses or obtain new ones. If the PRC government considers that we were operating without the proper approvals, licenses or permits or promulgates new laws and regulations that require additional approvals or licenses or imposes additional restrictions on the operation of any part of our business, it has the power, among other things, to levy fines, confiscate our income, revoke our business licenses and require us to discontinue our relevant business or impose restrictions on the affected portion of our business. Any of these actions by the PRC government may have a material adverse impact on our business and results of operations.

You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against us or our management named in the prospectus based on foreign laws.

We are an exempted company incorporated under the laws of the Cayman Islands, while we conduct all of our operations in China and substantially all of our assets are located in China. In addition, all our senior executive officers reside within China for a significant portion of the time and most of them are PRC national. As a result, it may be difficult for our shareholders to effect service of process upon us or our management residing in China. In addition, China does not have treaties providing for reciprocal recognition and enforcement of judgments of courts with the Cayman Islands and some other countries and regions. Therefore, recognition and enforcement in China of judgments of a court in any of these non-PRC jurisdictions in relation to any matter not subject to a binding arbitration provision may be difficult or impossible.

It may be difficult for overseas regulators to conduct investigation or collect evidence within China.

Shareholder claims or regulatory investigation that are common in the United States generally are difficult to pursue as a matter of law or practicality in China. For example, in China, there are significant legal and other obstacles to providing information needed for regulatory investigations or litigation initiated outside China. Although the authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such cooperation with the securities regulatory authorities in the Unities States may not be efficient in the absence of mutual and practical cooperation mechanism. Furthermore, according to Article 177 of the PRC Securities Law, which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. While detailed interpretation of or implementation rules under the article have yet to be promulgated, the inability for an overseas securities regulator to directly conduct investigation or evidence collection activities within China may further increase difficulties faced by you in protecting your interests. See also “—Risks Related to Our ADSs and This Offering—You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law” for risks associated with investing in us as a Cayman Islands company.

 

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If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders or ADS holders.

Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with “de facto management body” within China is considered a “resident enterprise” and will be subject to the enterprise income tax on its global income at the rate of 25%. The implementation rules define the term “de facto management body” as the body that exercises full and substantial control and overall management over the business, productions, personnel, accounts and properties of an enterprise. In 2009, the State Administration of Taxation, or SAT, issued the Circular of the State Administration of Taxation on Issues Relating to Identification of PRC-Controlled Overseas Registered Enterprises as Resident Enterprises in Accordance with the De Facto Standards of Organizational Management, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect SAT’s general position on how the “de facto management body” text should be applied in determining the tax resident status of all offshore enterprises. According to the above circular, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China and will be subject to PRC enterprise income tax on its global income only if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in China; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in China; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder resolutions, are located or maintained in China; and (iv) at least 50% of voting board members or senior executives habitually reside in China.

We believe none of our entities outside of China is a PRC resident enterprise for PRC tax purposes. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” If the PRC tax authorities determine that we are a PRC resident enterprise for enterprise income tax purposes, we could be subject to PRC tax at a rate of 25% on our worldwide income, which could materially reduce our net income, and we may be required to withhold a 10% withholding tax from dividends we pay to our shareholders that are non-resident enterprises, including the holders of our ADSs. In addition, non-resident enterprise shareholders (including our ADS holders) may be subject to PRC tax at a rate of 10% on gains realized on the sale or other disposition of ADSs or ordinary shares, if such income is treated as sourced from within China. Furthermore, if we are deemed a PRC resident enterprise, dividends payable to our non-PRC individual shareholders (including our ADS holders) and any gain realized on the transfer of ADSs or ordinary shares by such shareholders may be subject to PRC tax at a rate of 20% unless a reduced rate is available under an applicable tax treaty. However, it is unclear whether our non-PRC shareholders would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce the returns on your investment in the ADSs or ordinary shares.

We face uncertainties with respect to indirect transfer of equity interests in PRC resident enterprises by their non-PRC holding companies.

We face uncertainties regarding the reporting on and consequences of previous private equity financing transactions involving the transfer and exchange of shares in our company by non-resident investors. In February 2015, the SAT issued the Bulletin on Issues of Enterprise Income Tax on

 

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Indirect Transfers of Assets by Non-PRC Resident Enterprises. Pursuant to this new regulation, an “indirect transfer” of PRC assets, including a transfer of equity interests in an unlisted non-PRC holding company of a PRC resident enterprise, by non-PRC resident enterprises may be re-characterized and treated as a direct transfer of the underlying PRC assets, if such arrangement does not have a reasonable commercial purpose and was established for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise. In October 2017, the SAT issued the Announcement of the State Administration of Taxation on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, which further clarifies the practice and procedure of the withholding of nonresident enterprise income tax.

We face uncertainties on the reporting and consequences of future private equity financing transactions, share exchanges or other transactions involving the transfer of shares in our company by investors that are non-PRC resident enterprises. The PRC tax authorities may pursue such non-resident enterprises with respect to a filing or the transferees with respect to withholding obligation, and request our PRC subsidiaries to assist in the filing. As a result, we and non-resident enterprises in such transactions may be subject to filing obligations or be taxed under the above mentioned two bulletins, and may be required to expend valuable resources to comply with them or to establish that we and our non-resident enterprises should not be taxed under these regulations.

If our preferential tax treatments and government tax refund or subsidies are reduced, revoked or become unavailable or if the calculation of our tax liability is successfully challenged by the PRC tax authorities, we may be required to increase tax payment.

The Chinese government has provided tax incentives to our PRC subsidiaries in China, including reduced enterprise income tax rates. Beijing ForU, one of our subsidiaries, qualifies as a high and new technology enterprise and, therefore, enjoys a preferential tax rate of 15% rather than the statutory enterprise income tax rate of 25%. In addition, some of our PRC subsidiaries enjoy local government tax refunds or subsidies. According to the agreements between the local government authorities and us, such tax refunds or subsidies are provided by the local government authorities to incentivize corporate business development, and the terms of these agreements range from one to five years. We cannot assure you that we will continue to be eligible to receive such local government tax refunds or subsidies or that amount of such refunds or subsidies will not be reduced in the future. Our ability to continue enjoy local government tax refunds or subsidies is subject to changes in national or local policies that affect the validity of our agreements, and may be affected by the termination of, or amendments to, such agreements for reasons beyond our control. We cannot assure you that we will be able to enter into new agreements with local government authorities that provide local government tax refunds or subsidies to us on similar terms. Any increase in the enterprise income tax rate applicable to our PRC subsidiaries in China, or any discontinuation, retroactive or reduction or refund of any of the preferential tax treatments, or any significant decrease in or termination of such local government tax refunds or subsidies currently enjoyed by our PRC subsidiaries in China, could adversely affect our financial condition.

The M&A Rules and certain other PRC regulations may make it more difficult for us to pursue growth through acquisitions.

The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, and some other regulations and rules concerning mergers and acquisitions established complex procedures and requirements for some acquisitions of Chinese companies by foreign investors, including requirements in some instances that the Ministry of Commerce, be notified

 

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in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. Moreover, the Anti-Monopoly Law requires that transactions which are deemed concentrations and involve parties with specified turnover thresholds mast be cleared by the Ministry of Commerce before they can be completed. In addition, the security review rules issued by the Ministry of Commerce specify that mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by the Ministry of Commerce, and the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement.

We may pursue potential strategic acquisitions that are complementary to our business and operations. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval or clearance from the Ministry of Commerce, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.

The approval of the China Securities Regulatory Commission may be required in connection with this offering, and, if required, we cannot predict whether we will be able to obtain such approval.

The M&A Rules require an overseas special purpose vehicle formed for listing purposes through acquisitions of PRC domestic companies and controlled by PRC companies or individuals to obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. The interpretation and application of the regulations remain unclear, and this offering may ultimately require approval from the CSRC. If the CSRC approval is required, it is uncertain how long it will take us to obtain such approval and any failure to obtain or delay in obtaining the approval for this offering would subject us to sanctions imposed by the CSRC and other PRC regulatory agencies, which could include fines and penalties on our operations in China, restrictions or limitations on our ability to pay dividends outside of China.

Our PRC legal counsel has advised us that, based on its understanding of the current PRC laws and regulations, we will not be required to submit an application to the CSRC for the approval of the listing and trading of our ADSs on the Nasdaq Stock Market. However, we cannot assure you that relevant PRC government agencies, including the CSRC, would reach the same conclusion as our PRC legal counsel, and hence we may face regulatory actions or other sanctions from the CSRC or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds from this offering into China or take other actions that could have a material adverse effect on our business, financial condition, results of operations and prospects, as well as the trading price of the ADSs. The CSRC or other PRC regulatory agencies also may take actions requiring us, or making it advisable for us, to halt this offering before settlement and delivery of the ADSs offered hereby. Consequently, if you engage in market trading or other activities in anticipation of and prior to settlement and delivery, you do so at the risk that settlement and delivery may not occur. In addition, if the CSRC or other regulatory agencies later promulgate new rules or explanations requiring that we obtain their approvals for this offering, we may be unable to obtain a waiver of such approval requirements, if and when procedures are established to obtain such a waiver.

 

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Any failure to comply with PRC regulations regarding the registration requirements for employee share incentive plans may subject our share incentive plan participants or us to fines and other legal or administrative sanctions.

In February 2012, SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly Listed Company. Pursuant to these rules, PRC citizens and non-PRC citizens who reside in China for a continuous period of not less than one year and participate in any stock incentive plan of an overseas publicly listed company, subject to a few exceptions, are required to register with SAFE through a domestic qualified agent, which could be the PRC subsidiaries of such overseas-listed company, and complete certain other procedures. In addition, an overseas-entrusted institution must be retained to handle matters in connection with the exercise or sale of stock options and the purchase or sale of shares and interests. We and our executive officers and other employees who are PRC citizens or who reside in China for a continuous period of not less than one year and who have been granted options will be subject to these regulations when our company becomes an overseas-listed company upon the completion of this offering. Failure to complete SAFE registrations may subject them to fines of up to RMB300,000 for entities and up to RMB50,000 for individuals, and legal sanctions and may also limit our ability to contribute additional capital into our PRC subsidiaries and limit our PRC subsidiaries’ ability to distribute dividends to us. We also face regulatory uncertainties that could restrict our ability to adopt additional incentive plans for our directors, executive officers and employees under PRC law.

In addition, SAT has issued certain circulars concerning employee share options and restricted shares. Under these circulars, our employees working in China who exercise share options or are granted restricted shares will be subject to PRC individual income tax. Our PRC subsidiaries have obligations to file documents related to employee share options or restricted shares with relevant tax authorities and to withhold individual income taxes of those employees who exercise their share options. If our employees fail to pay or we fail to withhold their income taxes according to relevant laws and regulations, we may face sanctions imposed by the tax authorities or other PRC government authorities.

Failure to comply with PRC laws and regulations on leased property may expose us to potential fines and negatively affect our ability to use the properties we lease.

Some of our leasehold interests in leased properties have not been registered with the relevant PRC government authorities as required by PRC law, which may expose us to potential fines if we fail to remediate after receiving any notice from the relevant PRC government authorities. Failure to complete the lease registration will not affect the legal effectiveness of the lease agreements according to PRC law, but the real estate administrative authorities may require the parties to the lease agreements to complete lease registration within a prescribed period of time, and the failure to do so may subject the parties to fines from RMB1,000 to RMB10,000 for each of such lease agreements.

Certain lessors of our leased properties have not provided us with valid property ownership certificates or any other documentation proving their right to lease those properties to us. If our lessors are not the owners of the properties or they have not obtained consents from the owners or their lessors or permits from the relevant government authorities, our leases could be invalidated.

As of the date of this prospectus, we are not aware of any actions, claims or investigations threatened against us or our lessors with respect to the defects in our leasehold interests. However, if any of our leases is terminated as a result of challenges by other parties or governmental authorities for lack of title certificates or proof of authorization to lease, we do not expect to be subject to any fines or penalties, but we may be forced to relocate the affected offices and incur additional expenses relating to such relocation.

 

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PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries’ ability to change their registered capital or distribute profits to us or otherwise expose us or our PRC resident beneficial owners to liability and penalties under PRC laws.

In July 2014, SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment Through Special Purpose Vehicles, or SAFE Circular 37. SAFE Circular 37 requires PRC residents (including PRC individuals and PRC corporate entities as well as foreign individuals that are deemed as PRC residents for foreign exchange administration purpose) to register with SAFE or its local branches in connection with their direct or indirect offshore investment activities. SAFE Circular 37 further requires amendment to the SAFE registrations in the event of any changes with respect to the basic information of the offshore special purpose vehicle, such as change of a PRC individual shareholder, name and operation term, or any significant changes with respect to the offshore special purpose vehicle, such as increase or decrease of capital contribution, share transfer or exchange, or mergers or divisions. SAFE Circular 37 is applicable to our shareholders who are PRC residents and may be applicable to any offshore acquisitions that we make in the future.

If our shareholders who are PRC residents or entities do not complete their registration with the local SAFE branches, our PRC subsidiaries may be prohibited from distributing its profits and proceeds from any reduction in capital, share transfer or liquidation to us, and we may be restricted in our ability to contribute additional capital to our PRC subsidiaries. In February 2015, SAFE promulgated a Circular on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, pursuant to which applications for foreign exchange registration of inbound foreign direct investments and outbound overseas direct investments, including those required under SAFE Circular 37, will be filed with qualified banks instead of SAFE The qualified banks will directly examine the applications and accept registrations under the supervision of SAFE.

We have used our best efforts to notify PRC residents or entities who directly or indirectly hold shares in our Cayman Islands holding company and who are known to us as being PRC residents to complete the foreign exchange registrations. However, we may not be informed of the identities of all the PRC residents or entities holding direct or indirect interest in our company, nor can we compel our beneficial owners to comply with SAFE registration requirements. As of the date of this prospectus, Ms. Dandan Shan, being the relevant beneficial shareholder of our company, has completed the initial registrations with the local SAFE branch or qualified banks as required by SAFE Circular 37. We cannot assure you that all shareholders or beneficial owners of ours who are PRC residents or entities have complied with, and will in the future make, obtain or update any applicable registrations or approvals required by, SAFE regulations.

The failure or inability of such shareholders or beneficial owners to comply with SAFE Circular 37 or other SAFE regulations, or failure by us to amend the foreign exchange registrations of our PRC subsidiaries, could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our PRC subsidiaries’ ability to make distributions or pay dividends to us or affect our ownership structure. Moreover, failure to comply with the various foreign exchange registration requirements described above could result in liability under PRC law for circumventing applicable foreign exchange restrictions.

Furthermore, interpretation and implementation of these foreign exchange regulations have been constantly evolving, it is unclear how they and any future regulation concerning offshore or cross-border transactions will be interpreted, amended and implemented by the relevant government authorities. For example, we may be subject to a more stringent review and approval process with respect to our foreign exchange activities, such as remittance of dividends and foreign currency-denominated borrowings, which may adversely affect our financial condition and results of operations.

 

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In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such company, as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the foreign exchange regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.

We may be materially adversely affected if our shareholders and beneficial owners who are PRC entities fail to comply with the relevant PRC overseas investment regulations.

In December 2017, the NDRC promulgated the Administrative Measures on Overseas Investments, according to which non-sensitive overseas investment projects are subject to record-filing requirements with the local branch of the NDRC. In September 2014, the Ministry of Commerce promulgated the Administrative Measures on Overseas Investments, according to which overseas investments of PRC enterprises that involve non-sensitive countries and regions and non-sensitive industries are subject to record-filing requirements with a local branch of the Ministry of Commerce. According to the Circular of the State Administration of Foreign Exchange on Issuing the Regulations on Foreign Exchange Administration of the Overseas Direct Investment of Domestic Institutions, PRC enterprises must register for overseas direct investment with a local SAFE branch.

We may not be fully informed of the identities of all our shareholders or beneficial owners who are PRC entities, and we cannot provide any assurance that all of our shareholders and beneficial owners who are PRC entities will comply with our request to complete the overseas direct investment procedures under the aforementioned regulations or other related rules in a timely manner, or at all. If they fail to complete the filings or registrations required by the overseas direct investment regulations, the relevant authorities may order them to suspend or cease the implementation of such investment and make corrections within a specified time.

We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business.

We are a Cayman Islands holding company and we may rely principally on dividends and other distributions on equity from our PRC subsidiaries for our cash requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders for services of any debt we may incur. If our PRC subsidiaries incur debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. Under PRC laws and regulations, our PRC subsidiaries may pay dividends only out of their distributable profits. Distributable profits are our PRC subsidiaries’ after-tax profits, less any recovery of accumulated losses and appropriations to statutory reserves as determined in accordance with PRC accounting standards and regulations. In addition, our PRC subsidiaries may also allocate a portion of their after-tax profits based on PRC accounting standards to a discretionary surplus fund at their discretion. The profits allocated into the statutory reserve funds and the discretionary funds cannot be distributed to us as dividends.

Our PRC subsidiaries generate essentially all of their revenue in Renminbi, which is not freely convertible into other currencies. As a result, any restriction on currency exchange may limit the ability of our PRC subsidiaries to use their Renminbi revenues to pay dividends to us.

The PRC government may continue to strengthen its capital controls, and more restrictions and substantial vetting process may be put forward by SAFE for cross-border transactions falling under both the current account and the capital account. Any limitation on the ability of our PRC subsidiaries

 

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to pay dividends or make other kinds of payments to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.

In addition, the Enterprise Income Tax Law and its implementation rules provide that a withholding tax rate of up to 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or regions where the non-PRC resident enterprises are incorporated.

PRC regulation of loans to and direct investment in PRC entities by offshore holding companies may delay us from using the proceeds of this offering to make loans or additional capital contributions to our PRC subsidiaries and to make loans to our VIE, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

Any funds we transfer to our PRC subsidiaries, either as a shareholder loan or as an increase in registered capital, as well as any loans we provide to our VIE, are subject to approval by or registration with relevant governmental authorities in China. According to the relevant PRC regulations on foreign invested enterprises in China, capital contributions to our PRC subsidiaries are subject to the registration with the State Administration for Market Regulation or its local counterpart and registration with a local bank authorized by SAFE. In addition, (i) any foreign loan procured by our PRC subsidiaries is required to be registered with SAFE or its local branches and (ii) any of our PRC subsidiaries may not procure loans which exceed the difference between its total investment amount and registered capital or, as an alternative, only procure loans subject to the calculation approach and limitation as provided by the People’s Bank of China. Additionally, any medium or long-term loans to be provided by us to our VIE must be registered with the NDRC and SAFE or its local branches. We may not be able to obtain these government approvals or complete such registrations in a timely manner, or at all, with respect to future capital contributions or foreign loans by us to our PRC subsidiaries or loans by us to our VIE. If we fail to receive such approvals or complete such registration or filing, our ability to use the proceeds of this offering to capitalize our PRC operations may be negatively affected.

Fluctuations in exchange rates could have a material and adverse effect on our results of operations and the value of your investment.

The conversion of Renminbi into foreign currencies, including U.S. dollars, is based on rates set by the People’s Bank of China. The Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. The value of Renminbi against the U.S. dollar and other currencies is affected by changes in China’s political and economic conditions and by China’s foreign exchange policies, among other things. We cannot assure you that Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the future. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between Renminbi and the U.S. dollar in the future.

Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any material hedging transactions to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into foreign currency.

 

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Governmental control of currency conversion may limit our ability to utilize our revenues effectively and affect the value of your investment.

The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. We receive all of our revenues in Renminbi. Under our current corporate structure, our Cayman Islands holding company may rely on dividend payments from our PRC subsidiaries to fund any cash and financing requirements we may have. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval of SAFE, by complying with certain procedural requirements. Specifically, under the existing exchange restrictions, without prior approval of SAFE, cash generated from the operations of our PRC subsidiaries in China may be used to pay dividends to our company. However, approval from or registration with appropriate government authorities is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. As a result, we need to obtain SAFE approval to use cash generated from the operations of our PRC subsidiaries and VIE to pay off their respective debt in a currency other than Renminbi owed to entities outside China, or to make other capital expenditure payments outside China in a currency other than Renminbi.

More restrictions and substantial vetting processes are put in place by SAFE to regulate cross-border transactions falling under the capital account. If any of our shareholders regulated by such policies fails to satisfy the applicable overseas direct investment filing or approval requirement timely or at all, it may be subject to penalties from the relevant PRC authorities. The PRC government may at its discretion further restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of the ADSs.

Our ADSs may be delisted under the Holding Foreign Companies Accountable Act if the PCAOB is unable to inspect auditors who are located in China. The delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment. Additionally, the inability of the PCAOB to conduct inspections deprives our investors with the benefits of such inspections.

The Holding Foreign Companies Accountable Act, or the HFCA Act, was enacted on December 18, 2020. The HFCA Act states if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit our shares or ADSs from being traded on a national securities exchange or in the over the counter trading market in the U.S.

Our auditor, the independent registered public accounting firm that issues the audit report included elsewhere in this prospectus, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Since our auditor is located in China, a jurisdiction where the PCAOB has been unable to conduct inspections without the approval of the Chinese authorities, our auditor is currently not inspected by the PCAOB.

On March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements of the HFCA Act. We will be required to comply with these rules if the SEC identifies us as having a “non-inspection” year under a process to be subsequently

 

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established by the SEC. The SEC is assessing how to implement other requirements of the HFCA Act, including the listing and trading prohibition requirements described above.

The SEC may propose additional rules or guidance that could impact us if our auditor is not subject to PCAOB inspection. For example, on August 6, 2020, the President’s Working Group on Financial Markets, or the PWG, issued the Report on Protecting United States Investors from Significant Risks from Chinese Companies to the then President of the United States. This report recommended the SEC implement five recommendations to address companies from jurisdictions that do not provide the PCAOB with sufficient access to fulfil its statutory mandate. Some of the concepts of these recommendations were implemented with the enactment of the HFCA Act. However, some of the recommendations were more stringent than the HFCA Act. For example, if a company was not subject to PCAOB inspection, the report recommended that the transition period before a company would be delisted would end on January 1, 2022.

The SEC has announced that the SEC staff is preparing a consolidated proposal for the rules regarding the implementation of the HFCA Act and to address the recommendations in the PWG report. It is unclear when the SEC will complete its rulemaking and when such rules will become effective and what, if any, of the PWG recommendations will be adopted. The implications of this possible regulation in addition the requirements of the HFCA Act are uncertain. Such uncertainty could cause the market price of our ADSs to be materially and adversely affected, and our securities could be delisted or prohibited from being traded “over-the-counter” earlier than would be required by the HFCA Act. If our securities are unable to be listed on another securities exchange by then, such a delisting would substantially impair your ability to sell or purchase our ADSs when you wish to do so, and the risk and uncertainty associated with a potential delisting would have a negative impact on the price of our ADSs.

The PCAOB’s inability to conduct inspections in China prevents it from fully evaluating the audits and quality control procedures of our independent registered public accounting firm. As a result, we and investors in our ordinary shares are deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections, which could cause investors and potential investors in our stock to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.

In May 2013, the PCAOB announced that it had entered into a Memorandum of Understanding on Enforcement Cooperation with the CSRC and the PRC Ministry of Finance, which establishes a cooperative framework between the parties for the production and exchange of audit documents relevant to investigations undertaken by the PCAOB in the PRC or by the CSRC or the PRC Ministry of Finance in the United States. The PCAOB continues to be in discussions with the CSRC and the PRC Ministry of Finance to permit joint inspections in the PRC of audit firms that are registered with the PCAOB and audit Chinese companies that trade on U.S. exchanges.

Proceedings instituted by the SEC against PRC-based “big four” accounting firms, including our independent registered public accounting firm, could result in financial statements being determined to not be in compliance with the requirements of the Exchange Act.

Starting in 2011 the PRC-based “big four” accounting firms, including our independent registered public accounting firm, were affected by a conflict between U.S. and Chinese law. Specifically, for certain U.S.-listed companies operating and audited in mainland China, the SEC and the PCAOB sought to obtain from the Chinese firms access to their audit work papers and related documents. The firms were, however, advised and directed that under Chinese law, they could not respond directly to

 

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the U.S. regulators on those requests, and that requests by foreign regulators for access to such papers in China had to be channeled through the CSRC.

In late 2012, this impasse led the SEC to commence administrative proceedings under Rule 102(e) of its Rules of Practice and also under the Sarbanes-Oxley Act of 2002 against the Chinese accounting firms, including our independent registered public accounting firm. A first instance trial of the proceedings in July 2013 in the SEC’s internal administrative court resulted in an adverse judgment against the firms. The administrative law judges proposed penalties on the firms including a temporary suspension of their right to practice before the SEC, although that proposed penalty did not take effect pending review by the Commissioners of the SEC. On February 6, 2015, before a review by the Commissioner had taken place, the firms reached a settlement with the SEC. Under the settlement, the SEC accepts that future requests by the SEC for the production of documents will normally be made to the CSRC. The firms will receive matching Section 106 requests and are required to abide by a detailed set of procedures with respect to such requests, which in substance require them to facilitate production via the CSRC. If they fail to meet specified criteria, the SEC retains authority to impose a variety of additional remedial measures on the firms depending on the nature of the failure. Remedies for any future noncompliance could include, as appropriate, an automatic six-month bar on a single firm’s performance of certain audit work, commencement of a new proceeding against a firm, or, in extreme cases, the resumption of the current proceeding against all four firms. If additional remedial measures are imposed on the PRC-based “big four” accounting firms, including our independent registered public accounting firm, in administrative proceedings brought by the SEC alleging the firms’ failure to meet specific criteria set by the SEC with respect to requests for the production of documents, we could be unable to timely file future financial statements in compliance with the requirements of the Exchange Act. In the event that the SEC restarts the administrative proceedings, depending upon the final outcome, listed companies in the United States with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statements being determined not to be in compliance with the requirements of the Exchange Act, including possible delisting. Moreover, any negative news about any such future proceedings against these audit firms may cause investor uncertainty regarding China-based, U.S.-listed companies and the market price of our ADSs may be adversely affected.

If our independent registered public accounting firm was denied, even temporarily, the ability to practice before the SEC and we were unable to timely find another registered public accounting firm to audit and issue an opinion on our financial statements, our financial statements could be determined to be not in compliance with the requirements of the Exchange Act. Such a determination could ultimately lead to the delisting of the ADSs or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of the ADSs in the United States.

Risks Related to Our ADSs and This Offering

There has been no public market for our shares or ADSs prior to this offering, and you may not be able to resell our ADSs at or above the price you paid, or at all.

Prior to this initial public offering, there has been no public market for our shares or ADSs. We have applied to list our ADSs on the Nasdaq Stock Market. Our shares will not be listed on any exchange or quoted for trading on any over-the-counter trading system. If an active trading market for our ADSs does not develop after this offering, the market price and liquidity of our ADSs will be materially and adversely affected.

Negotiations with the underwriters will determine the initial public offering price for our ADSs which may bear no relationship to their market price after the initial public offering. We cannot assure you that an active trading market for our ADSs will develop or that the market price of our ADSs will not decline below the initial public offering price.

 

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The trading price of the ADSs is likely to be volatile, which could result in substantial losses to investors.

The trading price of the ADSs is likely to be volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, including the performance and fluctuation of the market prices of other companies with business operations located mainly in China that have listed their securities in the United States. In addition to market and industry factors, the price and trading volume for the ADSs may be highly volatile for factors specific to our own operations, including the following:

 

   

variations in our revenues, earnings, cash flow;

 

   

fluctuations in operating metrics;

 

   

announcements of new investments, acquisitions, strategic partnerships or joint ventures by us or our competitors;

 

   

announcements of new solutions and services and expansions by us or our competitors;

 

   

termination or non-renewal of contracts or any other material adverse change in our relationship with our key customers or strategic investors;

 

   

changes in financial estimates by securities analysts;

 

   

detrimental negative publicity about us, our competitors or our industry;

 

   

additions or departures of key personnel;

 

   

release of lockup or other transfer restrictions on our outstanding equity securities or sales of additional equity securities;

 

   

regulatory developments affecting us or our industry; and

 

   

potential litigation or regulatory investigations.

Any of these factors may result in large and sudden changes in the volume and price at which the ADSs will trade. Furthermore, the stock market in general experiences price and volume fluctuations that are often unrelated or disproportionate to the operating performance of companies like us. These broad market and industry fluctuations may adversely affect the market price of our ADSs. Volatility or a lack of positive performance in our ADS price may also adversely affect our ability to retain key employees, most of whom have been granted share incentives.

We may face securities class action lawsuits.

In the past, shareholders of public companies have often brought securities class action suits against companies following periods of instability in the market price of their securities. If we were involved in a class action suit, it could divert a significant amount of our management’s attention and other resources from our business and operations and require us to incur significant expenses to defend the suit, which could harm our results of operations. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages.

If securities or industry analysts cease to publish research or reports about our business, or if they adversely change their recommendations regarding the ADSs, the market price for the ADSs and trading volume could decline.

The trading market for the ADSs will be influenced by research or reports that industry or securities analysts publish about our business. If one or more analysts who cover us downgrade the

 

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ADSs, the market price for the ADSs would likely decline. If one or more of these analysts cease to cover us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume for the ADSs to decline.

Our dual-class voting structure will limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of our class A ordinary shares and ADSs may view as beneficial.

Our authorized and issued ordinary shares will be divided into class A ordinary shares and class B ordinary shares immediately prior the completion of this offering (with certain shares remaining undesignated, with power for our directors to designate and issue such classes of shares as they think fit). Holders of class A ordinary shares will be entitled to one vote per share, while holders of class B ordinary shares will be entitled to twenty votes per share. We will issue class A ordinary shares represented by our ADSs in this offering. Each class B ordinary share is convertible into one class A ordinary share at any time by the holder thereof, while class A ordinary shares are not convertible into class B ordinary shares under any circumstances.

Immediately prior to the completion of this offering, Ms. Dandan Shan will beneficially own             % of our issued class B ordinary shares. These class B ordinary shares will constitute approximately             % of our total issued and outstanding share capital immediately after the completion of this offering and             % of the aggregate voting power of our total issued and outstanding share capital immediately after the completion of this offering due to the disparate voting powers associated with our dual-class share structure, assuming the underwriters do not exercise their over-allotment option. As a result of the dual-class share structure and the concentration of ownership, holders of class B ordinary shares will have considerable influence over matters such as decisions regarding mergers and consolidations, election of directors, and other significant corporate actions. Such holders may take actions that are not in the best interest of us or our other shareholders. This concentration of ownership may discourage, delay, or prevent a change in control of our company, which could have the effect of depriving our other shareholders of the opportunity to receive a premium for their shares as part of a sale of our company and may reduce the price of our ADSs. This concentrated control will limit your ability to influence corporate matters and could discourage others from pursuing any potential merger, takeover, or other change of control transactions that holders of class A ordinary shares and ADSs may view as beneficial.

We currently do not expect to pay dividends in the foreseeable future after this offering and you must rely on price appreciation of our ADSs for return on your investment.

We currently intend to retain most, if not all, of our available funds and any future earnings after this offering to fund the development and growth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in our ADSs as a source for any future dividend income.

Our board of directors has complete discretion as to whether to distribute dividends, subject to certain requirements of Cayman Islands law. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our directors. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in our ADSs will likely depend entirely upon any future price appreciation of our ADSs. There is no guarantee that our ADSs will appreciate in value after this offering or even maintain the price at which you purchased the ADSs. You may not realize a return on your investment in our ADSs and you may even lose your entire investment in our ADSs.

 

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Because our initial public offering price is substantially higher than our net tangible book value per share, you will experience immediate and substantial dilution.

If you purchase ADSs in this offering, you will pay more for your ADSs than the amount paid by our existing shareholders for their ordinary shares on a per ADS basis. As a result, you will experience immediate and substantial dilution, representing the difference between the initial public offering price of per ADS, and our adjusted net tangible book value per ADS, after giving effect to our sale of the ADSs offered in this offering. In addition, you may experience further dilution to the extent that our ordinary shares are issued upon the exercise or vesting, as the case may be, of our share incentive awards. See “Dilution” for a more complete description of how the value of your investment in the ADSs will be diluted upon completion of this offering.

We have not determined a specific use for a portion of the net proceeds from this offering and we may use these proceeds in ways with which you may not agree.

We have not determined a specific use for a portion of the net proceeds of this offering, and our management will have considerable discretion in deciding how to apply these proceeds. You will not have the opportunity to assess whether the proceeds are being used appropriately before you make your investment decision. You must rely on the judgment of our management regarding the application of the net proceeds of this offering. We cannot assure you that the net proceeds will be used in a manner that would improve our results of operations or increase the ADS price, nor that these net proceeds will be placed only in investments that generate income or appreciate in value.

Substantial future sales or perceived potential sales of our ADSs in the public market could cause the price of our ADSs to decline.

Sales of our ADSs in the public market after this offering, or the perception that these sales could occur, could cause the market price of our ADSs to decline. All ADSs sold in this offering will be freely transferable without restriction or additional registration under the Securities Act. The remaining ordinary shares issued and outstanding after this offering will be available for sale, upon the expiration of the lock-up period in connection with this offering, subject to volume and other restrictions as applicable under Rules 144 and 701 under the Securities Act. Any or all of these shares may be released prior to the expiration of the lock-up period at the discretion of the representatives of the underwriters of this offering. To the extent shares are released before the expiration of the lock-up period and sold into the market, the market price of our ADSs could decline.

After completion of this offering, certain holders of our ordinary shares may cause us to register under the Securities Act the sale of their shares, subject to the lock-up period in connection with this offering. Registration of these shares under the Securities Act would result in ADSs representing these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration. Sales of these registered shares in the form of ADSs in the public market could cause the price of our ADSs to decline.

Our post-offering memorandum and articles of association contain anti-takeover provisions that could have a material adverse effect on the rights of holders of our ordinary shares and the ADSs.

We will adopt a post-offering memorandum and articles of association that will become effective immediately prior to the completion of this offering. Our post-offering memorandum and articles of association contain provisions to limit the ability of others to acquire control of our company or cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by

 

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discouraging third-parties from seeking to obtain control of our company in a tender offer or similar transaction. Our board of directors has the authority, without further action by our shareholders, to issue preferred shares in one or more series and to fix their designations, powers, preferences, privileges and relative participating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our ordinary shares, including ordinary shares represented by ADSs. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board of directors decides to issue preferred shares, the price of the ADSs may fall and the voting and other rights of the holders of our ordinary shares and the ADSs may be materially and adversely affected.

Forum selection provisions in our post-offering memorandum and articles of association and our deposit agreement with the depositary bank could limit the ability of holders of our Class A ordinary shares, ADSs, or other securities to obtain a favorable judicial forum for disputes with us, our directors and officers, the depositary bank, and potentially others.

Our post-offering memorandum and articles of association provide that the federal district courts of the United States are the exclusive forum within the United States for the resolution of any complaint asserting a cause of action arising under the Securities Act and the Exchange Act. Our agreement with the depositary bank also provides that the United States District Court for the Southern District of New York (or, if the United States District Court for the Southern District of New York lacks subject matter jurisdiction over a particular dispute, the state courts in New York County, New York) is the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act or the Exchange Act. However, the enforceability of similar federal court choice of forum provisions has been challenged in legal proceedings in the United States, and it is possible that a court could find this type of provision to be inapplicable, unenforceable, or inconsistent with other documents that are relevant to the filing of such lawsuits. If a court were to find the federal choice of forum provision contained in our post-offering memorandum and articles of association or our deposit agreement with the depositary bank to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions. If upheld, the forum selection clause in our post-offering memorandum and articles of association, as well as the forum selection provisions in the deposit agreement, may limit a security-holder’s ability to bring a claim against us, our directors and officers, the depositary bank, and potentially others in his or her preferred judicial forum, and this limitation may discourage such lawsuits. In addition, the Securities Act provides that both federal and state courts have jurisdiction over suits brought to enforce any duty or liability under the Securities Act or the rules and regulations thereunder. Accepting or consent to this forum selection provision does not constitute a waiver by you of compliance with federal securities laws and the rules and regulations thereunder. You may not waive compliance with federal securities laws and the rules and regulations thereunder. The exclusive forum provision in our post-offering memorandum and articles of association will not operate so as to deprive the courts of the Cayman Islands from having jurisdiction over matters relating to our internal affairs.

The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise your right to direct the voting of the underlying ordinary shares represented by your ADSs.

Holders of ADSs do not have the same rights as our registered shareholders. As a holder of ADSs, you will not have any direct right to attend general meetings of our shareholders or to cast any votes at such meetings. You will only be able to exercise the voting rights attached to the ordinary shares underlying your ADSs indirectly by giving voting instructions to the depositary in accordance with the provisions of the deposit agreement. Where any matter is to be put to a vote at a general

 

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meeting, then upon receipt of your voting instructions, the depositary will try, as far as is practicable, to vote the underlying ordinary shares represented by your ADSs in accordance with your instructions. You will not be able to directly exercise your right to vote with respect to the underlying ordinary shares unless you cancel and withdraw the shares and become the registered holder of such shares prior to the record date for the general meeting.

When a general meeting is convened, you may not receive sufficient advance notice of the fleeting to withdraw the ordinary shares represented by your ADSs and become the registered holder of such shares to allow you to attend the general meeting and to vote directly with respect to any specific matter or resolution to be considered and voted upon at the general meeting. In addition, under our post-offering memorandum and articles of association that will become effective immediately prior to completion of this offering, for the purposes of determining those shareholders who are entitled to attend and vote at any general meeting, our directors may close our register of members and/or fix in advance a record date for such meeting, and such closure of our register of members or the setting of such a record date may prevent you from withdrawing the underlying ordinary shares represented by your ADSs and from becoming the registered holder of such shares prior to the record date, so that you would not be able to attend the general meeting or to vote directly. Where any matter is to be put to a vote at a general meeting, upon our instruction the depositary will notify you of the upcoming vote and will arrange to deliver our voting materials to you. We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote the underlying ordinary shares represented by your ADSs.

In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for their manner of carrying out your voting instructions. This means that you may not be able to exercise your right to direct how the underlying ordinary shares represented by your ADSs are voted and you may have no legal remedy if the underlying ordinary shares represented by your ADSs are not voted as you requested. In addition, in your capacity as an ADS holder, you will not be able to call a shareholders’ meeting.

Further, under the deposit agreement for the ADSs, if you do not vote, the depositary will give us a discretionary proxy to vote the ordinary shares underlying your ADSs at shareholders’ meetings unless:

 

   

we have instructed the depositary that we do not wish a discretionary proxy to be given;

 

   

we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting;

 

   

a matter to be voted on at the meeting would have a material adverse impact on shareholders; or

 

   

the voting at the meeting is to be made on a show of hands.

The effect of this discretionary proxy is that you cannot prevent our ordinary shares underlying your ADSs from being voted, except under the circumstances described above. This may adversely affect your interests and make it more difficult for shareholders to influence the management of our company. Holders of our ordinary shares are not subject to this discretionary proxy.

You may be subject to limitations on transfer of your ADSs.

Your ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in connection with corporate events such as a rights offering, during which time the depositary needs to

 

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maintain an exact number of ADS holders on its books for a specified period. The depositary may also close its books in emergencies, and on weekends and public holidays. The depositary may refuse to deliver, transfer or register transfers of the ADSs generally when our share register or the books of the depositary are closed, or at any time if we or the depositary thinks it is advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

You may experience dilution of your holdings due to inability to participate in rights offerings.

We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. Under the deposit agreement, the depositary will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from registration under the Securities Act with respect to all holders of ADSs, or are registered under the provisions of the Securities Act. The depositary may, but is not required to, attempt to sell these undistributed rights to third-parties, and may allow the rights to lapse. We may be unable to establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to these rights or underlying securities or to endeavor to have a registration statement declared effective. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may experience dilution of their holdings as a result.

You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law.

We are an exempted company incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our memorandum and articles of association, the Companies Act (As Revised) of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders to take action against our directors, actions by our minority shareholders and the fiduciary duties of our directors owed to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors owed to us under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have the standing to initiate a shareholder derivative action in a federal court of the United States.

Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records or to obtain copies of lists of shareholders of these companies (other than our memorandum and articles of association and our register of mortgages and charges). Our directors have discretion under our memorandum and articles of association that will become effective immediately prior to completion of this offering to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.

As a result of all of the above, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of our board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States.

 

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For a discussion of significant differences between the provisions of the Companies Act of the Cayman Islands and the laws applicable to companies incorporated in the United States and their shareholders, see “Description of Share Capital—Our Post-Offering Memorandum and Articles of Association—Differences in Corporate Law.”

Certain judgments obtained against us by our shareholders may not be enforceable.

We are a Cayman Islands exempted company and substantially all of our assets are located outside of the United States. All of our current operations are conducted in China. In addition, substantially all of our current directors and officers are nationals and residents of countries other than the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers. For more information regarding the relevant laws of the Cayman Islands and China, see “Enforceability of Civil liabilities.”

Your rights to pursue claims against the depositary as a holder of ADSs are limited by the terms of the deposit agreement.

The deposit agreement governing the ADSs representing our Class A ordinary shares provides that ADS holders waive the right to a jury trial of any claim they may have against us or the depositary arising out of or relating to our shares, the ADSs or the deposit agreement, including any claim under the U.S. federal securities laws, to the fullest extent permitted by law.

If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable based on the facts and circumstances of that case in accordance with the applicable state and federal law. To our knowledge, the enforceability of a contractual pre-dispute jury trial waiver in connection with claims arising under the federal securities laws has not been finally adjudicated by the United States Supreme Court. However, we believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under the laws of the State of New York, which govern the deposit agreement, by a federal or state court in the City of New York, which has nonexclusive jurisdiction over matters arising under the deposit agreement. In determining whether to enforce a contractual pre-dispute jury trial waiver provision, courts will generally consider whether a party knowingly, intelligently and voluntarily waive the right to a jury trial. We believe that this is the case with respect to the deposit agreement and the ADSs. It is advisable that you consult legal counsel regarding the jury waiver provision before entering into the deposit agreement.

If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, including claims under federal securities laws, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us or the depositary. If a lawsuit is brought against us or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in any such action.

Nevertheless, if this jury trial waiver provision is not permitted by applicable law, an action could proceed under the terms of the deposit agreement with a jury trial. No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with any substantive provision of the U.S. federal securities laws and the rules and regulations promulgated thereunder.

 

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We are an emerging growth company within the meaning of the Securities Act and may take advantage of certain reduced reporting requirements.

As a company with less than US$1.07 billion in revenues for our last fiscal year, we qualify as an “emerging growth company” pursuant to the JOBS Act. Therefore, we may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, in the assessment of the emerging growth company’s internal control over financial reporting and permission to delay adopting new or revised accounting standards until such time as those standards apply to private companies. As a result, if we elect not to comply with such reporting and other requirements, in particular the auditor attestation requirements, our investors may not have access to certain information they may deem important.

The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. We have elected to take advantage of the extended transition period for complying with new or revised accounting standards until those standards would otherwise apply to private companies. As a result, our results of operations and financial statements may not be comparable to the results of operations and financial statements of other companies that have adopted the new or revised accounting standards. If we cease to be an emerging growth company, we will no longer be able to take advantage of these exemptions or the extended transition period for complying with new or revised accounting standards.

As an exempted company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the Nasdaq listing standards.

As a Cayman Islands exempted company listed on the Nasdaq, we are subject to the Nasdaq listing standards, which require listed companies to have, among other things, a majority of their board members to be independent and independent director oversight of executive compensation and nomination of directors. However, Nasdaq rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the Nasdaq listing standards.

We are permitted to elect to rely on home country practice to be exempted from the corporate governance requirements. Following this offering, we intend to rely on home country practice to be exempted from the corporate governance requirement that we have a minimum of three members in our audit committee. As a result of this and other home country practices we may follow in the future, our shareholders may be afforded less protection than they would otherwise enjoy if we complied fully with the Nasdaq listing standards.

We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to U.S. domestic public companies.

Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:

 

   

the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current reports on Form 8-K;

 

   

the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act;

 

   

the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time;

 

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the selective disclosure rules by issuers of material nonpublic information under Regulation FD; and

 

   

certain audit committee independence requirements in Rule 10A-3 of the Exchange Act.

We will be required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish our results on a quarterly basis as press releases, distributed pursuant to the rules and regulations of the Nasdaq Stock Market. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information that would be made available to you were you investing in a U.S. domestic issuer.

There can be no assurance that we will not be classified as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for any taxable year, which could result in adverse U.S. federal income tax consequences to U.S. Holders of our ADSs or class A ordinary shares.

A non-U.S. corporation, such as our company, will be classified as a passive foreign investment company, or PFIC, for any taxable year if either (1) at least 75% of its gross income for such year consists of certain types of “passive” income (the “income test”); or (2) at least 50% of the value of its assets (generally determined on the basis of a quarterly average) during such year is attributable to assets that produce passive income or are held for the production of passive income (the “asset test”). Although the law in this regard is not entirely clear, we treat our consolidated VIE and its subsidiaries as being owned by us for U.S. federal income tax purposes because we control their management decisions and are entitled to substantially all of the economic benefits associated with them. As a result, we consolidate their results of operations in our consolidated financial statements in accordance with U.S. GAAP. If it were determined, however, that we are not the owner of our consolidated VIE and its subsidiaries for U.S. federal income tax purposes, we may be treated as a PFIC for the current taxable year and any subsequent taxable year. Assuming that we are the owner of our consolidated VIE and its subsidiaries for U.S. federal income tax purposes, and based on the current and anticipated value of our assets and composition of our income and assets (taking into account the projected cash proceeds from, and our anticipated market capitalization following, this offering), we do not presently expect to be a PFIC for the current taxable year or the foreseeable future.

However, while we do not expect to be or become a PFIC, no assurance can be given in this regard because the determination of whether we are or will become a PFIC for any taxable year is a fact-intensive inquiry made annually that depends, in part, upon the composition of our income and assets. Fluctuations in the market price of our ADSs may cause us to be or become a PFIC for the current or subsequent taxable years because the value of our assets for the purpose of the asset test, including the value of our goodwill and other unbooked intangibles, may be determined by reference to the market price of our ADSs from time to time (which may be volatile). The composition of our income and assets may also be affected by how, and how quickly, we use our liquid assets and the cash raised in this offering.

If we were to be or become a PFIC for any taxable year during which a U.S. Holder (as defined in “Taxation—United States Federal Income Tax Considerations”) holds our ADSs or class A ordinary shares, certain adverse U.S. federal income tax consequences could apply to such U.S. Holder. See “Taxation—United States Federal Income Tax Considerations—Passive Foreign Investment Company Rules.”

 

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We will incur increased costs as a result of being a public company, particularly after we cease to qualify as an “emerging growth company.”

Upon completion of this offering, we will become a public company and expect to incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the Securities and Exchange Commission, or the SEC, and Nasdaq, impose various requirements on the corporate governance practices of public companies. We expect these rules and regulations to increase our legal and financial compliance costs and to make some corporate activities more time-consuming and costly.

As a result of becoming a public company, we will need to increase the number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures. We also expect that operating as a public company will make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. In addition, we will incur additional costs associated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty the number of additional costs we may incur or the timing of such costs.

In addition, as an emerging growth company, we will still incur expenses in relation to management assessment according to requirements of Section 404(a) of the Sarbanes-Oxley Act of 2002. After we are no longer an “emerging growth company,” we expect to incur additional significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002 and the other rules and regulations of the SEC.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that reflect our current expectations and views of future events. The forward-looking statements are contained principally in the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” Known and unknown risks, uncertainties and other factors, including those listed under “Risk Factors,” may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

You can identify some of these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “potential,” “continue” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include statements relating to:

 

   

our mission, goals and strategies;

 

   

our future business development, financial condition and results of operations;

 

   

the expected growth of the road freight transportation industry in China;

 

   

our expectations regarding demand for and market acceptance of our products and services;

 

   

our expectations regarding maintaining and strengthening our relationships with shippers, carriers, and other stakeholders;

 

   

competition in our industry;

 

   

our proposed use of proceeds; and

 

   

relevant government policies and regulations relating to our industry.

These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Our actual results could be materially different from our expectations. Important risks and factors that could cause our actual results to be materially different from our expectations are generally set forth in “Prospectus Summary—Summary of Risk Factors,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” “Regulation” and other sections in this prospectus. You should read thoroughly this prospectus and the documents that we refer to with the understanding that our actual future results may be materially different from and worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements.

This prospectus contains certain data and information that we obtained from various government and private publications. Statistical data in these publications also include projections based on a number of assumptions. Our industry may not grow at the rate projected by market data, or at all. Failure of this market to grow at the projected rate may have a material and adverse effect on our business and the market price of the ADSs. In addition, the rapidly evolving nature of this industry results in significant uncertainties for any projections or estimates relating to the growth prospects or future condition of our market. Furthermore, if any one or more of the assumptions underlying the market data are later found to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements.

The forward-looking statements made in this prospectus relate only to events or information as of the date on which the statements are made in this prospectus. Except as required by law, we

 

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undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this prospectus and the documents that we refer to in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect.

 

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USE OF PROCEEDS

We estimate that we will receive net proceeds from this offering of approximately US$        , or approximately US$         if the underwriters exercise their option to purchase additional ADSs, after deducting underwriting discounts and commissions and the estimated offering expenses payable by us. These estimates are based upon an assumed initial public offering price of US$         per ADS, which is the midpoint of the price range shown on the front page of this prospectus. A US$1.00 increase (decrease) in the assumed initial public offering price of US$         per ADS would increase (decrease) the net proceeds to us from this offering by US$        , assuming the number of ADSs offered by us, as set forth on the front cover of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us.

The primary purposes of this offering are to create a public market for our shares for the benefit of all shareholders, retain talented employees by providing them with equity incentives, and obtain additional capital. We plan to use the net proceeds of this offering as follows:

 

   

approximately 50% for developing our business with SME Shippers;

 

   

approximately 30% for research and development; and

 

   

the balance for general corporate purposes, including working capital and operating expenses.

The foregoing represents our current intentions based upon our present plans and business conditions to use and allocate the net proceeds of this offering. Our management, however, will have significant flexibility and discretion to apply the net proceeds of this offering. If an unforeseen event occurs or business conditions change, we may use the proceeds of this offering differently than as described in this prospectus. See “Risk Factors—Risks Related to Our ADSs and This Offering—We have not determined a specific use for a portion of the net proceeds from this offering and we may use these proceeds in ways with which you may not agree.”

Pending any use described above, we plan to invest the net proceeds in short-term, interest-bearing, debt instruments or demand deposits.

In using the proceeds of this offering, we are permitted under PRC laws and regulations as an offshore holding company to provide funding to our PRC subsidiaries only through loans or capital contributions and to our VIE only through loans, subject to satisfaction of applicable government registration and approval requirements. If we provide funding to our PRC subsidiaries through loans, the total amount of such loans may not exceed either (i) the difference between the entity’s total investment as approved by the foreign investment authorities and its registered capital, or, as an alternative, (ii) such amount as calculated based on certain benchmarks, including capital or net assets and the cross-border financing leverage ratio, as provided by the People’s Bank of China. Such loans must be registered with local counterpart of SAFE within 15 days immediately following the execution of the loan agreement as required by the SAFE regulations. We cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, or at all. See “Risk Factors—Risks Related to Doing Business in China—PRC regulation of loans to and direct investment in PRC entities by offshore holding companies may delay us from using the proceeds of this offering to make loans or additional capital contributions to our PRC subsidiaries and to make loans to our VIE, which could materially and adversely affect our liquidity and our ability to fund and expand our business.” We estimate that the amount of proceeds from this offering that will be immediately available for investment in operations within the PRC for our intended purposes based upon applicable PRC laws and regulations is approximately US$            .

 

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DIVIDEND POLICY

Our board of directors has discretion on whether to distribute dividends, subject to certain requirements of Cayman Islands law. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of directors. In either case, all dividends are subject to certain restrictions under Cayman Islands law, namely that our company may only pay dividends out of profits or share premium, and provided always that in no circumstances may a dividend be paid if this would result in our company being unable to pay its debts as they fall due in the ordinary course of business. Even if we decide to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.

We do not have any present plan to pay any cash dividends on our ordinary shares in the foreseeable future after this offering. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.

We are a holding company incorporated in the Cayman Islands. We may rely on dividends from our subsidiaries in China for our cash requirements, including any payment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC subsidiaries to pay dividends to us. See “Risk Factors—Risks Related to Doing Business in China—We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business.”

If we pay any dividends on our ordinary shares, we will pay those dividends which are payable in respect of the underlying class A ordinary shares represented by the ADSs to the depositary, as the registered holder of such class A ordinary shares, and the depositary then will pay such amounts to the ADS holders in proportion to the underlying class A ordinary shares represented by the ADSs held by such ADS holders, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. See “Description of American Depositary Shares.” Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.

 

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CAPITALIZATION

The following table sets forth our capitalization as of March 31, 2021:

 

   

on an actual basis;

 

   

on a pro forma basis to reflect the automatic conversion and the re-designation of all of the issued and outstanding preferred shares on a one-for-one basis into class A ordinary shares immediately prior to the completion of this offering; and

 

   

on a pro forma as adjusted basis to reflect (i) the re-designation of 164,000,000 ordinary shares into 130,250,000 class B ordinary shares held by Miracle Dream Investment Inc. and 33,750,000 class A ordinary shares held by other investors; (ii) the automatic conversion and the re-designation of all of the issued and outstanding preferred shares on a one-for-one basis into class A ordinary shares immediately prior to the completion of this offering; and (iii) the issuance and sale of             class A ordinary shares in the form of ADSs by us in this offering at an assumed initial public offering price of US$            per ADS, the midpoint of the estimated range of the initial public offering price shown on the front cover of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, assuming the underwriters do not exercise the option to purchase additional ADSs.

You should read this table together with our consolidated financial statements and the related notes included elsewhere in this prospectus and the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

    As of March 31, 2021  
    Actual     Pro Forma     Pro Forma As Adjusted(1)  
    RMB     US$     RMB     US$     RMB     US$  
    (in thousands)  

Mezzanine equity:

           

Series Angel convertible redeemable preferred shares (US$0.00005 par value; 40,946,955 shares authorized, 40,000,000 shares issued and outstanding; none issued and outstanding on a pro-forma basis)

    87,043       13,285                  

Series A convertible redeemable preferred shares (US$0.00005 par value; 47,500,000 shares authorized, issued and outstanding; none issued and outstanding on a pro-forma basis)

    45,714       6,977                  

Series A+ convertible redeemable preferred shares (US$0.00005 par value; 75,000,000 shares authorized, issued and outstanding; none issued and outstanding on a pro-forma basis)

    77,336       11,804                  

 

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    As of March 31, 2021  
    Actual     Pro Forma     Pro Forma As Adjusted(1)  
    RMB     US$     RMB     US$     RMB     US$  
    (in thousands)  

Series B convertible redeemable preferred shares (US$0.00005 par value; 137,500,000 shares authorized, issued and outstanding; none issued and outstanding on a pro-forma basis)

    165,840       25,312                  

Series C convertible redeemable preferred shares (US$0.00005 par value; 132,537,879 shares authorized, issued and outstanding; none issued and outstanding on a pro-forma basis)

    325,377       49,662                  

Series C+ convertible redeemable preferred shares (US$0.00005 par value; 58,831,334 shares authorized, issued and outstanding; none issued and outstanding on a pro-forma basis)

    199,840       30,502                  

Series C++ convertible redeemable preferred shares (US$0.00005 par value; 69,094,422 shares authorized, issued and outstanding; none issued and outstanding on a pro-forma basis)

    378,336       57,745                  

Series D convertible redeemable preferred shares (US$0.00005 par value; 161,992,603 shares authorized, issued and outstanding; none issued and outstanding on a pro-forma basis)

    973,746       148,623                  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total mezzanine equity

    2,253,232       343,910                  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Shareholders’ (deficit) equity:

 

Ordinary shares
(US$0.00005 par value; 1,276,596,807 shares authorized, 164,000,000 shares issued and outstanding; 756,206,238 Class A ordinary shares and 130,250,000 Class B ordinary shares issued and outstanding on a pro-forma basis)

    56       9       293       45      

Additional paid-in capital(2)

                2,252,995       343,874      

Statutory reserves

    12,617       1,926       12,617       1,926      

Accumulated other comprehensive loss

    (1,658     (253     (1,658     (253    

Accumulated deficit

    (1,599,764     (244,172     (1,599,764     (244,172    

Non-controlling interests

    (1,996     (305     (1,996     (305                                              
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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    As of March 31, 2021
    Actual     Pro Forma     Pro Forma As Adjusted(1)
    RMB     US$     RMB     US$     RMB   US$
    (in thousands)

Total shareholders’ (deficit) equity(2)

    (1,590,745     (242,795     662,487       101,115      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total mezzanine equity and shareholders’ (deficit) equity(2)

    662,487       101,115       662,487       101,115      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Notes:

(1)

The pro forma as adjusted information discussed above is illustrative only. Our additional paid-in capital, total shareholders’ (deficit) equity, and total mezzanine equity and shareholders’ (deficit) equity following the completion of this offering are subject to adjustment based on the actual initial public offering price and other terms of this offering determined at pricing.

(2)

A US$1.00 increase (decrease) in the assumed initial public offering price of US$            per ADS, the midpoint of the range set forth on the cover page of this prospectus, would increase (decrease) each of additional paid-in capital, total shareholders’ (deficit)/equity, and total mezzanine equity and shareholders’ (deficit)/equity by US$            million.

 

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DILUTION

If you invest in the ADSs, your interest will be diluted to the extent of the difference between the initial public offering price per ADS and our net tangible book value per ADS after this offering. Dilution results from the fact that the initial public offering price per ordinary share is substantially in excess of the book value per ordinary share attributable to the existing shareholders for our presently outstanding ordinary shares.

Our net tangible book value as of March 31, 2021 was a deficit of US$242.5 million, representing a deficit of US$1.48 per ordinary share as of that date and US$             per ADS, or US$             per ordinary share and US$             per ADS on a pro forma basis. Net tangible book value represents the amount of our total consolidated tangible assets less total consolidated liabilities, non-controlling interests and mezzanine equity. Dilution is determined by subtracting net tangible book value per ordinary share, after giving effect to the additional proceeds we will receive from this offering, from the assumed initial public offering price of US$             per ordinary share, which is the midpoint of the estimated initial public offering price range set forth on the front cover of this prospectus adjusted to reflect the ADS-to-ordinary share ratio, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Because the Class A ordinary shares and Class B ordinary shares have the same dividend and other rights, except for voting and conversion rights, the dilution is presented based on all issued and outstanding ordinary shares, including Class A ordinary shares and Class B ordinary shares.

Without taking into account any other changes in pro forma net tangible book value after March 31, 2021, other than to give effect to our sale of the ADSs offered in this offering at the assumed initial public offering price of US$            per ADS, which is the midpoint of the estimated initial public offering price range, after deduction of the underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2021 would have been US$             , or US$            per ordinary share and US$            per ADS. This represents an immediate increase in net tangible book value of US$            per ordinary share and US$            per ADS to the existing shareholders and an immediate dilution in net tangible book value of US$            per ordinary share and US$            per ADS to investors purchasing ADSs in this offering. The following table illustrates such dilution:

 

     Per Ordinary
Share
     Per ADS  

Assumed initial public offering price

   US$                    US$                

Net tangible book value as of March 31, 2021

   US$        US$    

Pro forma net tangible book value after giving effect to the conversion of our preferred shares

     

Pro forma as adjusted net tangible book value after giving effect to the conversion of our preferred shares and this offering

   US$        US$    

Amount of dilution in net tangible book value to new investors in this offering

   US$        US$    

A US$1.00 increase (decrease) in the assumed initial public offering price of US$             per ADS would increase (decrease) our pro forma as adjusted net tangible book value after giving effect to this offering by US$            , the pro forma as adjusted net tangible book value per ordinary share and per ADS after giving effect to this offering by US$            per ordinary share and US$            per ADS, and the dilution in pro forma as adjusted net tangible book value per ordinary share and per ADS to new investors in this offering by US$            per ordinary share and US$            per ADS, assuming no change to the number of ADSs offered by us as set forth on the front cover of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

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The following table summarizes, on a pro forma as adjusted basis as of March 31, 2021, the differences between existing shareholders and the new investors with respect to the number of ordinary shares (in the form of ADSs or shares) purchased from us, the total consideration paid and the average price per ordinary share and per ADS paid before deducting the underwriting discounts and commissions and estimated offering expenses payable by us. The total number of ordinary shares does not include ordinary shares underlying the ADSs issuable upon the exercise of the option to purchase additional ADSs granted to the underwriters.

 

     Ordinary Shares
Purchased
    Total Consideration     Average
Price Per
Ordinary
Share
     Average
Price Per
ADS
 
     Number    Percent     Amount      Percent  

Existing shareholders

               US$                             US$                    US$                

New investors

               US$                 US$        US$    
  

 

  

 

 

   

 

 

    

 

 

      

Total

                     100.0   US$          100.0     
  

 

  

 

 

   

 

 

    

 

 

      

The pro forma as adjusted information discussed above is illustrative only. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual initial public offering price of the ADSs and other terms of this offering determined at pricing.

As of the date of this prospectus, there are 95,224,450 outstanding options with an average exercise price of US$0.11 per share. To the extent that any of these options are exercised, there will be further dilution to new investors.

 

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ENFORCEABILITY OF CIVIL LIABILITIES

We are incorporated under the laws of the Cayman Islands as an exempted company with limited liability. We are incorporated in the Cayman Islands to take advantage of certain benefits associated with being a Cayman Islands exempted company, such as:

 

   

political and economic stability,

 

   

an effective judicial system,

 

   

a favorable tax system,

 

   

the absence of foreign exchange control or currency restrictions, and

 

   

the availability of professional and support services.

However, certain disadvantages accompany incorporation in the Cayman Islands. In particular, the Cayman Islands has a less developed body of securities laws as compared to the United States and these securities laws provide significantly less protection to investors as compared to the United States.

Our memorandum and articles of association does not contain provisions requiring that disputes, including those arising under the securities laws of the United States, between us, our officers, directors, and shareholders, be arbitrated.

All of our operations are conducted in China, and substantially all of our assets are located in China. A majority of our directors and officers are nationals or residents of jurisdictions other than the United States and most of their assets are located outside the United States. As a result, it may be difficult for a shareholder to effect service of process within the United States upon these individuals, or to bring an action against us or these individuals in the United States, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.

We have appointed Cogency Global Inc., located at 122 East 42nd Street, 18th Floor, New York, NY 10168, as our agent upon whom process may be served in any action brought against us under the securities laws of the United States.

We have been informed by Maples and Calder (Hong Kong) LLP, our counsel as to Cayman Islands law, that there is uncertainty as to whether the courts of the Cayman Islands would (i) recognize or enforce judgments of U.S. courts obtained against us or our directors or officers that are predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States, or (ii) entertain original actions brought in the Cayman Islands against us or our directors or officers that are predicated upon the securities laws of the United States or any state in the United States. We have also been advised by Maples and Calder (Hong Kong) LLP that although there is no statutory enforcement in the Cayman Islands of judgments obtained in a U.S. court (and the Cayman Islands are not a party to any treaties for the reciprocal enforcement or recognition of such judgments), the courts of the Cayman Islands will, at common law, recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without any re-examination of the merits of the underlying dispute based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the liquidated sum for which such judgment has been given, provided such judgment, provided such judgment (i) is given by a foreign court of competent jurisdiction, (ii) imposes on the judgment debtor a liability to pay a liquidated sum for which the judgment has been given, (iii) is final and conclusive, (iv) is not in respect of taxes, a fine or a penalty, and (v) was not obtained in a manner and is not of a kind the enforcement of which is contrary to natural justice or the public policy of the Cayman Islands.

 

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However, the Cayman Islands courts are unlikely to enforce a judgment obtained from the United States courts under the civil liability provisions of the securities laws if such judgement is determined by the courts of the Cayman Islands to give rise to obligations to make payments that are penal or punitive in nature. A Cayman Islands court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.

CM Law Firm, our counsel as to PRC law, has advised us that there is uncertainty as to whether the courts of China would:

 

   

recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States; or

 

   

entertain original actions brought in each respective jurisdiction against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.

CM Law Firm has further advised us that the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law and other applicable laws and regulations based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other form of reciprocity with the United States or the Cayman Islands that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC law or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States or in the Cayman Islands. Under the PRC Civil Procedures Law, foreign shareholders may originate actions based on PRC law against a company in China for disputes if they can establish sufficient nexus to the PRC for a PRC court to have jurisdiction, and meet other procedural requirements, including, among others, the plaintiff must have a direct interest in the case, and there must be a concrete claim, a factual basis and a cause for the suit. It will be, however, difficult for U.S. shareholders to originate actions against us in the PRC in accordance with PRC laws because we are incorporated under the laws of the Cayman Islands and it will be difficult for U.S. shareholders, by virtue only of holding the ADSs or ordinary shares, to establish a connection to the PRC for a PRC court to have jurisdiction as required under the PRC Civil Procedures Law.

 

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CORPORATE HISTORY AND STRUCTURE

Corporate History

We launched our operations in March 2015 through Nanjing ForU Online Electronic Commerce Co., Ltd., or Nanjing ForU, which was incorporated in October 2013. Our holding company, ForU Worldwide Inc., was incorporated in November 2014. Shortly following its incorporation, ForU Worldwide Inc. established a wholly-owned subsidiary in Hong Kong, ForU Worldwide (HK) Limited, or ForU HK. In May 2015, ForU Worldwide (HK) Limited established a wholly-owned subsidiary in China, Beijing ForU Duoduo Information Technology Co., Ltd., or Beijing ForU Duoduo, which we refer to as our WFOE.

Due to the restrictions imposed by PRC laws and regulations on foreign ownership of companies engaged in value-added telecommunication services, our WFOE entered into a series of contractual arrangements with Nanjing ForU and its shareholders in March 2017, through which we obtained control over Nanjing ForU, or our VIE. As a result, we are regarded as the primary beneficiary of our VIE and its subsidiaries. We treat them as our consolidated affiliated entities under U.S. GAAP, and have consolidated the financial results of these entities in our consolidated financial statements in accordance with U.S. GAAP. The contractual arrangements with our VIE were subsequently replaced and superseded by updated agreements as a result of change in our VIE’s shareholders in April 2021.

In September 2017, we established Tianjin Fuxin Finance Leasing Co., Ltd., which was 55% owned by Nanjing ForU and 25% owned by ForU HK, to engage in financial leasing services. In expanding our transportation services, Nanjing ForU established various subsidiaries, including its branches in Huai’an and Yancheng in April 2019 and Jiangsu Shunren Transportation Co., Ltd. in October 2019.

Along with the growth of our business, we launched our smart pricing system in September 2016, achieved nationwide coverage of service in May 2017, launched our smart dispatching system in May 2019, and started to serve SME Shippers in July 2020. In August 2016, the cumulative number of carriers who fulfilled orders reached 100,000, which increased to 500,000 in March 2020.

 

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The following diagram illustrates our corporate structure, including our principal subsidiaries, our VIE and its subsidiaries, as of the date of this prospectus:

 

LOGO

 

Notes:

(1)

Shareholders of Nanjing ForU and their respective shareholdings in the VIE and relationship with our company are Ms. Dandan Shan (99.6%), our founder, chairperson of the board of directors and chief executive officer, and Mr. Hongxin Wang (0.4%), spouse of Ms. Dandan Shan.

(2)

The remaining 20.0% of the equity interests in Tianjin Fuxin Finance Leasing Co., Ltd. is held by Nanjing Lihe Youfu I Technology Partnership (Limited Partnership), a limited partnership incorporated in the PRC, which is 74.0% owned by Mr. Yifei Ye, our beneficial shareholder, 25.0% owned by Mr. Boyang Wu, our employee, and 1.0% owned by Ms. Dandan Shan.

Contractual Arrangements with Our VIE and Its Shareholders

Current PRC laws and regulations impose certain restrictions or prohibitions on foreign ownership of companies that engage in value-added telecommunication services. We are an exempted company

 

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incorporated in the Cayman Islands. Beijing ForU Duoduo, or our WFOE, is one of our PRC subsidiaries and is a foreign-invested enterprise under PRC Laws.

To comply with PRC laws and regulations, we conduct certain of our business in China through Nanjing ForU, our consolidated variable interest entity in the PRC which we refer to as our VIE in this prospectus, and its subsidiaries, based on a series of contractual arrangements by and among our WFOE, our VIE and its shareholders.

Our contractual arrangements with our VIE and its shareholders allow us to (i) exercise effective control over our VIE, (ii) receive substantially all of the economic benefits of our VIE, and (iii) have an exclusive call option to purchase all or part of the equity interests in our VIE when and to the extent permitted by PRC law.

As a result of our direct ownership in our WFOE and the contractual arrangements with our VIE, we are regarded as the primary beneficiary of our VIE, and we treat our VIE and its subsidiaries as our consolidated affiliated entities under U.S. GAAP. We have consolidated the financial results of our VIE and its subsidiaries in our consolidated financial statements in accordance with U.S. GAAP.

The following is a summary of the currently effective contractual arrangements by and among our WFOE, our VIE and its shareholders.

Agreements that provide us with effective control over our VIE

Shareholders Voting Proxy Agreement.    Pursuant to the shareholders voting proxy agreement dated April 26, 2021 among our WFOE, our VIE, and shareholders of our VIE, the shareholders irrevocably authorized our WFOE or its designee(s) to act on their respective behalf as proxy attorney, to exercise the voting rights of shareholders concerning all the equity interests held by each of them in our VIE, including but not limited to attending shareholder meetings, exercising all the rights as shareholders in such meeting (including but not limited to voting rights, nomination rights and appointment rights) and the right to sell, transfer, pledge or dispose of all the equity held in part or in whole, proposing to convene shareholder meetings, and exercising all other rights as shareholders under the articles of association of our VIE. The Shareholders Voting Proxy Agreement will remain effective until the entire equity interests in our VIE have been transferred to our WFOE or its designee pursuant to the exclusive option agreement.

Equity Interest Pledge Agreement.    Pursuant to the equity interest pledge agreement dated April 26, 2021 among our WFOE, our VIE, and shareholders of our VIE, the shareholders pledged all of their equity interests of our VIE to our WFOE as security for performance of the obligations of our VIE and its shareholders under the exclusive option agreement, shareholders voting proxy agreement, and exclusive consultation and service agreement. During the term of the equity interest pledge agreement, our WFOE has the right to receive all of our VIE’s dividends and profits distributed on the pledged equity. If any of the specified events of default occurs, our WFOE, as pledgee, will have the right to purchase, auction or sell all or part of the pledged equity interests in our VIE and will have priority in receiving the proceeds from such disposal. Our VIE and its shareholders undertake that, without the prior written consent of our WFOE, they will not transfer, or create or allow any encumbrance on the pledged equity interests. The agreement will remain in effect until the fulfillment of all the obligations under the exclusive option agreement, shareholders voting proxy agreement, and exclusive consultation and service agreement.

Loan Agreement. Pursuant to the loan agreement dated April 22, 2021 between our WFOE and Ms. Dandan Shan, our WFOE agrees to provide Ms. Dandan Shan a loan in the amount of RMB63,821,913 for the purpose of paying for the equity transfer consideration for the acquisition of the

 

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equity interests in our VIE and Beijing ForU Online Information Technology Co., Ltd. held by their then shareholders other than Mr. Hongxin Wang and/or herself. All the equity interests held by Ms. Shan in our VIE and Beijing ForU Online Information Technology Co., Ltd., after the acquisition, have been pledged to our WFOE. Ms. Shan is not obligated to repay the loan unless our WFOE (or its designated party) exercises its right to purchase the equity interest in our VIE and Beijing ForU Online Information Technology Co., Ltd. held by Ms. Shan to the extent allowed by PRC laws, regulations and policies, in which case Ms. Shan shall transfer the equity interest she held to our WFOE (or its designated party) and will have fully performed her repayment obligations.

Agreements that allow us to receive economic benefits from our VIE

Exclusive Consultation and Service Agreement.    Pursuant to the exclusive consultation and service agreement dated April 26, 2021 between our WFOE and our VIE, our WFOE has the exclusive right to provide, among other things, computer technology, computer software, economic information consulting, enterprise management, and design services to our VIE. In exchange, our VIE pays service fees to our WFOE in an amount equals to our VIE’s revenues minus any turnover tax, total costs incurred by our VIE, any provisions for statutory reserves and retained earnings, which should be paid on a quarterly basis. The retained earnings should be zero unless our WFOE agrees in writing for any other amount. Without the prior written consent of our WFOE, our VIE cannot accept similar services provided by any third-party. Our WFOE has the exclusive ownership of all intellectual property rights created as a result of the performance of this agreement, which remain effective whether or not the agreement is amended or terminated. The exclusive consulting and services agreement has an initial term of 10 years and shall be automatically extended for another 10 years unless confirmed otherwise in writing by our WFOE within three months prior to the expiration date.

Agreements that provide us with the option to purchase the equity interests, assets and business in our VIE

Exclusive Option Agreement.    Pursuant to the exclusive option agreement dated April 26, 2021 among our WFOE, our VIE, and shareholders of our VIE, each of the shareholders of our VIE has irrevocably granted our WFOE an exclusive option to purchase, or designate any third-party to purchase, all or any part of their equity interests, assets and business in our VIE at a purchase price equal to the lowest price permissible by the then-applicable PRC laws and regulations at the time of exercise of the options. The shareholders of our VIE shall give all considerations they received within 10 days from the exercise of the options to our WFOE or its designee(s). Our VIE and its shareholders covenant that, without our WFOE’s prior written consent, they will not, among other things, (i) transfer or otherwise dispose of their equity interests in our VIE, or create any pledge or encumbrance on their equity interests in our VIE; (ii) increase or decrease our VIE’s registered capital or change its structure of registered capital; (iii) sell, transfer, mortgage or otherwise dispose of any of our VIE’s assets or allow any encumbrance of any assets, except for the disposal or the encumbrances of the assets that are treated as necessary for their daily business operations; (iv) enter into any material contract to which our VIE is a party or any other contract that may result in any conflicts with our VIE’s existing materials contacts, or terminate any material contract to which our VIE is a party; (v) carry out any transactions that may substantially affect our VIE’s assets, business operations, shareholding structure, or equity investment in third-party entities; (vi) appointment or replacement of any director, supervisor, or any management who could be appointed or dismissed by shareholders of our VIE; (vii) distribute any dividend; (viii) terminate, liquidate or dissolve our VIE; (ix) amend our VIE’s articles of association; or (x) allow our VIE to incur any borrowings or loans. The agreement will remain effective until the entire equity interests or the entire assets and business in our VIE have been transferred to our WFOE or its designee(s) pursuant to this agreement.

Spousal Consent Letters.    Pursuant to the spousal consent letters executed by the spouses of certain shareholders of our VIE, the signing spouses unconditionally and irrevocably agreed that the

 

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equity interest in our VIE held by and registered in the name of their spouses be disposed of in accordance with the exclusive option agreement, the equity interest pledge agreement and the shareholders voting proxy agreement described above, and that their spouses may perform, amend or terminate such agreements without their additional consent. In addition, the signing spouses agreed not to assert any rights over the equity interest in our VIE held by their spouses. Furthermore, in the event that the signing spouses obtains any equity interest in our VIE held by their spouses for any reason, they agree to be bound by and sign any legal documents substantially similar to the contractual arrangements described above, as may be amended from time to time.

In the opinion of CM Law Firm, our PRC legal counsel:

 

   

the ownership structures of our VIE and our WFOE in China, both currently and immediately after giving effect to this offering, are not in violation of applicable PRC laws and regulations currently in effect; and

 

   

the contractual arrangements between our WFOE, our VIE and its shareholders governed by PRC law are valid, binding and enforceable, and will not result in any violation of applicable PRC laws and regulations currently in effect.

However, our PRC legal counsel has also advised us that there are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules. Accordingly, the PRC regulatory authorities may take a view that is contrary to the opinion of our PRC legal counsel. It is uncertain whether any new PRC laws or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. If we or our VIE are found to be in violation of any existing or future PRC laws or regulations, or fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures. See “Risk Factors—Risks Related to Our Corporate Structure—If the PRC government finds that the agreements that establish the structure for operating some of our operations in China do not comply with PRC regulations relating to the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations,” “Risk Factors—Risks Related to Our Corporate Structure—Our current corporate structure and business operations may be substantially affected by the Foreign Investment Law,” and “Risk Factors—Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system could adversely affect us.”

 

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SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated statements of comprehensive loss data for the years ended December 31, 2019 and 2020, selected consolidated balance sheet data as of December 31, 2019 and 2020, and selected consolidated cash flow data for the years ended December 31, 2019 and 2020 (except the pro forma net loss, share and net loss per share information) have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The following selected consolidated statements of comprehensive loss data for the three months ended March 31, 2020 and 2021, selected consolidated balance sheet data as of March 31, 2021 (except the pro forma net loss, share and net loss per share information), and selected consolidated cash flow data for the three months ended March 31, 2020 and 2021 have been derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements and include all adjustments, consisting only of normal and recurring adjustments, that we consider necessary for a fair statement of our financial position and results of operations for the periods presented. Our consolidated financial statements are prepared and presented in accordance with U.S. GAAP. Our historical results do not necessarily indicate results expected for any future periods. You should read this Selected Consolidated Financial Data section together with our consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

 

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The following table presents our selected consolidated statements of comprehensive loss data for the periods indicated:

 

    For the Year Ended December 31,     For the Three Months Ended March 31,  
    2019     2020     2020     2021  
    RMB     RMB     US$     RMB     RMB     US$  
    (in thousands)  

Revenues:

           

Transportation services

    3,353,516       3,528,970       538,626       661,138       1,179,791       180,071  

Other services

    37,472       36,952       5,640       10,690       3,563       544  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    3,390,988       3,565,922       544,266       671,828       1,183,354       180,615  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Costs and expenses:

           

Cost of revenues

    (3,402,415     (3,458,276     (527,836     (657,986     (1,165,597     (177,905

Operations and support

    (22,656     (25,935     (3,958     (11,732     (6,100     (931

Sales and marketing

    (91,794     (97,694     (14,911     (21,890     (36,520     (5,574

General and administrative

    (117,758     (102,875     (15,702     (37,363     (40,415     (6,169

Research and development

    (75,502     (66,533     (10,155     (17,758     (17,091     (2,609
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    (3,710,125     (3,751,313     (572,562     (746,729     (1,265,723     (193,188

Other operating income

    111,975       79,473       12,130       32,954       31,297       4,777  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (207,162     (105,918     (16,166     (41,947     (51,072     (7,796

Interest income

    16,247       8,259       1,261       3,113       454       69  

Interest expenses

    (44,773     (27,326     (4,171     (9,472     (3,950     (603

Foreign currency exchange gain (loss)

    (3,601     (1,495     (228     (203     6       1  

Other income (loss), net

    10,964       13,130       2,004       (603     448       69  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income tax expense

    (228,325     (113,350     (17,300     (49,112     (54,114     (8,260

Income tax expense

    (5,565     (2,427     (370     (1,052     (385     (59
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (233,890     (115,777     (17,670     (50,164     (54,499     (8,319
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to ForU Worldwide Inc.’s ordinary shareholders, basic and diluted(1)

    (365,129     (258,386     (39,436     (84,316     (88,741     (13,545
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of ordinary shares used in computing net loss per share, basic and diluted(1)

    123,000,000       164,000,000       164,000,000       123,000,000       164,000,000       164,000,000  

Net loss per share attributable to ordinary shareholders

           

—Basic

    (2.97     (1.58     (0.24     (0.69     (0.54 )      (0.08

—Diluted

    (2.97     (1.58     (0.24     (0.69     (0.54 )      (0.08
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss attributable to ForU Worldwide Inc.’s ordinary shareholders, basic and diluted(1)

    (233,993     (114,579     (17,487     (49,583     (53,883     (8,225
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma weighted average number of ordinary shares used in computing net loss per share, basic and diluted(1)

    845,456,238       886,456,238       886,456,238       845,456,238       886,456,238       886,456,238  

Pro forma net loss per share attributable to ordinary shareholders(1)

           

— Basic

    (0.28     (0.13     (0.02     (0.06     (0.06     (0.01

— Diluted

    (0.28     (0.13     (0.02     (0.06     (0.06     (0.01
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Note:

(1)

See note 2 to our consolidated financial statements included elsewhere in this prospectus for an explanation and calculation of historical loss per share, basic and diluted. Pro forma net loss attributable to ForU Worldwide Inc.’s ordinary shareholders, pro forma loss per share, basic and diluted, and pro forma weighted average ordinary shares outstanding, basic and diluted are each presented, after giving effect to the conversion of all of the issued and outstanding preferred shares of the Company into ordinary shares on a one-for-one basis, as if it had occurred at the beginning of the earliest period presented.

 

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The following table presents our selected consolidated balance sheet data as of the dates indicated:

 

     As of December 31,     As of March 31,  
     2019     2020     2021  
     RMB     RMB     US$     RMB     US$  
     (in thousands)  

Selected Consolidated Balance Sheet Data

      

Cash and cash equivalents

     450,153       489,207       74,668       519,179       79,242  

Restricted cash

     500,562       22,162       3,383       19,714       3,009  

Accounts receivable

     524,033       544,140       83,052       517,189       78,938  

Total current assets

     1,920,459       1,495,268       228,222       1,554,003       237,187  

Total assets

     2,042,543       1,544,477       235,733       1,591,854       242,964  

Accounts payable

     215,788       266,050       40,607       256,793       39,194  

Short-term borrowings

     750,992       344,012       52,506       310,989       47,466  

Total current liabilities

     1,161,286       829,485       126,604       923,404       140,939  

Total liabilities

     1,238,084       836,278       127,641       929,367       141,849  

Total mezzanine equity

     2,074,567       2,218,374       338,590       2,253,232       343,910  

Total shareholders’ deficit

     (1,270,108     (1,510,175     (230,498     (1,590,745     (242,795

Total liabilities, mezzanine equity and shareholders’ deficit

     2,042,543       1,544,477       235,733       1,591,854       242,964  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table presents our summary consolidated cash flow data for the periods indicated:

 

     For the Year Ended December 31,     For the Three Months Ended
March 31,
 
     2019     2020     2020     2021  
     RMB     RMB     US$     RMB     RMB     US$  
     (in thousands)  

Selected Consolidated Cash Flow Data:

            

Net cash provided by (used in) operating activities

     (506,766     44,045       6,723       81,080       (45,658     (6,969

Net cash provided by (used in) investing activities

     (17,140     8,168       1,247       (119,903     (47,564     (7,259

Net cash provided by (used in) financing activities

     284,179       (473,554     (72,278     (117,100     119,953       18,309  

Effect of exchange rate changes on cash, cash equivalents and restricted cash

     3,249       (18,005     (2,748     9,475       793       119  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash, cash equivalents and restricted cash

     (236,478     (439,346     (67,056     (146,448     27,524       4,200  

Cash, cash equivalents and restricted cash at the beginning of the period

     1,187,193       950,715       145,107       950,715       511,369       78,051  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash, cash equivalents and restricted cash at the end of the period

     950,715       511,369       78,051       804,267       538,893       82,251  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Financial Measures

Adjusted net loss and adjusted EBITDA

In evaluating our business, we consider and use adjusted net loss and adjusted EBITDA, each a non-GAAP financial measure, to supplement the review and assessment of our operating performance. We have included these non-GAAP financial measures in this prospectus because they are key measures used by our management to evaluate our operating performance. Accordingly, we believe that they provide useful information to investors and others in understanding and evaluating our

 

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operating results in the same manner as our management team and board of directors. Our calculation of these non-GAAP financial measures may differ from similarly-titled non-GAAP measures, if any, reported by our peer companies. They should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with U.S. GAAP.

We define adjusted net loss as net loss adjusted for the impact of share-based compensation expenses. We define adjusted EBITDA as net loss adjusted for the impact of (i) interest expense, net, (ii) income tax expense, (iii) share-based compensation expenses, (iv) depreciation of property and equipment, and (v) amortization of intangible assets. The following table sets forth the reconciliation of net loss, the most comparable measure prepared in accordance with U.S. GAAP, to adjusted net loss and adjusted EBITDA, respectively, for the periods presented:

 

     For the Year Ended December 31,     For the Three Months Ended
March 31,
 
     2019     2020     2020     2021  
     RMB     RMB     US$     RMB     RMB     US$  
     (in thousands, except for percentages)  

Net loss

     (233,890     (115,777     (17,670     (50,164     (54,499     (8,319

Add:

            

Share-based compensation expenses

     62,724       36,027       5,499       13,248       8,000       1,221  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net loss

     (171,166     (79,750     (12,171     (36,916     (46,499     (7,098

Total revenues

     3,390,988       3,565,922       544,266       671,828       1,183,354       180,615  

Net loss margin

     (6.9%     (3.2%     (3.2%     (7.5%     (4.6%     (4.6%

Adjusted net loss margin

     (5.0%     (2.2%     (2.2%     (5.5%     (3.9%     (3.9%
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (233,890     (115,777     (17,670     (50,164     (54,499     (8,319

Add:

            

Interest expense, net

     28,526       19,067       2,910       6,359       3,496       534  

Income tax expense

     5,565       2,427       370       1,052       385       59  

Depreciation of property and equipment

     2,520       2,840       433       732       583       89  

Amortization of intangible assets

     550       577       88       180       85       13  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     (196,729     (90,866     (13,869     (41,841     (49,950     (7,624

Add:

            

Share-based compensation expenses

     62,724       36,027       5,499       13,248       8,000       1,221  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

     (134,005     (54,839     (8,370     (28,593     (41,950     (6,403

Total revenues

     3,390,988       3,565,922       544,266       671,828       1,183,354       180,615  

EBITDA margin

     (5.8%     (2.5%     (2.5%     (6.2%     (4.2%     (4.2%

Adjusted EBITDA margin

     (4.0%     (1.5%     (1.5%     (4.3%     (3.5%     (3.5%
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and related notes included elsewhere in this prospectus. Our actual results may differ materially from those we currently anticipate as a result of many factors, including those we describe under “Risk Factors” and elsewhere in this prospectus. See “Special Note Regarding Forward-Looking Statements.”

Overview

We are the largest technology-driven road freight transportation platform in China in terms of revenue in 2020, according to CIC. We have fully digitalized every single step of freight transportation from end to end, replacing old methods which are disconnected and human-driven. Further, we have made the road freight transportation transactions intelligent by leveraging our superior technology capabilities and deep data insights.

We primarily generate revenues from transportation services we provide to KA and SME Shippers. Our total revenues increased by 5.2% from RMB3.4 billion in 2019 to RMB3.6 billion (US$544.3 million) in 2020 and increased by 76.1% from RMB671.8 million for the three months ended March 31, 2020 to RMB1,183.4 million (US$180.6 million) for the three months ended March 31, 2021. We had a net loss of RMB233.9 million, RMB115.8 million (US$17.7 million) and RMB54.5 million (US$8.3 million) in 2019 and 2020 and for the three months ended March 31, 2021, respectively. Excluding the impact of certain non-cash items, we had an adjusted net loss of RMB171.2 million in 2019, RMB79.8 million (US$12.2 million) in 2020 and RMB46.5 million (US$7.1 million) for the three months ended March 31, 2021, an EBITDA of negative RMB196.7 million in 2019, negative RMB90.9 million (US$13.9 million) in 2020 and negative RMB50.0 million (US$7.6 million) for the three months ended March 31, 2021, and an adjusted EBITDA of negative RMB134.0 million in 2019, negative RMB54.8 million (US$8.4 million) in 2020 and negative RMB42.0 million (US$6.4 million) for the three months ended March 31, 2021. See “—Non-GAAP Financial Measures” for a reconciliation of net loss to adjusted net loss and to adjusted EBITDA.

Factors Affecting Our Results of Operations

We see our topline growth mainly driven by our shipper base and average revenue per shipper. At the same time, our growing carrier base lays the foundation for our future growth. Our profitability is a function of our total revenues, price spread, and operating leverage. Specifically:

Shipper.    We expect our shipper base to continue to grow as more customers adopt our Freight-as-a-Service. For KA Shippers, the growth is mostly dependent on our effort to identify and tap into different industry verticals with strong freight demand and growth potential. We originally started to serve companies in the e-commerce and express delivery industries who generally have stringent requirements on transportation time and reliability, and gradually expanded to companies operating in automobile parts, fast-moving consumer goods, and industrial and home appliances, among others. For SME Shippers, we believe that our shipper base will increase as a result of natural adoption of our convenient freight service and our geographic expansion. As our truck type offering gradually expands beyond our current core products of dry vans, shippers with varying demand for cargo vans and transportation distance are also expected to increase on our platform. In 2020, we served approximately 230 KA Shippers and 3,770 SME Shippers, compared to 120 KA Shippers in 2019. As of March 31, 2021, we had served over 10,000 SME Shippers cumulatively.

 

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Average revenue per shipper.    We strategically focus on deepening our collaboration with a group of KA Shippers. The average revenue we generated from our top 30 KA Shipper customers was largely stable in 2019 and 2020. We strategically reduced our dependence on the largest KA Shipper in 2019 and enlarged the revenue contribution from other shippers in 2020. Excluding this particular KA Shipper, the average revenue of our top 30 KA Shippers (i.e., 29 shippers from the 2nd largest to the 30th largest one) increased by 41.2% from RMB60.9 million in 2019 to RMB86.0 million (US$13.2 million) in 2020 and increased by 99.2% from RMB14.1 milion for the three months ended March 31, 2020 to RMB28.1 milion (US$4.3 million) for the three months ended March 31, 2021. Without this exclusion, the average revenue of our top 30 KA shippers increased by 49.2% from RMB21.6 million for the three months ended March 31, 2020 to RMB32.3 million (US$4.9 million) for the three months ended March 31, 2021. Our KA Shippers have achieved robust growth themselves against the supportive industry backdrop and we believe they increased their orders on our platform because we offer reliable and standardized services that can be integrated directly with their own logistics management systems and competitive pricing. The combined effect of growing our KA Shipper base and average revenue per KA Shipper drives the increase of revenues from KA Shippers.

Carrier.    A growing carrier base is equally important for our growth, as they are the force to transport freight orders on our platform. As more carriers join our platform, we are able to serve more orders to increase our revenues. Many carriers are first attracted to our platform through word-of-mouth referrals and promotions, among other reasons, and they remain on and actively use our platform mostly because of the carrier-friendly payment settlement mechanism, decreased deadhead miles and waiting time, and therefore potentially improved earnings. As of March 31, 2021, approximately 905,500 drivers had registered on our platform and over 580,800 drivers had completed orders on our platform. In 2020, over 112,000 individual drivers completed freight orders. We had 15,200 loyal drivers, defined as drivers who generated freight service income of over RMB50,000 on our platform for a given year, in 2020, an increase from 11,000 in 2018. Loyal drivers transported 69.8% of our shipments by order value in 2020, as compared to 52.9% in 2018.

Price spread.    The price spread between what we charge shippers and what we pay our carriers is driven by our precise pricing and our smart dispatching capabilities, which is proportionately reflected in our gross margin. Gross margin improves as we gain more bargaining power after our business scale grows and we deepen our industrial know-hows and data insights to more precisely set prices on both ends to shippers and carriers. Furthermore, as our smart dispatching capabilities improve and significantly decrease their deadhead miles and waiting time, more carriers are willing to accept lower fee rates, which also improves gross margin. In addition, the gross margin also improves as long-haul orders on our platform increase. On top of these factors that positively drive our gross margin, we may also strategically offer favorable prices on our platform to shippers and/or carriers from time to time to attract them to our platform or to achieve expansion into different geographic areas or customer categories. Our gross margin improved from -0.3% in 2019 to 3.0% in 2020.

Operating leverage.    We benefit from economies of scale by increasing operating leverage. Our total operating expenses, including operations and support, sales and marketing, general and administrative, and research and development expenses, represented 8.2% of our total revenues in 2020, an improvement from 9.1% in 2019. Our total operating expenses represented 8.5% of our total revenues for the three months ended March 31, 2021, an improvement from 13.2% for the three months ended March 31, 2020. We expect our research and development expenses and general and administrative expenses to increase only modestly as our business rapidly expands. Each of our employees on average generated RMB6.0 million (US$0.9 million) of revenues in 2020, compared to RMB4.1 million in 2019.

 

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Impact of COVID-19

The COVID-19 pandemic has severely affected China and the rest of the world. In an effort to control the spread of the COVID-19 pandemic, China and many other countries have taken precautionary measures, such as imposing travel restrictions, quarantining individuals infected with or suspected of being infected with COVID-19, encouraging or requiring people to work remotely, and canceling public activities, among others. These ongoing measures adversely affected our operations and financial performance in 2020.

Specifically, the COVID-19 pandemic adversely affected our revenues from transportation services. In light of the challenging macro-economic conditions in China, some of our shippers have reduced their demand for freight transportation due to the decreased orders made in e-commerce and other industries in the first half of 2020. As a result, our transportation services revenues in the first half of 2020 were RMB1,410.7 million, representing a decrease of 1.4% compared to RMB1,431.1 million in the same period of 2019, before bouncing back in the second half of 2020 with the transportation services revenues increasing by 10.2% year-over-year compared to the second half of 2019. Our transportation services revenues in the first quarter of 2021 were RMB1,179.8 million (US$180.1 million), representing an increase of 78.4% compared to RMB661.1 million in the first quarter of 2020.

We took a series of measures in response to the epidemic to protect our employees, including, among others, temporary closure of our offices, remote working arrangements for our employees and travel restrictions or suspension. These measures reduced the capacity and efficiency of our operations. We have also provided our carriers with masks, hand sanitizers and other protective equipment after the outbreak, which had increased and may continue to increase our operations and support expenses. In addition, our business operations could be disrupted if any of our employees is suspected of contracting COVID-19, since our employees could be quarantined and/or our offices be shut down for disinfection.

Starting from the fourth quarter of 2020 and extending to the first quarter of 2021, a few new outbreaks of COVID-19 infections emerged in various regions of China, and varying levels of travel restrictions were reinstated. The extent to which the COVID-19 pandemic may continue to affect our operations and financial performance will depend on future developments, which are highly uncertain and cannot be predicted. See “Risk Factors—Risk Related to Our Business and Industry—The COVID-19 pandemic may continue to have a material adverse impact on our business, operating results and financial condition.”

 

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Key Components of Results of Operations

Revenues

We primarily generate revenues from transportation services we provide to shippers for freight transportation on our platform. We also generate revenues from other services, such as financial leasing services to carriers on our platform. The following table breaks down our revenues in absolute amounts and as percentages of our total revenues for the periods presented:

 

     For the Year Ended December 31,      For the Three Months Ended March 31,  
     2019      2020      2020      2021  
     RMB      %      RMB      US$      %      RMB      %      RMB      US$      %  
     (in thousands, except for percentages)  

Revenues:

                             

Transportation services

     3,353,516        98.9        3,528,970        538,626        99.0        661,138        98.4        1,179,791        180,071        99.7  

—KA Shippers

     3,353,516        98.9        3,445,951        525,955        96.6        661,138        98.4        1,060,894        161,924        89.7  

—SME Shippers

     —          —          83,019        12,671        2.4        —          —          118,897        18,147        10.0  

Other services

     37,472        1.1        36,952        5,640        1.0        10,690        1.6        3,563        544        0.3  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

     3,390,988        100.0        3,565,922        544,266        100.0        671,828        100.0        1,183,354        180,615        100.0  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Transportation services.    Our revenues from transportation services represent the gross amount we charge shippers for transportation services.

Other services.    Our revenues from other services primarily represent revenues from financial leasing services we provide to carriers.

Costs and expenses

Our costs and expenses consist of cost of revenues, operations and support expenses, sales and marketing expenses, general and administrative expenses, and research and development expenses. The following table breaks down our costs and expenses in absolute amounts and as percentages of our total revenues for the periods presented:

 

     For the Year Ended December 31,      For the Three Months Ended March 31,  
     2019      2020      2020      2021  
     RMB      %      RMB      US$      %      RMB      %      RMB      US$      %  
     (in thousands, except for percentages)  

Costs and expenses:

                             

Cost of revenues

     3,402,415        100.3        3,458,276        527,836        97.0        657,986        97.9        1,165,597        177,905        98.5  

Operations and support

     22,656        0.7        25,935        3,958        0.7        11,732        1.7        6,100        931        0.5  

Sales and marketing

     91,794        2.7        97,694        14,911        2.7        21,890        3.3        36,520        5,574        3.1  

General and administrative

     117,758        3.5        102,875        15,702        2.9        37,363        5.6        40,415        6,169        3.4  

Research and development

     75,502        2.2        66,533        10,155        1.9        17,758        2.6        17,091        2,609        1.4  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total costs and expenses

     3,710,125        109.4        3,751,313        572,562        105.2        746,729        111.1        1,265,723        193,188        106.9  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cost of revenues.    Our cost of revenues primarily consists of (i) the transportation costs we pay the carriers on our platform to complete freight transportation orders, (ii) insurance costs, (iii) cloud services costs, and (iv) others.

 

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Operations and support expenses.    Our operations and support expenses primarily consist of (i) customer service expenses, (ii) payroll and related expenses for employees involved in operations and support functions, (iii) share-based compensation expenses, and (iv) others.

Sales and marketing expenses.    Our sales and marketing expenses primarily consist of (i) payroll and related expenses for employees involved in sales and marketing functions, (ii) share-based compensation expenses, (iii) marketing and promotional expenses, (iv) travel expenses, (v) rental and office expenses, and (vi) others.

General and administrative expenses.    Our general and administrative expenses primarily consist of (i) payroll and related expenses for employees involved in general and administrative functions, (ii) share-based compensation expenses, (iii) professional fees, (iv) rental and office expenses, (v) recruitment expenses, (vi) asset impairment loss, and (vii) others.

Research and development expenses.    Our research and development expenses primarily consist of (i) payroll and related expenses for employees involved in research and development functions, (ii) share-based compensation expenses, (iii) technology and consulting service expenses, and (iv) others.

Non-GAAP Financial Measures

Adjusted net loss and adjusted EBITDA

In evaluating our business, we consider and use adjusted net loss and adjusted EBITDA, each a non-GAAP financial measure, to supplement the review and assessment of our operating performance. We have included these non-GAAP financial measures in this prospectus because they are key measures used by our management to evaluate our operating performance. Accordingly, we believe that they provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team and board of directors. Our calculation of these non-GAAP financial measures may differ from similarly-titled non-GAAP measures, if any, reported by our peer companies. They should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with U.S. GAAP.

 

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We define adjusted net loss as net loss adjusted for the impact of share-based compensation expenses. We define adjusted EBITDA as net loss adjusted for the impact of (i) interest expense, net, (ii) income tax expense, (iii) share-based compensation expenses, (iv) depreciation of property and equipment, and (v) amortization of intangible assets. The following table sets forth the reconciliation of net loss, the most comparable measure prepared in accordance with U.S. GAAP, to adjusted net loss and adjusted EBITDA, respectively, for the periods presented:

 

     For the Year Ended December 31,     For the Three Months Ended
March 31,
 
     2019     2020     2020     2021  
     RMB     RMB     US$     RMB     RMB     US$  
     (in thousands, except for percentages)  

Net loss

     (233,890     (115,777     (17,670     (50,164     (54,499     (8,319

Add:

            

Share-based compensation expenses

     62,724       36,027       5,499       13,248       8,000       1,221  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net loss

     (171,166     (79,750     (12,171     (36,916     (46,499     (7,098

Total revenues

     3,390,988       3,565,922       544,266       671,828       1,183,354       180,615  

Net loss margin

     (6.9%     (3.2%     (3.2%     (7.5%     (4.6%     (4.6%

Adjusted net loss margin

     (5.0%     (2.2%     (2.2%     (5.5%     (3.9%     (3.9%
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (233,890     (115,777     (17,670     (50,164     (54,499     (8,319

Add:

            

Interest expense, net

     28,526       19,067       2,910       6,359       3,496       534  

Income tax expense

     5,565       2,427       370       1,052       385       59  

Depreciation of property and equipment

     2,520       2,840       433       732       583       89  

Amortization of intangible assets

     550       577       88       180       85       13  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     (196,729     (90,866     (13,869     (41,841     (49,950     (7,624

Add:

            

Share-based compensation expenses

     62,724       36,027       5,499       13,248       8,000       1,221  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

     (134,005     (54,839     (8,370     (28,593     (41,950     (6,403

Total revenues

     3,390,988       3,565,922       544,266       671,828       1,183,354       180,615  

EBITDA margin

     (5.8%     (2.5%     (2.5%     (6.2%     (4.2%     (4.2%

Adjusted EBITDA margin

     (4.0%     (1.5%     (1.5%     (4.3%     (3.5%     (3.5%
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Taxation

Cayman Islands

The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains, or appreciation, and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties, which may be applicable on instruments executed in, or brought within the jurisdiction of, the Cayman Islands. In addition, the Cayman Islands does not currently impose withholding tax on dividend payments.

Hong Kong

Our subsidiary in Hong Kong is subject to 16.5% Hong Kong profit tax on its taxable income generated from operations in Hong Kong. Commencing on April 1, 2018, the two-tiered profits tax regime took effect, under which the tax rate is 8.25% for assessable profits on the first HK$2 million and 16.5% for any assessable profits in excess of HK$2 million. Additionally, payments of dividends by our subsidiary in Hong Kong to our company are not subject to any Hong Kong withholding tax.

 

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China

Under the PRC Enterprise Income Tax Law effective from January 1, 2008, our PRC subsidiaries, consolidated variable interest entities and their subsidiaries are subject to the statutory rate of 25%, subject to preferential tax treatments available to qualified enterprises in certain encouraged sectors of the economy. Enterprises that qualify as “high and new technology enterprises” are entitled to a preferential rate of 15% for three years.

Beijing ForU, our WFOE, was certified as a “high and new technology enterprise” and, therefore, enjoyed a preferential tax rate of 15% rather than the statutory enterprise income tax rate of 25% for each of 2019, 2020 and the three months ended March 31, 2021. Our remaining PRC entities were subject to enterprise income tax at a rate of 25% in 2019, 2020 and the three months ended March 31, 2021.

Dividends paid by our wholly foreign-owned subsidiaries in China to our intermediary holding companies in Hong Kong will be subject to a withholding tax rate of 10%, unless the relevant Hong Kong entity satisfies all the requirements under the Arrangement between the PRC and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income and Capital and receives approval from the relevant tax authority. If a Hong Kong subsidiary satisfies all the requirements under the tax arrangement and receives approval from the relevant tax authority, then the dividends paid to the Hong Kong subsidiary would be subject to withholding tax at the standard rate of 5%. See “Risk Factors—Risks Related to Doing Business in China—We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business.”

If our holding company in the Cayman Islands or any of our subsidiaries outside of China were deemed to be a “resident enterprise” under the PRC Enterprise Income Tax Law, it would be subject to enterprise income tax on its worldwide income at a rate of 25%. See “Risk Factors—Risks Related to Doing Business in China—If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders or ADS holders.”

 

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Results of Operations

The following table sets forth a summary of our consolidated results of operations for the periods presented, both in absolute amounts and as percentages of our total revenues.

 

    For the Year Ended December 31,     For the Three Months Ended March 31,  
    2019     2020     2020     2021  
    RMB     %     RMB     US$     %     RMB     %     RMB     US$     %  
    (in thousands, except for percentage data)  

Revenues:

                   

Transportation services

    3,353,516       98.9       3,528,970       538,626       99.0       661,138       98.4       1,179,791       180,071       99.7  

Other services

    37,472       1.1       36,952       5,640       1.0       10,690       1.6       3,563       544       0.3  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    3,390,988       100.0       3,565,922       544,266       100.0       671,828       100.0       1,183,354       180,615       100.0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Costs and expenses:

                   

Cost of revenues

    (3,402,415     (100.3     (3,458,276     (527,836     (97.0     (657,986     (97.9     (1,165,597     (177,905     (98.5

Operations and support

    (22,656     (0.7     (25,935     (3,958     (0.7     (11,732     (1.7     (6,100     (931     (0.5

Sales and marketing

    (91,794     (2.7     (97,694     (14,911     (2.7     (21,890     (3.3     (36,520     (5,574     (3.1

General and administrative

    (117,758     (3.5     (102,875     (15,702     (2.9     (37,363     (5.6     (40,415     (6,169     (3.4

Research and development

    (75,502     (2.2     (66,533     (10,155     (1.9     (17,758     (2.6     (17,091     (2,609     (1.4
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    (3,710,125     (109.4     (3,751,313     (572,562     (105.2     (746,729     (111.1     (1,265,723     (193,188     (106.9

Other operating income

    111,975       3.3       79,473       12,130       2.2       32,954       4.9       31,297       4,777       2.6  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (207,162     (6.1     (105,918     (16,166     (3.0     (41,947     (6.2     (51,072     (7,796     (4.3

Interest income

    16,247       0.5       8,259       1,261       0.2       3,113       0.5       454       69       0.0  

Interest expenses

    (44,773     (1.3     (27,326     (4,171     (0.8     (9,472     (1.4     (3,950     (603     (0.3

Foreign currency exchange gain (loss)

    (3,601     (0.1     (1,495     (228     (0.0     (203     (0.0     6       1       0.0  

Other income (loss), net

    10,964       0.3       13,130       2,004       0.4       (603     (0.1     448       69       0.0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income tax expense

    (228,325     (6.7     (113,350     (17,300     (3.2     (49,112     (7.2     (54,114     (8,260     (4.6

Income tax expense

    (5,565     (0.2     (2,427   <