Filed Pursuant to Rule 424(b)(5)
Registration No. 333-258187
Prospectus Supplement
(to Prospectus dated October 26, 2022)
XChange TEC.INC
Up to 250,000,000 American Depositary Shares
representing up to 150,000,000,000,000 Class A Ordinary Shares
This prospectus supplement relates to the offer and sale of up to 250,000,000
American Depositary Shares (the “ADSs”), each ADS representing 600,000 Class A ordinary shares of the Company, par value $0.0000001
per share (the “Class A Ordinary Shares”), by us to VG Master Fund SPC, whom we refer to in this prospectus supplement as
“VG,” pursuant to a securities stock purchase agreement, dated as of September 24, 2024, we entered into with VG, which we
refer to in this prospectus supplement as the “Purchase Agreement.” Under the terms of the Purchase Agreement, we may elect
to sell the ADSs to VG at our discretion from time to time after the date of this prospectus supplement.
We may receive up to $25,000,000 in aggregate gross proceeds under
the Purchase Agreement from sales of the ADSs we may elect to make to VG pursuant to the Purchase Agreement. See “The Committed
Equity Facility” in this prospectus supplement for a description of the Purchase Agreement.
The ADSs are listed on the NASDAQ Global Market and are traded under
the symbol “XHG.” On September 17, 2024, the closing price of the ADSs on the NASDAQ Global Market was US$0.66 per ADS.
As of September 24, 2024, the aggregate market value of our outstanding
Class A Ordinary Shares held by non-affiliates was approximately $106.8 million, based on 61,177,892,046,400 outstanding Class A Ordinary
Shares, of which approximately 54,758,103,046,400 Class A Ordinary Shares were held by non-affiliates, and a per ADS price of $1.17 based
on the closing sale price of the ADSs on August 7, 2024.
Investing in our securities involves risks. You should read the
“Risk Factors” section in this prospectus supplement, any related free writing prospectus and the documents we incorporate
by reference in this prospectus supplement before investing in our securities.
XChange TEC.INC (formerly known as “FLJ Group Limited”)
is not an operating company but a Cayman Islands holding company with operations conducted by our subsidiaries in China. Investors in
our securities have purchased securities of a holding company incorporated in the Cayman Islands. The Company conducts its insurance agency
and insurance technology businesses in the People’s Republic of China (the “PRC” or “China”) through Alpha
Mind Technology Limited (“Alpha Mind”), which it acquired on December 28, 2023 (the “Acquisition”). Alpha Mind
conducts its insurance agency and insurance technology businesses through its indirectly wholly-owned subsidiary, Jiachuang Yingan (Beijing)
Information & Technology Co., Ltd. (the “WFOE”) and the WFOE’s consolidated variable interest entities, namely,
Huaming Insurance Agency Co., Ltd. (“Huaming Insurance”) and Huaming Yunbao (Tianjin) Technology Co., Ltd. (“Huaming
Yunbao,” together with Huaming Insurance, the “VIEs”). On May 21, 2024, the Company changed its name from “FLJ
Group Limited” to “XChange TEC.INC” and began trading under the new ticker symbol “XHG” on The Nasdaq Stock
Market, LLC (“NASDAQ”) effective on June 3, 2024.
Our structure involves unique risks to investors. The VIE structure
provides investors with exposure to foreign investment in China-based companies where Chinese law prohibits or restricts direct foreign
investment in the operating companies, and investors may never hold equity interests in the Chinese operating companies. The PRC government
regulates telecommunications-related businesses through strict business licensing requirements and other government regulations. If the
PRC government deems that our contractual arrangements with the Current VIEs do not comply with PRC regulatory restrictions on foreign
investment in the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we
could be subject to severe penalties or be forced to relinquish our interests in those operations. Our holding company in the Cayman Islands,
the Current VIEs, and investors of our company face uncertainty about potential future actions by the PRC government that could affect
the validity and enforceability of the contractual arrangements with the Current VIEs and, consequently, significantly affect the financial
performance of the Current VIEs and our company as a group. For more detailed discussion of how cash is transferred between our subsidiaries,
WFOE and the VIE entities, see “Our Company—How Cash is Transferred through Our Organization” in this prospectus. As
used in this prospectus, unless the context otherwise requires, “we,” “us,” “our company”
and “our” refer to XChange TEC.INC and its subsidiaries, except in the context of describing the consolidated financial information,
also include the VIE entities.
We are exposed to legal and operational risks associated with our operations
in China. The PRC government has significant authority to exert influence on the ability of a company with operations in China, including
us, to conduct its business. Changes in China’s economic, political or social conditions or government policies could materially
and adversely affect our business and results of operations. We are subject to risks due to the uncertainty of the interpretation and
the application of the PRC laws and regulations, including but not limited to the risks of uncertainty about any future actions of the
PRC government on U.S. listed companies. We may also be subject to sanctions imposed by PRC regulatory agencies, including CSRC, if we
fail to comply with their rules and regulations. Any actions by the PRC government to exert more oversight and control over offerings
that are conducted overseas and/or foreign investment in companies having operations in China, including us, could significantly limit
or completely hinder our ability to offer or continue to offer securities to investors, and cause the value of our securities to significantly
decline or become worthless. These China-related risks could result in a material change in our operations and/or the value of our securities,
or could significantly limit or completely hinder our ability to offer securities to investors in the future and cause the value of such
securities to significantly decline or become worthless. See “Item 3. Key Information—D. Risk Factors – Risks Related
to Doing Business in China” in our Form 20-F for our fiscal year ended September 30, 2023, or FY 2023, which is incorporated herein
by reference.
Our historical corporate structure is subject to risks associated with
our contractual arrangements with the VIE entities. Our historical contractual arrangements might not be as effective as direct ownership
in providing us with control over the VIE entities and the termination of these agreements may incur additional costs. If the PRC government
deems that our historical contractual arrangements with the VIE entities do not comply with PRC regulatory restrictions on foreign investment
in the relevant industries, or if these regulations or the interpretation of existing regulations change or are interpreted differently
in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations. Our Cayman Islands
holding company, our PRC subsidiaries and VIE entities, and investors of our company face uncertainty about potential future actions by
the PRC government that could affect the enforceability of the historical contractual arrangements with the VIE entities and, consequently,
significantly affect the historical financial performance of the VIE entities and our Company as a whole. See “Risk Factors—Risks
Related to Our Corporate Structure—If the PRC government determines that the contractual arrangements with the VIE entities did
not comply with PRC regulations, or if these regulations change or are interpreted differently in the future, the ADSs may decline in
value if we are deemed to be unable to assert our contractual control rights over the assets of the VIE entities” in this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the accuracy or completeness of this prospectus supplement,
including any free writing prospectus and documents incorporated by reference. Any representation to the contrary is a criminal offense.
The date of this prospectus supplement is September
24, 2024.
TABLE OF CONTENTS
You should rely only on the information contained in this prospectus.
No one has been authorized to provide you with information that is different from that contained in this prospectus. This prospectus is
dated as of the date set forth on the cover hereof. You should not assume that the information contained in this prospectus is accurate
as of any date other than that date.
For investors outside the United States: We have not done anything
that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is
required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this
offering and the distribution of this prospectus.
ABOUT THIS PROSPECTUS SUPPLEMENT
This prospectus supplement and the accompanying prospectus relate to
the offering of our Class A Ordinary Shares represented by American Depositary Shares. You should read this prospectus supplement, the
accompanying prospectus, the documents incorporated by reference into this prospectus supplement and the accompanying prospectus, and
any free writing prospectus that we may authorize for use in connection with this offering, in their entirety before making an investment
decision. You should also read and consider the information in the documents to which we have referred you in the section of this prospectus
supplement entitled “Where You Can Find More Information” and “Incorporation by Reference.” These documents contain
important information that you should consider when making your investment decision.
This document is in two parts. The first part is this prospectus supplement,
which describes the specific terms of the offering of our Class A Ordinary Shares represented by ADSs and also adds to and updates information
contained in the accompanying prospectus and the documents incorporated by reference into this prospectus supplement and the accompanying
prospectus. The second part, the accompanying prospectus, including the documents incorporated by reference into the accompanying prospectus,
provides more general information, some of which may not apply to this offering. Generally, when we refer to this prospectus, we are referring
to the combined document consisting of this prospectus supplement and the accompanying prospectus. To the extent there is a conflict between
the information contained in this prospectus supplement, on the one hand, and the information contained in the accompanying prospectus
or in any document incorporated by reference into the accompanying prospectus that was filed with the Securities and Exchange Commission,
or SEC, before the date of this prospectus supplement, on the other hand, you should rely on the information in this prospectus supplement.
If any statement in one of these documents is inconsistent with a statement in another document having a later date, the statement in
the document having the later date modifies or supersedes the earlier statement.
We are responsible for the information contained in, or incorporated
by reference into, this prospectus supplement, the accompanying prospectus and in any free writing prospectus that we may authorize for
use in connection with this offering. We have not authorized any other person to provide you with different information, and we take no
responsibility for any other information that others may give you.
We are not making an offer to sell or soliciting an offer to buy our
Class A Ordinary Shares represented by ADSs in any jurisdiction in which an offer or solicitation is not authorized or in which the person
making that offer or solicitation is not qualified to do so or to anyone to whom it is unlawful to make an offer or solicitation.
You should assume that the information appearing in this prospectus
supplement, the accompanying prospectus, the documents incorporated by reference into this prospectus supplement and the accompanying
prospectus, and in any free writing prospectus that we may authorize for use in connection with this offering, is accurate only as of
the date of those respective documents. Our business, financial condition, results of operations and prospects may have changed since
those dates.
Unless otherwise indicated or the context otherwise
requires in this prospectus:
| ● | “Acquisition” has the meaning ascribed to it in the note below**; |
| ● | “ADSs” refers to the American depositary shares, each of which represents 600,000 Class A ordinary shares as of the date
of this annual report; |
| ● | “Alpha Mind” refers to Alpha Mind Technology Limited, a company incorporated under the laws of the British Virgin Islands,
and, if applicable, its consolidated entities; |
| ● | “CBIRC” means the China Banking and Insurance Regulatory Commission; |
| ● | “China” or the “PRC” refers to the People’s Republic of China, including, for the purposes of this annual
report, Hong Kong and Macau, unless referencing specific laws and regulations and other legal and tax matters applicable only to mainland
China, and excluding, for the purposes of this annual report only, Taiwan; |
| ● | “Continuing Operations” has the meaning ascribed to it in the note below*; |
| ● | “Current VIEs” refer to Huaming Insurance Agency Co., Ltd. and Huaming Yunbao (Tianjin) Technology Co., Ltd.**; |
| ● | “Current WFOE” refer to Jiachuang Yingan (Beijing) Information & Technology Co., Ltd.**; |
| ● | “Discontinued Operations” has the meaning ascribed to it in the note below*; |
| ● | “Disposal” has the meaning ascribed to it in “Item 4. Information on the Company-A. History and development of the
Company” of our Form 20-F for our fiscal year ended September 30, 2023; |
| ● | “Disposed Business” has the meaning ascribed to it in “Item 4. Information on the Company-A. History and development
of the Company” of our Form 20-F for our fiscal year ended September 30, 2023; |
| ● | “Former VIE” or “Q&K E-commerce” refers to Shanghai Qingke E-commerce Co., Ltd.*; |
| ● | “Former VIE entities” refer to Qingke (China) Limited or Q&K HK, Shanghai Qingke Investment Consulting Co., Ltd. and
Shanghai Qingke E-commerce Co., Ltd. and its subsidiaries*; |
| ● | “Former WFOE” or “Q&K Investment Consulting” refers to Shanghai Qingke Investment Consulting Co., Ltd.*; |
| ● | “Notes” has the meaning ascribed to it in “Item 4. Information on the Company-A. History and development of the
Company” of our Form 20-F for our fiscal year ended September 30, 2023; |
| ● | “ordinary shares” refers to our Class A ordinary shares and Class B ordinary shares, par value US$0.0000001 per share
as of the date of this annual report; |
| ● | “RMB” and “Renminbi” refer to the legal currency of mainland China; |
| ● | “US$,” “U.S. dollars,” “$,” and “dollars” refer to the legal currency of the United
States; |
| ● | “VIE” refers to variable interest entity; and |
| ● | “we,” “us,” “our company,” “our,” “the Company”, and “the Group”
means, XChange TEC.INC and its subsidiaries, which include Alpha Mind following the consummation of the Acquisition. XChange TEC.INC is
a Cayman Islands holding company with no operations of its own and conducts its business through its subsidiaries and the Current VIEs
in China. The Current VIEs are consolidated for accounting purposes but are not entities in which XChange TEC.INC owns any equity. |
| * | On October 26, 2021 and December 17, 2021, FLJ Group Limited
(together with its consolidated subsidiaries, the “Group”) transferred of all of its equity interest in Shanghai Qingke Investment
Consulting Co., Ltd. (“Q&K Investment Consulting”) and Qingke (China) Limited (“Q&K HK”), respectively,
to Wangxiancai Limited, which was a related party of the Group and is beneficially owned by the legal representative and executive director
of one of the Group’s subsidiaries (the “First Equity Transfer”). As of September 30, 2022, the Group did not account
for the transfer of equity interest in Q&K HK, Q&K Investment Consulting and Q&K E-commerce as a discontinued operation,
as FLJ Group Limited was the primary beneficiary of Q&K HK, Q&K Investment Consulting and Q&K E-commerce as FLJ Group Limited
had the power to direct the activities of these companies that most significantly impact their economic performance and FLJ Group Limited
had the obligation to absorb losses of these companies that could potentially be significant to these companies since their inception.
On October 31, 2023, the Group transferred of all of its equity interest in Haoju (Shanghai) Artificial Intelligence Technology Co.,
Ltd. (“Haoju”), to Wangxiancai Limited, at nominal consideration (the “Second Equity Transfer”). Upon the completion
of the Second Equity Transfer, the Group no longer conducts long-term apartment rental business in China. The disposals of Q&K Investment
Consulting, Q&K HK and Haoju are accounted as discontinued operations (“Discontinued Operations”). The remaining ongoing
business operations of our Group (excluding these disposed entities) are accounted as continuing operations (“Continuing Operations”).
See Note 1-Organization and Principal Activities to our consolidated financial statements for more information in the financial statements
for FY 2023 included in of our Form 20-F for the fiscal year ended September 30, 2023. |
| ** | On November 22, 2023, we entered into an equity acquisition
agreement with Alpha Mind, an insurance agency and insurance technology business in the PRC, and Alpha Mind’s shareholders to acquire
all of the issued and outstanding shares in Alpha Mind (the “Acquisition”). The Acquisition of Alpha Mind was consummated
on December 28, 2023. Alpha Mind conducts its insurance agency and insurance technology businesses in the PRC through its indirectly
wholly-owned subsidiary, Jiachuang Yingan (Beijing) Information & Technology Co., Ltd. (the “Current WFOE”) and the Current
WFOE’s consolidated variable interest entities. In April 2022, Alpha Mind, through the Current WFOE, entered into contractual arrangements
with Huaming Insurance Agency Co., Ltd. (“Huaming Insurance”) and Huaming Yunbao (Tianjin) Technology Co., Ltd. (“Huaming
Yunbao, together with Huaming Insurance, the “Current VIEs”), respectively. The contractual arrangements enable Alpha Mind
to obtain control over the Current VIEs. |
Names of certain companies provided in this prospectus
are translated or transliterated from their original Chinese legal names.
Discrepancies in any table between the amounts
identified as total amounts and the sum of the amounts listed therein are due to rounding.
SUMMARY
This summary highlights information contained
elsewhere or incorporated by reference in this prospectus supplement and the accompanying prospectus. This summary does not contain all
of the information that you should consider before deciding to invest in our common stock. You should read this entire prospectus supplement
and the accompanying prospectus carefully, including the “Risk Factors” section contained in this prospectus supplement, our
financial statements and the related notes thereto and the other documents incorporated by reference in this prospectus supplement and
the accompanying prospectus.
Overview
We, through the Current VIEs, conduct a professional insurance agency
business which provides a wide variety of insurance products underwritten by major insurance companies, including industry leading and/or
state-owned property and casualty insurance companies as well as certain regional property and casualty insurance companies in China.
Through the Current VIEs, we hold the insurance agent operating license which is required under applicable PRC laws to conduct insurance
agency business in China. As an insurance agency, we are not involved in underwriting insurance policies. We are committed to providing
insurance purchasers with comprehensive services, spanning from application to claim settlement, through our professional and dedicated
approach. We have accumulated substantial expertise and successfully expanded our insurance product portfolio to encompass a wide range
of offerings. These include life, health, group accident, and various other property-related insurances. Leveraging the growing ubiquity
of mobile internet, Alpha Mind introduced the SaaS platform in 2023. This technological advancement has streamlined and popularized our
insurance agency business, enhancing accessibility and convenience for our customers.
Our role as an insurance agent is mainly to facilitate insurance companies
to promote market penetration of their products through our extensive nationwide sales network. Insurance companies may leverage our marketing
network to promote their products with cost efficiency rather than having to build a marketing network of their own. With respect to end
customers, or insurance purchasers, our sales representatives are able to leverage their professional knowledge and experience to advise
and recommend the most suitable insurance products and efficiently complete the contract signing process as well as assist them with claim
applications.
With our solid foundation and unwavering commitment to excellence,
we are confident in our ability to capitalize the thriving Chinese insurance agency market. In 2023, we were ranked 30 among the top 100
insurance intermediaries in China and were ranked third in Tianjin region, in terms of insurance premium facilitated. We, through the
Current VIEs, are principally engaged in the insurance agency business primarily through a “Business to Business to Consumer,”
or B2B2C, model. We offer a wide variety of insurance products underwritten by major insurance companies in China, including industry
leading and/or state-owned property and casualty insurance companies as well as certain regional property and casualty insurance companies
in China, to insurance purchasers and generate revenue from commissions from these insurance companies, typically based on a percentage
of the premium paid by insurance purchasers. In 2021 and 2022 and 2023, Alpha Mind sold more than 799,444, 4,162,277 and 13,687,786 insurance
policies with an aggregate premium of approximately RMB1,883.9 million, RMB2,170.6 million and RMB2,139.0 million, respectively.
Alpha Mind sells insurance policies primarily through a network of
external referral sources, which comprised more than 805 external registered sales representatives and 197 strategic channel partners
as of December 31, 2023, as well as through the in-house sales force. As of December 31, 2023, Alpha Mind had branch coverage in 18 cities
in 11 provinces, autonomous regions and municipalities in China and had established collaborative relationships with 47 insurance companies
and approximately 150 of their branches in China.
Alpha Mind primarily operates in China’s insurance market. According
to CBIRC, the total insurance premium in China reached approximately RMB4.7 trillion in 2022, increased by 4.6% from approximately RMB4.5
trillion in 2021. The insurance premium from property related insurance reached approximately RMB1.3 trillion in 2022, increased by 8.9%
from approximately RMB1.2 trillion in 2021. We expect the growth of China’s insurance market to continue, and the competition among
insurance agencies to intensify.
Regulations
We operate in an increasingly
complex legal and regulatory environment. We are subject to a variety of PRC and foreign laws, rules and regulations across numerous aspects
of our business. This section sets forth a summary of the principal PRC laws, rules and regulations relevant to our business and operations
in the PRC.
Regulation of Insurance Agencies
The principal regulation
governing professional insurance agencies is the Provisions on the Regulation of Insurance Agencies, effective from January 1, 2021.
The Provisions on the Regulation of Insurance Agencies regulate market access, operating rules, market exit, monitoring and inspection,
and legal obligations for insurance agencies.
According to the Provisions
on the Regulation of Insurance Agencies, “insurance agencies” refers to organizations or individuals that are entrusted by
an insurance company and collect commissions from the insurance company to handle the insurance business on an agency basis within the
scope authorized by the insurance company, including professional insurance agencies, sideline insurance agencies and individual insurance
agents.
To establish a professional
insurance agency, the minimum registered capital depends on its business region. For professional insurance agencies whose business regions
are not limited to the province, autonomous region, municipality directly under the central government, or city specifically designated
in the state plan where they are registered, the minimum registered capital should be RMB50 million, while for those operating within
the province, autonomous region, municipality directly under the central government, or city specifically designated in the state plan
where they are registered, the minimum registered capital should be RMB20 million. The registered capital of a professional insurance
agency must be paid-in monetary capital. An insurance professional agency must obtain an Insurance Agent Operating License.
A professional insurance
agency may engage in the following insurance agency businesses:
| ● | selling insurance products on behalf of the insurer principal; |
| ● | collecting insurance premiums on behalf of the insurer principal; |
| ● | conducting loss surveys and handling claims of insurance businesses on behalf of the insurer principal; and |
| ● | other business activities specified by the CBIRC. |
According to the Notice
to Overhaul Chaotic Auto Insurance Market (the “Overhaul Notice”), promulgated by the CBIRC on July 6, 2017, all property
insurance companies must intensify their compliance management and control of vehicle insurance intermediary businesses, and comply with
authorization and management responsibilities applicable to intermediaries and individuals. Property insurance companies may not entrust
any institution without lawful qualification to conduct insurance sale activities, or pay vehicle insurance service charges to unqualified
institutions, directly or in a disguised way.
Property insurance companies
may not entrust or permit any cooperative intermediary to delegate vehicle insurance agency rights to any other institution. A property
insurance company may entrust a third-party internet platform to provide webpage-linking services, but may not entrust or permit any third-party
internet platform without a lawful qualification as an insurance intermediary to engage in insurance sale activities on its website, including
trial calculations of insurance premiums, price quotations and comparisons, business promotions and fund payments.
Property insurance companies
must submit for approval of the terms and premium ratios for vehicle insurance. Any property insurance company, insurance intermediary
or individual may not grant or undertake to grant benefits not specified in an insurance contract to the policyholder or the insured,
including by returning cash or providing prepaid cards, negotiable securities, insurance products, coupons or other property, or offsetting
premiums by reward points or exchanging reward points for goods. Property insurance companies, insurance intermediaries or individuals
may not pay interest or benefits not specified in an insurance contract in a disguised way such as by allowing the insured to participate
in a promotional campaign organized by any other institution or individual.
According to the Guiding
Opinions on Implementation of the Comprehensive Reform of Vehicle Insurance promulgated by the CBIRC on September 2, 2020, insurance
companies and intermediaries will be under simultaneous investigation and handling in the vehicle insurance field, to severely crack down
on the illegal acts such as obtaining service charges by fabricating intermediary business, issuing false invoices and bundled sales.
In addition, it is imperative to promote insurance companies and intermediaries to improve the connection of information systems, to regulate
the settlement and payment of service charges, and prohibit the advance payment by sales personnel. Insurance intermediaries are prohibited
from carrying out non-local vehicle insurance business.
In September 2023, the
National Financial Regulatory Administration promulgated the Measures for the Administration of Insurance Sales Activities, which will
come into force on March 1, 2024. These Measures categorizes insurance sales activities of insurance companies and insurance intermediaries,
including insurance agency companies, into three phases namely pre-sales, in-sales, and post-sales activities, setting forth varied regulatory
requirements on insurance sales activities in the phases of pre-sales, in-sales, and post-sales activities.
Qualification Management for Practitioners
of Insurance Agencies
Based on the Provisions
on the Regulation of Insurance Agencies, the CBIRC is authorized by law and the State Council to exercise centralized supervision and
administration competence over practitioners of insurance agencies by category. Under the Provisions on the Regulation of Insurance Agencies,
the term “practitioners of insurance agencies” refers to individuals of insurance agencies who engage in sale of insurance
products or the relevant loss survey.
Based on the Provisions
on the Regulation of Insurance Agencies, the Circular of the China Insurance Regulatory Commission on Issues concerning the Administration
of Insurance Intermediary Practitioners promulgated by the CBIRC on August 3, 2015 and Notice on Cancelling and Adjusting a Group
of Administrative Approval Items promulgated by the CBIRC on August 7, 2015, prior to practice of practitioners of insurance agencies,
the employer should file practice registration information for such personnel on the CBIRC insurance intermediaries monitoring information
system, without requiring a qualification certificate as a prerequisite for practice registration management.
Professional insurance
agencies, including us, are obligated to monitor the sales activities of the salespersons and restrict and prohibit the misconduct of
such insurance sales practitioners employed by or cooperated with such professional insurance agencies. Any failure to do so may result
in rectification orders, penalties or fines to the practitioners of insurance agencies and the professional insurance agencies themselves.
Regulation of Internet Insurance
On December 7, 2020,
CBIRC issued Measures for the Regulation of Internet Insurance Businesses (the “Internet Insurance Measures”). Pursuant to
the Internet Insurance Measures, no institutions or individuals other than insurance institutions, which refer to insurance companies,
insurance agency companies, insurance brokerage companies and other qualified insurance intermediaries, may engage in the internet insurance
business. Under the Internet Insurance Measures, an insurance institution may sell insurance products or provide insurance brokerage services
via the Internet and self-service terminal equipment, so that consumers can independently learn the product information and complete insurance
purchase on their own through such insurance institution’s self-operated network platform or the self-run network platforms of other
insurance institutions. However, the insurance application pages must belong to the self-run network platform of such insurance institution.
“Self-operated online platforms” refer to online platforms set up by insurance institutions with independent operation and
complete data authority. Self-operated online platforms shall effectively isolate from its affiliated parties such as shareholders, actual
controllers and senior executives of the company in such aspects as finance, business, information system and customer information protection
etc.
An insurance institution
conducting Internet insurance businesses and its self-operated network platform shall meet the following conditions:
| ● | the place of service access is within the territory of the PRC; |
| ● | it shall meet the provisions of the relevant laws and regulations and the qualification requirements of the competent authority of
the relevant industry; |
| ● | it shall have an information management system and core business system supporting the operation of Internet insurance businesses,
which shall be effectively isolated from other irrelevant information systems of the insurance institution; |
| ● | it shall have sound cybersecurity monitoring, information notification and emergency response mechanisms, as well as sound cybersecurity
protection means such as boundary protection, intrusion detection, data protection and disaster recovery; |
| ● | it shall implement the national graded protection system for cybersecurity, carry out record-filing of the grading of cybersecurity,
regularly carry out graded protection assessment, and implement security protection measures for the corresponding grades; |
| ● | it shall have a legal and compliant marketing model and establish an operation and service system that meets the operation needs of
Internet insurance, meets the characteristics of Internet insurance users and supports the service coverage regions; |
| ● | it shall establish or specify an Internet insurance business management department, equip itself with corresponding professionals,
designate a senior executive to serve as the person in charge of Internet insurance businesses, and specify the persons in charge of the
self-run network platforms respectively; |
| ● | it shall have a sound management system and operating procedures for Internet insurance businesses; |
| ● | an insurance company shall, in carrying out Internet insurance sales, comply with the relevant provisions of the CBIRC on the regulatory
evaluation for solvency and protection of consumers’ rights and interests; |
| ● | a professional insurance intermediary shall be a national agency, and its business regions are not limited to the province where its
head office is registered, and shall comply with the relevant provisions of the CBIRC on the classified regulation of professional insurance
intermediaries; and |
| ● | it shall meet other conditions prescribed by the CBIRC. |
According to the Internet
Insurance Measures, “Internet insurances companies” can be established upon special approval by the CBIRC and registered in
accordance with the law without establishing branches and specialize in carrying out Internet insurance business nationwide in order to
promote the integration and innovation of insurance business with the Internet, big data and other new technologies. An Internet insurance
company shall not sell insurance products offline or through other insurance institutions.
In addition, an Internet
enterprise is allowed to use the self-operated network platform to sell Internet insurance products and provide insurance services as
an insurance agent, provided that such Internet enterprise shall obtain the insurance agency operating license for operating insurance
agency business.
Non-insurance institutions
may not carry out Internet insurance business, including but not limited to the following commercial acts: (i) providing consulting
services for insurance products; (ii) comparing insurance products, trial calculation of insurance premiums and comparing quotations;
(iii) designing insurance purchase plans for insurance applicants; (iv) going through insurance purchase formalities on behalf
of clients; and (v) collecting insurance premiums as an agent.
The Internet Insurance
Measures provides that the CBIRC and its local offices are responsible for the development of the regulatory system for Internet insurance
business in an overall manner, and the CBIRC and its local offices shall, in accordance with the division of regulatory work for insurance
institutions, implement daily monitoring and regulation of Internet insurance business.
Regulation of Services Provided by Professional
Insurance Agency and Its Practitioners
Based on the Provisions
on the Regulation of Insurance Agencies, professional insurance agencies and practitioners may not take the following deceptive actions
in insurance agency activities:
| ● | deceiving the insurer, applicant, the insured or beneficiary; |
| ● | concealing important information relating to the insurance contract; |
| ● | obstructing the applicant to perform his/her obligation of disclosure, or inducing him/her not to perform his/her obligation of disclosure; |
| ● | giving or promising to give the applicant, the insured or the beneficiary benefits other than those stipulated in the insurance contract; |
| ● | coercing, inducing or restricting the applicant to enter into an insurance contract by taking advantage of his/her administrative
power, position or the advantage of his/her occupation or by other unfair means; |
| ● | forging or altering an insurance contract without authorization, or providing false supporting materials for the parties to an insurance
contract; |
| ● | misappropriating, withholding or occupying insurance premiums or insurance benefits; |
| ● | seeking improper benefits for other institutions or individuals by taking advantage of his/her business; |
| ● | defrauding the insurance benefits by colluding with the applicant, the insured or beneficiary; or |
| ● | disclosing business secrets of the insurer, the applicant or the insured known in the business activities. |
A professional insurance
agency may not sign insurance contracts on behalf of a contributor. On April 2, 2019, the CBIRC issued a Notice to Rectify the Irregularities
in the Insurance Intermediary Market (the “Rectify Notice”), requiring all insurance companies and insurance intermediaries
to conduct self-inspections to determine whether their practices violate relevant regulations.
According to the Rectify
Notice, among other matters, insurance intermediaries and insurance agencies must rectify any non-compliance practices, such as granting
or undertaking to grant policyholders, insured parties or beneficiaries benefits other than those agreed in the insurance contracts, failure
to register the sales persons engaged by the insurance intermediaries with the CBIRC’s Insurance Intermediaries Regulatory Information
System, or hiring sales person with bad conduct or who do not have professional knowledge necessary for insurance sales. As of the date
this proxy statement/prospectus, CCT has completed the applicable rectification measures.
On June 23, 2020, the
CBIRC further issued the Notice to Follow-up Review of the Rectification of Market Chaos in Banking and Insurance Industries (the “Review
Notice”), requiring all banking and insurance institutions to carry out strict self-examination and self-rectification. According
to the Review Notice, among other matters, insurance companies and insurance intermediaries must rectify any non-compliance practices,
such as misleading consumers to buy insurance products by making false publicity on the grounds that the sales of insurance products are
about to be stopped or the premium rates are about to be adjusted, maliciously misleading or instigating clients to cancel insurance policies,
making consumers suffer from unnecessary losses of contractual rights and interests, or disclosing client information in violation of
regulations. CCT has completed the self-examination and self-rectification work and reported the same to the CBIRC.
Regulations Relating to Foreign Investment
Companies established
and operating in the PRC shall be subject to the Company Law of the PRC, or the PRC Company Law, which was promulgated on December 29,
1993 and newly amended on December 28, 2013 and October 26, 2018. The PRC Company Law provides general regulations for companies set up
and operating in the PRC, including foreign-invested companies. Unless otherwise provided in the PRC foreign investment laws, the provisions
in the PRC Company Law shall prevail.
Investments in the PRC
by foreign investors and foreign-invested enterprises are regulated by the Special Administrative Measures (Negative List) for the Access
of Foreign Investment, or the Negative List, the latest version of which was promulgated by the NDRC and the PRC Ministry of Commerce,
or the MOFCOM on June 23, 2020 and became effective as of July 23, 2020 and Catalogue of Industries for Encouraging Foreign Investment,
or the Encouraging Catalogue, the latest version of which was promulgated by the NDRC and the MOFCOM on December 27, 2020 and became effective
as of January 27, 2021. The Negative List and the Encouraging Catalogue jointly categorize the industries into three categories: encouraged
industries, restricted industries and prohibited industries. Establishment of wholly foreign-owned enterprises is generally allowed in
industries outside of the Negative List. For the restricted industries within the Negative List, some are limited to equity or contractual
joint ventures, while in some cases Chinese partners are required to hold the majority interests in such joint ventures. Foreign investors
are not allowed to invest in industries in the Negative List. Industries not listed in the Negative List are generally open to foreign
investment unless specifically restricted by other applicable PRC regulations. The Negative List expands the scope of permitted industries
by reducing the number of industries that fall within the previous negative list where restrictions on the shareholding percentage or
requirements on the composition of board or senior management still exists.
The Foreign Investment
Law became effective on January 1, 2020 and has replaced the trio of three previous laws regulating foreign investment in China, or the
Three FIE Laws, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law
and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary regulations, as the legal foundation
for foreign investment in the PRC. Generally speaking, the PRC Company Law or the PRC Partnership Law shall apply with respect to an FIE’s
organization. This is aimed to put an end to any discrepancy between the Three FIE Laws and the Company Law.
The Foreign Investment
Law mainly stipulates four forms of foreign investors, which includes: (a) a foreign investor, individually or collectively with other
investors, establishes a foreign-invested enterprise within PRC; (b) a foreign investor acquires stock shares, equity shares, interests
in assets, or other like rights and interests of an enterprise within PRC; (c) a foreign investor, individually or collectively with other
investors, invests in a new project within PRC; and (d) foreign investors invest in China through any other methods under laws, administrative
regulations, or provisions prescribed by the State Council. Compared with the Three FIE Laws, the Foreign Investment Law is profoundly
different in the following aspects:
| ● | Application of a pre-establishment national treatment. According to the Foreign Investment Law, the PRC governments shall govern foreign
investment according to the system of pre-establishment national treatment, which requires treatment given to foreign investors and their
investments during the market access stage shall not be inferior to treatment afforded to PRC domestic investors and their investment
except where a foreign investment falls into the orbit of the Negative List. |
| ● | Application of an updated Investment Management. Pursuant to the Foreign Investment Law, the State shall establish a foreign investment
information report system. Foreign investors or FIEs shall submit investment information to the competent department for commerce through
the enterprise registration system and the enterprise credit information publicity system. The content and scope of information subject
to the reporting obligations shall be determined under the principle of necessity. In addition, the State shall establish a security review
system for foreign investment, under which a security review shall be conducted for any foreign investment affecting or having the possibility
to affect the state security. |
In addition, the Foreign
Investment Law also provides several protective rules and principles for foreign investors and their investments in the PRC, including,
among others, that local governments shall abide by their policy commitments to the foreign investors and perform all contracts entered
into in accordance with the law; foreign-invested enterprises are allowed to issue stocks and corporate bonds; except for special circumstances,
in which case statutory procedures shall be followed and fair and reasonable compensation shall be made in a timely manner, expropriate
or requisition the investment of foreign investors is prohibited; mandatory technology transfer is prohibited; foreign investors’
funds are allowed to be freely transferred out and into the territory of PRC, which run through the entire lifecycle from the entry to
the exit of foreign investment; and providing an all-around and multi-angle system to guarantee fair competition of foreign-invested enterprises
in the market economy. Furthermore, the Foreign Investment Law provides that foreign-invested enterprises established according to the
existing laws regulating foreign investment may maintain their structure and corporate governance within five years after the implementation
of the Foreign Investment Law, which means that foreign-invested enterprises may be required to adjust the structure and corporate governance
in accordance with the current PRC Company Law and other laws and regulations governing the corporate governance.
On December 12, 2019,
the State Council promulgated the Implementation Regulations of Foreign Investment Law, or the Implementation Regulations, which simultaneously
came into force with the Foreign Investment Law from January 1, 2020. The Implementation Regulations provides specific operation rules
for the principles of investment protection, investment promotion and investment management in the Foreign Investment Law.
Regulation of Foreign Investment in
the Insurance Brokerage and Insurance Agency Industry
Pursuant to the Announcement
of the China Insurance Regulatory Commission on Permitting Foreign Insurance Brokerage Companies to Establish Solely Foreign-invested
Insurance Brokerage Companies, effective from December 11, 2006, in accordance with the related commitments of China for accession
to the WTO, foreign insurance brokerage companies may establish wholly foreign-funded insurance brokerage companies in accordance with
PRC laws and there are no restrictions other than those on establishment conditions and business scope. Pursuant to the Notice of the
China Banking and Insurance Regulatory Commission on Widening the Scope of Business of Foreign-funded Insurance Brokerage Companies issued
on and effective from April 27, 2018, foreign-funded insurance brokerage institutions that have obtained insurance brokerage business
permits upon approval by the insurance regulatory authority of the State Council may engage in the same businesses as a PRC domestic insurance
brokerage company.
Pursuant to the Public
Announcement of the China Insurance Regulatory Commission on Relevant Matters Concerning the Application of the Insurance Agencies in
Hong Kong and Macao for Establishing Solely-Invested Insurance Agencies in the Mainland issued on December 26, 2007, from January 1,
2008, local professional insurance agencies in Hong Kong or Macao which meet the requirements may apply for the establishment of solely-invested
insurance agencies in the mainland of the PRC. Pursuant to the Supplements and Amendments VIII to the Mainland’s Specific Commitments
on Liberalization of Trade in Services for Hong Kong and the Supplements and Amendments VIII to the Mainland’s Specific Commitments
on Liberalization of Trade in Services for Macao, qualified insurance brokerage institutions in Hong Kong or Macao may establish solely-invested
insurance agencies in Guangdong province (including Shenzhen) for practicing within Guangdong province. Pursuant to the Notice of the
China Banking and Insurance Regulatory Commission on Allowing Overseas Investors to Operate Insurance Agent Business in China, effective
from June 19, 2018, overseas insurance agency entities operating an insurance agency business for three or more years outside China
and foreign-funded insurance companies in China which have operated for three or more years may apply to CBIRC to establish a foreign-invested
insurance agency within China.
Regulations Relating to Foreign Investment
in the Value-Added Telecommunication Services
The Telecommunications
Regulations of the People’s Republic of China, which was promulgated by the State Council on September 25, 2000 and last amended
on February 6, 2016, categorizes all telecommunications businesses in China as either basic telecommunications businesses or value-added
telecommunications businesses. Further, according to the Catalog of Telecommunications Business, attached to the Telecommunications Regulations
and last mended by the MIIT on December 28, 2015, information services provided via fixed network, mobile network and Internet fall within
value-added telecommunication services.
The State Council promulgated
the Administrative Rules on Foreign-invested Telecommunications Enterprises in December 2001, as last amended on February 6, 2016, or
the FITE Regulations. The FITE Regulations set forth detailed requirements with respect to capitalization, investor qualifications and
application procedures in connection with the establishment of a foreign-invested telecommunications enterprise. These administrative
rules require a foreign-invested value-added telecommunications enterprises in mainland China to be established as Sino-foreign joint
ventures, which the foreign investors may acquire up to 50% of the equity interest of such enterprise.
In July 2006, MIIT publicly
released the Notice on Strengthening the Administration of Foreign Investment in Operating Value-added Telecommunications Business, or
the MIIT Notice, which reiterates certain provisions under the FITE Regulations. According to the MIIT Notice, if any foreign investor
intends to invest in a PRC telecommunications business, a foreign-invested telecommunications enterprise must be established and such
enterprise must apply for the relevant telecommunications business licenses. Under the MIIT Notice, domestic telecommunications enterprises
are prohibited from renting, transferring or selling a telecommunications license to foreign investors in any form, and from providing
any resources, premises, facilities and other assistance in any form to foreign investors for their illegal operation of any telecommunications
business in China.
Regulations on Consumer Protection
In October 1993, the
SCNPC promulgated the Law on the Protection of the Rights and Interests of Consumers, or the Consumer Protection Law, which became effective
on January 1, 1994 and was further amended on August 27, 2009 and October 25, 2013. Under the Consumer Protection Law, any business operator
providing a commodity or service to a consumer is subject to certain mandatory requirements, including the following:
| ● | to ensure that commodities and services up to certain safety requirements; |
| ● | to protect the safety of consumers; |
| ● | to disclose serious defects of a commodity or a service and to adopt preventive measures against occurrence of damage; |
| ● | to provide consumers with accurate information and to refrain from conducting false advertising; |
| ● | to obtain consents of consumers and to disclose the rules for the collection and/or use of information when collecting data or information
from consumers; to take technical measures and other necessary measures to protect the personal information collected from consumers;
not to divulge, sell, or illegally provide consumers’ information to others; not to send commercial information to consumers without
the consent or request of consumers or with a clear refusal from consumers; |
| ● | not to set unreasonable or unfair terms for consumers or alleviate or release itself from civil liability for harming the legal rights
and interests of consumers by means of standard contracts, circulars, announcements, shop notices or other means; |
| ● | to remind consumers in a conspicuous manner to pay attention to the quality, quantity and prices or fees of commodities or services,
duration and manner of performance, safety precautions and risk warnings, after-sales service, civil liability and other terms and conditions
vital to the interests of consumers under a standard form of agreement prepared by the business operators, and to provide explanations
as required by consumers; and |
| ● | not to insult or slander consumers or to search the person of, or articles carried by, a consumer or to infringe upon the personal
freedom of a consumer. |
Business operators in
China may be subject to civil liabilities for failing to fulfill the obligations discussed above. These liabilities include restoring
the consumer’s reputation, eliminating the adverse effects suffered by the consumer, and offering apology and compensation for any
loss thus incurred to the consumer. The following penalties may also be imposed by relevant governmental agencies upon business operators
for the infraction of these obligations: issuance of a warning, confiscation of any illegal income, imposition of a fine, an order to
cease business operation, revocation of its business license or imposition of criminal liabilities under circumstances that are specified
in laws and statutory regulations.
In December 2003, the
Supreme People’s Court in China enacted the Interpretation of Some Issues Concerning the Application of Law for the Trial of Cases
on Compensation for Personal Injury, which further enhances the liabilities of business operators engaged in the operation of accommodation,
restaurants, or entertainment facilities and subjects such operators to compensatory liabilities for failing to fulfill their statutory
obligations to a reasonable extent or to guarantee the personal safety of others.
Regulation of Anti-Money Laundering
Based on the Circular
on Strengthening Work of Anti-Money Laundering in Insurance Industry, promulgated on August 10, 2010 by the CB IRC, and Administrative
Measures for the Anti-money Laundering Work in the Insurance Industry, effective from October 1, 2011, the CBIRC organizes, coordinates
and directs policies concerning anti-money laundering in the insurance industry. Under these measures, insurance companies, insurance
asset management companies, professional insurance agencies and insurance brokers are required to materially improve their anti-money
laundering related internal control competence on the basis of real-name policy issuance and on the principle of complete customer materials,
traceable transaction records and regulated funds operation.
Based on provisions of
the Administrative Measures for the Anti-money Laundering Work in the Insurance Industry, insurance companies carrying out the insurance
business via professional insurance agencies or financial institution-based insurance joint offering agencies must include anti-money
laundering provisions in their cooperation agreements. Professional insurance agencies and brokers must establish anti-money laundering
internal control systems and prohibit equity investments with funds from illicit sources.
Senior management personnel
of professional insurance agencies and brokers must be versed in anti-money laundering laws and regulations. Professional insurance agencies
and brokers must provide anti-money laundering training and education, properly manage major money laundering cases involving itself,
facilitate anti-money laundering monitoring and inspection, administrative investigation and investigation of criminal activities involving
money laundering, and keep confidential any information related to lawful anti-money laundering initiatives.
Regulations relating to Information
Security and Censorship
Internet content in China
is also strictly regulated and restricted from a state security standpoint. Pursuant to the Decision Regarding the Protection of Internet
Security enacted by the SCNPC on December 28, 2000, which was amended on August 27, 2009, any attempt to undertake the following actions
may be subject to criminal punishment in China:
| ● | gaining improper entry into a computer or system of national strategic importance; |
| ● | disseminating politically disruptive information; |
| ● | leaking government secrets; |
| ● | spreading false commercial information; or |
| ● | infringing intellectual property rights. |
The MPS has also promulgated
a series of measures that prohibit the use of the internet in ways that, among other things, result in the leakage of government secrets
or the spread of socially destabilizing content. The MPS and its local counterparts have supervision and inspection powers in this regard,
and we may be subject to the jurisdiction of the local security bureaus. If an internet information service provider violates these measures,
the PRC government may revoke its license and shut down its website. In 1997, the MPS issued the Administration Measures on the Security
Protection of Computer Information Network with International Connections, which was amended by the State Council on January 8, 2011 and
prohibited using internet in ways which, among others, resulted in a leakage of state secrets or spreading of socially destabilizing content.
Moreover, on December
7, 2016, the SCNPC promulgated the Cybersecurity Law of the People’s Republic of China, which became effective on June 1, 2017,
pursuant to which, network operators shall comply with laws and regulations and fulfill their obligations to safeguard security of the
network when conducting business and providing services. Those who provide services through networks shall take technical measures and
other necessary measures pursuant to laws, regulations and compulsory national requirements to safeguard the safe and stable operation
of the networks, respond to network security incidents effectively, prevent illegal and criminal activities, and maintain the integrity,
confidentiality and usability of network data, and the network operator shall not collect the personal information irrelevant to the services
it provides or collect or use the personal information in contravention of the laws or agreements between both parties.
Regulations Relating to Protection of
User Identity and Information
The security and confidentiality
of information on the identity of internet users are also highly regulated in China. The Internet Information Service Administrative Measures
promulgated by the State Council requires internet information service providers to maintain an adequate system that protects the security
of user information. In December 2005, the MPS promulgated the Regulations on Technical Measures of Internet Security Protection, requiring
internet service providers to utilize standard technical measures for internet security protection. Moreover, the Rules for Regulating
the Market Order of Internet Content Services, which was promulgated in December 2011, further enhances the protection of internet users’
personal information by prohibiting internet information service providers from unauthorized collection, disclosure or use of personal
information of their users.
In December 2012, the
SCNPC promulgated the Decision on Strengthening Network Information Protection to enhance the legal protection of information security
and privacy on the internet. On July 16, 2013, the Ministry of Industry and Information Technology, or the MIIT, promulgated the Provisions
for the Protection of Telecommunication and Internet User Personal Information, or the Provisions for the Protection of Person Information.
According to the Provisions for the Protection of Person Information, under which Internet information service providers are subject to
strict requirements to protect personal information of internet users, including: if a network service provider wishes to collect or use
personal information, such personal information collected shall be used only in connection with the services to be provided by Internet
information service providers to such users and shall be kept in strict confidence. Furthermore, it must disclose to its users the purpose,
method and scope of any such collection or usage, and must obtain consent from the users whose information is being collected or used.
Network service providers are also required to establish and publish their protocols relating to personal information collection or usage,
keep any collected information strictly confidential and take technological and other measures to maintain the security of such information.
Network service providers are required to cease any collection or usage of the relevant personal information, and de register the relevant
user account, when a user stops using the relevant Internet service. Network service providers are further prohibited from divulging,
distorting or destroying any such personal information, or selling or providing such personal information unlawfully to other parties.
In addition, if a network service provider appoints an agent to undertake any marketing or technical services that involve the collection
or usage of personal information, the network service provider is required to supervise and manage the protection of the information.
Pursuant to the Provisions for the Protection of Person Information, in broad terms, that violators may face warnings, fines, public exposure
and, in the most severe cases, criminal liability.
Regulations relating to Mobile Internet
Applications Information Services
In China a mobile internet
application is governed by the Provisions on the Administration of Mobile Internet Application Information Services, or the Provisions
on Administration of Application, as promulgated by the CAC on June 28, 2016 and became effective on August 1, 2016.
Pursuant to the Provisions
on Administration of Application, application information service providers shall obtain the relevant qualifications as required by laws
and regulations, strictly implement their information security management responsibilities, and carry out the duties including to establish
and complete user information security protection mechanism, to establish and complete information content inspection and management mechanisms,
to protect users’ right to know the right to choose in the process of usage, and to record users’ daily information and preserve
it for sixty (60) days.
Regulation Relating to Intellectual
Property
The Copyright Law
PRC has enacted various
laws and regulations relating to the protection of copyright. PRC is a signatory to some major international conventions on protection
of copyright and became a member of the Berne Convention for the Protection of Literary and Artistic Works in October 1992, the Universal
Copyright Convention in October 1992, and the Agreement on Trade-Related Aspects of Intellectual Property Rights upon its accession to
the World Trade Organization in December 2001.
The Copyright Law of
the PRC (2010 Revision), or the Copyright Law, which was promulgated on September 7, 1990 and subsequently amended on October 27, 2001
and February 26, 2010 and the Implementation Regulation of the Trademark Law of the PRC promulgated by the State Council on August 2,
2002 and further amended on January 8, 2011 and January 30, 2013 provides that Chinese citizens, legal persons, or other organizations
shall, whether published or not, enjoy copyright in their works, which include, among others, works of literature, art, natural science,
social science, engineering technology and computer software. The purpose of the Copyright Law aims to encourage the creation and dissemination
of works which is beneficial for the construction of socialist spiritual civilization and material civilization and promotes the development
and prosperity of Chinese culture.
Pursuant to the Computer
Software Protection Regulations, as promulgated by the State Council on December 20, 2001, and most recently amended on January 30, 2013,
Chinese citizens, legal persons and other organizations shall enjoy copyright on the software they develop, regardless of whether the
software has been released publicly. Software copyright commences from the date on which the development of the software is completed.
The protection period for software copyright of a legal person or other organizations shall be 50 years, concluding on December 31 of
the 50th year after the software’s initial release. In order to further implement the Computer Software Protection Regulations,
the State Copyright Bureau issued the Regulations for Computer Software Copyright Registration Procedures on February 20, 2002, which
apply to software copyright registration, license contract registration and transfer contract registration.
The Trademark Law
Trademarks are protected
by the Trademark Law of the People’ Republic of China (2013 Revision) which was promulgated on August 23, 1982 and subsequently
amended on February 22, 1993, October 27, 2001 and August 30, 2013 respectively as well as the Implementation Regulation of the PRC Trademark
Law adopted by the State Council on August 3, 2002 and further amended on April 29, 2014. In China, registered trademarks include commodity
trademarks, service trademarks, collective trademarks and certification trademarks.
The Trademark Office
under the SAMR, handles trademark registrations and grants a term of ten years to registered trademarks. Trademarks are renewable every
ten years where a registered trademark needs to be used after the expiration of its validity term. A registration renewal application
shall be filed within 12 months prior to the expiration of the term. A trademark registrant may license its registered trademark to another
party by entering into a trademark license contract. Trademark license agreements must be filed with the Trademark Office to be recorded.
The licensor shall supervise the quality of the commodities on which the trademark is used, and the licensee shall guarantee the quality
of such commodities. As with trademarks, the PRC Trademark Law has adopted a “first come, first file” principle with respect
to trademark registration. Where the trademark for which a registration application has been made is identical or similar to another trademark
which has already been registered or been subject to a preliminary examination and approval for use on the same kind of or similar commodities
or services, the application for registration of such trademark may be rejected. Any person applying for the registration of a trademark
may not prejudice the existing right first obtained by others, nor may any person register in advance a trademark that has already been
used by another party and has already gained a “sufficient degree of reputation” through such party’s use.
The Patent Law
According to the Patent
Law of the People’s Republic of China (2008 Revision) promulgated by the SCNPC, and its Implementation Rules (2010 Revision) promulgated
by the State Council, the State Intellectual Property Office of the PRC is responsible for administering patents in the PRC. The patent
administration departments of provincial or autonomous regions or municipal governments are responsible for administering patents within
their respective jurisdictions. The Patent Law of the PRC and its implementation rules provide for three types of patents, “invention”,
“utility model” and “design”. Invention patents are valid for twenty years, while design patents and utility model
patents are valid for ten years, from the date of application. The Chinese patent system adopts a “first come, first file”
principle, which means that where more than one person files a patent application for the same invention, a patent will be granted to
the person who files the application first. To be patentable, invention or utility models must meet three criteria: novelty, inventiveness
and practicability. Except under certain specific circumstances provided by law, any third party user must obtain consent or a proper
license from the patent owner to use the patent. Otherwise, the use constitutes an infringement of the patent rights.
Domain Names
On May 29, 2012, the
China Internet Network Information Center, or the CNNIC issued the Implementing of the Rules for China Internet Network Information Center
Domain Name Registration (2012 Revision), setting forth detailed rules for registration of domain names. The MIIT promulgated the Administrative
Measures on Internet Domain Name, or the Domain Name Measures on August 24, 2017, which became effective on November 1, 2017. According
to the Domain Name Measures, domain name owners are required to register their domain names and the MIIT is in charge of the administration
of PRC Internet domain names. The domain name services follow a “first come, first file” principle. Applicants for registration
of domain names shall provide their true, accurate and complete information of such domain names to and enter into registration agreements
with domain name registration service institutions. The applicants will become the holders of such domain names upon the completion of
the registration procedure.
Regulations Relating to Foreign Exchange
General Administration of Foreign Exchange
Foreign currency exchange
in China is primarily governed by the Foreign Exchange Control Regulations of the PRC, or the Foreign Exchange Administration Rules, promulgated
by the State Council on January 29, 1996 and last amended on August 5, 2008, and various regulations issued by the State Administration
of Foreign Exchange, or the SAFE and other relevant PRC government authorities. Under the Foreign Exchange Administration Rules, the RMB
is freely convertible into other currencies for routine current account items, including distribution of dividends, payment of interest,
trade and service related foreign exchange transactions. The conversion of RMB into other currencies for most capital account items, such
as direct equity investment, overseas loan, and repatriation of investment, however, is still regulated. Payments for transactions that
take place within the PRC must be made in RMB. Unless otherwise approved, PRC companies may repatriate foreign currency payments received
from abroad or retain the same abroad. Foreign-invested enterprises may retain foreign exchange in accounts with designated foreign exchange
banks under the current account items subject to a cap set by the SAFE or its local office. Foreign exchange proceeds under the current
accounts may be either retained or sold to a financial institution engaging in settlement and sale of foreign exchange pursuant to relevant
rules and regulations of the State. For foreign exchange proceeds under the capital accounts, approval from the SAFE is required for its
retention or sale to a financial institution engaging in settlement and sale of foreign exchange, except where such approval is not required
under the relevant rules and regulations of the PRC.
Pursuant to the Notice
of the SAFE on Further Improving and Adjusting Foreign Exchange Administration Policies for Direct Investment, or the SAFE Notice No.
59, as promulgated by SAFE on November 19, 2012 and further amended on May 4, 2015 and October 10, 2018, approval is not required for
the opening of an account entry in foreign exchange accounts under direct investment, for domestic transfer of the foreign exchange under
direct investment. SAFE Notice No. 59 also simplified the capital verification and confirmation formalities for foreign-invested entities
and the foreign capital and foreign exchange registration formalities required for the foreign investors to acquire the equities of a
Chinese party, and further improve the administration on exchange settlement of foreign exchange capital of foreign-invested entities.
On February 13, 2015,
SAFE promulgated the Notice on Simplifying and Improving the Foreign Currency Management Policy on Direct Investment, effective June 1,
2015, which canceled the administrative approvals of foreign exchange registration of direct domestic investment and direct overseas investment.
In addition, it simplified the procedure of registration of foreign exchange and investors shall register with banks for direct domestic
investment and direct overseas investment.
The Notice of the SAFE
on Reforming the Management Approach regarding the Settlement of Foreign Capital of Foreign-invested Enterprise, or the SAFE Notice No.
19, was promulgated on March 30, 2015 and became effective on June 1, 2015. According to the SAFE Notice No. 19, a foreign-invested enterprise
may, in response to its actual business needs, settles with a bank the portion of the foreign exchange capital in its capital account
for which the relevant foreign exchange bureau has confirmed monetary contribution rights and interests (or for which the bank has registered
the account crediting of monetary contribution). For the time being, foreign-invested enterprises are allowed to settle 100% of their
foreign exchange capitals on a discretionary basis; a foreign-invested enterprise shall truthfully use its capital for its own operational
purposes within the scope of business; where an ordinary foreign-invested enterprise makes domestic equity investment with the amount
of foreign exchanges settled, the invested enterprise shall first go through domestic re-investment registration and open a corresponding
account for foreign exchange settlement pending payment with the foreign exchange bureau (bank) at the place of registration.
The Notice of the SAFE
on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts, or the SAFE Notice No. 16, was
promulgated and became effective on June 9, 2016. According to the SAFE Notice No. 16, enterprises registered in PRC may also convert
their foreign debts from foreign currency into RMB on self-discretionary basis. The SAFE Notice No. 16 provides an integrated standard
for conversion of foreign exchange under capital account items (including but not limited to foreign currency capital and foreign debts)
on self-discretionary basis, which applies to all enterprises registered in the PRC. The SAFE Notice No. 16 reiterates the principle that
RMB converted from foreign currency-denominated capital of a company may not be directly or indirectly used for purposes beyond its business
scope and may not be used for investment in securities or other investment with the exception of bank financial products that can guarantee
the principal within PRC unless otherwise specifically provided. Besides, the converted RMB shall not be used to make loans for related
enterprises unless it is within the business scope or to build or to purchase any real estate that is not for the enterprise own use with
the exception for the real estate enterprises.
On January 26, 2017,
SAFE promulgated the Notice on Further Improving Reform of Foreign Exchange Administration and Optimizing Genuineness and Compliance Verification,
or the SAFE Notice No. 3, which stipulates several capital control measures with respect to the outbound remittance of profits from domestic
entities to offshore entities, including (i) under the principle of genuine transaction, banks shall check board resolutions regarding
profit distribution, the original version of tax filing records and audited financial statements; and (ii) domestic entities shall cover
losses in the previous years prior to remittance of profits. Moreover, pursuant to the SAFE Notice No. 3, domestic entities shall make
detailed explanations of the sources of capital and utilization arrangements, and provide board resolutions, contracts and other proof
when completing the registration procedures in connection with an outbound investment.
Regulations on Offshore Financing
On July 4, 2014, the
SAFE issued the Notice on Issues Relating to the Administration of Foreign Exchange for Overseas Investment and Financing and Reverse
Investment by Domestic Residents via Special Purpose Vehicles, or Circular 37, which became effective on the same date, and Circular 37
shall prevail over any other inconsistency between itself and relevant regulations promulgated earlier. Pursuant to Circular 37, any PRC
residents, including both PRC institutions and individual residents, are required to register with the local SAFE branch before making
contribution to a company set up or controlled by the PRC residents outside of the PRC for the purpose of overseas investment or financing
with their legally owned domestic or offshore assets or interests, referred to in this circular as a “special purpose vehicle”.
Under Circular 37, the term “PRC institutions” refers to entities with legal person status or other economic organizations
established within the territory of the PRC. The term “PRC individual residents” includes all PRC citizens (also including
PRC citizens abroad) and foreigners who habitually reside in the PRC for economic benefit. A registered special purpose vehicle is required
to amend its SAFE registration or file with respect to such vehicle in connection with any change of basic information including PRC individual
resident shareholder, name, term of operation, or PRC individual resident’s increase or decrease of capital, transfer or exchange
of shares, merger, division or other material changes. In addition, if a non-listed special purpose vehicle grants any equity incentives
to directors, supervisors or employees of domestic companies under its direct or indirect control, the relevant PRC individual residents
could register with the local SAFE branch before exercising such options. The SAFE simultaneously issued a series of guidance to its local
branches with respect to the implementation of Circular 37. Under Circular 37, failure to comply with the foreign exchange registration
procedures may result in restrictions being imposed on the foreign exchange activities of the relevant onshore company, including restrictions
on the payment of dividends and other distributions to its offshore parent company and the capital inflow from the offshore entity, and
may also subject the relevant PRC residents and onshore company to penalties under the PRC foreign exchange administration regulations.
On February 15, 2012,
SAFE issued the Notice of the State Administration of Foreign Exchange on Issues concerning the Foreign Exchange Administration of Domestic
Individuals’ Participation in Equity Incentive Plans of Overseas Listed Companies, or the Circular 7, which replaced the Application
Procedures of Foreign Exchange Administration for Domestic Individuals Participating in Employee Stock Ownership Plans or Stock Option
Plans of Overseas Publicly-listed Companies issued by SAFE on March 28, 2007. Under the Circular 7, a PRC entity’s directors, supervisors,
senior management officers, other staff or individuals who have an employment or labor relationship with a Chinese entity and are granted
stock options by an overseas publicly-listed company are required, through a qualified PRC domestic agent which could be a PRC subsidiary
of such overseas publicly-listed company, to register with SAFE and complete certain other procedures. Such PRC resident participants
must also retain an overseas entrusted institution to handle matters in connection with their exercise of stock options, purchase and
sale of corresponding stocks or interests, and fund transfer. The PRC agent shall, among other things, file on behalf of such PRC resident
participants an application with SAFE to conduct the SAFE registration with respect to such stock incentive plan and obtain approval for
an annual allowance with respect to the purchase of foreign exchange in connection with the exercise or sale of stock options or stock
such participants hold. In addition, the PRC agent is required to amend the SAFE registration with respect to the stock incentive plan
if there is any material change to the stock incentive plan, the PRC agent or the overseas entrusted institution or other material aspects.
Such participating PRC residents’ foreign exchange income received from the sale of stock and dividends distributed by the overseas
publicly-listed company must be fully remitted into a PRC collective foreign currency account opened and managed by the PRC agent before
distribution to such participants. We and our PRC resident employees who have been granted stock options or other share-based incentives
of our company are subject to the Circular 7 as our company is an overseas listed company. If we or our PRC resident participants fail
to comply with these regulations in the future, we and/or our PRC resident participants may be subject to fines and legal sanctions.
Regulations Relating to Tax
Enterprise Income Tax
On March 16, 2007, the
NPC promulgated the Law of the PRC on Enterprise Income Tax which was amended on February 24, 2017 and December 29, 2018, and on December
6, 2007, the State Council enacted the Regulations for the Implementation of the Law on Enterprise Income Tax, or collectively, the EIT
Law. The EIT Law came into effect on January 1, 2008. According to the EIT Law, taxpayers consist of resident enterprises and Non-Resident
Enterprises. Resident enterprises are defined as enterprises that are established in China in accordance with PRC laws, or that are established
in accordance with the laws of foreign countries but whose actual or de facto control is administered from within the PRC. Non-Resident
Enterprises are defined as enterprises that are set up in accordance with the laws of foreign countries and whose actual administration
is conducted outside the PRC, but have established institutions or premises in the PRC, or have no such established institutions or premises
but have income generated from inside the PRC. Under the EIT Law and relevant implementing regulations, a uniform corporate income tax
rate of 25% is applicable. However, if non-resident enterprises have not formed permanent establishments or premises in the PRC, or if
they have formed permanent establishment institutions or premises in the PRC but there is no actual relationship between the relevant
income derived in the PRC and the established institutions or premises set up by them, the enterprise income tax is, in that case, set
at the rate of 10% for their income sourced from inside the PRC. Enterprises that are recognized as high and new technology enterprises
in accordance with the Notice of the Ministry of Science, the Ministry of Finance and the State Administration of Taxation on Amending
and Issuing the Administrative Measures for the Determination of High and New Tech Enterprises are entitled to enjoy the preferential
enterprise income tax rate of 15%. The validity period of the high and new technology enterprise qualification shall be three years from
the date of issuance of the certificate of high and new technology enterprise. The enterprise can reapply for such recognition as a high
and new technology enterprise before or after the previous certificate expires.
The Notice Regarding
the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management
Bodies promulgated by the SAT on April 22, 2009 and amended on January 29, 2014 sets out the standards and procedures for determining
whether the “de facto management body” of an enterprise registered outside of the PRC and controlled by PRC enterprises or
PRC enterprise groups is located within the PRC.
Value-Added Tax
The Provisional Regulations
of the PRC on Value-added tax (2017 Revision) were promulgated by the State Council on November 19, 2017. The Detailed Rules for the Implementation
of the Provisional Regulations of the PRC on Value-added tax (2011 Revision) were promulgated by the Ministry of Finance and the SAT on
December 15, 2008, which were subsequently amended on October 28, 2011 and came into effect on November 1, 2011, or collectively, the
VAT Law. According to the VAT Law, all enterprises and individuals engaged in the sale of goods, the provision of processing, repair and
replacement services, and the importation of goods within the territory of the PRC must pay value-added tax. For general VAT taxpayers
selling services or intangible assets other than those specifically listed in the VAT Law, the value-added tax rate is 6%.
Dividend Withholding Tax
The EIT Law provides
that since January 1, 2008, an income tax rate of 10% will normally be applicable to dividends declared to non-PRC resident investors
who do not have an establishment or place of business in the PRC, or which have such establishment or place of business, but the relevant
income is not effectively connected with the establishment or place of business, to the extent such dividends are derived from sources
within the PRC.
In addition, the EIT
Law provides that an income tax rate of 10% will normally be applicable to dividends payable to investors that are “Non-Resident
Enterprises”, and gains derived by such investors, which (a) do not have an establishment or place of business in the PRC or (b)
have an establishment or place of business in the PRC, but the relevant income is not effectively connected with the establishment or
place of business to the extent such dividends and gains are derived from sources within the PRC. Such income tax on the dividends may
be reduced pursuant to a tax treaty between China and the jurisdictions in which the non-PRC shareholders reside. Pursuant to the Arrangement
Between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention
of Fiscal Evasion With Respect to Tax on Income, or the Double Tax Avoidance Arrangement, and other applicable PRC laws, if a Hong Kong
resident enterprise has satisfied the relevant conditions and requirements under such Double Tax Avoidance Arrangement and other applicable
laws, the 10% withholding tax on the dividends the Hong Kong resident enterprise receives from a PRC resident enterprise may be reduced
to 5%. However, based on the Notice on Certain Issues with Respect to the Enforcement of Dividend Provisions in Tax Treaties, or Notice
No. 81, issued on February 20, 2009 by the SAT, if the relevant PRC tax authorities determine, in their discretion, that a company benefits
from such reduced income tax rate due to a structure or arrangement that is primarily tax driven, such PRC tax authorities may adjust
the preferential tax treatment. In August 2015, the State Administration of Taxation promulgated the Administrative Measures for Non-resident
Taxpayers to Enjoy Treatment under Tax Treaties, or SAT Circular 60, which became effective on November 1, 2015. SAT Circular 60 provides
that Non-Resident Enterprises are not required to obtain pre-approval from the relevant tax authority in order to enjoy the reduced withholding
tax. Instead, Non-Resident Enterprises and their withholding agents may, by self-assessment and on confirmation that the prescribed criteria
to enjoy the tax treaty benefits are met, directly apply the reduced withholding tax rate, and file the necessary forms and supporting
documents when performing tax filings, which will be subject to post tax filing examinations by the relevant tax authorities.
According to the Circular
on Several Questions regarding the “Beneficial Owner” in Tax Treaties, which was issued on February 3, 2018 by the SAT and
took effect on April 1, 2018, when determining the applicant’s status of the “beneficial owner” regarding tax treatments
in connection with dividends, interest or royalties in the tax treaties, several factors, including without limitation, whether the applicant
is obligated to pay more than 50% of his or her income in 12 months to residents in a third country or region, whether the business operated
by the applicant constitutes the actual business activities, and whether the counterparty country or region to the tax treaties does not
levy any tax or grants tax exemption on relevant incomes or levy tax at an extremely low rate, will be taken into account, and it will
be analyzed according to the actual circumstances of the specific cases. This circular further provides that applicants who intend to
prove his or her status as the “beneficial owner” shall submit the relevant documents to the relevant tax bureau according
to the Announcement on Issuing the Measures for the Administration of Non-resident Taxpayers’ Enjoyment of the Treatment under Tax
Agreements.
Regulations Relating to Dividend Distribution
The principal regulations
governing distribution of dividends of foreign-invested enterprises include (i) the Company Law, promulgated by the SCNPC on December
29, 1993, and as amended on December 25, 1999, August 28, 2004, October 27, 2005, December 28, 2013 and October 26, 2018, respectively,
(ii) the Foreign-invested Enterprise Law, promulgated by the SCNPC on April 12, 1986, and as amended on October 31, 2000 and September
3, 2016, respectively, and (iii) the Implementation Rules of the Foreign-invested Enterprise Law approved by the State Council on October
28, 1990, and as amended on April 12, 2001, and February 19, 2014, respectively.
Under these laws and
regulations, foreign-invested enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance
with PRC accounting standards and regulations. In addition, foreign-invested enterprises in China are required to allocate at least 10%
of their respective accumulated profits each year, if any, to fund certain reserve funds unless these reserves have reached 50% of the
registered capital of the enterprises. These reserves are not distributable as cash dividends. A foreign-invested enterprise has the discretion
to allocate a portion of its after tax profits to staff welfare and bonus funds. A Chinese company (including the foreign-invested enterprise)
is not permitted to distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal
years may be distributed together with distributable profits from the current fiscal year.
Regulations Relating to Merger and Acquisition
and Overseas Listing
On August 8, 2006, six
PRC regulatory agencies, namely the MOFCOM, the State Assets Supervision and Administration Commission, the State Administration of Taxation,
the State Administration of Industry and Commerce, or the SAIC, the China Securities Regulatory Commission, or the CSRC, and the SAFE,
jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the New M&A Rule, which
became effective on September 8, 2006. This New M&A Rule, as amended on June 22, 2009, purports, among other things, to require offshore
special purpose vehicles, or SPVs, formed for overseas listing purposes through acquisitions of PRC domestic companies and controlled
by PRC companies or individuals, to obtain the approval of the CSRC prior to publicly listing their securities on an overseas stock exchange.
On September 21, 2006, the CSRC published a notice on its official website specifying documents and materials required to be submitted
to it by SPVs seeking CSRC approval of their overseas listings.
The New M&A Rule
also established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time-consuming
and complex, including requirements in some instances that the MOFCOM be notified in advance of any change of control transaction in which
a foreign investor takes control of a PRC domestic enterprise.
Regulation relating to Employment and
Social Welfare
Labor Protection
The main PRC employment
laws and regulations include the Labor Law of the PRC, as revised on December 29, 2018, the Labor Contract Law of the PRC, or the Labor
Contract Law and the Implementing Regulations of the Employment Contract Law of the PRC.
The Labor Contract Law
was promulgated on June 29, 2007, revised on December 28, 2012, and came into force on July 1, 2013. This law governs the establishment
of employment relationships between employers and employees, and the execution, performance, termination of, and the amendment to, employment
contracts. The Labor Contract Law is primarily aimed at regulating employee/employer rights and obligations, including matters with respect
to the establishment, performance and termination of labor contracts. Pursuant to the Labor Contract Law, labor contracts shall be concluded
in writing if labor relationships are to be or have been established between enterprises or institutions and the laborers. Enterprises
and institutions are forbidden to force laborers to work beyond the time limit and employers shall pay laborers for overtime work in accordance
with national regulations. In addition, labor wages shall not be lower than local standards on minimum wages and shall be paid to laborers
in a timely manner. In addition, according to the Labor Contract Law: (i) employees must adhere to regulations in the labor contracts
concerning commercial confidentiality and non-competition; (ii) employees may terminate their employment contracts with their employers
if their employers fail to make social insurance contributions in accordance with the law; and (iii) enterprises and institutions shall
establish and improve their system of workplace safety and sanitation, strictly abide by state rules and standards on workplace safety,
educate laborers in labor safety and sanitation in the PRC.
The Labor Contract Law
imposes more stringent requirements on labor dispatch. According to the Labor Contract Law, (i) it is strongly emphasized that dispatched
contract workers shall be entitled to equal pay for equal work as an employee of an employer; (ii) dispatched contract workers may only
be engaged to perform temporary, auxiliary or substitute works; and (iii) an employer shall strictly control the number of dispatched
contract workers so that they do not exceed certain percentage of total number of employees and the specific percentage shall be prescribed
by the Ministry of Human Resources and Social Security. Under the law, “temporary work” means a position with a term of less
than six months; “auxiliary work” means a non-core business position that provides services for the core business of the employer;
and “substitute work” means a position that can be temporarily replaced with a dispatched contract worker for the period that
a regular employee is away from work for vacation, study or other reasons. According to the Interim Provisions on Labor Dispatch promulgated
by the Ministry of Human Resources and Social Security on January 24, 2014, which became effective on March 1, 2014, (i) the number of
dispatched contract workers hired by an employer should not exceed 10% of the total number of its employees (including both directly hired
employees and dispatched contract workers); and (ii) in the case that the number of dispatched contract workers exceeds 10% of the total
number of its employees at the time when the Interim Provisions on Labor Dispatch became effective, the employer must formulate a plan
to reduce the number of its dispatched contract workers to comply with the aforesaid cap requirement prior to March 1, 2016. In addition,
such plan shall be filed with the local administrative authority of human resources and social security. Nevertheless, the Interim Provisions
on Labor Dispatch do not invalidate the labor contracts and dispatch agreements entered into prior to December 28, 2012 and such labor
contracts and dispatch agreements may continue to be performed until their respective dates of expiration. The employer may also not hire
any new dispatched contract worker before the number of its dispatched contract workers is reduced to below 10% of the total number of
its employees. In case of violation, the labor administrative department shall order rectification within a specified period of time;
if the situation is not rectified within the specified period, a fine from RMB5,000 to RMB10,000 for each person shall be imposed, and
the staffing company’s business license shall be revoked. If a placed worker suffers any harm or loss caused by the receiving entity,
the staffing company and the receiving entity shall be jointly and severally liable for damages.
Social Insurance and Housing Fund
As required under the
Regulation of Insurance for Labor Injury implemented on January 1, 2004 and amended in 2010, the Provisional Measures for Maternity Insurance
of Employees of Corporations implemented on January 1, 1995, the Decisions on the Establishment of a Unified Program for Basic Old Aged
Pension Insurance of the State Council issued on July 16, 1997, the Decisions on the Establishment of the Medical Insurance Program for
Urban Workers of the State Council promulgated on December 14, 1998, the Unemployment Insurance Measures promulgated on January 22, 1999
and the Social Insurance Law of the PRC implemented on July 1, 2011 and revised on December 29, 2018, enterprises are obliged to provide
their employees in the PRC with welfare schemes covering pension insurance, unemployment insurance, maternity insurance, labor injury
insurance and medical insurance. These payments are made to local administrative authorities and any employer that fails to contribute
may be fined and ordered to make up within a prescribed time limit.
In accordance with the
Regulations on the Management of Housing Funds which was promulgated by the State Council in 1999 and amended in 2002, enterprises must
register at the competent managing center for housing funds and upon the examination by such managing centers of housing funds, these
enterprises shall complete procedures for opening an account at the relevant bank for the deposit of employees’ housing funds. Enterprises
are also required to pay and deposit housing funds on behalf of their employees in full and in a timely manner, and any employer that
fails to open such bank account or contribute any housing funds may be fined and ordered to make up within a prescribed time limit.
Our Structure
We are not an operating
company but a Cayman Islands holding company with operations conducted by our subsidiaries in China. Our operations are primarily conducted
through our PRC subsidiaries and other consolidated entities. Investors in the ADSs thus are purchasing equity interest in a Cayman Islands
holding company and not in an operating entity. As a holding company, the Company may rely on dividends from its subsidiaries for cash
requirements, including any payment of dividends to our shareholders. The ability of our subsidiaries to pay dividends to the Company
may be restricted by laws and regulations applicable to them or the debt they incur on their own behalf or the instruments governing their
debt.
The chart below sets
forth our current simplified corporate structure and identifies our principal subsidiaries.
| - |
►VIE contractual arrangement |
| - |
|
| |
Note: |
On December 28, 2023, we completed the acquisition of 100% equity interest in Alpha Mind for a consideration of US$180,000,000. The purchase price is payable in the form of the Notes. The Notes have a maturity of 90 days from the closing date, which was subsequently extended to June 30, 2024, an interest rate at an annual rate to 3% per annum and will be secured by all of the issued and outstanding equity of the Alpha Mind and all of the assets of the Alpha Mind, including its consolidated entities. |
How Cash is Transferred through Our Organization
The following table presents
the cash flows among the Company, its VIE entities and subsidiaries in FY 2021, FY 2022, FY 2023, and the six months ended March 31,
2023 and 2024.
| | |
| FY
2021 | | |
| FY
2022 | | |
| FY
2023 | | |
| For the six months ended March 31, | |
| | |
| | | |
| | | |
| | | |
| 2023 | | |
| 2024 | |
| | |
| (RMB in thousands) | |
| The Company transferred to the VIE entities | |
| 62,033 | | |
| | | |
| | | |
| | | |
| | |
| The Company transferred to the subsidiaries | |
| 25,199 | | |
| 14,988 | | |
| 15,877 | | |
| 7,974 | | |
| 3,113 | |
| The subsidiaries transferred to the VIE entities | |
| 48,806 | | |
| | | |
| | | |
| | | |
| | |
All cash flows above
were for financing purposes. No transfer of assets other than cash has occurred among the Company, its subsidiaries and the VIE entities.
Our subsidiaries and the VIE entities have not made any dividend or distribution to the Company. The Company has not made any dividend
or distribution to any U.S. investor. The WFOE and the VIE entities, on a consolidated basis, had been loss making and the VIE entities
had not intended to pay, and had never paid, any earnings or amounts, such as service fee to the WFOE under the contractual arrangement
as it had been loss making. See the consolidated financial statements included elsewhere in our most recent annual report on Form 20-F for
FY 2023, which is incorporated herein by reference for more details.
As a holding company,
we rely upon dividends paid to us by our subsidiaries in the PRC to pay dividends and to finance any debt we may incur. If our subsidiaries
or any newly formed subsidiaries or other consolidated entities incur debt on their own behalf in the future, the instruments governing
their debt may restrict their ability to pay dividends to us. In addition, our subsidiaries and other consolidated entities are permitted
to pay dividends to us only out of their accumulated profits, if any, as determined in accordance with PRC accounting standards and regulations.
Pursuant to laws applicable to entities incorporated in the PRC, each of our subsidiaries and other consolidated entities in the PRC must
make appropriations from after tax profit to a statutory surplus reserve fund. The reserve fund requires annual appropriation of 10% of
after tax profit (a determined under accounting principles generally accepted in the PRC at each year-end) after offsetting
accumulated losses from prior years, until such reserve reaches 50% of the subsidiary’s registered capital. The reserve fund can
only be used to increase the registered capital and eliminate further losses of the respective companies under PRC regulations. These
reserves are not distributable as cash dividends, loans or advances. In addition, due to restrictions under PRC laws and regulations,
our PRC subsidiaries and other consolidated entities are restricted in their ability to transfer their net assets to us in the form of
dividend payments, loans or advances. In addition, under regulations of the State Administration of Foreign Exchange of the PRC (the “SAFE”),
Renminbi is not convertible into foreign currencies for capital account items, such as loans, repatriation of investments and investments
outside of China, unless the prior approval of the SAFE is obtained and prior registration with the SAFE is made.
Contractual Arrangements with the Current
VIEs and Their Shareholders
Agreements that Provide Us with Effective
Control over the Current VIEs
Equity Pledge Agreements
The Current WFOE entered
into an equity pledge agreement with each of the Current VIEs and its shareholders on April 13, 2022. The registration of the equity pledge
with the relevant office of the Administration for Industry and Commerce in accordance with PRC Property Rights Law was completed on January
1, 2022. Pursuant to the equity pledge agreement and upon the completion of the equity pledge registration, each shareholder of each of
the Current VIEs has pledged all of its equity interest in each of the Current VIEs to the Current WFOE to guarantee the performance by
such shareholder and each of the Current VIEs of their respective obligations under the exclusive business cooperation agreement, powers
of attorney and exclusive option agreement as well as their respective liabilities arising from any breach. If each of the Current VIEs
or any of its shareholders breaches any obligations under these agreements, the Current WFOE, as pledgee, will be entitled to dispose
of the pledged equity and have priority to be compensated by the proceeds from the disposal of the pledged equity. Each of the shareholders
of each of the Current VIEs agrees that before its obligations under the contractual arrangements are discharged, he or she will not dispose
of the pledged equity interests, create or allow any encumbrance on the pledged equity interests, or take any action which may result
in any change of the pledged equity that may have material adverse effects on the pledgee’s rights under this agreement without
the prior written consent of the Current WFOE. The equity pledge agreement will remain effective until each of the Current VIEs and its
shareholders discharge all their obligations under the contractual arrangements.
Power of Attorney
The Current WFOE entered
into a power of attorney with each of the Current VIEs and its shareholders on April 13, 2022. Pursuant to the power of attorney, each
shareholder of each of the Current VIEs irrevocably authorizes any person(s) designated by the Current WFOE to act as his or her exclusive
agent and attorney to exercise all of such shareholder’s voting and other rights associated with the shareholder’s equity
interest in each of the Current VIEs, such as the right to appoint or remove directors, supervisors and officers, as well as the right
to sell, transfer, pledge and dispose of all or a portion of the shares held by such shareholder. Each power of attorney will remain in
force as long as the shareholder remains a shareholder of each of the Current VIEs.
Agreement that Allows Us to Receive
Economic Benefits from the Current VIEs
Exclusive Business Cooperation Agreements
The Current WFOE entered
into an exclusive business cooperation agreements with each of the Current VIEs on April 13, 2022. The Current WFOE has the exclusive
right to provide each of the Current VIEs with technical support, consulting services and other services. In exchange, the Current WFOE
is entitled to receive a service fee from each of the Current VIEs on an annual basis and at an amount equal to 100% of the consolidated
net income (gross income less costs) of each of the Current VIEs.
Each of the Current VIEs
has granted the Current WFOE the exclusive right to purchase any or all of their business or assets at the lowest price permitted under
PRC law. This agreement remains effective unless otherwise agreed among the parties.
Agreement that Provides Us with the
Option to Purchase the Equity Interest and Assets in the Current VIEs
Exclusive Option Agreements
Pursuant to the exclusive
option agreements entered into by the Current WFOE with each of the Current VIEs and shareholders of the Current VIEs on April 13, 2022,
the shareholders of each of the Current VIEs have irrevocably granted the Current WFOE an exclusive option to purchase, by itself or by
persons designated by it, at its discretion at any time, to the extent permitted under PRC law, all or part of such shareholders’
equity interests in each of the Current VIEs.
The purchase price of
the equity interests in each of the Current VIEs shall be equal to the minimum price regulated by the PRC law.
Without the Current WFOE’s
prior written consent, each of the Current VIEs and its shareholders have agreed not to amend each of the Current VIEs’ articles
of association, increase or decrease each of the Current VIEs’ registered capital, change each of the Current VIEs’ structure
or registered capital in other manners, sell or otherwise dispose of each of the Current VIEs’ material assets or beneficial interests
in each of the Current VIEs, create or allow any encumbrance on each of the Current VIEs’ material assets or provide any loans.
Current WFOE is entitled
to all dividends and other distributions declared by each of the Current VIEs, and the shareholders of each of the Current VIEs have agreed
to pay any such dividends or distributions to Current WFOE or any other person designated by Current WFOE to the extent permitted under
applicable PRC laws. The exclusive option agreements will remain effective until all equity interests of each of the Current VIEs held
by its shareholders have been transferred or assigned to Current WFOE or its designated person.
Spousal Consent Letters
Each spouse of the relevant
individual shareholders of the Current VIEs has signed a spousal consent letter. Under the spousal consent letter, the signing spouse
unconditionally and irrevocably agreed that the disposition of the equity interest in the Current VIEs which is held by and registered
under the name of his or her spouse shall be made pursuant to the above-mentioned equity pledge agreements, exclusive option agreements,
shareholders’ power of attorney and exclusive business cooperation agreement, as amended from time to time. Moreover, the spouse
undertook not to make any assertions in relation to such equity interest held by and registered under the name of his or her spouse.
Impact of Taxation on Dividends
As of the date of this prospectus, our subsidiaries and the VIE entities
have not made any dividends or distributions to our Cayman holding company, nor has our Cayman holding company made any dividends or distributions
to its shareholders.
Subject to the passive foreign investment company rules, the gross
amount of any distribution that we make to investor with respect to the ADSs or ordinary shares (including any amounts withheld to reflect
PRC withholding taxes) will be taxable as a dividend, to the extent paid out of our current or accumulated earnings and profits, as determined
under United States federal income tax principles. If we are considered a PRC tax resident enterprise for tax purposes, any dividends
we pay to our overseas shareholders may be regarded as China-sourced income and as a result may be subject to PRC withholding tax.
THE OFFERING
| Class A Ordinary Shares represented by ADSs offered by us |
|
Up to 250,000,000 ADSs representing 150,000,000,000,000 Class A Ordinary Shares |
| |
|
|
| Class A Ordinary Shares outstanding prior to this offering (as of September 24, 2024) |
|
61,177,892,046,400 Class A Ordinary Shares, including Class A Ordinary Shares represented by ADSs. |
| |
|
|
| Use of proceeds |
|
We may receive up to $25,000,000 in aggregate gross proceeds from the
Purchase Agreement from sales of Class A Ordinary Shares represented by ADSs that we may elect to make to VG, if any, from time to time
in our sole discretion, from and after the Effective Date.
We expect to use the net proceeds that we receive from sales of the
ADSs to VG, if any, under the Purchase Agreement for investment in growth and general corporate purposes. We have not yet determined the
amount of net proceeds to be used specifically for any of the foregoing purposes. Accordingly, we retain broad discretion over the use
of the net proceeds from the sale of the ADSs under the Purchase Agreement. The precise amount and timing of the application of such proceeds
will depend upon our liquidity needs and the availability and cost of other capital over which we have little or no control. As of the
date hereof, we cannot specify with certainty the particular uses for the net proceeds. See the section titled “Use of Proceeds.” |
| |
|
|
| Risk factors |
|
Investing in our securities involves significant risks. Please read the information contained in or incorporated by reference under the heading “Risk Factors” beginning on page S-26 of this prospectus supplement, and under similar headings in other documents filed after the date hereof and incorporated by reference into this prospectus supplement and the accompanying prospectus. |
| |
|
|
| Nasdaq symbol for the ADSs |
|
“XHG” |
THE COMMITTED EQUITY
FACILITY
On September 24, 2024,
we entered into the Purchase Agreement with VG. Upon the terms and subject to the satisfaction of the conditions contained in the Purchase
Agreement, from and after the Execution Date, we will have the right, in our sole discretion, to require VG to purchase up to $25,000,000
of ADSs representing our Class A Ordinary Shares, subject to certain limitations set forth in the Purchase Agreement, from time to time
after the date of this prospectus and during the term of the Purchase Agreement. Sales of ADSs by us to VG under the Purchase Agreement,
and the timing of any such sales, are solely at our option, and we are under no obligation to sell any securities to VG under the Purchase
Agreement. In accordance with our obligations under the Purchase Agreement, we have filed this prospectus supplement with the SEC to register
the offer and sale by the Company to VG of up to 250,000,000 ADSs representing up to 150,000,000,000,000 Class A Ordinary Shares that
we may, in our sole discretion, elect to sell to VG, from time to time pursuant to the Purchase Agreement.
We do not have the right
to commence any sales of the ADSs to VG under the Purchase Agreement until the Effective Date, which is the date on which all of the conditions
to VG’s purchase obligation set forth in the Purchase Agreement have initially been satisfied, none of which are in VG’s control,
including that this prospectus supplement shall have been filed with the SEC. From and after the Effective Date, we have the right, but
not the obligation, from time to time at our sole discretion until the earlier of, (i) the date on which VG has cumulatively purchased
a number of ADSs equal to $25,000,000 or (ii) July 1, 2025, unless the Purchase Agreement is earlier terminated, to direct VG to purchase
up to a specified maximum amount of ADSs in one or more transactions as set forth in the Purchase Agreement, by timely delivering a written
Purchase Notice for each purchase to VG in accordance with the Purchase Agreement, so long as the Purchase Amount is not less than $30,000
or the closing sale price of the ADSs on the trading day immediately prior to such Purchase Date is not less than the Floor Price of $0.10,
unless waived by VG.
From and after the Effective
Date, the Company will control the timing and amount of any sales of ADSs to VG. Actual sales of ADSs to VG under the Purchase Agreement
will depend on a variety of factors to be determined by us from time to time, including, among other things, market conditions, the trading
price of the ADSs and determinations by us as to the appropriate sources of funding for our company and its operations.
We may not issue or sell
any Class A Ordinary Shares, including Class A Ordinary Shares represented by ADSs to VG under the Purchase Agreement which, when aggregated
with all other Class A Ordinary Shares, including Class A Ordinary Shares represented by ADSs then beneficially owned by VG and its affiliates
(as calculated pursuant to Section 13(d) of the Exchange Act and Rule 13d-3 thereunder), would result in VG beneficially owning ADSs in
excess of the 9.99% Beneficial Ownership Limitation, which is defined in the Purchase Agreement as 9.99% of the outstanding Class A Ordinary
Shares, including Class A Ordinary Shares represented by ADSs.
The net proceeds to us
from sales that we elect to make to VG under the Purchase Agreement, if any, will depend on the frequency and prices at which we sell
ADSs to VG. We expect that any proceeds received by us from such sales to VG will be used for working capital and general corporate purposes.
Neither we nor VG may
assign or transfer our respective rights and obligations under the Purchase Agreement without the prior written consent of the other party,
and no provision of the Purchase Agreement may be modified or waived by us or VG.
The Purchase Agreement
contains customary representations, warranties, conditions and indemnification obligations of the parties. Copies of the agreements have
been filed as exhibits to the registration statement that includes this prospectus supplement and are available electronically on the
SEC’s website at www.sec.gov.
Purchases of ADSs Under the Purchase Agreement
From and after the Effective
Date, we will have the right, but not the obligation, from time to time at our sole discretion until the earlier of, (i) the date on which
VG has cumulatively purchased a number of ADSs equal to $25,000,000 or (ii) July 1, 2025, unless the Purchase Agreement is earlier terminated,
beginning on the Effective Date, to direct VG to purchase a specified number of ADSs, not to exceed the lesser of (a) 200% of the average
daily trading volume of the ADSs over the most recent five business days including the Purchase Notice Date, and (b) $25,000,000 divided
by the highest closing price of the ADSs over the most recent five business days including the Purchase Notice Date.
Conditions Precedent to Commencement and
Each Purchase
VG’s obligation
to accept Purchase Notices that are timely delivered by us under the Purchase Agreement and to purchase ADSs under the Purchase Agreement,
is subject to (i) the initial satisfaction, at the Effective Date, and (ii) the satisfaction, at the applicable purchase date for each
purchase, of the conditions precedent thereto set forth in the Purchase Agreement, all of which are entirely outside of VG’s control,
which conditions include the following:
| ● | the accuracy in all material respects of the representations and warranties of the Company included in the Purchase Agreement; |
| ● | the Company having performed, satisfied and complied in all material respects with all covenants, agreements and conditions required
by the Purchase Agreement to be performed, satisfied or complied with by the Company; |
| ● | the registration statement that includes this prospectus supplement (and any one or more additional registration statements filed
with the SEC that include Class A Ordinary Shares represented by ADSs that may be issued and sold by the Company to VG under the Purchase
Agreement) having been declared effective under the Securities Act by the SEC; |
| ● | no statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or adopted
by any court or governmental authority of competent jurisdiction that prohibits or directly and materially adversely affects any of the
transactions contemplated by the Purchase Agreement, and no proceeding shall have been commenced that may have the effect of prohibiting
or materially adversely affecting any of the transactions contemplated by the Purchase Agreement; |
| ● | Since the date of filing of the Company’s most recent annual report on Form 20-F, no event that had or is reasonably likely
to have a Material Adverse Effect has occurred unless as otherwise announced by the Company in filing with the SEC; |
| ● | The trading of the ADSs shall not have been suspended by the SEC or Nasdaq, or otherwise halted for any reason, and the ADSs shall
not have been delisted; and |
| ● | All reports, schedules, registrations, forms, statements, information and other documents required to have been filed by the Company
with the SEC pursuant to the reporting requirements of the Exchange Act shall have been filed with the SEC within the applicable time
periods prescribed for such filings under the Exchange Act. |
Termination of the Purchase Agreement
Unless earlier terminated
as provided in the Purchase Agreement, the Purchase Agreement will terminate automatically on the earliest to occur of:
| ● | the date on which VG shall have purchased ADSs under the Purchase Agreement for an aggregate gross purchase price equal to $25,000,000;
or |
| ● | the date on which a voluntary or involuntary bankruptcy proceeding involving our company has been commenced that is not discharged
or dismissed prior to such trading day. |
We have the right to
terminate the Purchase Agreement at any time at no cost or penalty. We may also terminate the Purchase Agreement at any time by giving
written notice to VG.
No Short-Selling or Hedging by VG
VG has agreed that none
of VG, its agents, representatives or affiliates will engage in or effect, directly or indirectly, for its own account or for the account
of any other of such persons or entities, any short sales of the ADSs or hedging transaction that establishes a net short position in
the ADSs during the term of the Purchase Agreement.
Effect of Sales of the ADSs under the Purchase
Agreement on our Shareholders
The Class A Ordinary
Shares to be represented by ADSs being registered in this offering may be issued and sold by us to VG from time to time at our discretion
until the earlier of, (i) the date on which VG has cumulatively purchased a number of ADSs equal to $25,000,000 or (ii) July 1, 2025,
unless the Purchase Agreement is earlier terminated, commencing on the Effective Date. The resale by VG of a significant amount of the
ADSs registered in this offering at any given time, or the perception that these sales may occur, could cause the market price of the
ADSs to decline and to be highly volatile. Sales of the ADSs, if any, to VG under the Purchase Agreement will depend upon market conditions
and other factors to be determined by us. We may ultimately decide to sell to VG all, some or none of the Class A Ordinary Shares represented
by the ADSs that may be available for us to sell to VG pursuant to the Purchase Agreement.
If and when we do elect
to sell ADSs to VG pursuant to the Purchase Agreement, after VG has acquired such ADSs, VG may resell all, some or none of such ADSs at
any time or from time to time in its discretion and at different prices. As a result, investors who purchase Class A Ordinary Shares represented
by ADSs from VG in this offering at different times will likely pay different prices for those ADSs, and so may experience different levels
of dilution, and in some cases substantial dilution, and different outcomes in their investment results. Investors may experience a decline
in the value of the ADSs they purchase from VG in this offering as a result of future sales made by us to VG at prices lower than the
prices such investors paid for their ADSs in this offering. In addition, if we sell a substantial number of ADSs to VG under the Purchase
Agreement, or if investors expect that we will do so, the actual sales of ADSs or the mere existence of our arrangement with VG may make
it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish
to effect such sales.
Because the per ADSs
purchase price that VG will pay for the ADSs will be determined by reference to the closing price of the ADSs during the applicable valuation
period on the applicable Purchase Date for such purchase, as of the date of this prospectus supplement, it is not possible for us to predict
the number of ADSs that we will sell to VG under the Purchase Agreement, the actual purchase price per ADS to be paid by VG for those
shares, or the actual gross proceeds to be raised by us from those sales, if any.
As of September 24, 2024,
there were 61,177,892,046,400 Class A Ordinary Shares, including Class A Ordinary Shares represented by ADSs outstanding. If all of the
150,000,000,000,000 Class A Ordinary Shares represented by ADSs registered under this prospectus were issued and outstanding as of the
date hereof, such shares would represent approximately 71% of the total number of outstanding Class A Ordinary Shares, including Class
A Ordinary Shares represented by ADSs.
The number of Class A
Ordinary Shares to be represented by ADSs ultimately offered and sold by us to VG pursuant to this prospectus supplement is dependent
upon the number of ADSs, if any, we elect to sell to VG under the Purchase Agreement from and after the Effective Date. The issuance of
the Class A Ordinary Shares represented by ADSs to VG pursuant to the Purchase Agreement will not affect the rights or privileges of our
existing shareholders, except that the economic and voting interests of each of our existing shareholders will be diluted. Although the
number of Class A Ordinary Shares, including Class A Ordinary Shares represented by ADSs, that our existing shareholders own will not
decrease, the Class A Ordinary Shares, including Class A Ordinary Shares represented by ADSs, owned by our existing securityholders will
represent a smaller percentage of our total outstanding Class A Ordinary Shares, including Class A Ordinary Shares represented by ADSs,
after any such issuance.
The following table sets
forth the amount of gross proceeds we would receive from VG from our sale of ADSs to VG under the Purchase Agreement at varying purchase
prices:
| Assumed Average Purchase Price Per ADS | | |
Number of Registered
ADS to be Issued
if Full Purchase(1) | | |
Percentage of
Outstanding Class A
Ordinary Shares
After Giving Effect to
the Issuance to VG(2) | | |
Gross Proceeds from
the Sale of ADS to
VG
Under the Purchase
Agreement | |
| $ | 0.10 | | |
| 11,316,653 | | |
| 9.99 | % | |
$ | 1,131,665.30 | |
| $ | 0.40 | | |
| 11,316,653 | | |
| 9.99 | % | |
$ | 4,526,661.20 | |
| $ | 0.60 | | |
| 11,316,653 | | |
| 9.99 | % | |
$ | 6,789,991.80 | |
| $ | 0.66 | (3) | |
| 11,316,653 | | |
| 9.99 | % | |
$ | 7,468,990.98 | |
| $ | 0.80 | | |
| 11,316,653 | | |
| 9.99 | % | |
$ | 9,053,322.40 | |
| $ | 1.00 | | |
| 11,316,653 | | |
| 9.69 | % | |
$ | 11,316,653.00 | |
| (1) | Although the Purchase Agreement
provides that we may sell up to $25,000,000 of our Class A Ordinary Shares represented by ADSs to VG, this column reflects 9.99% Beneficial
Ownership Limitation on the amount of Class A Ordinary Shares represented by ADSs that we may sell to VG under the Purchase Agreement. |
| (2) | The denominator is based on
61,177,892,046,400 Class A Ordinary Shares, including Class A Ordinary Shares represented by ADSs outstanding as of September 24, 2024,
adjusted to include the issuance of the number of ADSs set forth in the adjacent column that we would have sold to VG, assuming the average
purchase price in the first column. The numerator is based on the number of Class A Ordinary Shares represented by ADSs issuable under
the Purchase Agreement (that are the subject of this offering) at the corresponding assumed average purchase price set forth in the first
column. |
| (3) | The closing sale price of the
ADSs on Nasdaq on September 17, 2024. |
RISK
FACTORS
Investing
in our securities involves risk. You should carefully consider the risk factors and uncertainties described under the heading “Item
3. Key Information—D. Risk Factors” in our most recent annual report on Form 20-F for FY 2023, which is incorporated herein
by reference, as updated by our subsequent filings under the Securities Exchange Act of 1934, or the Exchange Act, and any risk factors
and other information described in the applicable prospectus supplement before acquiring any of our securities. These risks and uncertainties
could materially affect our business, results of operations or financial condition and cause the value of our securities to decline.
SPECIAL
NOTE ON FORWARD-LOOKING STATEMENTS
This
prospectus supplement and related free writing prospectus, and the information incorporated by reference herein and therein may contain
forward-looking statements that relate to our current expectations and views of future events. Known and unknown risks, uncertainties
and other factors may cause our actual results, performance or achievements to be materially different from those expressed or implied
by the forward-looking statements. These statements are made under the “safe harbor” provisions of the U.S. Private Securities
Litigations Reform Act of 1995.
You
can identify some of these forward-looking statements by words or phrases such as “may,” “will,” “expect,”
“anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,”
“is/are likely to,” “potential,” “continue” or other similar expressions. We have based these forward-looking
statements largely on our current expectations and projections about future events that we believe may affect our financial condition,
results of operations, business strategy and financial needs. These forward-looking statements include, but are not limited to, statements
relating to:
| ● | our
mission and strategies; |
| ● | our
ability to continue as a going concern; |
| ● | our
ability to integrate strategic investments, acquisitions and new business initiatives; |
| ● | our
ability to continuously develop new technology, services and products and keep up with changes
in the industries in which we operate; |
| ● | our
ability to achieve or maintain profitability; |
| ● | general
economic and business condition in China and elsewhere, particularly the insurance agency
industry; |
| ● | our
expectations regarding demand for and market acceptance of the products and services provided
on our platform; |
| ● | our
ability to retain our customer base after the Acquisition, build customer loyalty and increase
recognition of the Alpha Mind brand; |
| ● | our
relationship with financial institution partners and third party product and service providers;
and |
| ● | competition
in the insurance agency 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.
You should thoroughly read this prospectus supplement, any accompanying prospectus supplement and the documents that we reference in
this prospectus supplement with the understanding that our actual future results may be materially different from and worse than what
we expect. Factors that could cause or contribute to the differences include, but are not limited to, those discussed in the “Risk
Factors” section. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time
and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors
on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.
This
prospectus supplement 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.
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 supplement, any accompanying prospectus supplement and the documents that we reference
in this prospectus supplement relate only to events or information as of the date on which the statements are made in the respective
documents. You should not rely upon forward-looking statements as predictions of future events. Except as required by law, we undertake
no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise,
after the date on which the statements are made or to reflect the occurrence of unanticipated events.
USE
OF PROCEEDS
We
may receive up to $25,000,000 aggregate gross proceeds under the Purchase Agreement from any sales we make to VG pursuant to the Purchase
Agreement. The net proceeds from sales, if any, under the Purchase Agreement, will depend on the frequency and prices at which we sell
the ADSs to VG after the date of this prospectus supplement. See the section titled “Plan of Distribution” in this prospectus
supplement for more information.
We expect
to use any proceeds that we receive under the Purchase Agreement for working capital and general corporate purposes. As of the date of
this prospectus supplement, we cannot specify with certainty all of the particular uses, and the respective amounts we may allocate to
those uses, for any net proceeds we receive. Accordingly, we will retain broad discretion over the use of these proceeds.
DESCRIPTION
OF SHARE CAPITAL
We are a
Cayman Islands exempted company with limited liability and our corporate affairs are governed by our amended and restated memorandum
and articles of association, as amended from time to time and the Companies Act (2023 Revision), as amended and revised of the Cayman
Islands (the “Companies Act”), and the common law of the Cayman Islands.
As
of the date of this prospectus supplement, our authorized share capital is US$48,000,000 divided into 480,000,000,000,000 shares of a
nominal or par value of US$0.0000001 each, of which 419,500,000,000,000 are designated as Class A Ordinary Shares of a nominal or par
value of US$0.0000001 each, 60,000,000,000,000 are designated as Class B Ordinary Shares of a nominal or par value of US$0.0000001 each,
and 500,000,000,000 are designated as preferred shares of a nominal or par value of US$0.0000001 each, of which 61,177,892,046,400 Class
A Ordinary Shares and 6,392,789,000,000 Class B Ordinary Shares are issued and outstanding.
Our Amended
and Restated Memorandum and Articles of Association
The
following are summaries of material provisions of our amended and restated memorandum and articles of association and the Companies Act
insofar as they relate to the material terms of our Class A Ordinary Shares and Class B Ordinary Shares. You should read the forms of
our current memorandum and articles of association filed with the SEC. For information on how to obtain copies of our current memorandum
and articles of association, see “Where You Can Find More Information About Us.”
Ordinary
Shares
General
Our
ordinary shares are divided into Class A Ordinary Shares and Class B Ordinary Shares. Holders of our Class A Ordinary Shares and Class
B Ordinary Shares have the same rights except for voting and conversion rights. Our ordinary shares are issued in registered form and
are issued when registered in our register of members. Our shareholders who are non-residents of the Cayman Islands may freely hold and
vote their shares.
Conversion
Each
Class B Ordinary Share is convertible into one Class A Ordinary Share at any time at the option of the holder thereof. Class A ordinary
shares are not convertible into Class B ordinary shares under any circumstances. Upon any transfer of Class B Ordinary Shares by a holder
to any person or entity which is not an affiliate of such holder, such Class B Ordinary Shares shall be automatically and immediately
converted into the equivalent number of Class A Ordinary Shares.
Dividends
The
holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors. Our amended and restated
articles of association provide that dividends may be declared and paid out of our profits, realized or unrealized, or from any reserve
set aside from profits which our board of directors determine is no longer needed. Dividends may also be declared and paid out of share
premium account or any other fund or account which can be authorized for this purpose in accordance with the Companies Act.
Voting
Rights
Holders
of our ordinary shares have the right to receive notice of, attend, speak and vote at general meetings of our company. Except as required
by applicable law and subject to the amended and restated memorandum and articles of association, holders of Class A Ordinary Shares
and Class B Ordinary Shares shall at all times vote together as one class on all matters submitted to a vote of the shareholders.
At
any general meeting on a poll, every shareholder holding Class A Ordinary Shares present in person or by proxy or, in the case of a shareholder
being a corporation, by its duly authorized representative shall have one (1) vote for every fully paid Class A Ordinary Share of which
he is the holder; and every shareholder holding Class B Ordinary Shares present in person or by proxy or, in the case of a shareholder
being a corporation, by its duly authorized representative shall have ten (10) votes for every fully paid Class B Ordinary Share of which
he is the holder.
A
resolution put to the vote of a meeting shall be decided by way of a poll save that the chairman of the meeting may in good faith, allow
a resolution which relates purely to a procedural or administrative matter to be voted on by a show of hands in which case (i) every
shareholder holding Class A Ordinary Shares present in person (or being a corporation, is present by a duly authorized representative),
or by proxy(ies) shall have one (1) vote, and (ii) every shareholder holding Class B Ordinary Shares present in person (or being a corporation,
is present by a duly authorized representative), or by proxy(ies) shall have ten (10) votes, provided that, notwithstanding anything
contained in our amended and restated memorandum and articles of association, where more than one proxy is appointed by a shareholder
which is a clearing house or a central depository house (or its nominee(s)), each such proxy shall have one vote on a show of hands.
For the purposes of our amended and restated memorandum and articles of association, procedural and administrative matters are those
that (i) are not on the agenda of the general meeting or in any supplementary circular that may be issued by us to the shareholders;
and (ii) relate to the chairman’s duties to maintain the orderly conduct of the meeting and/or allow the business of the meeting
to be properly and effectively dealt with, whilst allowing all shareholders a reasonable opportunity to express their views.
An
ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the votes attaching
to the shares cast at a meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes attaching
to the shares cast at a meeting. A special resolution will be required for important matters such as a change of name or making changes
to our amended and restated memorandum and articles of association.
Transfer
of Ordinary Shares
Subject
to the restrictions contained in our amended and restated memorandum and articles of association, any of our shareholders may transfer
all or any of his or her ordinary shares by an instrument of transfer in the usual or common form or any other form approved by our board
of directors.
Our
board of directors may, in its absolute discretion, and without giving any reason therefor, refuse to register a transfer of any share
that is not a fully paid up share to a person of whom it does not approve, or any share issued under any share incentive scheme for employees
upon which a restriction on transfer imposed thereby still subsists, and it may also, without prejudice to the foregoing generality,
refuse to register a transfer of any share to more than four joint holders or a transfer of any share that is not a fully paid up share
on which we have a lien. Our board of directors may also decline to register any transfer of any ordinary share unless:
| ● | the
instrument of transfer is lodged with us, accompanied by the certificate for the ordinary
shares to which it relates and such other evidence as our board of directors may reasonably
require to show the right of the transferor to make the transfer; |
| ● | the
instrument of transfer is in respect of only one class of ordinary shares; |
| ● | the
instrument of transfer is properly stamped, if required; |
| ● | a
fee of such maximum sum as the Nasdaq may determine to be payable or such lesser sum as our
directors may from time to time require is paid to us in respect thereof. |
If
our directors refuse to register a transfer, they shall, within three months after the date on which the instrument of transfer was lodged,
send to each of the transferor and the transferee notice of such refusal.
The
registration of transfers may, after compliance with any notice required of the Nasdaq, be suspended and the register of members closed
at such times and for such periods as our board of directors may from time to time determine, provided, however, that the registration
of transfers shall not be suspended nor the register of members closed for more than 30 days in any year as our board may determine.
Liquidation
On
a return of capital on winding up or otherwise (other than on conversion, redemption or purchase of ordinary shares), assets available
for distribution among the holders of ordinary shares shall be distributed among the holders of the ordinary shares on a pro rata basis.
If our assets available for distribution are insufficient to repay all of the paid-up ordinary share capital, the assets will be distributed
so that the losses are borne by our holders of ordinary shares proportionately.
Calls
on Ordinary Shares and Forfeiture of Ordinary Shares
Our
board of directors may from time to time make calls upon shareholders for any amounts unpaid on their ordinary shares in a notice served
to such shareholders at least 14 clear days prior to the specified time of payment. The ordinary shares that have been called upon and
remain unpaid are subject to forfeiture.
Redemption
of Ordinary Shares
The
Companies Act and our amended and restated articles of association permit us to purchase our own shares. In accordance with our amended
and restated articles of association and provided the necessary shareholders or board approval have been obtained, we may issue shares
on terms that are subject to redemption, at our option or at the option of the holders of these shares, on such terms and in such manner,
including out of capital, as may be determined by our board of directors.
Variations
of Rights of Shares
All
or any of the special rights attached to any class of shares may, subject to the provisions of the Companies Act, be varied with the
sanction of a special resolution passed at a general meeting of the holders of the shares of that class. Separate general meetings of
the holders of a class or series of shares may be called only by (i) the chairman of our board of directors, or (ii) a majority of our
board of directors (unless otherwise specifically provided by the terms of issue of the shares of such class or series), and nothing
in the amended and restated memorandum and articles of association shall give any shareholder or shareholders the right to call a class
or series meeting. The rights conferred upon the holders of the shares of any class issued shall not, unless otherwise expressly provided
by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu
with such existing class of shares.
General
Meetings of Shareholders
A
quorum required for a meeting of shareholders consists of one or more shareholders present in person or by proxy representing not less
than one-third of all voting power of the company’s share capital in issue. (i) A majority of our board of directors, or (ii) the
chairman of our board of directors, or (iii) any director, where required to give effect to a requisition received under the amended
and restated memorandum and articles of association, may call extraordinary general meetings, which extraordinary general meetings shall
be held at such times and locations (as permitted hereby) as such person or persons shall determine.
Any
one or more shareholders holding at the date of deposit of the requisition not less than two-thirds of the voting power of our share
capital in issue carrying the right of voting at general meetings of our company shall at all times have the right, by written requisition
to our board of directors or our secretary, to require an extraordinary general meeting to be called by our board of directors for the
transaction of any business permitted by the Companies Act or the amended and restated memorandum and articles of association (subject
to the below) as specified in such requisition; and such meeting shall be held within two (2) months after the deposit of such requisition.
If within twenty-one (21) days of such deposit our board of directors fails to proceed to convene such meeting, the requisitionist(s)
himself or herself (themselves) may do so in the same manner, and all reasonable expenses incurred by the requisitionist(s) as a result
of the failure of our board of directors shall be reimbursed to the requisitionist(s) by us. A meeting requisitioned under the amended
and restated memorandum and articles of association shall not be permitted to consider or vote upon (A) any resolutions with respect
to the election, appointment or removal of directors or with respect to the size of our board of directors, unless such proposal is first
approved by our nominating and corporate governance committee; or (B) other than a special resolution in respect of the appointment or
removal of any director, any special resolution or any matters required to be passed by way of special resolution pursuant to the amended
and restated memorandum and articles of association or the Companies Act. Written notice shall be given not less than ten clear days
before the date of any general meeting.
Inspection
of Books and Records
Holders of
our ordinary shares will have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our
corporate records. However, in our amended and restated memorandum and articles of association we provide our shareholders with the right
to inspect our list of shareholders and to receive annual audited financial statements.
Changes
in Capital
We
may from time to time by ordinary resolution:
| |
● |
increase the share capital
by such sum, to be divided into shares of such amounts, as the resolution shall prescribe; |
| |
● |
consolidate and divide
all or any of our share capital into shares of a larger amount than our existing shares; |
| |
● |
sub-divide our existing
shares, or any of them into shares of a smaller amount; or |
| |
● |
cancel any shares which,
at the date of the passing of the resolution, have not been taken or agreed to be taken by any person and diminish the amount of
our share capital by the amount of the shares so canceled. |
We
may by special resolution, subject to any confirmation or consent required by the Companies Act, reduce our share capital or any capital
redemption reserve in any manner permitted by law.
Proceedings
of the Directors
Our
board of directors may meet for the dispatch of business, adjourn and otherwise regulate its meetings as it considers appropriate. Questions
arising at any meeting shall be determined by a majority of votes, other than (i) any removal of any person as a director, or (ii) any
appointment or removal of any person as the chairman of our board of directors, or (iii) any removal of any person as chairman or other
member of any committee of our board of directors which, in each case, shall be determined by a resolution passed by a majority of not
less than two-thirds of votes cast by such directors as, being entitled so to do, vote at a meeting of our board of directors. In the
case of any equality of votes, the chairman of the meeting shall have an additional or casting vote. A meeting of our board of directors
may be convened by (i) the chairman of our board of directors, or (ii) a majority of the directors. Our secretary shall convene a meeting
of our board of directors whenever so required to do by the chairman of our board of directors or a majority of the directors by notice
in writing to each director. A meeting of our board of directors may be called by not less than two (2) clear days’ notice. A meeting
of our board of directors may be called by shorter notice if it is so agreed by all the directors entitled to attend and vote at such
a meeting. Any notice of a meeting of our board of directors shall (i) specify the time and place of the meeting, and (ii) set out in
reasonable detail the nature of the business to be discussed at the meeting. Notice may be given in writing or by telephone or in such
other manner as our board of directors may from time to time determine.
A resolution
in writing signed by all the directors (other than in the circumstances set out in article 85 in our amended and restated memorandum
and articles of association) except such as are temporarily unable to act due to ill-health or disability shall (provided that (i) the
circulation of such resolutions has the prior approval of, and is initiated by, the chairman of our board of directors, (ii) such number
of signatories includes the chairman of our board of directors and is sufficient to constitute a quorum, and (iii) further provided that
a copy of such resolution has been given or the contents thereof communicated to all the directors for the time being entitled to receive
notices of board meetings in the same manner as notices of meetings are required to be given by our amended and restated memorandum and
articles of association) be as valid and effectual as if a resolution had been passed at a meeting of our board of directors duly convened
and held.
Exempted
Company
We
are an exempted company with limited liability incorporated under the Companies Act. The Companies Act distinguishes between ordinary
resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside
of the Cayman Islands may apply to be registered as an exempted company. The requirements for an exempted company are essentially the
same as for an ordinary company except that an exempted company:
| ● | does
not have to file an annual return of its shareholders with the Registrar of Companies; |
| ● | is
not required to open its register of members to inspection; |
| ● | does
not have to hold an annual general meeting; |
| ● | may
issue no par value shares; |
| ● | may
obtain an undertaking against the imposition of any future taxation (such undertakings are
usually given for 20 years in the first instance); |
| ● | may
register by way of continuation in another jurisdiction and be deregistered in the Cayman
Islands; |
| ● | may
register as a limited duration company; and |
| |
● |
may register as a segregated
portfolio company. |
“Limited
liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on that shareholders’
shares of the company (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an
illegal or improper purpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil).
Differences
in Corporate Law
The
Companies Act is derived, to a large extent, from the older Companies Acts of England but does not follow recent English statutory enactments
and accordingly there are significant differences between the Companies Act and the current Companies Act of England. The Companies Act
is modeled after that of England and Wales but does not follow recent statutory enactments in England. In addition, the Companies Act
differs from laws applicable to United States corporations and their shareholders. Set forth below is a summary of the significant differences
between the provisions of the Companies Act applicable to us and the laws applicable to companies incorporated in the State of Delaware
and their shareholders.
Mergers
and Similar Arrangements
The
Companies Act permits mergers and consolidations between Cayman Islands companies and between Cayman Islands companies and non-Cayman
Islands companies. For these purposes, (a) “merger” means the merging of two or more constituent companies and the vesting
of their undertaking, property and liabilities in one of such companies as the surviving company, and (b) a “consolidation”
means the combination of two or more constituent companies into a consolidated company and the vesting of the undertaking, property and
liabilities of such companies to the consolidated company. In order to effect such a merger or consolidation, the directors of each constituent
company must approve a written plan of merger or consolidation, which must then be authorized by (a) a special resolution of the
shareholders of each constituent company, and (b) such other authorization, if any, as may be specified in such constituent company’s
articles of association. The plan must be filed with the Registrar of Companies of the Cayman Islands together with a declaration as
to the solvency of the consolidated or surviving company, a list of the assets and liabilities of each constituent company and an undertaking
that a copy of the certificate of merger or consolidation will be given to the members and creditors of each constituent company and
that notification of the merger or consolidation will be published in the Cayman Islands Gazette. Court approval is not required for
a merger or consolidation which is effected in compliance with these statutory procedures.
A
merger between a Cayman parent company and its Cayman subsidiary or subsidiaries does not require authorization by a resolution of shareholders
of that Cayman subsidiary if a copy of the plan of merger is given to every member of that Cayman subsidiary to be merged unless that
member agrees otherwise. For this purpose a company is a “parent” of a subsidiary if it holds issued shares that together
represent at least ninety percent (90%) of the votes at a general meeting of the subsidiary.
The
consent of each holder of a fixed or floating security interest over a constituent company is required unless this requirement is waived
by a court in the Cayman Islands.
Save
in certain limited circumstances, a shareholder of a Cayman constituent company who dissents from the merger or consolidation is entitled
to payment of the fair value of his shares (which, if not agreed between the parties, will be determined by the Cayman Islands court)
upon dissenting to the merger or consolidation, provided the dissenting shareholder complies strictly with the procedures set out in
the Companies Act. The exercise of dissenter rights will preclude the exercise by the dissenting shareholder of any other rights to which
he or she might otherwise be entitled by virtue of holding shares, save for the right to seek relief on the grounds that the merger or
consolidation is void or unlawful.
Separate
from the statutory provisions relating to mergers and consolidations, the Companies Act also contains statutory provisions that facilitate
the reconstruction and amalgamation of companies by way of schemes of arrangement, provided that the arrangement is approved (i) in the
case of a shareholder scheme, by seventy-five per cent in value of the members or class of members, as the case may be, with whom the
arrangement is to be made and (ii) in the case of a creditor scheme only, by a majority in number of each class of creditors with whom
the arrangement is to be made and who must in addition represent seventy-five per cent in value of each such class of creditors, as the
case may be, that are present and voting either in person or by proxy at a meeting, or meetings, convened for that purpose. The convening
of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder
has the right to express to the court the view that the transaction ought not to be approved, the court can be expected to approve the
arrangement if it determines that:
| ● | the
statutory provisions as to the required majority vote have been met; |
| ● | the
shareholders have been fairly represented at the meeting in question and the statutory majority
are acting bona fide without coercion of the minority to promote interests adverse to those
of the class; |
| ● | the
arrangement is such that may be reasonably approved by an intelligent and honest man of that
class acting in respect of his interest; and |
| ● | the
arrangement is not one that would more properly be sanctioned under some other provision
of the Companies Act. |
The
Companies Act also contains a statutory power of compulsory acquisition which may facilitate the “squeeze out” of a dissentient
minority shareholder upon a tender offer. When a tender offer is made and accepted by holders of 90% of the shares affected within four
months, the offeror may, within a two-month period commencing on the expiration of such four-month period, require the holders of the
remaining shares to transfer such shares to the offeror on the terms of the offer. An objection can be made to the Grand Court of the
Cayman Islands but this is unlikely to succeed in the case of an offer which has been so approved unless there is evidence of fraud,
bad faith or collusion.
If
an arrangement and reconstruction by way of scheme of arrangement is thus approved and sanctioned, or if a tender offer is made and accepted,
in accordance with the foregoing statutory procedures, a dissenting shareholder would have no rights comparable to appraisal rights,
save that objectors to a takeover offer may apply to the Grand Court of the Cayman Islands for various orders that the Grand Court of
the Cayman Islands has a broad discretion to make, which would otherwise ordinarily be available to dissenting shareholders of Delaware
corporations, providing rights to receive payment in cash for the judicially determined value of the shares.
The
Companies Act also contains statutory provisions which provide that a company may present a petition to the Grand Court of the Cayman
Islands for the appointment of a restructuring officer on the grounds that the company (a) is or is likely to become unable to pay its
debts within the meaning of section 93 of the Companies Act; and (b) intends to present a compromise or arrangement to its creditors
(or classes thereof) either, pursuant to the Companies Act, the law of a foreign country or by way of a consensual restructuring. The
petition may be presented by a company acting by its directors, without a resolution of its members or an express power in its articles
of association. On hearing such a petition, the Cayman Islands court may, among other things, make an order appointing a restructuring
officer or make any other order as the court thinks fit.
Shareholders’
Suits
In
principle, we will normally be the proper plaintiff and as a general rule a derivative action may not be brought by a minority shareholder.
However, based on English authorities, which would in all likelihood be of persuasive authority in the Cayman Islands, the Cayman Islands
courts can be expected to follow and apply the common law principles (namely the rule in Foss v. Harbottle and the exceptions
thereto) so that a non-controlling shareholder may be permitted to commence a class action against or derivative actions in the
name of the company to challenge actions where:
| ● | a
company acts or proposes to act illegally or ultra vires; |
| ● | the
act complained of, although not ultra vires, could only be effected duly if authorized by
more than a simple majority vote that has not been obtained; and |
| ● | those
who control the company are perpetrating a “fraud on the minority.” |
A
shareholder may have a direct right of action against us where the individual rights of that shareholder have been infringed or are about
to be infringed.
Indemnification
of Directors and Executive Officers and Limitation of Liability
Cayman
Islands law does not limit the extent to which a company’s memorandum and articles of association may provide for indemnification
of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public
policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Our amended and restated memorandum
and articles of association permit indemnification of officers and directors from and against all actions, costs, charges, losses, damages
and expenses incurred in their capacities as such unless such losses or damages arise from dishonesty or fraud which may attach to such
directors or officers. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware
corporation.
In
addition, we have entered into indemnification agreements with our directors and senior executive officers that provide such persons
with additional indemnification beyond that provided in our amended and restated memorandum and articles of association.
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling
us under the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable.
Anti-Takeover
Provisions in the Memorandum and Articles of Association
Some
provisions of our amended and restated memorandum and articles of association may discourage, delay or prevent a change in control of
our company or management that shareholders may consider favorable, including provisions that authorize our board of directors to issue
preferred shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preferred
shares without any further vote or action by our shareholders. However, under Cayman Islands law, our directors may only exercise the
rights and powers granted to them under our amended and restated memorandum and articles of association, as amended and restated from
time to time, for what they believe in good faith to be in the best interests of our company.
Directors’
Fiduciary Duties
Under
Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty
has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care
that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and
disclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires
that a director act in a manner he or she reasonably believes to be in the best interests of the corporation. He or she must not use
his or her corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best
interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder
and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis,
in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption
may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by
a director, a director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.
As
a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company
and therefore it is considered that he owes the following duties to the company—a duty to act bona fide in the best interests of
the company, a duty not to make a profit based on his or her position as director (unless the company permits him to do so) and a duty
not to put himself in a position where the interests of the company conflict with his or her personal interest or his or her duty to
a third party. A director of a Cayman Islands company owes to the company a duty to act with skill and care. It was previously considered
that a director need not exhibit in the performance of his or her duties a greater degree of skill than may reasonably be expected from
a person of his or her knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard with
regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands.
Shareholder
Action by Written Consent
Under
the Delaware General Corporation Law, a corporation may eliminate the right of shareholders to act by written consent by amendment to
its certificate of incorporation. Cayman Islands law permits us to eliminate the right of shareholders to act by written consent and
our post-offering amended and restated articles of association provide that any action required or permitted to be taken at any general
meetings may be taken only upon the vote of shareholders at a general meeting duly noticed and convened in accordance with our post-offering
amended and restated articles of association and may not be taken by written consent of the shareholders without a meeting.
Shareholder
Proposals
Under
the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders, provided
it complies with the notice provisions in the governing documents. A special meeting may be called by the board of directors or any other
person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings. The Companies
Act does not provide shareholders with any right to requisition a general meeting or to put any proposal before a general meeting. However,
these rights may be provided in a company’s articles of association. Our amended and restated articles of association allow our
shareholders to requisition a shareholders’ meeting (see above). As an exempted Cayman Islands company, we are not obliged by law
to call shareholders’ annual general meetings though we may do so.
Cumulative
Voting
Under
the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s certificate
of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders
on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single
director, which increases the shareholder’s voting power with respect to electing such director. As permitted under Cayman Islands
law, our amended and restated articles of association do not provide for cumulative voting. As a result, our shareholders are not afforded
any less protections or rights on this issue than shareholders of a Delaware corporation.
Removal
of Directors
Under
the Delaware General Corporation Law, a director of a corporation with a classified board may be removed only for cause with the approval
of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Subject to any
provision to the contrary in our amended and restated memorandum and articles of association, a director may, at any time before the
expiration of his or her period of office (notwithstanding anything in our amended and restated memorandum and articles of association
or in any agreement between our company and such director (but without prejudice to any claim for damages under any such agreement))
be removed by way of either (a) a special resolution of the shareholders; or (b) the affirmative vote of two-thirds of the
other directors present and voting at a board meeting; or (c) a resolution in writing (which complies with the requirements of the
provisos contained in article 119 of our amended and restated memorandum and articles of association) signed by all the directors other
than the director being removed.
Transactions
with Interested Shareholders
The
Delaware General Corporation Law contains a business combination statute applicable to Delaware corporations whereby, unless the corporation
has specifically elected not to be governed by such statute by amendment to its certificate of incorporation, it is prohibited from engaging
in certain business combinations with an “interested shareholder” for three years following the date that such person becomes
an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the target’s
outstanding voting stock within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered
bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to
the date on which such shareholder becomes an interested shareholder, the board of directors approves either the business combination
or the transaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware
corporation to negotiate the terms of any acquisition transaction with the target’s board of directors. Cayman Islands law has
no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination
statute. However, although Cayman Islands law does not regulate transactions between a company and its significant shareholders, it does
provide that such transactions must be entered into bona fide in the best interests of the company and for a proper corporate purpose
and not with the effect of constituting a fraud on the minority shareholders.
Dissolution;
Winding Up
Under
the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by
shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors
may it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to
include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board.
Under Cayman Islands law, a company may be wound up by either an order of the courts of the Cayman Islands or by a special resolution
of its members or, if the company is unable to pay its debts as they fall due, by an ordinary resolution of its members. The court has
authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable
to do so. Under the Companies Act and our amended and restated articles of association, our company may be dissolved, liquidated or wound
up by a special resolution of shareholders.
Variation
of Rights of Shares
Under
the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding
shares of such class, unless the certificate of incorporation provides otherwise. Under Cayman Islands law and our amended and restated
articles of association, if our share capital is divided into more than one class of shares, we may vary the rights attached to any class
only with the sanction of a special resolution passed at a general meeting of the holders of the shares of that class.
Amendment
of Governing Documents
Under
the Delaware General Corporation Law, a corporation’s governing documents may be amended with the approval of a majority of the
outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. As permitted by Cayman Islands law,
our amended and restated memorandum and articles of association may only be amended by a special resolution of shareholders.
Rights
of Non-Resident or Foreign Shareholders
There
are no limitations imposed by our amended and restated memorandum and articles of association on the rights of non-resident or foreign
shareholders to hold or exercise voting rights on our shares. In addition, there are no provisions in our amended and restated memorandum
and articles of association governing the ownership threshold above which shareholder ownership must be disclosed.
Directors’
Power to Issue Shares
Subject
to applicable law, our board of directors is empowered to issue or allot shares or grant options and warrants with or without preferred,
deferred, qualified or other special rights or restrictions.
Limitations
or Qualifications
We
have a dual-class voting structure such that our ordinary shares consist of Class A ordinary shares and Class B ordinary shares. Holders
of Class A ordinary shares are entitled to one vote per share in respect of matters requiring the votes of shareholders, while holders
of Class B ordinary shares are entitled to ten (10) votes per share, subject to certain exceptions. Due to the super voting power of
Class B ordinary share holder, the voting power of the Class A ordinary shares may be materially limited.
DESCRIPTION
OF AMERICAN DEPOSITARY SHARES
The
Bank of New York Mellon, as depositary, registers and delivers ADSs. Each ADS represents 600,000 Class A ordinary shares (or a right
to receive 600,000 Class A ordinary shares) deposited with The Hongkong and Shanghai Banking Corporation Limited, as custodian for the
depositary in Hong Kong. Each ADS also represents any other securities, cash or other property which may be held by the depositary. The
deposited shares together with any other securities, cash or other property held by the depositary are referred to as the deposited securities.
The depositary’s office at which the ADSs are administered and its principal executive office are located at 240 Greenwich Street,
New York, New York 10286.
You may hold
ADSs either (A) directly (i) by having an American depositary receipt, also referred to as an ADR, which is a certificate evidencing
a specific number of ADSs, registered in your name, or (ii) by having uncertificated ADSs registered in your name, or (B) indirectly
by holding a security entitlement in ADSs through your broker or other financial institution that is a direct or indirect participant
in The Depository Trust Company, also called DTC. If you hold ADSs directly, you are a registered ADS holder, also referred to as an
ADS holder. This description assumes you are an ADS holder. If you hold the ADSs indirectly, you must rely on the procedures of your
broker or other financial institution to assert the rights of ADS holders described in this section. You should consult with your broker
or financial institution to find out what those procedures are.
Registered
holders of uncertificated ADSs receive statements from the depositary confirming their holdings.
As
an ADS holder, we do not treat you as one of our shareholders and you do not have shareholder rights. Cayman Islands law governs shareholder
rights. The depositary is the holder of the shares underlying your ADSs. As a registered holder of ADSs, you have ADS holder rights.
A deposit agreement among us, the depositary, ADS holders and all other persons indirectly or beneficially holding ADSs sets out ADS
holder rights as well as the rights and obligations of the depositary. New York law governs the deposit agreement and the ADSs.
The
following is a summary of the material provisions of the deposit agreement. For more complete information, you should read the entire
deposit agreement and the form of ADR.
Dividends
and Other Distributions
How will
you receive dividends and other distributions on the shares?
The
depositary has agreed to pay or distribute to ADS holders the cash dividends or other distributions it or the custodian receives on shares
or other deposited securities, upon payment or deduction of its fees and expenses. You will receive these distributions in proportion
to the number of shares your ADSs represent.
| ● | Cash.
The depositary will convert any cash dividend or other cash distribution we pay on the shares
into U.S. dollars, if it can do so on a reasonable basis and can transfer the U.S. dollars
to the United States. If that is not possible or if any government approval is needed and
cannot be obtained, the deposit agreement allows the depositary to distribute the foreign
currency only to those ADS holders to whom it is possible to do so. It will hold the foreign
currency it cannot convert for the account of the ADS holders who have not been paid. It
will not invest the foreign currency and it will not be liable for any interest. Before making
a distribution, any withholding taxes, or other governmental charges that must be paid will
be deducted. The depositary will distribute only whole U.S. dollars and cents and will round
fractional cents to the nearest whole cent. If the exchange rates fluctuate during a time
when the depositary cannot convert the foreign currency, you may lose some of the value of
the distribution. |
| ● | Shares.
The depositary may distribute additional ADSs representing any shares we distribute as a
dividend or free distribution. The depositary will only distribute whole ADSs. It will sell
shares which would require it to deliver a fraction of an ADS (or ADSs representing those
shares) and distribute the net proceeds in the same way as it does with cash. If the depositary
does not distribute additional ADSs, the outstanding ADSs will also represent the new shares.
The depositary may sell a portion of the distributed shares (or ADSs representing those shares)
sufficient to pay its fees and expenses in connection with that distribution. |
| ● | Rights
to purchase additional shares. If we offer holders of our securities any rights to subscribe
for additional shares or any other rights, the depositary may (i) exercise those rights on
behalf of ADS holders, (ii) distribute those rights to ADS holders or (iii) sell those rights
and distribute the net proceeds to ADS holders, in each case after deduction or upon payment
of its fees and expenses. To the extent the depositary does not do any of those things, it
will allow the rights to lapse. In that case, you will receive no value for them. The depositary
will exercise or distribute rights only if we ask it to and provide satisfactory assurances
to the depositary that it is legal to do so. If the depositary will exercise rights, it will
purchase the securities to which the rights relate and distribute those securities or, in
the case of shares, new ADSs representing the new shares, to subscribing ADS holders, but
only if ADS holders have paid the exercise price to the depositary. U.S. securities laws
may restrict the ability of the depositary to distribute rights or ADSs or other securities
issued on exercise of rights to all or certain ADS holders, and the securities distributed
may be subject to restrictions on transfer. |
| ● | Other
Distributions. The depositary will send to ADS holders anything else we distribute on
deposited securities by any means it thinks is legal, fair and practical. If it cannot make
the distribution in that way, the depositary has a choice. It may decide to sell what we
distributed and distribute the net proceeds, in the same way as it does with cash. Or, it
may decide to hold what we distributed, in which case ADSs will also represent the newly
distributed property. However, the depositary is not required to distribute any securities
(other than ADSs) to ADS holders unless it receives satisfactory evidence from us that it
is legal to make that distribution. The depositary may sell a portion of the distributed
securities or property sufficient to pay its fees and expenses in connection with that distribution.
U.S. securities laws may restrict the ability of the depositary to distribute securities
to all or certain ADS holders, and the securities distributed may be subject to restrictions
on transfer. |
The
depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any ADS holders. We
have no obligation to register ADSs, shares, rights or other securities under the Securities Act. We also have no obligation to take
any other action to permit the distribution of ADSs, shares, rights or anything else to ADS holders. This means that you may not receive
the distributions we make on our shares or any value for them if it is illegal or impractical for us to make them available to you.
Deposit,
Withdrawal and Cancelation
How are
ADSs issued?
The
depositary will deliver ADSs if you or your broker deposits shares or evidence of rights to receive shares with the custodian. Upon payment
of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will register
the appropriate number of ADSs in the names you request and will deliver the ADSs to or upon the order of the person or persons that
made the deposit.
How can
ADS holders withdraw the deposited securities?
You
may surrender your ADSs to the depositary for the purpose of withdrawal. Upon payment of its fees and expenses and of any taxes or charges,
such as stamp taxes or stock transfer taxes or fees, the depositary will deliver the shares and any other deposited securities underlying
the ADSs to the ADS holder or a person the ADS holder designates at the office of the custodian. Or, at your request, risk and expense,
the depositary will deliver the deposited securities at its office, if feasible. However, the depositary is not required to accept surrender
of ADSs to the extent it would require delivery of a fraction of a deposited share or other security. The depositary may charge you a
fee and its expenses for instructing the custodian regarding delivery of deposited securities.
How do
ADS holders interchange between certificated ADSs and uncertificated ADSs?
You
may surrender your ADR to the depositary for the purpose of exchanging your ADR for uncertificated ADSs. The depositary will cancel that
ADR and will send to the ADS holder a statement confirming that the ADS holder is the registered holder of uncertificated ADSs. Upon
receipt by the depositary of a proper instruction from a registered holder of uncertificated ADSs requesting the exchange of uncertificated
ADSs for certificated ADSs, the depositary will execute and deliver to the ADS holder an ADR evidencing those ADSs.
Voting
Rights
How do
you vote?
ADS
holders may instruct the depositary how to vote the number of deposited shares their ADSs represent. If we request the depositary to
solicit your voting instructions (and we are not required to do so), the depositary will notify you of a shareholders’ meeting
and send or make voting materials available to you. Those materials will describe the matters to be voted on and explain how ADS holders
may instruct the depositary how to vote. For instructions to be valid, they must reach the depositary by a date set by the depositary.
The depositary will try, as far as practical, subject to the laws of the Cayman Islands and the provisions of our amended and restated
memorandum and articles of association or similar documents, to vote or to have its agents vote the shares or other deposited securities
as instructed by ADS holders. If we do not request the depositary to solicit your voting instructions, you can still send voting instructions,
and, in that case, the depositary may try to vote as you instruct, but it is not required to do so.
Except
by instructing the depositary as described above, you won’t be able to exercise voting rights unless you surrender your ADSs and
withdraw the shares. However, you may not know about the meeting enough in advance to withdraw the shares. In any event, the depositary
will not exercise any discretion in voting deposited securities and it will only vote or attempt to vote as instructed.
We
cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares.
In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying
out voting instructions. This means that you may not be able to exercise voting rights and there may be nothing you can do if your shares
are not voted as you requested.
In
order to give you a reasonable opportunity to instruct the depositary as to the exercise of voting rights relating to deposited securities,
if we request the Depositary to act, we agree to give the depositary notice of any such meeting and details concerning the matters to
be voted upon at least 45 days in advance of the meeting date.
Fees
and Expenses
An
ADS holder will be required to pay the following fees under the terms of the deposit agreement:
| Persons
depositing or withdrawing shares or ADS holders must pay: |
|
For: |
| US$5.00
(or less) per 100 ADSs (or portion of 100 ADSs) |
|
Issuance
of ADSs, including issuances resulting from a distribution of shares or rights or other property
Cancelation
of ADSs for the purpose of withdrawal, including if the deposit agreement terminates
|
| |
|
| US$.05
(or less) per ADS |
|
Any
cash distribution to ADS holders |
| |
|
| A
fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited
for issuance of ADSs |
|
Distribution
of securities distributed to holders of deposited securities (including rights) that are distributed by the depositary to ADS holders |
| |
|
| US$.05
(or less) per ADS per calendar year |
|
Depositary
services |
| Persons
depositing or withdrawing shares or ADS holders must pay: |
|
For: |
| Registration
or transfer fees |
|
Transfer
and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw
shares |
| |
|
| Expenses
of the depositary |
|
Cable
(including SWIFT) and facsimile transmissions (when expressly provided in the deposit agreement)
Converting
foreign currency to U.S. dollars
|
| |
|
| Taxes
and other governmental charges the depositary or the custodian has to pay on any ADSs or shares underlying ADSs, such as stock transfer
taxes, stamp duty or withholding taxes |
|
As
necessary |
| |
|
| Any
charges incurred by the depositary or its agents for servicing the deposited securities |
|
As
necessary |
The
depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the
purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting
those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect
its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry
system accounts of participants acting for them. The depositary may collect any of its fees by deduction from any cash distribution payable
(or by selling a portion of securities or other property distributable) to ADS holders that are obligated to pay those fees. The depositary
may generally refuse to provide fee-attracting services until its fees for those services are paid.
From
time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and
maintenance of the ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees
collected from ADS holders. In performing its duties under the deposit agreement, the depositary may use brokers, dealers, foreign currency
dealers or other service providers that are owned by or affiliated with the depositary and that may earn or share fees, spreads or commissions.
The
depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and
not as agent, advisor, broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction
spreads, that it will retain for its own account. The revenue is based on, among other things, the difference between the exchange rate
assigned to the currency conversion made under the deposit agreement and the rate that the depositary or its affiliate receives when
buying or selling foreign currency for its own account. The depositary makes no representation that the exchange rate used or obtained
in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or that the
method by which that rate will be determined will be the most favorable to ADS holders, subject to the depositary’s obligations
under the deposit agreement. The methodology used to determine exchange rates used in currency conversions is available upon request.
Payment
of Taxes
You
will be responsible for any taxes or other governmental charges payable on your ADSs or on the deposited securities represented by any
of your ADSs. The depositary may refuse to register any transfer of your ADSs or allow you to withdraw the deposited securities represented
by your ADSs until those taxes or other charges are paid. It may apply payments owed to you or sell deposited securities represented
by your ADSs to pay any taxes owed and you will remain liable for any deficiency. If the depositary sells deposited securities, it will,
if appropriate, reduce the number of ADSs to reflect the sale and pay to ADS holders any proceeds, or send to ADS holders any property,
remaining after it has paid the taxes.
Tender
and Exchange Offers; Redemption, Replacement or Cancelation of Deposited Securities
The
depositary will not tender deposited securities in any voluntary tender or exchange offer unless instructed to do so by an ADS holder
surrendering ADSs and subject to any conditions or procedures the depositary may establish.
If
deposited securities are redeemed for cash in a transaction that is mandatory for the depositary as a holder of deposited securities,
the depositary will call for surrender of a corresponding number of ADSs and distribute the net redemption money to the holders of called
ADSs upon surrender of those ADSs.
If
there is any change in the deposited securities such as a sub-division, combination or other reclassification, or any merger, consolidation,
recapitalization or reorganization affecting the issuer of deposited securities in which the depositary receives new securities in exchange
for or in lieu of the old deposited securities, the depositary will hold those replacement securities as deposited securities under the
deposit agreement. However, if the depositary decides it would not be lawful and practical to hold the replacement securities because
those securities could not be distributed to ADS holders or for any other reason, the depositary may instead sell the replacement securities
and distribute the net proceeds upon surrender of the ADSs.
If
there is a replacement of the deposited securities and the depositary will continue to hold the replacement securities, the depositary
may distribute new ADSs representing the new deposited securities or ask you to surrender your outstanding ADRs in exchange for new ADRs
identifying the new deposited securities.
If
there are no deposited securities underlying ADSs, including if the deposited securities are canceled, or if the deposited securities
underlying ADSs have become apparently worthless, the depositary may call for surrender of those ADSs or cancel those ADSs upon notice
to the ADS holders.
Amendment
and Termination
How may
the deposit agreement be amended?
We
may agree with the depositary to amend the deposit agreement and the ADRs without your consent for any reason. If an amendment adds or
increases fees or charges, except for taxes and other governmental charges or expenses of the depositary for registration fees, facsimile
costs, delivery charges or similar items, or prejudices a substantial right of ADS holders, it will not become effective for outstanding
ADSs until 30 days after the depositary notifies ADS holders of the amendment. At the time an amendment becomes effective, you are considered,
by continuing to hold your ADSs, to agree to the amendment and to be bound by the ADRs and the deposit agreement as amended.
How may
the deposit agreement be terminated?
The
depositary will initiate termination of the deposit agreement if we instruct it to do so. The depositary may initiate termination of
the deposit agreement if:
| ● | 60
days have passed since the depositary told us it wants to resign but a successor depositary
has not been appointed and accepted its appointment; |
| ● | we
delist the ADSs from an exchange in the United States on which they were listed and do not
list the ADSs on another exchange in the United States or make arrangements for trading of
ADSs on the U.S. over-the-counter market; |
| ● | we
delist our shares from an exchange outside the United States on which they were listed and
do not list the shares on another exchange outside the United States; |
| ● | the
depositary has reason to believe the ADSs have become, or will become, ineligible for registration
on Form F-6 under the Securities Act; |
| ● | we
appear to be insolvent or enter insolvency proceedings; |
| ● | all
or substantially all the value of the deposited securities has been distributed either in
cash or in the form of securities; |
| ● | there
are no deposited securities underlying the ADSs or the underlying deposited securities have
become apparently worthless; or |
| ● | there
has been a replacement of deposited securities. |
If
the deposit agreement will terminate, the depositary will notify ADS holders at least 90 days before the termination date. At any time
after the termination date, the depositary may sell the deposited securities. After that, the depositary will hold the money it received
on the sale, as well as any other cash it is holding under the deposit agreement, unsegregated and without liability for interest, for
the pro rata benefit of the ADS holders that have not surrendered their ADSs. Normally, the depositary will sell as soon as practicable
after the termination date.
After
the termination date and before the depositary sells, ADS holders can still surrender their ADSs and receive delivery of deposited securities,
except that the depositary may refuse to accept a surrender for the purpose of withdrawing deposited securities or reverse previously
accepted surrenders of that kind that have not settled if it would interfere with the selling process. The depositary may refuse to accept
a surrender for the purpose of withdrawing sale proceeds until all the deposited securities have been sold. The depositary will continue
to collect distributions on deposited securities, but, after the termination date, the depositary is not required to register any transfer
of ADSs or distribute any dividends or other distributions on deposited securities to the ADSs holder (until they surrender their ADSs)
or give any notices or perform any other duties under the deposit agreement except as described in this paragraph.
Limitations
on Obligations and Liability
Limits
on our Obligations and the Obligations of the Depositary; Limits on Liability to Holders of ADSs
The
deposit agreement expressly limits our obligations and the obligations of the depositary. It also limits our liability and the liability
of the depositary. We and the depositary:
| ● | are
only obligated to take the actions specifically set forth in the deposit agreement without
negligence or bad faith, and the depositary will not be a fiduciary or have any fiduciary
duty to holders of ADSs; |
| ● | are
not liable if we are or it is prevented or delayed by law or by events or circumstances beyond
our or its control from performing our or its obligations under the deposit agreement; |
| ● | are
not liable if we or it exercises discretion permitted under the deposit agreement; |
| ● | are
not liable for the inability of any holder of ADSs to benefit from any distribution on deposited
securities that is not made available to holders of ADSs under the terms of the deposit agreement,
or for any special, consequential or punitive damages for any breach of the terms of the
deposit agreement; |
| ● | have
no obligation to become involved in a lawsuit or other proceeding related to the ADSs or
the deposit agreement on your behalf or on behalf of any other person; |
| ● | may
rely upon any documents we believe or it believes in good faith to be genuine and to have
been signed or presented by the proper person; |
| ● | are
not liable for the acts or omissions of any securities depository, clearing agency or settlement
system; and |
| ● | the
depositary has no duty to make any determination or provide any information as to our tax
status. Neither the depositary nor we have any liability for any tax consequences that may
be incurred by ADS holders as a result of owning or holding ADSs or be liable for the inability
or failure of an ADS holder to obtain the benefit of a foreign tax credit, reduced rate of
withholding or refund of amounts withheld in respect of tax or any other tax benefit. |
In
the deposit agreement, we and the depositary agree to indemnify each other under certain circumstances.
Requirements
for Depositary Actions
Before
the depositary will deliver or register a transfer of ADSs, make a distribution on ADSs, or permit withdrawal of shares, the depositary
may require:
| ● | payment
of stock transfer or other taxes or other governmental charges and transfer or registration
fees charged by third parties for the transfer of any shares or other deposited securities; |
| ● | satisfactory
proof of the identity and genuineness of any signature or other information it deems necessary;
and |
| ● | compliance
with regulations it may establish, from time to time, consistent with the deposit agreement,
including presentation of transfer documents. |
The
depositary may refuse to deliver ADSs or register transfers of ADSs when the transfer books of the depositary or our transfer books are
closed or at any time if the depositary or we think it advisable to do so.
Your
Right to Receive the Shares Underlying Your ADSs
ADS
holders have the right to cancel their ADSs and withdraw the underlying shares at any time except:
| ● | when
temporary delays arise because: (i) the depositary has closed its transfer books or we have
closed our transfer books; (ii) the transfer of shares is blocked to permit voting at a shareholders’
meeting; or (iii) we are paying a dividend on our shares; |
| ● | when
you owe money to pay fees, taxes and similar charges; or |
| ● | when
it is necessary to prohibit withdrawals in order to comply with any laws or governmental
regulations that apply to ADSs or to the withdrawal of shares or other deposited securities. |
This
right of withdrawal may not be limited by any other provision of the deposit agreement.
Direct
Registration System
In
the deposit agreement, all parties to the deposit agreement acknowledge that the Direct Registration System, also referred to as DRS,
and Profile Modification System, also referred to as Profile, will apply to the ADSs. DRS is a system administered by DTC that facilitates
interchange between registered holding of uncertificated ADSs and holding of security entitlements in ADSs through DTC and a DTC participant.
Profile is a feature of DRS that allows a DTC participant, claiming to act on behalf of a registered holder of uncertificated ADSs, to
direct the depositary to register a transfer of those ADSs to DTC or its nominee and to deliver those ADSs to the DTC account of that
DTC participant without receipt by the depositary of prior authorization from the ADS holder to register that transfer.
In
connection with and in accordance with the arrangements and procedures relating to DRS/Profile, the parties to the deposit agreement
understand that the depositary will not determine whether the DTC participant that is claiming to be acting on behalf of an ADS holder
in requesting registration of transfer and delivery as described in the paragraph above has the actual authority to act on behalf of
the ADS holder (notwithstanding any requirements under the Uniform Commercial Code). In the deposit agreement, the parties agree that
the depositary’s reliance on and compliance with instructions received by the depositary through the DRS/Profile system and in
accordance with the deposit agreement will not constitute negligence or bad faith on the part of the depositary.
Shareholder
Communications; Inspection of Register of Holders of ADSs
The
depositary will make available for your inspection at its office all communications that it receives from us as a holder of deposited
securities that we make generally available to holders of deposited securities. The depositary will send you copies of those communications
or otherwise make those communications available to you if we ask it to. You have a right to inspect the register of holders of ADSs,
but only for the purpose of communicating with those holders regarding our business or a matter related to the deposit agreement or the
ADSs.
Jury
Trial Waiver
The
deposit agreement provides that, to the extent permitted by law, ADS holders waive the right to a jury trial of any claim they may have
against us or the depositary arising out of or relating to our shares, the ADSs or the deposit agreement, including any claim under the
U.S. federal securities laws. If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether
the waiver was enforceable in the facts and circumstances of that case in accordance with applicable case law.
You
will not, by agreeing to the terms of the deposit agreement, be deemed to have waived our or the depositary’s compliance with U.S.
federal securities laws or the rules and regulations promulgated thereunder.
DETERMINATION
OF OFFERING PRICE
We
cannot currently determine the price or prices at which the ADSs may be sold by VG under this prospectus supplement.
PLAN
OF DISTRIBUTION
We
have entered into a Securities Purchase Agreement with VG Master Fund SPC under which we may issue and sell our Class A Ordinary Shares
represented by ADSs having an aggregate gross sales price of up to $25,000,000 from time to time at our discretion. Sales of the ADSs,
if any, under this prospectus supplement may be made in sales deemed to be “at the market offerings” as defined in Rule 415
promulgated under the Securities Act.
We
do not have the right to commence any sales of the ADSs to VG under the Purchase Agreement until the Effective Date, which is the date
on which all of the conditions to VG’s purchase obligation set forth in the Purchase Agreement have initially been satisfied, none
of which are in VG’s control, including that this prospectus supplement shall have been filed with the SEC. From and after the
Effective Date, we have the right, but not the obligation, from time to time at our sole discretion until the earlier of, (i) the date
on which VG has cumulatively purchased a number of ADSs equal to $25,000,000 or (ii) July 1, 2025, unless the Purchase Agreement is earlier
terminated, to direct VG to purchase up to a specified maximum amount ADSs in one or more transactions as set forth in the Purchase Agreement,
by timely delivering a written Purchase Notice for each purchase to VG in accordance with the Purchase Agreement, so long as the Purchase
Amount is not less than $30,000 or the closing sale price of the ADSs on the trading day immediately prior to such Purchase Date is not
less than the Floor Price of $0.10, unless waived by VG.
From
and after the Effective Date, we will control the timing and amount of any sales of ADSs to VG. Actual sales of ADSs to VG under the
Purchase Agreement will depend on a variety of factors to be determined by us from time to time, including, among other things, market
conditions, the trading price of the ADSs and determinations by us as to the appropriate sources of funding for our company and its operations.
The
offering of the ADSs representing our Class A Ordinary Shares pursuant to this prospectus will terminate upon the earlier of (i) the
issuance and sale of all shares of the Class A Ordinary Shares represented by ADSs subject to this prospectus supplement, or (ii) the
termination of the Purchase Agreement as permitted therein.
The
ADSs are currently listed on Nasdaq under the symbol “XHG”.
TAXATION
You
should carefully consider the tax consequences of an investment in our Class A Ordinary Shares represented by ADSs. Please refer to the
summary of the material Cayman Islands, PRC and U.S. federal income tax consequences of an investment in the ADSs described under the
heading “Item 9. The Offer and Listing—E. Taxation” in our most recent annual report on Form 20-F for FY 2023 (the
“2023 Annual Report”), which is incorporated herein by reference, as updated by our subsequent filings under the Securities
Exchange Act of 1934, or the Exchange Act. The 2023 Annual Report indicates that there is a significant risk that we will be a PFIC for
our 2024 taxable year and in the foreseeable future. We have not made a determination whether we are expected to be treated as a PFIC
for our 2024 taxable year.
LEGAL
MATTERS
Except
as otherwise set forth in the applicable prospectus supplement, certain legal matters in connection with the securities offered pursuant
to this prospectus will be passed upon for us by ArentFox Schiff LLP (Washington, D.C.), our United States counsel, to the extent governed
by the laws of the State of New York, and by Conyers Dill & Pearman, our special legal counsel as to Cayman Islands law, to the extent
governed by the laws of the Cayman Islands. Legal matters as to PRC law will be passed upon for us by Fieldfisher LLP (Shanghai), our
counsel as to PRC law. If legal matters in connection with offerings made pursuant to this prospectus are passed upon by counsel to underwriters,
dealers or agents, such counsel will be named in the applicable prospectus supplement relating to any such offering.
EXPERTS
The
consolidated financial statements as of September 30, 2023 and 2022 and for the years ended September 30, 2023 and 2022 incorporated
in this prospectus by reference to our annual report on Form 20-F for the year ended September 30, 2023 have been so incorporated in
reliance on the reports of OneStop Assurance PAC, Singapore, and Marcum Asia CPAs LLP, New
York, each an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
WHERE
YOU CAN FIND MORE INFORMATION ABOUT US
We
are currently subject to periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private
issuers. Accordingly, we are required to file with or furnish to the SEC reports, including annual reports on Form 20-F and other information.
All information filed with or furnished to the SEC can be inspected and copied at the public reference facilities maintained by the SEC
at 100 F Street, N.E., Washington, D.C. 20549. You can request copies of these documents upon payment of a duplicating fee, by writing
to the SEC. You can call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms. Additional
information may also be obtained over the Internet at the SEC’s website at www.sec.gov. We also maintain a website at http://ir.qk365.com,
but information contained on our website is not incorporated by reference in this prospectus or any prospectus supplement. You should
not regard any information on our website as a part of this prospectus or any prospectus supplement.
As
a foreign private issuer, we are exempt under the Exchange Act from, among other things, the rules prescribing the furnishing and content
of proxy statements, and our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit
recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file
periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered
under the Exchange Act. However, we intend to furnish the depositary with our annual reports, which will include a review of operations
and annual audited consolidated financial statements prepared in conformity with U.S. GAAP, and all notices of shareholders’ meetings
and other reports and communications that are made generally available to our shareholders. The depositary will make such notices, reports
and communications available to holders of ADSs and, if we so request, will mail to all record holders of ADSs the information contained
in any notice of a shareholders’ meeting received by the depositary from us.
We
have filed with the SEC a registration statement on Form F-3 relating to the securities covered by this prospectus. This prospectus and
any accompanying prospectus supplement are part of the registration statement and do not contain all the information in the registration
statement. You will find additional information about us in the registration statement. Any statement made in this prospectus concerning
a contract or other document of ours is not necessarily complete, and you should read the documents that are filed as exhibits to the
registration statement or otherwise filed with the SEC for a more complete understanding of the document or matter. Each such statement
is qualified in all respects by reference to the document to which it refers. You may inspect a copy of the registration statement at
the SEC’s Public Reference Room in Washington, D.C., as well as through the SEC’s website.
INCORPORATION
OF DOCUMENTS BY REFERENCE
The
SEC allows us to incorporate by reference the information we file with them. This means that we can disclose important information to
you by referring you to those documents. Each document incorporated by reference is current only as of the date of such document, and
the incorporation by reference of such documents should not create any implication that there has been no change in our affairs since
such date. The information incorporated by reference is considered to be a part of this prospectus and should be read with the same care.
When we update the information contained in documents that have been incorporated by reference by making future filings with the SEC,
the information incorporated by reference in this prospectus is considered to be automatically updated and superseded. In other words,
in the case of a conflict or inconsistency between information contained in this prospectus and information incorporated by reference
into this prospectus, you should rely on the information contained in the document that was filed later.
We incorporate
by reference the documents listed below:
| ● | our
annual report on Form 20-F for FY 2023 filed with the SEC on February 9, 2024; |
| ● | our
reports on Form 6-K furnished with the SEC on August 21, 2024, August 15, 2024, July 11, 2024, June 6, 2024, May 24, 2024, May 2, 2024, April 12, 2024, and February 9, 2024 respectively;
and |
| ● | with
respect to each offering of securities under this prospectus, all our subsequent annual reports
on Form 20-F and any report on Form 6-K that indicates that it is being incorporated by reference,
in each case, that we file with the SEC on or after the date of this prospectus and until
the termination or completion of the offering under this prospectus. |
Our
annual report on Form 20-F for FY 2023 contains a description of our business and audited consolidated financial statements with reports
by our independent auditors. These financial statements are prepared in accordance with accounting principles generally accepted in the
United States, or U.S. GAAP.
Unless
expressly incorporated by reference, nothing in this prospectus shall be deemed to incorporate by reference information furnished to,
but not filed with, the SEC. We will provide to you, upon your written or oral request, without charge, a copy of any or all of the documents
we refer to above which we have incorporated in this prospectus by reference, other than exhibits to those documents unless such exhibits
are specifically incorporated by reference in the documents. You should direct your requests to our principal executive office located
at No.801, Building 1, 1136 Xinzha Road, JingAn District, Shanghai, 200041, People’s Republic of China. Our telephone number at
this address is +86-21-6422-8532.
You
should rely only on the information that we incorporate by reference or provide in this prospectus. We have not authorized anyone to
provide you with different information. We will not make any offer of these securities in any jurisdiction where the offer is not permitted.
You should not assume that the information in this prospectus or any prospectus supplement is accurate as of any date other than the
date on the front of those documents.
SEC maintains
an internet site (http://www.sec.gov), which contains reports, proxy and information statements, and other information regarding us that
file electronically with the SEC.
PROSPECTUS
FLJ Group Limited
US$300,000,000
Class A Ordinary Shares
Preferred Shares
Warrants
Units
Debt Securities
We may offer and sell from time to time up to
a total amount of US$300,000,000, consisting of (i) Class A ordinary shares, par value US$0.00001 per share, including in the
form of American depositary shares, or ADSs, each representing one hundred and fifty (150) Class A ordinary shares, (ii) preferred
shares, (iii) warrants to purchase our Class A ordinary shares, (iv) units, and (v) debt securities, or any combination
thereof, in one or more offerings under this prospectus at prices and on terms described in one or more supplements to this prospectus.
We refer to our Class A ordinary shares,
ADSs, preferred shares, warrants, units and debt securities collectively as “securities” in this prospectus.
Each time we sell securities, we will provide
a supplement to this prospectus that contains specific information about the offering and the terms of the securities. The supplement
may also add, update or change information contained in this prospectus. We may also authorize one or more free writing prospectuses to
be provided in connection with a specific offering. You should read this prospectus, any prospectus supplement and any free writing prospectus
carefully before you invest in any of our securities.
We may sell the securities registered hereunder
to or through one or more underwriters, dealers and agents, or directly to purchasers, or through a combination of these methods, on a
continuous or delayed basis. See “Plan of Distribution.” If any underwriters, dealers or agents are involved in the sale of
any of the securities, their names, and any applicable purchase price, fee, commission or discount arrangements between or among them,
will be set forth, or will be calculable from the information set forth, in the applicable prospectus supplement.
Our ADSs are listed on the NASDAQ Global Market
and are traded under the symbol “FLJ.” On September 28, 2022, the closing price of our ADSs on the NASDAQ Global Market was
US$2.20 per ADS.
Investing in our securities involves risks.
You should read the “Risk Factors” section in this prospectus, any applicable prospectus supplement, any related free writing
prospectus and the documents we incorporate by reference in this prospectus before investing in our securities.
This prospectus may not be used to offer or sell
any securities unless accompanied by a prospectus supplement.
FLJ Group Limited (formerly known as Q&K
International Group Limited) is not an operating company but a Cayman Islands holding company with operations conducted by our subsidiaries
in China. Investors in our securities have purchased securities of a holding company incorporated in the Cayman Islands. On October 26,
2021, we transferred all of our equity interest in the Shanghai Qingke Investment Consulting Co., Ltd., or the WFOE, to Wangxiancai Limited,
which is beneficially owned by the legal representative and executive director of one of our subsidiaries, a related party (the “Equity
Transfer”). The WFOE had a series of contractual arrangements with Shanghai Qingke E-commerce Co., Ltd., or the VIE. Through
the VIE and its subsidiaries (the “VIE entities”), we carried out certain rental apartment operation business prior to the
Equity Transfer. As a result of the Equity Transfer, we no longer conduct any operation through a variable interest entity. However, we
did not account for the Equity Transfer as a discontinued operation and the financials of the WFOE and VIE entities were consolidated
into our unaudited interim condensed consolidated financial statements as of and for the six months ended March 31, 2022 as we have
been involved in the settlement of liabilities of the WFOE and still have the control over the allocation of remaining assets in the liquidation
of the VIE entities. The WFOE and VIE entities contributed 30% and 0.4% of our consolidated revenues for the six months ended March 31,
2021 and 2022. As of the date hereof, we have initiated bankruptcy proceedings with respect to major VIE entities. For more detailed discussion
of how cash is transferred between our subsidiaries, WFOE and the VIE entities, see “Our Company—How Cash is Transferred through
Our Organization” in this prospectus. As used in this prospectus, unless the context otherwise requires, “we,” “us,” “our
company” and “our” refer to FLJ Group Limited and its subsidiaries, except in the context of describing
the consolidated financial information, also include the VIE entities.
We are exposed to legal and operational risks
associated with our operations in China. The PRC government has significant authority to exert influence on the ability of a company with
operations in China, including us, to conduct its business. Changes in China’s economic, political or social conditions or government
policies could materially and adversely affect our business and results of operations. We are subject to risks due to the uncertainty
of the interpretation and the application of the PRC laws and regulations, including but not limited to the risks of uncertainty about
any future actions of the PRC government on U.S. listed companies. We may also be subject to sanctions imposed by PRC regulatory agencies,
including CSRC, if we fail to comply with their rules and regulations. Any actions by the PRC government to exert more oversight and control
over offerings that are conducted overseas and/or foreign investment in companies having operations in China, including us, could significantly
limit or completely hinder our ability to offer or continue to offer securities to investors, and cause the value of our securities to
significantly decline or become worthless. These China-related risks could result in a material change in our operations and/or the value
of our securities, or could significantly limit or completely hinder our ability to offer securities to investors in the future and cause
the value of such securities to significantly decline or become worthless. See “Our Company—Recent PRC Regulatory Development”
in this prospectus and “Item 3. Key Information—D. Risk Factors – Risks Related to Doing Business in China” in
our Form 20-F for our fiscal year ended September 30, 2021, or FY 2021, which is incorporated herein by reference.
Our U.S.-based auditor, Marcum Asia CPAs LLP,
is not among the PCAOB-registered public accounting firms headquartered in the PRC or Hong Kong that are subject to PCAOB’s determination
on December 16, 2021 of having been unable to inspect or investigate completely. However, we could still face the risk of delisting
and cessation of trading of our securities from a stock exchange or an over-the-counter market in the United States under the
Holding Foreign Companies Accountable Act and the securities regulations promulgated thereunder if the PCAOB determines in the future
that it is unable to completely inspect or investigate the audit working papers of our auditor which are located in China. On August 26,
2022, the PCAOB signed a Statement of Protocol with the China Securities Regulatory Commission (the “CSRC”) and the Ministry
of Finance of the People’s Republic of China, or the Protocol, taking the first step toward opening access for the PCAOB to inspect
and investigate registered public accounting firms headquartered in China. Furthermore, the PCAOB will need to reassess by the end of
2022 whether China remains jurisdictions where the PCAOB is not able to inspect and investigate completely auditors registered with the
PCAOB. See “Risk Factors—Risks Related to Doing Business in the PRC—If the U.S. Public Company Accounting Oversight
Board, or the PCAOB, is unable to inspect our auditors as required under the Holding Foreign Companies Accountable Act, the SEC will prohibit
the trading of our ADSs. A trading prohibition for our ADSs, or the threat of a trading prohibition, may materially and adversely affect
the value of your investment. Additionally, the inability of the PCAOB to conduct inspections of our auditors would deprive our investors
of the benefits of such inspections” in this prospectus.
Our historical corporate structure is subject
to risks associated with our contractual arrangements with the VIE entities. Our historical contractual arrangements might not be as effective
as direct ownership in providing us with control over the VIE entities and the termination of these agreements may incur additional costs.
If the PRC government deems that our historical contractual arrangements with the VIE entities do not comply with PRC regulatory restrictions
on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change or are
interpreted differently in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.
Our Cayman Islands holding company, our PRC subsidiaries and VIE entities, and investors of our company face uncertainty about potential
future actions by the PRC government that could affect the enforceability of the historical contractual arrangements with the VIE entities
and, consequently, significantly affect the historical financial performance of the VIE entities and our Company as a whole. See “Risk
Factors—Risks Related to Our Corporate Structure—If the PRC government determines that the contractual arrangements with the
VIE entities did not comply with PRC regulations, or if these regulations change or are interpreted differently in the future, our shares
and/or ADSs may decline in value if we are deemed to be unable to assert our contractual control rights over the assets of the VIE entities”
in this prospectus.
Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or completeness of this
prospectus, including any prospectus supplement, free writing prospectus and documents incorporated by reference. Any representation to
the contrary is a criminal offense.
The date of this prospectus is ,
2022.
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS
Before you invest in any of our securities, you
should carefully read this prospectus and any prospectus supplement, together with the additional information described in the sections
entitled “Where You Can Find More Information About Us” and “Incorporation of Documents by Reference” in this
prospectus.
In this prospectus, unless otherwise indicated
or unless the context otherwise requires:
| ● | “ADSs”
refers to our American depositary shares, each of which represents 150 Class A ordinary shares; |
| ● | “apartments
contracted” or “rental units contracted” refer to apartments or rental units that we have leased in from landlords,
as applicable; |
| ● | “available
apartments” or “available rental units” refer to the apartments or rental units in operation, as applicable, which
have been renovated and ventilated and are ready to rent to tenants; |
| ● | “average month-end occupancy
rate” refers to the aggregate number of leased-out rental unit nights of the last day of each month in the relevant period
as a percentage of the aggregate number of available rental unit nights of the last day of each month in the same period; |
| ● | “average
monthly rental after discount for rental prepayment” refers to the total rental received by a rental operator from tenants for
the relevant period the tenants stay in the rental operator’s apartments, net of value-added tax, divided by the number of leased-out rental
unit nights for the same period times 30.5 (which represents the average number of days in a month); for avoidance of doubt, the total
rental does not include any utility fees a rental operator charges tenants for the relevant period; |
| ● | “average
monthly rental before discount for rental prepayment” refers to the total rental received by a rental operator from tenants for
the relevant period the tenants stay in the rental operator’s apartments, net of value-added tax, adding back any discount the
rental operator offers for rental prepayment, divided by the number of leased-out rental unit nights for the same period times
30.5 (which represents the average number of days in a month); for avoidance of doubt, the total rental does not include any utility
fees a rental operator charges tenants for the relevant period; |
| ● | “China”
or the “PRC” refers to the People’s Republic of China; |
| ● | “VIE”
refers to Shanghai Qingke E-commerce Co., Ltd. |
| ● | “VIE
entities” refer to Shanghai Qingke E-commerce Co., Ltd. and its subsidiaries |
| ● | “WFOE”
refers to Shanghai Qingke Investment Consulting Co., Ltd. |
| ● | “leased-out rental
unit nights” refer to the number of nights that the rental units of a rental apartment were leased out for a relevant period; |
| ● | “long-term
apartment rental” refers to apartment rental business in which the rents are normally collected on a monthly or quarterly basis,
and the lease terms are normally over six months; |
| ● | “ordinary
shares” refers to our Class A ordinary shares and Class B ordinary shares, par value US$0.00001 per share; |
| ● | “other
consolidated subsidiaries” refer to our subsidiaries, excluding WFOE and VIE entities. |
| ● | “period-average
occupancy rate” refers to the aggregate number of leased-out rental unit nights as a percentage of the aggregate number
of available rental unit nights during the relevant period; |
| ● | “rental
spread after discount for rental prepayment” refers to the difference between the average monthly rental after discount for rental
prepayment on a lease to a tenant, and the monthly straight-lined rental that the rental operator pays to the landlord for
the same space; |
| ● | “rental
spread before discount for rental prepayment” refers to the difference between the average monthly rental before discount for rental
prepayment on a lease to a tenant, and the monthly straight-lined rental that the rental operator pays to the landlord for
the same space; |
| ● | “rental
spread margin after discount for rental prepayment” refers to the rental spread after discount for rental prepayment as a percentage
of the average monthly rental after discount for rental prepayment on a lease to a tenant on the same space; |
| ● | “rental
spread margin before discount for rental prepayment” refers to the rental spread before discount for rental prepayment as a percentage
of the average monthly rental before discount for rental prepayment on a lease to a tenant on the same space; |
| ● | “rental
unit” refers to each bedroom in a rental apartment; we typically convert a leased-in apartment to add an additional bedroom,
or the N+1 model, and rent each bedroom separately to individual tenants after standardized decoration and furnishing; |
| ● | “RMB”
and “Renminbi” refer to the legal currency of China; |
| ● | “straight-lined
rental” refer to the rental a rental operator pays to a landlord after adjustment to record rent holidays/rent-free period and
rent escalation clauses on a straight-line basis over the term of the lease with the landlord; |
| ● | “tier
1 cities” refer to Beijing, Shanghai, Guangzhou and Shenzhen; |
| ● | “US$,”
“U.S. dollars,” “$,” and “dollars” refer to the legal currency of the United States; and |
| ● | “we,”
“us,” “our company” and “our” refer to FLJ Group Limited (formerly known as Q&K International
Group Limited) and its subsidiaries, except in the context of describing the consolidated financial information, also include the VIE
entities. |
Unless otherwise indicated, the number of our
tenants, average lease term of our tenants, and our other operating data in this prospectus, any accompanying prospectus supplement and
related free writing prospectus, and the documents incorporated by reference herein and therein do not take into account tenants who choose
not to stay in our apartments after the first week of their leases. To encourage prospective tenants to try out our apartments, we have
put in place a policy to allow a new tenant to cancel a lease within three days from the move-in date, and we will return all
rental, deposits and fees penalty free. If a new tenant cancels the lease on the fourth to the seventh day, we will return all unused
rental, deposit and fees penalty free.
Our fiscal year end is September 30. “FY
2019” refers to our fiscal year ended September 30, 2019, “FY 2020” refers to our fiscal year ended September 30,
2020, and “FY 2021” refers to our fiscal year ended September 30, 2021.
This prospectus is part of a registration statement
on Form F-3 that we filed with the United States Securities and Exchange Commission, or SEC, utilizing a shelf registration
process permitted under the Securities Act of 1933, as amended, or the Securities Act. By using a shelf registration statement, we may
sell any of the securities to the extent permitted in this prospectus and the applicable prospectus supplement, from time to time in one
or more offerings on a continuous or delayed basis. Each time we sell securities, we may provide a supplement to this prospectus that
contains specific information about the securities being offered and the terms of that offering. The supplement may also add, update or
change information contained in this prospectus. If there is any inconsistency between the information in this prospectus and any prospectus
supplement, you should rely on the prospectus supplement.
You should rely only on the information contained
or incorporated by reference in this prospectus, any applicable prospectus supplement or any related free writing prospectus that we may
authorize to be delivered to you. We have not authorized any other person to provide you with different information. If anyone provides
you with different or inconsistent information, you should not rely on it. We will not make an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted. You should assume that the information appearing in this prospectus, the applicable supplement
to this prospectus or in any related free writing prospectus is accurate as of its respective date, and that any information incorporated
by reference is accurate only as of the date of the document incorporated by reference, unless we indicate otherwise. Our business, financial
condition, results of operations and prospects may have changed since those dates.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference
the information we file with them. This means that we can disclose important information to you by referring you to those documents. Each
document incorporated by reference is current only as of the date of such document, and the incorporation by reference of such documents
should not create any implication that there has been no change in our affairs since such date. The information incorporated by reference
is considered to be a part of this prospectus and should be read with the same care. When we update the information contained in documents
that have been incorporated by reference by making future filings with the SEC, the information incorporated by reference in this prospectus
is considered to be automatically updated and superseded. In other words, in the case of a conflict or inconsistency between information
contained in this prospectus and information incorporated by reference into this prospectus, you should rely on the information contained
in the document that was filed later.
We incorporate by reference the documents listed
below:
| |
● |
our annual report on Form 20-F for FY 2021 filed with the SEC on February 15, 2022; |
| |
|
|
| |
● |
our reports on Form 6-K furnished with the SEC on August 11, 2022, May 25, 2022, February 28, 2022 and September 14, 2022, respectively; and |
| |
|
|
| |
● |
with respect to each offering of securities under this prospectus, all our subsequent annual reports on Form 20-F and any report on Form 6-K that indicates that it is being incorporated by reference, in each case, that we file with the SEC on or after the date of this prospectus and until the termination or completion of the offering under this prospectus. |
Our annual report on Form 20-F for FY
2021 contains a description of our business and audited consolidated financial statements with reports by our independent auditors. These
financial statements are prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP.
Unless expressly incorporated by reference, nothing
in this prospectus shall be deemed to incorporate by reference information furnished to, but not filed with, the SEC. We will provide
to you, upon your written or oral request, without charge, a copy of any or all of the documents we refer to above which we have incorporated
in this prospectus by reference, other than exhibits to those documents unless such exhibits are specifically incorporated by reference
in the documents. You should direct your requests to our principal executive office located at Suite 1607, Building A, No.596 Middle Longhua
Road, Xuhui District, Shanghai, People’s Republic of China. Our telephone number at this address is +86 21-6422-8532.
You should rely only on the information that we
incorporate by reference or provide in this prospectus. We have not authorized anyone to provide you with different information. We will
not make any offer of these securities in any jurisdiction where the offer is not permitted. You should not assume that the information
in this prospectus or any prospectus supplement is accurate as of any date other than the date on the front of those documents.
SEC maintains an internet site (http://www.sec.gov),
which contains reports, proxy and information statements, and other information regarding us that file electronically with the SEC.
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This prospectus, any accompanying prospectus supplement
and related free writing prospectus, and the information incorporated by reference herein and therein may contain forward-looking statements
that relate to our current expectations and views of future events. Known and unknown risks, uncertainties and other factors may cause
our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.
These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigations Reform Act of 1995.
You can identify some of these forward-looking
statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,”
“estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “potential,”
“continue” or other similar expressions. We have based these forward-looking statements largely on our current expectations
and projections about future events that we believe may affect our financial condition, results of operations, business strategy and financial
needs. These forward-looking statements include, but are not limited to, statements relating to:
| ● | our
mission and strategies; |
| ● | our
ability to continue as a going concern; |
| ● | our
ability to achieve or maintain profitability; |
| ● | general
economic and business condition in China and elsewhere, particularly the long-term apartment rental market and government measures aimed
at China’s real estate industry and apartment rental industry; |
| ● | health
epidemics, pandemics and similar outbreaks, including COVID-19; |
| ● | competition
in the apartment rental industry; |
| ● | our
future business development, financial condition and results of operations; |
| ● | our
expectations regarding demand for and market acceptance of our apartments and services; |
| ● | our
ability to attract and retain tenants and landlords, including tenants and landlords from our acquired lease contracts; |
| ● | our
ability to control the quality of operations, including the operation of our rental apartments managed by our own apartment managers
or by third-party contractors; |
| ● | our
ability to integrate strategic investments, acquisitions and new business initiatives; and |
| ● | our
relationship with financial institution partners and third-party product and service providers. |
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. You should thoroughly read
this prospectus, any accompanying prospectus supplement and the documents that we reference in this prospectus with the understanding
that our actual future results may be materially different from and worse than what we expect. Factors that could cause or contribute
to the differences include, but are not limited to, those discussed in the “Risk Factors” section. Moreover, we operate in
an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict
all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. 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 material and adverse effect on our business and
the market price of our ADSs. In addition, the rapidly changing nature of China’s branded long-term apartment rental 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,
any accompanying prospectus supplement and the documents that we reference in this prospectus relate only to events or information as
of the date on which the statements are made in the respective documents. You should not rely upon forward-looking statements as predictions
of future events. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether
as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence
of unanticipated events.
OUR COMPANY
Overview
We are a leading technology-driven long-term apartment
rental platform in China, offering young, emerging urban residents conveniently-located, ready-to-move-in, and affordable branded
apartments as well as facilitating a variety of value-added services. We are one of the pioneers in providing branded rental apartments
in China. Under our dispersed lease-and-operate model, we lease apartments from landlords and transform these apartments, mostly
from bare-bones condition, into standardized furnished rooms to lease to people seeking affordable residence in cities, following an efficient,
technology-driven business process. Our period-average occupancy rates was 83.8% and 89.9% in FY 2020 and FY 2021, respectively.
Driven by the rapid urbanization, rising housing
prices, millennial mindsets of sharing economy, and supportive government policies, branded long-term rental apartment service is an underpenetrated,
fast-growing industry in China. An increasing number of young people in China move to cities for education or work and seek affordable
long-term rental apartments. Traditionally, tenants rely on rental agencies or deal with individual landlords to rent apartments and have
to contact individual landlords, who at times may not be responsive, for maintenance and repair during the lease. In the meantime, landlords
need to handle apartment maintenance and repair and collect rentals all by themselves. In recent years, branded apartment operators have
emerged to provide a one-stop, more efficient and hassle-free rental experience for tenants as well as landlords. In addition,
central and local governments in China have adopted policies to incentivize and support the growth of the apartment rental sector, including
offering equal access to public services and schools to both renters and homeowners, reducing income tax, and medical insurance and social
security payment ratio for individuals with monthly income below RMB10,000.0 (US$1,472.8) our target customer group.
Branded long-term apartment rental platforms operate
under either a centralized or dispersed model. Under the centralized model, an operator sources and operates a whole building or a few
floors therein through purchasing or leasing from, or cooperating with, property owners. Under the dispersed model, an operator sources
apartments from individual landlords in different locations and manage them centrally, leveraging advanced IT and mobile technologies.
Compared to the centralized model, the dispersed model enjoys certain advantages, including a more abundant and flexible supply of apartments
and less initial capital outlay, and is easier to achieve a nation-wide brand awareness. As a result, the dispersed model is more scalable.
We strategically focus on sourcing apartments
under the dispersed model in relatively inexpensive yet convenient locations, typically near subway stations, to provide our tenants value
for money. We do not own our rental apartments but lease them from our landlords under long-term leases. Our leases with landlords usually
provide for a minimum term of five to six years, or lease-in contract lock-in period, and can be extended for up to
two to three years. During the lease-in contract lock-in period, neither landlords nor us may terminate the lease
without paying a penalty equal to the rentals for the remaining lease-in contract lock-in period. For leases with
landlords entered into in April 2019 or after, if the monthly rentals (after discount for rental prepayment) that we receive from tenants
are lower than our monthly rental to landlords for six consecutive months, we have the right to renegotiate for a lower monthly rental
to landlords or terminate the relevant leases with landlords. We typically convert a leased-in apartment to add additional bedroom,
or the N+1 model, and rent each bedroom separately to individual tenants after standardized decoration and furnishing. The N+1 model further
increases affordability and provides flexibilities and co-rental efficiency for tenants. Each of our rental apartments typically
has three rental units. Our leases with tenants typically have a contracted lease term of 3 to 12 months. FY 2021, the average contracted
lease term of our terminated leases with tenants was 11.4 months. In the same period, tenants of 61.3% of our leases remained in their
rental units through the end of the contracted lease term. If a tenant chooses to terminate the lease during the lock-in period,
except for termination during the first week of the lease, the tenant’s security deposit will be forfeited. After the lock-in period,
the tenant may terminate the lease anytime without penalty. In the FY 2021, tenants on average stayed in our rental units for 8.2 months.
Technology is at the core of our business. We
apply technology in every step of our operational process from apartment sourcing, renovation, and tenant acquisition, to property management.
This enables us to operate a large, dispersed and fast-growing portfolio of apartments with high operational efficiency, delivering superior
user experience. For example, we utilize big data analytics to establish a fair and efficient pricing mechanism. This mechanism also provides
clear guidance to our apartment sourcing staff and ensures certain rental spread can be achieved during the lease term. We have also developed
a technology-driven, innovative project management system to centrally manage our suppliers and contractors for apartment renovation,
cleaning and maintenance, monitor the work process, track the work schedules, and exert quality control. Moreover, our intuitive mobile
applications allow our tenants, landlords, and third-party service providers to execute transactions or provide services in a streamlined
paperless environment. Our focus on technologies has enabled us to operate efficiently and grow rapidly while maintaining quality control.
We cooperate with third parties, including professional
home service providers, e-commerce companies, and other service providers to manage the rental units as well as facilitate a
wide array of value-added services for our tenants, such as broadband internet. In addition, we launched Qingke Select, a membership-based
new retail platform. These initiatives cater to tenants’ lifestyle demand and help them live more conveniently and comfortably.
This, in turn, helps improve our brand loyalty and increase revenue per tenant. Revenue from value-added services and others as a percentage
of our net revenues decreased from 11.7% in FY 2019 to 8.5% in FY 2020, and then increased to 9.4% in FY 2021.
In July 2020, to replenish and expand our rental
units portfolio, one of our subsidiaries entered into agreements with a rental service company and its affiliates to acquire lease contracts
with landlords and tenants and related fixtures, equipment and other assets for approximately 72,000 rental units in various cities across
China at a total consideration of US$130 million, less certain liabilities to be assumed by us. Unlike rental units we directly operate
and manage, these rental units had been renovated at the time we acquired the lease contracts. We have carried out due diligence to verify
the authenticity and the quality of these rental units, including but not limited to site visits, calls with landlords and tenants of
these rental units, and verification of the operating data such as occupancy rate and rental margin of these rental units provided by
the rental service company. We have engaged a third-party contractor to manage these rental units, including but not limited to marketing,
maintenance, tenant screening, communications with landlords and tenants. We take measures to supervise and control the quality of the
contractor’s management, including but not limited to monitoring operating data related to these rental units on a daily basis such
as the number of new leases with tenants and amount of rental income, and reviewing the performance of these rental units each month.
As of the date hereof, these rental units have been fully integrated into our system.
On October 26, 2021, we transferred all of
our equity interest in the WFOE, to Wangxiancai Limited, which is beneficially owned by the legal representative and executive director
of one of our subsidiaries, a related party (the “Equity Transfer”). The WFOE has a series of contractual arrangements with
the VIE. Through the VIE entities, we carried out certain rental apartment operation business prior to the Equity Transfer. As a result
of the Equity Transfer, we no longer conduct any operation through a variable interest entity. However, we did not account for the Equity
Transfer as a discontinued operation and the financials of the WFOE and VIE entities were consolidated into our unaudited interim condensed
consolidated financial statements as of and for the six months ended March 31, 2022 as we have been involved in the settlement of
liabilities of the WFOE and still have the control over the allocation of remaining assets in the liquidation of the VIE entities. The
WFOE and VIE entities contributed 30% and 0.4% of our consolidated revenues for the six months ended March 31, 2021 and 2022. As
of the date hereof, we have initiated bankruptcy proceedings with respect to major VIE entities.
We changed our corporate name from “Q&K
International Group Limited” to “FLJ Group Limited”, effective on September 13, 2022. In addition, our ADSs began trading
under the new ticker symbol “FLJ” on the NASDAQ effective on September 26, 2022.
Holding Foreign Companies Accountable Act
The U.S. Holding Foreign Companies Accountable
Act, or the HFCA Act, was enacted into law on December 18, 2020. Under the HFCA Act, 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,
the SEC will prohibit our securities, including our ADSs, from being traded on a U.S. national securities exchange, including NASDAQ,
or in the over-the-counter trading market in the U.S. The process for implementing trading prohibitions pursuant to the HFCA
Acts will be based on a list of registered public accounting firms that the PCAOB has been unable to inspect and investigate completely
as a result of a position taken by a non-U.S. government, or the Relevant Jurisdiction, and such identified auditors, the PCAOB
Identified Firms. The first list of PCAOB Identified Firms was included in a release by the PCAOB on December 16, 2021, or the PCAOB
December 2021 Release. The SEC will review annual reports filed with it for fiscal years beginning after December 18, 2020 to determine
if the auditor used for such reports was so identified by the PCAOB, and such issuers will be designated as “Commission Identified
Issuers” on a list to be published by the SEC. If an issuer is a Commission Identified Issuer for three consecutive years (which
will be determined after the third such annual report), the SEC will issue an order that will implement the trading prohibitions described
above. On August 26, 2022, the PCAOB signed a Statement of Protocol with the CSRC and the Ministry of Finance of PRC, or the Protocol,
taking the first step toward opening access for the PCAOB to inspect and investigate registered public accounting firms headquartered
in China. Furthermore, the PCAOB will need to reassess by the end of 2022 whether China remains jurisdictions where the PCAOB is not able
to inspect and investigate completely auditors registered with the PCAOB.
If we are unable to retain a PCAOB-registered
auditor subject to PCAOB inspection and investigation, a trading prohibition for our ADSs could be issued shortly after our filing of
the third consecutive annual report on Form 20-F for which we have retained a PCAOB Identified Firm. Our current independent
accounting firm, Marcum Asia CPAs LLP, whose audit report is included in the annual report on Form 20-F for FY 2021, which is
incorporated herein by reference, is headquartered in Manhattan, New York, and was not included in the list of PCAOB Identified Firms
in the PCAOB December Release. Recent developments with respect to audits of China-based companies create uncertainty about the ability
of Marcum Asia CPAs LLP to fully cooperate with a PCAOB request for audit working papers without the approval of the Chinese authorities.
Marcum Asia CPAs LLP’s audit working papers related to us are located in China. The PCAOB has not requested Marcum Asia CPAs LLP
to provide the copies of these audit working papers and as a result, Marcum Asia CPAs LLP has not sought permission from the Chinese authorities
to provide copies of these materials to the PCAOB, but there is no assurance that they would be able to obtain such permission.
In June 2021, the United States Senate passed
a bill that would amend the HFCA Act to accelerate the imposition of trading prohibitions once an issuer is identified from three years
to two years, and a companion bill was introduced in the U.S. House of Representatives on December 14, 2021. If this bill amending
the HFCA Act is approved by both houses of Congress and signed by the President, our securities could be subject to a trading prohibition
following our filing of a second consecutive annual report on Form 20-F in which our auditor for such reports is a PCAOB Identified
Firm.
If our ADSs are subject to a trading prohibition
under the HFCA Act, the price of our ADSs may be adversely affected, and the threat of such a trading prohibition would also adversely
affect their price. If we are unable to be listed on another securities exchange that provides sufficient liquidity, such a trading prohibition
may substantially impair your ability to sell or purchase our ADSs when you wish to do so. Furthermore, if we are able to maintain a listing
of our ordinary shares on a non-U.S. exchange, investors owning our ADSs may have to take additional steps to engage in transactions
on that exchange, including converting ADSs into ordinary shares and establishing non-U.S. brokerage accounts.
The HFCA Act also imposes additional certification
and disclosure requirements for Commission Identified Issuers, and these requirements apply to issuers in the year following their listing
as Commission Identified Issuers. The additional requirements include a certification that the
issuer is not owned or controlled by a governmental entity in the Relevant Jurisdiction, and the additional requirements for annual reports
include disclosure that the issuer’s financials were audited by a firm not subject to PCAOB inspection, disclosure on governmental
entities in the Relevant Jurisdiction’s ownership in and controlling financial interest in the issuer, the names of Chinese Communist
Party, or CCP, members on the board of the issuer or its operating entities, and whether the issuer’s article’s include a
charter of the CCP, including the text of such charter.
In addition to the issues under the HFCA discussed
above, the PCAOB’s inability to conduct inspections in China and Hong Kong prevents it from fully evaluating the audits and quality
control procedures of the independent registered public accounting firm. Our current independent registered public accounting firm, Marcum
Asia CPAs LLP, is headquartered in Manhattan, New York, and has been inspected by the PCAOB on a regular basis with the last inspection
in 2020. However, as noted above, recent developments create uncertainty as to the PCAOB’s continued ability to conduct inspections
of our independent accounting firm, Marcum Asia CPAs LLP. Moreover, our former independent registered public accounting firm, Deloitte
Touche Tohmatsu Certified Public Accountants LLP, which was included as a PCAOB Identified Firm in the PCAOB December 2021 Release, is
not currently inspected fully by the PCAOB. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult
to evaluate the effectiveness of a China-based 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 the stock to lose confidence in the audit procedures and reported financial information and the quality of our financial
statements.
Recent PRC Regulatory Development
We conduct operations through our subsidiaries
in China. These subsidiaries are required to, and have obtained, the business licenses from local authorities for their operations. Other
than the business licenses and relevant registration as a real estate brokerage enterprise, currently we are not required to obtained
permissions from the CSRC, CAC or other entity in China for our operations in China. It is highly uncertain how existing or new laws or
regulations or detailed implementations and interpretations will be modified or promulgated with respect to the approvals we need for
our operations. If we mistakenly conclude that certain approvals are not required, or applicable laws, regulations, or interpretations
change, we may be required to obtain approval in the future. We may not be able to obtain required approvals in a timely and cost-effective
manner, or at all, which may adversely affect our operations, financial condition and reputation. See “Part I —Risks Associated
with Being Based in or Having the Majority of the Operations in China” as set forth in our Form 20-F for FY 2021, which
is incorporated herein by reference for more details.
In December 2021, the CAC promulgated the amended
Measures of Cybersecurity Review which require cyberspace operators with personal information of more than one million users to file for
cybersecurity review with the CRO, in the event such operators plan for an overseas listing. The amended Measures of Cybersecurity Review
provide that, among others, an application for cybersecurity review must be made by an issuer that is a “critical information infrastructure
operator” or a “data processing operator” as defined therein before such issuer’s securities become listed in
a foreign country, if the issuer possesses personal information of more than one million users, and that the relevant governmental authorities
in the PRC may initiate cybersecurity review if such governmental authorities determine an operator’s cyber products or services,
data processing or potential listing in a foreign country affect or may affect China’s national security. The amended Measures of
Cybersecurity Review took effect on February 15, 2022. In August 2021, the Standing Committee of the National People’s Congress
of China promulgated the Personal Information Protection Law which became effective on November 1, 2021. The Personal Information
Protection Law provides a comprehensive set of data privacy and protection requirements that apply to the processing of personal information
and expands data protection compliance obligations to cover the processing of personal information of persons by organizations and individuals
in China, and the processing of personal information of persons outside of China if such processing is for purposes of providing products
and services to, or analyzing and evaluating the behavior of, persons in China.
The Personal Information Protection Law also provides that critical
information infrastructure operators and personal information processing entities who process personal information meeting a volume threshold
to be set by Chinese cyberspace regulators are also required to store in China personal information generated or collected in China, and
to pass a security assessment administered by Chinese cyberspace regulators for any export of such personal information. Moreover, pursuant
to the Personal Information Protection Law, persons who seriously violate this law may be fined for up to RMB50 million or 5% of
annual revenues generated in the prior year and may also be ordered to suspend any related activity by competent authorities.
In November 2021, the CAC released the Regulations
on Network Data Security (draft for public comments) and accepted public comments until December 13, 2021. The draft Regulations
on Network Data Security provide more detailed guidance on how to implement the general legal requirements under laws such as the Cybersecurity
Law, Data Security Law and the Personal Information Protection Law. The draft Regulations on Network Data Security follow the principle
that the state will regulate based on a data classification and multi-level protection scheme, under which data is largely classified
into three categories: general data, important data and core data. Under the current PRC cybersecurity laws in China, critical information
infrastructure operators that intend to purchase internet products and services that may affect national security must be subject to the
cybersecurity review. On July 30, 2021, the State Council of the PRC promulgated the Regulations on the Protection of the Security
of Critical Information Infrastructure, which took effect on September 1, 2021. The regulations require, among others, that certain
competent authorities shall identify critical information infrastructures. If any critical information infrastructure is identified, they
shall promptly notify the relevant operators and the Ministry of Public Security.
Currently, the cybersecurity laws and regulations
have not directly affected our business and operations, but in anticipation of the strengthened implementation of cybersecurity laws and
regulations and the expansion of our business, we face potential risks if we are deemed as a critical information infrastructure operator
under the Cybersecurity Law. In such case, we must fulfill certain obligations as required under the Cybersecurity Law and other applicable
laws, including, among others, storing personal information and important data collected and produced within the PRC territory during
our operations in China, which we are already doing in our business, and we may be subject to review when purchasing internet products
and services. When the amended Measures of Cybersecurity Review take effect in February 2022, we may be subject to review when conducting
data processing activities, and may face challenges in addressing its requirements and make necessary changes to our internal policies
and practices in data processing. As of the date of this prospectus, we have not been involved in any investigations on cybersecurity
review made by the CAC on such basis, and we have not received any inquiry, notice, warning, or sanctions in such respect. Based on the
foregoing, we and our PRC legal counsel, JunHe LLP, do not expect that, as of the date of this prospectus, the current applicable PRC
laws on cybersecurity would have a material adverse impact on our business.
On September 1, 2021, the PRC Data Security
Law became effective, which imposes data security and privacy obligations on entities and individuals conducting data-related activities,
and introduces a data classification and hierarchical protection system based on the importance of data in economic and social development,
as well as the degree of harm it will cause to national security, public interests, or legitimate rights and interests of individuals
or organizations when such data is tampered with, destroyed, leaked, or illegally acquired or used. As of the date of this prospectus,
we have not been involved in any investigations on data security compliance made in connection with the PRC Data Security Law, and we
have not received any inquiry, notice, warning, or sanctions in such respect. Based on the foregoing, we do not expect that, as of the
date of this prospectus, the PRC Data Security Law would have a material adverse impact on our business.
On July 6, 2021, the relevant PRC governmental
authorities publicated the Opinions on Strictly Cracking Down Illegal Securities Activities in Accordance with the Law. These opinions
require the relevant regulators to coordinate and accelerate amendments of legislation on the confidentiality and archive management related
to overseas issuance and listing of securities, and to improve the legislation on data security, cross-border data flow and management
of confidential information. These opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision
on overseas listings by China-based companies and proposed to take effective measures, such as promoting the construction of relevant
regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies. As these opinions were recently
issued, official guidance and related implementation rules have not been issued yet and the interpretation of these opinions remains unclear
at this stage. As of the date of this prospectus, we have not received any inquiry, notice, warning, or sanctions from the CSRC or any
other PRC government authorities. Based on the foregoing and the currently effective PRC laws, we and our PRC legal counsel, JunHe LLP,
are of the view that, as of the date of this prospectus, these opinions do not have a material adverse impact on our business.
On December 24, 2021, the CSRC published
the Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for
Comments), and Administrative Measures for the Filing of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments),
or, collectively, the Draft Overseas Listing Regulations, which set out the new regulatory requirements and filing procedures for Chinese
companies seeking direct or indirect listing in overseas markets. The Draft Overseas Listing Regulations, among others, stipulate that
Chinese companies that seek to offer and list securities in overseas markets shall fulfill the filing procedures with and report relevant
information to the CSRC, and that an initial filing shall be submitted within three working days after the application for an initial
public offering is submitted, and a second filing shall be submitted within three working days after the listing is completed. Moreover,
an overseas offering and listing is prohibited under circumstances if (i) it is prohibited by PRC laws, (ii) it may constitute
a threat to or endanger national security as reviewed and determined by competent PRC authorities, (iii) it has material ownership
disputes over equity, major assets, and core technology, (iv) in recent three years, the Chinese operating entities and their controlling
shareholders and actual controllers have committed relevant prescribed criminal offenses or are currently under investigations for suspicion
of criminal offenses or major violations, (v) the directors, supervisors, or senior executives have been subject to administrative
punishment for severe violations, or are currently under investigations for suspicion of criminal offenses or major violations, or (vi) it
has other circumstances as prescribed by the State Council. The Draft Overseas Listing Regulations, among others, stipulate that when
determining whether an offering and listing shall be deemed as “an indirect overseas offering and listing by a Chinese company”,
the principle of “substance over form” shall be followed, and if the issuer meets the following conditions, its offering and
listing shall be determined as an “indirect overseas offering and listing by a Chinese company” and is therefore subject to
the filing requirement: (i) the revenues, profits, total assets or net assets of the Chinese operating entities in the most recent
financial year accounts for more than 50% of the corresponding data in the issuer’s audited consolidated financial statements for
the same period; and (ii) the majority of senior management in charge of business operation are Chinese citizens or have domicile
in PRC, and its principal place of business is located in PRC or main business activities are conducted in PRC. As advised by our PRC
legal counsel, the Draft Overseas Listing Regulations were released only for soliciting public comment at this stage and their provisions
and anticipated adoption or effective date are subject to changes, and thus their interpretation and implementation remain substantially
uncertain. It is uncertain whether the Draft Overseas Listing Regulations apply to the follow-on offerings or other offerings
of the Chinese companies that have been listed overseas. We cannot predict the impact of the Draft Overseas Listing Regulations on us
at this stage.
On April 2, 2022, the CSRC published the
Provisions on Strengthening the Confidentiality and Archives Administration Related to the Overseas Securities Offering and Listing by
Domestic Enterprises (Draft for Comments), or the Draft Provisions on Confidentiality and Archives Administration, which was open for
public comments until April 17, 2022. The Draft Provisions on Confidentiality and Archives Administration requires that, in the process
of overseas issuance and listing of securities by domestic entities, the domestic entities, and securities companies and securities service
institutions that provide relevant securities service shall strictly implement the provisions of relevant laws and regulations and the
requirements of these provisions, establish and improve rules on confidentiality and archives administration. Where the domestic entities
provide with or publicly disclose documents, materials or other items related to the state secrets and government work secrets to the
relevant securities companies, securities service institutions, overseas regulatory authorities, or other entities or individuals, the companies shall apply for approval of competent
departments with the authority of examination and approval in accordance with law and report the matter to the secrecy administrative
departments at the same level for record filing. Where there is unclear or controversial whether or not the concerned materials are related
to state secrets, the materials shall be reported to the relevant secrecy administrative departments for determination. However, the Draft
Provisions on Confidentiality and Archives Administration have not yet been settled or become effective, and there remain uncertainties
regarding the further interpretation and implementation of the Draft Provisions on Confidentiality and Archives Administration.
Further, the CAC issued the Measures for the Security
Assessment of Outbound Data Transfer (the “Measures”) on July 7, 2022, which will take effect on September 1, 2022. The Measures
shall apply to the security assessment of data processors’ provision of important data and personal information collected and generated
in their operations within the territory of the PRC to overseas recipients. The Measures require relevant data processors to submit a
data security assessment to the CAC for review prior to the outbound data transfer activities in order to prevent illegal data transfer
activities.
As there are still uncertainties regarding these
new laws and regulations as well as the amendment, interpretation and implementation of the existing laws and regulations related to cybersecurity
and data protection, we cannot assure you that we will be able to comply with these laws and regulations in all respects. The regulatory
authorities may deem our activities or services non-compliant and therefore require us to suspend or terminate our business.
We may also be subject to fines, legal or administrative sanctions and other adverse consequences, and may not be able to become in compliance
with relevant laws and regulations in a timely manner, or at all. These may materially and adversely affect our business, financial condition,
results of operations and reputation.
Our Corporate Structure
We are not an operating company but a Cayman Islands
holding company with operations conducted by our subsidiaries in China. Investors in our securities have purchased securities of a holding
company incorporated in the Cayman Islands. On October 26, 2021, we transferred all of our equity interest in the WFOE, to Wangxiancai
Limited, which is beneficially owned by the legal representative and executive director of one of our subsidiaries, a related party, for
nominal consideration (the “Equity Transfer”). The WFOE had a series of contractual arrangements with the VIE. Through the
VIE entities, we carried out certain rental apartment operation business prior to the Equity Transfer. As a result of the Equity Transfer,
we no longer conduct any operation through a variable interest entity. See “Item 4. Information on the Company—A. History
and Development of the Company” in our most recent annual report on Form 20-F for FY 2021, which is incorporated herein
by reference for more details. However, we did not account for the Equity Transfer as a discontinued operation and the financials of the
WFOE and VIE entities were consolidated into our unaudited interim condensed consolidated financial statements as of and for the six months
ended March 31, 2022 as we have been involved in the settlement of liabilities of the WFOE and still have the control over the allocation
of remaining assets in the liquidation of the VIE entities. The WFOE and VIE entities contributed 30% and 0.4% of our consolidated revenues
for the six months ended March 31, 2021 and 2022. As of the date hereof, we have initiated bankruptcy proceedings with respect to
major VIE entities. The chart below sets forth our simplified corporate structure and identifies our principal subsidiaries as of the
date of this prospectus:
| (1) |
Previously known as Qingke (Shanghai) Artificial Intelligence Technology Co., Ltd. |
| (2) |
Chengcai Qu holds the remaining 0.1% of the shares of Chengdu Liwu Apartment Management Co., Ltd. on behalf of Haoju (Shanghai) Artificial Intelligence Technology Co., Ltd. |
Currently we conduct substantially all of our
operations through Chengdu Liwu Apartment Management Co., Ltd. in China.
How Cash is Transferred through Our Organization
The following table presents the cash flows among
FLJ Group Limited (the “Company”), its VIE entities and subsidiaries in FY 2019, FY 2020, FY 2021, and the six months ended
March 31, 2021 and 2022.
| | |
FY 2019 | | |
FY 2020 | | |
FY 2021 | | |
For the six months ended March 31, | |
| | |
| | |
| | |
| | |
2021 | | |
2022 | |
| | |
(RMB in thousands) | |
| The Company transferred to the VIE entities | |
| 53,047 | | |
| 143,314 | | |
| 62,033 | | |
| 62,033 | | |
| — | |
| The Company transferred to the subsidiaries | |
| 447,708 | | |
| 263,983 | | |
| 25,199 | | |
| 10,744 | | |
| 7,201 | |
| The subsidiaries transferred to the VIE entities | |
| 299,774 | | |
| 234,911 | | |
| 48,806 | | |
| 38,785 | | |
| — | |
All cash flows above were for financing purposes.
No transfer of assets other than cash has occurred among the Company, its subsidiaries and the VIE entities. Our subsidiaries and the
VIE entities have not made any dividend or distribution to the Company. The Company has not made any dividend or distribution to any U.S.
investor. The WFOE and the VIE entities, on a consolidated basis, had been loss making and the VIE entities had not intended to pay, and
had never paid, any earnings or amounts, such as service fee to the WFOE under the contractual arrangement as it had been loss making.
See “Item 3. Key information-Condensed Consolidating Schedules” and the consolidated financial statements included elsewhere
in our most recent annual report on Form 20-F for FY 2021, which is incorporated herein by reference for more details.
As a holding company, we rely upon dividends paid
to us by our subsidiaries in the PRC to pay dividends and to finance any debt we may incur. If our subsidiaries or any newly formed subsidiaries
or other consolidated entities incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability
to pay dividends to us. In addition, our subsidiaries and other consolidated entities are permitted to pay dividends to us only out of
their accumulated profits, if any, as determined in accordance with PRC accounting standards and regulations. Pursuant to laws applicable
to entities incorporated in the PRC, each of our subsidiaries and other consolidated entities in the PRC must make appropriations from
after tax profit to a statutory surplus reserve fund. The reserve fund requires annual appropriation of 10% of after tax profit (a determined
under accounting principles generally accepted in the PRC at each year-end) after offsetting accumulated losses from prior years,
until such reserve reaches 50% of the subsidiary’s registered capital. The reserve fund can only be used to increase the registered
capital and eliminate further losses of the respective companies under PRC regulations. These reserves are not distributable as cash dividends,
loans or advances. In addition, due to restrictions under PRC laws and regulations, our PRC subsidiaries and other consolidated entities
are restricted in their ability to transfer their net assets to us in the form of dividend payments, loans or advances. In addition, under
regulations of the State Administration of Foreign Exchange of the PRC (the “SAFE”), Renminbi is not convertible into foreign
currencies for capital account items, such as loans, repatriation of investments and investments outside of China, unless the prior approval
of the SAFE is obtained and prior registration with the SAFE is made.
Impact of Taxation on Dividends
As of the date of this prospectus, our subsidiaries
and the VIE entities have not made any dividends or distributions to our Cayman holding company, nor has our Cayman holding company made
any dividends or distributions to its shareholders.
Subject to the passive foreign investment company
rules, the gross amount of any distribution that we make to investor with respect to the ADSs or ordinary shares (including any amounts
withheld to reflect PRC withholding taxes) will be taxable as a dividend, to the extent paid out of our current or accumulated earnings
and profits, as determined under United States federal income tax principles. If we are considered a PRC tax resident enterprise for tax
purposes, any dividends we pay to our overseas shareholders may be regarded as China-sourced income and as a result may be subject to
PRC withholding tax.
Condensed Consolidated Schedules
The condensed consolidating schedules below include
the financial information of the Company, the WOFE, the VIE entities, and the other consolidated subsidiaries for the year/period indicated.
All intercompany balances and transactions have been eliminated upon consolidation:
| | |
| As
of September 30, 2019 | | |
| As
of September 30, 2020 | | |
| As
of September 30, 2021 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
| The
Company | | |
| The
WFOE | | |
| The
VIE
entities | | |
| Other
Consolidated
Subsidiaries | | |
| Elimina-
tions | | |
| Group
Consoli-
dated | | |
| The
Company | | |
| The
WFOE | | |
| The
VIE
entities | | |
| Other
Consolidated
Subsidiaries | | |
| Elimina-
tions | | |
| Group
Consoli-
dated | | |
| The
Company | | |
| The
WFOE | | |
| The
VIE
entities | | |
| Other
Consolidated
Subsidiaries | | |
| Elimina-
tions | | |
| Group
Consoli-
dated | |
| | |
| (RMB
in thousands) |
| Cash
and cash equivalents | |
| 101,157 | | |
| 477 | | |
| 55,926 | | |
| 2,239 | | |
| — | | |
| 159,799 | | |
| 6,015 | | |
| 372 | | |
| 15,227 | | |
| 1,265 | | |
| — | | |
| 22,879 | | |
| 1,355 | | |
| 7 | | |
| 10,982 | | |
| 3,973 | | |
| — | | |
| 16,317 | |
| Restricted
cash | |
| — | | |
| — | | |
| 91,015 | | |
| — | | |
| — | | |
| 91,015 | | |
| — | | |
| — | | |
| 8,887 | | |
| — | | |
| — | | |
| 8,887 | | |
| — | | |
| — | | |
| 2,893 | | |
| 42 | | |
| — | | |
| 2,935 | |
| Accounts
receivable | |
| — | | |
| — | | |
| 1,306 | | |
| — | | |
| — | | |
| 1,306 | | |
| — | | |
| — | | |
| 1,943 | | |
| — | | |
| — | | |
| 1,943 | | |
| — | | |
| — | | |
| 370 | | |
| — | | |
| — | | |
| 370 | |
| Amounts
due from related parties | |
| — | | |
| — | | |
| 5,587 | | |
| — | | |
| — | | |
| 5,587 | | |
| — | | |
| — | | |
| 168 | | |
| — | | |
| — | | |
| 168 | | |
| — | | |
| — | | |
| — | | |
| 201 | | |
| — | | |
| 201 | |
| Prepaid
rent and deposit | |
| — | | |
| 1,117 | | |
| 127,096 | | |
| — | | |
| — | | |
| 128,213 | | |
| — | | |
| — | | |
| 51,281 | | |
| — | | |
| — | | |
| 51,281 | | |
| — | | |
| — | | |
| 571 | | |
| — | | |
| — | | |
| 571 | |
| Advances
to suppliers | |
| — | | |
| — | | |
| 64,028 | | |
| — | | |
| — | | |
| 64,028 | | |
| — | | |
| — | | |
| 16,043 | | |
| — | | |
| | | |
| 16,043 | | |
| — | | |
| — | | |
| 5,323 | | |
| 7,610 | | |
| | | |
| 12,933 | |
| Other
current assets | |
| 1 | | |
| 242 | | |
| 146,316 | | |
| — | | |
| — | | |
| 146,559 | | |
| — | | |
| — | | |
| 44,400 | | |
| 57,403 | | |
| | | |
| 101,803 | | |
| — | | |
| | | |
| 97,978 | | |
| 45,365 | | |
| | | |
| 143,343 | |
| Property
and equipment, net | |
| — | | |
| 12,439 | | |
| 1,170,446 | | |
| 2,426 | | |
| — | | |
| 1,185,311 | | |
| — | | |
| — | | |
| 358,022 | | |
| — | | |
| — | | |
| 358,022 | | |
| | | |
| — | | |
| 38,940 | | |
| — | | |
| — | | |
| 38,940 | |
| Intangible
assets, net | |
| — | | |
| 8 | | |
| 1,240 | | |
| — | | |
| — | | |
| 1,248 | | |
| — | | |
| — | | |
| 222,123 | | |
| — | | |
| — | | |
| 222,123 | | |
| — | | |
| — | | |
| 539 | | |
| 151,925 | | |
| — | | |
| 152,464 | |
| Land
use rights | |
| — | | |
| — | | |
| 10,734 | | |
| — | | |
| — | | |
| 10,734 | | |
| — | | |
| — | | |
| 10,448 | | |
| — | | |
| — | | |
| 10,448 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Other
assets | |
| — | | |
| 5,946 | | |
| — | | |
| — | | |
| — | | |
| 5,946 | | |
| — | | |
| 109 | | |
| 57,024 | | |
| — | | |
| — | | |
| 57,133 | | |
| — | | |
| — | | |
| 108 | | |
| 9,448 | | |
| — | | |
| 9,556 | |
| Intercompany
receivables | |
| 522,124 | | |
| — | | |
| — | | |
| 192,177 | | |
| (714,301 | ) | |
| — | | |
| 1,385,814 | | |
| — | | |
| — | | |
| — | | |
| (1,385,814 | ) | |
| — | | |
| 1,465,312 | | |
| — | | |
| | | |
| | | |
| (1,465,312 | ) | |
| — | |
| Total
assets | |
| 623,282 | | |
| 20,229 | | |
| 1,673,694 | | |
| 196,842 | | |
| (714,301 | ) | |
| 1,799,746 | | |
| 1,391,829 | | |
| 481 | | |
| 785,566 | | |
| 58,668 | | |
| (1,385,814 | ) | |
| 850,730 | | |
| 1,466,667 | | |
| 7 | | |
| 157,704 | | |
| 218,564 | | |
| (1,465,312 | ) | |
| 377,630 | |
| Accounts
payable | |
| — | | |
| — | | |
| 277,103 | | |
| — | | |
| — | | |
| 277,103 | | |
| — | | |
| — | | |
| 294,469 | | |
| — | | |
| — | | |
| 294,469 | | |
| — | | |
| — | | |
| 281,458 | | |
| 38,811 | | |
| — | | |
| 320,269 | |
| Amounts
due to related parties | |
| — | | |
| — | | |
| 3,121 | | |
| — | | |
| — | | |
| 3,121 | | |
| — | | |
| — | | |
| 6,594 | | |
| — | | |
| — | | |
| 6,594 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Deferred
revenue | |
| — | | |
| — | | |
| 78,540 | | |
| — | | |
| — | | |
| 78,540 | | |
| — | | |
| — | | |
| 152,619 | | |
| — | | |
| — | | |
| 152,619 | | |
| — | | |
| — | | |
| 1,125 | | |
| 194,511 | | |
| — | | |
| 195,636 | |
| Short-term
debt | |
| — | | |
| — | | |
| 319,103 | | |
| — | | |
| — | | |
| 319,103 | | |
| 221,328 | | |
| — | | |
| 540,808 | | |
| — | | |
| — | | |
| 762,136 | | |
| 210,776 | | |
| — | | |
| 256,773 | | |
| 91,156 | | |
| — | | |
| 558,705 | |
| Rental
installment loans | |
| — | | |
| — | | |
| 756,749 | | |
| — | | |
| — | | |
| 756,749 | | |
| — | | |
| — | | |
| 54,505 | | |
| — | | |
| — | | |
| 54,505 | | |
| — | | |
| — | | |
| 33 | | |
| 18,061 | | |
| — | | |
| 18,094 | |
| Deposits
from tenants | |
| — | | |
| — | | |
| 163,203 | | |
| — | | |
| — | | |
| 163,203 | | |
| — | | |
| — | | |
| 82,191 | | |
| — | | |
| — | | |
| 82,191 | | |
| — | | |
| — | | |
| 1,422 | | |
| 64,363 | | |
| — | | |
| 65,785 | |
| Payable
for asset acquisition | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 165,808 | | |
| — | | |
| 165,808 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Accrued
expenses and other current liabilities | |
| — | | |
| 2,205 | | |
| 93,908 | | |
| 3,179 | | |
| — | | |
| 99,292 | | |
| 12,911 | | |
| 2,160 | | |
| 427,109 | | |
| 1,238 | | |
| | | |
| 443,418 | | |
| — | | |
| 1,653 | | |
| 875,572 | | |
| 147,657 | | |
| — | | |
| 1,024,882 | |
| Long-term
debt | |
| — | | |
| — | | |
| 428,345 | | |
| — | | |
| — | | |
| 428,345 | | |
| — | | |
| — | | |
| 464,920 | | |
| — | | |
| — | | |
| 464,920 | | |
| — | | |
| — | | |
| 201,041 | | |
| — | | |
| — | | |
| 201,041 | |
| Convertible
note, net | |
| — | | |
| — | | |
| | | |
| — | | |
| — | | |
| — | | |
| 206,466 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 206,466 | | |
| 313,870 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 313,870 | |
| Long-term
deferred rent | |
| — | | |
| — | | |
| 387,739 | | |
| — | | |
| — | | |
| 387,739 | | |
| — | | |
| — | | |
| 212,054 | | |
| — | | |
| — | | |
| 212,054 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Contingent
earn-out liabilities | |
| 97,417 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 97,417 | | |
| — | | |
| — | | |
| | | |
| — | | |
| — | | |
| — | | |
| 164,254 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 164,254 | |
| Intercompany
payables | |
| — | | |
| 573,439 | | |
| 140,862 | | |
| — | | |
| (714,301 | ) | |
| — | | |
| 2,955,202 | | |
| 536,546 | | |
| 549,666 | | |
| 299,602 | | |
| (4,341,016 | ) | |
| — | | |
| 3,272,273 | | |
| 473,655 | | |
| 642,146 | | |
| 349,511 | | |
| (4,737,585 | ) | |
| — | |
| Deficit
of investments in subsidiaries and consolidated VIE and VIE’s subsidiaries | |
| 1,346,408 | | |
| — | | |
| — | | |
| — | | |
| (1,346,408 | ) | |
| — | | |
| — | | |
| — | | |
| | | |
| — | | |
| — | | |
| — | | |
| — | | |
| | | |
| | | |
| | | |
| — | | |
| — | |
| Total
liabilities | |
| 1,443,825 | | |
| 575,644 | | |
| 2,648,673 | | |
| 3,179 | | |
| (2,060,709 | ) | |
| 2,610,612 | | |
| 3,395,907 | | |
| 538,706 | | |
| 2,784,935 | | |
| 466,648 | | |
| (4,341,016 | ) | |
| 2,845,180 | | |
| 3,961,173 | | |
| 475,308 | | |
| 2,259,570 | | |
| 904,070 | | |
| (4,737,585 | ) | |
| 2,862,536 | |
| Total
,mezzanine equity | |
| 1,425,485 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,425,485 | | |
| — | | |
| — | | |
| | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Total
shareholders’ deficit | |
| (2,246,028 | ) | |
| (555,415 | ) | |
| (974,979 | ) | |
| 193,663 | | |
| 1,346,408 | | |
| (2,236,351 | ) | |
| (2,004,078 | ) | |
| (538,225 | ) | |
| (1,999,369 | ) | |
| (407,980 | ) | |
| 2,955,202 | | |
| (1,994,450 | ) | |
| (2,494,506 | ) | |
| (475,301 | ) | |
| (2,101,866 | ) | |
| (685,506 | ) | |
| 3,272,273 | | |
| (2,484,906 | ) |
| | |
As of March 31, 2022 | |
| | |
The
Company | | |
The
WFOE | | |
The VIE
entities | | |
Other
Consolidated
Subsidiaries | | |
Elimina-
tions | | |
Group
Consoli-
dated | |
| | |
(RMB in thousands) | |
| Cash and cash equivalents | |
| 2,022 | | |
| 7 | | |
| 2,905 | | |
| 3,056 | | |
| — | | |
| 7,990 | |
| Restricted cash | |
| | | |
| — | | |
| 107 | | |
| — | | |
| — | | |
| 107 | |
| Accounts receivable | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Amounts due from related parties | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Prepaid rent and deposit | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Advances to suppliers | |
| | | |
| — | | |
| — | | |
| 6,339 | | |
| — | | |
| 6,339 | |
| Other current assets | |
| — | | |
| — | | |
| 3,413 | | |
| 56,516 | | |
| — | | |
| 59,929 | |
| Property and equipment, net | |
| — | | |
| — | | |
| 38,426 | | |
| — | | |
| — | | |
| 38,426 | |
| Intangible assets, net | |
| — | | |
| — | | |
| 464 | | |
| 22,477 | | |
| — | | |
| 22,941 | |
| Land use rights | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Other assets | |
| — | | |
| — | | |
| — | | |
| 9,462 | | |
| — | | |
| 9,462 | |
| Intercompany receivables | |
| 1,472,547 | | |
| — | | |
| — | | |
| — | | |
| (1,472,547 | ) | |
| — | |
| Total assets | |
| 1,474,569 | | |
| 7 | | |
| 45,315 | | |
| 97,850 | | |
| (1,472,547 | ) | |
| 145,194 | |
| Accounts payable | |
| — | | |
| — | | |
| 279,590 | | |
| 86,631 | | |
| — | | |
| 366,221 | |
| Amounts due to related parties | |
| — | | |
| | | |
| | | |
| | | |
| | | |
| — | |
| Deferred revenue | |
| — | | |
| — | | |
| 348 | | |
| 183,665 | | |
| — | | |
| 184,013 | |
| Short-term debt | |
| 206,317 | | |
| — | | |
| 450,070 | | |
| 91,724 | | |
| — | | |
| 748,111 | |
| Rental installment loans | |
| — | | |
| — | | |
| — | | |
| 14,561 | | |
| — | | |
| 14,561 | |
| Deposits from tenants | |
| — | | |
| — | | |
| — | | |
| 56,170 | | |
| — | | |
| 56,170 | |
| Payable for asset acquisition | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Accrued expenses and other current liabilities | |
| — | | |
| 1,663 | | |
| 814,442 | | |
| 185,105 | | |
| — | | |
| 1,001,210 | |
| Long-term debt | |
| — | | |
| — | | |
| 7,744 | | |
| — | | |
| — | | |
| 7,744 | |
| Convertible note, net | |
| 325,579 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 325,579 | |
| Long-term deferred rent | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Contingent earn-out liabilities | |
| 164,254 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 164,254 | |
| Intercompany payables | |
| 3,510,688 | | |
| 466,069- | | |
| 644,473- | | |
| 362,005 | | |
| (4,983,235 | ) | |
| — | |
| Deficit of investments in subsidiaries and consolidated VIE and VIE’s subsidiaries | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Total liabilities | |
| 4,206,838 | | |
| 467,732 | | |
| 2,196,667 | | |
| 979,861 | | |
| (4,983,235 | ) | |
| 2,867,863 | |
| Total ,mezzanine equity | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Total shareholders’ deficit | |
| (2,732,269 | ) | |
| (467,725 | ) | |
| (2,151,352 | ) | |
| (882,011 | ) | |
| 3,510,688 | | |
| (2,722,669 | ) |
| | |
For the year ended
September 30, 2019 | | |
For the year ended
September 30, 2020 | | |
For the year ended
September 30, 2021 | |
| | |
The
Company | | |
The WFOE | | |
The VIE
entities | | |
Other
Consolidated
Subsidiaries | | |
Elimina-
tions | | |
Group
Consoli-
dated | | |
The
Company | | |
The WFOE | | |
The VIE
entities | | |
Other
Consolidated
Subsidiaries | | |
Elimina-
tions | | |
Group
Consoli-
dated | | |
The
Company | | |
The
WFOE | | |
The VIE
entities | | |
Other
Consolidated
Subsidiaries | | |
Elimina-
tions | | |
Group
Consoli-
dated | |
| | |
(RMB in thousands) | | |
| | |
| |
| Net revenues | |
| — | | |
| — | | |
| 1,233,770 | | |
| — | | |
| — | | |
| 1,233,770 | | |
| — | | |
| — | | |
| 965,093 | | |
| 242,870 | | |
| — | | |
| 1,207,963 | | |
| — | | |
| — | | |
| 173,921 | | |
| 862,285 | | |
| — | | |
| 1,036,206 | |
| Net (loss) income | |
| (498,337 | ) | |
| (345,779 | ) | |
| (177,738 | ) | |
| (3,094 | ) | |
| 526,611 | | |
| (498,337 | ) | |
| (1,533,641 | ) | |
| (46,387 | ) | |
| (1,491,565 | ) | |
| (13,042 | ) | |
| 1,550,994 | | |
| (1,533,641 | ) | |
| (569,202 | ) | |
| (56,746 | ) | |
| (375,470 | ) | |
| (6,458 | ) | |
| 438,674 | | |
| (569,202 | ) |
| Net cash provided by (used in)
operating activities | |
| (20,149 | ) | |
| (143,025 | ) | |
| 393,847 | | |
| 3,249 | | |
| (322,111 | ) | |
| (88,189 | ) | |
| (17,452 | ) | |
| — | | |
| 72,293 | | |
| — | | |
| — | | |
| 54,841 | | |
| (30,664 | ) | |
| 45,804 | | |
| (108,705 | ) | |
| (16,096 | ) | |
| — | | |
| (109,661 | ) |
| Net cash (used in) provided by
investing activities | |
| (460,663 | ) | |
| (98,511 | ) | |
| (713,653 | ) | |
| (338,727 | ) | |
| 1,260,104 | | |
| (351,450 | ) | |
| (407,297 | ) | |
| (246,558 | ) | |
| (99,172 | ) | |
| (27,851 | ) | |
| 642,208 | | |
| (138,670 | ) | |
| (87,232 | ) | |
| (50,060 | ) | |
| — | | |
| (5,232 | ) | |
| 136,038 | | |
| (6,486 | ) |
| Net cash provided by (used in)
financing activities | |
| 530,002 | | |
| 238,600 | | |
| 392,388 | | |
| 346,572 | | |
| (937,993 | ) | |
| 569,569 | | |
| 329,839 | | |
| 246,453 | | |
| (95,948 | ) | |
| 26,940 | | |
| (642,208 | ) | |
| (134,924 | ) | |
| 113,236 | | |
| 3,891 | | |
| 98,466 | | |
| 22,046 | | |
| (136,038 | ) | |
| 101,601 | |
| | |
For the six months ended March 31, 2022 | |
| | |
The Company | | |
The WFOE | | |
The VIE entities | | |
Other Consolidated
Subsidiaries | | |
Eliminations | | |
Group Consolidated | |
| | |
(RMB in thousands) | |
| Net revenues | |
| — | | |
| — | | |
| 1,621 | | |
| 362,593 | | |
| — | | |
| 364,214 | |
| Net (loss) income | |
| (243,224 | ) | |
| 7,576 | | |
| (49,486 | ) | |
| (196,505 | ) | |
| 238,415 | | |
| (243,224 | ) |
| Net cash provided by (used in) operating activities | |
| (17,458 | ) | |
| — | | |
| (10,773 | ) | |
| 686 | | |
| — | | |
| (27,545 | ) |
| Net cash (used in) provided by investing activities | |
| (7,201 | ) | |
| — | | |
| — | | |
| — | | |
| 7,201 | | |
| — | |
| Net cash provided by (used in) financing activities | |
| 17,832 | | |
| — | | |
| — | | |
| 5,901 | | |
| (7,201 | ) | |
| 16,532 | |
The following tables present the amount due from (due to) the WFOE,
the VIE entities, and other consolidated subsidiaries as of the date indicated :
| | |
As of September 30,
2019 | | |
As of September 30,
2020 | | |
As of September 30,
2021 | |
| Amount
due from (due to) WFOE, the VIE entities and other consolidated subsidiaries | |
The
Company | | |
The
WFOE | | |
The VIE
entities | | |
Other
Consolidated
Subsidiaries | | |
The
Company | | |
The
WFOE | | |
The VIE
entities | | |
Other
Consolidated
Subsidiaries | | |
The
Company | | |
The
WFOE | | |
The VIE
entities | | |
Other
Consolidated
Subsidiaries | |
| | |
(RMB in thousands) | |
| Starting Amount | |
| 344,580 | | |
| (381,046 | ) | |
| 37,124 | | |
| (658 | ) | |
| 522,124 | | |
| (573,439 | ) | |
| (140,862 | ) | |
| 192,177 | | |
| 1,385,814 | | |
| (536,546 | ) | |
| (549,666 | ) | |
| (299,602 | ) |
| The Company transferred to
the VIE | |
| 53,047 | | |
| — | | |
| (53,047 | ) | |
| — | | |
| 143,314 | | |
| — | | |
| (143,314 | ) | |
| — | | |
| 62,033 | | |
| — | | |
| (62,033 | ) | |
| — | |
| The Company transferred to
the WFOE | |
| 101,136 | | |
| (101,136 | ) | |
| — | | |
| — | | |
| 246,102 | | |
| (246,102 | ) | |
| — | | |
| — | | |
| 3,891 | | |
| (3,891 | ) | |
| — | | |
| — | |
| The consolidated subsidiaries
transferred to the VIE | |
| — | | |
| — | | |
| (201,263 | ) | |
| 201,263 | | |
| — | | |
| — | | |
| (7,516 | ) | |
| 7,516 | | |
| — | | |
| — | | |
| (37,490 | ) | |
| 37,490 | |
| The WFOE transferred to the
VIE | |
| — | | |
| 98,511 | | |
| (98,511 | ) | |
| — | | |
| — | | |
| 227,395 | | |
| (227,395 | ) | |
| — | | |
| — | | |
| 11,316 | | |
| (11,316 | ) | |
| — | |
| Intercompany transactions | |
| — | | |
| (165,556 | ) | |
| 174,660 | | |
| (9,104 | ) | |
| 478,081 | | |
| 32,062 | | |
| (29,838 | ) | |
| (480,305 | ) | |
| — | | |
| 16,834 | | |
| 9,725 | | |
| (26,559 | ) |
| The Company transferred to
the consolidated subsidiaries | |
| — | | |
| — | | |
| — | | |
| — | | |
| 17,881 | | |
| — | | |
| — | | |
| (17,881 | ) | |
| 21,308 | | |
| — | | |
| — | | |
| (21,308 | ) |
| The consolidated subsidiaries
transferred to the WFOE | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (351 | ) | |
| — | | |
| 351 | | |
| — | | |
| 38,744 | | |
| — | | |
| (38,744 | ) |
| Reclassification | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 32 | | |
| (32 | ) |
| Impact
of foreign exchange rate | |
| 23,361 | | |
| (24,212 | ) | |
| 175 | | |
| 676 | | |
| (21,688 | ) | |
| 23,889 | | |
| (741 | ) | |
| (1,460 | ) | |
| (7,734 | ) | |
| (112 | ) | |
| 8,602 | | |
| (756 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Total | |
| 522,124 | | |
| (573,439 | ) | |
| (140,862 | ) | |
| 192,177 | | |
| 1,385,814 | | |
| (536,546 | ) | |
| (549,666 | ) | |
| (299,602 | ) | |
| 1,465,312 | | |
| (473,655 | ) | |
| (642,146 | ) | |
| (349,511 | ) |
| | |
As of March 31, 2022 | |
| Amount due from (due to) WFOE, the VIE entities and other consolidated subsidiaries | |
The Company | | |
The WFOE | | |
The VIE entities | | |
Other Consolidated
Subsidiaries | |
| | |
(RMB in thousands) | |
| Starting Amount | |
| 1,465,312 | | |
| (473,655 | ) | |
| (642,146 | ) | |
| (349,511 | ) |
| The Company transferred to the VIE | |
| — | | |
| — | | |
| — | | |
| — | |
| The Company transferred to the WFOE | |
| — | | |
| — | | |
| — | | |
| — | |
| The consolidated subsidiaries transferred to the VIE | |
| — | | |
| — | | |
| — | | |
| — | |
| The WFOE transferred to the VIE | |
| — | | |
| — | | |
| — | | |
| — | |
| Intercompany transactions | |
| — | | |
| 7,586 | | |
| (2,327 | ) | |
| (5,259 | ) |
| The Company transferred to the consolidated subsidiaries | |
| 7,201 | | |
| — | | |
| — | | |
| (7,201 | ) |
| The consolidated subsidiaries transferred to the WFOE | |
| — | | |
| — | | |
| — | | |
| — | |
| Reclassification | |
| — | | |
| — | | |
| — | | |
| — | |
| Impact of foreign exchange rate | |
| 34 | | |
| — | | |
| — | | |
| (34 | ) |
| Total | |
| 1,472,547 | | |
| (466,069 | ) | |
| (644,473 | ) | |
| (362,005 | ) |
Summary of Risk Factors
An investment in our ADSs involves significant
risks. You should carefully consider all of the information in this prospectus, including the risks and uncertainties described below,
before making an investment in our ADSs. Any of the following risks could have a material adverse effect on our business, financial condition
and results of operations. In any such case, the market price of our ADSs could decline, and you may lose all or part of your investment.
Below please find a summary of the principal risks we and the VIE entities face, organized under relevant headings. For detailed discussions,
see “Risk Factors” in this prospectus and “Item 3. Key Information—D. Risk Factors” in our Form 20-F for
FY 2021, which is incorporated by reference in this prospectus.
Risks Related to Our Business and Industry
We and the VIE entities are subject to risks and
uncertainties related to our business and industry, including, but not limited to, the following:
| ● | We
have a limited operating history in an emerging and rapidly evolving market, which makes it difficult to evaluate our future prospects
and results of operations and may increase the risk that we will not be successful. In addition, our historical growth and financial
condition may not be indicative of our future growth, profitability, and financial condition. |
| ● | The
report of our independent registered public accounting firm on our consolidated financial statements includes an explanatory paragraph
questioning our ability to continue as a going concern. We recorded net losses in the past and may not be able to continue as a going
concern or achieve or maintain profitability in the future. |
| ● | Our
business requires significant capital expenditure for sourcing, renovation and maintenance of rental apartments. Inability to access
financing on favorable terms in a timely manner or at all would materially and adversely affect our business, results of operations,
financial condition and growth prospects. |
| ● | We
depend on third parties for different aspects of our business and the services that we offer. Our business, results of operation, financial
condition and reputation may be materially and adversely affected if the third parties do not continue to maintain or expand their relationship
with us, or fail to provide services or products according to the terms of our contracts or otherwise below standard, or by the third
parties operational failure. |
| ● | The COVID-19 outbreak
has adversely affected, and may continue to adversely affect, our business, results of operations and financial condition. We also face
risks related to other health epidemics, natural disasters, civil and social disruptions and other outbreaks and catastrophes, which
could materially and adversely affect our results of operations and financial condition. |
| ● | Tenants
may terminate their leases during lease terms, exposing us to the risk of re-leasing our rental apartments, which we may be
unable to do on a timely basis, on favorable terms or at all. |
| ● | We
have relied on our tenants’ rental prepayments to finance our growth. To the extent a lease agreement is terminated during the
rental period covered by the prepayment, we need to return the unused prepaid rentals. If a significant number of the lease agreements
are terminated early, our liquidity and financial condition may be materially and adversely affected. |
| ● | We
rely on our cooperation with a limited number of financial institutions. |
| ● | Capital
and credit market conditions may adversely affect our access to capital and/or the cost of capital, which could impact our future prospects,
results of operations and growth prospects. |
| ● | Our
business is susceptible to China’s macro-economic conditions, particularly the long-term apartment rental market and government
measures aimed at China’s real estate industry and apartment rental industry. |
For a detailed discussion of the foregoing risks,
see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry” beginning on page 12
of our Form 20-F for FY 2021, which is incorporated herein by reference.
Risks Related to Our Corporate Structure
We and the VIE entities face risks and uncertainties
related to the former corporate structure, including, but not limited to, the following:
| ● | If
the PRC government determines that the contractual arrangements with the VIE entities did not comply with PRC regulations, or if these
regulations change or are interpreted differently in the future, our shares and/or ADSs may decline in value if we are deemed to be unable
to assert our contractual control rights over the assets of the VIE entities. For more details, see “Risk Factors—Risks Related
to Our Corporate Structure—If the PRC government determines that the contractual arrangements with the VIE entities did not comply
with PRC regulations, or if these regulations change or are interpreted differently in the future, our shares and/or ADSs may decline
in value if we are deemed to be unable to assert our contractual control rights over the assets of the VIE entities” beginning
on page 15 of this prospectus. |
Risks Related to Doing Business in the PRC
We are not an operating company but a Cayman Islands
holding company with operations conducted by our subsidiaries in China. Investors in our securities have purchased securities of a holding
company incorporated in the Cayman Islands. 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 have a material adverse effect on our business
and results of operations. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business
in China—Changes in China’s economic, political or social conditions or government policies could have a material adverse
effect on our business and results of operations” beginning on page 43 of our Form 20-F for FY 2021, which is incorporated herein
by reference. |
| ● | The
PRC government may exert, at any time, substantial intervention and influence over the manner of our operations, and the rules and regulations
to which we are subject, including the ways they are enforced, may change rapidly and with little advance notice to us or our shareholders.
Any such actions by the Chinese government, including any decision to intervene or influence the operations of our subsidiaries in China
or to exert control over any offering of securities conducted overseas and/or foreign investment in China-based issuers, may cause us
to make material changes to our operations in China, may limit or completely hinder our ability to offer or continue to offer securities
to investors, and may cause the value of such securities to significantly decline or be worthless. For more details, see “Risk
Factors—Risks Related to Doing Business in the PRC—The PRC government may exert, at any time, substantial intervention and
influence over the manner of our operations, and the rules and regulations to which we are subject, including the ways they are enforced,
may change rapidly and with little advance notice to us or our shareholders. Any such actions by the Chinese government, including any
decision to intervene or influence the operations of our subsidiaries in China or to exert control over any offering of securities conducted
overseas and/or foreign investment in China-based issuers, may cause us to make material changes to our operations in China, may limit
or completely hinder our ability to offer or continue to offer securities to investors, and may cause the value of such securities to
significantly decline or be worthless” beginning on page 16 of this prospectus. |
| ● | Uncertainties
in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to us. For more details,
see “Risk Factors—Risks Related to Doing Business in the PRC—Uncertainties in the interpretation and enforcement of
PRC laws and regulations could limit the legal protections available to us” beginning on page 20 of this prospectus. |
| ● | Substantial
uncertainties exist with respect to the interpretation and implementation of the PRC Foreign Investment Law and how it may impact the
viability of our current corporate structure, corporate governance and business operations. For more details, see “Item 3. Key
Information—D. Risk Factors—Risks Related to Doing Business in China—Substantial uncertainties exist with respect to
the interpretation and implementation of the PRC Foreign Investment Law and how it may impact the viability of our current corporate
structure, corporate governance and business operations” beginning on page 43 of our Form 20-F for FY 2021, which is incorporated
herein by reference. |
| ● | We
may be adversely affected by the complexity, uncertainties and changes in PRC regulation of internet-related businesses and companies,
and any lack of requisite approvals, licenses or permits applicable to our business may have a material adverse effect on our business
and results of operations. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business
in China—We may be adversely affected by the complexity, uncertainties and changes in PRC regulation of internet-related businesses
and companies, and any lack of requisite approvals, licenses or permits applicable to our business may have a material adverse effect
on our business and results of operations” beginning on page 44 of our Form 20-F for FY 2021, which is incorporated herein by reference. |
| ● | PRC
regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion
may delay or prevent us from using the proceeds we receive from our offshore financing activities to make loans to or make additional
capital contributions to our PRC subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and
expand our business. For more details, see “Item 3. Key Information—D. Risk Factors— Risks Related to Doing Business
in China—PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control
of currency conversion may delay or prevent us from using the proceeds we receive from our offshore financing activities to@ make loans
to or make additional capital contributions to our PRC subsidiary, which could materially and adversely affect our liquidity and our
ability to fund and expand our business” beginning on page 45 of our Form 20-F for FY 2021, which is incorporated herein by reference. |
| ● | If
the U.S. Public Company Accounting Oversight Board, or the PCAOB, is unable to inspect our auditors as required under the Holding Foreign
Companies Accountable Act, the SEC will prohibit the trading of our ADSs. A trading prohibition for our ADSs, or the threat of a trading
prohibition, may materially and adversely affect the value of your investment. Additionally, the inability of the PCAOB to conduct inspections
of our auditors would deprive our investors of the benefits of such inspections. For more details, see “Risk Factors—Risks
Related to Doing Business in the PRC—If the U.S. Public Company Accounting Oversight Board, or the PCAOB, is unable to inspect
our auditors as required under the Holding Foreign Companies Accountable Act, the SEC will prohibit the trading of our ADSs. A trading
prohibition for our ADSs, or the threat of a trading prohibition, may materially and adversely affect the value of your investment. Additionally,
the inability of the PCAOB to conduct inspections of our auditors would deprive our investors of the benefits of such inspections”
beginning on page 20 of this prospectus. |
RISK FACTORS
Investing in our securities involves risk. You
should carefully consider the risk factors and uncertainties described under the heading “Item 3. Key Information—D. Risk
Factors” in our most recent annual report on Form 20-F for FY 2021, which is incorporated herein by reference, as updated
by our subsequent filings under the Securities Exchange Act of 1934, or the Exchange Act, and any risk factors and other information described
in the applicable prospectus supplement before acquiring any of our securities. These risks and uncertainties could materially affect
our business, results of operations or financial condition and cause the value of our securities to decline.
Risks Related to Our Corporate Structure
If the PRC government determines that the contractual arrangements
with the VIE entities did not comply with PRC regulations, or if these regulations change or are interpreted differently in the future,
our shares and/or ADSs may decline in value if we are deemed to be unable to assert our contractual control rights over the assets of
the VIE entities.
The Regulations for the Administration of Foreign-Invested
Telecommunications Enterprises, promulgated by the State Council on December 11, 2001 and last amended with immediate effect on February 6,
2016, requires foreign-invested value-added telecommunications enterprises in the PRC to be established as Sino-foreign joint ventures,
and foreign investors shall not acquire more than 50% of the equity interest of such an enterprise. In addition, the main foreign investor
who invests in such an enterprise shall demonstrate a good track record and experience in such industry. Moreover, the joint ventures
must obtain approvals from the MIIT and the Ministry of Commerce of the PRC (“MOFCOM”), or their authorized local counterparts,
before launching the value-added telecommunications business in the PRC. On March 29, 2022, the Decision of the State Council on
Revising and Repealing Certain Administrative Regulations, which took effect on May 1, 2022, was promulgated to amend certain provisions
of regulations including the Provisions on the Regulations for the Administration of Foreign-Invested Telecommunications Enterprises (2016
Revision), the requirement for major foreign investor to demonstrate a good track record and experience in operating value-added telecommunications
businesses is deleted.
The Special Administrative Measures (Negative
List) for Access of Foreign Investment (2021 version) (the “Negative List”) was jointly promulgated by the National Development
and Reform Commission of the PRC (“NDRC”) and MOFCOM on December 27, 2021 and came into effect on January 1, 2022.
According to the Negative List, the proportion of foreign investments in an entity engages in value-added telecommunications business
(except for e-commerce, domestic multi-party communications, storage-forwarding and call centers) shall not exceed 50%.
Accordingly, none of our subsidiaries is eligible
to provide commercial internet content or other value-added telecommunication service, which foreign-owned companies are or restricted
from conducting in Mainland China. To comply with PRC laws and regulations, we have conducted such business activities to offer internet
access services through the VIEs in China. WFOE has entered into contractual arrangements with the VIE entities and their respective shareholders,
and such contractual arrangements enable us to exercise effective control over, receive substantially all of the economic benefits of,
and have an exclusive option to purchase all or part of the equity interest and assets in the VIE entities when and to the extent permitted
by PRC law. Because of these contractual arrangements, we are the primary beneficiary of the VIE entities in China for accounting purposes
for the effective period of these contractual arrangements. Accordingly, under U.S. GAAP, the financial statements of the VIE entities
are consolidated as part of our financial statements for the years ended September 31, 2019, 2020 and 2021 in this prospectus.
As we continued to evaluate our business plan,
we have decided to adjust our business model in China. On October 26, 2021, we transferred all of our equity interest in the WFOE,
to Wangxiancai Limited, which is beneficially owned by the legal representative and executive director
of one of our subsidiaries, a related party (the “Equity Transfer”). As a result of the Equity Transfer, we no longer conduct
any operation through the variable interest entity. See “Item 4. Information on the Company—A. History and Development of
the Company” in our Form 20-F for FY 2021, which is incorporated herein by reference.
Although we no longer conduct any operation through
the variable interest entity, there are uncertainties regarding the interpretation and application of current and future PRC laws, regulations,
and rules relating to the agreements that established the VIE structure for our operations in China, including potential future actions
by the PRC government, which may retroactively affect the enforceability and legality of our historical contractual arrangements with
the VIE entities and, consequently, significantly affect the historical financial condition and results of operations of the VIE entities,
and our ability to consolidate the results of the VIE entities into our consolidated financial statements for the periods prior to the
completion of the Equity Transfer. If the PRC government finds such agreements non-compliant with relevant PRC laws, regulations,
and rules, or if these laws, regulations, and rules or the interpretation thereof change in the future, and such changes may be retroactively
applied to our historical contractual arrangements, we could be subject to severe penalties and our control over the VIE entities may
be rendered ineffective, which could result in potential restatement of our historical financial statements. As a result, our shares and/or
ADSs may decline in value or become worthless.
Risks Related to Doing Business in the PRC
The PRC government may exert, at any time, substantial intervention
and influence over the manner of our operations, and the rules and regulations to which we are subject, including the ways they are enforced,
may change rapidly and with little advance notice to us or our shareholders. Any such actions by the Chinese government, including any
decision to intervene or influence the operations of our subsidiaries in China or to exert control over any offering of securities conducted
overseas and/or foreign investment in China-based issuers, may cause us to make material changes to our operations in China, may limit
or completely hinder our ability to offer or continue to offer securities to investors, and may cause the value of such securities to
significantly decline or be worthless.
We are exposed to legal and operational risks
associated with our operations in China. The PRC government has significant authority to exert influence on the ability of a company with
operations in China, including us, to conduct its business. Changes in China’s economic, political or social conditions or government
policies could materially and adversely affect our business and results of operations. We are subject to risks due to the uncertainty
of the interpretation and the application of the PRC laws and regulations, including but not limited to the risks of uncertainty about
any future actions of the PRC government on U.S. listed companies. We may also be subject to sanctions imposed by PRC regulatory agencies,
including CSRC, if we fail to comply with their rules and regulations. Any actions by the PRC government to exert more oversight and control
over offerings that are conducted overseas and/or foreign investment in companies having operations in China, including us, could significantly
limit or completely hinder our ability to offer or continue to offer securities to investors, and cause the value of our securities to
significantly decline or become worthless. These China-related risks could result in a material change in our operations and/or the value
of our securities, or could significantly limit or completely hinder our ability to offer securities to investors in the future and cause
the value of such securities to significantly decline or become worthless.
The PRC government may exert, at any time, substantial
intervention and influence over the manner of our operations. Recently, the PRC government initiated a series of regulatory actions and
statements to regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities
market, enhancing supervision over China-based companies listed overseas, adopting new measures to extend the scope of cybersecurity reviews
and new laws and regulations related to data security, and expanding the efforts in anti-monopoly enforcement.
The regulatory framework for the collection, use,
safeguarding, sharing, transfer and other processing of personal information and important data worldwide is rapidly evolving in PRC and
is likely to remain uncertain for the foreseeable future. Regulatory authorities in China have implemented and are considering a number
of legislative and regulatory proposals concerning data protection. For example, the PRC Cybersecurity Law, which became effective in
June 2017, established China’s first national-level data protection for “network operators,” which may include all organizations
in China that connect to or provide services over the internet or other information network. The PRC Data Security Law, which was promulgated
by the Standing Committee of PRC National People’s Congress, or the SCNPC, on June 10, 2021 and became effective on September 1,
2021, outlines the main system framework of data security protection.
In December 2021, the Cyberspace Administration
of China (the “CAC”) promulgated the amended Measures of Cybersecurity Review which require cyberspace operators with personal
information of more than one million users to file for cybersecurity review with the Cybersecurity Review Office (“CRO”),
in the event such operators plan for an overseas listing. The amended Measures of Cybersecurity Review provide that, among others, an
application for cybersecurity review must be made by an issuer that is a “critical information infrastructure operator” or
a “data processing operator” as defined therein before such issuer’s securities become listed in a foreign country,
if the issuer possesses personal information of more than one million users, and that the relevant governmental authorities in the PRC
may initiate cybersecurity review if such governmental authorities determine an operator’s cyber products or services, data processing
or potential listing in a foreign country affect or may affect China’s national security. The amended Measures of Cybersecurity
Review took effect on February 15, 2022. In August 2021, the Standing Committee of the National People’s Congress of China
promulgated the Personal Information Protection Law which became effective on November 1, 2021. The Personal Information Protection
Law provides a comprehensive set of data privacy and protection requirements that apply to the processing of personal information and
expands data protection compliance obligations to cover the processing of personal information of persons by organizations and individuals
in China, and the processing of personal information of persons outside of China if such processing is for purposes of providing products
and services to, or analyzing and evaluating the behavior of, persons in China. The Personal Information Protection Law also provides
that critical information infrastructure operators and personal information processing entities who process personal information meeting
a volume threshold to be set by Chinese cyberspace regulators are also required to store in China the personal information generated or
collected in China, and to pass a security assessment administered by Chinese cyberspace regulators for any export of such personal information.
Moreover, pursuant to the Personal Information Protection Law, persons who seriously violate this law may be fined for up to RMB50 million
or 5% of annual revenues generated in the prior year and may also be ordered to suspend any related activity by competent authorities.
In November 2021, the CAC released the Regulations
on Network Data Security (draft for public comments) and accepted public comments until December 13, 2021. The draft Regulations
on Network Data Security provide more detailed guidance on how to implement the general legal requirements under laws such as the Cybersecurity
Law, Data Security Law and the Personal Information Protection Law. The draft Regulations on Network Data Security follow the principle
that the state will regulate based on a data classification and multi-level protection scheme, under which data is largely classified
into three categories: general data, important data and core data. Under the current PRC cybersecurity laws in China, critical information
infrastructure operators that intend to purchase internet products and services that may affect national security must be subject to the
cybersecurity review. On July 30, 2021, the State Council of the PRC promulgated the Regulations on the Protection of the Security
of Critical Information Infrastructure, which took effect on September 1, 2021. The regulations require, among others, that certain
competent authorities shall identify critical information infrastructures. If any critical information infrastructure is identified, they
shall promptly notify the relevant operators and the Ministry of Public Security.
Currently, the cybersecurity laws and
regulations have not directly affected our business and operations, but in anticipation of the strengthened implementation of
cybersecurity laws and regulations and the expansion of our business, we face potential risks if we are deemed as a critical
information infrastructure operator under the Cybersecurity Law. In such case, we must fulfill certain obligations as required under
the Cybersecurity Law and other applicable laws, including, among others, storing personal information and important data collected
and produced within the PRC territory during our operations in China, which we are already doing in our business, and we may be
subject to review when purchasing internet products and services. When the amended Measures of Cybersecurity Review take effect in
February 2022, we may be subject to review when conducting data processing activities, and may face challenges in addressing its
requirements and make necessary changes to our internal policies and practices in data processing. As of the date of this
prospectus, we have not been involved in any investigations on cybersecurity review made by the CAC on such basis, and we have not
received any inquiry, notice, warning, or sanctions in such respect. Based on the foregoing, we and our PRC legal counsel, JunHe
LLP, do not expect that, as of the date of this prospectus, the current applicable PRC laws on cybersecurity would have a material
adverse impact on our business.
On September 1, 2021, the PRC Data Security
Law became effective, which imposes data security and privacy obligations on entities and individuals conducting data-related activities,
and introduces a data classification and hierarchical protection system based on the importance of data in economic and social development,
as well as the degree of harm it will cause to national security, public interests, or legitimate rights and interests of individuals
or organizations when such data is tampered with, destroyed, leaked, or illegally acquired or used. As of the date of this prospectus,
we have not been involved in any investigations on data security compliance made in connection with the PRC Data Security Law, and we
have not received any inquiry, notice, warning, or sanctions in such respect. Based on the foregoing, we do not expect that, as of the
date of this prospectus, the PRC Data Security Law would have a material adverse impact on our business.
On July 6, 2021, the relevant PRC governmental
authorities publicated the Opinions on Strictly Cracking Down Illegal Securities Activities in Accordance with the Law. These opinions
require the relevant regulators to coordinate and accelerate amendments of legislation on the confidentiality and archive management related
to overseas issuance and listing of securities, and to improve the legislation on data security, cross-border data flow and management
of confidential information. These opinions emphasized the need to strengthen the administration over illegal securities activities and
the supervision on overseas listings by China-based companies and proposed to take effective measures, such as promoting the construction
of relevant regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies. As these opinions
were recently issued, official guidance and related implementation rules have not been issued yet and the interpretation of these opinions
remains unclear at this stage. As of the date of this prospectus, we have not received any inquiry, notice, warning, or sanctions from
the CSRC or any other PRC government authorities. Based on the foregoing and the currently effective PRC laws, we and our PRC legal counsel,
JunHe LLP, are of the view that, as of the date of this prospectus, these opinions do not have a material adverse impact on our business.
On December 24, 2021, the CSRC
published the Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic
Companies (Draft for Comments), and Administrative Measures for the Filing of Overseas Securities Offering and Listing by Domestic
Companies (Draft for Comments), or, collectively, the Draft Overseas Listing Regulations, which set out the new regulatory
requirements and filing procedures for Chinese companies seeking direct or indirect listing in overseas markets. The Draft Overseas
Listing Regulations, among others, stipulate that Chinese companies that seek to offer and list securities in overseas markets shall
fulfill the filing procedures with and report relevant information to the CSRC, and that an initial filing shall be submitted within
three working days after the application for an initial public offering is submitted, and a second filing shall be submitted within
three working days after the listing is completed. Moreover, an overseas offering and listing is prohibited under circumstances if
(i) it is prohibited by PRC laws, (ii) it may constitute a threat to or endanger national security as reviewed and
determined by competent PRC authorities, (iii) it has material ownership disputes over equity, major assets, and core
technology, (iv) in recent three years, the Chinese operating entities and their controlling shareholders and actual
controllers have committed relevant prescribed criminal offenses or are currently under investigations for suspicion of criminal
offenses or major violations, (v) the directors, supervisors, or senior executives have been subject to administrative
punishment for severe violations, or are currently under investigations for suspicion of criminal offenses or major violations, or
(vi) it has other circumstances as prescribed by the State Council. The Draft Overseas Listing Regulations, among others,
stipulate that when determining whether an offering and listing shall be deemed as “an indirect overseas offering and listing
by a Chinese company”, the principle of “substance over form” shall be followed, and if the issuer meets the
following conditions, its offering and listing shall be determined as an “indirect overseas offering and listing by a Chinese
company” and is therefore subject to the filing requirement: (i) the revenues, profits, total assets or net assets of the
Chinese operating entities in the most recent financial year accounts for more than 50% of the corresponding data in the
issuer’s audited consolidated financial statements for the same period; and (ii) the majority of senior management in
charge of business operation are Chinese citizens or have domicile in PRC, and its principal place of business is located in PRC or
main business activities are conducted in PRC. As advised by our PRC legal counsel, the Draft Overseas Listing Regulations were
released only for soliciting public comment at this stage and their provisions and anticipated adoption or effective date are
subject to changes, and thus their interpretation and implementation remain substantially uncertain. It is uncertain whether the
Draft Overseas Listing Regulations apply to the follow-on offerings or other offerings of the Chinese companies that have
been listed overseas. We cannot predict the impact of the Draft Overseas Listing Regulations on us at this stage.
On April 2, 2022, the CSRC published the
Provisions on Strengthening the Confidentiality and Archives Administration Related to the Overseas Securities Offering and Listing by
Domestic Enterprises (Draft for Comments), or the Draft Provisions on Confidentiality and Archives Administration, which was open for
public comments until April 17, 2022. The Draft Provisions on Confidentiality and Archives Administration requires that, in the process
of overseas issuance and listing of securities by domestic entities, the domestic entities, and securities companies and securities service
institutions that provide relevant securities service shall strictly implement the provisions of relevant laws and regulations and the
requirements of these provisions, establish and improve rules on confidentiality and archives administration. Where the domestic entities
provide with or publicly disclose documents, materials or other items related to the state secrets and government work secrets to the
relevant securities companies, securities service institutions, overseas regulatory authorities, or other entities or individuals, the
companies shall apply for approval of competent departments with the authority of examination and approval in accordance with law and
report the matter to the secrecy administrative departments at the same level for record filing. Where there is unclear or controversial
whether or not the concerned materials are related to state secrets, the materials shall be reported to the relevant secrecy administrative
departments for determination. However, the Draft Provisions on Confidentiality and Archives Administration have not yet been settled
or become effective, and there remain uncertainties regarding the further interpretation and implementation of the Draft Provisions on
Confidentiality and Archives Administration.
Further, the CAC issued the Measures for the Security
Assessment of Outbound Data Transfer (the “Measures”) on July 7, 2022, which will take effect on September 1, 2022. The Measures
shall apply to the security assessment of data processors’ provision of important data and personal information collected and generated
in their operations within the territory of the PRC to overseas recipients. The Measures require relevant data processors to submit a
data security assessment to the CAC for review prior to the outbound data transfer activities in order to prevent illegal data transfer
activities.
As there are still uncertainties regarding these
new laws and regulations as well as the amendment, interpretation and implementation of the existing laws and regulations related to cybersecurity
and data protection, We cannot assure you that we will be able to comply with these laws and regulations in all respects. The regulatory
authorities may deem our activities or services non-compliant and therefore require us to suspend or terminate its business.
We may also be subject to fines, legal or administrative sanctions and other adverse consequences, and may not be able to become in compliance
with relevant laws and regulations in a timely manner, or at all. These may materially and adversely affect its business, financial condition,
results of operations and reputation.
Since these statements and regulatory
actions are new, it is highly uncertain how soon legislative or administrative regulation making bodies will respond and what
existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the
potential impact such modified or new laws and regulations will have on our daily business operation, our ability to accept foreign
investments and conduct follow-on offerings, and listing or continuing listing on a U.S. or other foreign exchanges. In
addition, the PRC government has recently published new policies that significantly affected certain industries such as the
education and internet industries, and we cannot rule out the possibility that it will in the future release regulations or policies
regarding any other industry including the industry in which we operate, which could adversely affect our business, financial
condition and results of operations.
Uncertainties in the interpretation and enforcement of PRC laws
and regulations could limit the legal protections available to us.
The PRC legal system is based on written statutes
and prior court decisions or legal cases have limited value as precedents. Since these laws, regulations and rules are relatively new
and the PRC legal system continues to rapidly evolve, the application and interpretations of these laws, regulations and rules are not
always uniform, are ambiguous and may be interpreted and applied inconsistently between different government authorities, and enforcement
of these laws, regulations and rules involves uncertainties.
Developments in the apartment rental industry
may lead to changes in PRC laws, regulations and policies or in the interpretation and application of existing laws, regulations and policies
that may limit or restrict us, which could materially and adversely affect our business and operations.
From time to time, we may have to resort to administrative
and court proceedings to enforce our legal rights. However, since PRC administrative and court authorities have significant discretion
in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and
court proceedings and the level of legal protection we enjoy than in more developed legal systems. 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) that may have retroactive
effect. As a result, we may not be aware of our violation of these policies and rules in a timely manner until sometime after the violation.
Such uncertainties, including uncertainty over
the scope and effect of our contractual, property (including intellectual property) and procedural rights, could materially and adversely
affect our business and impede our ability to continue our operations.
If the U.S. Public Company Accounting Oversight Board, or the
PCAOB, is unable to inspect our auditors as required under the Holding Foreign Companies Accountable Act, the SEC will prohibit the trading
of our ADSs. A trading prohibition for our ADSs, or the threat of a trading prohibition, may materially and adversely affect the value
of your investment. Additionally, the inability of the PCAOB to conduct inspections of our auditors would deprive our investors of the
benefits of such inspections.
The U.S. Holding Foreign Companies Accountable
Act, or the HFCA Act, was enacted into law on December 18, 2020. Under the HFCA Act, 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,
the SEC will prohibit our securities, including our ADSs, from being traded on a U.S. national securities exchange, including NASDAQ,
or in the over-the-counter trading market in the U.S. The process for implementing trading prohibitions pursuant to the HFCA
Acts will be based on a list of registered public accounting firms that the PCAOB has been unable to inspect and investigate completely
as a result of a position taken by a non-U.S. government, or the Relevant Jurisdiction, and such identified auditors, the PCAOB
Identified Firms. The first list of PCAOB Identified Firms was included in a release by the PCAOB on December 16, 2021, or the PCAOB
December 2021 Release. The SEC will review annual reports filed with it for fiscal years beginning after December 18, 2020 to determine
if the auditor used for such reports was so identified by the PCAOB, and such issuers will be designated as “Commission Identified
Issuers” on a list to be published by the SEC. If an issuer is a Commission Identified Issuer for three consecutive years (which
will be determined after the third such annual report), the SEC will issue an order that will implement the trading prohibitions described
above.
On August 26, 2022, the PCAOB signed the Protocol
with the CSRC and the Ministry of Finance of the PRC governing inspections and investigations of audit firms based in mainland China and
Hong Kong, which marks the first step toward opening access for the PCAOB to inspect and investigate registered public accounting firms
headquartered in China without any limitations on scope. The Protocol sets forth, among other terms, that (i) the PCAOB has independent
discretion to select any issuer audits for inspection or investigation; (ii) the PCAOB has direct access to interview and take testimony
from all personnel of the audit firms whose issuer engagements are being inspected or investigated; (iii) the PCAOB has the unfettered
ability to transfer information to the SEC in accordance with the Sarbanes-Oxley Act; and (iv) the PCAOB inspectors can see complete audit
work papers without any redactions. However, uncertainties remain with respect to the implementation of this framework and there is no
assurance that the PCAOB will be able to execute, in a timely manner, its future inspections and investigations in a manner that satisfies
the Protocol.
Furthermore, by the end of 2022, the PCAOB is
required to reassess whether China remains to be jurisdictions where the PCAOB is not able to inspect and investigate completely auditors
registered with the PCAOB. A reassessment of a determination under the HFCA Act may result in the PCAOB reaffirming, modifying or vacating
the determination.
If we are unable to retain a PCAOB-registered
auditor subject to PCAOB inspection and investigation, a trading prohibition for our ADSs could be issued shortly after our filing of
the third consecutive annual report on Form 20-F for which we have retained a PCAOB Identified Firm. Our current independent
accounting firm, Marcum Asia CPAs LLP, whose audit report is included in our annual report on Form 20-F for FY 2021, which is
incorporated herein by reference, is headquartered in Manhattan, New York, and was not included in the list of PCAOB Identified Firms
in the PCAOB December Release. Recent developments with respect to audits of China-based companies create uncertainty about the ability
of Marcum Asia CPAs LLP to fully cooperate with a PCAOB request for audit working papers without the approval of the Chinese authorities.
Marcum Asia CPAs LLP’s audit working papers related to us are located in China. The PCAOB has not requested Marcum Asia CPAs LLP
to provide the copies of these audit working papers and as a result, Marcum Asia CPAs LLP has not sought permission from the Chinese authorities
to provide copies of these materials to the PCAOB, but there is no assurance that they would be able to obtain such permission.
In June 2021, the United States Senate passed
a bill that would amend the HFCA Act to accelerate the imposition of trading prohibitions once an issuer is identified from three years
to two years, and a companion bill was introduced in the U.S. House of Representatives on December 14, 2021. If this bill amending
the HFCA Act is approved by both houses of Congress and signed by the President, our securities could be subject to a trading prohibition
following our filing of a second consecutive annual report on Form 20-F in which our auditor for such reports is a PCAOB Identified
Firm.
If our ADSs are subject to a trading prohibition
under the HFCA Act, the price of our ADSs may be adversely affected, and the threat of such a trading prohibition would also adversely
affect their price. If we are unable to be listed on another securities exchange that provides sufficient liquidity, such a trading prohibition
may substantially impair your ability to sell or purchase our ADSs when you wish to do so. Furthermore, if we are able to maintain a listing
of our ordinary shares on a non-U.S. exchange, investors owning our ADSs may have to take additional steps to engage in transactions
on that exchange, including converting ADSs into ordinary shares and establishing non-U.S. brokerage accounts.
The HFCA Act also imposes additional
certification and disclosure requirements for Commission Identified Issuers, and these requirements apply to issuers in the year
following their listing as Commission Identified Issuers. The additional requirements include a certification that the issuer is not
owned or controlled by a governmental entity in the Relevant Jurisdiction, and the additional requirements for annual reports
include disclosure that the issuer’s financials were audited by a firm not subject to PCAOB inspection, disclosure on
governmental entities in the Relevant Jurisdiction’s ownership in and controlling financial interest in the issuer, the names
of Chinese Communist Party, or CCP, members on the board of the issuer or its operating entities, and whether the issuer’s
article’s include a charter of the CCP, including the text of such charter.
In addition to the issues under the HFCA discussed
above, the PCAOB’s inability to conduct inspections in China and Hong Kong prevents it from fully evaluating the audits and quality
control procedures of the independent registered public accounting firm. Our current independent registered public accounting firm, Marcum
Asia CPAs LLP, is headquartered in Manhattan, New York, and has been inspected by the PCAOB on a regular basis with the last inspection
in 2020. However, as noted above, recent developments create uncertainty as to the PCAOB’s continued ability to conduct inspections
of our independent accounting firm, Marcum Asia CPAs LLP. Moreover, our former independent registered public accounting firm, Deloitte
Touche Tohmatsu Certified Public Accountants LLP, which was included as a PCAOB Identified Firm in the PCAOB December 2021 Release, is
not currently inspected fully by the PCAOB. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult
to evaluate the effectiveness of a China-based 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 the stock to lose confidence in the audit procedures and reported financial information and the quality of our financial
statements.
USE OF PROCEEDS
We intend to use the net proceeds from the sale
of the securities as set forth in the applicable prospectus supplement.
CAPITALIZATION AND INDEBTEDNESS
Our capitalization and indebtedness will be set
forth in a prospectus supplement to this prospectus or in a report subsequently furnished to the SEC and specifically incorporated herein
by reference.
DESCRIPTION OF SHARE CAPITAL
We are a Cayman Islands exempted company with
limited liability and our corporate affairs are governed by our amended and restated memorandum and articles of association, as amended
from time to time and the Companies Act (2022 Revision), as amended and revised of the Cayman Islands (the “Companies Act”),
and the common law of the Cayman Islands.
As of the date of this prospectus, our authorized
share capital is US$500,000 divided into 50,000,000,000 ordinary shares with a par value of US$0.00001 each, consisting of 37,500,000,000
Class A ordinary shares, 2,500,000,000 Class B ordinary shares, and 10,000,000,000 preferred shares, of which 25,878,920,464
Class A ordinary shares are issued and outstanding.
Our Amended and Restated Memorandum and Articles of Association
The following are summaries of material provisions
of our amended and restated memorandum and articles of association and the Companies Act insofar as they relate to the material terms
of our Class A ordinary shares and Class B ordinary shares. You should read the forms of our current memorandum and articles
of association filed with the SEC. For information on how to obtain copies of our current memorandum and articles of association, see
“Where You Can Find More Information About Us.”
Ordinary Shares
General
Our ordinary shares are divided into Class A
ordinary shares and Class B ordinary shares. Holders of our Class A ordinary shares and Class B ordinary shares have the
same rights except for voting and conversion rights. Our ordinary shares are issued in registered form and are issued when registered
in our register of members. Our shareholders who are non-residents of the Cayman Islands may freely hold and vote their shares.
Conversion
Each Class B ordinary share is convertible
into one Class A ordinary share at any time at the option of the holder thereof. Class A ordinary shares are not convertible
into Class B ordinary shares under any circumstances. Upon any transfer of Class B ordinary shares by a holder to any person
or entity which is not an affiliate of such holder, such Class B ordinary shares shall be automatically and immediately converted
into the equivalent number of Class A ordinary shares.
Dividends
The holders of our ordinary shares are entitled
to such dividends as may be declared by our board of directors. Our amended and restated articles of association provide that dividends
may be declared and paid out of our profits, realized or unrealized, or from any reserve set aside from profits which our board of directors
determine is no longer needed. Dividends may also be declared and paid out of share premium account or any other fund or account which
can be authorized for this purpose in accordance with the Companies Act.
Voting Rights
Holders of our ordinary shares have the right
to receive notice of, attend, speak and vote at general meetings of our company. Except as required by applicable law and subject to the
amended and restated memorandum and articles of association, holders of Class A ordinary shares and Class B ordinary shares
shall at all times vote together as one class on all matters submitted to a vote of the shareholders.
At any general meeting on a poll, every shareholder
holding Class A ordinary shares present in person or by proxy or, in the case of a shareholder being a corporation, by its duly authorized
representative shall have one (1) vote for every fully paid Class A ordinary share of which he is the holder; and every shareholder
holding Class B ordinary shares present in person or by proxy or, in the case of a shareholder being a corporation, by its duly authorized
representative shall have ten (10) votes for every fully paid Class B ordinary share of which he is the holder.
A resolution put to the vote of a meeting shall
be decided by way of a poll save that the chairman of the meeting may in good faith, allow a resolution which relates purely to a procedural
or administrative matter to be voted on by a show of hands in which case (i) every shareholder holding Class A ordinary shares
present in person (or being a corporation, is present by a duly authorized representative), or by proxy(ies) shall have one (1) vote,
and (ii) every shareholder holding Class B ordinary shares present in person (or being a corporation, is present by a duly authorized
representative), or by proxy(ies) shall have ten (10) votes, provided that, notwithstanding anything contained in our amended and
restated memorandum and articles of association, where more than one proxy is appointed by a shareholder which is a clearing house or
a central depository house (or its nominee(s)), each such proxy shall have one vote on a show of hands. For the purposes of our amended
and restated memorandum and articles of association, procedural and administrative matters are those that (i) are not on the agenda
of the general meeting or in any supplementary circular that may be issued by us to the shareholders; and (ii) relate to the chairman’s
duties to maintain the orderly conduct of the meeting and/or allow the business of the meeting to be properly and effectively dealt with,
whilst allowing all shareholders a reasonable opportunity to express their views.
An ordinary resolution to be passed at a meeting
by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the shares cast at a meeting, while a
special resolution requires the affirmative vote of no less than two-thirds of the votes attaching to the shares cast at a meeting.
A special resolution will be required for important matters such as a change of name or making changes to our amended and restated memorandum
and articles of association.
Transfer of Ordinary Shares
Subject to the restrictions contained in our amended
and restated memorandum and articles of association, any of our shareholders may transfer all or any of his or her ordinary shares by
an instrument of transfer in the usual or common form or any other form approved by our board of directors.
Our board of directors may, in its absolute discretion,
and without giving any reason therefor, refuse to register a transfer of any share that is not a fully paid up share to a person of whom
it does not approve, or any share issued under any share incentive scheme for employees upon which a restriction on transfer imposed thereby
still subsists, and it may also, without prejudice to the foregoing generality, refuse to register a transfer of any share to more than
four joint holders or a transfer of any share that is not a fully paid up share on which we have a lien. Our board of directors may also
decline to register any transfer of any ordinary share unless:
| ● | the
instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it relates and such other evidence
as our board of directors may reasonably require to show the right of the transferor to make the transfer; |
| ● | the
instrument of transfer is in respect of only one class of ordinary shares; |
| ● | the
instrument of transfer is properly stamped, if required; |
| ● | a
fee of such maximum sum as the Nasdaq may determine to be payable or such lesser sum as our directors may from time to time require is
paid to us in respect thereof. |
If our directors refuse to register a transfer,
they shall, within three months after the date on which the instrument of transfer was lodged, send to each of the transferor and the
transferee notice of such refusal.
The registration of transfers may, after compliance
with any notice required of the Nasdaq, be suspended and the register of members closed at such times and for such periods as our board
of directors may from time to time determine, provided, however, that the registration of transfers shall not be suspended nor the register
of members closed for more than 30 days in any year as our board may determine.
Liquidation
On a return of capital on winding up or otherwise
(other than on conversion, redemption or purchase of ordinary shares), assets available for distribution among the holders of ordinary
shares shall be distributed among the holders of the ordinary shares on a pro rata basis. If our assets available for distribution are
insufficient to repay all of the paid-up ordinary share capital, the assets will be distributed so that the losses are borne
by our holders of ordinary shares proportionately.
Calls on Ordinary Shares and Forfeiture of Ordinary Shares
Our board of directors may from time to time make
calls upon shareholders for any amounts unpaid on their ordinary shares in a notice served to such shareholders at least 14 clear days
prior to the specified time of payment. The ordinary shares that have been called upon and remain unpaid are subject to forfeiture.
Redemption of Ordinary Shares
The Companies Act and our amended and restated
articles of association permit us to purchase our own shares. In accordance with our amended and restated articles of association and
provided the necessary shareholders or board approval have been obtained, we may issue shares on terms that are subject to redemption,
at our option or at the option of the holders of these shares, on such terms and in such manner, including out of capital, as may be determined
by our board of directors.
Variations of Rights of Shares
All or any of the special rights attached to any
class of shares may, subject to the provisions of the Companies Act, be varied with the sanction of a special resolution passed at a general
meeting of the holders of the shares of that class. Separate general meetings of the holders of a class or series of shares may be called
only by (i) the chairman of our board of directors, or (ii) a majority of our board of directors (unless otherwise specifically
provided by the terms of issue of the shares of such class or series), and nothing in the amended and restated memorandum and articles
of association shall give any shareholder or shareholders the right to call a class or series meeting. The rights conferred upon the holders
of the shares of any class issued shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be
deemed to be varied by the creation or issue of further shares ranking pari passu with such existing class of shares.
General Meetings of Shareholders
A quorum required for a meeting of shareholders
consists of one or more shareholders present in person or by proxy representing not less than one-third of all voting power
of the company’s share capital in issue. (i) A majority of our board of directors, or (ii) the chairman of our board of
directors, or (iii) any director, where required to give effect to a requisition received under the amended and restated memorandum
and articles of association, may call extraordinary general meetings, which extraordinary general meetings shall be held at such times
and locations (as permitted hereby) as such person or persons shall determine.
Any one or more shareholders holding at the
date of deposit of the requisition not less than two-thirds of the voting power of our share capital in issue carrying the
right of voting at general meetings of our company shall at all times have the right, by written requisition to our board of
directors or our secretary, to require an extraordinary general meeting to be called by our board of directors for the transaction
of any business permitted by the Companies Act or the amended and restated memorandum and articles of association (subject to the
below) as specified in such requisition; and such meeting shall be held within two (2) months after the deposit of such
requisition. If within twenty-one (21) days of such deposit our board of directors fails to proceed to convene such
meeting, the requisitionist(s) himself or herself (themselves) may do so in the same manner, and all reasonable expenses incurred by
the requisitionist(s) as a result of the failure of our board of directors shall be reimbursed to the requisitionist(s) by us. A
meeting requisitioned under the amended and restated memorandum and articles of association shall not be permitted to consider or
vote upon (A) any resolutions with respect to the election, appointment or removal of directors or with respect to the size of
our board of directors, unless such proposal is first approved by our nominating and corporate governance committee; or
(B) other than a special resolution in respect of the appointment or removal of any director, any special resolution or any
matters required to be passed by way of special resolution pursuant to the amended and restated memorandum and articles of
association or the Companies Act. Written notice shall be given not less than ten clear days before the date of any general
meeting.
Inspection of Books and Records
Holders of our ordinary shares will have no general
right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our corporate records. However, in our amended
and restated memorandum and articles of association we provide our shareholders with the right to inspect our list of shareholders and
to receive annual audited financial statements.
Changes in Capital
We may from time to time by ordinary resolution:
| ● | increase
the share capital by such sum, to be divided into shares of such classes and amount, as the resolution shall prescribe; |
| ● | consolidate
and divide all or any of our share capital into shares of a larger amount than our existing shares; |
| ● | sub-divide our
existing shares, or any of them into shares of a smaller amount; or |
| ● | cancel
any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person and diminish
the amount of our share capital by the amount of the shares so canceled. |
We may by special resolution, subject to any confirmation
or consent required by the Companies Act, reduce our share capital or any capital redemption reserve in any manner permitted by law.
Proceedings of the Directors
Our board of directors may meet for the
dispatch of business, adjourn and otherwise regulate its meetings as it considers appropriate. Questions arising at any meeting
shall be determined by a majority of votes, other than (i) any removal of any person as a director, or (ii) any
appointment or removal of any person as the chairman of our board of directors, or (iii) any removal of any person as chairman
or other member of any committee of our board of directors which, in each case, shall be determined by a resolution passed by a
majority of not less than two-thirds of votes cast by such directors as, being entitled so to do, vote at a meeting of our
board of directors. In the case of any equality of votes, the chairman of the meeting shall have an additional or casting vote. A
meeting of our board of directors may be convened by (i) the chairman of our board of directors, or (ii) a majority of the
directors. Our secretary shall convene a meeting of our board of directors whenever so required to do by the chairman of our board
of directors or a majority of the directors by notice in writing to each director. A meeting of our board of directors may be called
by not less than two (2) clear days’ notice. A meeting of our board of directors may be called by shorter notice if it is
so agreed by all the directors entitled to attend and vote at such a meeting. Any notice of a meeting of our board of directors
shall (i) specify the time and place of the meeting, and (ii) set out in reasonable detail the nature of the business to
be discussed at the meeting. Notice may be given in writing or by telephone or in such other manner as our board of directors may
from time to time determine.
A resolution in writing signed by all the directors
(other than in the circumstances set out in article 85 in our amended and restated memorandum and articles of association) except such
as are temporarily unable to act due to ill-health or disability shall (provided that (i) the circulation of such resolutions
has the prior approval of, and is initiated by, the chairman of our board of directors, (ii) such number of signatories includes
the chairman of our board of directors and is sufficient to constitute a quorum, and (iii) further provided that a copy of such resolution
has been given or the contents thereof communicated to all the directors for the time being entitled to receive notices of board meetings
in the same manner as notices of meetings are required to be given by our amended and restated memorandum and articles of association)
be as valid and effectual as if a resolution had been passed at a meeting of our board of directors duly convened and held.
Exempted Company
We are an exempted company with limited liability
incorporated under the Companies Act. The Companies Act in the Cayman Islands distinguishes between ordinary resident companies and exempted
companies. Any company that is registered in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to
be registered as an exempted company. The requirements for an exempted company are essentially the same as for an ordinary company except
for the exemptions and privileges listed below:
| ● | an
exempted company does not have to file an annual return of its shareholders with the Registrar of Companies; |
| ● | an
exempted company’s register of members is not open to inspection; |
| ● | an
exempted company does not have to hold an annual general meeting; |
| ● | an
exempted company may issue no par value shares; |
| ● | an
exempted company may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20
years in the first instance); |
| ● | an
exempted company may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands; |
| ● | an
exempted company may register as a limited duration company; and |
| ● | an
exempted company may register as a segregated portfolio company. |
“Limited liability” means that the
liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company. We are subject to reporting
and other informational requirements of the Exchange Act, as applicable to foreign private issuers. We currently intend to comply with
the Nasdaq rules in lieu of following home country practice. The Nasdaq rules require that every company listed on the Nasdaq hold an
annual general meeting of shareholders. In addition, our amended and restated articles of association allow directors to call special
meeting of shareholders pursuant to the procedures set forth in our articles.
Differences in Corporate Law
The Companies Act is modeled after that of England
and Wales but does not follow recent statutory enactments in England. In addition, the Companies Act differs from laws applicable to United
States corporations and their shareholders. Set forth below is a summary of the significant differences between the provisions of the
Companies Act applicable to us and the laws applicable to companies incorporated in the State of Delaware.
Mergers and Similar Arrangements
A merger of two or more constituent companies
under Cayman Islands law requires a plan of merger or consolidation to be approved by the directors of each constituent company and authorization
by a special resolution of the members of each constituent company.
A merger between a Cayman parent company and its
Cayman subsidiary or subsidiaries does not require authorization by a resolution of shareholders. For this purpose a subsidiary is a company
of which at least ninety percent (90%) of the issued shares entitled to vote are owned by the parent company.
The consent of each holder of a fixed or floating
security interest over a constituent company is required unless this requirement is waived by a court in the Cayman Islands.
Save in certain circumstances, a dissentient shareholder
of a Cayman constituent company is entitled to payment of the fair value of his shares upon dissenting to a merger or consolidation. The
exercise of appraisal rights will preclude the exercise of any other rights save for the right to seek relief on the grounds that the
merger or consolidation is void or unlawful.
In addition, there are statutory provisions that
facilitate the reconstruction and amalgamation of companies, provided that the arrangement is approved by a majority in number of each
class of shareholders and creditors with whom the arrangement is to be made, and who must, in addition, represent three-fourths in value
of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting,
or meetings, convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand
Court of the Cayman Islands. While a dissenting shareholder has the right to express to the court the view that the transaction ought
not to be approved, the court can be expected to approve the arrangement if it determines that:
| ● | the
statutory provisions as to the required majority vote have been met; |
| ● | the
shareholders have been fairly represented at the meeting in question and the statutory majority are acting bona fide without coercion
of the minority to promote interests adverse to those of the class; |
| ● | the
arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of his interest;
and |
| ● | the
arrangement is not one that would more properly be sanctioned under some other provision of the Companies Act. |
When a takeover offer is made and accepted by
holders of 90% of the shares the subject of such offer within four months, the offeror may, within a two-month period commencing
on the expiration of such four month period, require the holders of the remaining shares to transfer such shares on the terms of the offer.
An objection can be made to the Grand Court of the Cayman Islands but this is unlikely to succeed in the case of an offer which has been
so approved unless there is evidence of fraud, bad faith or collusion.
If an arrangement and reconstruction is thus approved,
the dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting
shareholders of Delaware corporations, providing rights to receive payment in cash for the judicially determined value of the shares.
Shareholders’ Suits
In principle, we will normally be the proper plaintiff
and as a general rule a derivative action may not be brought by a minority shareholder. However, based on English authorities, which would
in all likelihood be of persuasive authority in the Cayman Islands, there are exceptions to the foregoing principle, including when:
| ● | a
company acts or proposes to act illegally or ultra vires; |
| ● | the
act complained of, although not ultra vires, could only be effected duly if authorized by more than a simple majority vote that has not
been obtained; and |
| ● | those
who control the company are perpetrating a “fraud on the minority.” |
Indemnification of Directors and Executive Officers and Limitation
of Liability
Cayman Islands law does not limit the extent to
which a company’s memorandum and articles of association may provide for indemnification of officers and directors, except to the
extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification
against civil fraud or the consequences of committing a crime. Our amended and restated memorandum and articles of association permit
indemnification of officers and directors for losses, damages, costs and expenses incurred in their capacities as such unless such losses
or damages arise from dishonesty or fraud which may attach to such directors or officers. This standard of conduct is generally the same
as permitted under the Delaware General Corporation Law for a Delaware corporation. In addition, we have entered into indemnification
agreements with our directors and senior executive officers that provide such persons with additional indemnification beyond that provided
in our amended and restated memorandum and articles of association. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions, we have been informed that,
in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Anti-Takeover Provisions in the Memorandum and Articles of Association
Some provisions of our amended and restated memorandum
and articles of association may discourage, delay or prevent a change in control of our company or management that shareholders may consider
favorable, including provisions that authorize our board of directors to issue preferred shares in one or more series and to designate
the price, rights, preferences, privileges and restrictions of such preferred shares without any further vote or action by our shareholders.
However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our amended and restated
memorandum and articles of association, as amended and restated from time to time, for what they believe in good faith to be in the best
interests of our company.
Directors’ Fiduciary Duties
Under Delaware corporate law, a director of a
Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components: the duty of care and
the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would
exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders, all material information
reasonably available regarding a significant transaction. The duty of loyalty requires that a director act in a manner he or she reasonably
believes to be in the best interests of the corporation. He or she must not use his or her corporate position for personal gain or advantage.
This duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence
over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general,
actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken
was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary
duties. Should such evidence be presented concerning a transaction by a director, a director must prove the procedural fairness of the
transaction, and that the transaction was of fair value to the corporation.
As a matter of Cayman Islands law, a
director of a Cayman Islands company is in the position of a fiduciary with respect to the company and therefore it is considered
that he owes the following duties to the company—a duty to act bona fide in the best interests of the company, a duty not to
make a profit based on his or her position as director (unless the company permits him to do so) and a duty not to put himself in a
position where the interests of the company conflict with his or her personal interest or his or her duty to a third party. A
director of a Cayman Islands company owes to the company a duty to act with skill and care. It was previously considered that a
director need not exhibit in the performance of his or her duties a greater degree of skill than may reasonably be expected from a
person of his or her knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard
with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands.
Shareholder Action by Written Consent
Under the Delaware General Corporation Law, a
corporation may eliminate the right of shareholders to act by written consent by amendment to its certificate of incorporation. Our amended
and restated articles of association provide that shareholders may not approve corporate matters by way of a unanimous written resolution
signed by or on behalf of each shareholder who would have been entitled to vote on such matter at a general meeting without a meeting
being held.
Shareholder Proposals
Under the Delaware General Corporation Law, a
shareholder has the right to put any proposal before the annual meeting of shareholders, provided it complies with the notice provisions
in the governing documents. A special meeting may be called by the board of directors or any other person authorized to do so in the governing
documents, but shareholders may be precluded from calling special meetings. Our amended and restated articles of association allow our
shareholders to requisition a shareholders’ meeting (see above). As an exempted Cayman Islands company, we are not obliged by law
to call shareholders’ annual general meetings though we may do so.
Cumulative Voting
Under the Delaware General Corporation Law, cumulative
voting for elections of directors is not permitted unless the corporation’s certificate of incorporation specifically provides for
it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the
minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder’s
voting power with respect to electing such director. As permitted under Cayman Islands law, our amended and restated articles of association
do not provide for cumulative voting. As a result, our shareholders are not afforded any less protections or rights on this issue than
shareholders of a Delaware corporation.
Removal of Directors
Under the Delaware General Corporation Law, a
director of a corporation with a classified board may be removed only for cause with the approval of a majority of the outstanding shares
entitled to vote, unless the certificate of incorporation provides otherwise. Subject to any provision to the contrary in our amended
and restated memorandum and articles of association, a director may, at any time before the expiration of his or her period of office
(notwithstanding anything in our amended and restated memorandum and articles of association or in any agreement between our company and
such director (but without prejudice to any claim for damages under any such agreement)) be removed by way of either (a) an ordinary
resolution of the shareholders; or (b) the affirmative vote of a majority of the remaining directors present and voting at a board
meeting; or (c) a resolution in writing (which complies with the requirements of the provisos contained in article 119 of our amended
and restated memorandum and articles of association) signed by all the directors other than the director being removed.
Transactions with Interested Shareholders
The Delaware General Corporation Law
contains a business combination statute applicable to Delaware corporations whereby, unless the corporation has specifically elected
not to be governed by such statute by amendment to its certificate of incorporation, it is prohibited from engaging in certain
business combinations with an “interested shareholder” for three years following the date that such person becomes an
interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the
target’s outstanding voting stock within the past three years. This has the effect of limiting the ability of a potential
acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does
not apply if, among other things, prior to the date on which such shareholder becomes an interested shareholder, the board of
directors approves either the business combination or the transaction which resulted in the person becoming an interested
shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition transaction
with the target’s board of directors. Cayman Islands law has no comparable statute. As a result, we cannot avail ourselves of
the types of protections afforded by the Delaware business combination statute. However, although Cayman Islands law does not
regulate transactions between a company and its significant shareholders, it does provide that such transactions must be entered
into bona fide in the best interests of the company and for a proper corporate purpose and not with the effect of constituting a
fraud on the minority shareholders.
Dissolution; Winding Up
Under the Delaware General Corporation Law, unless
the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders holding 100% of the total voting
power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by a simple majority of the
corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority
voting requirement in connection with dissolutions initiated by the board. Under Cayman Islands law, a company may be wound up by either
an order of the courts of the Cayman Islands or by a special resolution of its members or, if the company is unable to pay its debts as
they fall due, by an ordinary resolution of its members. The court has authority to order winding up in a number of specified circumstances
including where it is, in the opinion of the court, just and equitable to do so. Under the Companies Act and our amended and restated
articles of association, our company may be dissolved, liquidated or wound up by a special resolution of shareholders.
Variation of Rights of Shares
Under the Delaware General Corporation Law, a
corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of such class, unless the
certificate of incorporation provides otherwise. Under Cayman Islands law and our amended and restated articles of association, if our
share capital is divided into more than one class of shares, we may vary the rights attached to any class only with the sanction of a
special resolution passed at a general meeting of the holders of the shares of that class.
Amendment of Governing Documents
Under the Delaware General Corporation Law, a
corporation’s governing documents may be amended with the approval of a majority of the outstanding shares entitled to vote, unless
the certificate of incorporation provides otherwise. As permitted by Cayman Islands law, our amended and restated memorandum and articles
of association may only be amended by a special resolution of shareholders.
Rights of Non-Resident or Foreign Shareholders
There are no limitations imposed by our amended
and restated memorandum and articles of association on the rights of non-resident or foreign shareholders to hold or exercise
voting rights on our shares. In addition, there are no provisions in our amended and restated memorandum and articles of association governing
the ownership threshold above which shareholder ownership must be disclosed.
Directors’ Power to Issue Shares
Subject to applicable law, our board of directors
is empowered to issue or allot shares or grant options and warrants with or without preferred, deferred, qualified or other special rights
or restrictions.
Limitations or Qualifications
We have a dual-class voting structure such that
our ordinary shares consist of Class A ordinary shares and Class B ordinary shares. Holders of Class A ordinary shares
are entitled to one vote per share in respect of matters requiring the votes of shareholders, while holders of Class B ordinary shares
are entitled to ten (10) votes per share, subject to certain exceptions. Due to the super voting power of Class B ordinary share
holder, the voting power of the Class A ordinary shares may be materially limited.
DESCRIPTION OF AMERICAN DEPOSITARY SHARES
The Bank of New York Mellon, as depositary, registers
and delivers ADSs. Each ADS represents 150 Class A ordinary shares (or a right to receive 150 Class A ordinary shares)
deposited with The Hongkong and Shanghai Banking Corporation Limited, as custodian for the depositary in Hong Kong. Each ADS also represents
any other securities, cash or other property which may be held by the depositary. The deposited shares together with any other securities,
cash or other property held by the depositary are referred to as the deposited securities. The depositary’s office at which the
ADSs are administered and its principal executive office are located at 240 Greenwich Street, New York, New York 10286.
You may hold ADSs either (A) directly (i)
by having an American depositary receipt, also referred to as an ADR, which is a certificate evidencing a specific number of ADSs, registered
in your name, or (ii) by having uncertificated ADSs registered in your name, or (B) indirectly by holding a security entitlement
in ADSs through your broker or other financial institution that is a direct or indirect participant in The Depository Trust Company, also
called DTC. If you hold ADSs directly, you are a registered ADS holder, also referred to as an ADS holder. This description assumes you
are an ADS holder. If you hold the ADSs indirectly, you must rely on the procedures of your broker or other financial institution to assert
the rights of ADS holders described in this section. You should consult with your broker or financial institution to find out what those
procedures are.
Registered holders of uncertificated ADSs receive
statements from the depositary confirming their holdings.
As an ADS holder, we do not treat you as one of
our shareholders and you do not have shareholder rights. Cayman Islands law governs shareholder rights. The depositary is the holder of
the shares underlying your ADSs. As a registered holder of ADSs, you have ADS holder rights. A deposit agreement among us, the depositary,
ADS holders and all other persons indirectly or beneficially holding ADSs sets out ADS holder rights as well as the rights and obligations
of the depositary. New York law governs the deposit agreement and the ADSs.
The following is a summary of the material provisions
of the deposit agreement. For more complete information, you should read the entire deposit agreement and the form of ADR.
Dividends and Other Distributions
How will you receive dividends and other distributions on the shares?
The depositary has agreed to pay or distribute
to ADS holders the cash dividends or other distributions it or the custodian receives on shares or other deposited securities, upon payment
or deduction of its fees and expenses. You will receive these distributions in proportion to the number of shares your ADSs represent.
| ● | Cash.
The depositary will convert any cash dividend or other cash distribution we pay on the shares into U.S. dollars, if it can do so on a
reasonable basis and can transfer the U.S. dollars to the United States. If that is not possible or if any government approval is needed
and cannot be obtained, the deposit agreement allows the depositary to distribute the foreign currency only to those ADS holders to whom
it is possible to do so. It will hold the foreign currency it cannot convert for the account of the ADS holders who have not been paid.
It will not invest the foreign currency and it will not be liable for any interest. Before making a distribution, any withholding taxes,
or other governmental charges that must be paid will be deducted. The depositary will distribute only whole U.S. dollars and cents and
will round fractional cents to the nearest whole cent. If the exchange rates fluctuate during a time when the depositary cannot convert
the foreign currency, you may lose some of the value of the distribution. |
| ● | Shares. The
depositary may distribute additional ADSs representing any shares we distribute as a dividend or free distribution. The depositary
will only distribute whole ADSs. It will sell shares which would require it to deliver a fraction of an ADS (or ADSs representing
those shares) and distribute the net proceeds in the same way as it does with cash. If the depositary does not distribute additional ADSs, the outstanding ADSs will also represent the new shares. The depositary may sell a portion of the distributed shares (or ADSs representing those shares) sufficient to pay its fees and expenses in connection with that distribution. |
| ● | Rights
to purchase additional shares. If we offer holders of our securities any rights to subscribe for additional shares or any other rights,
the depositary may (i) exercise those rights on behalf of ADS holders, (ii) distribute those rights to ADS holders or (iii) sell
those rights and distribute the net proceeds to ADS holders, in each case after deduction or upon payment of its fees and expenses. To
the extent the depositary does not do any of those things, it will allow the rights to lapse. In that case, you will receive no value
for them. The depositary will exercise or distribute rights only if we ask it to and provide satisfactory assurances to the depositary
that it is legal to do so. If the depositary will exercise rights, it will purchase the securities to which the rights relate and distribute
those securities or, in the case of shares, new ADSs representing the new shares, to subscribing ADS holders, but only if ADS holders
have paid the exercise price to the depositary. U.S. securities laws may restrict the ability of the depositary to distribute rights
or ADSs or other securities issued on exercise of rights to all or certain ADS holders, and the securities distributed may be subject
to restrictions on transfer. |
| ● | Other
Distributions. The depositary will send to ADS holders anything else we distribute on deposited securities by any means it thinks
is legal, fair and practical. If it cannot make the distribution in that way, the depositary has a choice. It may decide to sell what
we distributed and distribute the net proceeds, in the same way as it does with cash. Or, it may decide to hold what we distributed,
in which case ADSs will also represent the newly distributed property. However, the depositary is not required to distribute any securities
(other than ADSs) to ADS holders unless it receives satisfactory evidence from us that it is legal to make that distribution. The depositary
may sell a portion of the distributed securities or property sufficient to pay its fees and expenses in connection with that distribution.
U.S. securities laws may restrict the ability of the depositary to distribute securities to all or certain ADS holders, and the securities
distributed may be subject to restrictions on transfer. |
The depositary is not responsible if it decides
that it is unlawful or impractical to make a distribution available to any ADS holders. We have no obligation to register ADSs, shares,
rights or other securities under the Securities Act. We also have no obligation to take any other action to permit the distribution of
ADSs, shares, rights or anything else to ADS holders. This means that you may not receive the distributions we make on our shares or any
value for them if it is illegal or impractical for us to make them available to you.
Deposit, Withdrawal and Cancelation
How are ADSs issued?
The depositary will deliver ADSs if you or your
broker deposits shares or evidence of rights to receive shares with the custodian. Upon payment of its fees and expenses and of any taxes
or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will register the appropriate number of ADSs in the names
you request and will deliver the ADSs to or upon the order of the person or persons that made the deposit.
How can ADS holders withdraw the deposited securities?
You may surrender your ADSs to the depositary
for the purpose of withdrawal. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer
taxes or fees, the depositary will deliver the shares and any other deposited securities underlying the ADSs to the ADS holder or a person
the ADS holder designates at the office of the custodian. Or, at your request, risk and expense, the depositary will deliver the deposited
securities at its office, if feasible. However, the depositary is not required to accept surrender of ADSs to the extent it would require
delivery of a fraction of a deposited share or other security. The depositary may charge you a fee and its expenses for instructing the
custodian regarding delivery of deposited securities.
How do ADS holders interchange between certificated ADSs and uncertificated
ADSs?
You may surrender your ADR to the depositary for
the purpose of exchanging your ADR for uncertificated ADSs. The depositary will cancel that ADR and will send to the ADS holder a statement
confirming that the ADS holder is the registered holder of uncertificated ADSs. Upon receipt by the depositary of a proper instruction
from a registered holder of uncertificated ADSs requesting the exchange of uncertificated ADSs for certificated ADSs, the depositary will
execute and deliver to the ADS holder an ADR evidencing those ADSs.
Voting Rights
How do you vote?
ADS holders may instruct the depositary how to
vote the number of deposited shares their ADSs represent. If we request the depositary to solicit your voting instructions (and we are
not required to do so), the depositary will notify you of a shareholders’ meeting and send or make voting materials available to
you. Those materials will describe the matters to be voted on and explain how ADS holders may instruct the depositary how to vote. For
instructions to be valid, they must reach the depositary by a date set by the depositary. The depositary will try, as far as practical,
subject to the laws of the Cayman Islands and the provisions of our amended and restated memorandum and articles of association or similar
documents, to vote or to have its agents vote the shares or other deposited securities as instructed by ADS holders. If we do not request
the depositary to solicit your voting instructions, you can still send voting instructions, and, in that case, the depositary may try
to vote as you instruct, but it is not required to do so.
Except by instructing the depositary as described
above, you won’t be able to exercise voting rights unless you surrender your ADSs and withdraw the shares. However, you may not
know about the meeting enough in advance to withdraw the shares. In any event, the depositary will not exercise any discretion in voting
deposited securities and it will only vote or attempt to vote as instructed.
We cannot assure you that you will receive the
voting materials in time to ensure that you can instruct the depositary to vote your shares. In addition, the depositary and its agents
are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that
you may not be able to exercise voting rights and there may be nothing you can do if your shares are not voted as you requested.
In order to give you a reasonable opportunity
to instruct the depositary as to the exercise of voting rights relating to deposited securities, if we request the Depositary to act,
we agree to give the depositary notice of any such meeting and details concerning the matters to be voted upon at least 45 days in advance
of the meeting date.
Fees and Expenses
An ADS holder will be required to pay the following
fees under the terms of the deposit agreement:
| Persons depositing or withdrawing shares or ADS holders must pay: |
|
For: |
| US$5.00 (or less) per 100 ADSs (or portion of 100 ADSs) |
|
Issuance of ADSs, including issuances resulting from a distribution
of shares or rights or other property
Cancelation of ADSs for the purpose of withdrawal, including if
the deposit agreement terminates |
| |
|
| US$.05 (or less) per ADS |
|
Any cash distribution to ADS holders |
| |
|
| A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs |
|
Distribution of securities distributed to holders of deposited securities (including rights) that are distributed by the depositary to ADS holders |
| |
|
| US$.05 (or less) per ADS per calendar year |
|
Depositary services |
| Persons depositing or withdrawing shares or ADS holders must pay: |
|
For: |
| Registration or transfer fees |
|
Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares |
| |
|
| Expenses of the depositary |
|
Cable (including SWIFT) and facsimile transmissions (when expressly
provided in the deposit agreement)
Converting foreign currency to U.S. dollars |
| |
|
| Taxes and other governmental charges the depositary or the custodian has to pay on any ADSs or shares underlying ADSs, such as stock transfer taxes, stamp duty or withholding taxes |
|
As necessary |
| |
|
| Any charges incurred by the depositary or its agents for servicing the deposited securities |
|
As necessary |
The depositary collects its fees for delivery
and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries
acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed
or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by
deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting
for them. The depositary may collect any of its fees by deduction from any cash distribution payable (or by selling a portion of securities
or other property distributable) to ADS holders that are obligated to pay those fees. The depositary may generally refuse to provide fee-attracting services
until its fees for those services are paid.
From time to time, the depositary may make payments
to us to reimburse us for costs and expenses generally arising out of establishment and maintenance of the ADS program, waive fees and
expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. In performing its duties
under the deposit agreement, the depositary may use brokers, dealers, foreign currency dealers or other service providers that are owned
by or affiliated with the depositary and that may earn or share fees, spreads or commissions.
The depositary may convert currency itself or
through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor, broker or fiduciary
on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retain for its own account.
The revenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the
deposit agreement and the rate that the depositary or its affiliate receives when buying or selling foreign currency for its own account.
The depositary makes no representation that the exchange rate used or obtained in any currency conversion under the deposit agreement
will be the most favorable rate that could be obtained at the time or that the method by which that rate will be determined will be the
most favorable to ADS holders, subject to the depositary’s obligations under the deposit agreement. The methodology used to determine
exchange rates used in currency conversions is available upon request.
Payment of Taxes
You will be responsible for any taxes or
other governmental charges payable on your ADSs or on the deposited securities represented by any of your ADSs. The depositary may
refuse to register any transfer of your ADSs or allow you to withdraw the deposited securities represented by your ADSs until those
taxes or other charges are paid. It may apply payments owed to you or sell deposited securities represented by your ADSs to pay any
taxes owed and you will remain liable for any deficiency. If the depositary sells deposited securities, it will, if appropriate,
reduce the number of ADSs to reflect the sale and pay to ADS holders any proceeds, or send to ADS holders any property, remaining
after it has paid the taxes.
Tender and Exchange Offers; Redemption, Replacement or Cancelation
of Deposited Securities
The depositary will not tender deposited securities
in any voluntary tender or exchange offer unless instructed to do so by an ADS holder surrendering ADSs and subject to any conditions
or procedures the depositary may establish.
If deposited securities are redeemed for cash
in a transaction that is mandatory for the depositary as a holder of deposited securities, the depositary will call for surrender of a
corresponding number of ADSs and distribute the net redemption money to the holders of called ADSs upon surrender of those ADSs.
If there is any change in the deposited securities
such as a sub-division, combination or other reclassification, or any merger, consolidation, recapitalization or reorganization
affecting the issuer of deposited securities in which the depositary receives new securities in exchange for or in lieu of the old deposited
securities, the depositary will hold those replacement securities as deposited securities under the deposit agreement. However, if the
depositary decides it would not be lawful and practical to hold the replacement securities because those securities could not be distributed
to ADS holders or for any other reason, the depositary may instead sell the replacement securities and distribute the net proceeds upon
surrender of the ADSs.
If there is a replacement of the deposited securities
and the depositary will continue to hold the replacement securities, the depositary may distribute new ADSs representing the new deposited
securities or ask you to surrender your outstanding ADRs in exchange for new ADRs identifying the new deposited securities.
If there are no deposited securities underlying
ADSs, including if the deposited securities are canceled, or if the deposited securities underlying ADSs have become apparently worthless,
the depositary may call for surrender of those ADSs or cancel those ADSs upon notice to the ADS holders.
Amendment and Termination
How may the deposit agreement be amended?
We may agree with the depositary to amend the
deposit agreement and the ADRs without your consent for any reason. If an amendment adds or increases fees or charges, except for taxes
and other governmental charges or expenses of the depositary for registration fees, facsimile costs, delivery charges or similar items,
or prejudices a substantial right of ADS holders, it will not become effective for outstanding ADSs until 30 days after the depositary
notifies ADS holders of the amendment. At the time an amendment becomes effective, you are considered, by continuing to hold your ADSs,
to agree to the amendment and to be bound by the ADRs and the deposit agreement as amended.
How may the deposit agreement be terminated?
The depositary will initiate termination of the
deposit agreement if we instruct it to do so. The depositary may initiate termination of the deposit agreement if:
| ● | 60
days have passed since the depositary told us it wants to resign but a successor depositary has not been appointed and accepted its appointment; |
| ● | we
delist the ADSs from an exchange in the United States on which they were listed and do not list the ADSs on another exchange in the United
States or make arrangements for trading of ADSs on the U.S. over-the-counter market; |
| ● | we
delist our shares from an exchange outside the United States on which they were listed and do not list the shares on another exchange
outside the United States; |
| ● | the
depositary has reason to believe the ADSs have become, or will become, ineligible for registration on Form F-6 under the Securities
Act; |
| ● | we
appear to be insolvent or enter insolvency proceedings; |
| ● | all
or substantially all the value of the deposited securities has been distributed either in cash or in the form of securities; |
| ● | there
are no deposited securities underlying the ADSs or the underlying deposited securities have become apparently worthless; or |
| ● | there
has been a replacement of deposited securities. |
If the deposit agreement will terminate, the depositary
will notify ADS holders at least 90 days before the termination date. At any time after the termination date, the depositary may sell
the deposited securities. After that, the depositary will hold the money it received on the sale, as well as any other cash it is holding
under the deposit agreement, unsegregated and without liability for interest, for the pro rata benefit of the ADS holders that have not
surrendered their ADSs. Normally, the depositary will sell as soon as practicable after the termination date.
After the termination date and before the depositary
sells, ADS holders can still surrender their ADSs and receive delivery of deposited securities, except that the depositary may refuse
to accept a surrender for the purpose of withdrawing deposited securities or reverse previously accepted surrenders of that kind that
have not settled if it would interfere with the selling process. The depositary may refuse to accept a surrender for the purpose of withdrawing
sale proceeds until all the deposited securities have been sold. The depositary will continue to collect distributions on deposited securities,
but, after the termination date, the depositary is not required to register any transfer of ADSs or distribute any dividends or other
distributions on deposited securities to the ADSs holder (until they surrender their ADSs) or give any notices or perform any other duties
under the deposit agreement except as described in this paragraph.
Limitations on Obligations and Liability
Limits on our Obligations and the Obligations of the Depositary;
Limits on Liability to Holders of ADSs
The deposit agreement expressly limits our obligations
and the obligations of the depositary. It also limits our liability and the liability of the depositary. We and the depositary:
| ● | are
only obligated to take the actions specifically set forth in the deposit agreement without negligence or bad faith, and the depositary
will not be a fiduciary or have any fiduciary duty to holders of ADSs; |
| ● | are
not liable if we are or it is prevented or delayed by law or by events or circumstances beyond our or its control from performing our
or its obligations under the deposit agreement; |
| ● | are
not liable if we or it exercises discretion permitted under the deposit agreement; |
| ● | are
not liable for the inability of any holder of ADSs to benefit from any distribution on deposited securities that is not made available
to holders of ADSs under the terms of the deposit agreement, or for any special, consequential or punitive damages for any breach of
the terms of the deposit agreement; |
| ● | have
no obligation to become involved in a lawsuit or other proceeding related to the ADSs or the deposit agreement on your behalf or on behalf
of any other person; |
| ● | may
rely upon any documents we believe or it believes in good faith to be genuine and to have been signed or presented by the proper person; |
| ● | are
not liable for the acts or omissions of any securities depository, clearing agency or settlement system; and |
| ● | the
depositary has no duty to make any determination or provide any information as to our tax status. Neither the depositary nor we have
any liability for any tax consequences that may be incurred by ADS holders as a result of owning or holding ADSs or be liable for the
inability or failure of an ADS holder to obtain the benefit of a foreign tax credit, reduced rate of withholding or refund of amounts
withheld in respect of tax or any other tax benefit. |
In the deposit agreement, we and the depositary
agree to indemnify each other under certain circumstances.
Requirements for Depositary Actions
Before the depositary will deliver or register
a transfer of ADSs, make a distribution on ADSs, or permit withdrawal of shares, the depositary may require:
| ● | payment
of stock transfer or other taxes or other governmental charges and transfer or registration fees charged by third parties for the transfer
of any shares or other deposited securities; |
| ● | satisfactory
proof of the identity and genuineness of any signature or other information it deems necessary; and |
| ● | compliance
with regulations it may establish, from time to time, consistent with the deposit agreement, including presentation of transfer documents. |
The depositary may refuse to deliver ADSs or register
transfers of ADSs when the transfer books of the depositary or our transfer books are closed or at any time if the depositary or we think
it advisable to do so.
Your Right to Receive the Shares Underlying Your ADSs
ADS holders have the right to cancel their ADSs
and withdraw the underlying shares at any time except:
| ● | when
temporary delays arise because: (i) the depositary has closed its transfer books or we have closed our transfer books; (ii) the
transfer of shares is blocked to permit voting at a shareholders’ meeting; or (iii) we are paying a dividend on our shares; |
| ● | when
you owe money to pay fees, taxes and similar charges; or |
| ● | when
it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or to the withdrawal
of shares or other deposited securities. |
This right of withdrawal may not be limited by
any other provision of the deposit agreement.
Direct Registration System
In the deposit agreement, all parties to the deposit
agreement acknowledge that the Direct Registration System, also referred to as DRS, and Profile Modification System, also referred to
as Profile, will apply to the ADSs. DRS is a system administered by DTC that facilitates interchange between registered holding of uncertificated
ADSs and holding of security entitlements in ADSs through DTC and a DTC participant. Profile is a feature of DRS that allows a DTC participant,
claiming to act on behalf of a registered holder of uncertificated ADSs, to direct the depositary to register a transfer of those ADSs
to DTC or its nominee and to deliver those ADSs to the DTC account of that DTC participant without receipt by the depositary of prior
authorization from the ADS holder to register that transfer.
In connection with and in accordance with
the arrangements and procedures relating to DRS/Profile, the parties to the deposit agreement understand that the depositary will
not determine whether the DTC participant that is claiming to be acting on behalf of an ADS holder in requesting registration of
transfer and delivery as described in the paragraph above has the actual authority to act on behalf of the ADS holder
(notwithstanding any requirements under the Uniform Commercial Code). In the deposit agreement, the parties agree that the
depositary’s reliance on and compliance with instructions received by the depositary through the DRS/Profile system and in
accordance with the deposit agreement will not constitute negligence or bad faith on the part of the depositary.
Shareholder Communications; Inspection of Register of Holders
of ADSs
The depositary will make available for your inspection
at its office all communications that it receives from us as a holder of deposited securities that we make generally available to holders
of deposited securities. The depositary will send you copies of those communications or otherwise make those communications available
to you if we ask it to. You have a right to inspect the register of holders of ADSs, but only for the purpose of communicating with those
holders regarding our business or a matter related to the deposit agreement or the ADSs.
Jury Trial Waiver
The deposit agreement provides that, to the extent
permitted by law, ADS holders waive the right to a jury trial of any claim they may have against us or the depositary arising out of or
relating to our shares, the ADSs or the deposit agreement, including any claim under the U.S. federal securities laws. If we or the depositary
opposed a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable in the facts and circumstances
of that case in accordance with applicable case law.
You will not, by agreeing to the terms of the
deposit agreement, be deemed to have waived our or the depositary’s compliance with U.S. federal securities laws or the rules and
regulations promulgated thereunder.
DESCRIPTION OF PREFERRED SHARES
Subject to the provisions of the Companies Act
and in our amended and restated memorandum and articles of association, our board of directors has the authority, without further action
by our shareholders, to issue preferred shares in one or more classes or series and to fix their designations, powers, preferences, privileges,
and relative, participating, optional and other rights and the qualifications, limitations or restrictions, including dividend rights,
conversion rights, voting power, redemption privileges, and liquidation preferences, any or all of which may be greater than the rights
associated with our ordinary shares. 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. Although we do not currently intend to issue any preferred shares, we cannot
assure you that we will not do so in the future.
The material terms of any series of preferred
shares that we offer, together with any material U.S. federal income tax considerations relating to such preferred shares, will be described
in the applicable prospectus supplement.
Holders of our preferred shares are entitled to
certain rights and subject to certain conditions as set forth in our currently effective memorandum and articles of association and the
Companies Act. See “Description of Share Capital.”
DESCRIPTION OF WARRANTS
We may issue and offer warrants under the material
terms and conditions described in this prospectus and any accompanying prospectus supplement. The accompanying prospectus supplement may
add, update or change the terms and conditions of the warrants as described in this prospectus.
General
We may issue warrants to purchase our ordinary
shares, preferred shares or debt securities. Warrants may be issued independently or together with any securities and may be attached
to or separate from those securities. The warrants will be issued under warrant agreements to be entered into between us and a bank or
trust company, as warrant agent, all of which will be described in the prospectus supplement relating to the warrants we are offering.
The warrant agent will act solely as our agent in connection with the warrants and will not have any obligation or relationship of agency
or trust for or with any holders or beneficial owners of warrants.
Equity Warrants
Each equity warrant issued by us will entitle
its holder to purchase the equity securities designated at an exercise price set forth in, or to be determinable as set forth in, the
related prospectus supplement. Equity warrants may be issued separately or together with equity securities.
The equity warrants are to be issued under equity
warrant agreements to be entered into between us and one or more banks or trust companies, as equity warrant agent, as will be set forth
in the applicable prospectus supplement and this prospectus.
The particular terms of the equity warrants, the
equity warrant agreements relating to the equity warrants and the equity warrant certificates representing the equity warrants will be
described in the applicable prospectus supplement, including, as applicable:
| ● | the
title of the equity warrants; |
| ● | the
aggregate amount of equity warrants and the aggregate amount of equity securities purchasable upon exercise of the equity warrants; |
| ● | the
currency or currency units in which the offering price, if any, and the exercise price are payable; |
| ● | if
applicable, the designation and terms of the equity securities with which the equity warrants are issued, and the amount of equity warrants
issued with each equity security; |
| ● | the
date, if any, on and after which the equity warrants and the related equity security will be separately transferable; |
| ● | if
applicable, the minimum or maximum amount of the equity warrants that may be exercised at any one time; |
| ● | the
date on which the right to exercise the equity warrants will commence and the date on which the right will expire; |
| ● | if
applicable, a discussion of United States federal income tax, accounting or other considerations applicable to the equity warrants; |
| ● | anti-dilution
provisions of the equity warrants, if any; |
| ● | redemption
or call provisions, if any, applicable to the equity warrants; and |
| ● | any
additional terms of the equity warrants, including terms, procedures and limitations relating to the exchange and exercise of the equity
warrants. |
Holders of equity warrants will not be entitled,
solely by virtue of being holders, to vote, to consent, to receive dividends, to receive notice as shareholders with respect to any meeting
of shareholders for the election of directors or any other matters, or to exercise any rights whatsoever as a holder of the equity securities
purchasable upon exercise of the equity warrants.
Debt Warrants
Each debt warrant issued by us will entitle its
holder to purchase the debt securities designated at an exercise price set forth in, or to be determinable as set forth in, the related
prospectus supplement. Debt warrants may be issued separately or together with debt securities.
The debt warrants are to be issued under debt
warrant agreements to be entered into between us, and one or more banks or trust companies, as debt warrant agent, as will be set forth
in the applicable prospectus supplement and this prospectus.
The particular terms of each issue of debt warrants,
the debt warrant agreement relating to the debt warrants and the debt warrant certificates representing debt warrants will be described
in the applicable prospectus supplement, including, as applicable:
| ● | the
title of the debt warrants; |
| ● | the
title, aggregate principal amount and terms of the debt securities purchasable upon exercise of the debt warrants; |
| ● | the
currency or currency units in which the offering price, if any, and the exercise price are payable; |
| ● | the
title and terms of any related debt securities with which the debt warrants are issued and the amount of the debt warrants issued with
each debt security; |
| ● | the
date, if any, on and after which the debt warrants and the related debt securities will be separately transferable; |
| ● | the
principal amount of debt securities purchasable upon exercise of each debt warrant and the price at which that principal amount of debt
securities may be purchased upon exercise of each debt warrant; |
| ● | if
applicable, the minimum or maximum amount of warrants that may be exercised at any one time; |
| ● | the
date on which the right to exercise the debt warrants will commence and the date on which the right will expire; |
| ● | if
applicable, a discussion of United States federal income tax, accounting or other considerations applicable to the debt warrants; |
| ● | whether
the debt warrants represented by the debt warrant certificates will be issued in registered or bearer form, and, if registered, where
they may be transferred and registered; |
| ● | anti-dilution
provisions of the debt warrants, if any; |
| ● | redemption
or call provisions, if any, applicable to the debt warrants; and |
| ● | any
additional terms of the debt warrants, including terms, procedures and limitations relating to the exchange and exercise of the debt
warrants. |
Debt warrant certificates will be exchangeable
for new debt warrant certificates of different denominations and, if in registered form, may be presented for registration of transfer,
and debt warrants may be exercised at the corporate trust office of the debt warrant agent or any other office indicated in the related
prospectus supplement. Before the exercise of debt warrants, holders of debt warrants will not be entitled to payments of principal of,
premium, if any, or interest, if any, on the debt securities purchasable upon exercise of the debt warrants, or to enforce any of the
covenants in the indentures governing such debt securities.
DESCRIPTION OF UNITS
We may issue units composed of any combination
of our Class A ordinary shares, ADSs, preferred shares, debt securities or warrants. We will issue each unit so that the holder of
the unit is also the holder of each security included in the unit. As a result, the holder of a unit will have the rights and obligations
of a holder of each included security. The unit agreement under which a unit is issued may provide that the securities included in the
unit may not be held or transferred separately, at any time or at any time before a specified date.
The following description is a summary of selected
provisions relating to units that we may offer. The summary is not complete. When units are offered in the future, a prospectus supplement,
information incorporated by reference or a free writing prospectus, as applicable, will explain the particular terms of those securities
and the extent to which these general provisions may apply. The specific terms of the units as described in a prospectus supplement, information
incorporated by reference, or free writing prospectus will supplement and, if applicable, may modify or replace the general terms described
in this section.
This summary and any description of units in the
supplement, information incorporated by reference or free writing prospectus is subject to and is qualified in its entirety by reference
to the unit agreement, collateral arrangements and depositary arrangements, if applicable. We will file each of these documents, as applicable,
with the SEC and incorporate them by reference as an exhibit to the registration statement of which this prospectus is a part on or before
we issue a series of units. See “Where You Can Find More Information About Us” and “Incorporation of Certain Information
by Reference” for information on how to obtain a copy of a document when it is filed.
The applicable prospectus supplement, information
incorporated by reference or free writing prospectus may describe:
| ● | the
designation and terms of the units and of the securities comprising the units, including whether and under what circumstances those securities
may be held or transferred separately; |
| ● | any
provisions for the issuance, payment, settlement, transfer, or exchange of the units or of the securities composing the units; |
| ● | whether
the units will be issued in fully registered or global form; and |
| ● | any
other terms of the units. |
The applicable provisions described in this section,
as well as those described under “Description of Share Capital,” “Description of American Depositary Shares,”
“Description of Preferred Shares,” “Description of Debt Securities” and “Description of Warrants”
above, will apply to each unit and to each security included in each unit, respectively.
DESCRIPTION OF DEBT SECURITIES
We may issue series of debt securities, which
may include debt securities exchangeable for or convertible into ordinary shares or preferred shares. When we offer to sell a particular
series of debt securities, we will describe the specific terms of that series in a supplement to this prospectus. The following description
of debt securities will apply to the debt securities offered by this prospectus unless we provide otherwise in the applicable prospectus
supplement. The applicable prospectus supplement for a particular series of debt securities may specify different or additional terms.
The debt securities offered by this prospectus
may be secured or unsecured, and may be senior debt securities, senior subordinated debt securities or subordinated debt securities. The
debt securities offered by this prospectus may be issued under an indenture between us and the trustee under the indenture. The indenture
may be qualified under, subject to, and governed by, the Trust Indenture Act of 1939, as amended. We have summarized selected portions
of the indenture below. The summary is not complete. The form of the indenture has been filed as an exhibit to the registration statement
on Form F-3, of which this prospectus is a part, and you should read the indenture for provisions that may be important to you.
The terms of each series of debt securities will
be established by or pursuant to a resolution of our board of directors and detailed or determined in the manner provided in a board of
directors’ resolution, an officers’ certificate and by a supplemental indenture. The particular terms of each series of debt
securities will be described in a prospectus supplement relating to the series, including any pricing supplement.
We may issue any amount of debt securities under
the indenture, which may be in one or more series with the same or different maturities, at par, at a premium or at a discount. We will
set forth in a prospectus supplement, including any related pricing supplement, relating to any series of debt securities being offered,
the offering price, the aggregate principal amount offered and the terms of the debt securities, including, among other things, the following:
| ● | the
title of the debt securities; |
| ● | the
price or prices (expressed as a percentage of the aggregate principal amount) at which we will sell the debt securities; |
| ● | any
limit on the aggregate principal amount of the debt securities; |
| ● | the
date or dates on which we will repay the principal on the debt securities and the right, if any, to extend the maturity of the debt securities; |
| ● | the
rate or rates (which may be fixed or variable) per annum or the method used to determine the rate or rates (including any commodity,
commodity index, stock exchange index or financial index) at which the debt securities will bear interest, the date or dates from which
interest will accrue, the date or dates on which interest will be payable and any regular record date for any interest payment date; |
| ● | the
place or places where the principal of, premium, and interest on the debt securities will be payable, and where the debt securities of
the series that are convertible or exchangeable may be surrendered for conversion or exchange; |
| ● | any
obligation or right we have to redeem the debt securities pursuant to any sinking fund or analogous provisions or at the option of holders
of the debt securities or at our option, and the terms and conditions upon which we are obligated to or may redeem the debt securities; |
| ● | any
obligation we have to repurchase the debt securities at the option of the holders of debt securities, the dates on which and the price
or prices at which we will repurchase the debt securities and other detailed terms and provisions of these repurchase obligations; |
| ● | the
denominations in which the debt securities will be issued; |
| ● | whether
the debt securities will be issued in the form of certificated debt securities or global debt securities; |
| ● | the
portion of principal amount of the debt securities payable upon declaration of acceleration of the maturity date, if other than the principal
amount; |
| ● | the
currency of denomination of the debt securities; |
| ● | the
designation of the currency, currencies or currency units in which payment of principal of, premium and interest on the debt securities
will be made; |
| ● | if
payments of principal of, premium or interest on, the debt securities will be made in one or more currencies or currency units other
than that or those in which the debt securities are denominated, the manner in which the exchange rate with respect to these payments
will be determined; |
| ● | the
manner in which the amounts of payment of principal of, premium or interest on, the debt securities will be determined, if these amounts
may be determined by reference to an index based on a currency or currencies other than that in which the debt securities are denominated
or designated to be payable or by reference to a commodity, commodity index, stock exchange index or financial index; |
| ● | any
provisions relating to any security provided for the debt securities; |
| ● | any
addition to or change in the events of default described in the indenture with respect to the debt securities and any change in the acceleration
provisions described in the indenture with respect to the debt securities; |
| ● | any
addition to or change in the covenants described in the indenture with respect to the debt securities; |
| ● | whether
the debt securities will be senior or subordinated and any applicable subordination provisions; |
| ● | a
discussion of material income tax considerations applicable to the debt securities; |
| ● | any
other terms of the debt securities, which may modify any provisions of the indenture as it applies to that series; and |
| ● | any
depositaries, interest rate calculation agents, exchange rate calculation agents or other agents with respect to the debt securities. |
We may issue debt securities that are exchangeable
for and/or convertible into ordinary shares or preferred shares. The terms, if any, on which the debt securities may be exchanged and/or
converted will be set forth in the applicable prospectus supplement. Such terms may include provisions for exchange or conversion, which
can be mandatory, at the option of the holder or at our option, and the manner in which the number of ordinary shares, preferred shares
or other securities to be received by the holders of debt securities would be calculated.
We may issue debt securities that provide for
an amount less than their stated principal amount to be due and payable upon declaration of acceleration of their maturity pursuant to
the terms of the indenture. We will provide you with information on the U.S. federal income tax considerations, and other special considerations
applicable to any of these debt securities in the applicable prospectus supplement. If we denominate the purchase price of any of the
debt securities in a foreign currency or currencies or a foreign currency unit or units, or if the principal of and any premium and interest
on any series of debt securities is payable in a foreign currency or currencies or a foreign currency unit or units, we will provide you
with information on the restrictions, elections, specific terms and other information with respect to that issue of debt securities and
such foreign currency or currencies or foreign currency unit or units in the applicable prospectus supplement.
We may issue debt securities of a series in
whole or in part in the form of one or more global securities that will be deposited with, or on behalf of, a depositary identified
in the prospectus supplement. Global securities will be issued in registered form and in either temporary or definitive form. Unless
and until it is exchanged in whole or in part for the individual debt securities, a global security may not be transferred except as
a whole by the depositary for such global security to a nominee of such depositary or by a nominee of such depositary to such
depositary or another nominee of such depositary or by such depositary or any such nominee to a successor of such depositary or a
nominee of such successor. The specific terms of the depositary arrangement with respect to any debt securities of a series and the
rights of and limitations upon owners of beneficial interests in a global security will be described in the applicable prospectus
supplement.
The indenture and the debt securities will be
governed by, and construed in accordance with, the internal laws of the State of New York, unless we otherwise specify in the applicable
prospectus supplement.
PLAN OF DISTRIBUTION
We may sell or distribute the securities offered
by this prospectus, from time to time, in one or more offerings, as follows:
| ● | to
dealers or underwriters for resale; |
| ● | directly
to purchasers; or |
| ● | through
a combination of any of these methods of sale. |
In addition, we may issue the securities as a
dividend or distribution or in a subscription rights offering to our existing security holders. In some cases, we or any dealers acting
for us may also repurchase the securities and reoffer them to the public by one or more of the methods described above. This prospectus
may be used in connection with any offering of our securities through any of these methods or other methods described in the applicable
prospectus supplement.
Our securities distributed by any of these methods
may be sold to the public, in one or more transactions, either:
| ● | at
a fixed price or prices, which may be changed; |
| ● | at
market prices prevailing at the time of sale; |
| ● | at
prices related to prevailing market prices; or |
The prospectus supplement relating to any offering
will identify or describe:
| ● | any
underwriter, dealers or agents; |
| ● | the
purchase price of the securities; |
| ● | any
over-allotment options under which underwriters may purchase additional securities from us; |
| ● | the
public offering price of the securities; and |
| ● | any
exchange on which the securities will be listed. |
Sale through Underwriters or Dealers
If we use underwriters for a sale of securities,
the underwriters will acquire the securities for their own account, including through underwriting, purchase, security lending or repurchase
agreements with us. The underwriters may resell the securities from time to time in one or more transactions, including negotiated transactions.
Underwriters may sell the securities in order to facilitate transactions in any of our other securities (described in this prospectus
or otherwise), including other public or private transactions and short sales. Underwriters may offer the securities to the public either
through underwriting syndicates represented by one or more managing underwriters or directly by one or more firms acting as underwriters.
Unless otherwise indicated in the applicable prospectus supplement, the obligations of the underwriters to purchase the securities will
be subject to certain conditions, and the underwriters will be obligated to purchase all the offered securities if they purchase any
of them. The underwriters may change from time to time any public offering price and any discounts or concessions allowed or reallowed
or paid to dealers.
If dealers are used in the sale of the securities
offered through this prospectus, we will sell the securities to them as principals, unless we otherwise indicate in the prospectus supplement.
The dealers may then resell those securities to the public at varying prices determined by the dealers at the time of resale. The applicable
prospectus supplement will include the names of the dealers and the terms of the transaction.
Direct Sales and Sales through Agents
We may sell the securities offered through this
prospectus directly. In this case, no underwriters or agents would be involved. Such securities may also be sold through agents designated
from time to time. The applicable prospectus supplement will name any agent involved in the offer or sale of the offered securities and
will describe any commissions payable to the agent. Unless otherwise indicated in the applicable prospectus supplement, any agent is acting
on a best efforts basis for the period of its appointment.
We may sell the securities directly to institutional
investors or others who may be deemed to be underwriters within the meaning of the Securities Act with respect to any sale of those securities.
The terms of any such sales will be described in the applicable prospectus supplement.
Institutional Investors
If indicated in the prospectus supplement, we
will authorize underwriters, dealers or agents to solicit offers from various institutional investors to purchase securities. In this
case, then payment and delivery will be made on a future date that the prospectus supplement specifies. The underwriters, dealers or agents
may impose limitations on the minimum amount that the institutional investor can purchase. They may also impose limitations on the portion
of the aggregate amount of the securities that they may sell. These institutional investors include:
| ● | commercial
and savings banks; |
| ● | educational
and charitable institutions; and |
| ● | other
similar institutions as we may approve. |
The obligations of any of these purchasers pursuant
to delayed delivery and payment arrangements will not be subject to any conditions. However, one exception applies. An institution’s
purchase of the particular securities cannot at the time of delivery be prohibited under the laws of any jurisdiction that governs:
| ● | the
validity of the arrangements; or |
| ● | the
performance by us or the institutional investor. |
Market Making, Stabilization and Other Transactions
Unless the applicable prospectus supplement states
otherwise, each series of offered securities will be a new issue and will have no established trading market. We may elect to list any
series of offered securities on an exchange. Any underwriters that we use in the sale of offered securities may make a market in such
securities, but may discontinue such market making at any time without notice. Therefore, we cannot assure you that the securities will
have a liquid trading market.
Any underwriter may also engage in
stabilizing transactions, syndicate covering transactions and penalty bids in accordance with Rule 104 under the Exchange Act.
Stabilizing transactions involve bids to purchase the underlying security in the open market for the purpose of pegging, fixing or
maintaining the price of the securities. Syndicate covering transactions involve purchases of the securities in the open market
after the distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the underwriters to reclaim
a selling concession from a syndicate member when the securities originally sold by the syndicate member are purchased in a syndicate
covering transaction to cover syndicate short positions. Stabilizing transactions, syndicate covering transactions and penalty bids may
cause the price of the securities to be higher than it would be in the absence of the transactions. The underwriters may, if they commence
these transactions, discontinue them at any time.
Derivative Transactions and Hedging
The underwriters and us may engage in derivative
transactions involving the securities. These derivatives may consist of short sale transactions and other hedging activities. The underwriters
may acquire a long or short position in the securities, hold or resell securities acquired and purchase options or futures on the securities
and other derivative instruments with returns linked to or related to changes in the price of the securities. In order to facilitate these
derivative transactions, we may enter into security lending or repurchase agreements with the underwriters. The underwriters may effect
the derivative transactions through sales of the securities to the public, including short sales, or by lending the securities in order
to facilitate short sale transactions by others. The underwriters may also use the securities purchased or borrowed from us or others
(or, in the case of derivatives, securities received from us in settlement of those derivatives) to directly or indirectly settle sales
of the securities or close out any related open borrowings of the securities.
Loans of Securities
We may loan or pledge securities to a financial
institution or other third party that in turn may sell the securities using this prospectus and an applicable prospectus supplement. Such
financial institution or third party may transfer its economic short position to investors in our securities or in connection with a concurrent
offering of other securities offered by this prospectus or otherwise.
General Information
Agents, underwriters, and dealers may be entitled,
under agreements entered into with us, to indemnification by us, against certain liabilities, including liabilities under the Securities
Act. Our agents, underwriters, and dealers, or their affiliates, may be customers of, engage in transactions with or perform services
for us or our affiliates, in the ordinary course of business for which they may receive customary compensation.
TAXATION
Material income tax consequences relating to the
purchase, ownership and disposition of any of the securities offered by this prospectus will be set forth in the applicable prospectus
supplement relating to the offering of those securities.
ENFORCEABILITY OF CIVIL LIABILITIES
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; |
| ● | the
absence of exchange control or currency restrictions; and |
| ● | the
availability of professional and support services. |
However, certain disadvantages accompany incorporation
in the Cayman Islands. These disadvantages include, but are not limited to:
| ● | 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; and |
| ● | Cayman
Islands companies may not have standing to sue before the federal courts of the United States. |
Our constituent documents do 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.
Substantially all of our operations are conducted
in China, and substantially all of our assets are located in China. All of our directors and executive 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 against these individuals in the United States, in the event that you believe that your rights have been infringed under 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 to receive service of process with respect to any action brought
against us in the U.S. District Court for the Southern District of New York in connection with any offering we may make under this prospectus
and any applicable prospectus supplement under the federal securities laws of the United States or the securities laws of any State in
the United States or any action brought against us in the Supreme Court of the State of New York in the County of New York in connection
with any offering we may make under this prospectus and any applicable prospectus supplement under the securities laws of the State of
New York.
Conyers Dill & Pearman, our counsel as
to Cayman Islands law, and JunHe LLP, our counsel as to PRC law, have advised us, respectively, that there is uncertainty as to whether
the courts of the Cayman Islands and China, respectively, would:
| ● | recognize
or enforce judgments of U.S. 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. |
We have been advised by our Cayman Islands
legal counsel, Conyers Dill & Pearman, that the courts of the Cayman Islands are unlikely (i) to recognize or enforce
against us judgments of courts of the United States predicated upon the civil liability provisions of the securities laws of the
United States or any state in the United States; and (ii) in original actions brought in the Cayman Islands, to impose
liabilities against us predicated upon the civil liability provisions of the securities laws of the United States or any state in
the United States, so far as the liabilities imposed by those provisions are penal in nature. The courts of the Cayman Islands would
recognize as a valid judgment, a final and conclusive judgment in personam obtained in the United Courts against our company under
which a sum of money is payable (other than a sum of money payable in respect of multiple damages, taxes or other charges of a like
nature or in respect of a fine or other penalty) or, in certain circumstances, an in personam judgment
for non-monetary relief, and would give a judgment based thereon provided that (a) such courts had proper
jurisdiction over the parties subject to such judgment, (b) such courts did not contravene the rules of natural justice of the
Cayman Islands, (c) such judgment was not obtained by fraud, (d) the enforcement of the judgment would not be contrary to
the public policy of the Cayman Islands, (e) no new admissible evidence relevant to the action is submitted prior to the
rendering of the judgment by the courts of the Cayman Islands, and (f) there is due compliance with the correct procedures
under the laws of the Cayman Islands. A Cayman Islands Court may stay enforcement proceedings if concurrent proceedings are being
brought elsewhere.
JunHe LLP 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, public policy considerations and conditions set forth in applicable provisions of PRC laws
relating to the enforcement of civil liability, including the PRC Civil Procedures Law, based either on treaties between China and the
country where the judgment is made or on principles of reciprocity between jurisdictions. 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 U.S. or the Cayman Islands.
LEGAL MATTERS
Except as otherwise set forth in the applicable
prospectus supplement, certain legal matters in connection with the securities offered pursuant to this prospectus will be passed upon
for us by Cleary Gottlieb Steen & Hamilton LLP, our special United States counsel, to the extent governed by the laws of the
State of New York, and by Conyers Dill & Pearman, our special legal counsel as to Cayman Islands law, to the extent governed
by the laws of the Cayman Islands. Legal matters as to PRC law will be passed upon for us by JunHe LLP, our counsel as to PRC law. If
legal matters in connection with offerings made pursuant to this prospectus are passed upon by counsel to underwriters, dealers or agents,
such counsel will be named in the applicable prospectus supplement relating to any such offering.
EXPERTS
The consolidated financial statements as of September 30,
2021 and 2020 and for the years ended September 30, 2021 and 2020 incorporated in this prospectus by reference to our annual report
on Form 20-F for the year ended September 30, 2021 have been so incorporated in reliance on the report of Marcum Asia CPAs
LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
The office of Marcum Asia CPAs LLP is located
at Suite 830, 7 Penn Plaza, New York, New York, the United States.
The consolidated statements of comprehensive loss,
changes in shareholders’ deficit, and cash flows for the year ended September 30, 2019 incorporated in this prospectus by reference
from FLJ Group Limited’s annual report on Form 20-F for the year ended September 30, 2021 have been audited by Deloitte
Touche Tohmatsu Certified Public Accountants LLP, an independent registered public accounting firm, as stated in their report, which is
incorporated herein by reference. Such consolidated financial statements have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The office of Deloitte Touche Tohmatsu Certified
Public Accountants LLP is located at 30th Floor, Bund Center, 222 Yan An Road East, Shanghai, People’s Republic of China.
WHERE YOU CAN FIND
MORE INFORMATION ABOUT US
We are currently subject
to periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers. Accordingly,
we are required to file with or furnish to the SEC reports, including annual reports on Form 20-F and other information. All
information filed with or furnished to the SEC can be inspected and copied at the public reference facilities maintained by the SEC at
100 F Street, N.E., Washington, D.C. 20549. You can request copies of these documents upon payment of a duplicating fee, by writing to
the SEC. You can call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms. Additional
information may also be obtained over the Internet at the SEC’s website at www.sec.gov. We also maintain a website at http://ir.qk365.com,
but information contained on our website is not incorporated by reference in this prospectus or any prospectus supplement. You should
not regard any information on our website as a part of this prospectus or any prospectus supplement.
As a foreign private
issuer, we are exempt under the Exchange Act from, among other things, the rules prescribing the furnishing and content of proxy statements,
and our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions
contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file periodic reports
and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange
Act. However, we intend to furnish the depositary with our annual reports, which will include a review of operations and annual audited
consolidated financial statements prepared in conformity with U.S. GAAP, and all notices of shareholders’ meetings and other reports
and communications that are made generally available to our shareholders. The depositary will make such notices, reports and communications
available to holders of ADSs and, if we so request, will mail to all record holders of ADSs the information contained in any notice of
a shareholders’ meeting received by the depositary from us.
We have filed with the
SEC a registration statement on Form F-3 relating to the securities covered by this prospectus. This prospectus and any accompanying
prospectus supplement are part of the registration statement and do not contain all the information in the registration statement. You
will find additional information about us in the registration statement. Any statement made in this prospectus concerning a contract or
other document of ours is not necessarily complete, and you should read the documents that are filed as exhibits to the registration statement
or otherwise filed with the SEC for a more complete understanding of the document or matter. Each such statement is qualified in all respects
by reference to the document to which it refers. You may inspect a copy of the registration statement at the SEC’s Public Reference
Room in Washington, D.C., as well as through the SEC’s website.
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