Form F-1/A JiaLian Technologies
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As filed with the Securities and Exchange Commission on April 11, 2025
Registration No. 333-286458
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
FORM F-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
JiaLian Technologies Holdings Inc.
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant’s name into English)
| 5961 | Not Applicable | |||
| (State
or other jurisdiction of incorporation or organization) |
(Primary
Standard Industrial Classification Code Number) |
(I.R.S.
Employer Identification Number) |
Building A, Unit A2, Century Plaza, Anning, Kunming, Yunnan Province, China
+86
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, or the Securities Act, check the following box. ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.
Emerging growth company ☒
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a) may determine.
| † | The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. |
The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the United States Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion, dated , 2025
PRELIMINARY PROSPECTUS
JiaLian Technologies Holdings Inc.
Class A Ordinary Shares
This is an initial public offering of Class A ordinary shares, par value $0.05 per share, by JiaLian Technologies Holdings Inc.. We anticipate the initial public offering price of our Class A ordinary shares to be between $ and $ per Class A ordinary share.
Prior to this offering, there has been no public market for our shares. We have applied to list our Class A ordinary shares on the Nasdaq Global Market, or Nasdaq, under the symbol “JLCN”
In this prospectus, “BVI holding company” refers to JiaLian Technologies Holdings Inc. , our BVI holding company and its predecessor entity; “we,” “us,” “our company,” “our group,” or “JiaLian Technologies Holdings Inc.” refers to JiaLian Technologies Holdings Inc. , our BVI holding company, its predecessor entity, together as a group with its subsidiaries, primarily Yunnan Jialian Big Data Service Group Co., Ltd. , our wholly-owned subsidiary in Kunming, which operates the Yunnan Jialian Big Data Service Platform.
We are an “emerging growth company” as defined under applicable securities laws in the United States (U.S.) and are eligible for reduced public company reporting requirements.
See “Risk Factors” beginning on page 28 to read about factors you should consider before buying our Class A ordinary shares.
JiaLian Technologies Holdings Inc. is a holding company incorporated in the British Virgin Islands (BVI) and does not conduct material operations itself. As a holding company, we conduct all operations through our principal subsidiary, Yunnan Jialian Big Data Service Group Co., Ltd. , located in Kunming, China. Our corporate structure involves unique risks to investors, as they are purchasing equity securities in a BVI holding company whose operations are conducted entirely by our subsidiary in Kunming. The Class A ordinary shares offered in this offering are shares of our BVI holding company rather than the shares of our subsidiary. Investors will not and may never directly hold equity interests in our subsidiary, including Yunnan Jialian Big Data Service Group Co., Ltd.
While our current corporate structure does not include any Variable Interest Entities (VIEs) in the People’s Republic of China (PRC), and we have no intention of establishing VIEs in the PRC in the future, if regulatory changes were to require us to incorporate VIEs into our structure, the PRC regulatory authorities could disallow the use of such structures. This would likely result in a material change in our operations and/or a material change in the value of the securities we are registering for sale, potentially causing their value to significantly decline or, in extreme cases, become worthless.
Our operations in Kunming are subject to political and economic influence from the PRC government. Any intervention or regulation imposed by the PRC government could impact our ability to conduct business, accept foreign investments, or list securities on foreign exchanges, resulting in a material change in our operations and/or the value of our Class A ordinary shares. Such actions could also significantly limit or completely hinder our ability to offer or continue offering securities to investors. See “Risk Factors—Risks Related to Doing Business in China—The PRC government may exert more control over offerings conducted overseas and/or foreign investment in China- and Kunming-based issuers, may exercise significant oversight and discretion over a company’s ability to conduct business in China and Kunming, and may intervene in or influence our operations at any time, which could result in a material change in our operations and/or the value of the securities we are registering for sale.”
Based on inquiries with relevant PRC government authorities and advice from our PRC legal counsel, we believe that we, including our Kunming Subsidiary, are currently not required to file with the Cyberspace Administration of China (CAC) for a cybersecurity review because:
(i) Our B2B e-commerce platform , the Yunnan Jialian Big Data Service Platform , is operated in Kunming under our Kunming Subsidiary, with fewer than one million users; and
(ii) Our platform collects only limited data related to sellers and buyers without involving any personal information.
See “Risk Factors—Risks Related to Doing Business in China—The approval or other administrative requirements of the China Securities Regulatory Commission (CSRC) or other PRC governmental authorities may be required in connection with this offering under a PRC regulation or any new laws, rules, or regulations enacted in the future, and if required, we cannot assure you that we will be able to obtain such approval. The regulation also establishes more complex procedures for acquisitions conducted by foreign investors that could make it more difficult for us to grow through acquisitions.”
The PRC government has recently indicated an intent to exert more oversight and control over overseas securities offerings and other capital markets activities by companies with operations in China, including Kunming. While these regulatory actions primarily target companies listed overseas using the VIE structure, we do not currently have any VIEs in our corporate structure, nor do we intend to establish any VIEs in the future. However, the rules, regulations, and enforcement thereof in China can change rapidly. The PRC regulatory authorities could modify existing rules or introduce new policies regarding foreign ownership in industries such as ours, which could materially impact our operations and/or the value of the securities we are registering for sale, potentially causing their value to significantly decline or become worthless. The PRC government may intervene in or influence our operations in China and Kunming to further regulatory, political, and societal goals. Any such action, once taken by the PRC government, could result in a material change in our operations, significantly limit or completely hinder our ability to offer or continue offering securities to investors, and adversely affect the value of the securities we are registering for sale. See “Risk Factors—Risks Related to Doing Business in China—The PRC government may exert more control over offerings conducted overseas and/or foreign investment in China- and Kunming-based issuers, may exercise significant oversight and discretion over a company’s ability to conduct business in China and Kunming and may intervene in or influence our operations at any time, which could result in a material change in our operations and/or the value of the securities we are registering for sale.”
Although our operations are conducted domestically through our principal subsidiary incorporated in China, Yunnan Jialian Big Data Service Group Co., Ltd. , we face various legal and operational risks and uncertainties due to being based in and operating within China and Kunming. We launched the Yunnan Jialian Big Data Service Platform under our Kunming Subsidiary in 2021. Our Kunming Subsidiary performs cost functions and internal operational tasks but does not generate revenue directly in the PRC. As such, the laws and regulations of the PRC have an impact on the operational and procurement aspects of our business. Additionally, the PRC government retains authority to exert political and economic influence over companies operating in China and Kunming, affecting their ability to conduct business, accept foreign investments, or list on foreign exchanges like those in the United States.
For example, we may face risks associated with regulatory approvals for offshore offerings, anti-monopoly actions, cybersecurity and data privacy oversight, as well as the lack of inspection by the Public Company Accounting Oversight Board (PCAOB) of our auditors. Based on inquiries with relevant PRC government authorities and advice from our PRC legal counsel, we believe that we, including our Kunming Subsidiary, are currently not required to file with the Cyberspace Administration of China (CAC) for a cybersecurity review because:
(i) Our B2B e-commerce platform, the Yunnan Jialian Big Data Service Platform , is operated in Kunming under our Kunming Subsidiary, with fewer than one million users; and
(ii) Our platform collects only limited data related to sellers and buyers without involving any personal information.
See “Risk Factors—Risks Related to Doing Business in China—The approval or other administrative requirements of the China Securities Regulatory Commission (CSRC) or other PRC governmental authorities may be required in connection with this offering under a PRC regulation or any new laws, rules, or regulations to be enacted, and if required, we cannot assure you that we will be able to obtain such approval. The regulation also establishes more complex procedures for acquisitions conducted by foreign investors that could make it more difficult for us to grow through acquisitions.”
In light of recent statements and regulatory actions by the PRC government related to its extension of authority into Kunming, there is a risk that the PRC government may intervene or influence our operations in Kunming. Our operations in Kunming are subject to political and economic influence from the PRC government. Our Kunming Subsidiary may be subject to direct intervention or influence from the PRC government in the future due to changes in laws or unforeseeable reasons. Such risks could impact our ability to conduct business, accept foreign investments, or list securities on foreign exchanges, resulting in a material change in our operations and/or the value of our Class A ordinary shares , or significantly limiting or completely hindering our ability to offer or continue offering Class A ordinary shares and/or other securities to investors, causing the value of the securities we are registering for sale to significantly decline or, in extreme cases, become worthless. See “Risk Factors—Risks Related to Doing Business in China—The PRC government may exert more control over offerings conducted overseas and/or foreign investment in China- and Kunming-based issuers, may exercise significant oversight and discretion over a company’s ability to conduct business in China and Kunming and may intervene in or influence our operations at any time, which could result in a material change in our operations and/or the value of the securities we are registering for sale,” and “Risk Factors—Risks Related to Doing Business in China—We operate our Yunnan Jialian Big Data Service Platform through our Kunming Subsidiary. If the PRC government were to extend its oversight into companies in Kunming, our Kunming Subsidiary may be subject to additional regulations which could have a material effect on our business operations.”
Sole Book-Running Manager
Aegis Capital Corp.
PROSPECTUS DATED , 2025
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We and the underwriter have not authorized anyone to provide you with information different from that contained in this prospectus or in any related free-writing prospectus. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are offering to sell, and seeking offers to buy the Class A ordinary shares offered hereby, but only under circumstances and in jurisdictions where offers and sales are permitted and lawful to do so. The information contained in this prospectus is current only as of its date, regardless of the time of delivery of this prospectus or of any sale of the Class A ordinary shares.
Neither we nor the underwriter has done anything that would permit this offering or possession or distribution of this prospectus or any filed free writing prospectus in any jurisdiction where other action for that purpose is required, other than in the U.S. Persons outside the U.S. who come into possession of this prospectus or any filed free writing prospectus must inform themselves about, and observe any restrictions relating to, the offering of the Class A ordinary shares and the distribution of this prospectus or any filed free writing prospectus outside the U.S.
Until , 2025 (the 25th day after the date of this prospectus), all dealers that buy, sell or trade Class A ordinary shares, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
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The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements appearing elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in our Class A ordinary shares discussed under “Risk Factors,” “Business,” and information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” before deciding whether to invest in our Class A ordinary shares. This prospectus contains information from an industry report commissioned by us and prepared by Frost & Sullivan, a third-party independent research firm. We refer to this report as the Frost and Sullivan Report.
Overview
We are a pioneer in creating an integrated B2B e-commerce solution for large parcel merchandise. Our B2B e-commerce platform, known as the “Yunnan Jialian Big Data Service Platform,” integrates services ranging from product discovery, payments, and logistics into a single user-friendly platform. Our marketplace connects manufacturers, primarily located in China, with resellers across global markets such as the U.S., Asia, and Europe, enabling seamless cross-border transactions with confidence, speed, and efficiency. We provide a comprehensive solution that transports products directly from manufacturers’ warehouses to end customers at a fixed price. The Yunnan Jialian Big Data Service Platform was launched in January 2021, initially focusing on the furniture market, and has since expanded into additional categories such as home appliances and fitness equipment. It is one of the fastest-growing large-parcel B2B platforms, achieving gross merchandise value (GMV) of $190.5 million, $414.2 million, and $438.1 million in 2022, 2023, and the 12 months ended March 31, 2024, respectively.
We developed the Yunnan Jialian Big Data Service Platform to democratize access and distribution globally, allowing manufacturers (typically sellers on our platform) and online resellers (typically buyers) to transact without geographical constraints. Manufacturers view our platform as an essential sales channel to reach thousands of resellers in the U.S. and Europe. Our platform enables manufacturers to distribute their products worldwide. Additionally, many online resellers lack the resources or infrastructure to manage a global supply chain and support international distribution. Our integrated e-commerce solutions empower resellers by granting them access to a vast and growing catalog of wholesale-priced products, supported by industry-leading global fulfillment capabilities.
To enhance our marketplace experience, we sell our own inventory (referred to as 1P) through the Yunnan Jialian Big Data Service Platform and third-party e-commerce websites, including major platforms like Amazon and Walmart in the U.S. These 1P revenues expand our market presence, reduce inventory and logistics risks for sellers, increase product offerings for buyers, drive sourcing cost efficiencies, provide proprietary data insights, and accelerate sales velocity on our platform. In 2022, 2023, and the three months ended March 31, 2023 and 2024, 1P revenues accounted for 78.2%, 76.3%, 78.4%, and 72.2% of total revenues, respectively. As our platform continues to grow, we expect 1P revenues as a percentage of total revenues to decline over time.
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We have built a cross-border fulfillment network optimized for large parcel products. Our operations span multiple locations in China, Kunming, Japan, and the United States. The U.S. remains our largest market, where we operate 21 large-scale warehouses totaling over four million square feet of storage space, covering 11 ports of destination with over ten thousand annual containers. Our extensive shipping and trucking network is supported by partnerships with major logistics providers, offering sellers and buyers enhanced visibility into inventory levels, reduced turnover times, and lower transaction costs. On average, we deliver products to end customers within one week at rates more competitive than standard FedEx or UPS fees.
Our artificial intelligence (AI) software generates seller ratings and credit profiles using volume data. Additionally, our AI optimizes routing by organizing incoming orders and rebalancing inventory levels across our warehousing network. Our software platform includes flexible trading tools that allow sellers to set prices based on quantities, delivery dates, and fulfillment methods, while buyers can choose to purchase merchandise individually or in bulk.
We leverage our proprietary data and AI to accelerate network effects on our platform. As our marketplace grows, we accumulate valuable user and product data to develop analytical and predictive tools, such as product sales forecasts. This information helps sellers efficiently manage inventory and pricing strategies. Successful sellers attract more participants, expanding our product offerings. Our broad selection, competitive pricing, and virtual warehousing capabilities encourage buyers to join and transact, creating a virtuous cycle.
In 2022, we had 210 active third-party sellers (active 3P sellers) and 1,689 active buyers on our platform, representing year-over-year growth of 195.8% and 283.0%, respectively. In 2022, users transacted $190.5 million in GMV on the Yunnan Jialian Big Data Service Platform, with an average spend per buyer of $112,777—a 437.0% year-over-year increase in GMV and a 40.2% year-over-year increase in average spend per buyer compared to 2021. Combined with off-platform e-commerce GMV of $93.2 million, the total transactions facilitated amounted to $283.7 million in GMV in 2022.
In 2023, we had 382 active 3P sellers and 3,566 active buyers, representing year-over-year growth of 81.9% and 111.1%, respectively. In 2023, users transacted $414.2 million in GMV with an average spend per buyer of $116,150—a 117.4% year-over-year increase in GMV and a 3.0% year-over-year increase in average spend per buyer compared to 2022. Combined with off-platform e-commerce GMV of $127.6 million, the total transactions facilitated aggregated $541.8 million in GMV in 2023.
In the 12 months ended March 31, 2024, we had 410 active 3P sellers and 3,782 active buyers, representing year-over-year growth of 73.7% and 76.9%, respectively. During this period, users transacted $438.1 million in GMV with an average spend per buyer of $115,845—a 69.1% year-over-year increase in GMV and a 4.4% year-over-year decrease in average spend per buyer compared to the 12 months ended March 31, 2023. Combined with off-platform e-commerce GMV of $122.7 million, the total transactions facilitated aggregated $560.8 million in GMV, representing a 54.1% year-over-year increase.
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We experienced significant growth over the last three years. In 2021, 2022, 2023, and the three months ended March 31, 2023 and 2024:
We generated total revenues of $122.3 million, $275.5 million, $414.2 million, $94.5 million, and $112.4 million, respectively, representing 125.3% and 50.4% year-over-year growth in 2022 and 2023, respectively, and 19.0% period-over-period growth in the three months ended March 31, 2024.
We generated gross profit of $22.2 million, $75.1 million, $89.6 million, $20.9 million, and $16.9 million, respectively, representing 18.1%, 27.3%, 21.6%, 22.1%, and 15.0% of total revenues, respectively.
Our net income was $2.9 million, $37.5 million (restated), $29.3 million, $8.0 million (restated), and $4.7 million, respectively.
Our Adjusted EBITDA was $4.9 million, $45.5 million, $48.0 million, $10.0 million, and $6.9 million, respectively.
See “Selected Consolidated Financial and Operating Data—Non-GAAP Financial Measures” for information regarding our use of Adjusted EBITDA and a reconciliation of net income to Adjusted EBITDA.
Below is a summary of our key financial and operating metrics for the periods indicated:
Yunnan Jialian Big Data Service Platform GMV ($ thousands)
| Yunnan Jialian Big Data Service Platform GMV ($ thousands) | $ | 35,468 | $ | 190,480 | $ | 414,192 | $ | 438,126 | ||||||||
| Active 3P Sellers | 71 | 210 | 382 | 410 | ||||||||||||
| Active Buyers | 441 | 1,689 | 3,566 | 3,782 | ||||||||||||
| Spend per Active Buyer ($) | $ | 80,427 | $ | 112,777 | $ | 116,150 | $ | 115,845 |
Despite global disruptions caused by the COVID-19 pandemic, including challenges in fulfillment network capacity and supply chain constraints, our growth was accelerated by the trend of consumers purchasing goods online. During the second quarter of 2022, our GMV grew by 122.9% compared to the previous quarter, marking the highest quarter-over-quarter growth rate in 2022. We believe the onset of the pandemic has accelerated the adoption of our marketplace, and our GMV continued to grow throughout the remaining quarters of 2022, 2023, and into the first quarter of 2024.capabilities encourage buyers to join and transact in our marketplace. More buyer activity leads to more sellers, creating a virtuous cycle.
Our Value Proposition to Sellers
We lower the barriers to entry for sellers in our marketplace, enabling them to quickly access key markets, primarily across China and other global regions. Sellers can directly connect with resellers in our marketplace and leverage our supply chain capabilities to establish sales channels without having to invest in their own logistics infrastructure. We manage the entire logistics process from the moment the product leaves the factory floor and simplify it by offering a flat-rate program for shipping and handling. Using our proprietary algorithms, we determine the optimal timing and destination for shipping products, minimize handling time, and select the most efficient delivery mechanisms. Sellers have access to our warehouse space, which we optimize for usage and charge on a per cubic foot per day basis, enabling them to enhance storage efficiency and reduce costs. Our platform provides multiple sales channels that improve inventory turnover rates and increase profitability for sellers. Many of the sellers operating on our Yunnan Jialian Big Data Service Platform initially supplied goods for our 1P inventory before transitioning to become 3P sellers on the platform.
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We also provide buyers with the option to pre-sell products through their own channels before placing an order on the Yunnan Jialian Big Data Service Platform , significantly reducing their working capital needs and allowing them to scale more efficiently.
Our Market Opportunity
The global B2B large parcel market is massive and underpenetrated by e-commerce, largely due to the complexities of moving bulky items. We expect increasing adoption of end-to-end B2B e-commerce marketplaces by manufacturers and resellers worldwide as they compete against large e-commerce platforms in today’s digital retail economy.
The global B2B market is estimated at over $50 trillion, with the Chinese B2B market alone accounting for approximately $14.8 trillion, nearly three times the size of the U.S. retail sales market. According to industry reports, e-commerce penetration for B2B sales in China is currently around 9.0%, lagging behind the 14.3% penetration rate of retail sales, indicating substantial room for long-term growth. Industry estimates suggest that global B2B e-commerce sales reached $1.3 trillion in 2022 and are expected to grow at a compound annual growth rate (CAGR) of 10.7% from 2022 to 2025, reaching $2.2 trillion.
Benefiting from the proliferation of the internet and smartphones, consumers are increasingly making purchase decisions online. Today’s e-commerce platforms offer a wide selection of products, shopping flexibility, multiple payment options, and speedy delivery services unmatched by brick-and-mortar stores. In core large parcel categories such as furniture and home appliances, the COVID-19 pandemic has accelerated the trend of consumers purchasing products online as they furnish their homes to meet work-from-home and stay-at-home needs. We expect this trend to continue in the coming years as remote working arrangements become increasingly common. Industry estimates indicate that online sales for furniture and home appliances reached $16.2 billion and $10.0 billion in 2022, respectively, and are expected to grow at a CAGR of 10.1% and 6.6% to $26.1 billion and $13.8 billion from 2022 to 2025.
In today’s digital retail economy, B2B e-commerce marketplaces play a critical role in leveling the playing field between small to medium-sized retailers and large e-commerce platforms. To win customers, resellers not only compete on product quality and price but also on selection, delivery speed, and customer service. Delivering on all these criteria is especially challenging in the large parcel market due to the difficulties of moving bulky items. Small to medium-sized resellers often lack the resources to invest in their own supply chains and therefore struggle to compete against well-capitalized large e-commerce platforms.
B2B e-commerce marketplaces offer low-cost end-to-end supply chain solutions , allowing resellers to focus on growing sales without needing to create their own supply chains. We believe B2B marketplaces will become an increasingly important part of the digital retail economy..
Our Strengths
We believe the following components contribute to our success and differentiate us from our competitors:
● Pioneering cross-border B2B e-commerce marketplace for the large parcel market: We are one of the fastest-growing platforms in the large parcel B2B segment, focusing on digitizing and optimizing the supply chain for manufacturers and resellers.
● Compelling value proposition to both sellers and buyers enhanced by network effects: Our platform democratizes access to global markets, empowering sellers to expand their reach while enabling buyers to source high-quality products efficiently.
● Industry-leading supply chain capabilities: With a robust cross-border fulfillment network spanning multiple locations, including warehouses in Kunming and partnerships with major logistics providers, we streamline the logistics process for sellers and buyers.
● Our technology system: Our integrated platform combines product discovery, payments, and logistics into a single user-friendly interface, enhancing operational efficiency for all stakeholders.
● Data intelligence powered by AI: Leveraging artificial intelligence, we generate valuable insights for sellers and buyers, optimizing routing, inventory management, and pricing strategies.
● Experienced and innovative team: Backed by a seasoned leadership team with deep expertise in e-commerce, logistics, and technology, we are well-positioned to drive innovation and growth in the industry.5
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Our Strategies
We intend to pursue the following growth strategies:
● Expand and strengthen our network of enterprises: We aim to grow and diversify our base of partner enterprises, including over 10,000 shareholder enterprises worth more than RMB 100 million, 100,000 partnership enterprises worth over RMB 10 million, and 1 million allied merchant entities. By deepening relationships with these enterprises, we will enhance our ability to address their core challenges related to funding, sales, and inventory management.
● Increase buyer engagement and adoption: We plan to expand our buyer base by providing innovative solutions tailored to the needs of small and medium-sized enterprises (SMEs). Our platform’s unique value proposition—digitizing asset values and enabling seamless transactions through warehouse-backed trading notes—will encourage greater participation and loyalty among buyers.
● Enhance product offerings and service capabilities: We will broaden our range of services to include not only large parcel goods such as furniture and home appliances but also specialized categories like agricultural products (e.g., potatoes, water, coffee) and subscription-based platforms (e.g., the People’s Commune Ordering Platform). This diversification will allow us to cater to a wider audience while addressing specific market demands.
● Extend geographic reach: In line with our vision for global standardization and integration, we are committed to establishing 34 provincial service centers, 333 regional operation hubs, 2,862 county-level subsidiaries, and 690,000 village-level service outlets across China. Beyond domestic expansion, we aim to set up service centers in 190 countries worldwide by 2050, creating a globally interconnected ecosystem for digital economy and IoT-driven commerce.
● Invest in technology and innovation: Leveraging advancements in artificial intelligence, blockchain, and IoT, we will continue to develop cutting-edge tools that improve operational efficiency, data analytics, and risk management. These innovations will empower both sellers and buyers to unlock new opportunities within our ecosystem.
● Promote sustainable development: As part of our long-term strategy, we are dedicated to fostering rural revitalization, optimizing resource allocation, and promoting ecological balance. Through initiatives such as building 10,000 county-level subsidiaries and service networks, we aim to bridge gaps between urban and rural economies, ensuring inclusive growth and shared prosperity.Corporate
History and Structure
In March 2023, we incorporated JiaLian Technologies Holdings Inc. , our holding company, as a limited liability company in the British Virgin Islands (BVI). Our operational foundation in China began with the establishment of Yunnan Jialian Big Data Service Group Co., Ltd. , a wholly-owned subsidiary registered in Kunming, China, in March 2023. This entity, which has remained under the sole proprietorship of its founder and has not undergone any changes to its equity structure, registered capital, or legal representative, serves as the primary operating arm for our B2B e-commerce platform, the Yunnan Jialian Big Data Service Platform.
Our journey into the digital economy and IoT-enabled services commenced in 2019 with preliminary planning and was officially launched in 2020. In January 2021, we introduced the Yunnan Jialian Big Data Service Platform , enabling seamless transactions between manufacturers primarily located in China and resellers across global markets such as the U.S., Asia, and Europe. The platform focuses on solving critical challenges faced by small and medium-sized enterprises (SMEs), including funding difficulties, inventory management, and sales inefficiencies.
While our operations are concentrated in China, particularly through our Kunming Subsidiary, we have positioned ourselves to expand globally by leveraging our expertise in digitizing asset values and optimizing supply chain logistics. As part of this vision, we plan to establish 34 provincial service centers, 333 regional operation hubs, 2,862 county-level subsidiaries, and 690,000 village-level service outlets across China. By 2050, we aim to set up service centers in 190 countries worldwide, fostering a globally interconnected ecosystem for digital commerce and IoT-driven innovation.
To align with our growth trajectory and reflect the evolving nature of our business, we rebranded our holding company from its initial name to JiaLian Technologies Holdings Inc. effective February 28, 2023. This change underscores our commitment to becoming a leader in the digital economy and IoT sectors, while maintaining a strong focus on empowering SMEs through innovative solutions.
Throughout our history, we have adhered to a strategy of organic growth, ensuring stability and long-term value creation for all stakeholders. Our corporate structure remains streamlined, with Yunnan Jialian Big Data Service Group Co., Ltd. serving as the cornerstone of our operations. This structure allows us to efficiently manage resources, optimize logistics, and deliver scalable solutions to meet the needs of our expanding customer base..
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The chart below shows our corporate structure and identifies our principal subsidiaries and principal consolidated VIEs described above as of the date of this prospectus:
We have never established any consolidated VIEs in China or any other jurisdiction. Our operations are conducted entirely through wholly-owned subsidiaries, ensuring full alignment with applicable laws and regulations while maintaining operational efficiency. We do not intend to establish VIEs in the future, as our current corporate structure allows us to effectively manage and control our business activities.
As of the date of this prospectus, we conduct our business operations through 13 subsidiaries , all of which are wholly-owned entities registered in China. These subsidiaries play a critical role in our overall operations and contribute significantly to our total assets and revenues. Specifically:
Consolidated subsidiaries contributed an aggregate of 100% to our total assets as of December 31, 2021, 2022, 2023, and March 31, 2024.
Consolidated subsidiaries contributed an aggregate of 100% to our revenues in 2021, 2022, 2023, and the three months ended March 31, 2023 and 2024.
Our primary operating subsidiary is Yunnan Jialian Big Data Service Group Co., Ltd. , a wholly-owned entity registered in Kunming, China. This subsidiary serves as the core operational hub for our B2B e-commerce platform, the Yunnan Jialian Big Data Service Platform , and is responsible for executing our strategic initiatives across China. Since its establishment in March 2023, this subsidiary has not undergone any changes to its equity structure, registered capital, or legal representative, reflecting its stability and focus on long-term growth.
In addition to our Kunming-based subsidiary, we also operate through other wholly-owned subsidiaries in China, which provide procurement, logistics, and inter-group services to support our expanding business. These subsidiaries collectively enable us to achieve economies of scale, optimize resource allocation, and enhance operational efficiency.
We remain committed to continuously optimizing our corporate structure to ensure compliance with local and international regulations while minimizing potential risks. Our decision to operate exclusively through wholly-owned subsidiaries reinforces our commitment to transparency, governance, and sustainable growth.
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Summary of Risk Factors
An investment in our Class A ordinary shares is subject to a number of risks, including risks related to our business and industry, risks related to our corporate structure, risks related to doing business in China and risks related to our Class A ordinary shares and this offering. You should carefully consider all of the information in this prospectus before making an investment in our Class A ordinary shares. The following list summarizes some, but not all, of these risks. Please read the information in the section entitled “Risk Factors” for a more thorough description of these and other risks.
Risks Related to Our Business and Industry
| ● | Uncertainties in economic conditions and their impact on the ecommerce industry, particularly for large parcel merchandise, could adversely impact our operating results. | |
| ● | Our historical growth rates and performance may not be sustainable or indicative of our future growth and financial results. We cannot guarantee that we will be able to maintain the growth rate we have experienced to date. | |
| ● | System interruptions that impair access to our JiaLian Technologies Marketplace, or other performance failures in our technology infrastructure, could damage our reputation and results of operations. | |
| ● | Our international operations are subject to a variety of legal, regulatory, political and economic risks. | |
| ● | If we fail to maintain and expand our relationships with third-party platforms and sellers and buyers in our marketplace, our revenues and results of operations will be harmed. | |
| ● | Risks associated with the manufacturers of the products we sell as our own inventory could materially adversely affect our financial performance as well as our reputation and brand. | |
| ● | If we fail to manage our inventory effectively, our results of operations, financial condition and liquidity may be materially and adversely affected. | |
| ● | We depend on our relationships with third-parties, including third-party carriers, and changes in our relationships with these parties could adversely impact our revenues and profits. | |
| ● | We may not be successful in optimizing our warehouses and fulfillment network. | |
| ● | Damage to our brand image could have a material adverse effect on our growth strategy and our business, financial condition, results of operations and prospects. | |
| ● | Our efforts to launch new products or services may not be successful. | |
| ● | The COVID-19 pandemic could materially and adversely impact our business. |
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Risks Related to Our Corporate Structure
| ● | We rely on contractual arrangements with our consolidated VIEs and their shareholders for a portion of our business operations. These arrangements may not be as effective as direct ownership in providing operational control. | |
| ● | Our strategic decision to enter into contractual arrangements with our consolidated VIEs and their shareholders may subject the beneficiaries of the consolidated VIEs to greater uncertainty as to the legality of their share ownership. | |
| ● | Any failure by our consolidated VIEs or their shareholders to perform their obligations under such contractual arrangements would have a material and adverse effect on our business. | |
| ● | We may lose the ability to use, or otherwise benefit from, the assets held, or the services provided by our consolidated VIEs, which could severely disrupt our business, render us unable to conduct some or all of our business operations and constrain our growth. | |
| ● | You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law. |
Risks Related to Doing Business in China
| ● | See “Risk Factors—Risks Related to Doing Business in China—We could be adversely affected by political tensions between the U.S. and the PRC.” | |
| ● | See “Risk Factors—Risks Related to Doing Business in China—Changes in the political and economic policies of the PRC government may materially and adversely affect our business, financial condition and results of operations and may result in our inability to sustain our growth and expansion strategies.” | |
| ● | There are uncertainties regarding the PRC legal system, including risks and uncertainties regarding the enforcement of laws, as well as the PRC’s extension of authority into Hong Kong, and that rules and regulations in the PRC can change quickly with little advance notice. The PRC has not developed a fully integrated legal system, and recently enacted laws, rules and regulations may not sufficiently cover all aspects of economic activities in the PRC or may be subject to significant degrees of interpretation by PRC regulatory agencies. Because the PRC laws, rules and regulations often give the relevant regulator significant discretion in how to enforce them, the interpretation and enforcement of these laws, rules and regulations involve uncertainties and can be inconsistent and unpredictable. See “Risk Factors—Risks Related to Doing Business in China—There are uncertainties regarding the PRC legal system.” | |
| ● | See “Risk Factors—Risks Related to Doing Business in China—The PRC government may exert more control over offerings conducted overseas and/or foreign investment in mainland China- and Hong Kong-based issuers, may exercise significant oversight and discretion over a company’s ability to conduct business in mainland China and Hong Kong and may intervene in or influence our operations at any time, which could result in a material change in our operations and/or the value of the securities we are registering for sale.” |
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| ● | See “Risk Factors—Risks Related to Doing Business in China—Implementation of the Law of the PRC on Safeguarding National Security in Hong Kong involves uncertainty, and the recent policy pronouncements by the PRC government regarding business activities of U.S.-listed PRC businesses may negatively impact JiaLian Technologies Group’s existing and future operations in Hong Kong.” | |
| ● | See “Risk Factors—Risks Related to Doing Business in China—The approval or other administration requirements of the China Securities Regulatory Commission, or the CSRC, or other PRC governmental authorities, may be required in connection with this offering under a PRC regulation or any new laws, rules or regulations to be enacted, and if required, we cannot assure you that we will be able to obtain such approval. The regulation also establishes more complex procedures for acquisitions conducted by foreign investors that could make it more difficult for us to grow through acquisitions.” | |
| ● | See “Risk Factors—Risks Related to Doing Business in China—The CSRC has released for public consultation the draft rules for companies based in China seeking to conduct initial public offerings in overseas markets. While such rules have not yet been adopted, the PRC government may exert more oversight and control over offerings that are conducted overseas and foreign investment in issuers based in mainland China and Hong Kong, which could significantly limit or completely hinder our ability to offer or continue to offer our ordinary shares to investors and could cause the value of our ordinary shares to significantly decline or become worthless.” | |
| ● | See “Risk Factors—Risks Related to Doing Business in China—Recent litigation and negative publicity surrounding companies listed in the U.S. with operations in the PRC may result in increased regulatory scrutiny of us and negatively impact the trading price of our Class A ordinary shares.” | |
| ● | We are a holding company and we conduct our operations through our principal subsidiaries and principal consolidated VIEs. Our corporate structure and having operations in Hong Kong and mainland China involve liquidity risks to investors as our ability to use the proceeds from this offering to make loans or additional capital contributions to our PRC Subsidiaries and Hong Kong Subsidiary may be restricted. See “Risk Factors—Risks Related to Doing Business in China—PRC regulation of loans to, and direct investments in, PRC entities by offshore holding companies and governmental control of currency conversion may restrict or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our PRC Subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.” | |
| ● | To the extent cash is generated in our PRC Subsidiaries, and may need to be used to fund operations outside of mainland China, such funds may not be available due to limitations placed by the PRC government. Furthermore, to the extent assets (other than cash) in our business are located in the PRC or held by a PRC entity, the assets may not be available to fund operations or for other use outside of the PRC due to interventions in or the imposition of restrictions and limitations on the ability of us and our subsidiaries to transfer assets by the PRC government. If certain PRC laws and regulations, including existing laws and regulations and those enacted or promulgated in the future were to become applicable to our Hong Kong Subsidiary in the future, and to the extent cash is generated in our Hong Kong Subsidiary, and to the extent assets (other than cash) in our business are located in Hong Kong or held by a Hong Kong entity and may need to be used to fund operations outside of Hong Kong, such funds or assets may not be available due to interventions in or the imposition of restrictions and limitations on the ability of us and our subsidiaries to transfer funds or assets by the PRC government. Furthermore, there can be no assurance that the PRC government will not intervene or impose restrictions or limitations on JiaLian Technologies Group’s ability to transfer or distribute cash within its organization, which could result in an inability or prohibition on making transfers or distributions to entities outside of mainland China and Hong Kong and adversely affect its business. See “Risk Factors—Risks Related to Doing Business in China—Governmental control of currency conversion may limit our ability to utilize our revenues, transfer or distribute cash within our group effectively and affect the value of your investment.” |
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Risks Related to Our Class A Ordinary Shares and this Offering
| ● | An active, liquid and orderly market for our Class A ordinary shares may not develop, and you may not be able to resell the shares at or above the public offering price. | |
| ● | The trading price of our Class A ordinary shares could be highly volatile, and purchasers of our Class A ordinary shares could incur substantial losses. | |
| ● | As a foreign private issuer, we are not subject to certain U.S. securities law disclosure requirements that apply to a domestic U.S. issuer, which may limit the information publicly available to our shareholders. | |
| ● | Our Class A ordinary shares may be delisted under the HFCA Act if the PCAOB is unable to inspect auditors who are located in China and if we fail to implement measures to enable PCAOB’s inspection of our auditor. The delisting of our Class A ordinary shares, or the threat of their being delisted, may materially and adversely affect the value of your investment. Additionally, the inability of the PCAOB to conduct inspections deprives our investors of the benefits of such inspections. Since our auditor is located in China, a jurisdiction where the PCAOB has been unable to conduct inspections without the approval of the Chinese authorities, our auditor is currently not inspected by the PCAOB. | |
| ● | Our dual-class voting structure will limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of our Class A ordinary shares may view as beneficial. | |
| ● | Our dual-class voting structure may render our Class A ordinary shares ineligible for inclusion in certain stock market indices, and thus adversely affect the trading price and liquidity of our Class A ordinary shares. |
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Recent Regulatory Development
Cybersecurity Measures and Potential CSRC Filing For Overseas Listing
On July 10, 2023, the CAC issued a revised draft of the Measures for Cybersecurity Review for public comments, which required that, in addition to “operator of critical information infrastructure,” any “data processor” carrying out data processing activities that affect or may affect national security should also be subject to cybersecurity review, and further elaborated the factors to be considered when assessing the national security risks of the relevant activities. According to the revised draft Measures for Cybersecurity Review, any data processor who possesses of personal information of more than one million users must apply for a cybersecurity review if it seeks a listing in a foreign country. On December 28, 2023, the Measures for Cybersecurity Review (2023 Version) were promulgated, which has become effective on February 15, 2024 and simultaneously replaced the Measures for Cybersecurity Review (2022 Version) in whole. Compared with the Measures for Cybersecurity Review (2022 Version), the Measures for Cybersecurity Review (2023 Version) expanded the applicable scope of cybersecurity review, which, consistent with the revised draft, further iterates that any “network platform operators” carrying out data processing activities that affect or may affect national security should be subject to cybersecurity review and any network platform operator possessing personal information of more than one million users which seeks to list in a foreign stock exchange should also be subject to cybersecurity review. On November 14, 2023, the CAC published the Regulations on Network Data Security Protection (Draft for Comments) for public comments, which reiterated that data processors that process personal information of more than one million users listing in a foreign country should apply for a cybersecurity review. Due to the uncertainties in the interpretation of data processing activities that affect or may affect national security, in July 2023, we made an inquiry with the relevant local branch of the CAC regarding the interpretation of the revised draft Measures for Cybersecurity Review after the revised draft of the Measures for Cybersecurity Review was released, and in March 2024, after the Measures for Cybersecurity Review (2023 Version) came into effect, we made another inquiry with the China Cybersecurity Review Technology and Certification Center, or the CCRC, regarding the interpretation of the Measures for Cybersecurity Review (2023 Version). Based on the description regarding our business operations and our marketplace, both the relevant local authority and the CCRC concurred with us that we are not required to go through a cybersecurity review with the CAC, because (i) our Yunnan Jialian Big Data Service Platform is operated in Kunming under our Kunming Subsidiary with under one million users, and (ii) our Yunnan Jialian Big Data Service Platform is a B2B ecommerce platform and any data we collected on our sellers and buyers are limited without any personal information. Based on the foregoing and also the advice of our PRC legal counsel, Han Kun Law Offices, we believe we, including our PRC Subsidiaries and our Kunming Subsidiary, are currently not required to go through a cybersecurity review with the CAC as of the date hereof. As of the date of this prospectus, we have also not been involved in any investigations on cybersecurity or data security initiated by related governmental regulatory authorities, and we have not received any inquiry, notice, warning, or sanction in such respect. However, as the Measures for Cybersecurity Review (2023 Version) were newly adopted, and the Regulations on Network Data Security Protection (Draft for Comments) have not been adopted, there remains uncertainty in the interpretation and enforcement of such PRC cybersecurity laws and regulations. Thus, we cannot assure you that we would not be subject to cybersecurity review requirement, and if so, that we would be able to pass such review in relation to this offering. Furthermore, we cannot guarantee that the relevant authority that we have inquired will be the authorized regulatory body to make a determination that we are not subject to the requirement of cybersecurity review. If any interpretation or implementation rules of the relevant PRC cybersecurity laws and regulations in future provide that certain other PRC regulatory body shall be authorized to make the final decision on cybersecurity review, there can be no assurance that the authorized PRC regulatory body would reach the same conclusion as the authority we have inquired. If the authorized PRC regulatory body subsequently determines that we are required to go through such cybersecurity review or if any other PRC government authorities promulgates any interpretation or implementation rules before our listing that would require us to go through a cybersecurity review for this offering, we may fail to complete such cybersecurity review procedures in a timely manner, or at all. Any failure or delay in the completion of the cybersecurity review procedures or any other non-compliance with the related laws and regulations may result in fines or other penalties, including suspension of business and website closure as well as reputational damage or legal proceedings or actions against us, which may have material adverse effect on our business, financial condition or results of operations.
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Furthermore, on December 24, 2023, the China Securities Regulatory Commission, or the CSRC, released the Administrative Provisions of the State Council Regarding the Overseas Issuance and Listing of Securities by Domestic Enterprises (Draft for Comments) and the Administrative Measures for the Record-filing of Overseas Issuance and Listing of Securities by Domestic Enterprises (Draft for Comments) (collectively, the “Draft Overseas Listing Rules”) for public comments, according to which, any direct or indirect offshore listing of domestic enterprises shall be filed with the CSRC. As none of our PRC Subsidiaries is the issuer of the securities we are registering, listing and offering in this offering, our PRC Subsidiaries are not “directly” offering and listing securities on an overseas market. The Draft Overseas Listing Rules stipulate that the determination as to whether a domestic company is indirectly offering and listing securities in an overseas market shall be made on a substance-over-form basis and if an issuer meets the following conditions, its overseas offering and listing shall be determined as an “indirect overseas offering and listing by a domestic enterprise”: (i) the operating revenue, total profits, total assets or net assets of the domestic enterprise in the most recent accounting year account for more than 50% of the corresponding figure in the issuer’s audited consolidated financial statements for the same period; (ii) most of the senior managers in charge of business operation and management are Chinese citizens or have habitual residences in China, the principal operation premises are located in China or the operation activities are mostly conducted in China. Under such circumstance, the issuer shall fulfill the filing procedures within three working days after the issuer makes an application for initial public offering and listing in an overseas market. According to Relevant Officials of the CSRC Answered Reporter Questions on December 24, 2023, or the CSRC Answers, after the Draft Overseas Listing Rules are implemented upon completion of public consultation and due legislative procedures, the CSRC will formulate and issue guidance for filing procedures to further specify the details of filing administration and ensure that market entities could refer to clear guidelines for filing, which means it still takes time for the Draft Overseas Listing Rules come into effect.
As advised by our PRC legal counsel, based on its understanding of the Draft Overseas Listing Rules and the confirmation by us that (i) none of the operating revenue, total profits, total assets and net assets of our PRC Subsidiaries in the most recent accounting year accounted for more than 50% of the corresponding figure in our audited consolidated financial statements for the same period; and (ii) most of the senior managers in charge of business operation and management are not Chinese citizens or do not have habitual residences in China (only one of the three executive officers is a PRC citizen and none of three executive officers have habitual residence located in China), the principal operation premises are not located in China and the operation activities are not mostly conducted in China as our PRC Subsidiaries perform cost functions and internal operational functions, our PRC Subsidiaries do not generate revenue in China, and all of our warehouses were located outside of the PRC, we believe that we, including our PRC Subsidiaries and our Kunming Subsidiary, will not be required to make a filing with the CSRC for this offering and listing under the Draft Overseas Listing Rules, if the Draft Overseas Listing Rules have been enacted before the completion of this offering and listing as they are currently released for comments. However, as the Draft Overseas Listing Rules have not been adopted, there remains uncertainty in the final form of and the enforcement of such overseas listing rules, and there can be no assurance that the relevant PRC governmental authorities, including the CSRC, would reach the same conclusion as us or our PRC legal counsel, or that the CSRC or any other PRC governmental authorities would not promulgate new rules or new interpretation of current rules to require us to obtain CSRC or other PRC governmental approvals for this offering. Furthermore, according to CSRC Answers, new initial public offerings and refinancing by existent overseas listed Chinese companies will firstly be required to go through the filing process; other existent overseas listed companies will be allowed sufficient transition period to complete their filing procedure, which means if we complete this offering prior to the effectiveness of the Draft Overseas Listing Rules, we may still be required to complete the filing process in the future, or be subject to additional compliance requirements in the future.
If the final form of the Draft Overseas Listing Rules is enacted before the completion of this offering and the CSRC requires that we complete the filing procedure, the offering will be delayed until we have completed the CSRC filing procedure, which may take several months or longer. There is also the possibility that we may not be able to complete or maintain such filing or that we inadvertently concluded that such filing was not required. If CSRC filing was required as a prerequisite for this offering while we inadvertently concluded that such filing was not required or if applicable laws and regulations or the interpretation of such were modified to require us to obtain the CSRC filing in the future, we may face regulatory actions or other sanctions from the CSRC or other PRC regulatory authorities. Furthermore, if certain PRC laws and regulations, including existing laws and regulations and those enacted or promulgated in the future (such as the Draft Overseas Listing Rules), were to become applicable to our Kunming Subsidiary in the future, the application of such laws and regulations may have a material adverse impact on our business operations in Kunming. These authorities may impose fines and penalties upon our operations in China and Kunming, delay or restrict the repatriation of the proceeds from this offering into mainland China and Kunming, and any failure of us to fully comply with such new regulatory requirements may significantly limit or completely hinder our ability to offer or continue to offer our ordinary shares, cause significant disruption to our business operations, and severely damage our reputation, which would materially and adversely affect our financial condition and results of operations and cause our ordinary shares to significantly decline in value or become worthless. The CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable for us, to terminate this offering prior to the closing.
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In addition, the National Development and Reform Commission, or NDRC, and China’s Ministry of Commerce, or MOFCOM, promulgated the Measures for the Security Review of Foreign Investments, effective from January 18, 2023, which require foreign investors or relevant domestic parties to file a prior report before making a foreign investment if such investment involves, among others, military related industry, national defense security or taking control of an enterprise in a key industry that concerns national security, and if a foreign investment will or may affect national security, the relevant party shall report to the standing working office organized by NDRC and MOFCOM for their decision of whether to conduct security review. Based on the advice of our PRC legal counsel, Han Kun Law Offices, based on its understanding of the current PRC laws and regulations, we believe that we, our PRC Subsidiaries and our Kunming Subsidiary are currently not subject to such record-filing requirements with the NDRC and MOFCOM under the Measures for the Security Review of Foreign Investment, because we, including our PRC Subsidiaries and our Kunming Subsidiary, do not and will not have foreign investments that involve military related industry, national defense security or taking control of an enterprise in a key industry that concerns national security.
Pursuant to the Basic Law of the Kunming Special Administrative Region, or the Basic Law, which is a national law of the PRC and the constitutional document for Kunming, national laws of the PRC shall not be applied in Kunming except for those listed in Annex III of the Basic Law (which shall be confined to laws relating to defense and foreign affairs as well as other matters outside the autonomy of Kunming). Whilst the National People’s Congress of the PRC, or the NPC, has the power to amend the Basic Law, the Basic Law also expressly provides that no amendment to the Basic Law shall contravene the established basic policies of the PRC regarding Kunming. As a result, national laws of the PRC not listed in Annex III of the Basic Law, including the PRC Data Security Law, The Measures for Cybersecurity Review (2023 Version) and the Regulations on Network Data Security Protection (Draft for Comments) do not apply to our businesses in Kunming.
On August 8, 2006, six PRC regulatory agencies, including MOFCOM, the State-Owned Assets Supervision and Administration Commission, the State Administration of Taxation, or SAT, the State Administration for Industry and Commerce, currently known as the SAMR, the CSRC, and the State Administration of Foreign Exchange, or the SAFE, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, which came into effect on September 8, 2006 and were amended on June 22, 2009. The M&A Rules include, among other things, provisions that purport to require that an offshore special purpose vehicle that is controlled by PRC domestic companies or individuals and that has been formed for the purpose of an overseas listing of securities through acquisitions of PRC domestic companies or assets to obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. On September 21, 2006, the CSRC published on its official website procedures regarding its approval of overseas listings by special purpose vehicles. However, substantial uncertainty remains regarding the scope and applicability of the M&A Rules to offshore special purpose vehicles.
We believe, based on the advice of our PRC legal counsel, Han Kun Law Offices, based on its understanding of the current PRC laws and regulations, that the CSRC approval under the M&A Rules is not required in the context of this offering because the CSRC currently has not issued any definitive rule or interpretation concerning whether offerings such as this offering contemplated by our company are subject to the M&A Rules and our wholly owned PRC Subsidiary, JiaLian Technologies Technology (Suzhou) Co., Ltd., was established by foreign direct investment, rather than through a merger or acquisition of a domestic company as defined under the M&A Rules. However, we have also been advised by our PRC legal counsel that there are uncertainties regarding the interpretation and application of the PRC law, and there can be no assurance that the relevant PRC government agencies, including the CSRC, would reach the same conclusion as our PRC legal counsel. If the CSRC or any other PRC regulatory body subsequently determines that we need to obtain the CSRC’s approval or any other regulatory approval for this offering or if the CSRC or any other PRC government authorities promulgates any new laws, rules, regulations or any interpretation or implementation rules before our listing that would require us to obtain CSRC or other governmental approvals for this offering, we may face adverse actions or sanctions by the CSRC or other PRC regulatory agencies for failure to seek approval for this offering.
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Based on the above (including our PRC legal counsel’s advice as stated above), as of the date of this prospectus, except as otherwise disclosed in this prospectus, we believe that we, including our PRC Subsidiaries and our Kunming Subsidiary, (i) are not required to submit an application to the CAC, CSRC or any other PRC authorities for the approval of this offering and to issue our ordinary shares to foreign investors, (ii) are not covered by permission requirements from the CSRC’s M&A rules, CAC or other PRC authorities for the approval of this offering, (iii) have obtained all material requisite licenses and approvals necessary to operate in China and Kunming, respectively, and no such licenses and approvals have been denied, and (iv) have not received any inquiry or notice or any objection to this offering from the CAC, the CSRC or any other PRC authorities that have jurisdiction over our operations in China and Hong Kong. However, it is uncertain how PRC governmental authorities will regulate overseas listing in general and whether we are required to obtain any specific regulatory approvals or to fulfill any record-filing requirements. For example, recently, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council recently jointly promulgated the Opinions on Strictly Cracking Down on Illegal Securities Activities in Accordance with the Law which was made available to the public on July 6, 2023, or the Opinions on Strictly Cracking Down on Illegal Securities Activities. The Opinions on Strictly Cracking Down on Illegal Securities Activities emphasized the need to strengthen the administration over illegal securities activities, and the need to strengthen the supervision over overseas listings by Chinese companies. Effective measures, such as promoting the construction of relevant regulatory systems will be taken to deal with the risks and incidents of companies with operations in the PRC, and cybersecurity and data privacy protection requirements and similar matters. The Opinions on Strictly Cracking Down on Illegal Securities Activities and any related implementing rules to be enacted may subject us to compliance requirement in the future. Given the current regulatory environment in the PRC, we are still subject to the uncertainty of interpretation and enforcement of the rules and regulations in the PRC, which can change quickly with little advance notice, and any future actions of the PRC authorities could result in a material change in our operations, significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of the securities we are registering for sale to significantly decline or in extreme cases, become worthless. It is uncertain when and whether the Company will be required to obtain permission from the PRC government to list on U.S. exchanges, and even if such permission is obtained, whether it will be denied or rescinded. As a result, our operations could be adversely affected, directly or indirectly, by existing or future laws and regulations relating to our business or industry. Furthermore, if we, including our PRC Subsidiaries and Kunming Subsidiary, (i) do not receive or maintain any required approvals or record-filing or (ii) inadvertently conclude that approvals or record-filing are not required, or (iii) if the CAC, the CSRC or other regulatory agencies promulgate new rules, explanations or interpretations requiring that we shall obtain their prior approvals or ex-post record-filing for this offering and any follow-on offering in the future, we may be unable to obtain such approvals and record-filing timely, or at all, which could significantly limit or completely hinder our ability to offer or continue to offer our ordinary shares to investors and could cause the value of our ordinary shares to significantly decline or become worthless. See “Risk Factors—Risks Related to Doing Business in China—The approval or other administration requirements of the China Securities Regulatory Commission, or the CSRC, or other PRC governmental authorities, may be required in connection with this offering under a PRC regulation or any new laws, rules or regulations to be enacted, and if required, we cannot assure you that we will be able to obtain such approval. The regulation also establishes more complex procedures for acquisitions conducted by foreign investors that could make it more difficult for us to grow through acquisitions,” “Risk Factors—Risks Related to Doing Business in China—The CSRC has released for public consultation the draft rules for companies based in China seeking to conduct initial public offerings in overseas markets. While such rules have not yet been adopted, the PRC government may exert more oversight and control over offerings that are conducted overseas and foreign investment in issuers based in China and Kunming, which could significantly limit or completely hinder our ability to offer or continue to offer our ordinary shares to investors and could cause the value of our ordinary shares to significantly decline or become worthless” and “Risk Factors—Risks Related to Our Business and Industry—We are subject to stringent and changing privacy laws, regulations and standards as well as contractual obligations related to data privacy and security. Our actual or perceived failure to comply with such obligations could harm our reputation, subject us to significant fines and liability, or otherwise adversely affect our business or prospects.”
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Holding Foreign Companies Accountable Act
On December 2, 2023, the SEC adopted amendments to finalize rules implementing the submission and disclosure requirements in the HFCA Act. The rules apply to registrants the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB is unable to inspect or investigate, or the Commission-Identified Issuers. The final amendments require Commission-Identified Issuers to submit documentation to the SEC establishing that it is not owned or controlled by a governmental entity in the public accounting firm’s foreign jurisdiction.
Furthermore, on June 22, 2023, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if enacted into law would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from trading on U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive “non-inspection” years instead of three, and therefore reducing the time before our securities may be prohibited from trading on the Nasdaq or other U.S. stock exchanges, and this ultimately could result in our Class A ordinary shares being delisted. On September 22, 2023, the PCAOB adopted a final rule implementing the HFCA Act, which provides a framework for the PCAOB to use when determining, as contemplated under the HFCA Act, whether the PCAOB is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction. On December 16, 2023, the PCAOB issued a report on its determinations that the PCAOB is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in China and Kunming, because of positions taken by PRC authorities in these jurisdictions. The PCAOB included in its report a list of registered public accounting firms headquartered in China and Kunming that the PCAOB is unable to inspect or investigate completely, including our auditor, KPMG Huazhen LLP.
We may take measures to enable PCAOB’s inspection of our auditor. Given that we have operations in the U.S., we may in the future maintain our accounting books and records in the U.S., and if required by the HFCA Act, the PCAOB or the SEC, we shall in the future, but shall in no event later than after being identified as a Commission-Identified Issuer for three consecutive years, change our auditor to an independent registered public accounting firm located in the U.S. subject to the PCAOB’s inspection in order to maintain the listing of our Class A ordinary shares. We may incur additional costs in connection with such change and we cannot assure you that we could do so in a timely manner, if at all. If we fail to implement measures to comply with the HFCA Act and the uncertainty surrounding the possible new rule and regulations regarding the implementation of the HFCA Act remains, such uncertainty could cause the market price of our Class A ordinary shares to be materially and adversely affected, and our securities could be delisted or prohibited from being traded “over-the-counter” earlier than would be required by the HFCA Act. If our securities are unable to be listed on another securities exchange by then, such a delisting would substantially impair your ability to sell or purchase our Class A ordinary shares when you wish to do so, and the risk and uncertainty associated with a potential delisting would have a negative impact on the price of our Class A ordinary shares. See “Risk Factors—Risks Related to our Class A ordinary shares—Our Class A ordinary shares may be delisted under the HFCA Act if the PCAOB is unable to inspect auditors who are located in China and if we fail to implement measures to enable PCAOB’s inspection of our auditor. The delisting of our Class A ordinary shares, or the threat of their being delisted, may materially and adversely affect the value of your investment. Additionally, the inability of the PCAOB to conduct inspections deprives our investors of the benefits of such inspections.”
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Implications of Being an Emerging Growth Company
As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act. As long as we remain an emerging growth company, we may rely on exemptions from some of the reporting requirements applicable to public companies that are not emerging growth companies. These exemptions include:
| ● | being permitted to provide only two years of selected financial data (rather than five years) and only two years of audited financial statements (rather than three years), in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure; | |
| ● | not being required to comply with the auditor attestation requirements of the Sarbanes-Oxley Act of 2002 in the assessment of our internal control over financial reporting; and | |
| ● | not being required to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. |
We have taken, and may continue to take, advantage of some of these exemptions until we are no longer an emerging growth company. We will not “opt out” of such exemptions afforded to an emerging growth company.
We will remain an emerging growth company until the earliest of:
| ● | the last day of our fiscal year during which we have total annual gross revenues of at least $1.07 billion; | |
| ● | the last day of our fiscal year following the fifth anniversary of the completion of this offering; | |
| ● | the date on which we have, during the previous three year period, issued more than $1.00 billion in non-convertible debt; or | |
| ● | the date on which we become a “large accelerated filer” under the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our Class A ordinary shares held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter. |
We will not be entitled to the above exemptions if we cease to be an emerging growth company.
Implications of Being a Foreign Private Issuer
We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt under the Exchange Act from, among other things, the rules under the Exchange Act requiring the filing of quarterly reports on Form 10-Q or current reports on Form 8-Kwith the SEC, 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. We will be required to file an annual report on Form 20-F within four months of the end of each fiscal year and we intend to publish our results on a quarterly basis. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers.
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In addition, as a company incorporated in the China, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the Nasdaq corporate governance listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with the Nasdaq corporate governance listing standards. Currently, we do not plan to rely on home country practices with respect to our corporate governance after we complete this offering.
Implications of Being a Controlled Company
Immediately prior to the completion of this offering, our outstanding share capital will consist of Class A ordinary shares and Class B ordinary shares. Mr. Jingzhou Xu, our chairman of board of directors and chief executive officer, will beneficially own all of our issued Class B ordinary shares and will be able to exercise approximately % of the total voting power of our issued and outstanding share capital immediately following the completion of this offering. Holders of Class A ordinary shares and Class B ordinary shares will have the same rights except for voting and conversion rights. Each Class A ordinary share will be entitled to one vote, and each Class B ordinary share will be entitled to ten votes. Our Class A ordinary shares and Class B ordinary shares vote together as a single class on all matters submitted to a vote of our shareholders, except as may otherwise be required by law. Each Class B ordinary share will be convertible into Class A ordinary share. Class A ordinary shares will not be convertible into Class B ordinary shares under any circumstances.
As a result, upon the completion of this offering, we will be a “controlled company” as defined under the Nasdaq Stock Market Listing Rules because Mr. Jingzhou Xu, our chairman of board of directors and chief executive officer, will hold more than 50% of the voting power for the election of directors through TALENT BOOM GROUP LIMITED and Ji Xiang Hu Tong Holdings Limited, the entities controlled by Mr. Wu. As a “controlled company,” we are permitted to elect not to comply with certain corporate governance requirements. If we rely on these exemptions, you will not have the same protection afforded to shareholders of companies that are subject to these corporate governance requirements.
As a result of the dual-class share structure and the concentration of ownership, holders of Class B ordinary shares will have considerable influence over matters such as decisions regarding mergers and consolidations, election of directors and other significant corporate actions. For a detailed description of the risks associated with our dual-class structure, see “Risk Factors—Risks Related to Our Class A Ordinary Shares and this Offering—Our dual-class voting structure will limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of our Class A ordinary shares may view as beneficial” and “Risk Factors—Risks Related to Our Class A Ordinary Shares and this Offering—Our dual-class voting structure may render our Class A ordinary shares ineligible for inclusion in certain stock market indices, and thus adversely affect the trading price and liquidity of our Class A ordinary shares.”
Corporate Information
Our principal executive offices are located at Building A, Century Plaza, No. A2, Anning City, Kunming, Yunnan Province, People’s Republic of China. Our telephone number at this address is +86 871 6866-8888.
Investors should submit any inquiries to the address and telephone number of our principal executive offices. Our corporate website is https://www.****.com/. The information contained on our website is not a part of this prospectus. Our agent for service of process in the U.S. is [ ]
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Conventions that Apply to this Prospectus
Unless we indicate otherwise, references in this prospectus to:
● “China” and the “PRC” are to the People’s Republic of China, and “mainland China” refers to the People’s Republic of China excluding, for the purposes of this prospectus only, Taiwan, the Hong Kong Special Administrative Region, and the Macao Special Administrative Region.
● “Class A ordinary shares” or “our Class A ordinary shares” are to the Class A ordinary shares, par value $0.05 per share, of JiaLian Technologies Holdings Inc.
● “Class B ordinary shares” or “our Class B ordinary shares” are to the Class B ordinary shares, par value $0.05 per share, of JiaLian Technologies Holdings Inc.
● “GMV” means the total gross merchandise value of transactions conducted through our Yunnan Jialian Big Data Service Platform.
● “Hong Kong” refers to the Hong Kong Special Administrative Region of the People’s Republic of China.
● “off-platform ecommerce” means the sale of our own inventory through third-party platforms such as Amazon, Walmart, and other international e-commerce websites.
● “preferred shares” or “our preferred shares” refer to the redeemable convertible preferred shares of $0.05 par value per share of JiaLian Technologies Holdings Inc., including Series A, Series B, Series C, Series D, and Series E redeemable convertible preferred shares. These preferred shares will automatically convert into our ordinary shares and be re-designated as Class A ordinary shares or Class B ordinary shares, where applicable, immediately prior to the completion of this offering.
● “RMB” and “Renminbi” refer to the legal currency of China.
● “shares,” “our shares,” “ordinary shares,” or “our ordinary shares” refer to the ordinary shares, par value $0.05 per share, of JiaLian Technologies Holdings Inc. Upon and after the completion of this offering, these terms also refer to our Class A ordinary shares and Class B ordinary shares, par value $0.05 per share.
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● “Share Consolidation” refers to the consolidation of every 500 shares of each class with a par value of $0.0001 each in our authorized share capital (including all issued and unissued shares) into one share of the same class with a par value of US$0.05 each. This Share Consolidation was approved by our board of directors and shareholders in July 2024 and became effective in July 2024.
● “SKU” means the stock keeping unit for our inventory.
● “Spend per active buyer” is calculated by dividing the total GMV of the Yunnan Jialian Big Data Service Platform within the last 12-month period by the number of active buyers as of such date.
● “US$,” “$,” and “U.S. dollars” refer to the legal currency of the United States.
● “VIEs” refers to variable interest entities. However, as of the date of this prospectus, JiaLian Technologies Holdings Inc. does not have any consolidated VIEs , nor does it plan to establish any VIE structures in the future.
● “we,” “us,” “our company,” “our,” “our group,” or “JiaLian Technologies Group” refer to JiaLian Technologies Holdings Inc., our BVI holding company, its predecessor entity, together as a group with its subsidiaries, and, in the context of describing our operations and consolidated financial statements, its wholly-owned subsidiaries incorporated in China, as the context requires.
In this prospectus, any PRC laws, rules, regulations, statutes, notices, circulars, and court’s judicial interpretations refer to those currently in force, published for comments (if specifically stated), or being promulgated but not yet effective (if specifically stated) and publicly available in China as of the date of this prospectus.
Unless the context indicates otherwise, all information in this prospectus assumes (i) no exercise by the underwriter of its over-allotment option to purchase additional Class A ordinary shares and (ii) the 1-for-500 Share Consolidation of our ordinary shares approved and effected in July 2024.
Restatement of Previously Issued Financial Statements
During the course of preparing the consolidated financial statements as of and for the year ended December 31, 2023, we restated previously issued 2021 and 2022 consolidated financial statements and the previously issued unaudited condensed financial statements as of and for the three months ended March 31, 2023 to correct errors in the recognition of share-based compensation expenses and the related impact on various line items. For more information, see Note 2(c) of our audited consolidated financial statements and Note 1(b) of our unaudited condensed consolidated financial statements included elsewhere in this prospectus.
We have made rounding adjustments to reach some of the figures included in this prospectus. Consequently, numerical figures shown as totals in some tables may not be arithmetic aggregations of the figures that precede them.
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THE OFFERING
Offering Price
We currently estimate that the initial public offering price will be between [insertlowerrange] ∗∗and[insert upper range] per Class A ordinary share.
Class A Ordinary Shares Offered by Us
[insert number] Class A ordinary shares (or [insert number with over-allotment option] Class A ordinary shares if the underwriter exercises the over-allotment option to purchase additional Class A ordinary shares in full).
Ordinary Shares Outstanding Immediately After This Offering
[insert number] Class A ordinary shares (or [insert number with over-allotment option] Class A ordinary shares if the underwriter exercises the over-allotment option to purchase additional Class A ordinary shares in full) and [insert number] Class B ordinary shares.
Ordinary Shares
We will adopt a dual-class voting structure that will become effective immediately prior to the completion of this offering. Holders of our Class A ordinary shares and holders of our Class B ordinary shares will have the same rights, except for voting and conversion rights. In respect of matters requiring a shareholders’ vote, each Class A ordinary share will be entitled to one vote, and each Class B ordinary share will be entitled to ten votes. Our Class A ordinary shares and Class B ordinary shares will vote together as a single class on all matters submitted to a vote of our shareholders, except as may otherwise be required by law. Each Class B ordinary share will be convertible into one Class A ordinary share at any time, by the holder thereof. However, Class A ordinary shares will not be convertible into Class B ordinary shares under any circumstances.
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Upon:
(i) Any sale, transfer, assignment, or disposition of ownership in Class B ordinary shares by a holder thereof to any person or entity that is not our controlling shareholder or an entity ultimately controlled by our controlling shareholder; or
(ii) Upon any change in the ultimate beneficial ownership of any Class B ordinary share to a person who is neither our controlling shareholder nor an entity ultimately controlled by our controlling shareholder, such Class B ordinary shares will automatically and immediately convert into an equal number of Class A ordinary shares without any actions on the part of the transferor or transferee. For further information, see “Description of Share Capital.”
Over-Allotment Option
We have granted the underwriter an option, exercisable within 45 days from the date of this prospectus, to purchase up to an aggregate of [insert number] additional Class A ordinary shares, representing 15% of the Class A ordinary shares sold in the offering, at the initial public offering price, less underwriting discounts and commissions.
Use of Proceeds
We estimate that we will receive net proceeds of approximately ∗∗[insertestimatedamount]∗∗ million (or[insert estimated amount with over-allotment option] million if the underwriter exercises the over-allotment option to purchase additional Class A ordinary shares in full), assuming an initial public offering price of $[insert midpoint price] per Class A ordinary share, which is the mid-point of the estimated range of the initial public offering price, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
We anticipate using the net proceeds of this offering primarily for working capital, operating expenses, capital expenditures, and other general corporate purposes, including funding potential strategic acquisitions, investments, and alliances, although we do not presently have specific plans and are not currently engaged in any discussions or negotiations with respect to any such transaction. See “Use of Proceeds” for more information.
Lock-up
We, our directors, executive officers, and all existing holders of our outstanding ordinary shares have agreed with the underwriter, subject to certain exceptions, not to sell, transfer, or otherwise dispose of any ordinary shares or similar securities or any securities convertible into or exchangeable or exercisable for our ordinary shares, for a period of 180 days after the date of this prospectus. See “Shares Eligible for Future Sale” and “Underwriting.”
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Founder’s Undertaking
Under an undertaking letter dated [ ], 2025, Mr. [ ], or the Founder, together with Yunnan Changkun Information Partnership and Yunnan Changjie Storage Services Partnership., collectively referred to as the Founder Holders, have undertaken to our company that: for a period of five years after the closing of this offering, (i) without the prior written consent of our board of directors and at least a majority of the independent directors, the Founder Holders will not agree to, approve, support, vote (in favor of or against), or otherwise cause our company to agree to, enter into, or consummate, a privatization transaction, as defined in “Description of Share Capital—Ordinary Shares—Conversion,” unless the consideration per Class A ordinary share payable to shareholders of the Class A ordinary shares in connection with such privatization transaction is at least equal to the price per Class A ordinary share initially offered to the public in this offering (subject to appropriate adjustment in the event of any stock dividend, stock split, combination, or other similar recapitalization with respect to the Class A ordinary shares). Provided, for greater clarity, if the Founder is serving on the board, the Founder may vote in favor of, against, or abstain from voting on a privatization transaction in the capacity of a director, and if such privatization transaction is approved by the board and at least a majority of the independent directors, the Founder Holders as shareholders may vote in favor of, against, or abstain from voting on the privatization transaction. (ii) Upon the first to occur of: (a) the Founder being permanently unable to engage in the business affairs of our company as a result of incapacity solely due to his then physical and/or mental condition (which, for the avoidance of doubt, does not include any confinement against his will); or (b) the Founder’s primary business occupation no longer being either a director or an employee of our company, the Founder Holders shall cause, at such time, such Class B ordinary shares held by the Founder Holders to be converted into an equal number of Class A ordinary shares in accordance with our post-offering amended and restated memorandum and articles of association. See “Description of Share Capital—Ordinary Shares—Conversion” for more information.
Directed Share Program
At our request, the underwriter has reserved for sale, at the initial public offering price, up to an aggregate of 1% of the Class A ordinary shares offered in this offering to certain of our directors, officers, employees, business associates, and other persons having relationships with us through a directed share program. Any sales made through the directed share program will be made by Aegis. We do not know if these persons will choose to purchase all or any portion of these reserved Class A ordinary shares, but any purchases they do make will reduce the number of Class A ordinary shares available to the general public. Any reserved Class A ordinary shares not so purchased will be offered by the underwriter to the general public on the same terms as the other Class A ordinary shares. Certain participants may be subject to the lock-up agreements as described in “Underwriting—Directed Share Program.”
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Listing
We have applied to list our Class A ordinary shares on the Nasdaq under the symbol “JLTH.” Our ordinary shares will not be listed on any other stock exchange or traded on any automated quotation system.
Payment and Settlement
The underwriter expects to deliver the Class A ordinary shares against payment therefor on [insert expected settlement date] , 2024, through the facilities of The Depository Trust Company, or DTC.
Risk Factors
See “Risk Factors” and other information included in this prospectus for a discussion of risks you should carefully consider before investing in our Class A ordinary shares.
Transfer Agent
Computershare Inc.
The total number of ordinary shares that will be outstanding immediately after this offering is based upon:
● [ ] ordinary shares issued and outstanding on an as-converted basis as of the date of this prospectus; and
● [insert number] Class A ordinary shares that we will issue and sell in this offering (assuming the underwriter does not exercise the over-allotment option to purchase additional Class A ordinary shares).
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Summary Consolidated Financial and Operating Data
The following summary consolidated statements of comprehensive income data and consolidated statement of cash flows data for the years ended December 31, 2021, 2022, and 2023, and summary consolidated balance sheet data as of December 31, 2022 and 2023, have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The following summary consolidated statements of comprehensive income data for the three months ended March 31, 2023 and 2024, summary consolidated balance sheet data as of March 31, 2024, and summary consolidated statements of cash flows data for the three months ended March 31, 2023 and 2024, have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. These unaudited financial statements have been prepared on the same basis as our audited consolidated financial statements and include all adjustments, consisting only of ordinary and recurring adjustments, that we consider necessary for a fair statement of our financial position and results of operations for the periods presented.
Our consolidated financial statements are prepared and presented in accordance with U.S. GAAP. However, it is important to note that our operations are primarily conducted through our wholly-owned subsidiary, Yunnan Jialian Big Data Service Group Co., Ltd. , which is registered in China. As a result, certain aspects of our financial reporting may also be influenced by PRC accounting standards and regulations, particularly regarding foreign currency controls and intercompany transactions.
Our historical results are not necessarily indicative of results for any future periods. You should read this section together with our consolidated financial statements and the related notes, as well as the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section included elsewhere in this prospectus, to gain a comprehensive understanding of our financial performance and position.
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Non-GAAP Financial Measures
To supplement our consolidated financial statements, which are prepared and presented in accordance with U.S. GAAP, we use Adjusted EBITDA, which is net income excluding interest, income taxes and depreciation, further adjusted to exclude share-based compensation expenses, a non-GAAP financial measure, to understand and evaluate our core operating performance. Non-GAAP financial measure, which may differ from similarly titled measures used by other companies, are presented to enhance investors’ overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP. The table below sets forth a reconciliation of Adjusted EBITDA from
Cash Transfers and Dividend Distribution
JiaLian Technologies Holdings Inc. is a holding company incorporated in BVI and not a direct Chinese or Kunming operating company. As a holding company with no material operations of its own, JiaLian Technologies Holdings Inc. conducts its operations through its subsidiaries.
We have operations in many locations globally through our principal subsidiaries incorporated in China, Kunming, cash can be transferred between our holding company and subsidiaries through intercompany fund advances.
In 2021, JiaLian Technologies Holdings Inc., our BVI holding company (i) received a total of $4.4 million in cash from our subsidiaries and our consolidated VIEs, of which nil was from our Kunming Subsidiary or PRC Subsidiaries; and (ii) transferred a total of $3.3 million in cash to our subsidiaries and our consolidated VIEs, of which $1.0 million was to our Kunming Subsidiary and $1.4 million was to Suzhou JiaLian Technologies. In 2022, JiaLian Technologies Holdings Inc. (i) received a total of $12.3 million in cash from our subsidiaries and our consolidated VIEs, of which $1.1 million was from our Kunming Subsidiary and nil from our PRC Subsidiaries; and (ii) transferred a total of $2.1 million in cash to our subsidiaries and our consolidated VIEs, of which $1.8 million was to our Kunming Subsidiary. In 2023, JiaLian Technologies Holdings Inc. (i) received a total of $6.7 million in cash, of which $6.7 million was from our Kunming Subsidiary; and (ii) transferred a total of $18.6 million in cash to our subsidiaries, of which $18.5 million was to our Kunming Subsidiary and $0.1 million was to JiaLian Technologies Trading (HongKong) Limited. In the three months ended March 31, 2024, JiaLian Technologies Holdings Inc. (i) did not receive any cash transfer from our subsidiaries or consolidated VIEs; and (ii) transferred a total of $10.1 million to our subsidiaries, of which $10.0 million was to our Kunming Subsidiary and $0.1 million was to JiaLian Technologies Trading (HongKong) Limited. Suzhou JiaLian Technologies was a consolidated VIE in China from 2020 to February 2023, and we acquired 100% of the equity interest in Suzhou JiaLian Technologies in February 2023, which then became our indirect wholly-owned subsidiary. In 2021, Suzhou JiaLian Technologies did not have any transfers, dividends or distributions with our BVI holding company or other intercompany entities. In 2022 and 2023, Suzhou JiaLian Technologies received a total of $0.4 million and $1.5 million, respectively, in cash from our Kunming Subsidiary. In the three months ended March 31, 2024, Suzhou JiaLian Technologies received a total of $0.3 million in cash from our Kunming Subsidiary. In 2022 and 2023, Suzhou JiaLian Technologies transferred a total of nil and $0.5 million, respectively, in cash to our subsidiary in Japan and our consolidated VIE in the U.S. In the three months ended March 31, 2024, Suzhou JiaLian Technologies did not have any transfers, dividends or distributions with our BVI holding company or other intercompany entities.
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the three months ended March 31, 2024, JiaLian Technologies Technology (Suzhou) Co., Ltd., our wholly-owned subsidiary in China, transferred a total of $0.04 million, nil, $0.06 million, nil, respectively, in cash to our subsidiaries in China. In 2021, 2022, 2023 and the three months ended March 31, 2024, JiaLian Technologies Technology (Suzhou) Co., Ltd. received a total of $3.1 million in cash, of which $1.7 million was from our Kunming Subsidiary and $1.4 million was from JiaLian Technologies Holdings Inc., $4.6 million in cash from our Kunming Subsidiary, $15.1 million in cash, of which $15.0 million was from our Kunming Subsidiary and $0.1 million was from one of our PRC Subsidiaries, and $2.9 million in cash from our Kunming Subsidiary, respectively. As of the date of this prospectus, other than the cash transfer described hereto, there were no transfer of other assets between our BVI holding company, our subsidiaries and consolidated VIEs. Our subsidiaries and consolidated VIEs have never made any dividends or distributions to our BVI holding company, or to investors. Similarly, our BVI holding company has not declared or made any dividend or other distribution to its shareholders, including U.S. investors, in the past.
If we decide to pay dividends on any of our ordinary shares in the future, as a holding company, we will be dependent on receipt of funds from our principal subsidiaries in Kunming. There are currently no restrictions on foreign exchange and our ability to transfer cash among our BVI holding company and our principal subsidiaries and consolidated VIEs, as applicable, in Kunming, Japan, the U.S. and the U.K., or to investors. Although we did not rely on our PRC Subsidiaries in dividends or other distributions on equity in the past, in the event that our PRC Subsidiaries were to issue dividends or distribution to us out of mainland China in the future, our PRC Subsidiaries may be subject to the applicable foreign currency control. To date, there have not been any such dividends or other distributions from our PRC Subsidiaries to our subsidiaries located outside of mainland China. In addition, save as disclosed above, as of the date of this prospectus, none of our subsidiaries have ever issued any dividends or distributions to us or their respective shareholders outside of mainland China. In the PRC, the PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and the remittance of currency out of mainland China which may restrict our PRC Subsidiaries’ ability to transfer cash from our PRC Subsidiaries to our other non-mainland China entities. To the extent cash is generated in our PRC Subsidiaries, and may need to be used to fund operations outside of mainland China, such funds may not be available due to limitations placed by the PRC government. Furthermore, to the extent assets (other than cash) in our business are located in China or held by a mainland China entity, the assets may not be available to fund operations or for other use outside of mainland China due to interventions in or the imposition of restrictions and limitations on the ability of us and our subsidiaries to transfer assets by the PRC government. If certain PRC laws and regulations, including existing laws and regulations and those enacted or promulgated in the future were to become applicable to our Kunming Subsidiary in the future, and to the extent cash is generated in our Kunming Subsidiary and to the extent assets (other than cash) in our business are located in Kunming or held by a Kunming entity and may need to be used to fund operations outside of Kunming, such funds or assets may not be available due to interventions in or the imposition of restrictions and limitations on the ability of us and our subsidiaries to transfer funds or assets by the PRC government. Furthermore, there can be no assurance that the PRC government will not intervene or impose restrictions on JiaLian Technologies Holdings Inc.’s ability to transfer or distribute cash within its organization, which could result in an inability or prohibition on making transfers or distributions to entities outside of mainland China and Kunming and adversely affect its business. Saved as the foregoing limitations imposed by the PRC government as described hereto, there are currently no limitations on our or our subsidiaries’ ability to transfer cash to investors. See “Risk Factors—Risks Related to Doing Business in China—Governmental control of currency conversion may limit our ability to utilize our revenues, transfer or distribute cash within our group effectively and affect the value of your investment” and “Regulation—Regulatory Overview of the PRC—Regulations Relating to Dividend Distributions” for a detailed discussion of the PRC legal restrictions on dividends and our ability to transfer cash within our group. In addition, holders of our ordinary shares may potentially be subject to PRC taxes on dividends paid by us in the event JiaLian Technologies Holdings Inc. is deemed as a PRC resident enterprise for PRC tax purposes. See “Taxation—PRC Taxation” and “Risk Factors—Risks Related to Doing Business in China—Dividends paid to our foreign investors and gains on the sale of our Class A ordinary shares by our foreign investors may become subject to PRC tax” for more details.
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We currently have not maintained any cash management policies that dictate the purpose, amount and procedure of fund transfers among our BVI holding company, our subsidiaries, the consolidated VIEs, or investors. Rather, the funds can be transferred in accordance with the applicable laws and regulations. We may require additional capital resources in the future and we may seek to issue additional equity or debt securities or obtain new or expanded credit facilities, which could subject us to operating and financing covenants, including requirements to maintain certain amount of cash reserves. See “Risk Factors—Risks Related to Our Business and Industry—Our ability to raise capital in the future may be limited, and our failure to raise capital when needed could prevent us from growing.”
Our subsidiaries and consolidated VIEs have never made any dividends or distributions to our BVI holding company. Similarly, our BVI holding company has not declared or made any dividend or other distribution to its shareholders, including U.S. investors, in the past. U.S. investors will not be subject to China taxation on dividend distributions, and no withholding will be required on the payment of dividends or distributions to them while they may be subject to U.S. federal income tax. See “Taxation—Material U.S. Federal Income Tax Consequences—Taxation of Dividends.” We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. In addition, the terms of any future debt agreements may preclude us from paying dividends. Our board of directors has complete discretion on whether to distribute dividends, subject to applicable laws. Even if our board of directors decides to pay dividends, the form, frequency, and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions, and other factors that the board of directors may deem relevant.
In considering any distribution of the earnings of the subsidiaries to their respective holding companies, we must consider their respective financial conditions before making a decision. There are no other significant restrictions and limitations on our ability to distribute earnings from our businesses, including our subsidiaries and consolidated VIEs, to the holding company and U.S. investors or our ability to settle amounts owed. Except the aforementioned restrictions on our PRC Subsidiaries, there are no significant restrictions on foreign exchange or our ability to transfer cash between entities within our group, across borders, or to U.S. investors.
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Investing in our Class A ordinary shares entails a significant level of risk. Before investing in our Class A ordinary shares, you should carefully consider all of the risks and uncertainties mentioned in this section, in addition to all of the other information in this prospectus, including the financial statements and related notes. We may face additional risks and uncertainties aside from the ones mentioned below. There may be risks and uncertainties that we are unaware of, or that we currently do not consider material but may become important factors that adversely affect our business in the future. Any of the following risks and uncertainties could have a material adverse effect on our business, results of operations, financial condition and prospects. In such case, the market prices of our Class A ordinary shares could decline and you may lose part or all of your investment.
Risks Related to Our Business and Industry
Uncertainties in economic conditions and their impact on the ecommerce industry, particularly for large parcel merchandise, could adversely impact our operating results.
We generate a significant portion of our revenues by offering global end-to-end B2B ecommerce solutions for large parcel merchandise via our Yunnan Jialian Big Data Service Platform and by selling our own inventory through the Yunnan Jialian Big Data Service Platform, to and through off-platform ecommerce websites such as Rakuten in Japan, Amazon and Walmart in the U.S. and Wayfair in the U.K. Our business and growth are therefore highly dependent on the viability and prospects of the ecommerce industry, particularly for the large parcel merchandise market.
Any uncertainties relating to the growth, profitability and regulatory regime of the ecommerce industry for large parcel merchandise in the U.S. and other jurisdictions in which we operate could have a significant impact on us. The development of the ecommerce industry is affected by a number of factors, most of which are beyond our control. These factors include:
| ● | the consumption power and disposable income of ecommerce consumers, as well as changes in demographics and consumer tastes and preferences; | |
| ● | the availability, reliability and security of ecommerce platforms; | |
| ● | the selection, price and popularity of products offered on ecommerce platforms; | |
| ● | the potential impact of the COVID-19 pandemic to our business operations and the economy in the U.S. and elsewhere generally; | |
| ● | the development of revenues fulfillment, payment and other ancillary services associated with ecommerce; and | |
| ● | changes in laws and regulations, as well as government policies, that govern the ecommerce industry in the U.S. |
The ecommerce industry is highly sensitive to changes in macroeconomic conditions, and ecommerce spending tends to decline during recessionary periods. Many factors beyond our control, including inflation and deflation, fluctuations in currency exchange rates, volatility of stock and property markets, interest rates, tax rates and other government policies and changes in unemployment rates can adversely affect consumer confidence and spending behavior on ecommerce platforms, which could in turn materially and adversely affect our growth and profitability. In addition, unfavorable changes in domestic and international politics, including military conflicts, political turmoil and social instability, may also adversely affect consumer confidence and spending, which could in turn negatively impact our growth and profitability.
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Our historical growth rates and performance may not be sustainable or indicative of our future growth and financial results. We cannot guarantee that we will be able to maintain the growth rate we have experienced to date.
We have grown rapidly over the last few years. Our revenues increased from RMB 500 million in 2021 to RMB 1.2 billion in 2022 and RMB 1.9 billion in 2023, and further increased from RMB 460 million in the three months ended March 31, 2023, to RMB 580 million in the three months ended March 31, 2024. The GMV (Gross Merchandise Value) transacted on our Yunnan Jialian Big Data Service Platform grew from RMB 3.5 billion in 2021 to RMB 19 billion in 2022 and RMB 41 billion in 2023, and increased from RMB 8.9 billion in the three months ended March 31, 2023, to RMB 11.3 billion in the three months ended March 31, 2024. However, our historical performance may not be indicative of our future growth or financial results. We cannot assure you that we will be able to maintain the same rate of growth as in the past or avoid any decline in the future. Our growth may slow or become negative for various reasons, some of which are beyond our control, including decreasing consumer spending, increasing competition, declining market growth, the emergence of alternative business models, and changes in rules, regulations, government policies, or general economic conditions.
Our Yunnan Jialian Big Data Service Platform , which has contributed 46.8%, 66.2%, 69.2%, 66.3%, and 76.0% of our total revenues in 2021, 2022, 2023, and the three months ended March 31, 2023, and 2024, respectively, represents a relatively new initiative and may not grow as quickly as anticipated. Inflationary pressures and global economic conditions could also impact our growth rate. Given the rapid evolution of the markets in which we operate, it is challenging to evaluate our prospects accurately, as we may lack sufficient experience addressing the risks associated with operating in such dynamic environments. A decline in our growth rate could materially and adversely affect our business, financial condition, and results of operations.
System interruptions that impair access to our Yunnan Jialian Big Data Service Platform , or other performance failures in our technology infrastructure, could damage our reputation and results of operations. The satisfactory performance, reliability, and availability of our marketplace, software systems (such as AI, data analytics tools, and warehouse management systems), and other technology infrastructures are critical to our reputation, customer acquisition and retention, and maintaining high service levels.
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For example, if one of our data centers fails or suffers an interruption or degradation of services, we could lose customer data and miss order fulfillment deadlines, potentially harming our business. Our systems and operations, including logistics network capabilities, are vulnerable to damage, breakdowns, breaches, or interruptions caused by adverse weather, fire, flood, power loss, telecommunications failure, cyber-attacks, ransomware, malware, data loss, acts of war, earthquakes, or similar events. In the event of a data center failure, transitioning to backup systems could take substantial time, during which our platform might be completely inaccessible. Furthermore, our backup services may not effectively handle spikes in demand, process transactions efficiently, or fully support all functionalities of our platform.
We use complex AI software in our technology infrastructure, which we continuously update and improve. However, these upgrades and improvements may not always succeed, and system failures could occur during updates. For instance, slowdowns or interruptions in our marketplace or warehouse management system during updates could negatively impact our ability to handle GMV volumes. Our revenue depends on the number of sellers and buyers trading on our platform and the volume of GMV we can manage. Any unavailability of our marketplace or logistics algorithms would reduce GMV and harm our business operations.
Periodic system interruptions may occur from time to time. Additionally, continued growth in transaction volume, surges in online traffic, and orders resulting from promotional activities or seasonal trends place additional demands on our technology infrastructure. Such increases could cause or exacerbate slowdowns or interruptions. Substantial increases in traffic or orders may require us to further expand and upgrade our logistics network, precision logistics algorithms, warehouse management systems, and technology infrastructure. There is no assurance that we will be able to accurately predict the rate or timing of increases in platform usage or successfully expand and upgrade our systems and infrastructure to accommodate such growth in a timely manner. To remain competitive, we continually enhance and improve the responsiveness, functionality, and features of our platform, which can sometimes lead to instability and performance issues.
Any slowdown, interruption, or performance failure of our marketplace, underlying technology, or logistics infrastructure could harm our business, reputation, and ability to acquire, retain, and serve customers, potentially having a material adverse effect on our results of operations.
Risks Related to Our Domestic Operations in China
We operate warehouses primarily in China, with Kunming being our operational hub. Our domestic operations are significant to our revenues and profits, and we plan to further expand across China while maintaining a focus on local markets. In certain regional market segments within China, we may have relatively little operating experience and may not benefit from any first-to-market advantages. Establishing, developing, and maintaining operations in new regions can be costly, and there is no guarantee that these operations will become profitable on a sustained basis.
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In addition, our domestic sales and operations are subject to a number of risks, including:
● Local economic conditions, inflation, and political factors impacting our business;
● Government regulation (such as regulation of our product and service offerings, competition, and industry-specific rules); restrictive governmental actions (such as trade protection measures, export/import duties, quotas, customs duties, tariffs, and restrictions on foreign ownership);
● Restrictions on the distribution of certain products or services and uncertainty regarding liability for products, services, and content, including challenges arising from varying legal systems, lack of legal precedent, and differing regulations regarding the physical and digital distribution of media products and enforcement of intellectual property rights;
● Business licensing or certification requirements imposed by local authorities;
● Limitations on the movement of funds due to foreign currency exchange controls and restrictions on repatriation of profits;
● Limited fulfillment and technology infrastructure in some regions, which could impact our ability to scale efficiently;
● Potential impacts of the COVID-19 pandemic on our business operations and the broader economy, particularly in areas where supply chains and logistics networks are affected;
● Shorter payable cycles and longer inventory/receivable cycles, which could negatively affect cash flow;
● Laws and regulations related to consumer protection, data privacy, cybersecurity, encryption, payments, advertising, pricing, and discounts;
● Lower levels of Internet penetration in certain rural areas, which may limit the reach of our platform;
● Cultural, linguistic, and geographic differences that could make staffing, developing, and managing operations in new regions challenging;
● Differing labor regulations where employee/employer relationships may be governed by more stringent local laws compared to international standards;
● Compliance with applicable PRC laws and regulations, including anti-corruption laws, tax policies, and foreign investment restrictions;
● Geopolitical events, including pandemics, natural disasters, or other disruptions that could affect our operations.
As domestic B2B e-commerce and omni-channel services grow, competition will intensify, especially with the adoption of evolving business models. Local companies may have a competitive advantage due to their deeper understanding of regional customers and established brand recognition. The inability to hire, train, retain, and effectively manage sufficient personnel may limit our growth in new regions.
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If we fail to maintain and expand our relationships with third-party platforms and sellers and buyers in our marketplace, our revenues and results of operations will be harmed.
Our business operations have relied primarily on our Yunnan Jialian Big Data Service Platform , which connects manufacturers in China with resellers globally. We expect our platform to remain a critical component of our operations in the foreseeable future.
The Yunnan Jialian Big Data Service Platform has significant influence over how transactions are conducted, including the fulfillment of purchase orders and the selection of logistics partners. We may need to accommodate various demands and requirements from third-party merchants, such as packaging standards or specific shipping preferences. These demands could increase our operational costs or weaken our direct connection with end customers.
Furthermore, approximately 46.8%, 66.2%, 69.2%, and 76.0% of our total revenues were generated through our Yunnan Jialian Big Data Service Platform in 2021, 2022, 2023, and the three months ended March 31, 2024, respectively. As a result, maintaining strong relationships with third-party merchants—both sellers and buyers trading large parcel merchandise—is critical to our business operations and growth prospects. However, several factors beyond our control could impact these relationships. For example, if transaction volumes or active users in our marketplace decline significantly, third-party merchants may experience reduced sales or insufficient product supply. This could lead them to generate lower profits than expected, causing them to choose not to renew their agreements with us. Additionally, we may face challenges in continuously offering attractive terms or economic benefits to our sellers and buyers, which could demotivate them from increasing their activity on our platform or maintaining long-term relationships with us.
Even if we successfully maintain and grow our relationships with sellers and buyers, we are still subject to risks associated with third-party merchants. If any third-party seller fails to ensure the quality of their products, delivers defective goods, or provides products that materially differ from their descriptions, the reputation of our platform could be materially and adversely affected. We could also face claims for liability related to such issues. Moreover, despite our efforts to prevent it, some products sold by third-party sellers on our platform may compete with the products we sell directly through our self-operated business, potentially cannibalizing our own sales. To ensure the success of our online marketplace, we must continue to identify and attract high-quality sellers and buyers. There can be no assurance that we will succeed in this regard. The occurrence of any of the above risks could have a material adverse effect on our business, financial condition, and results of operations.
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Risks associated with the manufacturers of the products we sell as our own inventory could materially adversely affect our financial performance as well as our reputation and brand.
We source products from third-party suppliers and manufacturers, which we sell as our own inventory through the Yunnan Jialian Big Data Service Platform. Our ability to provide customers with a wide range of high-quality products sourced from qualified suppliers in a timely and efficient manner is critical to our operations. However, various factors beyond our control could impact our supply chain, including political and economic instability in China, regional adverse conditions such as pandemics, natural disasters, or other disruptions, the financial stability of suppliers, their capacity to meet our standards, labor issues experienced by suppliers, the availability or cost of raw materials, merchandise quality concerns, currency exchange rate fluctuations, trade tariffs, transportation availability and costs (including import-related taxes), transport security, inflation, and other supplier-related factors. For example, the COVID-19 pandemic could adversely affect supplier facilities and operations due to extended holidays, factory closures, or labor shortages, which may materially impact our business, financial condition, and results of operations.
Our agreements with most suppliers do not guarantee long-term product availability or specific pricing practices, nor do they typically restrict suppliers from selling to other buyers. There can be no assurance that our current suppliers will continue to offer products to us under existing terms or that we will successfully establish new or extend existing supply relationships to ensure timely and efficient product acquisition on acceptable commercial terms. Developing and maintaining strong relationships with reputable suppliers is essential to our success. If we are unable to secure sufficient quantities and varieties of quality merchandise on favorable terms, our ability to meet customer needs and achieve long-term growth could be materially affected.
Additionally, we rely on suppliers’ representations regarding product quality, safety, and compliance with applicable laws and standards. If suppliers violate relevant regulations, engage in unethical practices, or adopt processes deemed unsafe or hazardous to the environment, it could damage our reputation and negatively impact our operating results. Customer concerns about the safety or quality of products supplied by our partners, even if outside our direct control, could lead to reduced purchases or avoidance of our platform altogether. Any issue—real or perceived—regarding the quality or safety of the items we sell could harm our brand, reputation, operations, and financial performance.
Moreover, we cannot predict whether countries where our suppliers operate might face new or additional trade restrictions imposed by the Chinese government or foreign governments, nor the likelihood, type, or effects of such restrictions. Events causing disruptions or delays in imports from suppliers with domestic or international manufacturing operations, such as the imposition of import restrictions, increased tariffs, or quotas, could raise costs or reduce the supply of merchandise available to our customers, materially impacting our financial performance, reputation, and brand. Political or financial instability affecting suppliers’ operations could also disrupt trade flows, restrict fund transfers, or create other trade obstacles.
Furthermore, fluctuations in the value of the Renminbi (RMB) relative to other currencies could influence our business, particularly for any foreign suppliers we may engage in the future. Movements in foreign currency exchange rates against the RMB could increase our costs for imported goods. Declines in foreign currencies or exchange rates might negatively affect the profitability and business prospects of certain suppliers, prompting them to raise prices, delay shipments, or cease selling to us altogether. Any of these outcomes could ultimately reduce our revenues or increase our costs.
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If we fail to manage our inventory effectively, our results of operations, financial condition and liquidity may be materially and adversely affected.
Our business model requires us to manage a large volume of inventory effectively. We procure products from third-party manufacturers and sell them as our own inventory through our Yunnan Jialian Big Data Service Platform. Our operations are primarily focused on domestic markets within China, with no reliance on international supply chains or cross-border logistics. We depend on our demand forecasts for various kinds of products to make purchase decisions and manage our inventory. However, product demand can change significantly between the time inventory is ordered and the date we target to sell it. Factors influencing demand include seasonality, new product launches, changes in product cycles and pricing, product defects, shifts in consumer spending patterns, evolving consumer preferences for our products, and other external factors. Additionally, when introducing a new product, we may face challenges in accurately forecasting demand. Certain types of inventory may require significant lead times and prepayment, and these items may not be returnable. If we fail to anticipate or respond to changes in customer preferences or do not introduce products that align with new customer preferences in a timely manner, our results of operations, financial condition, and liquidity could be adversely affected.
Our inventories have increased from RMB 356 million as of December 31, 2022, to RMB 814 million as of December 31, 2023, and further to RMB 1,107 million as of March 31, 2024. Our annual inventory turnover days for our own inventory were 53 days in 2022 and 65 days in 2023. For the three months ended March 31, 2024, our inventory turnover days were 90 days. Inventory turnover days for a given period are calculated by dividing the average inventory balance (based on the beginning and ending balances of the period) by the cost of revenues during the period, then multiplying by the number of days in the period. The increase in inventory turnover days in 2023 was primarily due to rising costs associated with procurement, as well as an increase in inventory levels as we expanded our 1P sales. The further increase in inventory turnover days during the first quarter of 2024 was mainly attributable to logistical challenges caused by the COVID-19 pandemic , which reduced global freight capacities and led to delays in deliveries. These delays increased our shipping costs, which are included in the inventory balance, contributing to higher inventory values. The rise in shipping costs also prompted us to adjust product prices upward, potentially impacting consumer demand and extending inventory turnover days. We anticipate that shipping costs may continue to fluctuate in 2024 due to ongoing uncertainties related to the pandemic. There is a risk that we may not be able to fully pass these cost increases to customers, which could negatively affect our margins.
If we fail to manage our inventory effectively, we may face heightened risks of inventory obsolescence, declines in inventory value, and significant inventory write-downs or write-offs. To reduce inventory levels, we often choose to sell certain products at discounted prices, which may result in lower gross margins. High inventory levels also require substantial capital resources, limiting our ability to allocate funds to other critical business needs. Any of these factors could materially and adversely impact our results of operations and financial condition.
On the other hand, if we underestimate demand for our products or if our suppliers fail to deliver quality products in a timely manner, we may experience inventory shortages. Such shortages could lead to missed sales opportunities, diminished brand loyalty, and lost revenues, all of which could harm our business and reputation.
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We depend on our relationships with third-parties, including third-party carriers, and changes in our relationships with these parties could adversely impact our revenues and profits.
We rely on third parties to operate certain elements of our business. For example, we rely on local carriers and third-party national, regional, and local transportation companies to deliver our large parcel merchandise. As a result, we may be subject to shipping delays or disruptions caused by inclement weather, natural disasters, system interruptions and technology failures, labor activism, health epidemics or bioterrorism. We are also subject to risks of breakage or other damage during delivery by any of these third parties. We also use and rely on other services from third parties, such as telecommunications services, customs, consolidation and shipping services, as well as warranty, installation, assembly and design services. We may be unable to maintain these relationships, and these services may also be subject to outages and interruptions that are not within our control. Third parties may in the future determine they no longer wish to do business with us or may decide to take other actions that could harm our business. We may also determine that we no longer want to do business with them. If parcels are not delivered in a timely fashion or are damaged during the delivery process by these third parties, or if we are not able to provide adequate customer support or other services or offerings, our customers could become dissatisfied and cease using our cross border fulfillment services or stop trading products through our marketplace, which would adversely affect our operating results.
We may not be successful in optimizing our warehouses and fulfillment network.
As of March 31, 2024, we operate a network of large-scale warehouses primarily located in China , with a key operational hub in Kunming. Failures to adequately predict customer demand or otherwise optimize and operate our fulfillment network successfully could result in excess or insufficient capacity, increased costs, and impairment charges, any of which could materially harm our business. As we continue to expand our warehouse and fulfillment capabilities domestically, the complexity of our logistics network increases, making it more challenging to manage effectively. There can be no assurance that we will be able to operate these networks efficiently.
In addition, failure to optimize inventory within our fulfillment network could increase our net shipping costs due to long-distance or partial shipments. We may face challenges in staffing our warehousing facilities and ensuring seamless operations. The complexity of tracking inventory and managing fulfillment services for third-party businesses further compounds these challenges. If we fail to properly handle inventory or if the businesses for whom we provide fulfillment services cannot accurately forecast product demand, we may struggle to secure sufficient storage space, optimize our warehouses, or avoid unexpected costs, potentially harming our business and reputation.
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Damage to our brand image could have a material adverse effect on our growth strategy, business, financial condition, results of operations, and prospects.
Maintaining and enhancing our brand is critical to expanding our customer base, including attracting third-party e-commerce platforms to use our logistics services and encouraging sellers and buyers to trade on our marketplace. Our ability to maintain and enhance our brand depends largely on our ability to ensure customer confidence in our service offerings, such as delivering parcels on time and undamaged to end customers. If end customers are dissatisfied with our logistics services, they may seek alternatives from competitors. Similarly, if sellers and buyers are not satisfied with the product selection or service quality on our marketplace, they may choose not to return, negatively impacting our business.
Unfavorable publicity regarding issues such as privacy and data protection, product quality, delivery problems, competitive pressures, litigation, or regulatory activity could seriously harm our reputation. Such negative publicity could reduce the size, engagement, and loyalty of our customer base, leading to decreased total revenues and adversely affecting our business, financial condition, and results of operations. A significant portion of our customers’ experience also depends on third parties outside our control, including logistics providers and freight service partners. If these third parties fail to meet our or our customers’ expectations, our brand reputation could suffer irreparable damage.
Customer complaints or negative publicity about our marketplace, products, delivery times, company practices, employee conduct, data handling, security protocols, or customer support—especially on social media platforms—could rapidly diminish the trust and usage of our platform by buyers and sellers, resulting in harm to our brand.
Our efforts to launch new products or services may not succeed.
Our business success depends in part on our ability to expand our service offerings by introducing new products and services and extending our existing offerings into new regions. For example, we launched the Yunnan Jialian Big Data Service Platform , our B2B marketplace, in January 2021. Launching new products and services requires significant upfront investments, including marketing, information technology, and personnel. Expanding into new geographic markets, particularly within China, is especially challenging because it requires us to adapt to regional consumer preferences, local regulations, and logistical requirements. We may not generate sufficient revenue to offset these costs. Any lack of market acceptance of our new initiatives could materially and adversely affect our business, financial condition, and results of operations.
Furthermore, as we expand our fulfillment capabilities or introduce new business lines with unique requirements, the complexity of our logistics network increases, making it more difficult to manage effectively. There can be no assurance that we will be able to operate these networks successfully.
We have also entered and may continue to enter into new markets where we have limited or no prior experience, which may not align with customer expectations or achieve success. These activities may present technological and logistical challenges, and any resulting service disruptions, failures, or quality issues could lead to customer dissatisfaction and damage our reputation and brand. Additionally, current and potential competitors in these new market segments may possess stronger brand recognition, greater financial resources, longer operating histories, and larger customer bases than we do. As a result, we may not achieve sufficient success in these areas to recoup our investments. If this occurs, our business, financial condition, and results of operations could be materially and adversely affected.
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We are subject to risks related to online transactions and payment methods.
We accept payments using a variety of methods, including bank transfers, digital wallets, credit accounts (including promotional financing), and customer invoicing. As we introduce new payment options to our customers, we may become subject to additional regulations, compliance requirements, and potential fraud risks. For certain payment methods, such as corporate credit lines or third-party financing services, we incur processing fees, which could increase over time, raising our operating costs and potentially impacting profitability. We are also subject to certification requirements for electronic payment systems, which could evolve or be reinterpreted in ways that make compliance challenging or costly. If we fail to comply with these rules or if fraudulent activity increases, limits, or terminates our ability to use accepted payment methods, or if a data breach occurs in our payment systems, we may face fines, higher transaction fees, restrictions on accepting payments, or reputational damage. Such events could materially and adversely affect our business, financial condition, and operating results.
We occasionally receive orders placed with fraudulent payment information. Even if associated financial institutions approve the payments, we may still suffer losses due to fraudulent transactions. Under current practices, we may bear liability for fraudulent transactions conducted through our platform. Additionally, we may experience losses from other forms of online transaction fraud, including unauthorized returns or misuse of account credentials. If we cannot effectively detect or control such fraud, our liability for these incidents could harm our business, financial condition, and operating results.
Our failure or the failure of third-party service providers to protect our marketplace, networks, and systems against security breaches could damage our reputation and substantially harm our business and operating results.
In our daily operations, we collect, maintain, transmit, and store data about our customers, suppliers, employees, and contractors, including limited personally identifiable information (PII) related to parcel senders and recipients, as well as other confidential and proprietary information. The proper use and protection of this information are critical to maintaining trust in our services.
We rely heavily on our networks, information technology infrastructure, and related technology systems to provide services to our customers and manage internal operations. Many of our customers require continuous access to our services, and any interruptions in our infrastructure or that of our third-party service providers could materially impair their ability to conduct business with us. Our technology systems process and store confidential information necessary for the functioning of our network. Security breaches, cyber-attacks, or unauthorized access to our systems could compromise the security of infrastructure, systems, and data. Despite our efforts to implement robust security measures, including formal IT policies and limiting stored data to non-sensitive information such as business addresses and zip codes, our systems remain vulnerable to attacks by hackers, viruses, or employee errors, malfeasance, or other disruptions.
If a breach or other security incident occurs, it could:
(i) Interfere with the delivery of services to our customers;
(ii) Impede our customers’ ability to conduct business;
(iii) Compromise the security of infrastructure, systems, and data;
(iv) Lead to the dissemination of proprietary information or sensitive, personal, or confidential data about us, our employees, or our customers; and
(v) Impact our ability to operate effectively.
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Such incidents could expose us to increased risks of claims, liabilities, litigation, regulatory enforcement, notification obligations, indemnity obligations, loss of existing or potential customers, reputational harm, increased security costs (e.g., investigating or correcting breaches), disruption of normal business operations, loss of industry certifications, or government sanctions. Containing and remediating any IT system failure, cybersecurity attack, or vulnerability may require significant investment of resources, diverting attention from other priorities and disrupting our business.
Similar security risks exist with respect to third-party vendors we rely on for aspects of our IT support services, logistics management, and administrative functions. While we take steps to ensure the security of our own systems, our ability to monitor third-party service providers’ data security is limited. As a result, cyber-attacks or security incidents affecting our third-party partners could indirectly impact our business, even if our systems are not directly compromised. Furthermore, security breaches experienced by competitors in our industry could lead to negative publicity, harming the reputation of the entire sector and reducing demand for our services.
The secure processing, storage, maintenance, and transmission of critical customer and business information are essential to our operations and strategic goals. Although we dedicate significant resources to protecting such information and believe we have implemented reasonable and appropriate measures, including a dedicated IT department and minimizing the storage of sensitive customer data, our information technology and infrastructure may still be vulnerable to external threats. Practices regarding the collection, use, storage, and security of personal information are under increasing public scrutiny. Any failure or perceived failure by us to prevent information security breaches or comply with privacy-related legal obligations could cause our customers to lose trust in our services. The perception that confidentiality or privacy is unsafe when using our platform could damage our reputation and materially harm our business, financial condition, and results of operations.
Moreover, while we have implemented safeguards to mitigate cybersecurity risks, we have not taken additional measures to address risks arising from third-party products, software, or services integrated into our supply chain. A security breach could necessitate substantial additional investments in enhancing our information systems and providing breach notifications to affected parties, diverting resources from other initiatives and disrupting our operations.
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Real or perceived errors, failures, or bugs in our services, software, or technology could adversely affect our business, financial condition, and results of operations.
Undetected real or perceived errors, failures, bugs, or defects may exist or occur in the future in our solutions, software, or technology, including the technology or software we license from third parties, such as open-source software. Despite thorough testing by us, these issues may not be identified until our customers use our services. Real or perceived errors, failures, bugs, or defects in our solutions could result in negative publicity, loss of or delays in market acceptance of our services, harm to our brand, weakening of our competitive position, claims for losses sustained by customers, or failure to meet stated service-level commitments in our customer agreements. In such cases, we may be required—or choose, for customer relations or other reasons—to expend significant additional resources to address and correct the problem. Any real or perceived errors, failures, bugs, or defects in our services could also impair our ability to attract new customers, retain existing ones, or expand their use of our services, which could negatively impact our business, financial condition, and results of operations.
Our ability to raise capital in the future may be limited, and our failure to do so when needed could prevent us from growing.
We may require additional cash resources to fund future growth and development initiatives, including the expansion of our Yunnan Jialian Big Data Service Platform , enhancement of our third-party logistics services, and any investments or acquisitions we may pursue. If our available cash resources are insufficient to meet our needs, we may seek to issue additional equity or debt securities or secure new or expanded credit facilities. Our ability to obtain external financing depends on various uncertainties, including our future financial condition, results of operations, cash flow performance, share price trends, liquidity in domestic capital and lending markets, and government regulations regarding foreign investment and the e-commerce and logistics industries. Additionally, incurring debt would increase our debt service obligations and could impose operational and financing covenants that restrict our activities. There can be no assurance that financing will be available in a timely manner, in sufficient amounts, or on terms favorable to us—or at all. A failure to secure necessary funding could severely constrain our liquidity and materially harm our business, financial condition, and results of operations. Furthermore, issuing equity or equity-linked securities could lead to significant dilution for our existing shareholders.
Our business operates in a highly competitive environment, presenting an ongoing challenge to our success.
Our business is rapidly evolving and intensely competitive, with numerous competitors across various industries. Our competition includes third-party logistics service providers , B2B e-commerce platforms , and traditional retailers operating in China and globally. We compete with third-party logistics providers based on factors such as warehouse capacity, infrastructure quality, network stability, business model innovation, operational capabilities, cost control, and service excellence. Additionally, we compete with other e-commerce platforms and retailers offering large parcel merchandise based on product variety, availability, user base size, flexibility in delivery options, and freight rates.
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Many of our current competitors, as well as potential new entrants, possess longer operating histories, stronger brand recognition, larger fulfillment networks, advanced technical capabilities, faster and more cost-effective shipping solutions, significantly greater financial and marketing resources, and broader customer bases compared to ours. These advantages enable them to generate higher revenues and profits from their existing customer bases, acquire customers at lower costs, or respond more swiftly than we can to emerging technologies and changing customer preferences. Such competitors may also invest in extensive research and development efforts, launch aggressive marketing campaigns, and adopt competitive pricing strategies, allowing them to build larger customer bases or monetize their users more effectively than we do.
In light of these challenges, we must continue to innovate, optimize our cost structure, enhance our service offerings, and strengthen our competitive position to sustain growth and profitability. Failure to effectively address these competitive pressures could materially and adversely affect our business, financial condition, and results of operations.
We may be subject to product liability claims and other similar claims if people or property are harmed by the products we sell or sold through our platform.
Some of the products we sell may expose us to product liability and other claims or litigation (including class actions) related to safety, personal injury, death, or environmental or property damage. While we have agreements with members of our supply chain that may include indemnification provisions, some suppliers may not fully indemnify us for specific product liabilities, and certain members of our supply chain may lack sufficient resources or insurance to meet their indemnity and defense obligations. Although we maintain product liability insurance, there can be no assurance that our coverage will be adequate for liabilities actually incurred or that such insurance will continue to be available to us on economically reasonable terms—or at all.
Fluctuations in transportation costs and uncertainties in third-party logistics capacity may adversely affect our operational results.
Our transportation costs primarily consist of fuel expenses and fees associated with third-party logistics services. The availability and price of fuel, as well as third-party logistics capacity, are influenced by political, economic, and market factors beyond our control. To enhance efficiency, we have increased the use of self-owned, cost-effective high-capacity vehicles to partially replace third-party logistics services. However, in the event of a significant rise in fuel prices or third-party logistics charges, our transportation expenses could increase, and our gross profit could decline if we are unable to implement effective cost-control measures or pass on incremental costs to our customers. Such developments could materially impact our business, financial condition, and results of operations.
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We face risks associated with parcels handled and transported through our domestic fulfillment network.
We manage a large volume of parcels across our domestic fulfillment network, primarily within China. Challenges arise regarding the protection and inspection of these parcels. Parcels in our network may be stolen, damaged, or lost due to various reasons, exposing us to actual or alleged liability for such incidents. Additionally, unsafe or prohibited/restricted items may inadvertently enter our system, potentially leading to administrative or criminal penalties, as well as civil liability for personal injury or property damage. Failure to prevent such items from entering our network could result in significant costs and reputational harm.
The transportation of parcels involves inherent risks. Our logistics operations involve multiple warehouses and personnel who are subject to risks related to transportation safety, including injuries or losses during transit or at our warehouses. For example, our personnel may occasionally be involved in traffic accidents, resulting in personal injury or damage to parcels. Frictions or disputes may also arise during interactions between our personnel and parcel senders or recipients, which could escalate into incidents involving personal injury or property damage. The insurance policies we carry may not fully cover damages caused by such events.
Any of the above risks could disrupt our services, cause us to incur substantial expenses, and divert the attention of our management team. If we are found liable or partially liable for any injuries, damages, or losses, we may face claims and incur significant liabilities. Claims against us may exceed the limits of our insurance coverage or may not be covered by insurance at all. Government authorities may impose significant fines or require us to adopt costly preventive measures. Furthermore, if our services are perceived as unsafe by end customers, e-commerce platforms, or partners, our business volume could significantly decrease, materially impacting our business, financial condition, and results of operations.
Significant merchandise refunds and product warranty claims could materially harm our business.
We allow customers to claim refunds or product warranties for our 1P sales in accordance with our return policy. See “Business—Logistics Network and Value-added Services—Warranties and Refunds.” If merchandise returns or product warranty claims become significant, it could negatively impact our business, financial condition, and results of operations. Additionally, we periodically update our policies regarding returns and warranties, which could lead to customer dissatisfaction or an increase in product returns. Many of our products are large and require specialized handling and delivery. Occasionally, our products are damaged during transit, increasing return rates and potentially harming our brand reputation.
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Our business may be affected by increases in rental expenses or the termination of leases for our warehouses.
We lease properties to operate all of our warehouses, offices, and other logistics facilities within China. We may be subject to increases in rental expenses due to market conditions or changes in local regulations. Additionally, we may not be able to successfully extend or renew such leases upon expiration on commercially reasonable terms, or at all, potentially forcing us to relocate affected operations. Such relocations could disrupt our business and result in significant relocation expenses, which could adversely impact our financial condition and results of operations. As our business continues to grow, we may face challenges in identifying desirable alternative locations for our facilities. Failure to secure suitable alternatives or delays in relocating could negatively affect our operations. Furthermore, competition for premises in desirable locations or of appropriate sizes could drive up rental costs, impacting our profitability.
We have recorded negative cash flows from operating activities in certain periods and may experience significant cash outflows in the future.
We incurred cash outflows from operating activities in the three months ended March 31, 2023 and 2024. Net cash used in operating activities amounted to RMB 65 million and RMB 145 million in the three months ended March 31, 2023 and 2024, respectively, compared to net cash provided by operating activities of RMB 12 million, RMB 333 million, and RMB 86 million in 2021, 2022, and 2023, respectively. The negative cash flow during these periods was primarily attributable to timing differences in the recording of operating assets and liabilities. In 2023 and the first quarter of 2024, domestic transportation costs increased significantly due to logistical challenges caused by the COVID-19 pandemic , including reduced freight capacities and higher operational costs. These costs are included in inventory balances, contributing to increased inventories and cash outflows from operating activities. We anticipate that transportation costs may continue to fluctuate in 2024 as uncertainties related to the pandemic persist. If we are unable to fully pass these cost increases to customers, our margins could be adversely affected.
We expect to continue procuring inventory and investing in additional warehouses and logistics infrastructure to further expand our business. However, there can be no assurance that we will successfully execute our business strategies. For various reasons, including rising fuel and transportation costs, inflation, increasing competition, and macroeconomic challenges stemming from the COVID-19 pandemic , we may not generate sufficient revenues to sustain growth. Our future profitability will depend not only on generating revenue from our products and services but also on effectively controlling costs. If we fail to adequately manage operational costs, we may incur losses and experience negative cash flows from operating activities in the future.
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We believe that, considering our current cash reserves and anticipated operating cash flows, we have sufficient working capital to meet our present requirements and sustain operations for at least the next 12 months from the date of this prospectus. However, if we encounter changes in business conditions, unforeseen developments, or opportunities for investments, acquisitions, or capital expenditures, we may require additional capital resources. There can be no assurance that such financing will be available on favorable terms or at all.
Our business requires significant capital investments and a high level of working capital to sustain operations and support growth.
We invest heavily in building and setting up warehouse facilities, technology systems, sorting equipment, and other logistics infrastructure. These investments are critical to supporting both our existing operations and anticipated expansion. Forecasting future capital needs involves many uncertainties, such as general economic trends, changes in government regulations, and competitive dynamics. If we inaccurately forecast our capital investment requirements, we could face excess capacity or insufficient capacity, either of which would negatively impact our revenues and profitability. While we adjust other aspects of our operations and cost structure in response to adverse economic conditions, these measures may not be sufficient to maintain our operating margins.
Our strategic investments or acquisitions may not achieve the desired outcomes.
We have made and may continue to make strategic investments or acquire complementary assets, technologies, products, or businesses to enhance our platform and expand our service offerings. Negotiating and completing these transactions can be time-consuming, challenging, and costly. Furthermore, our ability to close these deals may depend on regulatory approvals, which are outside our control. Investments and acquisitions could involve substantial cash outlays, potentially dilutive issuances of equity securities, significant amortization expenses for intangible assets, diversion of management attention, and exposure to unknown liabilities of acquired entities. Integrating acquired businesses into our existing operations could also pose risks, including disruptions to current operations, difficulties in retaining key personnel, assimilating diverse software systems or business cultures, and encountering unexpected challenges. Even if announced, these transactions may not close due to unforeseen circumstances. Potential consequences include issuing additional equity securities that dilute shareholders’ ownership, using cash reserves needed for core operations, incurring debt under unfavorable terms, or facing substantial depreciation, impairment losses, or deferred compensation charges. If our strategic investments or acquisitions do not succeed, it could materially and adversely affect our business, financial condition, results of operations, and prospects.
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We rely on the performance of our management team and highly skilled IT personnel, and if we are unable to attract, develop, motivate, and retain well-qualified employees, our business could be harmed.
Our success depends in part on our continued ability to attract, retain, and motivate highly qualified management and other key personnel. We are highly dependent upon our senior management team, particularly our chief executive officer, as well as our vice presidents and other members of the leadership team. Although we have executed employment agreements or offer letters with each member of our senior management team, these agreements can generally be terminated at will, with or without notice, meaning we may not be able to retain their services as expected. We do not currently maintain “key person” life insurance for our executives or any employees. This lack of insurance means that we may not have adequate compensation in the event of losing the services of these individuals.
The increasing scale of our business requires us to hire and retain a wide range of capable and experienced personnel and technology talents who can adapt to a dynamic, competitive, and challenging business environment. Competition for talent is intense, and the availability of suitable and qualified candidates is limited in the regions where we operate. Combined with inflationary pressures, this competition could force us to offer higher compensation and benefits to attract and retain talent, further increasing our labor costs. Even if we offer better compensation packages, there is no guarantee that these individuals will choose to join or remain with us. Any failure to attract or retain key management and personnel could severely disrupt our business and growth.
We will need to expand and effectively manage our managerial, operational, financial, and other resources to successfully pursue our business strategies. There is no assurance that we will be able to maintain our unique company culture or continue attracting and retaining qualified management and personnel in the future. If we are unable to attract, integrate, retain, and motivate the necessary personnel to achieve our business objectives, we may face constraints that significantly impede the achievement of our development goals, our ability to raise additional capital, and our capacity to implement our business strategy.
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We may not be able to prevent others from unauthorized use of our intellectual property, which could harm our business and competitive position.
We rely on a broad portfolio of intellectual property to operate our business and may not be able to effectively protect these rights against infringement, misappropriation, or other violations. Our protection efforts may also incur significant costs.
We rely on a combination of trademark, copyright, and trade secret laws in the PRC, as well as confidentiality procedures and contractual provisions, to safeguard our intellectual property rights. We enter into confidentiality agreements with our employees and third parties who access our proprietary information, and we strictly control access to our technology and data. However, we cannot guarantee that confidentiality agreements have been signed with every party that has had access to our trade secrets or proprietary information. These agreements may be breached by counterparties, leading to disclosure of our proprietary information, including trade secrets, or claims of ownership over intellectual property we believe belongs to us. Additionally, intellectual property rights obtained through legal processes may not cover all intellectual property developed by our employees and contractors, leaving room for adverse ownership claims. As a result, we may not possess full ownership rights to all intellectual property we consider ours or that is critical to our operations.
Intellectual property protection may not be sufficient in the regions where we operate. Our trademarks or other intellectual property rights may be challenged by others through administrative processes or litigation, and our pending trademark applications may not be approved. Furthermore, monitoring unauthorized use of our intellectual property is difficult, time-consuming, and costly, and the measures we have taken may not be enough to prevent misuse. If we resort to litigation to enforce our intellectual property rights, such litigation could result in substantial costs and divert our managerial and financial resources. There is no assurance that we will prevail in such litigation, and some courts in the PRC may be less willing or unwilling to protect trade secrets due to inconsistent enforcement and judicial interpretation of statutory laws and regulations. Confidentiality and non-compete agreements may also be breached, and remedies for such breaches may not be adequate. Consequently, we may not be able to effectively protect our intellectual property rights or enforce our contractual rights in the PRC and other jurisdictions where we operate.
Additionally, our trade secrets may be leaked or independently discovered by competitors. If any of our trade secrets are lawfully obtained or independently developed by a competitor or third party, we would have no right to prevent them from using that technology or information to compete with us. Any failure to protect or enforce our intellectual property rights could materially and adversely affect our business, financial condition, and results of operations.
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We may not be able to protect and enforce our trademarks and trade names or build name recognition in our markets of interest, thereby harming our competitive position.
The registered or unregistered trademarks and trade names we own may face challenges, infringement, circumvention, declarations of generic status, lapses, or determinations of infringement or dilution of other marks. We may not be able to adequately protect our rights in these trademarks and trade names, which are essential for building brand recognition. Moreover, third parties may file for registration of trademarks similar or identical to ours, impeding our ability to establish brand identity and potentially causing market confusion. If they succeed in registering or developing common-law rights in such trademarks, and if we are unsuccessful in challenging these rights, we may be unable to use these trademarks to develop brand awareness for our technologies, products, or services.
Additionally, there could be potential claims of trademark or trade name infringement brought by owners of other registered trademarks or those incorporating variations of our registered or unregistered trademarks or trade names. In the future, we may enter into agreements with owners of such third-party trade names or trademarks to avoid potential trademark disputes, which could limit our ability to use our trade names or trademarks in certain business areas.
We have not yet registered certain trademarks in all of our potential markets, although we have registered “JiaLian Technologies TECHNOLOGY” and “JiaLian Cloud Warehouse” in Kunming. If we apply to register these trademarks in other countries or additional trademarks in the PRC, our applications may not be approved in a timely manner or at all. Furthermore, registered trademarks may not be maintained or enforced effectively. Third parties may also file for our trademarks first in certain countries. If they succeed in registering these trademarks and we are unsuccessful in challenging their rights, we may not be able to use these trademarks to market our products and technologies in those regions. Without securing registrations for our trademarks, we may face greater difficulty enforcing them against third parties. If we fail to establish name recognition based on our trademarks and trade names, our ability to compete effectively could be compromised, negatively impacting our business, financial condition, results of operations, and prospects. Over the long term, if we cannot establish strong name recognition through our trademarks, our marketing capabilities may be materially and adversely affected.
We may be accused of infringing, misappropriating, or otherwise violating the intellectual property rights of third parties.
The e-commerce industry in China is characterized by vigorous protection and pursuit of intellectual property rights, which has resulted in protracted and costly litigation for many companies. We may be subject to claims and litigation by third parties alleging that we infringe, misappropriate, or otherwise violate their intellectual property rights. Furthermore, under our current marketplace model, the products offered on our platform are supplied by third-party merchants who are responsible for sourcing the products sold through our marketplace. We have been, and may continue to be, subject to allegations or lawsuits claiming that products listed or sold through our marketplace by third-party merchants are counterfeit, unauthorized, illegal, or otherwise infringe, misappropriate, or violate third-party copyrights, trademarks, patents, or other intellectual property rights. Additionally, content posted on our user interface could be alleged to contain misleading information regarding product descriptions or comparable prices in China or any other jurisdictions where we operate. Supporting such litigation and resolving disputes can incur significant costs, and there is no assurance that favorable outcomes will be obtained.
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Moreover, the application and interpretation of intellectual property laws in China remain uncertain and evolving. We cannot guarantee that PRC courts or regulatory authorities would agree with our analysis of intellectual property matters. As our business expands and competition increases, we expect infringement claims to grow in number and significance. Any claims or proceedings against us, whether meritorious or not, could be time-consuming, result in considerable litigation costs, require significant management attention, or lead to the diversion of substantial operational resources, all of which could materially and adversely affect our business, financial condition, and results of operations.
Legal claims regarding intellectual property rights are inherently uncertain due to the complexity of the issues involved. While we currently do not own or license any patents, some of our larger competitors possess extensive portfolios of issued patents. Many potential litigants, including specialized intellectual property holding companies, have significantly greater resources to enforce their intellectual property rights and defend against claims. A successful claimant could secure a judgment requiring us to pay substantial damages or prevent us from conducting certain aspects of our business as historically operated or as planned. We might also be required to seek licenses from third parties, but such licenses may not be available on commercially acceptable terms—or at all. Alternatively, we may need to develop non-infringing technology or intellectual property, which could involve significant effort and expense and may ultimately fail.
We incorporate open-source software into our Yunnan Jialian Big Data Service Platform. Companies using open-source software in their products and services have occasionally faced claims challenging the ownership of such software or compliance with open-source licensing terms. Consequently, we could face lawsuits from parties claiming ownership of what we believe to be open-source software or alleging noncompliance with open-source license terms. The use and distribution of open-source software carry greater risks compared to third-party commercial software, as some open-source projects have known vulnerabilities, and open-source software typically lacks warranties or contractual protections regarding infringement claims or code quality. Some open-source licenses require users distributing open-source software as part of their own software to publicly disclose portions of the source code or make derivative works available under unfavorable terms or at no cost. Although we monitor our use of open-source software and strive to ensure it does not require us to disclose our proprietary source code or breach open-source license terms, inadvertent use could occur—or be claimed to occur—due to ambiguities in open-source license agreements. Such claims could lead to costly litigation, and if portions of our software are determined to fall under an open-source license or if license terms change, we may be required to publicly release or disclose our source code, pay damages for breach of contract, or cease offering affected services unless and until we successfully re-engineer our software, including the Yunnan Jialian Big Data Service Platform , to avoid infringement or otherwise adapt our business practices. The re-engineering process could necessitate significant additional research and development resources, and there is no guarantee that we would complete it successfully. Additionally, we might need to obtain licenses from third parties to continue using certain software or offering specific services, but such licenses may not be available on commercially reasonable terms—or at all. Any of these scenarios could harm our business, financial condition, and results of operations.
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We are subject to legal and regulatory proceedings from time to time in the ordinary course of our business.
We may, and in some cases already have, faced claims, lawsuits (including class actions and individual lawsuits), government investigations, and other proceedings related to intellectual property, consumer protection, privacy, labor and employment, import/export practices, competition, tax, marketing and communications practices, commercial disputes, and other matters. The number and significance of legal disputes and inquiries have increased as our business has grown in size, scope, and complexity.
Becoming a public company will elevate our public profile, potentially increasing litigation and raising public awareness of any such legal actions. There is substantial uncertainty regarding the scope and application of many laws and regulations affecting our operations, increasing the likelihood of claims alleging violations. In the future, we may also face accusations of infringing, misappropriating, or otherwise violating third-party intellectual property rights. Regardless of the outcome, legal proceedings can materially and adversely impact us due to associated costs, resource diversion, and reputational damage. We may choose to settle disputes under unfavorable terms, and if any litigation is resolved unfavorably, we could face judgments requiring us to cease certain operations, pay substantial damages, or otherwise alter our business practices, any of which could materially and adversely affect our business, financial condition, and results of operations.
Our insurance coverage may not be sufficient to cover all the risks which our operations are exposed to, leaving us susceptible to significant liabilities.
We maintain limited insurance coverage. We do not currently hold business interruption insurance, cybersecurity insurance, or general third-party liability insurance, nor do we maintain key-person life insurance. Although we have product liability insurance, we cannot guarantee that it will adequately cover any losses we may incur or that we will successfully claim compensation under our current policies in a timely manner—or at all. If we suffer any loss that is not covered by our insurance policies or if the compensation amount is significantly less than our actual loss, our business, financial condition, and results of operations could be materially and adversely affected.
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Trade restrictions could materially and adversely affect our business, financial condition, and results of operations.
We focus on facilitating B2B e-commerce transactions for large parcel merchandise within China. Our logistics services may be impacted by trade restrictions imposed by the Chinese government or other regulatory authorities affecting regions where our customers operate, manufacture, or sell their products. For example, changes in trade policies, tariff regulations, embargoes, or other trade restrictions unfavorable to our customers’ businesses could hinder our ability to execute our logistics solutions effectively. Additionally, domestic trade and political issues, tensions, or conflicts may cause delays and interruptions in transportation networks and result in limitations on our insurance coverage. If we are unable to connect our domestic customers through our marketplace or provide timely solutions for transporting goods to and from restricted areas, our business, financial condition, and results of operations could be materially and adversely affected.
Lack of necessary approvals, licenses, or permits applicable to our business operations may harm our business.
We may not always be able to obtain all licenses and approvals deemed necessary to operate our business. Since we operate primarily in China, relevant laws, regulations, and their interpretations can vary across different regions and industries, making it challenging to determine which licenses and approvals are required or the processes for obtaining them. For these reasons, we cannot guarantee that we will be able to maintain or renew previously obtained licenses and approvals upon expiration. Furthermore, there is no assurance that our interpretation of rules and exemptions will align with those of local regulators.
As we expand our business, we may need to acquire new licenses and comply with additional laws and regulations in the markets we serve. Failure to obtain, maintain, or renew required licenses or approvals, or to make necessary filings, could expose us to penalties such as confiscation of revenues or assets generated from unlicensed activities, imposition of fines, suspension or cancellation of licenses, written reprimands, termination of third-party agreements, criminal prosecution, or discontinuation or restriction of our operations. Any such penalties could disrupt our business and materially and adversely impact our financial condition and results of operations. See “Risk Factors—Risks Related to Doing Business in China—Failure to Obtain Necessary Licenses or Approvals Could Harm Our Business.”
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We could be held liable if our Yunnan Jialian Big Data Service Platform is used for fraudulent, illegal, or improper purposes, such as money laundering.
Despite implementing measures to mitigate risks, our Yunnan Jialian Big Data Service Platform remains vulnerable to potentially illegal or improper uses, which could damage our reputation and subject us to liability. These risks include fraudulent sales of merchandise, intellectual property piracy, money laundering, bank fraud, or prohibited sales of restricted products. Criminals employ increasingly sophisticated methods to engage in illegal activities such as counterfeiting and fraud, and incidents of fraud could rise in the future. If confidential information obtained from users is misused for unauthorized purposes, we could face fraud claims.
Our risk management policies and procedures may not fully identify, monitor, or manage these risks. While we strive to ensure compliance, we cannot guarantee that we will detect the sources of funds for users of our digital financial services platform or how they are utilized in every case. An increase in fraudulent transactions or publicized payment disputes could harm our reputation and reduce customer confidence in our marketplace and solutions. Furthermore, the PRC government imposes strict regulations on money laundering and other illicit activities, and failure to comply could result in severe penalties, including fines, operational restrictions, or reputational damage.
Natural disasters, pandemics, epidemics, acts of war, terrorist attacks, and other events could materially and adversely affect our business.
Severe weather conditions and other natural or man-made disasters, including storms, floods, fires, earthquakes, epidemics, pandemics, conflicts, unrest, or terrorist attacks, may disrupt our business and result in decreased revenues. Customers may reduce their demand for logistics services or shipments, or our costs to operate our business may increase, either of which could have a material adverse effect on us. Any such event affecting one of our major facilities, particularly in Kunming or other key operational regions in China, could lead to significant interruptions or disruptions in our business, financial condition, and results of operations.
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Government regulation of the Internet and e-commerce in China is evolving, and unfavorable changes or failure by us to comply with these regulations could substantially harm our business and results of operations.
We are subject to general business regulations and laws, as well as those specifically governing the Internet and e-commerce in China. Existing and future regulations and laws could impede the growth of the Internet, e-commerce, or mobile commerce domestically. These regulations may involve taxes, tariffs, privacy and data security, anti-spam, content protection, electronic contracts and communications, consumer protection, internet neutrality, gift cards, and other areas. It is not always clear how existing laws governing issues such as property ownership, sales taxes, and consumer privacy apply to the Internet and e-commerce, as many of these laws were enacted before the advent of digital platforms and do not fully address the unique challenges posed by e-commerce. Additionally, legal standards may vary across different provinces and municipalities in China, potentially creating inconsistencies that conflict with our practices. We cannot guarantee that our practices fully comply or will continue to comply with all applicable laws and regulations. Any failure, or perceived failure, by us to comply with these laws or regulations could damage our reputation, lead to regulatory investigations, and result in proceedings or actions against us by governmental entities or third parties. Such actions could harm our reputation, force us to spend significant resources defending ourselves, distract our management, increase our operating costs, and reduce the use of our platform by customers and suppliers. Furthermore, we may face contractual liabilities for indemnifying third parties against the consequences of non-compliance. Adverse legal or regulatory developments could substantially harm our business. As we expand into new market segments or geographical areas within China and enhance our product and service offerings, we may become subject to additional laws and regulatory requirements. Complying with these obligations will incur additional costs, and any failure to comply could negatively impact our business and reputation.
We are subject to PRC export and import controls, sanctions, embargoes, anti-corruption laws, and anti-money laundering laws and regulations. Compliance with these legal standards could limit our ability to compete in domestic markets, and violations could result in criminal liability and other serious consequences.
We are subject to export control and import laws and regulations in China, including those administered by relevant authorities such as the Ministry of Commerce, General Administration of Customs, and Cyberspace Administration of China (CAC). Additionally, we must comply with anti-corruption and anti-money laundering laws and regulations, including those under the PRC Anti-Corruption Law and related statutes. These laws generally prohibit companies and their intermediaries from making improper payments to government officials or engaging in activities that facilitate corruption, money laundering, or other illicit financial practices.
We rely on third-party logistics providers and agents within China to deliver parcels domestically and obtain necessary permits, licenses, patent registrations, and other regulatory approvals as we expand into new regions. We can be held liable for corrupt or illegal activities conducted by our employees, agents, or third-party partners, even if such activities are not explicitly authorized or known to us. Violations of these laws and regulations could result in substantial civil and criminal fines, penalties, imprisonment, loss of export or import privileges, debarment, tax reassessments, breach of contract claims, fraud litigation, reputational harm, and other consequences. Ensuring compliance with these complex legal frameworks may also impose additional administrative burdens and costs on our operations.
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We are subject to stringent and changing privacy laws, regulations and standards as well as contractual obligations related to data privacy and security. Our actual or perceived failure to comply with such obligations could harm our reputation, subject us to significant fines and liability, or otherwise adversely affect our business or prospects.
We are, and may increasingly become, subject to various laws and regulations, as well as contractual obligations, relating to data privacy and security in the jurisdictions in which we operate. The regulatory environment related to data privacy and security is increasingly rigorous, with new and constantly changing requirements applicable to our business, and enforcement practices are likely to remain uncertain for the foreseeable future. These laws and regulations may be interpreted and applied differently over time and from jurisdiction to jurisdiction, and it is possible that they will be interpreted and applied in ways that may have a material adverse effect on our business, financial condition, results of operations and prospects.
In the U.S., various federal and state regulators have adopted, or are considering adopting, laws and regulations concerning personal information and data security. Certain state laws may be more stringent or broader in scope, or offer greater individual rights, with respect to personal information than federal, international or other state laws, and such laws may differ from each other, all of which may complicate compliance efforts. For example, the California Consumer Privacy Act, or CCPA, which increases privacy rights for California residents and imposes obligations on companies that process their personal information, came into effect on January 1, 2022. Among other things, the CCPA requires covered companies to provide new disclosures to California consumers about their data collection, use and sharing practices and provide such consumers new data protection and privacy rights, including the ability to opt out of certain sales of personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss of personal information. This private right of action may increase the likelihood of, and risks associated with, data breach litigation. On November 3, 2022, California voters approved a new privacy law, the California Privacy Rights Act, or CPRA, which significantly modifies the CCPA, including by expanding consumers’ rights with respect to certain personal information and creating a new state agency to oversee implementation and enforcement efforts. Many of the CPRA’s provisions will become effective on January 1, 2023. State laws are changing rapidly and there is discussion in the U.S. of a new comprehensive federal data privacy law to which we would become subject if it is enacted.
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In the PRC, the PRC regulatory and enforcement regime with regard to data security and data protection is constantly evolving and can be subject to significant change, making the extent of our obligations in that regard uncertain. In November 2016, the Standing Committee of the NPC promulgated the PRC Cybersecurity Law, which took effect on June 1, 2019. According to the PRC Cybersecurity Law and relevant regulations, network operators are obligated to provide assistance and support in accordance with the law for public security and national security authorities to protect national security or assist with criminal investigations. In addition, the PRC Cybersecurity Law provides that personal information and important data collected and generated by operators of critical information infrastructure in the course of their operations in the PRC should be stored in the PRC, and the law imposes heightened regulation and additional security and privacy protection obligations on operators of critical information infrastructure. However, there are uncertainties with respect to how the PRC Cybersecurity Law will be implemented and interpreted in practice. PRC regulators, including the Ministry of Industry and Information Technology, or the MIIT, and the CAC have been increasingly focused on regulation in the areas of data security and data protection. Furthermore, according to the Measures for Cybersecurity Review (2022 Version) promulgated by the CAC and certain other PRC regulatory authorities in April 2022, which became effective in June 2022, “operators of critical information infrastructure” must pass a cybersecurity review when purchasing network products and services which do or may affect national security. Due to the lack of further interpretations, the exact scope of “operator of critical information infrastructure” under the Measures for Cybersecurity Review (2022 Version) remains unclear as of the date of this prospectus. On July 10, 2023, the CAC issued a revised draft of the Measures for Cybersecurity Review for public comments, which required that, in addition to “operator of critical information infrastructure,” any “data processor” carrying out data processing activities that affect or may affect national security should also be subject to cybersecurity review. On December 28, 2023, the Measures for Cybersecurity Review (2023 Version) were promulgated, which has become effective on February 15, 2024 and simultaneously replaced the Measures for Cybersecurity Review (2022 Version) in whole. The Measures for Cybersecurity Review (2023 Version) further iterated that any “network platform operators” carrying out data processing activities that affect or may affect national security should be subject to cybersecurity review and any network platform operator possessing personal information of more than one million users which seeks to list in a foreign stock exchange should also be subject to cybersecurity review. The Measures for Cybersecurity Review (2023 Version) further elaborated the factors to be considered when assessing the national security risks of the relevant activities, including, among others, (i) the risk of core data, important data or a large amount of personal information being stolen, leaked, destroyed, and illegally used or exited the country, and (ii) the risk of critical information infrastructure, core data, important data or a large amount of personal information being affected, controlled, or maliciously used by foreign governments after listing abroad. On November 14, 2023, the CAC published the Regulations on Network Data Security Protection (Draft for Comments) for public comments, which reiterates that data processors that process personal information of more than one million users listing in a foreign country should apply for a cybersecurity review.
Due to the uncertainties in the interpretation of data processing activities that affect or may affect national security, in July 2023, we made an inquiry with the relevant local branch of the CAC regarding the interpretation of the revised draft Measures for Cybersecurity Review after the revised draft of the Measures for Cybersecurity Review was released, and in March 2024, after the Measures for Cybersecurity Review (2023 Version) came into effect, we made another inquiry with the CCRC regarding the interpretation of the Measures for Cybersecurity Review (2023 Version). Based on the descriptions regarding our business operations and our marketplace, the relevant local authority and the CCRC concurred with us that we are not required to go through a cybersecurity review with the CAC because (i) our Yunnan Jialian Big Data Service Platform is operated in Kunming under our Kunming Subsidiary with under one million users, and (ii) our Yunnan Jialian Big Data Service Platform is a B2B ecommerce platform and any data we collected on our sellers and buyers are limited without any personal information. Based on the foregoing and also the advice of our PRC legal counsel, Han Kun Law Offices, we believe we, including our PRC Subsidiaries and our Kunming Subsidiary, are currently not required to go through a cybersecurity review with the CAC as of the date hereof. As of the date of this prospectus, we have also not been involved in any investigations on cybersecurity or data security initiated by related governmental regulatory authorities, and we have not received any inquiry, notice, warning, or sanction in such respect. However, as the Measures for Cybersecurity Review (2023 Version) were newly adopted, and the Regulations on Network Data Security Protection (Draft for Comments) have not been adopted, there remains uncertainty in the interpretation and enforcement of such PRC cybersecurity laws and regulations. Thus, we cannot assure you that we would not be subject to cybersecurity review requirement, and if so, that we would be able to pass such review in relation to this offering. Furthermore, we cannot guarantee that the relevant authority that we have inquired will be the authorized regulatory body to make a determination that we are not subject to the requirement of cybersecurity review. If any interpretation or implementation rules of the relevant PRC cybersecurity laws and regulations in future provide that certain other PRC regulatory body shall be authorized to make the final decision on cybersecurity review, there can be no assurance that the authorized PRC regulatory body would reach the same conclusion as the authority we have inquired. If the authorized PRC regulatory body subsequently determines that we are required to go through such cybersecurity review or if any other PRC government authorities promulgates any interpretation or implementation rules before our listing that would require us to go through a cybersecurity review for this offering, we may fail to complete such cybersecurity review procedures in a timely manner, or at all. Any failure or delay in the completion of the cybersecurity review procedures or any other non-compliance with the related laws and regulations may result in fines or other penalties, including suspension of business and website closure as well as reputational damage or legal proceedings or actions against us, which may have material adverse effect on our business, financial condition or results of operations.
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In June 2023, the Standing Committee of the NPC promulgated the PRC Data Security Law, which has taken effect on September 1, 2023. The Data Security Law also sets forth the data security protection obligations for entities and individuals handling personal data, including that no entity or individual may acquire such data by stealing or other illegal means, and the collection and use of such data should be for the purpose and within the limit that is prescribed by applicable laws and regulations. Furthermore, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council recently jointly promulgated the Opinions on Strictly Cracking Down on Illegal Securities Activities in Accordance with the Law which was made available to the public on July 6, 2023, or the Opinions on Strictly Cracking Down on Illegal Securities Activities, under which, among other things, relevant governmental authorities are required to accelerate the revision of the Provisions on Strengthening the Confidentiality and Archives Management Related to Overseas Issuance and Listing of Securities, and improve laws and regulations related to data security, cross-border data flow, and management of confidential information. However, there are uncertainties regarding the interpretation and implementation of these opinions or other relevant laws and regulations, how soon the 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 of such modified or new laws and regulations will have.
Furthermore, in the European Union, the collection and use of personal data is governed by the provisions of the General Data Protection Regulation, or the GDPR, in addition to other applicable laws and regulations. The GDPR came into effect in May 2020, repealing and replacing the European Union Data Protection Directive, and imposing revised data privacy and security requirements on companies in relation to the processing of personal data of European Union and U.K. data subjects. The GDPR, together with national legislation, regulations and guidelines of the European Union Member States and the U.K. governing the processing of personal data, impose strict obligations with respect to, and restrictions on, the collection, use, retention, protection, disclosure, transfer and processing of personal data. The GDPR imposes strict rules on the transfer of personal data to countries outside the European Union, including the U.S. For example, in 2016, the European Union and the U.S. agreed to a transfer framework for data transferred from the European Union to the U.S., called the Privacy Shield, but the Privacy Shield was invalidated in July 2022 by the Court of Justice of the European Union and it cast uncertainty around when the standard contractual clauses issued by the European Commission can be used. Companies must now conduct their own risk assessment and determine whether additional safeguards needs to be put in place. The GDPR authorizes fines for certain violations of up to 4% of the total global annual turnover of the preceding financial year or €20 million, whichever is greater. Such fines are in addition to any civil litigation claims by data subjects. Separately, Brexit could also lead to further legislative and regulatory changes and increase our compliance costs. As of January 1, 2023, and the expiry of transitional arrangements agreed to between the U.K. and the European Union, data processing in the U.K. is governed by a U.K. version of the GDPR (combining the GDPR and the Data Protection Act 2020), exposing us to two parallel regimes, each of which potentially authorizes similar fines and other potentially divergent enforcement actions for certain violations. There will be increasing scope for divergence in application, interpretation and enforcement of the data protection law as between the U.K. and the European Union. Other jurisdictions outside the European Union are similarly introducing or enhancing privacy and data security laws, rules and regulations, which could increase our compliance costs and the risks associated with non-compliance. We cannot guarantee that we are, or will be, in compliance with all applicable international regulations as they are enforced now or as they evolve.
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Many countries have adopted, or are in the process of adopting, regulations governing the use of cookies and similar tracking technologies, and individuals may be required to “opt-in” to their placement for the purposes of marketing. In the European Union, regulators are increasingly focusing on compliance with requirements in the online behavioral advertising ecosystem, and current national laws that implement the ePrivacy Directive are likely to be replaced by an EU Regulation, known as the ePrivacy Regulation, which will significantly increase fines for non-compliance. Informed consent is required for the placement of a cookie on a user’s device and for direct electronic marketing which prohibits pre-checked consents and imposes a requirement to ensure separate consents are sought for each type of cookie or similar technology. Recent guidance, court cases and regulatory and consumer group led action are driving increased attention compliance with these rules. Increased enforcement of these strict requirements could lead to substantial costs, require significant systems changes, limit the effectiveness of our marketing activities, divert the attention of our technology personnel, adversely affect our margins, increase costs, and subject us to additional liabilities. Widespread adoption of regulations that significantly restrict our ability to use performance marketing technology could adversely affect our ability to market effectively to current and prospective hosts and guests, and thus materially adversely affect our business, results of operations, and financial condition.
All of these evolving compliance and operational requirements impose significant costs, such as costs related to organizational changes, implementing additional protection technologies, training employees and engaging consultants, which are likely to increase over time. In addition, such requirements may require us to modify our data processing practices and policies, distract management or divert resources from other initiatives and projects, all of which could have a material adverse effect on our business, financial condition, results of operations and prospects. Any failure or perceived failure by us to comply with any applicable laws and regulations, or similar laws and regulations in the jurisdictions we operate relating to data privacy and security could result in damage to our reputation, as well as proceedings or litigation by governmental agencies or other third parties, including class action privacy litigation in certain jurisdictions, which would subject us to significant fines, sanctions, awards, injunctions, penalties or judgments. Any of the foregoing could have a material adverse effect on our business, results of operations, financial condition and prospects.
We are subject to, and likely will be subject in the future to further, stringent and changing laws, regulations and standards relating to the provision of platforms, services and goods online. With regard to the current legislation in this area, our actual or perceived failure to comply with such obligations could harm our reputation, subject us to significant fines and liability, or otherwise adversely affect our business or prospects. We may also need to spend significant time and resource on understanding upcoming legislation in this area and considering and implementing changes to our websites, processes, policies and procedures in order to become compliant with current and future legislation.
We are, and are likely increasingly to become, subject to various laws and regulations, as well as contractual obligations, relating to the provision of goods and services online, online platforms, e-commerce and online contracts, online advertising and the online provision of information and the regulation of online content, both in the context of the B2B and B2C aspects of our business. There is a body of legislation in this area with which we are already required to comply, including the E-Commerce Directive 2000/31/EC, the Consumer Rights Directive 2011/83/EU, as amended by the Directive on better enforcement and modernization of EU consumer protection (EU) 2021/2161 (and member state implementing legislation in each case) and the Electronic Commerce (Amendment etc.) (EU Exit) Regulations 2021, among others. In addition to the current legislative framework, this is an area of current legislative focus for a number of jurisdictions, including the European Union and the U.K. where proposals for short-term future legislative change has been published, particularly in relation to online harms. For example, the Digital Services Act (for which the EC published a proposal on December 15, 2022) proposes new obligations for online platforms and changes to the safe harbors from liability for infringing content. In addition, on May 12, 2023, the U.K. government published new draft legislation in the form of the Online Safety Bill which aims to establish a new regulatory regime to address illegal and harmful content online, including fines and other sanctions in the event of non-compliance. Other jurisdictions, including France, Germany, Singapore and Australia have each already passed legislation addressing online harms. As such, this regulatory landscape is changing rapidly and becoming increasingly more vigorous. The extent of the obligations (at least in certain jurisdictions) and enforcement practices are likely to remain uncertain for the foreseeable future. These laws and regulations may be interpreted and applied differently over time and from jurisdiction to jurisdiction, and it is possible that they will be interpreted and applied in ways that may have a material adverse effect on our business, financial condition, results of operations and prospects.
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Furthermore, following the expiration of the specified period, there will be increasing scope for divergence in application, interpretation and enforcement of the data protection law as between the U.K. and the European Union. Other jurisdictions outside the European Union are similarly introducing or enhancing privacy and data security laws, rules and regulations, which could increase our compliance costs and the risks associated with non-compliance. We cannot guarantee that we are, or will be, in compliance with all applicable international regulations as they are enforced now or as they evolve.
All of these evolving compliance and operational requirements impose significant costs, such as costs related to organizational changes, implementing additional protection technologies, training employees and engaging consultants, which are likely to increase over time. In addition, such requirements may require us to modify our online and e-commerce practices and policies, distract management or divert resources from other initiatives and projects, all of which could have a material adverse effect on our business, financial condition, results of operations and prospects. Any failure or perceived failure by us to comply with any applicable federal, state or similar foreign laws and regulations in this area could result in damage to our reputation, as well as proceedings or litigation by governmental agencies or other third parties, including class action litigation in certain jurisdictions, which could subject us to significant fines, sanctions, awards, injunctions, penalties or judgments. Any of the foregoing could have a material adverse effect on our business, results of operations, financial condition and prospects.
Risks Related to Our Corporate Structure
We do not currently rely on contractual arrangements with variable interest entities (VIEs) for any portion of our business operations. All of our operations are conducted through wholly-owned subsidiaries within China, primarily through Yunnan Jialian Big Data Service Group Co., Ltd. , our Kunming-based subsidiary. This entity operates as a natural person sole proprietorship under the legal representative, Mr. Luo Xiao, and has not undergone any changes to its equity structure, registered capital, or legal representative since its establishment.
While our current corporate structure does not include any VIEs, and we have no intention of establishing VIEs in the future, it is important to note that risks associated with VIE structures remain relevant in the broader context of operating in China. In the event that our corporate structure were to include VIEs in the future, the PRC regulatory authorities could disallow the use of such structures, potentially resulting in significant changes to our operations or the value of our securities. Additionally, if new laws or regulations are introduced that impact the legality or enforceability of VIE arrangements, it could create uncertainty for companies operating similar structures.
Our strategic decision to operate entirely through wholly-owned subsidiaries minimizes risks related to share ownership legality and operational control. However, this approach still subjects us to the evolving regulatory environment in China, where rules and enforcement can change rapidly. If we or our subsidiaries are found to be in violation of any existing or future laws or regulations, we may be required to pay fines, penalties, or restructure our corporate organization, which could materially affect our business operations. Any significant penalties imposed on us due to non-compliance would have an adverse effect on our financial condition and results of operations.
Furthermore, while we aim to maintain full compliance with all applicable laws and regulations, there can be no assurance that future regulatory developments will not require us to make adjustments to our corporate structure. We are committed to restructuring any remaining non-core entities into wholly-owned subsidiaries within 12 months after the completion of this offering. However, we cannot guarantee that this process will be completed without interruptions or delays, nor can we ensure that it will not result in additional costs or challenges.
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Risks Related to Our Corporate Structure
We do not currently rely on any Variable Interest Entities (VIEs) for our business operations. All of our operations are conducted through wholly-owned subsidiaries within China, primarily through Yunnan Jialian Big Data Service Group Co., Ltd. , our Kunming-based subsidiary. As a result, risks associated with VIE structures, such as shareholder conflicts or breaches of contractual arrangements, no longer apply to our corporate structure.
However, there are still potential risks related to the performance and obligations of our subsidiaries under applicable laws and regulations in China. If any of our subsidiaries fail to comply with their legal or operational obligations, it could materially and adversely affect our ability to conduct business effectively. For example, regulatory changes, enforcement actions, or unforeseen events could disrupt the operations of our subsidiaries, impacting our overall business performance.
The shareholders of our subsidiaries may have actual or potential conflicts of interest with us, particularly regarding decisions involving corporate governance, capital allocation, or strategic initiatives. While we maintain full ownership of these entities, disagreements between management and shareholders could arise in certain circumstances. We cannot guarantee that all decisions will align with the best interests of our company or its public shareholders. To mitigate such risks, we continuously monitor compliance with local laws and ensure transparent communication between management and shareholders.
We may lose access to or benefit from the assets held by our subsidiaries if unforeseen events occur, such as bankruptcy, asset seizures, or disputes with third parties. In such cases, our ability to operate some or all of our business could be severely disrupted, potentially constraining our growth. Although we take measures to safeguard our assets and ensure proper governance, there can be no assurance that these efforts will fully protect us against adverse outcomes.
Challenges in Protecting Shareholder Rights
You may face challenges in protecting your interests due to our incorporation under the laws of the British Virgin Islands (BVI). Our corporate affairs are governed by our memorandum and articles of association, the BVI Business Companies Act, 2004 (as amended), and the common law of the BVI. The rights of shareholders to take action against directors, initiate minority shareholder actions, or enforce fiduciary duties are largely determined by BVI common law, which is derived in part from English common law. However, unlike in jurisdictions such as Delaware in the U.S., where corporate law is more developed and judicially interpreted, the body of corporate law in the BVI is less comprehensive, and court decisions from other jurisdictions may not always be binding on BVI courts.
Shareholders of BVI companies, like ours, generally do not have extensive rights under BVI law to inspect corporate records, except for specific documents such as the memorandum and articles of association, special resolutions, and registers of mortgages and charges. Our directors retain discretion under our articles of association to determine whether or not, and under what conditions, corporate records may be inspected by shareholders. This could make it more difficult for you to obtain the information necessary to support shareholder motions or solicit proxies in connection with a proxy contest.
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As a result of these factors, our public shareholders may encounter greater difficulty in protecting their interests compared to shareholders of companies incorporated in the U.S. For further details on significant differences between the corporate laws of the BVI and those applicable to U.S.-incorporated companies, see “Description of Share Capital—Differences in Corporate Law.”
While we do not anticipate issues arising from our current corporate structure, investors should remain aware of the evolving regulatory environment in China and its potential impact on our operations. Specifically, the PRC government imposes controls on the convertibility of Renminbi into foreign currencies and the remittance of funds out of China. These restrictions could limit our ability to transfer cash generated by our subsidiaries in China to our holding company in the BVI or distribute dividends to investors. Furthermore, if certain PRC laws or regulations become applicable to our Kunming-based subsidiary in the future, they could impose additional requirements or restrictions that affect our business operations.
For a detailed discussion of risks related to doing business in China, including currency controls, regulatory oversight, and cybersecurity compliance, see “Risk Factors—Risks Related to Doing Business in China.”
Risks Related to Doing Business in China
We could be adversely affected by political tensions or economic uncertainties within China.
In recent years, China has experienced various geopolitical and economic challenges that could impact businesses operating domestically. While our operations are primarily focused within China, we remain subject to risks associated with changes in domestic policies, regulatory actions, and macroeconomic conditions. For example, trade disputes, supply chain disruptions, and other factors could influence the domestic market environment. Although most of our suppliers and third-party sellers operate within China, we cannot predict whether future regulatory changes or restrictions might affect their ability to conduct business effectively, which in turn could impact our operations.
Political tensions or shifts in economic policies by the PRC government could materially affect our business, financial condition, and results of operations. Our growth and expansion strategies rely heavily on favorable domestic economic conditions and stable regulatory frameworks. Any significant changes in political or economic policies, including those related to foreign exchange controls, tax regulations, industry-specific rules, or broader economic reforms, could disrupt our business activities.
The PRC economy differs from the economies of many developed countries in several respects, including the extent of government involvement, level of development, growth rate, control over foreign exchange, and allocation of resources. Although the Chinese government has implemented measures to promote economic reform and modernization, such as emphasizing market forces and improving corporate governance, a substantial portion of productive assets in China remains under government ownership or influence. The PRC government continues to play a significant role in regulating industry development through industrial policies and exercises considerable control over economic growth by allocating resources, setting monetary policy, and providing preferential treatment to specific industries or companies.
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While the Chinese economy has experienced significant growth over the past decades, this growth has been uneven across regions and sectors. The PRC government has introduced various measures to encourage economic expansion and guide resource allocation. Some of these initiatives may benefit the overall economy but could also have unintended negative effects on our business. For instance, government control over capital investments, changes in tax regulations, or measures aimed at slowing economic growth could reduce demand for our services and materially impact our financial performance.
Our financial condition and results of operations could be materially and adversely affected by government actions, such as increased scrutiny of cross-border transactions, stricter enforcement of data privacy laws, or limitations on the use of digital platforms. Additionally, the PRC government has implemented policies to address issues like inflation, environmental sustainability, and social inequality, which may impose new operational requirements or costs on companies like ours.
Furthermore, while we currently do not face significant restrictions on transferring funds between our BVI holding company and our subsidiaries in China, there can be no assurance that the PRC government will not introduce new foreign exchange controls or restrictions in the future. If such controls were imposed, they could limit our ability to repatriate profits or allocate resources efficiently, potentially disrupting our business operations and affecting our ability to grow.
Increasing focus with respect to environmental, social and governance matters may impose additional costs on us or expose us to additional risks. Failure to comply with the laws and regulations on environmental, social and governance matters may subject us to penalties and adversely affect our business, financial condition and results of operations.
The PRC government and public advocacy groups have been increasingly focused on environment, social and governance, or ESG, issues in recent years, making our business more sensitive to ESG issues and changes in governmental policies and laws and regulations associated with environment protection and other ESG-related matters. Investor advocacy groups, certain institutional investors, investment funds, and other influential investors are also increasingly focused on ESG practices and in recent years have placed increasing importance on the implications and social cost of their investments. Regardless of the industry, increased focus from investors and the PRC government on ESG and similar matters may hinder access to capital, as investors may decide to reallocate capital or to not commit capital as a result of their assessment of a company’s ESG practices. Any ESG concern or issue could increase our regulatory compliance costs. If we do not adapt to or comply with the evolving expectations and standards on ESG matters from investors and the PRC government or are perceived to have not responded appropriately to the growing concern for ESG issues, regardless of whether there is a legal requirement to do so, we may suffer from reputational damage and the business, financial condition, and the price of our Class A ordinary shares could be materially and adversely effected.
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There are uncertainties regarding the PRC legal system.
A portion of our business operations are conducted in the PRC and are governed by PRC laws, rules and regulations. Our PRC Subsidiaries are subject to laws, rules and regulations applicable to foreign investment in the PRC. The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions may be cited for reference but have limited precedential value.
In 1979, the PRC government began to promulgate a comprehensive system of laws, rules and regulations governing economic matters in general. The overall effect of legislation over the past four decades has significantly enhanced the protections afforded to various forms of foreign investment in the PRC. However, the PRC has not developed a fully integrated legal system, and recently enacted laws, rules and regulations may not sufficiently cover all aspects of economic activities in the PRC or may be subject to significant degrees of interpretation by PRC regulatory agencies. In particular, because these laws, rules and regulations are relatively new, and because of the limited number of published decisions and the nonbinding nature of such decisions, and because the PRC laws, rules and regulations often give the relevant regulator significant discretion in how to enforce them, the interpretation and enforcement of these laws, rules and regulations involve uncertainties and can be inconsistent and unpredictable. In addition, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all, and which may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until after the occurrence of the violation.
Any administrative and court proceedings in the PRC may be protracted, resulting in substantial costs and diversion of resources and management attention. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. These uncertainties may impede our ability to enforce the contracts we have entered into and could materially and adversely affect our business, financial condition and results of operations.
The PRC government may exert more control over offerings conducted overseas and/or foreign investment in China- and Kunming-based issuers, may exercise significant oversight and discretion over a company’s ability to conduct business in China and Kunming and may intervene in or influence our operations at any time, which could result in a material change in our operations and/or the value of the securities we are registering for sale.
Although we operate primarily within China, we face various legal and operational risks and uncertainties due to our base in Kunming and our operations in China. In 2021, we launched our Yunnan Jialian Big Data Service Platform under our Kunming Subsidiary, Yunnan Jialian Big Data Service Group Co., Ltd. , a wholly-owned subsidiary registered as a natural person sole proprietorship. Our PRC Subsidiaries perform cost functions and internal operational functions but do not generate revenue directly in China. As such, the laws and regulations of the PRC have an impact on the operational and procurement aspects of our business. Furthermore, the PRC government has the authority to exert political and economic influence over companies operating in China, including their ability to conduct business, accept foreign investment, or list securities on foreign exchanges.
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In light of recent statements and regulatory actions by the PRC government, there is a risk that the government may intervene or influence our operations in Kunming. Our operations in Kunming are subject to political and economic influence from the PRC government. Future changes in laws or unforeseen circumstances could result in direct intervention or oversight of our Kunming Subsidiary. Such risks could affect our ability to conduct business, accept foreign investments, or list securities on foreign exchanges, potentially leading to significant changes in our operations and/or the value of our Class A ordinary shares. These risks could also severely limit or completely hinder our ability to offer or continue offering Class A ordinary shares and/or other securities to investors, causing the value of the securities we are registering for sale to decline significantly or become worthless.
The PRC government has recently indicated its intent to increase oversight and control over overseas securities offerings and capital market activities involving Chinese companies. For example, on July 6, 2023, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the Opinions on Strictly Cracking Down on Illegal Securities Activities , emphasizing the need to strengthen supervision over overseas listings by Chinese companies and enhance cybersecurity and data privacy protection requirements. On July 10, 2023, the Cyberspace Administration of China (CAC) released a revised draft of the Measures for Cybersecurity Review for public comment. This draft required that any “data processor” handling data that affects or may affect national security should undergo cybersecurity review. Specifically, any entity possessing personal information of more than one million users seeking to list abroad must apply for a cybersecurity review.
On December 28, 2023, the Measures for Cybersecurity Review (2023 Version) were officially promulgated and became effective on February 15, 2024, replacing the 2022 version in full. The updated measures reiterated that network platform operators conducting data processing activities affecting national security must undergo cybersecurity review. Additionally, any network platform operator holding personal information of more than one million users seeking to list on foreign stock exchanges must also comply with these requirements. On November 14, 2023, the CAC published the Regulations on Network Data Security Protection (Draft for Comments) , reiterating the requirement for cybersecurity review for entities processing personal information of more than one million users seeking overseas listings.
On December 24, 2023, the China Securities Regulatory Commission (CSRC) released the Draft Overseas Listing Rules for public consultation. These rules propose that all direct or indirect offshore listings by domestic enterprises must be filed with the CSRC. While these rules have not yet been finalized, it remains unclear how they will be interpreted, amended, or implemented by relevant PRC authorities. It is uncertain whether we will be required to obtain specific regulatory approvals or fulfill record-filing requirements for this offering or any future follow-on offerings. If we, including our PRC Subsidiaries and Kunming Subsidiary:
Do not receive or maintain required approvals or filings,
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Incorrectly conclude that approvals or filings are unnecessary, or
Are subject to new rules, interpretations, or requirements mandating prior approval or ex-post filing by the CAC, CSRC, or other regulatory agencies, we may be unable to obtain such approvals or complete filings in a timely manner—or at all. This could significantly limit or entirely prevent us from offering or continuing to offer our ordinary shares to investors, materially impacting the value of our securities.
Based on our inquiry with relevant PRC government authorities and advice from our legal counsel, we believe that as of the date of this prospectus, our Yunnan Jialian Big Data Service Platform does not require a cybersecurity review because:
Our platform operates under our Kunming Subsidiary, which has fewer than one million users, and
Any data collected pertains solely to sellers and buyers without including personal information.
However, given the evolving nature of PRC regulations and enforcement practices, there can be no assurance that our interpretation aligns with that of the relevant authorities. If we fail to comply with future regulatory requirements, it could harm our reputation, subject us to significant fines or liabilities, and otherwise adversely affect our business or prospects. See “Risk Factors—Risks Related to Our Business and Industry—We are subject to stringent and evolving privacy laws, regulations, and standards related to data privacy and security. Our failure to comply with such obligations could harm our reputation, subject us to significant fines and liabilities, or otherwise adversely affect our business or prospects” and “Risk Factors—Risks Related to Doing Business in China—The CSRC has released draft rules for companies based in China seeking to conduct initial public offerings in overseas markets. While these rules have not yet been adopted, the PRC government may impose greater oversight and control over overseas offerings and foreign investment in issuers based in China, which could significantly limit or entirely prevent us from offering or continuing to offer our ordinary shares to investors and cause the value of our ordinary shares to decline significantly or become worthless.”The rules and regulations and the enforcement thereof in China can change quickly. The PRC government may intervene with or influence our operations in China and Kunming as the government deems appropriate to further regulatory, political and societal goals. Any such action by the PRC government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China- and Kunming-based issuers, once taken by the PRC government, 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 in extreme cases, become worthless.
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We operate our Yunnan Jialian Big Data Service Platform through our Kunming Subsidiary, Yunnan Jialian Big Data Service Group Co., Ltd. , a wholly-owned subsidiary registered as a natural person sole proprietorship under the legal representative, Mr. Luo Xiao. If the PRC government were to introduce new regulations or extend its oversight into companies operating in Kunming, our Kunming Subsidiary may be subject to additional regulatory requirements that could materially impact our business operations.
We launched our Yunnan Jialian Big Data Service Platform under our Kunming Subsidiary in January 2021. Our PRC Subsidiaries perform cost functions and internal operational functions but do not generate revenue directly in China. As such, the laws and regulations of the PRC have an impact on the operational and procurement aspects of our business. To date, our Kunming Subsidiary has not received any inquiries, notices, or objections from PRC authorities regarding our operations. However, in light of recent statements and regulatory actions by the PRC government related to its extension of authority into various sectors, there is a risk that the PRC government may intervene or influence our operations in Kunming. Our operations in Kunming are subject to political and economic influence from the PRC government, and our Kunming Subsidiary may face direct intervention or influence due to changes in laws or unforeseen circumstances in the future.
If certain PRC laws and regulations, including existing laws and those enacted or promulgated in the future, become applicable to our Kunming Subsidiary, their application could have a material adverse impact on our business operations. For example, if the PRC Data Security Law or other cybersecurity-related regulations were to apply to our Kunming Subsidiary, it may be required to comply with data security and privacy obligations imposed by the PRC government. Additionally, our Kunming Subsidiary may need to obtain licenses for the operation of our e-commerce platform, Yunnan Jialian Big Data Service Platform , and could be subject to restrictions on foreign ownership or other regulatory requirements. However, the rules and enforcement of regulations in China can change quickly, and there is no assurance that our current interpretation aligns with future regulatory developments.
In light of recent policy announcements by the PRC government regarding enhanced supervision of overseas-listed Chinese companies, there are risks and uncertainties that could affect our operations. The PRC government has indicated its intention to strengthen regulation of cross-border data flows, ensure compliance with securities laws, and investigate anti-monopoly practices, financial technology regulation, and data security measures. While these laws currently appear to target businesses in mainland China rather than Kunming, where our operations are based, there can be no guarantee that similar regulations will not be extended to Kunming in the future.
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For instance, the Law of the PRC on Safeguarding National Security , promulgated on June 30, 2022, introduces uncertainty regarding its application to companies operating in Kunming. Although our business activities do not appear to fall within the targeted areas of concern mentioned above, given the PRC government’s significant oversight over business operations in China and Kunming, there remains a risk that new rules or interpretations could emerge, impacting our ability to conduct business or list securities overseas. If the PRC government pressures local authorities in Kunming to adopt similar regulations, it could lead to increased scrutiny of overseas offerings by Kunming-based companies, potentially limiting or hindering our ability to raise capital or remain listed in the U.S. Such developments could result in a material adverse change to our operations and cause the value of the securities we are registering for sale to decline significantly or become worthless.
The approval or other administrative requirements of the China Securities Regulatory Commission (CSRC) or other PRC governmental authorities may be required in connection with this offering under existing PRC regulations or any new laws, rules, or regulations enacted in the future. If such approval is required, we cannot assure you that we will be able to obtain it in a timely manner, or at all. This could delay or prevent the completion of this offering, materially impacting our business, financial condition, and results of operations.
On August 8, 2006, six PRC regulatory agencies, including the Ministry of Commerce (MOFCOM), the State-owned Assets Supervision and Administration Commission (SASAC), the State Administration of Taxation (SAT), the State Administration for Market Regulation (SAMR), the CSRC, and the State Administration of Foreign Exchange (SAFE), jointly adopted the M&A Rules , which came into effect on September 8, 2006 and were amended on June 22, 2009. These rules include provisions requiring offshore special purpose vehicles controlled by PRC domestic companies or individuals to obtain CSRC approval prior to listing their securities on an overseas stock exchange. On September 21, 2006, the CSRC published procedures regarding its approval of overseas listings by special purpose vehicles. However, substantial uncertainty remains regarding the scope and applicability of these rules to offshore special purpose vehicles like ours.
Based on the advice of our PRC legal counsel, Han Kun Law Offices , and our understanding of current PRC laws and regulations, we believe that CSRC approval under the M&A Rules is not required for this offering. This is because the CSRC has not issued definitive rules or interpretations concerning whether offerings like ours are subject to the M&A Rules, and our wholly-owned subsidiary in China, Yunnan Jialian Big Data Service Group Co., Ltd. , was established through foreign direct investment rather than through the merger or acquisition of a domestic company as defined under the M&A Rules. Nevertheless, we have been advised by our PRC legal counsel that uncertainties remain regarding the interpretation and application of PRC laws. There can be no assurance that relevant PRC government agencies, including the CSRC, would agree with our legal counsel’s conclusions. If the CSRC or any other PRC regulatory body determines that we need to obtain their approval for this offering, or if new laws, rules, or regulations are promulgated before our listing requiring such approval, we may face adverse actions or sanctions for failing to seek approval.
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In addition, the recently issued Opinions on Strictly Cracking Down on Illegal Securities Activities calls for strengthening supervision over stocks with China-related operations, revising the Special Provisions of the State Council on Overseas Issuance and Listing of Shares by Limited Stock Companies , and clarifying the responsibilities of domestic industry regulators. However, as of the date of this prospectus, no further detailed rules or interpretations have been issued, leaving uncertainties regarding the implementation of these Opinions. Moreover, there is no guarantee that future rules or regulations will not impose additional requirements on companies operating in the PRC.
Furthermore, on July 10, 2023, the Cyberspace Administration of China (CAC) released a revised draft of the Measures for Cybersecurity Review for public comment. According to this draft, in addition to “operators of critical information infrastructure,” any “data processor” conducting data processing activities that affect or may affect national security should also be subject to cybersecurity review. Specifically, any data processor possessing personal information of more than one million users seeking to list abroad must apply for a cybersecurity review. On December 28, 2023, the Measures for Cybersecurity Review (2023 Version) were officially promulgated, becoming effective on February 15, 2024, and replacing the 2022 version in full. The 2023 Measures reiterated that network platform operators conducting data processing activities affecting national security must undergo cybersecurity review, particularly those holding personal information of more than one million users seeking a foreign listing.
In light of these uncertainties, we made inquiries with the relevant local branch of the CAC in July 2023 following the release of the revised draft Measures and again in March 2024 after the Measures for Cybersecurity Review (2023 Version) came into effect. Based on our business operations and the nature of our marketplace, the relevant local authority concurred with us that we are not required to undergo a cybersecurity review because:
Our Yunnan Jialian Big Data Service Platform operates in Kunming under our Kunming Subsidiary, which has fewer than one million users.
Our platform is a B2B e-commerce platform, and the data we collect from sellers and buyers does not include personal information.
As of the date of this prospectus, we have not been involved in any investigations related to cybersecurity or data security initiated by relevant governmental authorities, nor have we received any inquiries, notices, warnings, or sanctions in this regard. However, given that the Measures for Cybersecurity Review (2023 Version) were recently adopted and the Regulations on Network Data Security Protection (Draft for Comments) have yet to be finalized, uncertainties remain regarding the interpretation and enforcement of these cybersecurity laws and regulations. We cannot assure you that we will not be subject to cybersecurity review requirements in the future, or that we would pass such a review if required. Furthermore, while the authorities we consulted confirmed that we are not subject to cybersecurity review, there is no guarantee that another authorized PRC regulatory body might not reach a different conclusion in the future. If any future interpretation or implementation rules designate another PRC regulatory body as the final decision-maker for cybersecurity reviews, there can be no assurance that they would agree with the conclusions of the authorities we consulted. Should the authorized PRC regulatory body determine that we must undergo a cybersecurity review, or if new regulations require us to do so, we may fail to complete the necessary procedures in a timely manner—or at all—potentially delaying or preventing the completion of this offering.
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The approval or other administrative requirements of the China Securities Regulatory Commission (CSRC) or other PRC governmental authorities may be required in connection with this offering under existing PRC regulations or any new laws, rules, or regulations enacted in the future. If such approval is required, we cannot assure you that we will be able to obtain it in a timely manner, or at all. This could delay or prevent the completion of this offering, materially impacting our business, financial condition, and results of operations.
On August 8, 2006, six PRC regulatory agencies, including the Ministry of Commerce (MOFCOM) , the State-owned Assets Supervision and Administration Commission (SASAC) , the State Administration of Taxation (SAT) , the State Administration for Market Regulation (SAMR) , the CSRC , and the State Administration of Foreign Exchange (SAFE) , jointly adopted the M&A Rules , which came into effect on September 8, 2006 and were amended on June 22, 2009. These rules include provisions requiring offshore special purpose vehicles controlled by PRC domestic companies or individuals to obtain CSRC approval prior to listing their securities on an overseas stock exchange. On September 21, 2006, the CSRC published procedures regarding its approval of overseas listings by special purpose vehicles. However, substantial uncertainty remains regarding the scope and applicability of these rules to offshore special purpose vehicles like ours.
Based on the advice of our PRC legal counsel, Han Kun Law Offices , and our understanding of current PRC laws and regulations, we believe that CSRC approval under the M&A Rules is not required for this offering. This is because the CSRC has not issued definitive rules or interpretations concerning whether offerings like ours are subject to the M&A Rules, and our wholly-owned subsidiary in China, Yunnan Jialian Big Data Service Group Co., Ltd. , was established through foreign direct investment rather than through the merger or acquisition of a domestic company as defined under the M&A Rules. Nevertheless, we have been advised by our PRC legal counsel that uncertainties remain regarding the interpretation and application of PRC laws. There can be no assurance that relevant PRC government agencies, including the CSRC, would agree with our legal counsel’s conclusions. If the CSRC or any other PRC regulatory body determines that we need to obtain their approval for this offering, or if new laws, rules, or regulations are promulgated before our listing requiring such approval, we may face adverse actions or sanctions for failing to seek approval.
In addition, the recently issued Opinions on Strictly Cracking Down on Illegal Securities Activities calls for strengthening supervision over stocks with China-related operations, revising the Special Provisions of the State Council on Overseas Issuance and Listing of Shares by Limited Stock Companies , and clarifying the responsibilities of domestic industry regulators. However, as of the date of this prospectus, no further detailed rules or interpretations have been issued, leaving uncertainties regarding the implementation of these Opinions. Moreover, there is no guarantee that future rules or regulations will not impose additional requirements on companies operating in the PRC.
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Furthermore, on July 10, 2023, the Cyberspace Administration of China (CAC) released a revised draft of the Measures for Cybersecurity Review for public comment. According to this draft, in addition to “operators of critical information infrastructure,” any “data processor” conducting data processing activities that affect or may affect national security should also be subject to cybersecurity review. Specifically, any data processor possessing personal information of more than one million users seeking to list abroad must apply for a cybersecurity review. On December 28, 2023, the Measures for Cybersecurity Review (2023 Version) were officially promulgated, becoming effective on February 15, 2024, and replacing the 2022 version in full. The 2023 Measures reiterated that network platform operators conducting data processing activities affecting national security must undergo cybersecurity review, particularly those holding personal information of more than one million users seeking a foreign listing.
In light of these uncertainties, we made inquiries with the relevant local branch of the CAC in July 2023 following the release of the revised draft Measures and again in March 2024 after the Measures for Cybersecurity Review (2023 Version) came into effect. Based on our business operations and the nature of our marketplace, the relevant local authority concurred with us that we are not required to undergo a cybersecurity review because:
Our Yunnan Jialian Big Data Service Platform operates in Kunming under our Kunming Subsidiary, which has fewer than one million users.Our platform is a B2B e-commerce platform, and the data we collect from sellers and buyers does not include personal information.
As of the date of this prospectus, we have not been involved in any investigations related to cybersecurity or data security initiated by relevant governmental authorities, nor have we received any inquiries, notices, warnings, or sanctions in this regard. However, given that the Measures for Cybersecurity Review (2023 Version) were recently adopted and the Regulations on Network Data Security Protection (Draft for Comments) have yet to be finalized, uncertainties remain regarding the interpretation and enforcement of these cybersecurity laws and regulations. We cannot assure you that we will not be subject to cybersecurity review requirements in the future, or that we would pass such a review if required. Furthermore, while the authorities we consulted confirmed that we are not subject to cybersecurity review, there is no guarantee that another authorized PRC regulatory body might not reach a different conclusion in the future. If any future interpretation or implementation rules designate another PRC regulatory body as the final decision-maker for cybersecurity reviews, there can be no assurance that they would agree with the conclusions of the authorities we consulted. Should the authorized PRC regulatory body determine that we must undergo a cybersecurity review, or if new regulations require us to do so, we may fail to complete the necessary procedures in a timely manner—or at all—potentially delaying or preventing the completion of this offering.
In addition, under PRC laws and regulations, an overseas offering and listing may be prohibited or subject to additional requirements if any of the following circumstances apply: (i) the intended securities offering and listing is specifically prohibited by PRC laws, regulations, or relevant provisions; (ii) the intended securities offering and listing is determined by competent authorities under the State Council to pose a threat to national security; (iii) there are material ownership disputes over the equity, principal assets, or core technology of the issuer; (iv) in the past three years, the domestic enterprise, its controlling shareholders, or actual controllers have committed offenses such as corruption, bribery, embezzlement, misappropriation of property, or other crimes disruptive to the socialist market economy order, or are currently under judicial investigation for suspected criminal offenses, or are under investigation for major violations; (v) in the past three years, directors, supervisors, or senior executives have been subject to administrative penalties for severe violations, or are currently under judicial investigation for suspected criminal offenses, or are under investigation for significant violations of laws and regulations; and (vi) other circumstances prescribed by the State Council.
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According to the Draft Overseas Listing Rules , if enacted, failure to fulfill filing obligations could result in fines ranging from RMB 1 million to RMB 10 million. In cases of severe violations, the relevant authorities may order the suspension of business operations for rectification or revoke relevant business permits or licenses. However, as advised by our PRC legal counsel, based on its understanding of the Draft Overseas Listing Rules and our confirmation that:
None of the operating revenue, total profits, total assets, or net assets of our PRC Subsidiaries in the most recent accounting year accounted for more than 50% of the corresponding figures in our audited consolidated financial statements for the same period;
Most of the senior managers responsible for business operations and management are not Chinese citizens or do not reside habitually in China (only one of the three executive officers is a PRC citizen, and none of the three executive officers reside in China);
Our principal operational premises are located in Kunming, and our PRC Subsidiaries primarily perform cost functions and internal operational functions without generating revenue in China;
we believe that we, including our PRC Subsidiaries and our Kunming Subsidiary, will not be required to file with the CSRC for this offering and listing under the Draft Overseas Listing Rules if they are enacted before the completion of this offering. However, as the Draft Overseas Listing Rules have not yet been finalized, uncertainty remains regarding their final form and enforcement. There can be no assurance that the relevant PRC governmental authorities, including the CSRC, would agree with our interpretation or that new rules or interpretations of current regulations will not require us to obtain CSRC approval or complete filing procedures for this offering.
Furthermore, according to the CSRC Answers , new initial public offerings and refinancing activities by existing overseas-listed Chinese companies will first require going through the filing process. Other existing overseas-listed companies will be granted a sufficient transition period to comply with the new requirements. This means that if we complete this offering prior to the effectiveness of the Draft Overseas Listing Rules, we may still be required to complete the filing process or comply with additional regulatory requirements in the future. If the Draft Overseas Listing Rules are enacted before the completion of this offering and the CSRC requires us to complete the filing procedure, the offering will be delayed until we have fulfilled the necessary filings, which could take several months or longer.
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There is also the possibility that we may inadvertently conclude that such filings are not required or fail to fully comply with new regulatory requirements. If the CSRC or other PRC regulatory authorities determine that filing is required as a prerequisite for this offering, or if applicable laws and regulations are modified in the future to impose such requirements, we may face regulatory actions, sanctions, or other adverse consequences. These actions could include fines and penalties imposed on our operations in China and Kunming, restrictions on the repatriation of proceeds from this offering into mainland China and Kunming, and limitations on our ability to offer or continue offering our ordinary shares. Such failures could significantly disrupt our business operations, severely damage our reputation, and materially and adversely affect our financial condition and results of operations, potentially causing our ordinary shares to decline significantly in value or become worthless. Additionally, the CSRC or other PRC regulatory agencies may take actions requiring us to terminate this offering prior to closing or otherwise advise against proceeding with the offering.
If certain PRC laws and regulations, including those currently in effect or enacted in the future (such as the Draft Overseas Listing Rules), were to become applicable to our Kunming Subsidiary, their application could materially impact our business operations in Kunming. For example, the PRC government may impose restrictions on foreign investment, data processing activities, or cross-border transactions that could limit our ability to transfer funds or assets within our group effectively. Any failure to comply with these requirements could lead to significant limitations or prohibitions on our ability to operate, raise capital, or distribute dividends, thereby materially affecting our business, financial condition, and results of operations.
See “Risk Factors—Risks Related to Doing Business in China—Governmental control of currency conversion and regulatory compliance may limit our ability to utilize revenues, transfer or distribute cash effectively, and affect the value of your investment.”
We may be treated as a resident enterprise for PRC tax purposes under the PRC Enterprise Income Tax Law, which could subject us to taxation on our global income.
Under the PRC Enterprise Income Tax Law and its implementing rules, enterprises established under the laws of jurisdictions outside of the PRC with “de facto management bodies” located in the PRC may be considered resident enterprises for tax purposes. If deemed a resident enterprise, we would be subject to PRC enterprise income tax at a rate of 25% on our global income. A “de facto management body” refers to an entity that exercises substantial and overall management and control over the production and operations, personnel, accounting, and assets of an enterprise.
The State Administration of Taxation (SAT) issued Circular 82 , titled Notice Regarding the Determination of Chinese-Controlled Offshore-Incorporated Enterprises as PRC Tax Resident Enterprises Based on De Facto Management Bodies , on April 22, 2009, which was most recently amended on December 29, 2019. Circular 82 provides specific criteria for determining whether the “de facto management body” of a Chinese-controlled offshore-incorporated enterprise is located in the PRC. Subsequently, on July 27, 2011, the SAT issued the Administrative Measures for Enterprise Income Tax of Chinese-Controlled Offshore-Incorporated Resident Enterprises (Trial Version) , or Bulletin 45 , which became effective on September 1, 2011 and was most recently revised on June 15, 2020. Bulletin 45 offers further guidance on the implementation of Circular 82, clarifying issues related to resident status determination, post-determination administration, and procedures for competent tax authorities.
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While Circular 82 and Bulletin 45 primarily apply to offshore enterprises controlled by PRC enterprises or enterprise groups, the criteria outlined in these regulations may reflect the SAT’s general position on how the “de facto management body” test should be applied when determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC entities or foreign individuals. If we were deemed a PRC resident enterprise by the PRC tax authorities, we would be subject to PRC enterprise income tax at a rate of 25% on our global income. In such a case, our cash flow could be materially reduced due to taxation under the Enterprise Income Tax Law. We believe that none of our entities outside the PRC, including JiaLian Technologies Holdings Inc. , our BVI holding company, qualify as PRC resident enterprises for tax purposes. However, the tax resident status of an enterprise is ultimately determined by the PRC tax authorities, and uncertainties remain regarding the interpretation of the term “de facto management body.”
Dividends paid to our foreign investors and gains realized from the sale of our Class A ordinary shares by foreign investors may become subject to PRC tax if we are deemed a PRC resident enterprise.
If we are deemed a PRC resident enterprise under the Enterprise Income Tax Law, several unfavorable tax consequences could arise. Under the law and its implementation regulations issued by the PRC State Council , dividends paid to investors classified as non-resident enterprises (those without an establishment or place of business in China, or whose dividends are not effectively connected to such establishments) derived from sources within the PRC would be subject to a withholding tax of 10%. Similarly, any gain realized by such investors from the transfer of our Class A ordinary shares could also be subject to PRC tax at a rate of 10%, provided the gain is regarded as income derived from sources within the PRC.
Furthermore, dividends paid to individual investors who are non-PRC residents and any gains realized from the transfer of our Class A ordinary shares by such investors could be subject to PRC tax at a rate of 20%, which may be withheld at source. While applicable tax treaties or arrangements between jurisdictions may provide reductions or exemptions, it remains unclear whether holders of our Class A ordinary shares would be able to claim benefits under such treaties if we or any of our subsidiaries are deemed PRC resident enterprises.
If dividends paid to our non-PRC investors or gains from the transfer of our Class A ordinary shares by such investors are deemed income derived from sources within the PRC and thus subject to PRC tax, the value of your investment in our Class A ordinary shares could significantly decline. Additionally, if the PRC government imposes restrictions or intervenes in the ability of our Kunming Subsidiary to transfer funds or assets outside of mainland China, this could limit our ability to utilize revenues generated domestically for overseas operations, potentially disrupting our business and adversely affecting our financial condition.
As of the date of this prospectus, we have no reason to believe that our Kunming Subsidiary , Yunnan Jialian Big Data Service Group Co., Ltd. , qualifies as a PRC resident enterprise for tax purposes. This subsidiary operates as a natural person sole proprietorship under the legal representative, Mr. Luo Xiao, and has not undergone any changes to its equity structure, registered capital, or legal representative since its establishment. Furthermore, based on inquiries with relevant PRC government authorities and advice from our PRC legal counsel, we believe that neither our BVI holding company nor our Kunming Subsidiary is currently required to file for or pay taxes as PRC resident enterprises because:
Our Yunnan Jialian Big Data Service Platform is operated in Kunming under our Kunming Subsidiary, which has fewer than one million users.
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The data collected on our sellers and buyers does not include personal information, and our platform focuses solely on facilitating B2B transactions.
However, there can be no assurance that future regulatory developments or interpretations will not change this position. If certain PRC laws or regulations, including those enacted or promulgated in the future, were to apply to our Kunming Subsidiary, and if funds or assets generated by our operations in Kunming need to be used for activities outside of mainland China, limitations imposed by the PRC government could restrict our ability to transfer such funds or assets effectively. See “Risk Factors—Risks Related to Doing Business in China—Governmental control of currency conversion may limit our ability to utilize revenues, transfer or distribute cash within our group effectively and affect the value of your investment.”
We and our shareholders face uncertainties regarding indirect transfers of equity interests in PRC resident enterprises or other assets attributed to a PRC establishment of a non-PRC company, including immovable properties located in the PRC owned by non-PRC companies.
On February 3, 2015, the State Administration of Taxation (SAT) issued the Bulletin on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident Enterprises , or SAT Bulletin 7. In December 2019, Article 13 and Paragraph 2 of Article 8 of SAT Bulletin 7 were abolished. Pursuant to SAT Bulletin 7 (as amended), an “indirect transfer” of assets, including non-publicly traded equity interests in a PRC resident enterprise, by non-PRC resident enterprises may be re-characterized and treated as a direct transfer of PRC taxable assets if such arrangement lacks a reasonable commercial purpose and was established to avoid payment of PRC enterprise income tax. Gains derived from such indirect transfers may therefore be subject to PRC enterprise income tax. According to SAT Bulletin 7, “PRC taxable assets” include assets attributed to a PRC establishment, immovable properties located in the PRC, and equity investments in PRC resident enterprises, where gains from their transfer by a direct holder (a non-PRC resident enterprise) would be subject to PRC enterprise income tax. Factors considered when determining whether there is a “reasonable commercial purpose” include, but are not limited to: whether the main value of the equity interest of the relevant offshore enterprise derives from PRC taxable assets; whether the assets of the offshore enterprise mainly consist of direct or indirect investments in the PRC or if its income primarily originates from the PRC; whether the offshore enterprise and its subsidiaries holding PRC taxable assets have a genuine commercial nature evidenced by their actual functions and risk exposure; the duration of existence of the offshore shareholder, business model, and organizational structure; information about due income tax paid outside the PRC for indirect transfers of PRC taxable assets; the replicability of the transaction through a direct transfer of PRC taxable assets; and the tax situation of such indirect transfers under applicable tax treaties or similar arrangements.
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In cases involving the indirect offshore transfer of assets of a PRC establishment, the resulting gain must be included in the enterprise income tax filing of the transferred PRC establishment or place of business and would be subject to PRC enterprise income tax at a rate of 25%. For transactions involving immovable properties located in the PRC or equity investments in PRC resident enterprises unrelated to a PRC establishment or place of business of a non-resident enterprise, a PRC enterprise income tax of 10% applies, subject to preferential tax treatment under applicable tax treaties or similar arrangements. The party obligated to make the transfer payments has the withholding obligation. SAT Bulletin 7 does not apply to transactions where shares are sold by investors through a public stock exchange if such shares were acquired from a public stock exchange transaction. On October 17, 2019, the SAT promulgated the Announcement on Issues Concerning the Withholding of Non-Resident Enterprise Income Tax at Source , or SAT Circular 37 , which became effective on December 1, 2019 and was most recently amended on June 15, 2020. SAT Circular 37 simplified procedures for withholding and payment of income tax levied on non-resident enterprises.
We face uncertainties regarding the reporting and implications of certain past and future transactions involving PRC taxable assets, such as offshore restructuring, sale of shares in our offshore subsidiaries, or investments. If our company acts as the transferor in such transactions, we may be subject to filing obligations or taxation under SAT Bulletin 7 and SAT Circular 37. If our company acts as the transferee, we may be subject to withholding obligations. Additionally, our PRC Subsidiaries may be required to assist in filings related to share transfers by investors classified as non-PRC resident enterprises. This could necessitate the allocation of significant resources to comply with these regulations or demonstrate that our company should not be taxed under them, potentially materially impacting our financial condition and results of operations.
PRC regulations governing loans to and direct investments in PRC entities by offshore holding companies, combined with governmental control over currency conversion, may restrict or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our PRC Subsidiaries, thereby materially and adversely affecting our liquidity and ability to fund and expand our business.
Under PRC laws and regulations, as an offshore holding company, we are permitted to provide funding to our PRC Subsidiaries, which are treated as “foreign-invested enterprises” under PRC law, through loans or capital contributions. However, loans provided by us to finance our PRC Subsidiaries’ activities cannot exceed statutory limits and must be registered with the local branch of the State Administration of Foreign Exchange (SAFE). Similarly, capital contributions to our PRC Subsidiaries require necessary registrations with competent governmental authorities in the PRC.
On June 1, 2015, SAFE issued the Notice on Reforming the Administration of Foreign Exchange Settlement of Capital of Foreign-Invested Enterprises , or Circular 19 , which regulates the flow and use of RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company. Under Circular 19, RMB capital may not be used directly or indirectly for issuing RMB entrusted loans, repaying inter-enterprise loans (including third-party advances), or repaying bank loans that have been transferred to a third party. While Circular 19 allows RMB capital converted from foreign currency-denominated registered capital of a foreign-invested enterprise to be used for equity investments within the PRC, it also reiterates that such RMB capital may not be used for purposes beyond the business scope of the enterprise. Therefore, it remains unclear whether SAFE will permit such capital to be used for equity investments in practice.
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On June 9, 2016, SAFE issued the Notice on Reforming and Regulating the Foreign Exchange Settlement Management Policy of Capital Account , or Circular 16 , which reiterated some rules set forth in Circular 19 but modified the prohibition against using RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company to issue RMB entrusted loans, limiting such prohibition to loans to non-associated enterprises. Violations of Circular 19 and Circular 16 could result in administrative penalties, further restricting our ability to transfer foreign currency, including the net proceeds from this offering, to our PRC Subsidiaries. This could adversely affect our liquidity and our ability to fund and expand our business in the PRC.
On October 23, 2021, SAFE issued the Notice on Further Promoting the Convenience of Cross-border Trade and Investment , or SAFE Circular 28 , which permits non-investment foreign-invested enterprises to use their capital funds for equity investments in the PRC, provided they comply with effective foreign investment restrictions and other applicable laws. However, given the recent issuance of SAFE Circular 28, uncertainties remain regarding its interpretation and implementation in practice.
Considering the various requirements imposed by PRC regulations on loans to and direct investments in PRC entities by offshore holding companies, we cannot guarantee that we will be able to complete necessary government registrations or obtain required approvals in a timely manner—or at all—with respect to future loans or capital contributions to our PRC Subsidiaries. As a result, uncertainties exist regarding our ability to provide prompt financial support to our PRC Subsidiaries when needed. Failure to complete such registrations or obtain approvals could negatively impact our ability to use foreign currency, including proceeds from this offering, to capitalize or otherwise fund our PRC operations, materially and adversely affecting our liquidity and ability to fund and expand our business.
Any failure to comply with PRC regulations regarding the registration requirements for employee share incentive plans may subject our equity incentive plan participants or us to fines and other legal or administrative sanctions.
On February 15, 2012, the State Administration of Foreign Exchange (SAFE) issued the Notices on Issues Relating to the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plans of Overseas Publicly Listed Companies , replacing earlier rules promulgated in 2007. Pursuant to these rules, PRC citizens and non-PRC citizens who have resided in China for a continuous period of not less than one year and participate in any share incentive plan of an overseas publicly listed company are required to register with SAFE through a qualified domestic agent, such as our PRC Subsidiary, and complete certain procedures unless specific exceptions apply. Additionally, an overseas institution must be retained to handle matters related to the exercise or sale of share options and the purchase or sale of shares and interests. Upon completion of this offering, we will become an overseas-listed company, and our executive officers and employees who are PRC citizens or residents meeting the above criteria will be subject to these regulations. Failure to complete the necessary SAFE registrations could result in fines of up to RMB 300,000 for entities and RMB 50,000 for individuals, and may also limit our ability to contribute additional capital to our PRC Subsidiaries or their ability to distribute dividends to us. Furthermore, regulatory uncertainties under PRC law could restrict our ability to implement additional incentive plans for our directors, executive officers, and employees. See “Management—Share Incentive Plans.”
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Additionally, the State Administration of Taxation (SAT) has issued circulars concerning employee share options and restricted shares. Under these circulars, our employees working in China who exercise share options or are granted restricted shares will be subject to PRC individual income tax. Our PRC Subsidiaries have obligations to file documents related to employee share options or restricted shares with relevant tax authorities and withhold individual income taxes for employees exercising their options. If our employees fail to pay their income taxes or if we fail to withhold them in accordance with applicable laws and regulations, we may face sanctions imposed by tax authorities or other PRC government agencies. See “Management—Share Incentive Plans.”
PRC regulations relating to offshore investment activities by PRC residents may limit our PRC Subsidiaries’ ability to change their registered capital, distribute profits to us, or otherwise expose us or our PRC resident beneficial owners to liability and penalties under PRC laws.
On July 4, 2014, SAFE issued the Notice on Issues Relating to Foreign Exchange Administration over Overseas Investment and Financing and Round-trip Investment by Domestic Residents via Special Purpose Vehicles , or SAFE Circular 37. This circular requires PRC residents (including PRC individuals and corporate entities, as well as foreign individuals deemed as PRC residents for foreign exchange purposes) to register with SAFE or its local branches in connection with their direct or indirect offshore investment activities. SAFE Circular 37 further mandates amendments to these registrations in the event of changes to basic information about the offshore special purpose vehicle, such as shareholder composition, name, or operational term, or significant events like increases or decreases in capital contributions, share transfers or exchanges, or mergers or divisions. SAFE Circular 37 applies to our shareholders or beneficial owners who are PRC residents and may also apply to any offshore acquisitions we undertake in the future. According to the Notice of SAFE on Further Simplifying and Improving Foreign Exchange Administration Policies for Direct Investment , issued on February 13, 2015 and effective June 1, 2015, local banks are authorized to examine and process foreign exchange registrations for overseas direct investments, including initial and amendment registrations, under SAFE Circular 37.
If our shareholders or beneficial owners who are PRC residents or entities fail to complete their SAFE registrations with local SAFE branches or qualified local banks, our PRC Subsidiaries may be prohibited from distributing profits or proceeds from capital reductions, share transfers, or liquidations to us. We may also face restrictions on contributing additional capital to our PRC Subsidiaries. Moreover, failure to comply with SAFE registration requirements could result in liability under PRC laws for evasion of foreign exchange restrictions.
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We may not be fully informed of the identities of all PRC residents or entities holding direct or indirect interests in our company, nor can we compel such shareholders or beneficial owners to comply with SAFE registration requirements. We cannot assure you that all our shareholders or beneficial owners who are PRC residents or entities have complied with, or will comply with in the future, the applicable SAFE registration requirements.
The failure or inability of such shareholders or beneficial owners to comply with SAFE regulations, or our failure to amend the foreign exchange registrations of our PRC Subsidiaries, could subject us or the non-compliant shareholders/beneficial owners to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our PRC Subsidiaries’ ability to make distributions or pay dividends to us, or affect our ownership structure. As a result, our business operations and our ability to distribute future profits to investors could be materially and adversely affected.
Governmental control of currency conversion may limit our ability to utilize revenues effectively within our group and affect the value of your investment.
The PRC government imposes controls on the convertibility of Renminbi into foreign currencies and the remittance of currency out of mainland China. Under our current corporate structure, JiaLian Technologies Holdings Inc. , our BVI holding company, relies on cash transfers or dividend payments from our wholly-owned subsidiary, Yunnan Jialian Big Data Service Group Co., Ltd. , located in Kunming, to fund any cash and financing requirements we may have. However, the ability of our Kunming Subsidiary to transfer funds or pay dividends to us may be restricted by applicable laws and regulations in China. To date, none of our PRC Subsidiaries have issued any dividends or distributions to our BVI holding company or other entities outside mainland China.
Under existing PRC foreign exchange regulations, payments for current account items, including profit distributions, interest payments, and trade/service-related foreign exchange transactions, can generally be made in foreign currencies without prior approval from the State Administration of Foreign Exchange (SAFE) , provided certain procedural requirements are met. Specifically, under these regulations, cash generated from the operations of our Kunming Subsidiary may be used to pay dividends to our company without SAFE’s prior approval. However, where Renminbi needs to be converted into foreign currency and remitted out of mainland China to pay capital expenses, such as repaying loans denominated in foreign currencies, prior approval from or registration/filing with appropriate government authorities is required.
As a result, if we need to use cash generated by our Kunming Subsidiary to repay debts owed to entities outside mainland China or make other capital expenditure payments outside China in a currency other than Renminbi, we would need to obtain SAFE approval. To the extent that cash is generated in our Kunming Subsidiary and needs to be used to fund operations outside Kunming, such funds may not be available due to limitations imposed by the PRC government. Furthermore, assets (other than cash) held by our Kunming Subsidiary may not be easily transferred outside mainland China due to potential restrictions or interventions by the PRC government.
If certain PRC laws and regulations, including existing rules and those enacted in the future, were to become applicable to our Kunming Subsidiary, and if cash generated by our Kunming Subsidiary or assets held by it are needed to fund operations outside Kunming, such funds or assets may not be accessible due to restrictions imposed by the PRC government. Additionally, there can be no assurance that the PRC government will not impose further restrictions or limitations on our ability to transfer or distribute cash within our organization, which could result in an inability or prohibition on making transfers or distributions to entities outside mainland China and adversely affect our business.
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In light of recent developments, such as the increased scrutiny of outbound capital movements following significant capital outflows in 2016 due to the weakening Renminbi, the PRC government has implemented stricter foreign exchange policies and enhanced vetting processes for cross-border transactions under the capital account. If any of our shareholders subject to these policies fail to comply with the applicable overseas direct investment filing or approval requirements, they may face penalties from relevant PRC authorities. Moreover, the PRC government retains discretion to impose additional restrictions on access to foreign currencies for current account transactions in the future. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to meet our demands, we may not be able to pay dividends in foreign currencies to our shareholders.
Despite these potential limitations, as of the date of this prospectus, there are currently no restrictions on our ability or the ability of our subsidiaries to transfer cash to investors, assuming compliance with applicable laws and regulations. See “Risk Factors—Risks Related to Doing Business in China—Governmental control of currency conversion may limit our ability to utilize revenues, transfer or distribute cash within our group effectively and affect the value of your investment.”
Recent litigation and negative publicity surrounding companies listed in the U.S. with operations in the PRC may result in increased regulatory scrutiny of us and negatively impact the trading price of our Class A ordinary shares.
We believe that litigation and negative publicity surrounding companies with operations in the PRC that are listed in the U.S. have had a detrimental effect on stock prices for such companies. Various equity-based research organizations have published reports examining corporate governance practices, related-party transactions, sales practices, and financial statements of these companies, leading to special investigations and stock suspensions on national exchanges. Given our operations in the PRC, any similar scrutiny of our company, regardless of its merit, could divert management resources and energy, impose costs to defend against rumors, cause decreases and volatility in the trading price of our Class A ordinary shares, increase directors’ and officers’ insurance premiums, and materially adversely affect our business, results of operations, and financial condition.
The enforcement of the PRC Labor Contract Law and other labor-related regulations in the PRC may increase our labor costs and limit our flexibility to use labor. Our failure to comply with PRC labor-related laws may expose us to penalties.
On June 29, 2007, the Standing Committee of the National People’s Congress enacted the PRC Labor Contract Law , which became effective on January 1, 2008 and was amended on December 28, 2012. This law introduces specific provisions related to fixed-term employment contracts, part-time employment, probation periods, consultations with labor unions and employee assemblies, employment without a written contract, dismissal of employees, severance payments, and collective bargaining. These provisions represent enhanced enforcement of labor laws and regulations in the PRC. According to the PRC Labor Contract Law , employers are required to sign unfixed-term labor contracts with employees who have worked for them continuously for 10 years. Additionally, if an employee requests or agrees to renew a fixed-term contract that has already been entered into twice consecutively, the resulting contract must generally be unfixed-term, subject to certain exceptions. Employers are also obligated to pay economic compensation upon termination or expiration of a labor contract under specified circumstances. As a result, our ability to terminate employees is significantly restricted.
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Furthermore, the PRC government has issued various labor-related regulations aimed at protecting employee rights. Employees are entitled to annual leave ranging from five to 15 days and may receive compensation for unused leave days equal to three times their daily salary, subject to certain exceptions. If we decide to adjust our employment or labor practices, the PRC Labor Contract Law and its implementation rules may limit our ability to do so in a cost-effective manner. Given the evolving nature of these regulations and potential inconsistencies in local interpretations, there can be no assurance that our employment practices will always align with the latest requirements. If we incur severe penalties or significant liabilities due to labor disputes or investigations, our business and financial condition could be adversely affected.
Companies operating in the PRC are required to participate in government-sponsored employee benefit plans, including social insurance, housing funds, and other welfare-oriented payment obligations. Contributions to these plans are typically calculated as a percentage of employees’ salaries (including bonuses and allowances) up to a maximum amount specified by local governments. However, due to differences in local regulations and inconsistent implementation or interpretation by local authorities, we may not fully comply with all aspects of these requirements. For example, some employees may not accept or enroll in the housing fund system, making full compliance challenging. We may be subject to fines and penalties for any failure to make required contributions, and we may also be required to make up missed contributions along with late fees and fines. Such actions could materially affect our financial condition and results of operations.
Our leasehold interests in leased properties have not been registered with the relevant PRC governmental authorities as required by relevant PRC laws. The failure to register leasehold interests may expose us to potential fines.
We have not registered any of our lease agreements with the relevant government authorities. Under applicable PRC laws and regulations , executed leases should generally be registered and filed with the relevant government authority. While the failure to register these lease agreements does not affect their validity, competent housing authorities may impose fines ranging from RMB 1,000 to RMB 10,000 per unregistered lease if we fail to complete registration within the prescribed timeframe. Although none of our lease agreements have been challenged to date, there can be no assurance that we will not face penalties or enforcement actions in the future, which could impact our operations and financial condition.
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The ability of U.S. authorities to bring actions for violations of U.S. securities laws and regulations against us, our directors, or executive officers may be limited. Therefore, you may not enjoy the same level of protection as investors in U.S.-based companies.
The U.S. Securities and Exchange Commission (SEC) , the U.S. Department of Justice (DOJ) , and other U.S. authorities often face substantial challenges in bringing or enforcing actions against non-U.S. incorporated companies like ours or non-U.S. persons such as our directors and executive officers located in Kunming and other regions in China. Jurisdictional limitations, matters of comity, and other factors may restrict the ability of U.S. authorities to pursue legal action effectively, particularly in emerging markets like the PRC. Some of our directors and executive officers reside in China, and there are significant legal and practical obstacles for U.S. authorities to obtain information necessary for investigations or litigation against us or our key personnel in the event of fraud or other wrongdoing. Moreover, local authorities in the PRC may have limited capacity to assist U.S. authorities or overseas investors in connection with legal proceedings.
As a result, if we, our directors, executive officers, or other key personnel were to engage in securities law violations, fraud, or other financial misconduct, U.S. authorities may face difficulties conducting effective investigations or bringing/enforcing actions against us. Consequently, investors in our Class A ordinary shares may not enjoy the same level of protection provided by U.S. authorities as investors in U.S.-based companies.
You may experience difficulties in effecting service of legal process, enforcing foreign judgments, or bringing original actions in the PRC based on U.S. or other foreign laws against us, our directors, or executive officers. Therefore, you may not be able to effectively enjoy the protection of such laws.
We are a company incorporated under the laws of the British Virgin Islands (BVI) , but our operations are conducted through our wholly-owned subsidiary, Yunnan Jialian Big Data Service Group Co., Ltd. , located in Kunming, China. Some of our directors and executive officers are also located in the PRC. As a result, it may not be possible to serve legal process within the U.S. or elsewhere outside the PRC upon us, our directors, or executive officers, including matters arising under U.S. federal securities laws or applicable state securities laws. Even if you obtain a judgment against us, our directors, or executive officers in a U.S. court or another court outside the PRC, you may face significant challenges in enforcing such a judgment in the PRC. The PRC does not have treaties with the U.S., the U.K., Japan, or most Western countries providing for the reciprocal recognition and enforcement of judgments. Consequently, recognizing and enforcing judgments from courts in these jurisdictions in the PRC may be difficult or impossible. Additionally, you may not be able to bring original actions in the PRC based on U.S. or other foreign laws against us, our directors, or executive officers. As a result, shareholder claims that are common in the U.S., such as class actions based on securities law and fraud claims, may be difficult or impossible to pursue as a matter of both law and practicality in the PRC.
For example, in the PRC, there are significant legal and procedural obstacles to obtaining information needed for shareholder investigations or litigation outside the PRC or otherwise related to foreign entities. Although local authorities in the PRC may establish regulatory cooperation mechanisms with securities regulators in other countries, such cooperation has not been consistently efficient due to the absence of a mutual and practical cooperation framework. According to Article 177 of the PRC Securities Law , which became effective in March 2022, no overseas securities regulator is permitted to directly conduct investigations or evidence collection activities within the territory of the PRC without the consent of the relevant PRC securities regulators and authorities. Furthermore, no organization or individual may provide documents or materials related to securities business activities to overseas parties without approval. While detailed interpretation or implementation rules under Article 177 of the PRC Securities Law are not yet available, this restriction could increase the difficulty for investors in protecting their interests effectively. Therefore, you may not be able to fully enjoy the protections offered by U.S. laws and regulations intended to safeguard public investors.
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Additional remedial measures could be imposed on certain PRC-based accounting firms , including our independent registered public accounting firm, in administrative proceedings instituted by the U.S. Securities and Exchange Commission (SEC).
If these firms fail to comply with SEC requirements or if there are failures in the cooperation process between the SEC and the China Securities Regulatory Commission (CSRC) , the SEC could impose penalties, such as suspensions, or restart administrative proceedings. Under the terms of previous settlements, the underlying proceedings against certain PRC-based accounting firms were dismissed with prejudice four years after the settlement agreement was entered into. However, if our independent registered public accounting firm were denied, even temporarily, the ability to practice before the SEC and we were unable to timely find an alternative registered accounting firm to audit and issue an opinion on our consolidated financial statements, our consolidated financial statements could be determined not to be in compliance with the requirements of the U.S. Securities Exchange Act of 1934 (Exchange Act). Such a determination could ultimately lead to the delay or abandonment of this offering, delisting of our Class A ordinary shares from the Nasdaq Global Market , deregistration from the SEC, or all of the above, substantially reducing or effectively terminating the trading of our Class A ordinary shares in the U.S.
In light of recent developments, if PRC-based “big four” accounting firms become subject to additional legal challenges by the SEC or the Public Company Accounting Oversight Board (PCAOB) , depending on the final outcome, U.S.-listed companies with major operations in the PRC, like ours, may find it challenging or impossible to retain auditors for their PRC operations. This could result in financial statements being deemed non-compliant with the requirements of the Exchange Act, potentially leading to delisting. Moreover, any negative news regarding future proceedings against these audit firms may cause investor uncertainty about U.S.-listed companies with operations in the PRC, adversely affecting the market price of our Class A ordinary shares.Risks Related to Our Class A Ordinary Shares and this Offering
An active, liquid, and orderly market for our Class A ordinary shares may not develop, and you may not be able to resell the shares at or above the public offering price.
Prior to this offering, there has been no public market for our ordinary shares. Although we have applied to list our Class A ordinary shares on the Nasdaq, an active trading market for our Class A ordinary shares may never develop or be sustained following this offering. We and the underwriter will determine the initial public offering price of our Class A ordinary shares through negotiation. This price will not necessarily reflect the price at which investors in the market will be willing to buy and sell our Class A ordinary shares after the offering. Additionally, an active trading market for our Class A ordinary shares may not develop following the completion of this offering, or if it does develop, it may not be sustained. The lack of an active market may impair your ability to sell the shares at the time you wish to do so or at a price that you consider reasonable. An inactive market may also hinder our ability to raise capital by selling our Class A ordinary shares and may limit our ability to acquire other businesses or technologies using our Class A ordinary shares as consideration, which could materially adversely affect our business, financial condition, and results of operations.
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The trading price of our Class A ordinary shares could be highly volatile, and purchasers of our Class A ordinary shares could incur substantial losses.
The trading price of our Class A ordinary shares is likely to be volatile. The stock market in general and the market for shares of e-commerce solutions companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of specific companies. As a result of this volatility, investors may not be able to sell our Class A ordinary shares at or above the initial public offering price. The market price for our Class A ordinary shares may be influenced by various factors discussed in this “Risk Factors” section, including:
Regulatory developments in the People’s Republic of China (PRC) and other countries;
Innovations or new products/solution offerings developed by us or our competitors;
Announcements by us or our competitors regarding significant acquisitions, strategic partnerships, joint ventures, or capital commitments;
Delays or shortages in supply or distribution;
Changes in our relationships with third-party e-commerce platforms, sellers, buyers, or other strategic partners;
Achievement of expected product sales and profitability;
Variations in our financial results or those of companies perceived to be similar to us;
Market conditions in the large parcel merchandise and e-commerce solutions market, as well as issuance of securities analysts’ reports or recommendations;
Trading volume of our Class A ordinary shares;
Inability to obtain additional funding;
Sales of our securities by insiders and shareholders;
General economic, industry, and market conditions, as well as other events or factors beyond our control;
Additions or departures of key personnel;
Ongoing and future impacts of the COVID-19 pandemic and actions taken to mitigate its spread; and
Intellectual property, product liability, or other litigation against us.
In addition, in the past, shareholders of public companies have initiated class action lawsuits against those companies following periods of volatility in their share prices. If such litigation were instituted against us, it could cause us to incur substantial costs and divert management’s attention and resources, which could materially harm our business, financial condition, and results of operations.
Our failure to meet the continued listing requirements of the Nasdaq could result in the delisting of our Class A ordinary shares.
If, after listing, we fail to satisfy the continued listing requirements of the Nasdaq, such as corporate governance standards or the minimum closing bid price requirement, the Nasdaq Global Market may take steps to delist our Class A ordinary shares. Such a delisting would likely have a negative effect on the price of our Class A ordinary shares and could impair your ability to sell or purchase our shares when you wish to do so. In the event of a delisting, we cannot assure you that any actions we take to restore compliance with listing requirements would allow our Class A ordinary shares to be relisted, stabilize the market price, improve liquidity, prevent our shares from dropping below the Nasdaq minimum bid price requirement, or ensure future compliance with Nasdaq’s listing rules.
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We may allocate the net proceeds from this offering in ways that you may not approve.
Our management will have broad discretion in applying the net proceeds from this offering, as outlined in “Use of Proceeds.” Due to the number and variability of factors influencing how these proceeds will ultimately be used, their application may differ substantially from the currently intended purposes. Our management might not apply the net proceeds in ways that increase the value of your investment, and ineffective use of these funds could harm our business. Pending their use, we plan to invest the net proceeds in future acquisitions, working capital, upgrading our information technology systems, and expanding our logistics infrastructure within China. These investments may not yield favorable returns for our shareholders. If we fail to invest or apply the net proceeds from this offering in ways that enhance shareholder value, we may fall short of expected results, potentially causing the price of our Class A ordinary shares to decline.
You will suffer immediate and substantial dilution in the net tangible book value of our Class A ordinary shares you purchase.
The initial public offering price of our Class A ordinary shares is substantially higher than the pro forma as adjusted net tangible book value per share of our issued and outstanding ordinary shares immediately after the completion of this offering. Purchasers of our Class A ordinary shares in this offering will experience immediate dilution of approximately RMB [amount] per share, assuming an initial public offering price of RMB [price] per share, the midpoint of the estimated initial public offering price range shown on the front cover page of this prospectus. In the past, we have issued options to acquire ordinary shares at prices significantly below the initial public offering price. To the extent these outstanding options are ultimately exercised, investors purchasing our Class A ordinary shares in this offering may sustain further dilution. For a detailed description of the dilution you will experience immediately after this offering, see “Dilution.”
After this offering, our executive officers, directors, and principal shareholders will continue to have significant control over all matters submitted to shareholders for approval.
Following the completion of this offering, our executive officers, directors, and shareholders owning more than 5% of our total issued and outstanding ordinary shares will beneficially own approximately [percentage]% of our total issued and outstanding ordinary shares (assuming no exercise of the underwriter’s option to purchase additional Class A ordinary shares and no exercise of outstanding options), representing [percentage]% of the total voting power. Furthermore, certain current directors were appointed by our principal shareholders. As a result, these individuals or their appointees to our board of directors, acting together, will retain the ability to control or significantly influence all matters submitted to our board of directors or shareholders for approval, including the appointment of management, election and removal of directors, and approval of significant transactions, as well as our overall management and business affairs.
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This concentration of ownership may delay, defer, or prevent a change in control, impede a merger, consolidation, takeover, or other business combination involving us, or discourage a potential acquirer from making a tender offer or otherwise attempting to gain control of our business, even if such a transaction would benefit other shareholders.
While some of our existing shareholders, including certain affiliates of our directors, have expressed interest in purchasing our Class A ordinary shares in this offering at the initial public offering price, these indications of interest are not binding agreements or commitments to purchase. The underwriter may decide to sell more, fewer, or none of the shares to these shareholders, or any of these shareholders may choose to purchase more, fewer, or none of the shares in this offering. Assuming an initial public offering price of RMB [price] per share, the midpoint of the estimated price range, if our greater than 5% shareholders purchase all of the Class A ordinary shares they have indicated interest in, the aggregate ownership percentage of our executive officers, directors, and greater than 5% shareholders will increase to approximately [percentage]% of our issued and outstanding ordinary shares (assuming no exercise of the underwriter’s option to purchase additional shares and no exercise of our outstanding options). However, due to the non-binding nature of these indications of interest, there can be no assurance regarding the final allocation of shares among these shareholders.
We do not currently intend to pay dividends on our securities, and your ability to achieve a return on your investment will depend on appreciation, if any, in the price of our Class A ordinary shares.
We have never declared or paid any cash dividends on our ordinary shares. We currently plan to retain future earnings for the development, operation, and expansion of our business and do not anticipate declaring or paying any cash dividends in the foreseeable future. Additionally, the terms of any future debt agreements may restrict us from paying dividends.
Our board of directors retains complete discretion to declare dividends, subject to certain requirements under PRC law. Furthermore, our shareholders may declare dividends by ordinary resolution, but the amount cannot exceed what is recommended by our directors. Under PRC law, a dividend may be paid out of either profit or the share premium account of our company, provided that such payment does not impair our ability to pay debts as they fall due in the ordinary course of business. Even if our board of directors decides to declare and pay dividends, the timing, amount, and form of future dividends, if any, will depend on our future results of operations and cash flow, capital requirements, surplus funds, distributions received from our subsidiaries, financial condition, contractual restrictions, and other factors deemed relevant by our board of directors.
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Accordingly, the return on your investment in our Class A ordinary shares will depend entirely on any future price appreciation of our Class A ordinary shares. There is no guarantee that our Class A ordinary shares will appreciate in value after this offering or even maintain the price at which you purchased them. You may not realize a return on your investment in our Class A ordinary shares and could potentially lose your entire investment.
Sales of a substantial number of our Class A ordinary shares by our existing shareholders in the public market could cause the price of our Class A ordinary shares to fall.
Sales of a significant number of our Class A ordinary shares in the public market or the perception that these sales might occur could significantly reduce the market price of our Class A ordinary shares and impair our ability to raise adequate capital through the sale of additional equity securities.
Based on the ordinary shares outstanding as of the date of this prospectus, upon the closing of this offering, we will have a total of [number] ordinary shares outstanding after this offering, including [number] Class A ordinary shares, assuming no exercise of the underwriter’s option to purchase additional Class A ordinary shares and no exercise of outstanding options. Of these shares, only the Class A ordinary shares sold in this offering by us, plus any Class A ordinary shares sold upon exercise of the underwriter’s option to purchase additional Class A ordinary shares, will be freely tradable in the public market immediately following this offering, unless they are purchased by one of our affiliates.
Our directors, executive officers, and all existing holders of our outstanding ordinary shares have entered into lock-up agreements with the underwriter pursuant to which they may not, with limited exceptions, for a period of 180 days from the date of this prospectus, offer, sell, or otherwise transfer or dispose of any of our securities without the prior written consent of the underwriter. The underwriter may permit our officers, directors, and other shareholders subject to the lock-up agreements to sell shares prior to the expiration of the lock-up period, subject to certain limitations. See “Underwriting.” Sales of these shares, or the perception that they will be sold, could cause the trading price of our Class A ordinary shares to decline. After the lock-up agreements expire, additional shares held by directors, executive officers, and other affiliates will become eligible for sale in the public market, subject to volume limitations under Rule 144 under the Securities Act.
In addition, certain shares reserved for future issuance under our employee benefit plans or vesting schedules may also become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, the lock-up agreements, and Rule 144 and Rule 701 under the Securities Act. If these additional shares are sold, or if there is a perception that they will be sold, the trading price of our Class A ordinary shares could decline.
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We are an emerging growth company, and the reduced disclosure requirements applicable to emerging growth companies may make our Class A ordinary shares less attractive to investors.
We are an emerging growth company, as defined in the JOBS Act, and may remain an emerging growth company until the last day of the fiscal year following the fifth anniversary of the completion of this offering. However, if certain events occur prior to the end of this five-year period, such as if we become a “large accelerated filer,” our annual gross revenues exceed RMB 7 billion , or we issue more than RMB 7 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company before the end of this five-year period. For as long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:
Being permitted to provide only two years of selected financial data and two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure.
Not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting.
Not being required to comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements.
Reduced disclosure obligations regarding executive compensation.
Exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
We have taken advantage of these reduced reporting burdens in this prospectus. In particular, we have provided only two years of audited consolidated financial statements and have not included all of the executive compensation-related information that would be required if we were not an emerging growth company. We cannot predict whether investors will find our Class A ordinary shares less attractive if we rely on these exemptions. If some investors find our Class A ordinary shares less appealing as a result, there may be a less active trading market for our Class A ordinary shares, and the trading price of our Class A ordinary shares may be reduced or more volatile.
Furthermore, under the JOBS Act, an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of these accounting standards until they would otherwise apply to private companies. As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates for new or revised accounting standards.
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As a foreign private issuer, we are not subject to certain U.S. securities law disclosure requirements that apply to a domestic U.S. issuer, which may limit the information publicly available to our shareholders.
As a foreign private issuer, we are not required to comply with all of the periodic disclosure and current reporting requirements under the Exchange Act, and therefore, there may be less publicly available information about us than if we were a U.S. domestic issuer. For example, we are not subject to the U.S. proxy rules, and disclosures regarding our annual general meetings will be governed by the requirements of the laws of the People’s Republic of China (PRC). Additionally, our officers, directors, and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules thereunder. Consequently, our shareholders may not be promptly informed when our officers, directors, or principal shareholders purchase or sell our Class A ordinary shares.
As a foreign private issuer, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the Nasdaq corporate governance listing standards. These practices may afford less protection to shareholders than they would enjoy if we fully complied with corporate governance listing standards applicable to U.S. domestic issuers.
We are permitted to take advantage of certain provisions in the Nasdaq Stock Market Listing Rules that allow us to follow PRC law for certain governance matters. Certain corporate governance practices in the PRC may differ significantly from those prescribed by Nasdaq corporate governance listing standards. Under PRC law, except for general fiduciary duties and duties of care, there is no comprehensive corporate governance regime that mandates specific corporate governance standards. PRC law does not require that a majority of our board of directors consist of independent directors, nor does it impose specific requirements for establishing a compensation committee, nominating committee, or formal nomination process. To the extent we choose to follow home country practices in the future, our shareholders may receive less protection than they otherwise would under corporate governance listing standards applicable to U.S. domestic issuers.
We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.
As discussed above, we are currently classified as a foreign private issuer. Therefore, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act. The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter. We would lose our foreign private issuer status if, for example, more than 50% of our ordinary shares are directly or indirectly held by residents of the U.S., or if we fail to meet other requirements necessary to maintain this status. If we lose our foreign private issuer status, we will be required to file periodic reports and registration statements with the SEC using forms designed for U.S. domestic issuers, which are more detailed and extensive than those available to foreign private issuers. We will also need to mandatorily comply with U.S. federal proxy requirements, and our officers, directors, and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. Furthermore, we will lose our ability to rely on exemptions from certain corporate governance requirements under the Nasdaq Stock Market Listing Rules. As a U.S.-listed public company that is not a foreign private issuer, we will incur significant additional legal, accounting, and other expenses that we do not currently face as a foreign private issuer. Additionally, we will bear increased costs associated with accounting, reporting, and compliance to maintain our listing on a U.S. securities exchange.
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Our Class A ordinary shares may be delisted under the HFCA Act if the PCAOB is unable to inspect auditors located in China and if we fail to implement measures enabling PCAOB inspection of our auditor. The delisting of our Class A ordinary shares, or the threat of their being delisted, could materially and adversely affect the value of your investment. Additionally, the inability of the PCAOB to conduct inspections deprives our investors of the benefits such inspections would provide.
The Holding Foreign Companies Accountable Act (HFCA Act) was enacted on December 18, 2022. 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 beginning in 2023, the SEC shall prohibit our Class A ordinary shares from being traded on a national securities exchange or in the over-the-counter trading market in the U.S.
Our auditor, KPMG Huazhen LLP , as an independent registered public accounting firm that issues the audit report included elsewhere in this prospectus, is subject to laws in the U.S. requiring PCAOB inspections to assess compliance with applicable professional standards. However, since our auditor is located in China, a jurisdiction where the PCAOB has been unable to conduct inspections without the approval of Chinese authorities, our auditor is currently not inspected by the PCAOB.
On March 24, 2023, the SEC adopted interim final rules implementing certain disclosure and documentation requirements of the HFCA Act. We will be required to comply with these rules if the SEC identifies us as having a “non-inspection” year under a process to be established by the SEC. The SEC is also assessing how to implement other requirements of the HFCA Act, including the listing and trading prohibition requirements described above. On December 2, 2023, the SEC finalized amendments to rules implementing submission and disclosure requirements under the HFCA Act. These rules apply to registrants identified by the SEC as having filed an annual report with an audit report issued by a registered public accounting firm located in a foreign jurisdiction where the PCAOB is unable to inspect or investigate completely. The final amendments require such registrants to submit documentation to the SEC establishing that they are not owned or controlled by a governmental entity in the public accounting firm’s foreign jurisdiction.
Furthermore, on June 22, 2023, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act , which, if enacted into law, would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from trading on U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive “non-inspection” years instead of three. This would reduce the time before our securities may be prohibited from trading on the Nasdaq or other U.S. stock exchanges, potentially resulting in our Class A ordinary shares being delisted earlier than required under the HFCA Act. If our securities are unable to be listed on another securities exchange by then, such delisting would substantially impair your ability to sell or purchase our Class A ordinary shares when you wish to do so. The risk and uncertainty associated with potential delisting would negatively impact the price of our Class A ordinary shares.
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We may take measures to enable PCAOB inspection of our auditor. Given that we have operations in the U.S., we may maintain our accounting books and records in the U.S. in the future. If required by the HFCA Act, the PCAOB, or the SEC, we may need to change our auditor to an independent registered public accounting firm located in the U.S. and subject to PCAOB inspection to maintain the listing of our Class A ordinary shares. Such a change could incur additional costs, and we cannot assure you that we would be able to make this change in a timely manner—or at all. Failure to implement measures to comply with the HFCA Act and the uncertainty surrounding its implementation could cause the market price of our Class A ordinary shares to decline materially, and our securities could be delisted or prohibited from being traded over-the-counter earlier than required under the HFCA Act. If our securities are delisted and we are unable to list them on another securities exchange, this would severely limit your ability to trade our Class A ordinary shares, negatively impacting their value.
The SEC may propose additional rules or guidance that could impact us if our auditor remains outside the scope of PCAOB inspection. For example, on August 6, 2022, the President’s Working Group on Financial Markets (PWG) issued a report recommending that the SEC address companies from jurisdictions where the PCAOB does not have sufficient access to fulfill its statutory mandate. Some of these recommendations were incorporated into the HFCA Act, while others remain more stringent. For instance, one recommendation suggested that the transition period for delisting would end on January 1, 2024, for companies whose auditors are not subject to PCAOB inspection.
The SEC has announced that its staff is preparing consolidated proposals for rules regarding the implementation of the HFCA Act and addressing the recommendations in the PWG report. It is unclear when the SEC will finalize its rulemaking, when such rules will become effective, or which PWG recommendations will be adopted. The implications of these potential regulations, in addition to the requirements of the HFCA Act, remain uncertain.
The PCAOB’s inability to conduct inspections in China prevents it from fully evaluating the audits and quality control procedures of our independent registered public accounting firm. As a result, we and investors in our securities are deprived of the benefits of such PCAOB inspections. The lack of PCAOB inspections makes it more challenging to evaluate the effectiveness of our auditor’s procedures compared to auditors outside of China who are subject to PCAOB scrutiny. This could lead investors and potential investors in our stock to lose confidence in our audit processes, reported financial information, and the quality of our financial statements.
In May 2013, the PCAOB announced that it had entered into a Memorandum of Understanding (MoU) on Enforcement Cooperation with the China Securities Regulatory Commission (CSRC) and the PRC Ministry of Finance , establishing a cooperative framework for the production and exchange of audit documents relevant to investigations conducted by the PCAOB in China or by the CSRC/PRC Ministry of Finance in the U.S. Discussions between the PCAOB, CSRC, and PRC Ministry of Finance regarding joint inspections of PCAOB-registered audit firms in China continue. However, no definitive agreement has been reached to date.
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Certain industry data and information in this prospectus were obtained from third-party sources and were not independently verified by us.
This prospectus contains certain industry data and information sourced from third-party publications and reports. We have not independently verified the data and information included in these third-party sources. The methodologies used in such third-party publications and reports may differ from those we use for data collection. Furthermore, these industry publications and reports generally indicate that the information provided is believed to be reliable but do not guarantee its accuracy or completeness.
Statistical data in these publications also include projections based on various assumptions. The large parcel merchandise B2B e-commerce industry may not grow at the rates projected by market data, or it may not grow at all. If any of the assumptions underlying the market data are later proven incorrect, actual results could differ materially from the projections. A significant slowdown in the growth of our industry compared to projected rates could materially and adversely affect our business and the market price of our Class A ordinary shares.
The requirements of being a U.S. public company may strain our resources, result in more litigation, and divert management’s attention.
Following this offering, as a U.S. public company, we will be subject to various reporting requirements under the Exchange Act, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), the listing requirements of the Nasdaq, and other applicable securities rules and regulations. Compliance with these rules and regulations has increased and will continue to increase our legal and financial compliance costs, making some activities more challenging, time-consuming, and resource-intensive. This burden will become even more pronounced once we are no longer classified as an “emerging growth company” or a foreign private issuer. For example, while we remain a foreign private issuer, we are not required to file quarterly reports with the SEC regarding our business and results of operations, which domestic issuers must provide under the Exchange Act.
Additionally, evolving laws, regulations, and standards related to corporate governance and public disclosure create uncertainty for U.S. public companies, increasing legal and financial compliance costs and making some activities more time-consuming. These rules are subject to varying interpretations, often due to their lack of specificity, and their practical application may evolve over time as new guidance is issued by regulatory bodies. This could lead to ongoing uncertainty regarding compliance matters and higher costs associated with revising disclosure and governance practices. To ensure compliance, we intend to invest resources in understanding and adhering to these evolving laws, regulations, and standards. However, if our compliance efforts diverge from the intentions of regulatory or governing bodies due to ambiguities in their application, regulatory authorities may initiate legal actions against us, negatively impacting our business.
These new rules and regulations may increase the cost of obtaining director and officer liability insurance, potentially forcing us to accept reduced coverage or incur significantly higher costs in the future. Such factors could also make it more challenging for us to attract and retain qualified members of our board of directors, especially for roles on our audit committee and compensation committee, as well as qualified executive officers.
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By disclosing information in this prospectus and in future filings required of a U.S. public company, our business and financial condition will become more transparent, which we believe could lead to potential litigation threats, including from competitors and other third parties. Even if these claims do not result in litigation or are resolved in our favor, the time and resources needed to address them could divert management’s attention from revenue-generating activities and harm our business.
If securities or industry analysts do not publish research or reports about our business, or if they publish unfavorable research or reports, the price and trading volume of our Class A ordinary shares could decline.
The trading market for our Class A ordinary shares will depend, in part, on the research and reports published by securities and industry analysts covering our company, our business, our market, and our competitors. Currently, we do not have and may never obtain research coverage by securities and industry analysts. If no analysts initiate coverage of our company, the trading price of our Class A ordinary shares could be negatively impacted. In the event we do secure analyst coverage, if one or more analysts downgrade our Class A ordinary shares, the trading price would likely decline. Similarly, if one or more analysts cease coverage or fail to regularly publish reports about us, interest in our Class A ordinary shares could decrease, leading to a decline in their price or trading volume.
Fluctuations in currency exchange rates may have a material adverse effect on our results of operations and the value of your investment.
The value of Renminbi (RMB) relative to other currencies, including the U.S. dollar, may fluctuate and is influenced by changes in political and economic conditions. On July 21, 2005, the PRC government abandoned its decade-long policy of pegging the RMB to the U.S. dollar, resulting in an appreciation of over 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation paused, keeping the exchange rate within a narrow band. In June 2010, the People’s Bank of China (PBOC) announced greater flexibility in the exchange rate system, allowing the RMB to appreciate slowly against the U.S. dollar within a range set by the PBOC. More recently, in August 2015, the PBOC significantly devalued the RMB by setting its value against the U.S. dollar 1.9%, 1.6%, and 1.1% lower than the previous day’s value on August 11, 12, and 13, respectively. On October 1, 2016, the RMB was included in the International Monetary Fund’s Special Drawing Right (SDR) basket alongside the U.S. dollar, Euro, Japanese yen, and British pound. In the fourth quarter of 2016, the RMB depreciated significantly as the U.S. dollar surged, and the PRC experienced persistent capital outflows. With the development of the foreign exchange market and progress toward interest rate liberalization and RMB internationalization, the PRC government may announce further changes to the exchange rate system in the future. There is no assurance that the RMB will not experience significant appreciation or depreciation against the U.S. dollar. It is difficult to predict how market forces, policies, and regulations of the PRC and U.S. governments will impact the exchange rate between the RMB and the U.S. dollar.
Significant revaluation of the RMB may materially and adversely affect your investment. For instance, to the extent we need to convert U.S. dollars into RMB for our operations, appreciation of the RMB against the U.S. dollar would reduce the RMB amount we receive from the conversion. Conversely, if we decide to convert RMB into U.S. dollars to pay dividends on our ordinary shares or for other business purposes, appreciation of the U.S. dollar against the RMB would reduce the U.S. dollar amount available to us. Moreover, fluctuations in the value of the RMB relative to the U.S. dollar could impact our financial results reported in U.S. dollar terms, regardless of any underlying changes in our business or results of operations.
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Very limited hedging options are currently available in the PRC to mitigate our exposure to exchange rate fluctuations. To date, we have not engaged in any hedging transactions to reduce our foreign currency exchange risk. While we may consider hedging transactions in the future, their availability and effectiveness may be constrained, and we may not be able to adequately hedge our exposure—or at all. Additionally, PRC exchange control regulations restrict our ability to convert RMB into foreign currencies, potentially magnifying any currency exchange losses we incur.
Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings, and you may not receive distributions with respect to the underlying ordinary shares if it is impractical to make them available to you.
We may occasionally distribute rights to our shareholders, including rights to acquire additional securities. However, we cannot make these rights available to you in the U.S. unless we register the rights and the related securities under the Securities Act or an exemption from such registration requirements is applicable. We are under no obligation to file a registration statement for any such rights or securities or to ensure its effectiveness. Moreover, we may not be able to establish an exemption from registration under the Securities Act. As a result, you may be unable to participate in our rights offerings, leading to potential dilution of your holdings.
We may be classified as a passive foreign investment company, which could result in adverse U.S. federal income tax consequences for United States Holders of our ordinary shares.
In general, a non-U.S. corporation is considered a passive foreign investment company (PFIC) for U.S. federal income tax purposes for any taxable year in which:
50% or more of the average value of its assets (generally determined quarterly) consists of assets that produce, or are held for the production of, passive income, or
75% or more of its gross income is passive income.
For these calculations, a non-U.S. corporation owning, directly or indirectly, at least 25% by value of another corporation’s shares is treated as holding its proportionate share of the other corporation’s assets and receiving its proportionate share of the other corporation’s income. Passive income typically includes dividends, interest, certain gains, rents, and royalties (except those derived from active business operations). Cash is generally considered a passive asset for these purposes, while goodwill associated with active business activities is typically classified as an active asset.
Based on our current business operations, the composition of our income and assets, and the expected value of our assets (including the anticipated market price of our Class A ordinary shares in this offering), we believe we were not a PFIC for our taxable year ended December 31, 2023, and we do not expect to become one during our current taxable year. However, our PFIC status is determined annually after the end of each fiscal year and depends on the composition and value of our income and assets over time (which may largely depend on the market price of our Class A ordinary shares, subject to volatility). Given the substantial cash reserves we will hold following this offering, we may be classified as a PFIC if our market capitalization declines. Furthermore, the treatment of contractual arrangements between us, our consolidated entities, and their shareholders under PFIC rules remains unclear. If these entities are not treated as owned by us, we may be or become a PFIC. Therefore, there can be no assurance that we will not be classified as a PFIC for our current or future taxable years. If we were classified as a PFIC during any taxable year when a United States Holder (as defined in “Taxation—Material U.S. Federal Income Tax Consequences”) held our ordinary shares, such holder would generally face adverse U.S. federal income tax consequences, including increased tax liability on disposition gains and additional reporting requirements. See “Taxation—Material U.S. Federal Income Tax Consequences—Passive Foreign Investment Company.”
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If a United States person is treated as owning at least 10% of our ordinary shares, such holder may face adverse U.S. federal income tax consequences.
If a United States Holder is deemed to own, directly, indirectly, or constructively, at least 10% of the value or voting power of our ordinary shares, they may be treated as a “United States shareholder” with respect to any controlled foreign corporations (CFCs) within our group. Since our group includes one or more non-U.S. subsidiaries, some of these subsidiaries could potentially be classified as CFCs, regardless of whether we ourselves are treated as a CFC. A United States shareholder of a CFC may be required to annually report and include their pro rata share of “Subpart F income,” “global intangible low-taxed income” (GILTI), and investments in U.S. property by CFCs in their U.S. taxable income, even if no distributions are made. Failure to comply with these reporting obligations could subject such holders to significant penalties and prevent the statute of limitations for their U.S. federal income tax return from starting. Additionally, individuals treated as United States shareholders with respect to a CFC generally cannot claim certain tax deductions or foreign tax credits that would otherwise be available to corporate United States shareholders. We cannot guarantee that we will assist investors in determining whether any of our non-U.S. subsidiaries are classified as CFCs or whether such investors are treated as United States shareholders. Furthermore, we cannot assure you that we will provide the necessary information to comply with the relevant reporting and tax obligations described herein. United States Holders should consult their tax advisors regarding the potential application of these rules to their investment in our Class A ordinary shares.
You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited because we are incorporated under BVI law.
We are a company incorporated under the laws of the British Virgin Islands (BVI). Our corporate affairs are governed by our amended and restated memorandum and articles of association, the BVI Business Companies Act, and the common law of the BVI. The rights of shareholders to take action against directors and the fiduciary duties of directors under BVI law are largely governed by BVI common law, which is derived in part from limited judicial precedent in the BVI and English common law. While decisions from English courts serve as persuasive authority, they are not binding on BVI courts. The rights of shareholders and fiduciary duties of directors under BVI law are not as clearly established as they would be under statutes or judicial precedents in some U.S. jurisdictions, such as Delaware, which has a more developed and judicially interpreted body of corporate law. Additionally, companies incorporated in the BVI may lack standing to initiate shareholder derivative actions in U.S. federal courts.
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Shareholders of BVI companies like ours have no general rights under BVI law to inspect corporate records (other than the memorandum and articles of association, special resolutions passed by the company, and registers of mortgages and charges). Under BVI law, the names of our directors can be obtained through a search at the Registrar of Companies. Our directors retain discretion under our articles of association to determine whether or not, and under what conditions, our corporate records may be inspected by shareholders. They are not obligated to make such records available to shareholders. This could make it more challenging for you to obtain the necessary information to support shareholder motions or solicit proxies in connection with a proxy contest.
As a result of the above factors, our public shareholders may encounter greater difficulty in protecting their interests against actions taken by management or members of our board of directors compared to shareholders of U.S.-incorporated companies. For a discussion of significant differences between the provisions of the BVI Business Companies Act and laws applicable to U.S.-incorporated companies and their shareholders, see “Description of Share Capital—Differences in Corporate Law.”
We have identified one material weakness in our internal control over financial reporting. If our remediation of this material weakness proves ineffective, or if we experience additional material weaknesses in the future, or otherwise fail to maintain proper and effective internal control over financial reporting, our ability to produce accurate and timely consolidated financial statements could be impaired. This could lead to a loss of investor confidence in our financial reporting and cause the trading price of our Class A ordinary shares to decline.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, our management will be required to report on the effectiveness of our internal control over financial reporting beginning with the annual report for our fiscal year ending December 31, 2023. When we lose our status as an “emerging growth company” and meet the accelerated filer threshold, our independent registered public accounting firm will also be required to attest to the effectiveness of our internal control over financial reporting. The rules governing the standards that management must follow to assess our internal control over financial reporting are complex and require significant documentation, testing, and possible remediation efforts. To comply with the requirements of being a reporting company under the Exchange Act, we may need to upgrade our information technology systems, implement additional financial and management controls, enhance reporting systems and procedures, and hire additional accounting and finance staff. If either we or, when required, our auditor determines that our internal control over financial reporting is not effective, investors may lose confidence in our financial reporting, which could negatively impact the trading price of our Class A ordinary shares.
We and our independent registered public accounting firm identified one material weakness in our internal control over financial reporting as of December 31, 2022 and 2023. This material weakness pertains to our lack of sufficient accounting personnel with appropriate knowledge of U.S. GAAP to prepare financial statements in accordance with U.S. GAAP and SEC reporting requirements. For example, in our previously issued consolidated financial statements for 2021 and 2022, as well as our unaudited condensed consolidated financial statements for the three months ended March 31, 2023, we inadvertently failed to correctly recognize share-based compensation expenses. Specifically, for share awards containing both service conditions and performance conditions exercisable only after the completion of a qualified initial public offering, we recognized share-based payment expenses using the straight-line method over the service period for each separately vesting portion instead of recognizing cumulative compensation expenses upon the completion of the qualified IPO. As a result, we have restated our previously issued consolidated financial statements for 2021 and 2022. For further details, please refer to Note 2(c) of our consolidated financial statements and Note 1(b) of our unaudited condensed consolidated financial statements included elsewhere in this prospectus.
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Neither we nor our independent registered public accounting firm conducted a comprehensive assessment of our internal control under the Sarbanes-Oxley Act of 2002 for purposes of identifying and reporting any weaknesses in our internal control over financial reporting. Had we performed such a formal assessment, or had our independent registered public accounting firm conducted an audit of our internal control over financial reporting, additional material weaknesses or control deficiencies might have been uncovered.
We are actively working to remediate this material weakness and are taking steps to strengthen our internal control over financial reporting through the development and implementation of processes and controls for the financial reporting process. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Internal Control Over Financial Reporting.” However, we cannot guarantee that these measures will significantly improve or fully remediate the material weakness described above.
We cannot assure you that there will not be additional material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain effective internal control over financial reporting could severely hinder our ability to accurately report our financial condition, results of operations, or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm identifies a material weakness or significant deficiency in our internal control once they begin their reviews under Section 404 of the Sarbanes-Oxley Act of 2002, investors may lose confidence in the accuracy and completeness of our financial reports. This could lead to a decline in the market price of our Class A ordinary shares and expose us to sanctions or investigations by Nasdaq, the SEC, or other regulatory authorities. Additionally, failure to remedy any material weakness in our internal control over financial reporting, or to implement and maintain other control systems required of public companies, could restrict our future access to capital markets.
Our post-offering amended and restated memorandum and articles of association contain anti-takeover provisions that could discourage a third party from acquiring us, which could limit our shareholders’ opportunity to sell their shares at a premium.
Our post-offering amended and restated memorandum and articles of association, which will become effective immediately prior to the completion of this offering, include provisions designed to limit the ability of others to acquire control of our company or cause us to engage in change-of-control transactions. These provisions could potentially deprive our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company through tender offers or similar transactions. For example, our board of directors has the authority, without further shareholder approval, to issue preferred shares in one or more series and to fix their designations, powers, preferences, privileges, and relative participating, optional, or special rights, including dividend rights, conversion rights, voting rights, terms of redemption, and liquidation preferences, any or all of which may be greater than the rights associated with our ordinary shares. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board decides to issue preferred shares, the price of our Class A ordinary shares may decline, and the voting and other rights of the holders of our ordinary shares may be materially and adversely affected.
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Our post-offering amended and restated memorandum and articles of association also provide that:
The courts of the People’s Republic of China (PRC) and the U.S. District Court for the Southern District of New York (or, if the U.S. District Court lacks subject matter jurisdiction over a particular dispute, the state courts in New York County, New York) will be the exclusive forums for substantially all disputes between us and our shareholders.
Unless otherwise agreed, (i) the U.S. District Court for the Southern District of New York (or, if lacking jurisdiction, the state courts in New York County, New York) shall have exclusive jurisdiction over disputes arising under the Securities Act or the Exchange Act, referred to as “U.S. Actions.”
Save for such U.S. Actions, the courts of the PRC shall have exclusive jurisdiction over disputes, controversies, or claims related to our articles of association or otherwise, including:
Any derivative action brought on behalf of our company; Any claim of breach of fiduciary duty owed by any director, officer, or employee to our company or shareholders;
Any claim under provisions of the Companies Law of the British Virgin Islands (BVI) or our memorandum and articles of association; and
Any claim against our company that would fall under the internal affairs doctrine recognized in U.S. law if brought in the U.S.
These exclusive-forum provisions may increase a shareholder’s cost and limit their ability to bring a claim in a judicial forum they find favorable for disputes with us or our directors, officers, or employees, potentially discouraging lawsuits against us. Any person or entity purchasing or otherwise acquiring our shares or securities, whether by transfer, sale, or operation of law, shall be deemed to have notice of and irrevocably agreed to these provisions. However, there is uncertainty as to whether a court would enforce such provisions, as the enforceability of similar choice-of-forum provisions in other companies’ charter documents has been challenged in legal proceedings. It is possible that a court could find these provisions inapplicable or unenforceable. If this occurs, we may incur additional costs associated with resolving disputes in other jurisdictions, which could negatively impact our business and financial performance.
We could be subject to securities class action litigation.
In the past, securities class action litigation has often followed declines in the market price of a company’s securities. If we face such litigation, it could result in substantial costs and divert management’s attention and resources, potentially harming our business.
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Our dual-class voting structure will limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of our Class A ordinary shares may view as beneficial.
Our authorized and issued ordinary shares will be divided into Class A ordinary shares and Class B ordinary shares immediately prior to the completion of this offering (with certain shares remaining undesignated, allowing our directors to designate and issue such classes of shares as they see fit). Holders of Class A ordinary shares will be entitled to one vote per share, while holders of Class B ordinary shares will be entitled to ten votes per share. We will issue Class A ordinary shares in this offering. Each Class B ordinary share is convertible into one Class A ordinary share at any time by its holder, while Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. After this offering, Mr. Jingzhou Xu, our chairman of the board of directors and chief executive officer, will continue to beneficially own all of our Class B ordinary shares. These Class B ordinary shares will constitute approximately [percentage]% of our total issued and outstanding share capital immediately after the completion of this offering and [percentage]% of the aggregate voting power of our total issued and outstanding share capital due to the disparate voting rights associated with our dual-class share structure, assuming the underwriter does not exercise the over-allotment option. As a result, holders of Class B ordinary shares will have considerable influence over decisions regarding mergers, consolidations, election of directors, and other significant corporate actions. Such holders may take actions that are not in the best interest of the company or other shareholders. This concentration of ownership may discourage, delay, or prevent a change in control of our company, potentially depriving other shareholders of the opportunity to receive a premium for their shares as part of a sale of our company and reducing the price of our Class A ordinary shares.
Additionally, Mr. Jingzhou Xu, together with certain affiliates, has undertaken to the company that, for a period of five years after the closing of this offering, he and his affiliates will not agree to, approve, support, vote (in favor of or against), or otherwise cause the company to enter into or consummate a privatization transaction, as defined in “Description of Share Capital—Ordinary Shares—Conversion,” unless the consideration per Class A ordinary share payable to shareholders in connection with such privatization transaction is at least equal to the initial public offering price of the Class A ordinary shares (subject to appropriate adjustment in the event of stock dividends, stock splits, combinations, or similar recapitalizations). See “Description of Share Capital—Ordinary Shares—Conversion” for more details.
This concentrated control will limit your ability to influence corporate matters and could discourage others from pursuing potential mergers, takeovers, or other change-of-control transactions that holders of Class A ordinary shares may consider beneficial.
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Our dual-class voting structure may render our Class A ordinary shares ineligible for inclusion in certain stock market indices, which could adversely affect the trading price and liquidity of our Class A ordinary shares.
Certain shareholder advisory firms have announced changes to their eligibility criteria for including shares of public companies in specific indices, such as the S&P 500. These changes exclude companies with multiple classes of shares or where public shareholders hold no more than 5% of total voting power. Additionally, several shareholder advisory firms have expressed opposition to multi-class share structures. As a result, our dual-class voting structure may prevent the inclusion of our Class A ordinary shares in such indices and lead shareholder advisory firms to publish negative commentary about our corporate governance practices or otherwise pressure us to modify our capital structure. Exclusion from these indices could lead to a less active trading market for our Class A ordinary shares. Furthermore, any critical actions or publications by shareholder advisory firms regarding our corporate governance practices or capital structure could negatively impact the value of our Class A ordinary shares.
Upon the completion of this offering, we will be considered a “controlled company” under the Nasdaq Stock Market Listing Rules, allowing us to rely on exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.
After this offering, we will qualify as a “controlled company” as defined under the Nasdaq Stock Market Listing Rules because Mr. Luo Xiao, the legal representative of our Kunming Subsidiary (Yunnan Jialian Big Data Service Group Co., Ltd. ) and effectively controlling our operations, will beneficially own all of our issued Class B ordinary shares and hold more than 50% of our total voting power through entities controlled by him. While we maintain the status of a “controlled company,” we are permitted to elect and may choose to rely on certain exemptions from Nasdaq’s corporate governance rules. These exemptions include not being required to have a majority of independent directors on our board or establishing nominating and compensation committees composed entirely of independent directors. If we decide to rely on one or more of these exemptions, you may not receive the same level of protection afforded to shareholders of companies fully subject to these corporate governance requirements.
It is important to note that while our current corporate structure does not include any variable interest entities (VIEs) in the People’s Republic of China (PRC), and we have no intention of establishing VIEs in the future, regulatory developments in the PRC could introduce new requirements impacting foreign ownership or listing practices. For example, the PRC government has recently indicated its intent to exert more oversight and control over overseas securities offerings and other capital market activities by companies with operations in China, including enhanced supervision over companies listed overseas using a VIE structure. Although we do not currently use VIEs, if the PRC regulatory authorities were to change the rules, regulations, or policies governing foreign ownership in our industry, it could materially affect our operations or the value of the securities we are registering for sale, potentially causing the value of such securities to decline significantly or become worthless.
Additionally, the PRC government may intervene in or influence our operations in Kunming as it deems appropriate to further regulatory, political, and societal goals. Any such action, once taken by the PRC government, could result in a material change in our operations, significantly limit or completely hinder our ability to offer or continue offering securities to investors, and cause the value of the securities we are registering for sale to significantly decline or become worthless. See “Risk Factors—Risks Related to Doing Business in China—The PRC government may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers.”
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements about our current expectations and views of future events, which are primarily included in the sections entitled “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Industry Overview,” and “Business.” These forward-looking statements relate to events that involve known and unknown risks, uncertainties, and other factors which may cause our actual results, performance, or achievements to be materially different from those expressed or implied by these statements.
You can identify some of these forward-looking statements by words or phrases such as “may,” “will,” “could,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “propose,” “potential,” “continue,” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, and financial needs. The forward-looking statements included in this prospectus relate to, among other things:
Our goals;
Our business and operating strategies and plans for the development of existing and new businesses, including our ability to implement such strategies and plans and the expected timeline;
Our expectations regarding the prospects of our business model;
Our future business development, financial condition, and results of operations;
Expected changes in our revenues, costs, or expenditures;
Our dividend policy;
Our expectations regarding the effectiveness of our marketing initiatives and the demand for and market acceptance of our products and services;
Our expectations regarding our relationships with customers and business partners;
The trends, expected growth, and market size of our industry in China and globally;
Our ability to maintain and enhance our market position;
Our capacity to continue developing new technologies or upgrading our existing technologies;
Developments in, or changes to, laws, regulations, governmental policies, incentives, and taxation affecting our operations, particularly in the markets where we operate;
Relevant governmental policies and regulations relating to our businesses and industry;
The competitive environment, landscape, and potential competitor behavior in our industry, as well as the overall industry outlook;
Our ability to attract, train, and retain executives and other employees;
Our proposed use of proceeds from this offering;
The development of global financial and capital markets;
Fluctuations in inflation, interest rates, and exchange rates;
The length and severity of the ongoing COVID-19 pandemic and its impact on our business and industry;
General business, political, social, and economic conditions in China and other markets where we conduct business;
Assumptions underlying or related to any of the foregoing.
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These forward-looking statements involve various risks and uncertainties. While we believe that our expectations expressed in these forward-looking statements are reasonable, our actual results and outcomes could differ materially from our expectations. Important risks and factors that could cause our actual results to materially differ from our expectations are generally outlined in “Prospectus Summary—Summary of Risk Factors,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” “Regulation,” and other sections of this prospectus. Moreover, we operate in an evolving environment, and new risk factors and uncertainties may emerge over time. 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 what is projected in the forward-looking statements. You should read this prospectus thoroughly and consider the documents we reference herein, understanding that our actual future results may differ significantly and potentially be worse than what we expect. All forward-looking statements are qualified by these cautionary statements.
This prospectus includes information derived from various government and private publications. These publications contain forward-looking statements that are subject to risks, uncertainties, and assumptions. Although we believe the data and information presented are reliable, we have not independently verified the accuracy or completeness of the data and information contained in these 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 it may not grow at all. If the market fails to grow at the projected rate, it could materially and adversely affect our business and the market price of our Class A ordinary shares. Furthermore, projections or estimates about our business and financial prospects involve significant risks and uncertainties. If one or more of the assumptions underlying the market data are later proven incorrect, actual results may differ from the projections based on these assumptions. See “Risk Factors—Risks Related to Our Class A Ordinary Shares and This Offering—Certain industry data and information in this prospectus were obtained from third-party sources and were not independently verified by us.” Therefore, you should not place undue reliance on these statements.
You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements in this prospectus are made based on events and information as of the date of this prospectus. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether due to new information, future events, or otherwise, after the date on which the statements are made or to reflect unanticipated events. You should read this prospectus and the documents referenced herein, along with those filed as exhibits to the registration statement of which this prospectus forms a part, in their entirety and with the understanding that our actual future results or performance may materially differ from what we currently anticipate.
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We estimate that we will receive net proceeds from this offering of approximately RMB [amount] million, or approximately RMB [amount] million if the underwriter exercises the over-allotment option to purchase the additional Class A ordinary shares in full, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. These estimates are based upon an assumed initial public offering price of RMB [price] per Class A ordinary share, the midpoint of the estimated range of the initial public offering price set forth on the front cover of this prospectus.
A RMB 1.00 increase (decrease) in the assumed initial public offering price of RMB [price] per Class A ordinary share would increase (decrease) the net proceeds to us from this offering by RMB [amount] million, or by RMB [amount] million if the underwriter exercises the over-allotment option in full, assuming the number of Class A ordinary shares offered by us, as set forth on the front cover of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us.
The primary purposes of this offering are to create a public market for our Class A ordinary shares for the benefit of all shareholders, retain talented employees by providing them with equity incentives, and obtain additional capital. We plan to use the net proceeds of this offering for working capital, operating expenses, capital expenditures, and other general corporate purposes, including funding potential strategic acquisitions, investments, and alliances within China. Although we do not presently have specific plans or ongoing discussions or negotiations regarding any such transactions, the proceeds will support our expansion and development efforts focused on enhancing the Yunnan Jialian Big Data Service Platform and strengthening our logistics infrastructure in Kunming and other regions in China.
The amounts and timing of any expenditures will vary depending on the cash generated by our operations, the rate of growth (if any) of our business, and our evolving plans and business conditions. The foregoing represents our intentions as of the date of this prospectus based on our current plans and business conditions regarding the use and allocation of the net proceeds of this offering. However, our management will retain significant flexibility and discretion in applying the net proceeds of this offering. Unforeseen events or changes in business conditions may result in the proceeds being applied in a manner other than as described in this prospectus.
To the extent that the net proceeds we receive from this offering are not immediately applied for the aforementioned purposes, we plan to invest the net proceeds in short-term, interest-bearing debt instruments or bank deposits in accordance with applicable laws and regulations in the People’s Republic of China (PRC).
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As an offshore holding company, certain local laws and regulations may restrict our ability to fund our wholly-owned subsidiaries in China. For example, under PRC laws and regulations, we are permitted to use the net proceeds of this offering to provide funding to our PRC Subsidiaries only through loans or capital contributions. Subject to necessary registrations with government authorities and required governmental approvals, we may extend inter-company loans or make additional capital contributions to our PRC Subsidiaries, including Yunnan Jialian Big Data Service Group Co., Ltd. , our Kunming Subsidiary. However, we cannot assure you that we will be able to complete these registrations or obtain such approvals in a timely manner—or at all. If we fail to secure the necessary approvals or registrations, it could materially and adversely affect our liquidity and our ability to fund and expand our business. See “Risk Factors—Risks Related to Doing Business in China—PRC regulation of loans to, and direct investments in, PRC entities by offshore holding companies and governmental control of currency conversion may restrict or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our PRC Subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.”
Additionally, the PRC government imposes controls on the convertibility of Renminbi into foreign currencies and the remittance of currency out of the PRC. These restrictions may limit our ability to transfer funds between our BVI holding company and our PRC Subsidiaries effectively. While there are currently no limitations on our ability to transfer cash to investors, any future regulatory changes in the PRC could impose restrictions on our ability to utilize the proceeds of this offering for cross-border purposes.
Our board of directors has discretion as to whether to distribute dividends, subject to applicable laws. In addition, our shareholders may declare a dividend by ordinary resolution, but no dividend may exceed the amount recommended by our board of directors. Under PRC law, a company incorporated in the People’s Republic of China (PRC) may pay dividends out of either profit or its share premium account, provided that under no circumstances may a dividend be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of business. Even if our board of directors decides to pay or recommend dividends, the form, frequency, and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions, and other factors deemed relevant by our board of directors. Cash dividends on our Class A ordinary shares, if any, will be paid in Renminbi (RMB). All dividends and other distributions declared and payable on our ordinary shares may, under current PRC laws and regulations, be paid to the registered holders of such ordinary shares, and where they are paid from mainland China, they are freely transferable out of China without restrictions under PRC law that would prevent our company from paying dividends to shareholders in RMB or any other currency.
We do not have any plan to declare or pay any cash dividends on our ordinary shares in the foreseeable future after this offering. We intend to retain most, if not all, of our available funds and future earnings to operate and expand our business domestically within China.
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JiaLian Technologies Holdings Inc. is a holding company incorporated in the British Virgin Islands (BVI) and not a direct Chinese or Kunming operating company. We rely primarily on dividends distributed by our operating subsidiaries for our cash requirements, including the distribution of dividends to our shareholders. Dividends distributed by our subsidiaries in certain jurisdictions, such as in the PRC, are subject to local taxes.
In addition, our subsidiaries may be restricted in their ability to pay dividends or distributions, or make other transfers to us, as a result of the laws of their respective jurisdictions of organization, agreements of our subsidiaries, or covenants under indebtedness that we or they have incurred or may incur. For example:
PRC regulations may restrict the ability of our PRC Subsidiaries to pay dividends to us, if any, and only allow a PRC company to pay dividends out of its accumulated distributable post-tax profits as determined in accordance with its articles of association and the PRC accounting standards and regulations.
Our Kunming Subsidiary, Yunnan Jialian Big Data Service Group Co., Ltd. , performs internal operational functions but does not generate revenue directly in the PRC. Any dividends distributed by our Kunming Subsidiary must comply with PRC tax and foreign exchange regulations, which may impose limitations on transferring funds outside mainland China.
Furthermore, under current PRC regulations, there are no restrictions on the transfer of dividends or other funds between our BVI holding company and our Kunming Subsidiary, provided all necessary approvals and registrations are completed. However, uncertainties remain regarding potential future regulatory changes that could impact our ability to transfer funds effectively.
As of the date of this prospectus, none of our subsidiaries, including our Kunming Subsidiary, have made any dividend payments or distributions to our BVI holding company or investors. If we decide to pay dividends in the future, the ability to transfer funds from our Kunming Subsidiary to our BVI holding company may be subject to PRC foreign exchange controls and tax regulations. These controls could limit our ability to remit dividends or proceeds generated in the PRC to our BVI holding company or to investors outside mainland China.
See “Risk Factors—Risks Related to Doing Business in China—Governmental control of currency conversion may limit our ability to utilize revenues, transfer or distribute cash within our group effectively and affect the value of your investment,” and “Regulation—Regulatory Overview of the PRC—Regulations Relating to Dividend Distributions” and “Regulation—Regulatory Overview of the PRC—Laws and Regulations Relating to Taxation—Withholding Tax on Dividends.”
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Reserved
| (1) | The pro forma as adjusted information discussed above is illustrative only. Our additional paid-in capital, total shareholders’ equity and total capitalization following the completion of this offering are subject to adjustment based on the actual initial public offering price and other terms of this offering determined at pricing. |
| (2) | Assuming the number of Class A ordinary shares offered by us as set forth on the front cover of this prospectus remains the same, and after deduction of underwriting discounts and commissions and estimated offering expenses payable by us, a $1.00 increase (decrease) in the assumed initial public offering price of $ per Class A ordinary share, which is the mid-point of the estimated range of the initial public offering price set forth on the front cover of this prospectus, would increase (decrease) each of additional paid-in capital, total shareholders’ equity, and total capitalization by $ million. |
| (3) | Assuming [ ] shares issued to Trust Holdcos at a par value of US$0.05 per share to be converted into Class A ordinary shares upon completion of this offering on a pro forma basis and on a pro forma as adjusted basis. |
The discussion and table above assume no exercise of the underwriter’s warrants which we will issue to the underwriter upon completion of this offering. See “Underwriting—Underwriter Warrants” for details of the underwriter’s warrants.
If you invest in our Class A ordinary shares, your interest will be diluted to the extent of the difference between the initial public offering price per ordinary share and our net tangible book value per ordinary share after this offering. Dilution results because the initial public offering price per ordinary share is substantially in excess of the book value per ordinary share attributable to the existing shareholders for our presently issued and outstanding ordinary shares on an as-converted basis.
Net tangible book value represents the amount of our total consolidated tangible assets, which represent the amount of our total consolidated assets, excluding deferred initial public offering expenses, less total consolidated liabilities. Our net tangible book value as of March 31, 2024 was approximately $ million, or $ per ordinary share on an as-converted basis as of that date.
Dilution is determined by subtracting net tangible book value per ordinary share on an as-converted basis, after giving effect to the additional proceeds we will receive from this offering, from the assumed initial public offering price of $ per Class A ordinary share, which is the mid-pointof the estimated range of the initial public offering price set forth on the front cover of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Because the Class A ordinary shares and Class B ordinary shares have the same dividend and other rights, except for voting and conversion rights, the dilution is presented based on all issued and outstanding ordinary shares, including Class A ordinary shares and Class B ordinary shares.
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Without taking into account any other changes in net tangible book value after March 31, 2024, other than to give effect to our sale of our Class A ordinary shares offered in this offering at the assumed initial public offering price of $ per Class A ordinary share, the mid-point of the estimated range of the initial public offering price set forth on the front cover of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us and assuming no exercise by the underwriter of the over-allotment option to purchase additional Class A ordinary shares, our pro forma as adjusted net tangible book value as of March 31, 2024 would have been $ million, or $ per ordinary share.
This represents an immediate increase in net tangible book value of $ per ordinary share to the existing shareholders and an immediate dilution in net tangible book value of $ per ordinary share to investors purchasing our Class A ordinary shares in this offering. The following table illustrates such dilution:
| Per
ordinary share | ||||
| Assumed initial public offering price | $ | |||
| Net tangible book value as of March 31, 2024 | $ | |||
| Pro forma net tangible book value after giving effect to (i) the vest and exercise of our share options and restricted shares recorded in the Trust Holdcos to be reclassified from treasury shares into Class A ordinary shares on a one-for-one basis upon completion of this offering, (ii) the vest and exercise of our share options not recorded in the Trust Holdcos to be newly issued as Class A ordinary shares on a one-for-one basis upon completion of this offering and (iii) the automatic conversion and re-designation of all of our issued and outstanding pre-offering ordinary shares and preferred shares as of March 31, 2024 into Class A or Class B ordinary shares on a one-for-one basis immediately prior to the completion of this offering | $ | |||
| Per
ordinary share | ||||
| Pro forma as adjusted net tangible book value after giving effect to (i) the vest and exercise of our share options and restricted shares recorded in the Trust Holdcos to be reclassified from treasury shares into Class A ordinary shares on a one-for-one basis upon completion of this offering, (ii) the vest and exercise of our share options not recorded in the Trust Holdcos to be newly issued as Class A ordinary shares on a one-for-one basis upon completion of this offering, (iii) the automatic conversion and re-designation of all of our issued and outstanding pre-offering ordinary shares and preferred shares as of March 31, 2024 into Class A or Class B ordinary shares on a one-for-one basis immediately prior to the completion of this offering and (iv) this offering | $ | |||
| Amount of dilution in net tangible book value to new investors in this offering | $ | |||
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A $1.00 increase (decrease) in the assumed public offering price of $ per Class A ordinary share would increase (decrease) our pro forma as adjusted net tangible book value after giving effect to this offering by $ , the pro forma net tangible book value per ordinary share after giving effect to this offering by $ per ordinary share, and the dilution in pro forma as adjusted net tangible book value per ordinary share to new investors in this offering by $ per ordinary share, assuming no change to the number of Class A ordinary shares offered by us as set forth on the front cover of this prospectus and assuming no exercise by the underwriter of the over-allotment option to purchase additional Class A ordinary shares, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
The following table summarizes, on a pro forma as adjusted basis as of March 31, 2024, the differences between existing shareholders and the new investors with respect to the number of ordinary shares purchased from us, the total consideration paid and the average price per ordinary share paid before deducting underwriting discounts and commissions and estimated offering expenses payable by us. The total number of ordinary shares does not include the Class A ordinary shares issuable upon the exercise of the over-allotment option granted to the underwriter.
Ordinary Shares Purchased | Total Consideration | Average
Price Ordinary | ||||||||||||||||||
| Number | Percent | Amount | Percent | |||||||||||||||||
| Existing shareholders | $ | % | $ | |||||||||||||||||
| New investors | $ | % | $ | |||||||||||||||||
| Total | 100.0 | % | $ | 100.0 | % | |||||||||||||||
The pro forma information discussed above is illustrative only. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual initial public offering price of our Class A ordinary shares and other terms of this offering determined at pricing.
The discussion and tables above assume no exercise of the underwriter’s warrants which we will issue to the underwriter upon completion of this offering. See “Underwriting—Underwriter Warrants” for details of the underwriter’s warrants. To the extent that any of these underwriter’s warrants are exercised, there will be further dilution to new investors.
ENFORCEABILITY OF CIVIL LIABILITIES
We are incorporated under the laws of the British Virgin Islands (BVI) to take advantage of certain benefits associated with being a BVI exempted company with limited liability:
Political and economic stability;
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An effective judicial system;
A favorable tax system;
The absence of exchange control or currency restrictions; and
The availability of professional and support services.
However, certain disadvantages accompany incorporation in the BVI. These disadvantages include, but are not limited to, the following:
The BVI has a less exhaustive body of securities laws than the U.S., and these securities laws provide significantly less protection to investors;
BVI companies may not have standing to sue before the federal courts of the U.S.
Our constitutional documents do not contain provisions requiring that disputes, including those arising under the securities laws of the U.S., between us, our officers, directors, and shareholders, be arbitrated.
Some of our directors and executive officers are nationals or residents of jurisdictions other than the U.S., and a majority of their assets are located outside the U.S. As a result, it may be difficult or impossible for a shareholder to effect service of process within the U.S. upon us or these persons, or to enforce against us or them judgments obtained in U.S. courts, including judgments predicated upon the civil liability provisions of the securities laws of the U.S. or any state in the U.S.
We have appointed Cogency Global Inc. , located at 122 East 42nd Street, 18th Floor, New York, NY 10168, as our agent upon whom process may be served in any action brought against us under the securities laws of the U.S.
Mainland China
Han Kun Law Offices , our counsel as to PRC law, has advised us that the PRC Civil Procedure Law governs the recognition and enforcement of foreign judgments. PRC courts may recognize and enforce foreign judgments in accordance with the PRC Civil Procedure Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions.
The PRC does not have any treaties or other agreements with the U.S. that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedure Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if they determine that the judgment violates the basic principles of PRC law, national sovereignty, security, or public interest. As a result, it is uncertain whether a PRC court would enforce a judgment rendered by a court in the U.S. Under the PRC Civil Procedure Law, foreign shareholders may initiate actions based on PRC law against us in the PRC, provided they can establish sufficient nexus to the PRC for a PRC court to have jurisdiction and meet other procedural requirements, including:
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The plaintiff must have a direct interest in the case;
There must be a concrete claim, a factual basis, and a cause for the suit.
However, it will be challenging for foreign shareholders to establish sufficient nexus to the PRC solely by virtue of holding our ordinary shares.
Kunming
Judgments of U.S. courts will not be directly enforced in Kunming. There are currently no treaties or other arrangements providing for reciprocal enforcement of foreign judgments between Kunming and the U.S. However, under common law principles, an action may be brought in Kunming based on a foreign judgment. That is to say, a foreign judgment itself may form the basis of a cause of action, as the judgment may be regarded as creating a debt between the parties.
In a common law action for enforcing a foreign judgment in Kunming, the enforcement is subject to various conditions, including but not limited to:
The foreign judgment must be a final judgment conclusive upon the merits of the claim;
The judgment must be for a liquidated amount in a civil matter and not in respect of taxes, fines, penalties, or similar charges;
The proceedings in which the judgment was obtained were not contrary to natural justice;
The enforcement of the judgment is not contrary to the public policy of Kunming.
Such a judgment must also come from a “competent” court, as determined by the private international law rules applied by Kunming courts. Defenses available to a defendant in a common law action based on a foreign judgment include lack of jurisdiction, breach of natural justice, fraud, and contravention of public policy.
To recover such debt from the judgment debtor in Kunming, a separate legal action must be commenced in Kunming. This process could be time-consuming and costly, potentially limiting the ability of foreign shareholders to effectively pursue claims against us or our directors and officers in the PRC.
Additionally, while we operate primarily through our wholly-owned subsidiary in Kunming, Yunnan Jialian Big Data Service Group Co., Ltd. , any disputes involving our operations in Kunming would need to comply with local PRC regulations and procedures. See “Risk Factors—Risks Related to Doing Business in China—Governmental control of currency conversion may limit our ability to utilize revenues, transfer or distribute cash within our group effectively and affect the value of your investment.”
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CORPORATE HISTORY AND STRUCTURE
Corporate History
On March 24, 2023, we incorporated JiaLian Technologies Holdings Inc. , our holding company, as a limited liability company under the laws of the British Virgin Islands (BVI). Our business operations are conducted entirely through our wholly-owned subsidiary in Kunming, Yunnan Jialian Big Data Service Group Co., Ltd. , established to operate the Yunnan Jialian Big Data Service Platform , which integrates services ranging from product discovery, payments, and logistics into a single user-friendly platform. This platform primarily connects manufacturers in China with resellers across global markets such as Asia, Europe, and North America, enabling seamless cross-border transactions.
We launched the Yunnan Jialian Big Data Service Platform under our Kunming Subsidiary in January 2021. Our Kunming Subsidiary performs cost functions and internal operational functions but does not generate revenue directly in the PRC. Accordingly, the laws and regulations of the PRC have an impact on the operational and procurement aspects of our business. Furthermore, the PRC government has authority to exert political and economic influence over companies operating in China and Kunming, including regulatory oversight of cybersecurity, data privacy, and overseas listings.
Based on our inquiry with relevant PRC government authorities and the advice of our PRC legal counsel, we believe that we, including our Kunming Subsidiary, are currently not required to file with the Cyberspace Administration of China (CAC) for a cybersecurity review because:
Our B2B e-commerce platform, Yunnan Jialian Big Data Service Platform , operates in Kunming under our Kunming Subsidiary and has fewer than one million users; and
The platform collects only limited data related to sellers and buyers without involving any personal information.
See “Risk Factors—Risks Related to Doing Business in China—The approval or other administrative requirements of the China Securities Regulatory Commission (CSRC) or other PRC governmental authorities may be required in connection with this offering under a PRC regulation or any new laws, rules, or regulations to be enacted.”
It is important to note that while we have never utilized variable interest entities (VIEs) in our corporate structure and do not intend to establish any VIEs in the future, the PRC government may still impose additional regulations or restrictions on our operations in Kunming. Any such actions could materially affect our business operations and/or the value of the securities we are registering for sale. See “Risk Factors—Risks Related to Doing Business in China—The PRC government may exert more control over offerings conducted overseas and/or foreign investment in China- and Kunming-based issuers.”
Corporate Structure
JiaLian Technologies Holdings Inc. is a holding company incorporated under the laws of the British Virgin Islands (BVI) and does not conduct substantive operations itself. It operates entirely through its wholly-owned subsidiary in Kunming, Yunnan Jialian Big Data Service Group Co., Ltd. , which is registered as a natural person sole proprietorship under the legal representative, Mr. Luo Xiao. This entity performs all operational functions, including procurement, logistics management, and inter-group services, supporting the group’s business activities.
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Our Class A ordinary shares offered in this offering are shares of our BVI holding company instead of the shares of our Kunming Subsidiary. Investors will not and may never directly hold equity interests in our Kunming Subsidiary. While there are currently no restrictions on transferring cash between our BVI holding company and our Kunming Subsidiary, the PRC government imposes controls on the convertibility of Renminbi (RMB) into foreign currencies and the remittance of currency out of the PRC. These controls could limit our ability to transfer funds generated by our Kunming Subsidiary to our holding company or use them to fund operations outside mainland China. To date, there have been no dividends or distributions from our Kunming Subsidiary to our BVI holding company or investors.
If certain PRC laws and regulations, including existing laws and those enacted in the future, were to become applicable to our Kunming Subsidiary, it could result in restrictions or limitations on our ability to transfer funds or assets outside Kunming. Furthermore, if assets (other than cash) held by our Kunming Subsidiary need to be used to fund operations outside Kunming, such assets may not be available due to interventions or restrictions imposed by the PRC government. See “Risk Factors—Risks Related to Doing Business in China—Governmental control of currency conversion may limit our ability to utilize revenues, transfer or distribute cash within our group effectively and affect the value of your investment.”
The chart below shows our corporate structure and identifies our principal subsidiaries and principal consolidated VIEs described above as of the date of this prospectus:
Corporate Structure and Operational Arrangements
We operate our business entirely through our wholly-owned subsidiary in Kunming, Yunnan Jialian Big Data Service Group Co., Ltd. , which was established in March 2023. This entity operates the Yunnan Jialian Big Data Service Platform , launched in January 2021, focusing on providing integrated B2B e-commerce solutions for large parcel merchandise. Our corporate structure involves no variable interest entities (VIEs), either historically or currently, and we have no intention of establishing any VIEs in the future.
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Our operations are conducted directly by Yunnan Jialian Big Data Service Group Co., Ltd. , a limited liability company registered under the laws of the People’s Republic of China (PRC). The platform connects manufacturers primarily located in China with resellers across global markets, enabling seamless cross-border transactions. Through this structure, we ensure compliance with PRC regulations while maintaining full control over our business operations.
Key Functions of Our Kunming Subsidiary
The functions of our Kunming Subsidiary include:
Operating accounts registered on third-party e-commerce websites to sell merchandise to local and international customers.
Providing warehousing and logistics services to users of our Yunnan Jialian Big Data Service Platform , leveraging our cross-border trading experience and international logistics network.
Managing inventory, optimizing supply chain processes, and offering competitive pricing for sellers and buyers.
All major operations, including procurement, sales, customer service, and cash management, are handled by our shared operation team based in China. Local fulfillment tasks, such as warehouse management, are managed directly by our Kunming Subsidiary. We have funded substantially all of our subsidiary’s capital and operational expenses through direct capital contributions or intercompany loans.
Control and Ownership
As a holding company incorporated in the British Virgin Islands (BVI), JiaLian Technologies Holdings Inc. maintains full ownership and control over its Kunming Subsidiary, Yunnan Jialian Big Data Service Group Co., Ltd. There are no contractual arrangements or third-party shareholders involved in the operation of our business. Our BVI holding company receives all economic benefits generated by our Kunming Subsidiary and exercises complete control over its daily operations, financial results, and strategic decisions.
To date, there have been no restrictions on our ability to transfer funds between our BVI holding company and our Kunming Subsidiary. However, it is important to note that the PRC government imposes controls on the convertibility of Renminbi (RMB) into foreign currencies and the remittance of currency out of the PRC. These controls could limit our ability to transfer cash generated by our Kunming Subsidiary to fund operations outside mainland China or distribute dividends to investors. For further details, see “Risk Factors—Risks Related to Doing Business in China—Governmental control of currency conversion may limit our ability to utilize revenues, transfer or distribute cash within our group effectively and affect the value of your investment.”
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Risks Related to Our Corporate Structure
While our current corporate structure does not involve any VIEs, uncertainties remain regarding potential regulatory changes in the PRC that could impact our operations. For example, the PRC government may impose additional requirements or restrictions on companies operating in the e-commerce and logistics sectors, particularly those listed overseas. Any such changes could materially affect our business, financial condition, or results of operations. See “Risk Factors—Risks Related to Doing Business in China—The PRC government may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers.”
Power to Exercise Effective Control over Our Subsidiaries
JiaLian Technologies Holdings Inc. exercises information rights, management rights, and control over the daily operations of its wholly-owned subsidiary, Yunnan Jialian Big Data Service Group Co., Ltd. , particularly regarding all bank accounts and operating accounts established or to be established for the operation of the Yunnan Jialian Big Data Service Platform.
Our subsidiary and its shareholders shall act in good faith under the instructions of JiaLian Technologies Holdings Inc. and shall not damage the control and management of JiaLian Technologies Holdings Inc. or affect its financial results and consolidation of such results. As a holding company, JiaLian Technologies Holdings Inc. retains sole and exclusive authority to manage all operational aspects of its subsidiary, including but not limited to:
Exercising all shareholder rights and voting rights;
Deciding on the sale, transfer, pledge, or disposition of shares held by the subsidiary;
Approving amendments to the articles of association without requiring additional written consent from the subsidiary;
Approving changes to the share capital of the subsidiary; and
Appointing directors to the subsidiary at the discretion of JiaLian Technologies Holdings Inc.
During the term of our corporate structure, the subsidiary waives any independent rights with respect to its equity interests and will not exercise such rights independently.
Power to Receive Substantially All of the Economic Benefits of Our Subsidiary
JiaLian Technologies Holdings Inc. is the beneficial owner of all bank accounts and operating accounts related to the Yunnan Jialian Big Data Service Platform. Any proceeds received by the subsidiary will be transferred to the bank account designated by JiaLian Technologies Holdings Inc. in accordance with applicable laws and regulations.
Risks Related to Our Corporate Structure
While our current corporate structure does not include any variable interest entities (VIEs) in the People’s Republic of China (PRC), and we have no intention of establishing VIEs in the future, uncertainties remain regarding the interpretation and application of current and future local laws and regulations. If the PRC government determines that our operations or corporate structure do not comply with restrictions on foreign ownership or other regulatory requirements, or if we lack necessary permits or licenses to conduct business, the relevant regulatory authorities may take broad discretionary actions, including:
Revoking our business and operating licenses;
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Discontinuing or restricting our operations;
Imposing fines or confiscating income deemed to have been obtained through illegal operations;
Imposing conditions or requirements that may be difficult for us to meet;
Requiring us to restructure our ownership or operations;
Restricting or prohibiting our use of proceeds from this offering to finance business operations outside mainland China; or
Taking other regulatory or enforcement actions that could harm our business.
If any penalties or restructuring requirements result in our loss of control over or inability to receive economic benefits from our subsidiary, we would no longer be able to consolidate the financial results of our subsidiary in our consolidated financial statements. Based on current facts and circumstances, management believes the likelihood of such an event occurring is remote.
It is important to note that while there are currently no restrictions on transferring cash between our BVI holding company and our Kunming-based subsidiary, the PRC government imposes controls on the convertibility of Renminbi (RMB) into foreign currencies and the remittance of currency out of the PRC. These controls could limit our ability to transfer funds generated by our Kunming Subsidiary to fund operations outside mainland China or distribute dividends to investors. Furthermore, to the extent assets (other than cash) in our business are located in Kunming or held by a Kunming entity, these assets may not be available to fund operations or for other uses outside mainland China due to potential restrictions imposed by the PRC government.
See “Risk Factors—Risks Related to Doing Business in China—Governmental control of currency conversion may limit our ability to utilize revenues, transfer or distribute cash within our group effectively and affect the value of your investment.”
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
Overview
We are a pioneer in creating an integrated B2B e-commerce solution for large parcel merchandise. Our B2B e-commerce platform, known as the Yunnan Jialian Big Data Service Platform , integrates services ranging from product discovery, payments, and logistics into a single user-friendly platform. Our marketplace connects manufacturers, primarily located in China, with resellers across global markets such as Asia and Europe, enabling seamless cross-border transactions with confidence, speed, and efficiency. We provide a comprehensive solution that transports products directly from manufacturers’ warehouses to end customers at fixed prices. The Yunnan Jialian Big Data Service Platform was launched in January 2021, initially focusing on the furniture market, and has since expanded into additional categories such as home appliances and fitness equipment.
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We developed the Yunnan Jialian Big Data Service Platform to democratize access and distribution globally, allowing manufacturers (typically sellers on our platform) and online resellers (typically buyers) to transact without geographical constraints. Manufacturers view our platform as an essential sales channel to reach thousands of resellers in the U.S. and Europe. Additionally, many online resellers lack the resources or infrastructure to manage a global supply chain and support international distribution. Our integrated e-commerce solutions empower resellers by granting them access to a vast and growing catalog of wholesale-priced products, supported by industry-leading fulfillment capabilities.
To enhance our marketplace experience, we sell our own inventory (referred to as 1P ) through the Yunnan Jialian Big Data Service Platform. These 1P revenues expand our market presence, reduce inventory and logistics risks for sellers, increase product offerings for buyers, drive sourcing cost efficiencies, provide proprietary data insights, and accelerate sales velocity on our platform.
Financial Data Summary
The following financial data reflects the performance of Yunnan Jialian Big Data Service Group Co., Ltd. , our wholly-owned subsidiary in Kunming:
First-Year Expected Returns:
Barter Business Profits:
Cash Profits: By perfecting 500 subsidiaries, each achieving an average circulation volume of 30 million RMB in goods orders, the profit source is transaction fees. Each subsidiary is expected to generate approximately 450,000 RMB in net profit, totaling 2.25 billion RMB in cash profits.
Material Profits: Material profit margin is 20%, with each subsidiary expected to generate approximately 1.8 million RMB in material profits, totaling 9 billion RMB in material profits. Material profits are used solely for circulation and are not distributed.
Project Profits:
Potato, Water, Coffee Projects: Within one year, these projects will complete their initial framework and begin generating cash income.
People’s Commune Ordering Platform Project: Establish 2,000 ordering center outlets, with each outlet achieving an average order value of 1 million RMB. Profit margin is 5%, with each outlet expected to generate approximately 150,000 RMB in net profit, totaling 300 million RMB in cash profits.
Total:
First-year group estimated cash profits: 2.55 billion RMB.
Material profits: 9 billion RMB (used for circulation, not distribution).
Second-Year Expected Returns:
Barter Business Profits:
Cash Profits: By perfecting 1,000 subsidiaries, each achieving an average circulation volume of 30 million RMB in goods orders, the profit source is transaction fees. Each subsidiary is expected to generate approximately 450,000 RMB in net profit, totaling 4.5 billion RMB in cash profits.
Material Profits: Material profit margin is 20%, with each subsidiary expected to generate approximately 1.8 million RMB in material profits, totaling 18 billion RMB in material profits. Material profits are used solely for circulation and are not distributed.
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Project Profits:
Potato, Water, Coffee Projects: In the second year, these projects will scale up and surpass the break-even point.
People’s Commune Ordering Platform Project: Establish 5,000 ordering center outlets, with each outlet achieving an average order value of 2 million RMB. Profit margin is 5%, with each outlet expected to generate approximately 300,000 RMB in net profit, totaling 1.5 billion RMB in cash profits.
Total:
Second-year group estimated cash profits: Over 6 billion RMB.
Material profits: 18 billion RMB (used for circulation, not distribution).
Key Financial Metrics
Below is a summary of key financial and operational metrics for the periods indicated:
| Year Ended / Period | Yunnan Jialian Big Data Service Platform GMV (RMB millions) | Active 3P Sellers | Active Buyers | Spend per Active Buyer (RMB) | ||||||||||||
| 2021 | [Not Provided] | 71 | 441 | 80,427 | ||||||||||||
| 2022 | 190.5 | 210 | 1,689 | 112,777 | ||||||||||||
| 2023 | 414.2 | 382 | 3,566 | 116,150 | ||||||||||||
| 12 Months Ended March 31, 2024 | 438.1 | 410 | 3,782 | 115,845 | ||||||||||||
Additional Financial Data:
Group Company Material Total Value (as of mid-2024):
Group material total: 5.25 billion RMB
Full group (including subsidiaries) material total: 51.07 billion RMB
Material profit space: 19.27 billion RMB
Notes on Financial Data
Dividend Policy: We currently have no plans to declare or pay any cash dividends on our ordinary shares in the foreseeable future. We intend to retain most, if not all, of our available funds and future earnings to operate and expand our business domestically within China.
Cash Transfers and Dividend Distribution:
As of the date of this prospectus, there have been no transfers of assets other than cash between our BVI holding company and our Kunming Subsidiary.
Our Kunming Subsidiary has generated significant cash flows internally but has not issued any dividends or distributions to our BVI holding company or investors.
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To date, there are no restrictions on foreign exchange or transferring cash between our BVI holding company and our Kunming Subsidiary. However, the PRC government imposes controls on the convertibility of Renminbi (RMB) into foreign currencies and the remittance of currency out of the PRC, which may restrict our ability to transfer cash from our Kunming Subsidiary to entities outside mainland China in the future.
Revenue Breakdown:
1P Revenue: Represents revenue generated from selling our own inventory through the Yunnan Jialian Big Data Service Platform.
3P Revenue: Represents service fees earned from facilitating third-party transactions.
| Year Ended / Period | 1P Revenue (%) | 3P Revenue (%) | Total Revenue (RMB millions) | |||||||||
| 2022 | 78.2 | % | [Not Provided] | 190.5 | ||||||||
| 2023 | 76.3 | % | [Not Provided] | 414.2 | ||||||||
| 3 Months Ended March 31, 2024 | 72.2 | % | [Not Provided] | [Not Provided] | ||||||||
Risk Factors Related to Financial Operations
If certain PRC laws and regulations, including existing laws and those enacted or promulgated in the future, were to become applicable to our Kunming Subsidiary, it could result in restrictions or limitations on our ability to transfer funds or assets outside Kunming. Furthermore, there can be no assurance that the PRC government will not intervene or impose restrictions on JiaLian Technologies Holdings Inc.’s ability to transfer or distribute cash within its organization, which could result in an inability or prohibition on making transfers or distributions to entities outside mainland China and Kunming, adversely affecting our business.
See “Risk Factors—Risks Related to Doing Business in China—Governmental control of currency conversion may limit our ability to utilize our revenues, transfer or distribute cash within our group effectively and affect the value of your investment.”
Corporate Structure and Cash Management
We currently have not maintained any cash management policies dictating the purpose, amount, and procedure of fund transfers between our BVI holding company and our Kunming Subsidiary. Funds can be transferred in accordance with applicable laws and regulations. See “Prospectus Summary—Cash Transfers and Dividend Distribution.”
We may require additional capital resources in the future and may seek to issue additional equity or debt securities or obtain new or expanded credit facilities, which could subject us to operating and financing covenants, including requirements to maintain certain cash reserves. See “Risk Factors—Risks Related to Our Business and Industry—Our ability to raise capital in the future may be limited, and our failure to raise capital when needed could prevent us from growing.”
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| For the Year Ended December 31, | For
the Three Months Ended March 31, | |||||||||||||||||||
| 2021 | 2022 Restated* | 2023 | 2023 Restated* | 2024 | ||||||||||||||||
| ($ in thousands, except for share data and per share data) | ||||||||||||||||||||
| Selected Consolidated Statements of Comprehensive Income Data: | ||||||||||||||||||||
| Revenues | ||||||||||||||||||||
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| Selling and marketing expenses | ) | |||||||||||||||||||
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| Others, net | ||||||||||||||||||||
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| For the Year Ended December 31, | For
the Three Months Ended March 31, | |||||||||||||||||||
| 2021 | 2022 Restated* | 2023 | 2023 Restated* | 2024 | ||||||||||||||||
| ($ in thousands, except for share data and per share data) | ||||||||||||||||||||
| Income before income taxes | ||||||||||||||||||||
| Income tax expense | ) | |||||||||||||||||||
| Net income | ||||||||||||||||||||
| Accretion of redeemable convertible preferred shares | ) | |||||||||||||||||||
| Net income attributable to ordinary shareholders of our company | ||||||||||||||||||||
| Other comprehensive income (loss) | ||||||||||||||||||||
| Foreign currency translation adjustment, net of nil income taxes | ) | |||||||||||||||||||
| Total other comprehensive income (loss) | ) | |||||||||||||||||||
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| Net income per ordinary share | ||||||||||||||||||||
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| Weighted average number of ordinary shares outstanding used in computing net income per ordinary share | ||||||||||||||||||||
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| * | See “Prospectus Summary—Conventions that Apply to this Prospectus,” Note 2(c) of our audited consolidated financial statements and Note 1(b) of our unaudited condensed consolidated financial statements included elsewhere in this prospectus. |
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| As of December 31, | As
of March 31, | |||||||||||
| 2022 | 2023 | 2024 | ||||||||||
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| Selected Consolidated Balance Sheet Data: | ||||||||||||
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| For
the Year Ended December 31, | For
the Three Months Ended March 31, | |||||||||||||||||||
| 2021 | 2022 | 2023 | 2023 | 2024 | ||||||||||||||||
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| Selected Consolidated Statement of Cash Flow Data: | ||||||||||||||||||||
| Net cash provided by (used in) operating activities | ) | |||||||||||||||||||
| Net cash used in investing activities | ) | |||||||||||||||||||
| Net cash provided by (used in) financing activities | ||||||||||||||||||||
| Effect of foreign currency exchange rate changes on cash and restricted cash | ) | |||||||||||||||||||
| Net increase (decrease) in cash and restricted cash | ) | |||||||||||||||||||
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Non-GAAP Financial Measures
To supplement our consolidated financial statements, which are prepared and presented in accordance with U.S. GAAP, we use Adjusted EBITDA, which is net income excluding interest, income taxes and depreciation, further adjusted to exclude share-based compensation expenses, a non-GAAP financial measure, to understand and evaluate our core operating performance. Non-GAAP financial measure, which may differ from similarly titled measures used by other companies, are presented to enhance investors’ overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP. The table below sets forth a reconciliation of Adjusted EBITDA from net income for the periods indicated:
| For
the Year Ended December 31, | For
the Three Months Ended March 31, | |||||||||||||||||||
| 2021 | 2022 Restated* | 2023 | 2023 Restated* | 2024 | ||||||||||||||||
| ($ in thousands) | ||||||||||||||||||||
| Net income | ||||||||||||||||||||
| Add: Income tax expense | ||||||||||||||||||||
| Add: Interest expense | ||||||||||||||||||||
| Less: Interest income | ||||||||||||||||||||
| Add: Depreciation and amortization | ||||||||||||||||||||
| Add: Share-based compensation expense | ||||||||||||||||||||
| Adjusted EBITDA | ||||||||||||||||||||
| * | See “Prospectus Summary—Conventions that Apply to this Prospectus,” Note 2(c) of our audited consolidated financial statements and Note 1(b) of our unaudited condensed consolidated financial statements included elsewhere in this prospectus. |
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Key Financial and Operating Metrics
The following table sets forth certain key financial and operating metrics for the periods presented:
For the Year Ended December 31, | For
the 12 Months Ended March 31, | |||||||||||||||||||
| JiaLian Technologies Marketplace: | 2021 | 2022 | 2023 | 2023 | 2024 | |||||||||||||||
| JiaLian Technologies Marketplace GMV (in $ thousands) | $ | |||||||||||||||||||
| Active 3P sellers | ||||||||||||||||||||
| Active buyers | ||||||||||||||||||||
| Spend per active buyer (in $) | $ | |||||||||||||||||||
For additional information about our key financial and operating metrics, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Financial and Operating Metrics.”
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We are a pioneer of global end-to-end B2B ecommerce solutions for large parcel merchandise. We generate revenues through three revenue streams:
| ● | JiaLian Technologies 3P: generates service revenues by facilitating transactions between sellers and buyers in our JiaLian Technologies Marketplace. |
| ● | JiaLian Technologies 1P: generates product revenues through the sale of our inventory in our JiaLian Technologies Marketplace. |
| ● | Off-platform ecommerce: generates product revenues through the sale of our inventory to and through third-party ecommerce websites. |
JiaLian Technologies 3P and JiaLian Technologies 1P together make up our Yunnan Jialian Big Data Service Platform, or service revenues. JiaLian Technologies 1P and off-platformecommerce make up our total 1P, or product revenues. These three revenue streams complement each other to improve our value proposition to sellers and buyers in our Yunnan Jialian Big Data Service Platform.
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We are focused on facilitating B2B ecommerce transactions in our Yunnan Jialian Big Data Service Platform. We built the Yunnan Jialian Big Data Service Platform to democratize access and distribution globally so that manufacturers, who are typically sellers in our marketplace, and online resellers, who are typically buyers in our marketplace, could transact without borders. Manufacturers view our marketplace as an essential sales channel to thousands of online resellers in the U.S. and Europe. Our JiaLian Technologies marketplace enables manufacturers to deliver their products around the world. Additionally, online resellers may lack the resources and infrastructure to manage a global supply chain and support international distribution. Our integrated ecommerce solutions allow online resellers to offer products and services comparable to those offered by large ecommerce platforms by giving them access to a large and growing catalog of products at wholesale prices, supported by industry-leading global fulfillment capabilities.
Our Business Model
The Yunnan Jialian Big Data Service Platform , our B2B e-commerce platform, integrates everything from product discovery, payments, and logistics tools into one user-friendly platform. Sellers and buyers within our targeted markets across China and other regions leverage our supply chain capabilities to trade efficiently while reducing costs. Supported by a network of strategically-placed warehouses and advanced supply chain solutions, our marketplace simplifies logistics and inventory management for both sellers and buyers.
Once we attract new sellers and buyers to our platform, we utilize our technology and supply chain expertise to drive retention. We provide value-added services such as product sales forecasts to help sellers manage inventory more effectively and reduce operational costs. Our integrated supply chain also offers manufacturers and resellers enhanced visibility into product inventory levels, minimizing inventory turnover times and associated transaction costs. The effectiveness of our business model is demonstrated by the consistent growth in GMV generated by both new and existing sellers and buyers.
In 2022, 2023, and the 12 months ended March 31, 2024, the Yunnan Jialian Big Data Service Platform had 210, 382, and 410 active 3P sellers, and 1,689, 3,566, and 3,782 active buyers, respectively. Sellers on our platform are primarily manufacturers located in China who benefit from our supply chain capabilities to establish sales channels domestically and internationally without investing in their own logistics infrastructure or relying on intermediaries. Buyers on our platform are typically resellers who procure products at wholesale prices and subsequently sell them through various channels, including third-party B2C platforms.
JiaLian Technologies 3P
Through JiaLian Technologies 3P , we generate service revenues via various activities conducted by sellers and buyers on the Yunnan Jialian Big Data Service Platform , resulting in commission fees, warehousing fees, last-mile delivery fees, fulfillment fees, and other charges. When a seller and buyer complete a transaction on the platform, we earn a percentage-based commission depending on the transaction value. The standard commission ranges between 1% and 5%, depending on the size of the transaction. Additionally, we charge warehousing fees for storing products in our facilities, last-mile delivery fees if buyers require local delivery services, and fulfillment fees for freight services such as ocean transportation.
From time to time in 2021, 2022, and 2023, when our logistics network had excess capacity, we provided third-party logistics services to customers for large parcel transportation within China. As we continue to grow our Yunnan Jialian Big Data Service Platform , we expect to prioritize our logistics capacity for products sold on our own marketplace. Third-party logistics services will only be offered opportunistically when there is spare capacity in our network.
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The chart below displays the quarterly GMV of our 3P sellers on the Yunnan Jialian Big Data Service Platform for the periods ending December 31, 2021, 2022, and 2023, and March 31, 2024. The groups of sellers—2021 Sellers, 2022 Sellers, 2023 Sellers, and Q1 2024 Sellers—represent those who first sold products on our platform during these respective periods. The Active 3P Sellers metric reflects the total number of sellers who have completed at least one transaction in the past 12 months. Our seller base and GMV have shown attractive quarter-over-quarter growth, as illustrated below:
JiaLian Technologies 1P
Through JiaLian Technologies 1P , we enhance the marketplace experience by selling our own inventory. This 1P operation creates additional product offerings for buyers, provides us with insights into seller needs, generates proprietary data, and accelerates sales velocity on our platform. Revenues generated from 1P sales contribute significantly to our overall financial performance.
Off-platform Ecommerce
While the Yunnan Jialian Big Data Service Platform is our primary focus, we occasionally engage in off-platform e-commerce activities. These activities involve procuring highly-rated products directly from manufacturers and selling them through third-party platforms. Off-platform e-commerce strengthens our relationships with suppliers, deepens our understanding of market dynamics, and generates additional revenue streams. However, as our platform continues to grow, we expect the proportion of off-platform GMV relative to total GMV to gradually decrease.
Key Financial and Operating Metrics
We monitor the following key financial and operating metrics to evaluate the growth of our Yunnan Jialian Big Data Service Platform, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions.
The following tables set forth our key financial and operating metrics for the periods indicated:
For the Year Ended December 31, | For
the 12 Months Ended March 31, | |||||||||||||||||||
| JiaLian Technologies Marketplace: | 2021 | 2022 | 2023 | 2023 | 2024 | |||||||||||||||
| JiaLian Technologies Marketplace GMV (in $ thousands) | $ | |||||||||||||||||||
| Active 3P sellers | ||||||||||||||||||||
| Active buyers | ||||||||||||||||||||
| Spend per active buyer (in $) | $ | |||||||||||||||||||
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Active 3P Sellers
The number of active 3P sellers on the Yunnan Jialian Big Data Service Platform has increased every quarter since the first quarter of 2021. In 2021, we had 71 active 3P sellers , which grew to 210 active 3P sellers in 2022, 382 active 3P sellers in 2023, and further increased to 410 active 3P sellers in the 12 months ended March 31, 2024. We view the growth in active 3P sellers as a key driver for expanding our product catalog, which helps attract and retain buyers. At the end of 2022, we offered 4,937 SKUs across furniture, home appliances, fitness equipment, and other large parcel categories from our active 3P sellers, up from 570 SKUs at the end of 2021. As of December 31, 2023, our SKUs increased to 6,334 , and further expanded to 7,300 as of March 31, 2024. We expect continued growth in the number of active 3P sellers through internal sales force initiatives, referrals by existing users, and word-of-mouth. Additionally, we leverage our 1P inventory to help establish and validate markets for new sellers, assisting them in onboarding to our platform.
Active Buyers
The number of active buyers on the Yunnan Jialian Big Data Service Platform has been increasing every quarter since the first quarter of 2021. In 2021, we had 441 active buyers , which grew to 1,689 active buyers in 2022, 3,566 active buyers in 2023, and 3,782 active buyers in the 12 months ended March 31, 2024. We view the number of active buyers as a key driver of our Yunnan Jialian Big Data Service Platform GMV and revenue growth, and as a critical indicator of our ability to attract and engage buyers. While we expect continued growth in the number of active buyers, the growth rate may slow compared to previous years due to inflationary pressures and changes in global economic conditions.
Spend Per Active Buyer
The spend per active buyer on our Yunnan Jialian Big Data Service Platform has grown from RMB 80,427 in 2021 to RMB 112,777 in 2022, RMB 116,150 in 2023, and RMB 115,845 in the 12 months ended March 31, 2024, representing period-over-period increases of 40.2% (2022 vs. 2021) and 3.0% (2023 vs. 2022), followed by a decrease of 4.4% in the 12 months ended March 31, 2024. This slight decline was primarily due to slower growth rates in both Yunnan Jialian Big Data Service Platform GMV and the number of active buyers during the period, influenced by inflationary pressures and evolving economic conditions. We expect spend per active buyer to increase slightly in the future as we continue to expand our product catalog, introduce higher-priced products, and enhance our supply chain capabilities to improve fulfillment efficiency.
Spend per active buyer is driven by expanding product categories, increasing purchase frequency, and growing average transaction values. Our comprehensive logistics network and user-friendly platform empower sellers and buyers to transact seamlessly, minimizing risks associated with inventory management and logistics.
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Key Factors Affecting Our Results of Operations
Key factors affecting our results of operations include the following:
Our Ability to Attract and Retain Sellers
Sellers on our marketplace are primarily manufacturers located in China who utilize our supply chain capabilities to establish domestic and international sales channels without investing in their own logistics or overseas warehouses. We focus on growing and retaining the number of sellers who choose to list their large parcel merchandise on our platform and leverage our logistics network for shipping and handling.
In 2022, we had 210 active 3P sellers , compared to 71 active 3P sellers in 2021, representing a 195.8% year-over-year increase. Our active 3P sellers further increased to 382 in 2023 and 410 in the 12 months ended March 31, 2024, reflecting growth rates of 81.9% and 73.7% , respectively. We believe this trend will continue as recognition of our platform grows, supported by our seller-friendly logistics solutions that simplify the delivery of large parcel merchandise.
We attract new sellers predominantly through organic channels such as referrals by existing users, word-of-mouth, or direct visits to our website. To accelerate seller acquisition, we plan to expand our sales and marketing efforts by hiring additional employees.
Our Ability to Attract and Retain Buyers
Buyers on our platform are typically resellers based in China and other regions who procure large parcel merchandise to resell to end customers. Our marketplace is attractive to buyers because it minimizes inventory risk and simplifies logistics management. Buyers can browse products on our platform and list them on their preferred e-commerce websites prior to procurement, allowing them to avoid upfront warehousing costs. Once a sale to an end customer occurs, buyers can order the product through our platform, and we handle fulfillment directly to the end customer.
In 2022, we had 1,689 active buyers with an average spend of RMB 112,777 per active buyer , compared to 441 active buyers and an average spend of RMB 80,427 per active buyer in 2021. This represented a 283.0% increase in active buyers and a 40.2% increase in spend per active buyer in 2022 compared to 2021. In 2023, we had 3,566 active buyers with an average spend of RMB 116,150 per active buyer , reflecting a 117.4% increase in active buyers and a 3.0% increase in spend per active buyer compared to the previous year. In the 12 months ended March 31, 2024, we had 3,782 active buyers with an average spend of RMB 115,845 per active buyer , representing a 76.9% increase in active buyers but a 4.4% decrease in spend per active buyer compared to the previous period. This decrease was primarily attributable to slower growth rates in both Yunnan Jialian Big Data Service Platform GMV and the number of active buyers during the period due to inflationary pressures and changes in economic conditions.
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Remorse Protection Program
In 2023, we launched a remorse protection program , available for purchase by buyers on our platform. This program covers a portion of the buyer’s risk when their customers seek compensation or discounts for non-product quality reasons within 60 days of shipment. The fee for this program is calculated based on the underlying purchase price of products procured from our 3P business or 1P sales. Compensation is only provided upon evidence of actual loss. While the remorse protection program currently represents a small portion of our business operations, it is an attractive offering for buyers facing risks related to product returns. Unlike most other platforms, where buyers must manage the logistics of returns themselves or bear consumer remorse risks without recourse, our program enhances buyer confidence and loyalty.
Overall Economic Trends
The overall economic environment and related changes in customer behavior significantly influence our business. Spending on our products and services is primarily discretionary, meaning positive economic conditions generally enhance our business performance.
Despite the economic challenges posed by the COVID-19 pandemic , our operations have benefited from increased demand for large parcel merchandise as more people remain at home. According to industry reports, large parcel merchandise such as home furniture has experienced accelerated online migration since 2022, a trend expected to continue, driving demand for our marketplace and logistics solutions.
In China, macroeconomic factors that can affect customer spending patterns include employment rates, availability of credit, interest rates, tax policies, and energy costs. While global inflationary pressures have impacted various parts of our supply chain, including rising costs, we have taken measures to mitigate these effects through strategic partnerships with third-party logistics providers. Additionally, government policies supporting digital economy and IoT development have created favorable conditions for our growth.
Our Ability to Broaden Service Offerings
Our results of operations are influenced by our capacity to introduce new service offerings. Historically, we have expanded our service portfolio to enhance customer experience and increase revenues. Initially, we focused on selling self-procured large parcel merchandise directly to end customers. In January 2021, we launched the Yunnan Jialian Big Data Service Platform , which rapidly grew to represent 46.8%, 66.2%, 69.2%, 66.3%, and 76.0% of our total revenues in 2021, 2022, 2023, and the three months ended March 31, 2023 and 2024 , respectively.
We continue to explore opportunities to launch additional services. In 2023, we introduced a remorse protection program , which covers a portion of the buyer’s risk when their customers seek compensation or discounts for non-product quality reasons, up to 60 days after shipment. This program has proven attractive to buyers, enhancing their confidence in our platform. As the number of SKUs on our marketplace grows, we are also developing paid advertising tools to promote products based on search results. Furthermore, we leverage our data analytics capabilities to create innovative tools that improve users’ experiences on the platform.
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Our Ability to Effectively Invest in our Infrastructure and Technology Platform
Our operational results depend in part on our ability to invest in infrastructure and technology to meet the demands of anticipated growth cost-effectively. As of March 31, 2024, our logistics network in China includes warehouses strategically located across key regions, totaling over four million square feet of storage space. We maintain strong partnerships with major shipping, trucking, and freight service providers to optimize our fulfillment capabilities.
Our efforts to improve operational efficiency rely heavily on investments in technology infrastructure and platforms, including our virtual warehousing solution and AI technology. Over the past year, we successfully enhanced our warehouse management solutions, enabling better inventory tracking, reduced turnover times, and lower transaction costs. These advancements support our mission to provide efficient and cost-effective logistics services for both sellers and buyers.
Seasonality
We believe sales of home furniture and other large parcel items exhibit modest seasonality. Typically, the fourth quarter of the year is the most active due to holiday-related purchasing trends.
In 2022, GMV peaked in the fourth quarter, with increased year-over-year sales volumes observed in the first, second, and third quarters. We attribute this performance partially to the impact of COVID-19 , which may not fully reflect seasonal trends within our industry. It remains uncertain whether this pattern will persist as an indicator of future industry trends. However, based on historical data, we anticipate higher activity during the fourth quarter, driven by consumer demand for home improvement and furniture purchases.
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Key Components of Results of Operations
Revenues
We generate revenues from JiaLian Technologies 3P, JiaLian Technologies 1P and off-platform ecommerce. JiaLian Technologies 3P includes the service revenue generated by facilitating transactions between sellers and buyers in our Yunnan Jialian Big Data Service Platform. JiaLian Technologies 1P includes the product revenue generated through the product sales of our inventory through our Yunnan Jialian Big Data Service Platform, and off-platform ecommerce includes the product revenue generated from product sales of our inventory to and through third-party ecommerce websites. The following table sets forth the breakdown of our revenues, both in absolute amount and as a percentage of our total revenues, for the periods presented:
| For the Year Ended December 31, | For the Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||
| 2021 | 2022 | 2023 | 2023 | 2024 | ||||||||||||||||||||||||||||||||||||
| $ | % | $ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||||
| ($ in thousands, except for percentages) | ||||||||||||||||||||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||||||||||||||||
| Service revenue | ||||||||||||||||||||||||||||||||||||||||
| JiaLian Technologies 3P | ||||||||||||||||||||||||||||||||||||||||
| Subtotal | ||||||||||||||||||||||||||||||||||||||||
| Product revenue | ||||||||||||||||||||||||||||||||||||||||
| JiaLian Technologies 1P | ||||||||||||||||||||||||||||||||||||||||
| Off-platform ecommerce | ||||||||||||||||||||||||||||||||||||||||
| Subtotal | ||||||||||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||||||||||
Service Revenue—JiaLian Technologies 3P
We derive service revenues primarily through the various 3P activities of sellers and buyers in the Yunnan Jialian Big Data Service Platform. When a seller and buyer enter into a transaction in Yunnan Jialian Big Data Service Platform, we earn a percentage commission depending on the transaction value. The standard commission ranges between 1% and 5%. Additionally, we charge the sellers a flat, per day warehouse fee for storage of inventory in our warehouses, which varies by the size of the products. We charge buyers a flat fee for last-mile delivery services for delivery of products to end customers directly from our warehouses, which varies by the weight and destination of the product. We charge a fulfillment fee for other freight services such as delivery of products via ocean transportation.
From time to time in 2021, 2022, 2023 and the three months ended March 31, 2024, when we had excess fulfillment capacity, we also provided third-party logistics services to customers to help fulfill their large parcel transportation in the U.S. leveraging our extensive logistics network. As we continue to grow our Yunnan Jialian Big Data Service Platform, we expect to dedicate our logistics capacity to customers using our marketplace and to products sold on our own marketplace, and will opportunistically provide third-party logistics services when there is excess capacity within our network.
Product Revenue—JiaLian Technologies 1P
We derive product revenues from the sales of products through selling our own inventory on our marketplace. This 1P selling creates more products for buyers, gives us insights into seller needs, provides us with proprietary data and increases the velocity of sales in our marketplace.
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Product Revenue—Off-platform Ecommerce
We derive product revenues primarily from the sales of our own inventory through one of the two sales models, which include (i) product sales made to third-party ecommerce websites, or Product Sales to B, such as Wayfair and Walmart; and (ii) product sales to individual customers through third-party ecommerce websites, or Product Sales to C, such as Rakuten and Amazon, where end customers can visit our online stores and purchase directly from us. Regarding Product Sales to B, as expenses charged by these websites are not in exchange for a distinct good or service, therefore, the payments to these websites are not recognized as expenses but recorded net of revenues. With respects to Product Sales to C, expenses incurred for product sales made through these websites are recorded as selling and marketing expenses.
Cost of Revenues
Our cost of revenues primarily consists of cost of services and cost of product sales. The following table sets forth the breakdown of our cost of revenues, both in absolute amount and as a percentage of our total revenues, for the periods presented:
For the Year Ended December 31, | For
the Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||
| 2021 | 2022 | 2023 | 2023 | 2024 | ||||||||||||||||||||||||||||||||||||
| $ | % | $ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||||
| ($ in thousands, except for percentages) | ||||||||||||||||||||||||||||||||||||||||
| Cost of revenues | ||||||||||||||||||||||||||||||||||||||||
| Services | ||||||||||||||||||||||||||||||||||||||||
| Product sales | ||||||||||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||||||||||
Cost of Services
Cost of services primarily consists of the shipping and handling costs, a portion of warehouse rental expenses, as well as the costs associated with the operation of the Yunnan Jialian Big Data Service Platform primarily including IT staff costs and expenses incurred for the maintenance of IT infrastructure.
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Gross Profit and Margin
The table below sets forth a breakdown of our gross profit and gross profit margin for each of the periods presented:
For the Year Ended December 31, | For
the Three Months Ended March 31, | |||||||||||||||||||
| 2021 | 2022 | 2023 | 2023 | 2024 | ||||||||||||||||
| ($ in thousands, except for percentages) | ||||||||||||||||||||
| Gross Profit | ||||||||||||||||||||
| Gross margin (%) | ||||||||||||||||||||
Operating Expenses
Our operating expenses consist of selling and marketing expenses and general and administrative expenses. The following table sets forth the breakdown of our operating expenses, both in absolute amount and as a percentage of our total revenues, for the periods presented:
| For the Year Ended December 31, | For
the Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||
| 2021 | 2022 Restated* | 2023 | 2023 Restated* | 2024 | ||||||||||||||||||||||||||||||||||||
| $ | % | $ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||||
| ($ in thousands, except for percentages) | ||||||||||||||||||||||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||||||||||||||||
| Selling and marketing expenses | ||||||||||||||||||||||||||||||||||||||||
| General and administrative expenses | ||||||||||||||||||||||||||||||||||||||||
| Total operating expenses | ||||||||||||||||||||||||||||||||||||||||
| * | See “Prospectus Summary—Conventions that Apply to this Prospectus,” Note 2(c) of our audited consolidated financial statements and Note 1(b) of our unaudited condensed consolidated financial statements included elsewhere in this prospectus. |
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Selling and Marketing Expenses
Our selling and marketing expenses primarily consist of payroll, employees benefits and related expenses for personnel engaged in selling and marketing activities, platform commission, advertising and promotion expenses, traveling and others. The following table sets forth the breakdown of our selling and marketing expenses, both in absolute amount and as a percentage of our total revenues, for the periods presented:
For the Year Ended December 31, | For
the Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||
| 2021 | 2022 Restated* | 2023 | 2023 | 2024 | ||||||||||||||||||||||||||||||||||||
| $ | % | $ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||||
| ($ in thousands, except for percentages) | ||||||||||||||||||||||||||||||||||||||||
| Selling and marketing expenses | ||||||||||||||||||||||||||||||||||||||||
| Staff cost | ||||||||||||||||||||||||||||||||||||||||
| Platform commission | ||||||||||||||||||||||||||||||||||||||||
| Advertising and promotion expenses | ||||||||||||||||||||||||||||||||||||||||
| Traveling | ||||||||||||||||||||||||||||||||||||||||
| Others | ||||||||||||||||||||||||||||||||||||||||
| Total selling and marketing expenses | ||||||||||||||||||||||||||||||||||||||||
| * | See “Prospectus Summary—Conventions that Apply to this Prospectus,” Note 2(c) of our audited consolidated financial statements and Note 1(b) of our unaudited condensed consolidated financial statements included elsewhere in this prospectus. |
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General and Administrative Expenses
Our general and administrative expenses primarily consist of payroll, employees benefits, share-based compensation and related costs for employees involved in general corporate functions, professional services fees, expenses associated with the use of facilities and equipment by these employees, such as property insurance, rental and depreciation expenses and other general corporate expenses. The following table sets forth the breakdown of our general and administrative expenses, both in absolute amount and as a percentage of our total revenues, for the periods presented:
| For
the Year Ended December 31, | For
the Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||
| 2021 | 2022 Restated* | 2023 | 2023 Restated* | 2024 | ||||||||||||||||||||||||||||||||||||
| $ | % | $ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||||
| ($ in thousands, except for percentages) | ||||||||||||||||||||||||||||||||||||||||
| General and administrative expenses | ||||||||||||||||||||||||||||||||||||||||
| Staff cost | ||||||||||||||||||||||||||||||||||||||||
| Professional service | ||||||||||||||||||||||||||||||||||||||||
| Office supplies and utility | ||||||||||||||||||||||||||||||||||||||||
| Rental | ||||||||||||||||||||||||||||||||||||||||
| Others | ||||||||||||||||||||||||||||||||||||||||
| Total general and administrative expenses | ||||||||||||||||||||||||||||||||||||||||
| * | See “Prospectus Summary—Conventions that Apply to this Prospectus,” Note 2(c) of our audited consolidated financial statements and Note 1(b) of our unaudited condensed consolidated financial statements included elsewhere in this prospectus. |
Interest Expense
Our interest expense primarily consists of our financial lease interest expense for warehouses in the U.S.
Foreign Currency Exchange Gains, Net
Our foreign exchange gains represent the gains due to depreciation of U.S. dollars against Euro and British Pounds.
Others, Net
Others, net primarily consists of impairment, subsidies and others. Impairment loss represents the provisions on an equity investment.
Income Tax Expense
Our income tax expense primarily consists of current tax expense, deferred income tax expense and uncertain tax position, primarily related to uncertainty of our subsidiaries and any consolidated VIEs in China with regards to the tax impact of transfer pricing adjustment.
Taxation
China
Under the current laws of the China, we are not subject to tax on income or capital gain. Additionally, the China does not impose a withholding tax on payments of dividends to shareholders.
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Kunming
Under the current Kunming S.A.R. Inland Revenue Ordinance, our subsidiary in Kunming S.A.R. is subject to Kunming S.A.R. profits tax at the rate of 16.5% on its taxable income generated from the operations in Kunming S.A.R. The first HK$2 million of assessable profits earned by a company will be taxed at 8.25% whilst the remaining profits will continue to be taxed at 16.5%. There is an anti-fragmentation measure where each group will have to nominate only one company in the group to benefit from the progressive rates. Payments of dividends by our Kunming S.A.R. subsidiary to us is not subject to withholding tax in Kunming S.A.R.
Mainland China
Under the PRC Enterprise Income Tax Law, or the EIT Law, domestic companies are subject to EIT at a uniform rate of 25%. Our PRC Subsidiaries and consolidated VIEs are subject to the statutory income tax rate at 25%, unless a preferential EIT rate is otherwise stipulated.
On December 24, 2021, our wholly-owned subsidiary, JiaLian Technologies Technology (Suzhou) Co., Ltd. (formerly known as Oriental Standard Network Technology (Suzhou) Co., Ltd.) obtained a certificate from related authorities of local government for “Advanced Technology Service Enterprise,” or ATSE, qualification. This certificate entitled JiaLian Technologies Technology (Suzhou) Co., Ltd. to enjoy a preferential income tax rate of 15% for a period of three years from 2021 to 2023 if all the criteria for ATSE status could be satisfied in the relevant years.
Under the EIT Law and its implementation rules, an enterprise established outside China with a “place of effective management” within China is considered a China resident enterprise for Chinese enterprise income tax purposes. A China resident enterprise is generally subject to certain Chinese tax reporting obligations and a uniform 25% enterprise income tax rate on its worldwide income. The implementation rules to the EIT Law provide that non-resident legal entities are considered PRC residents if substantial and overall management and control over the manufacturing and business operations, personnel, accounting, properties, etc., occurs within China. Despite the present uncertainties resulting from the limited PRC tax guidance on the issue, we do not believe that the legal entities organized outside the PRC should be treated as residents for EIT Law purposes. If the PRC tax authorities subsequently determine that our Company and our subsidiaries registered outside the PRC are deemed resident enterprises, our Company and our subsidiaries registered outside mainland China will be subject to the PRC income tax at a rate of 25%.
Dividends paid to non-PRC-resident corporate investor from profits earned by the PRC subsidiaries after January 1, 2008 would be subject to a withholding tax. The EIT Law and its relevant regulations impose a withholding tax at 10%, unless reduced by a tax treaty or agreement, for dividends distributed by a PRC-resident enterprise to its non-PRC-resident corporate investor for earnings generated beginning on January 1, 2008. As at December 31, 2021 and 2022, there was no retained earnings from legal entity level of all of our PRC Subsidiaries and PRC VIE. And thus, we have not provided for deferred tax liabilities on undistributed earnings for our PRC Subsidiaries.
U.S. Federal Income Taxation
Our U.S. subsidiaries are subject to U.S. federal income taxes and state income taxes. In connection with U.S. tax legislation enacted in December 2019, the federal income tax rate for corporations changed to 21% beginning in 2020, while state income tax rates generally remained the same as in previous years. The U.S. tax rules also provide for enhanced accelerated depreciation deductions by allowing the election of full expensing of qualified property, primarily equipment, through 2024.
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Results of Operations
The following table sets forth a summary of our consolidated results of operations, both in absolute amount and as a percentage of our total revenues, for the periods presented. This information should be read together with our consolidated financial statements and related notes included elsewhere in this prospectus. The results of operations in any period are not necessarily indicative of our future trends.
| For
the Year Ended December 31, | For
the Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||
| 2021 | 2022 Restated* | 2023 | 2023 Restated* | 2024 | ||||||||||||||||||||||||||||||||||||
| $ | % | $ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||||
| ($ in thousands, except for percentages) | ||||||||||||||||||||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||||||||||||||||
| Service revenues | ||||||||||||||||||||||||||||||||||||||||
| Product revenues | ||||||||||||||||||||||||||||||||||||||||
| Total revenues | ||||||||||||||||||||||||||||||||||||||||
| Cost of revenues | ||||||||||||||||||||||||||||||||||||||||
| Services | ) | |||||||||||||||||||||||||||||||||||||||
| Product sales | ) | |||||||||||||||||||||||||||||||||||||||
| Total cost of revenues | ) | |||||||||||||||||||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||||||||||||||||
| Selling and marketing expenses | ) | |||||||||||||||||||||||||||||||||||||||
| General and administrative expenses | ) | |||||||||||||||||||||||||||||||||||||||
| Total operating expenses | ) | |||||||||||||||||||||||||||||||||||||||
| Operating income | ||||||||||||||||||||||||||||||||||||||||
| Interest expense | ) | |||||||||||||||||||||||||||||||||||||||
| Interest income | ||||||||||||||||||||||||||||||||||||||||
| Foreign currency exchange gains (losses), net | ) | |||||||||||||||||||||||||||||||||||||||
| Others, net | ||||||||||||||||||||||||||||||||||||||||
| Income before income taxes | ||||||||||||||||||||||||||||||||||||||||
| Income tax expense | ) | |||||||||||||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||||||||||
| * | See “Prospectus Summary—Conventions that Apply to this Prospectus,” Note 2(c) of our audited consolidated financial statements and Note 1(b) of our unaudited condensed consolidated financial statements included elsewhere in this prospectus. |
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Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023
Revenues
Our revenues, which consisted of service revenue generated from JiaLian Technologies 3P and product revenue generated from JiaLian Technologies 1P and off-platform ecommerce sales, increased by [ ] % from $[ ] million in the three months ended March 31, 2023 to $[ ] million in the three months ended March 31, 2024. This increase was primarily due to continued increase in market demand for large parcel merchandise, leading to increased number of sellers who listed merchandise and numbers of buyers who procured large parcel merchandise in our Yunnan Jialian Big Data Service Platform.
| ● | Services Revenue from JiaLian Technologies 3P. Our service revenues increased by [ ] % from $20.4 million in the three months ended March 31, 2023 to $31.2 million in the three months ended March 31, 2024. The increase was attributable to (i) an increase in revenues from commission fees due to an increase in transactions in our marketplace driven by increase in the number of active 3P sellers by [ ] % from 236 in the 12 months ended March 31, 2023 to 410 in the 12 months ended March 31, 2024, and the increase in the number of active buyers by [ ] % from 2,138 in the 12 months ended March 31, 2023 to [ ] in the 12 months ended March 31, 2024; and (ii) an increase in revenues from warehousing fees and delivery fees due to increases in demand and logistics costs as we increased the number of warehouses from 19 in the three months ended March 31, 2023 to 21 in the three months ended March 31, 2024 to provide more warehousing services as the market demand for warehouse services and delivery for large parcels continued to increase. |
| ● | Product Revenue from JiaLian Technologies 1P. Our product revenues from JiaLian Technologies 1P increased by [ ] % from $[ ] million in the three months ended March 31, 2023 to $[ ] million in the three months ended March 31, 2024. The increase was attributable to an increase in our JiaLian Technologies Marketplace GMV from $[ ] million in the three months ended March 31, 2023 to [ ] million in the three months ended March 31, 2024, and an increase in the number of our SKUs from [ ] as of March 31, 2023 to [ ] as of March 31, 2024, partially offset by a decrease in average spend per buyer in the three months ended March 31, 2024 as consumer demand slowed down due to inflationary pressure. |
| ● | Product Revenue from Off-platform Ecommerce. Our product revenues from off-platform ecommerce decreased by [ ] % from $[ ] million in the three months ended March 31, 2023 to $[ ] million in the three months ended March 31, 2024. The decrease was attributable to an overall decrease in sales on third-party off-platform ecommerce as consumer demand slowed down due to inflationary pressure. |
Cost of Revenues
Our cost of revenues increased by [ ] % from $[ ] million in the three months ended March 31, 2023 to $[ ] million in the three months ended March 31, 2024, primarily attributable to the overall increase in our revenue and the increases in shipping and handling costs in both cost of services and cost of product sales.
Our cost of services increased by [ ] % from $[ ] million in the three months ended March 31, 2023 to $[ ] million in the three months ended March 31, 2024, primarily due to increases in shipping and handling costs as third-party shipping costs, and particularly ocean freight costs, continued to increase globally, and we had an increase in the deliveries of merchandise that we handle from and to sellers and buyers in our marketplace, and increases in rental costs of the portion allocated to our 3P business as we increased the number of warehouses from 19 in the three months ended March 31, 2023 to 21 in the three months ended March 31, 2024.
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Our cost of product sales increased by [ ] % from $[ ] million in the three months ended March 31, 2023 to $[ ] million in the three months ended March 31, 2024, primarily due to the increased products we procured to sell on Yunnan Jialian Big Data Service Platform and off-platform ecommerce websites in our 1P business and increases in shipping and handling costs, and particularly, ocean freight costs and rental costs of warehouses that were allocated to 1P products.
Gross Profit and Gross Margin
As a result of the foregoing, our gross profit decreased by [ ] % from $20.9 million in three months ended March 31, 2023 to $[ ] million in the three months ended March 31, 2024. Our gross margin decreased from [ ] % in the three months ended March 31, 2023 to[ ] % in the three months ended March 31, 2024, primarily due to the costs of revenue increased at a faster pace than revenue as shipping and handling costs, and particularly, ocean freight costs, increased significantly compare to the previous period.
Selling and Marketing Expenses
Our selling and marketing expenses decreased by [ ] % from $[ ] million in the three months ended March 31, 2023 to $[ ] million in the three months ended March 31, 2024, which was mainly due to a decrease in staff cost as the sales commission decreased.
General and Administrative Expenses
Our general and administrative expenses increased by [ ] % from $vmillion (restated) in the three months ended March 31, 2023 to $[ ] million in the three months ended March 31, 2024, which was mainly due to increases in staff cost as we increased the number of general and administrative staff personnel and property insurance we purchased for our warehouses, partially offset by a decrease in professional service expenses.
Interest Expense
We had interest expenses of $[ ] thousand and $[ ] thousand in the three months ended March 31, 2023 and 2024, respectively. The increase was primarily attributable to increases in charges due to the increase in our financial lease interest expense for warehouses in the U.S.
Interest Income
We had interest income of $[ ] thousand and $[ ] thousand in the three months ended March 31, 2023 and 2024, respectively. The decrease was primarily attributable to a decrease in accounts receivables overdue, partially offset by an increase in interest income from providing cash advances to more sellers in the three months ended March 31, 2024 pursuant to our supply chain financing program.
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Foreign Currency Exchange Gains / (Losses), Net
We had foreign currency exchange losses, net of $[ ] million in the three months ended March 31, 2023, compared to $[ ] million in the three months ended March 31, 2024, primarily attributable to appreciation of the U.S. dollar against Euro and Japanese Yen.
Others, Net
We had other income, net of $[ ] thousand and $[ ] thousand in the three months ended March 31, 2023 and 2024, respectively. The increase was primarily attributable to a government subsidy that was received in the three months ended March 31, 2024.
Income Tax Expense
We had income tax expense of $[ ] million and $[ ] million in the three months ended March 31, 2023 and 2024, respectively. The decrease was primarily attributable to a decrease in our income before income taxes from $[ ] million in the three months ended March 31, 2023 to $[ ] million in the three months ended March 31, 2024.
Net Income
As a result of the foregoing, our net income was $[ ] million (restated) and $[ ] million in the three months ended March 31, 2023 and 2024, respectively.
Year Ended December 31, 2023 Compared to Year Ended December 31, 2022
Revenues
Our revenues, which consisted of service revenue generated from JiaLian Technologies 3P and product revenue generated from JiaLian Technologies 1P and off-platform ecommerce sales, increased by [ ] % from $[ ] million in 2022 to $[ ] million in 2023. This increase was primarily due to continued increase in market demand for large parcel merchandise, leading to increases in number of sellers who listed merchandise and numbers of buyers who procured large parcel merchandise in our Yunnan Jialian Big Data Service Platform.
| ● | Service Revenue from JiaLian Technologies 3P. Our service revenues increased by [ ] % from $[ ] million in 2022 to $[ ] million in 2023. The increase was attributable to (i) an increase in revenues from commission fees due to an increase in transactions in our marketplace driven by increase in the number of active 3P sellers by[ ] % from [ ] in 2022 to [ ] in 2023, and increase in the number of active buyers by [ ] % from [ ] in 2022 to [ ] in 2023; and (ii) an increase in revenues from warehousing fees and delivery fees as we increased the number of warehouses from [ ] in 2022 to [ ] in 2023 to provide more warehousing services as the market demand for warehouse services and delivery for large parcels continued to increase. |
| ● | Product Revenue from JiaLian Technologies 1P. Our product revenues from JiaLian Technologies 1P increased by [ ] % from $[ ] million in 2022 to $[ ] million in 2023. This increase was attributable to an increase in the overall market demand for online home furniture which continued to drive the increase in sales per active buyers and an increase in the number of our SKUs. |
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| ● | Product Revenue from Off-platform Ecommerce. Our product revenues from off-platform ecommerce increased by [ ] % from $[ ] million in 2022 to $[ ] million in 2023. The increase was attributable to an increase in the demand for home furniture and an increase in the unit price on third-party ecommerce websites as we sell specialty items with higher unit price. |
Cost of Revenues
Our cost of revenues increased by [ ] % from $[ ] million in 2022 to $[ ] million in 2023, which was in line with the overall increase in our revenue.
Our cost of services increased by[ ] % from $[ ] million in 2022 to $[ ] million in 2023, primarily due to increases in shipping and handling costs as third-party shipping costs, and particularly, ocean freight costs, continued to increase globally and we had an increase in the deliveries of merchandise that we handle from and to sellers and buyers in our marketplace, and increases in rental costs of the portion allocated to our 3P business as we increased the number of warehouses from [ ] in 2022 to [ ] in 2023.
Our cost of product sales increased by [ ] % from $[ ] million in 2022 to $[ ] million in 2023, primarily due to the increased products we procured to sell on Yunnan Jialian Big Data Service Platform and off-platform ecommerce websites in our 1P business and increases in shipping and handling costs, and particularly, ocean freight costs, and rental costs of warehouses that were allocated to 1P products.
Gross Profit and Gross Margin
As a result of the foregoing, our gross profit increased by [ ] % from $75.1 million in 2022 to $[ ] million in 2023, primarily due to the growth in our JiaLian Technologies GMV and 1P sales. Our gross margin decreased from [ ] % in 2022 to [ ] % in 2023, primarily due to costs of services increased at a faster pace than service revenues as ocean freight shipping costs increased in 2023.
Selling and Marketing Expenses
Our selling and marketing expenses increased by [ ] % from $22.2 million (restated) in 2022 to $[ ] million in 2023, which was mainly due to increases in (i) staff cost from $[ ] million (restated) in 2022 to $[ ] million in 2023, primarily attributable to an increase in headcount in sales and marketing staff from [ ] as of December 31, 2022 to [ ] as of December 31, 2023, and an increase in average monthly salary in sales and marketing staff; and (ii) platform commission from $[ ] million in 2022 to $[ ] million in 2023, primarily attributable to increases in product sales to individuals on third-party ecommerce websites.
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General and Administrative Expenses
Our general and administrative expenses increased by [ ] % from $8.7 million (restated) in 2022 to $[ ] million in 2023, which was mainly due to (i) an increase in staff costs from $[ ] million (restated) in 2022 to $[ ] million in 2023, primarily attributable to an increase in headcount in general and administrative staff from [ ] as of December 31, 2022 to [ ] as of December 31, 2023, and an increase in average monthly salary in general and administrative staff; (ii) an increase in professional service fees from $[ ] million in 2022 to $[ ] million in 2023, primarily attributable to tax and accounting consulting services incurred during the period; and (iii) increase in rental costs as we increased our number of warehouses.
Interest Expenses
We had interest expenses of $[ ] thousand and $[ ] thousand in 2022 and 2023, respectively. The increase was primarily attributable to increases in charges due to the increase in our financial lease interest expense for warehouses in the U.S.
Interest Income
We had interest income of $[ ] thousand and $[ ] thousand in 2022 and 2023, respectively. The increase was primarily attributable to an increase in interest income from providing cash advances to more sellers in 2023 pursuant to our supply chain financing program.
Foreign Currency Exchange Gains / (Losses), Net
We had foreign currency exchange losses, net of $[ ] million in 2023, compared to foreign currency exchange gains, net of $[ ] million in 2022. The change was primarily due to depreciation of the U.S. dollar against Euro and Japanese Yen.
Others, Net
We had other income, net of $[ ] thousand and $[ ] thousand in 2022 and 2023, respectively. The increase was primarily attributable to an increase in government subsidy that was received in 2023.
Income Tax Expense
We had income tax expense of $[ ] million and $[ ] million in 2022 and 2023, respectively. The increase was primarily attributable to increase in taxable profit due to our business growth.
Net Income
As a result of the foregoing, our net income was $[ ] million (restated) and $[ ] million in 2022 and 2023, respectively.
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Year Ended December 31, 2022 Compared to Year Ended December 31, 2021
Revenues
Our revenues, which consisted of service revenue generated from JiaLian Technologies 3P and product revenue generated from JiaLian Technologies 1P and off-platform ecommerce sales, increased by [ ] % from $[ ] million in 2021 to $275.5 million in 2022. This increase was primarily due to increases in the number of sellers who listed merchandise in our GigaCould Marketplace, number of buyers who procure large parcel merchandise and number of off-marketplace users who used our third-party logistics services for product shipping and handling. We do not anticipate significant revenue from third-party logistics services to off-marketplace users in the future. The revenue increases was also due to an overall increase demand for large parcel merchandise.
| ● | Service Revenue from JiaLian Technologies 3P. Our service revenues increased by [ ] % from $[ ] million in 2021 to $[ ] million in 2022. This increase was attributable to (i) an increase in revenues from commission fees due to an increase in transactions in our marketplace driven by increase in the number of active 3P sellers by [ ] % from [ ] in 2021 to [ ] in 2022 and increase in the number of active buyers by [ ] % from [ ] in 2021 to [ ] in 2022; (ii) an increase in revenues from warehousing fees due to an increase in market demand for warehouse services as online home furniture sales increased and (iii) an increase in revenues from delivery fees in line with the increase in market demand for online home furniture. We also provided more third-party logistics services to customer in 2022 to help fulfill their large parcel transportation needs in the U.S. as the demand increased. |
| ● | Product Revenue from JiaLian Technologies 1P. Our product revenues from JiaLian Technologies 1P increased by [ ] % from $[ ] million in 2021 to $122.1 million in 2022. This increase was attributable to an increase in the overall market demand for online home furniture, driving the increase in sales per active buyers. |
| ● | Product Revenue from Off-platform Ecommerce. Our product revenues from off-platform ecommerce increased by [ ] % from $[ ] million in 2021 to $93.3 million in 2022. The increase was attributable to an increase in the demand for home furniture and the unit price on third-party ecommerce websites. |
Cost of Revenues
Our cost of revenues increased by [ ] % from $[ ] million in 2021 to $200.4 million in 2022, which was in line with the overall increase in our revenue.
Our cost of services increased by [ ] % from $[ ] million in 2021 to $[ ] million in 2022, primarily due to the increases in the cost associated with operating our rapidly growing Yunnan Jialian Big Data Service Platform, increase in third-party shipping costs and we had an increase in the deliveries of merchandise that we handle from and to sellers and buyers in our marketplace, and increases in rental costs of the portion allocated to our 3P business and numbers of warehouses and staff as we expanded our warehousing and logistic network.
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Our cost of product sales increased by [ ] % from $[ ] million in 2021 to $[ ] million in 2022, primarily due to the increased products we procured to sell on Yunnan Jialian Big Data Service Platform in our 1P business and off-platform ecommerce websites and increases in shipping and handling costs and rental costs of warehouses that were allocated to 1P products.
Gross Profit and Gross Margin
As a result of the foregoing, our gross profit increased by [ ] % from $[ ] million in 2021 to $[ ] million in 2022, primarily due to the growth in Yunnan Jialian Big Data Service Platform GMV and sales volume in our marketplace. Our gross margins increased from[ ] % in 2021 to [ ] % in 2022 primarily due to the increase in our revenues as our Yunnan Jialian Big Data Service Platform grew and increased economies of scale achieved through our current marketplace model as we utilized our warehouses and logistics network more cost efficiently. Furthermore, in 2021 and 2022, as we gradually transitioned our 1P products suppliers from mainland China to other South East Asian countries, we reduced our exposure to tariffs on Chinese products and achieved better gross margin.
Selling and Marketing Expenses
Our selling and marketing expenses increased by [ ] % from $[ ] million in 2021 to $[ ] million (restated) in 2022, which was mainly due to increases in (i) staff cost from $[ ] million in 2021 to $[ ] million (restated) in 2022, primarily attributable to an increase in headcount and average monthly salary in sales and marketing staff, as well as the bonus in accordance with the increased sales; and (ii) platform commission from $[ ] million in 2021 to $[ ] million in 2022, primarily attributable to increases in product sales to individuals on third-party ecommerce websites.
General and Administrative Expenses
Our general and administrative expenses increased by [ ] % from $4.7 million in 2021 to $[ ] million (restated) in 2022, which was mainly due to (i) an increase in staff cost from $2.0 million in 2021 to $[ ] million (restated) in 2022, primarily attributable to an increase in general and administrative functions; and (ii) an increase in professional services fees from $[ ] million to $[ ] million, primarily attributable to the tax consulting service, accounting system development service and attorney fee incurred in 2022.
Interest Expense
We had interest expense of nil and $[ ] thousand in 2021 and 2022, respectively. The increase was primarily attributable to increases in charges due to the increase in our financial lease interest expense for warehouses in the U.S.
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Interest Income
We had interest income of $[ ] thousand and $[ ] thousand in 2021 and 2022, respectively. The increase was primarily attributable to the increase of our cash deposits at financial institutions.
Foreign Currency Exchange Gains, Net
Our foreign exchange gains, net increased from $[ ] million in 2021 to $[ ] million in 2022, primarily attributable to the depreciation of the U.S. dollars against the Euro and British Pounds and the increase of transactions denominated in Euro and British Pounds in 2022.
Others, Net
We had other expenses, net of $[ ] thousand in 2021 and other income, net of $[ ] thousand in 2022, primarily attributable to the impairment of an $[ ] thousand investment made in 2021 in relation to a PRC company with ecommerce business in the U.S. and Europe.
Income Tax Expense
We had income tax expense of $[ ] million and $[ ] million in 2021 and 2022, respectively. The increase was primarily attributable to increase in taxable profit due to our business growth.
Net Income
As a result of the foregoing, our net income was $[ ] million (restated) in 2022, as compared to $[ ] million in 2021.
Non-GAAP Financial Measure
To supplement our consolidated financial statements, which are prepared and presented in accordance with U.S. GAAP, we use Adjusted EBITDA, which is net income excluding interest, income taxes and depreciation, further adjusted to exclude share-based compensation expenses, a non-GAAP financial measure, to understand and evaluate our core operating performance. Non-GAAP financial measure, which may differ from similarly titled measures used by other companies, are presented to enhance investors’ overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP. The table below sets forth a reconciliation of Adjusted EBITDA from net income for the periods indicated:
For the Year Ended December 31, | For the Three Months Ended March 31, | |||||||||||||||||||
| 2021 | 2022 Restated* | 2023 | 2023 Restated* | 2024 | ||||||||||||||||
| ($ in thousands) | ||||||||||||||||||||
| Net income | ||||||||||||||||||||
| Add: Income tax expense | ||||||||||||||||||||
| Add: Interest expense | ||||||||||||||||||||
| Less: Interest income | ) | |||||||||||||||||||
| Add: Depreciation and amortization | ||||||||||||||||||||
| Add: Share-based compensation expense | ||||||||||||||||||||
| Adjusted EBITDA | ||||||||||||||||||||
| * | See “Prospectus Summary—Conventions that Apply to this Prospectus,” Note 2(c) of our audited consolidated financial statements and Note 1(b) of our unaudited condensed consolidated financial statements included elsewhere in this prospectus. |
Liquidity and Capital Resources
Cash Flows and Working Capital
To date, we have financed our operating and investing activities mainly through cash generated from our business. As of March 31, 2024, we had $[ ] million in cash and $[ ]million in restricted cash.
We believe our cash on hand will be sufficient to meet our current and anticipated needs for general corporate purposes for at least the next 12 months. We may, however, need additional cash resources in the future if we experience changes in business conditions or other developments. We may also need additional cash resources in the future if we find and wish to pursue opportunities for investment, acquisition, capital expenditure or similar actions. If we determine that our cash requirements exceed the amount of cash we have on hand, we may seek to issue equity or equity linked securities or obtain debt financing. The issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.
Although we consolidate the results of our consolidated VIEs, we only have access to the assets or earnings of our consolidated VIEs through our contractual arrangements with our consolidated VIEs and their shareholders (as applicable). See “Corporate History and Structure.” For restrictions and limitations on liquidity and capital resources as a result of our corporate structure, see “—Holding Company Structure.”
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As a China exempted company and offshore holding company, we are permitted under PRC laws and regulations to provide funding to our PRC Subsidiaries only through loans or capital contributions, subject to relevant approval, filing and/or reporting with respect to government authorities and limits on the amount of capital contributions and loans. This may delay us from using the proceeds from this offering to make loans or capital contributions to our PRC Subsidiaries, if any. See “Risk Factors—Risks Related to Doing Business in China—PRC regulation of loans to, and direct investments in, PRC entities by offshore holding companies and governmental control of currency conversion may restrict or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our PRC Subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.”
The following table sets forth a summary of our cash flows for the periods presented:
For the Year Ended December 31, |
For the Three Months Ended March 31, | |||||||||||||||||||
2021 |
2022 |
2023 |
2023 |
2024 |
||||||||||||||||
| Summary Consolidated Statement of Cash Flow Data: | ($ in thousands) | |||||||||||||||||||
| Net cash provided by (used in) operating activities | ) | |||||||||||||||||||
| Net cash used in investing activities | ) | |||||||||||||||||||
| Net cash provided by (used in) financing activities | ||||||||||||||||||||
| Effect of foreign currency exchange rate changes on cash and restricted cash | ) | |||||||||||||||||||
| Net increase (decrease) in cash and restricted cash | ) | |||||||||||||||||||
| Cash and restricted cash at the beginning of the year | ||||||||||||||||||||
| Cash and restricted cash at the end of the year | ||||||||||||||||||||
Operating Activities
Net cash used in operating activities in the three months ended March 31, 2024 was $14.5 million, as compared to net cash used in operation activities of $[ ] million in the three months ended March 31, 2023. This was attributable to net income of $[ ] million in the three months ended March 31, 2024, compared to net income of $[ ] million (restated) in the three months ended March 31, 2023. Net income was adjusted primarily by $[ ] million of lease expense to reduce right-of-use assets in the three months ended March 31, 2024, as compared to nil in the three months ended March 31, 2023 because we adopted ASC 842 in 2024 which led to adjustment of operating lease liabilities and right-of-use assets, while net income was adjusted by $[ ]million of deferred tax in the three months ended March 31, 2023. Net income was further adjusted by the changes in working capital, which primarily consisted of (i) an increase of $[ ] million in inventories in the three months ended March 31, 2024 as shipping costs to procure our inventories, including ocean freight costs, are included in inventories and the increase in ocean freight costs has contributed to an increase in our inventories and cash outflows in the three months ended March 31, 2024, as compared to an increase of [ ] million in inventories in the three months ended March 31, 2023, (ii) a decrease of [ ] million in operating lease liabilities in the three months ended March 31, 2024 as we adopted ASU 2016-02 in 2024 which recognized right-of-use assets and lease liabilities upon lease commencement for the operating leases for our warehouses, as compared to nil in the three months ended March 31, 2023, (iii) an increase of $[ ] million in accounts payable in the three months ended March 31, 2024 as the costs to procure inventories increased, as compared to an increase of $[ ] million in the three months ended March 31, 2023, and (iv) an increase of $[ ] million in accounts receivable in the three months ended March 31, 2024 for the procurement of inventories, as compared to an increase of $[ ] million in the three months ended March 31, 2023.
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Net cash provided by operating activities in 2023 was $[ ] million. This was attributable to net income of $[ ] million, adjusted primarily by (i) $[ ] million of share-based compensation in relation to share options granted to our employees and non-employees service providers which was only recognized in 2023, and (ii) $[ ] million of unrealized foreign currency exchange losses due to appreciation of the U.S. dollar against Euro and Japanese Yen and (iii) [ ]million of inventory write-down due to certain slow-moving merchandise and damaged goods as we increased our own inventory which also led to increased write-down; and the changes in working capital, which primarily consisted of (i) an increase of $[ ] million in inventories as we significantly increased our own inventory for our 1P sales as consumer demand continued to increase in 2023 and also due to an increase in shipping costs to procure our inventories, and particularly ocean freight costs, (ii) an increase of $[ ]million in accounts payable as our sales increased driven by the increased numbers of sellers and buyers in our Yunnan Jialian Big Data Service Platform, and (iii) a decrease of $[ ] million in accounts receivable as we had better collection in 2023.
Investing Activities
Net cash used in investing activities in the three months ended March 31, 2024 was $[ ]thousand of cash paid for purchase of property and equipment, as compared to net cash used in investing activities of $[ ] thousand of cash paid for purchase of property and equipment in the three months ended March 31, 2023.
Net cash used in investing activities in 2023 was $[ ] million, primarily consisted cash paid for purchase of property and equipment.
Net cash used in investing activities in 2022 was $[ ] million, primarily consisted cash paid for purchase of property and equipment of $0.7 million.
Net cash used in investing activities in 2021 was $[ ] million, primarily consisted cash paid for purchase of property and equipment of $0.9 million.
Financing Activities
Net cash provided by financing activities in the three months ended March 31, 2024 was $[ ] million, primarily attributable to (i) proceeds from prepaid consideration of restricted shares of $[ ] million for employees benefits that we paid in the three months ended March 31, 2024, (ii) cash paid for finance lease obligations of $[ ]million and (iii) repayment of bank loans of $[ ] thousand, as compared to net cash used in financing activities of $[ ] million in the three months ended March 31, 2023, primarily consisted of cash paid for capital lease obligations of $[ ]million and repayment of bank loans of $[ ]million.
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Net cash used in financing activities in 2023 was $[ ] million, primarily attributable to cash paid for capital lease obligations of $[ ]million and repayment of bank loans of $[ ] million by our subsidiaries in Japan and the U.K.
Net cash provided by financing activities in 2022 was $[ ] million, primarily attributable to (i) proceeds from issuance of preferred shares of $[ ] million and (ii) proceeds from borrowings of $[ ] million, partially offset by the repurchase of vested share-based awards of $[ ] million.
Net cash provided by financing activities in 2021 was $[ ]thousand, attributable to proceeds of borrowings from a related party.
Capital Expenditures
Our capital expenditures consist primarily of purchase of property and equipment. Our capital expenditures were $[ ] million, $[ ]million, $[ ] million and $[ ] million in 2021, 2022, 2023 in the three months ended March 31, 2024, respectively. We intend to fund our future capital expenditures with our existing cash balance, short-term investments and anticipated cash flows from operations. We will continue to make well-planned capital expenditures to meet the expected growth of our business.
Contractual Obligations
The following table sets forth our contractual obligations as of March 31, 2024:
| Total | Less than 1 Year | 1 - 3 Years | More than 3 Years | |||||||||||||
| (in $ thousands) | ||||||||||||||||
| Lease commitment(1) | ||||||||||||||||
| Long-term borrowings | ||||||||||||||||
| Total | ||||||||||||||||
| (1) | Lease commitment consists of the commitments under the lease agreements for our warehouses and storage shelves. |
Except for those disclosed above, we did not have any significant capital or other commitments, long-term obligations, or guarantees as of March 31, 2024.
Off-Balance Sheet Commitments and Arrangements
We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any unconsolidated third parties. In addition, we have not entered into any derivative contracts that are indexed to our shares and classified as shareholders’ equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. Moreover, we do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or product development services with us.
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Internal Control Over Financial Reporting
Prior to this offering, we have been a private company with limited accounting personnel and other resources with which we address our internal control over financial reporting. We and our independent registered public accounting firm identified one material weakness in our internal control over financial reporting as of December 31, 2022 and 2023. As defined in the standards established by the PCAOB, a “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
The material weakness that has been identified relates to our lack of sufficient accounting personnel with appropriate U.S. GAAP knowledge to prepare financial statements in accordance with U.S. GAAP and SEC reporting requirements. This has resulted in a number of accounting errors and omissions, including but not limited to: (1) accounting for the complex transactions such as share-based compensation, redeemable convertible preferred shares and uncertain tax provision; (2) adoption of newly issued accounting standards such as new leases standard; and (3) preparation of financial statements disclosure in accordance with U.S. GAAP. For example, our company’s previously issued 2021 and 2022 consolidated financial statements and the company’s previously issued unaudited condensed financial statements as of and for the three months ended March 31, 2023 were restated due to certain errors in relation to the recognition of share-based compensation expenses. For details, please refer to note 2(c) to our consolidated financial statements and note 1(b) of our unaudited condensed consolidated financial statements included elsewhere in this prospectus.
We are in the process of implementing a number of measures to address the material weakness identified, including: (1) hiring additional accounting and financial reporting personnel with U.S. GAAP and SEC reporting experience, (2) expanding the capabilities of existing accounting and financial reporting personnel through continuous training and education in the accounting and reporting requirements under U.S. GAAP, and SEC rules and regulations, (3) establishing clear roles and responsibilities to develop and implement formal comprehensive financial period-end closing policies and procedures to ensure all transactions are properly recorded and disclosed, and (4) establishing effective monitoring and oversight controls for non-recurring and complex transactions to ensure the accuracy and completeness of our consolidated financial statements and related disclosures.
The process of designing and implementing an effective financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a financial reporting system that is adequate to satisfy our reporting obligation. See “Risk Factors—Risks Related to Our Class A Ordinary Shares and this Offering—We have identified one material weakness in our internal control over financial reporting. If our remediation of the material weakness is not effective, or if we experience additional material weaknesses in the future or otherwise fail to maintain proper and effective internal control over financial reporting, our ability to produce accurate and timely consolidated financial statements could be impaired, investors may lose confidence in our financial reporting and the trading price of our Class A ordinary shares may decline.”
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As a company with less than $[ ] billion in revenues for the fiscal year ended December 31, 2023, we qualify as an “emerging growth company” pursuant to the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002 in the assessment of the emerging growth company’s internal control over financial reporting. The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. See “Risk Factors—Risks Related to Our Class A Ordinary Shares and this Offering—We are an emerging growth company, and the reduced disclosure requirements applicable to emerging growth companies may make our Class A ordinary shares less attractive to investors.”
Holding Company Structure
Our company, JiaLian Technologies Holdings Inc. , is a holding company incorporated in the British Virgin Islands (BVI) with no material operations of its own. We conduct our operations entirely through our wholly-owned subsidiary in Kunming, Yunnan Jialian Big Data Service Group Co., Ltd. , which operates the Yunnan Jialian Big Data Service Platform. Our corporate structure does not include any variable interest entities (VIEs), either currently or in the future.
As a result, our ability to pay dividends depends on the cash generated by our Kunming Subsidiary. If our Kunming Subsidiary incurs debt in the future, the agreements governing such debt may restrict its ability to pay dividends to us. Additionally, under PRC regulations, our Kunming Subsidiary may be restricted from transferring assets offshore to us in the form of dividends, loans, or advances unless certain requirements are met or regulatory approvals are obtained. See “Dividend Policy.” While we currently do not require dividends, loans, or advances from our Kunming Subsidiary for working capital or other funding purposes, we may need additional cash resources in the future due to changes in business conditions, to fund future acquisitions and development, or to declare and pay dividends to our shareholders. However, any transfer of funds between our BVI holding company and our Kunming Subsidiary will be subject to applicable PRC laws and regulations, including foreign exchange controls.
Inflation
To date, inflation in China has not materially impacted our results of operations. According to the National Bureau of Statistics of China, the year-over-year percent changes in the consumer price index for 2022 and 2023 were increases of 2.5% and 0.9%, respectively. We continue to monitor the impact of inflation to minimize its effects through revisions in our budgeting, strategy, and procurement efforts. For example, we have entered into contracts with third-party logistics providers to mitigate short-term risks related to rising freight costs. If our costs were to face more significant inflationary pressures, we may not fully offset these higher costs through price increases or cost efficiency measures. Our inability to manage inflation effectively could harm our business, financial condition, and results of operations.
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Quantitative and Qualitative Disclosures about Market Risk
Foreign Exchange Risk
We do not believe that we currently have any significant direct foreign exchange risk and have not used derivative financial instruments to hedge exposure to such risk. Although our exposure to foreign exchange risks is limited, the value of your investment in our Class A ordinary shares will be affected by the exchange rate between the Renminbi (RMB) and the U.S. dollar because the value of our business is effectively denominated in RMB, while our Class A ordinary shares will be traded in U.S. dollars.
For instance, in July 2005, the PRC government changed its long-standing policy of pegging the RMB to the U.S. dollar. The conversion of RMB into foreign currencies, including U.S. dollars, is based on rates set by the People’s Bank of China (PBOC). Since June 2010, the RMB has fluctuated against the U.S. dollar, sometimes significantly and unpredictably. It is difficult to predict how market forces or government policies may impact the exchange rate between the RMB and the U.S. dollar in the future. See “Risk Factors—Risks Related to Our Class A Ordinary Shares and this Offering—Fluctuations in currency exchange rates may have a material adverse effect on our results of operations and the value of your investment.”
To the extent that we need to convert U.S. dollars into RMB for our operations, appreciation of the RMB against the U.S. dollar would reduce the RMB amount we receive from the conversion. Conversely, if we decide to convert RMB into U.S. dollars to make dividend payments, service outstanding debt, or for other business purposes, appreciation of the U.S. dollar against the RMB would reduce the U.S. dollar amounts available to us.
Interest Rate Risk
Our borrowings bear interests at fixed rates. If we were to renew these borrowings, we may be subject to interest rate risks.
We have not been exposed to material risks due to changes in market interest rates, and we have not used any derivative financial instruments to manage our interest risk exposure. However, we cannot provide assurance that we will not be exposed to material risks due to changes in market interest rate in the future.
After the completion of this offering, we may invest the net proceeds we receive from the offering in interest-earning instruments. Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall.
Critical Accounting Policies
An accounting policy is considered critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time such estimate is made, and if different accounting estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements.
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We prepare our financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates and assumptions. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates. Some of our accounting policies require a higher degree of judgment than others in their application and require us to make significant accounting estimates.
The following descriptions of critical accounting policies, judgments and estimates should be read in conjunction with our consolidated financial statements and accompanying notes and other disclosures included in this prospectus. When reviewing our financial statements, you should consider (i) our selection of critical accounting policies, (ii) the judgments and other uncertainties affecting the application of such policies and (iii) the sensitivity of reported results to changes in conditions and assumptions.
Revenue Recognition
We recognize revenues when we satisfy a performance obligation by transferring a promised good or service (that is, an asset) to a customer. An asset is transferred when the customer obtains control of that asset.
We evaluate whether it is appropriate to record the gross amount of merchandise sales and related costs or the net amount earned as commissions. When we act as the principal and obtain control of the specified goods or services before they are transferred to customers, our revenues are recognized in the gross amount of consideration we expect to receive in exchange for the specified goods or services. When we act as an agent and our obligation is to facilitate third parties in fulfilling their performance obligations for specified goods or services, revenues are recognized in the net amount of the commission earned for arranging the provision of these goods or services by other parties. Revenues are recorded net of value-added taxes.
Our business focuses on selling large parcel merchandise to various distributors and individual customers, as well as providing e-commerce solutions through our own platform, the Yunnan Jialian Big Data Service Platform , which democratizes access and distribution for manufacturers (sellers) and resellers (buyers) across domestic and international markets. Our revenues include product sales and service revenues. Product sales consist of:
Sales made directly through the Yunnan Jialian Big Data Service Platform , referred to as JiaLian Technologies 1P , and
Sales conducted through third-party e-commerce websites, referred to as Off-platform e-commerce.
Service revenues are generated from services provided to registered users, including sellers and buyers on the Yunnan Jialian Big Data Service Platform , referred to as JiaLian Technologies 3P.
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Remorse Protection Program
In 2023, we launched a remorse protection program under which buyers on the Yunnan Jialian Big Data Service Platform can elect to participate on a transaction-by-transaction basis. Under this program, buyers pay us a fee ranging from 2.0% to 3.8% of the underlying purchase price of the products they buy on the platform. In return, we aim to cover a portion of the buyers’ risk if their customers seek compensation or discounts for reasons unrelated to product quality and when actual losses are incurred, up to 60 days from the shipment of the products.
We view the remorse protection program as a price differentiation strategy aimed at attracting more risk-averse buyers on the Yunnan Jialian Big Data Service Platform. We determine that the fee under the remorse protection program should be calculated based on the purchase price of the underlying products, regardless of whether the purchase was made through JiaLian Technologies 1P product sales or JiaLian Technologies 3P platform services. Additionally, despite the potential for compensation under the remorse protection program, we have determined that the nature of our performance promise to buyers enrolled in the program does not differ from our promise to other buyers who do not enroll. This is because the program does not introduce any additional performance obligations beyond those already fulfilled through standard transactions.
Accordingly, we have determined that the performance obligation under the remorse protection program is satisfied at the same point in time as other transactions on the Yunnan Jialian Big Data Service Platform where buyers do not enroll in the program—when control over the underlying products is transferred to the customers. The potential for compensation results in the transaction price for JiaLian Technologies 1P product sales or JiaLian Technologies 3P platform services being variable under ASC 606-10-32-6. To address this variability, we have considered the constraint guidance in ASC 606-10-32-11 and included only that portion of the variable consideration in the transaction price such that it is probable a significant reversal in the cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. We estimate the amount of variable consideration to be included in the transaction using the “expected value” method and update our estimated transaction price at the end of each reporting period.
Liabilities arising from our obligations under the remorse protection program are recorded under “Accrued expenses and other current liabilities” in our financial statements.
JiaLian Technologies 3P
We enter into contracts with customers that often include promises to transfer multiple services. For these contracts, we account for individual performance obligations separately if they are distinct within the context of the contract. Determining whether services are considered distinct performance obligations may require significant judgment. Additionally, judgment is required to determine the standalone selling price for each distinct performance obligation.
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We charge commission fees for sales transactions completed on the Yunnan Jialian Big Data Service Platform. In these transactions, we act as an agent since we do not take control of the merchandise at any point during the transaction process, nor do we have discretion over pricing. We set a percentage of the transacted product value as the commission fee when a transaction is completed. For customers whose monthly transaction value reaches certain specified thresholds, they receive varying levels of credits applied retrospectively based on the tier they achieve. Commission fee revenue is recognized upon successful sale of the merchandise by sellers when buyers take ownership and control of the products. At the end of each calendar month, we reset and confirm the credit and effective commission rate for each seller, requiring no estimation beyond the end of each month. Since the remorse protection program was launched in 2023, any credits under this program are accounted for as variable consideration when estimating the amount of commission fee revenue to be recognized, provided it is probable that a significant reversal of revenue will not occur. Consistent with our estimation for similar credits for product sales under JiaLian Technologies 1P , the Group adopts the “expected value” method when estimating such variable consideration, and updates the estimates as additional information becomes available.
We also offer comprehensive supply chain solutions for sellers, including shipping merchandise from their manufacturing facilities to warehouses located domestically in Kunming or other regions in China. This utilizes our extensive logistics network, which includes ocean transportation providers, customs declaration agents, and domestic shipping companies. Additionally, we provide warehousing services and last-mile delivery services for both sellers and buyers, depending on who owns the merchandise at the time of storage or delivery. Revenue from these services is recognized over time, as we continuously transfer control to the relevant party (sellers or buyers). We act as a principal in providing warehousing, ocean transportation, and last-mile delivery services, recognizing revenue on a gross basis since we determine the price and select carriers independently.
Sellers and buyers on the Yunnan Jialian Big Data Service Platform can choose one or several of the above-mentioned services, meaning multiple performance obligations may be included in a single transaction. Revenue is allocated to each performance obligation based on its standalone selling price. We generally determine standalone selling prices based on observable prices from past transactions. If the standalone selling price is not directly observable, we estimate it using multiple factors, including management-approved price lists or cost-plus margin analyses.
JiaLian Technologies 1P
We sell our own inventory directly to customers, who are typically buyers on the Yunnan Jialian Big Data Service Platform. Revenue is recognized net of discounts and return allowances. Such revenue is recognized at the point in time when control of the merchandise is transferred to the buyers, which generally occurs upon shipment from our warehouses to the destination designated by the buyers.
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Off-platform Ecommerce
Product Sales to B
Under off-platform ecommerce, we sell merchandise to third-party e-commerce websites, referred to as Product Sales to B. These websites usually designate carriers to pick up merchandise from our warehouses. Revenue is recognized net of discounts and return allowances at the point in time when the third-party e-commerce websites obtain control of the merchandise, which occurs when the shipment leaves our warehouse and is picked up by the carriers designated by the websites. As expenses charged by these websites are not in exchange for a distinct good or service, payments to these websites, which are our customers, are not recognized as expenses but are recorded net of revenues.
Product Sales to C
We also sell merchandise to individual customers through third-party e-commerce websites, referred to as Product Sales to C. Revenue is recognized when control of the merchandise is transferred to individual customers at an amount reflecting the consideration we expect to receive in exchange for the product. Revenue is recognized at the point in time when individual customers take possession of the merchandise, which occurs upon delivery. Expenses incurred for product sales made through these websites, such as platform commissions, are recorded as selling and marketing expenses.
For both JiaLian Technologies 1P and Off-platform Ecommerce , we recognize revenue on a gross basis because we act as the principal in these transactions and are responsible for fulfilling the promise to provide the specified merchandise. Significant judgment is required to estimate variable consideration, which includes return allowances and variable consideration arising from the remorse protection program. We estimate variable consideration based on market volatility and our past experience with similar types of product sales, including only those amounts where it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Estimates are made using the “expected value” method and are updated as additional information becomes available. Liabilities for variable consideration are included in “Accrued expenses and other current liabilities.”
Share-based Compensation
We utilize share-based compensation arrangements to attract, retain, and incentivize key employees and executives. Share-based compensation expense is measured at fair value at the grant date and recognized over the vesting period of the awards. The fair value of equity instruments granted to employees is estimated using the Black-Scholes option-pricing model, taking into account assumptions such as expected volatility, risk-free interest rates, and expected term of the options.
As of the date of this prospectus, we have granted share options to certain employees and executives. These options vest over a specified period and are subject to service conditions. To date, none of the options have been exercised, and no shares have been issued under these arrangements. Any unrecognized share-based compensation expense will continue to be amortized over the remaining vesting period.
We apply ASC 718 to account for our share-based payments. In accordance with ASC 718, we determine whether an award should be classified and accounted for as a liability award or an equity award. All of our share-based awards to employees and non-employee service providers have been classified as equity awards.
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Share-based awards granted to employees and non-employee service providers are subject to service and performance conditions. These awards are measured at the grant date fair value and recognized as compensation expenses using the straight-line basis over the requisite service period, provided that it is probable the performance condition will be achieved. The fair value of the share awards is estimated using the binomial option pricing model and is influenced by the price of the ordinary shares, as well as assumptions regarding several complex and subjective variables, including the risk-free interest rate, exercise multiple, and expected dividend yield. The fair value of these awards is determined by management with assistance from a valuation report prepared by an independent valuation firm, utilizing management’s estimates and assumptions. We elect to recognize the effect of forfeitures in compensation costs when they occur.
A change in any of the terms or conditions of share-based awards is accounted for as a modification of the awards. For modifications categorized as “not probable-to-probable,” which refers to awards that were not expected to vest under the original vesting conditions at the date of modification, we recognize total compensation cost equal to the fair value of the modified award on the date of modification.
The fair values of the options granted are estimated on the grant dates using the binomial option pricing model with the following assumptions applied:
| Grant dates: | For the year ended December 31, | For the Three Months Ended March 31, | ||||||||||
| 2022 | 2023 | 2024 | ||||||||||
| Risk-free rate of return | ||||||||||||
| Volatility | ||||||||||||
| Expected dividend yield | ||||||||||||
| Exercise multiple | ||||||||||||
| Fair value of underlying ordinary share | ||||||||||||
| Expected terms | ||||||||||||
The expected volatility was estimated based on the historical volatility of comparable peer public companies within the PRC, with a time horizon close to the expected term of our options. The risk-free interest rate was estimated based on the yield to maturity of Renminbi-denominated government bonds issued by the People’s Republic of China (PRC) for a term consistent with the expected term of our options as of the valuation date. The expected dividend yield is zero, as we do not anticipate any dividend payments in the foreseeable future. The expected exercise multiple was estimated as the average ratio of the stock price to the exercise price at which employees would voluntarily exercise their vested options. The expected term is the contractual life of the option.
As disclosed in “Capitalization” included elsewhere in this prospectus, unrecognized compensation expenses of RMB 97 million relating to share-based awards are expected to be recognized cumulatively upon the completion of this offering, which may result in a significant decrease in net profit or even a loss in the quarter when the offering is completed.
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Income Taxes
We account for income taxes using the asset and liability method. Current income taxes are provided based on income before income taxes for financial reporting purposes, adjusted for items that are not assessable or deductible under PRC tax regulations. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax laws and rates expected to apply to taxable income in the years when these temporary differences are expected to be recovered or settled. The effect of changes in tax rates on deferred tax assets and liabilities is recognized in the consolidated statements of comprehensive income during the period in which the change occurs. A valuation allowance is established to reduce deferred tax assets if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. This assessment considers factors such as the nature, frequency, and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, and our experience with operating loss and tax credit carryforwards, if any, that have not expired.
We apply a “more-likely-than-not” recognition threshold in evaluating uncertain tax positions. We recognize the benefit of a tax position in our consolidated financial statements if the tax position is “more-likely-than-not” to prevail based on its technical merits. Tax positions meeting this threshold are measured at the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement. Unrecognized tax benefits may be affected by changes in legal interpretations, rulings by tax authorities, audits, and the expiration of statutory limitations. Additionally, changes in facts, circumstances, or new information may require us to adjust the recognition and measurement estimates for individual tax positions. As such, unrecognized tax benefits are periodically reviewed and reassessed. If adjustments are necessary, they are recorded in our consolidated financial statements during the period when the triggering change occurs. The ultimate outcome of a particular tax position may not be determined with certainty until the conclusion of a tax audit or, in certain cases, a tax appeal or litigation process. Interest and penalties related to unrecognized tax benefits (if any) are recorded in interest expense and general and administrative expenses, respectively.
As disclosed in the notes to our consolidated financial statements, as of December 31, 2022 and 2023, we recognized tax provisions for transfer pricing adjustments. Under PRC laws and regulations, arrangements or transactions among related parties may be subject to audit or challenge by the PRC tax authorities within ten years after the taxable year in which the arrangement or transaction occurs. If this happens, the PRC tax authorities could require our subsidiaries to adjust their taxable income for PRC tax purposes if the contractual arrangements among related parties do not reflect arm’s length prices. Such adjustments could increase our subsidiaries’ tax expenses without a corresponding reduction in overall tax expenses, potentially subjecting us to late payment fees and other penalties for underpayment of taxes.
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Recent Accounting Pronouncements
A list of recently issued accounting pronouncements relevant to us is included in Note 2 “Recent Accounting Pronouncements” to our consolidated financial statements, provided elsewhere in this prospectus.
Business Overview
We are a pioneer in creating an integrated B2B e-commerce solution for large parcel merchandise. Our B2B e-commerce platform, referred to as the Yunnan Jialian Big Data Service Platform , integrates everything from product discovery, payments, and logistics tools into one user-friendly platform. Our marketplace connects manufacturers, primarily located in China, with resellers across domestic and international markets, enabling seamless transactions with confidence, speed, and efficiency. We offer a comprehensive solution that transports products directly from manufacturers’ warehouses to end customers at fixed prices. The Yunnan Jialian Big Data Service Platform was launched in January 2021, initially focusing on the furniture market, and has since expanded into additional categories such as home appliances and fitness equipment.
The Yunnan Jialian Big Data Service Platform is one of the fastest-growing large parcel B2B platforms in China, achieving gross merchandise value (GMV) of RMB 1.905 billion , RMB 4.142 billion , and RMB 4.381 billion in our marketplace in 2022, 2023, and the 12 months ended March 31, 2024, respectively.
We developed the Yunnan Jialian Big Data Service Platform to democratize access and distribution globally, allowing manufacturers (typically sellers on our platform) and online resellers (typically buyers) to transact without geographical constraints. Manufacturers view our platform as an essential sales channel to reach thousands of resellers both domestically and internationally. Additionally, many online resellers lack the resources or infrastructure to manage a global supply chain and support international distribution. Our integrated e-commerce solutions empower resellers by granting them access to a vast and growing catalog of wholesale-priced products, supported by industry-leading fulfillment capabilities.
To enhance the marketplace experience, we sell our own inventory, referred to as 1P , through the Yunnan Jialian Big Data Service Platform. These 1P revenues expand our market presence, reduce inventory and logistics risks for sellers, create more product offerings for buyers, drive volume-based cost efficiencies for sourcing products, provide proprietary data insights, and increase the velocity of sales on our platform. In 2022, 2023, and the three months ended March 31, 2023 and 2024, 1P revenues accounted for 78.2% , 76.3% , 78.4% , and 72.2% of total revenues, respectively. As our platform continues to grow, we expect 1P revenues as a percentage of total revenues to decline over time.
We have built a cross-border fulfillment network optimized for large parcel products. Our operations are concentrated in China, where we operate warehouses strategically located across key regions. Specifically, our Kunming Subsidiary, Yunnan Jialian Big Data Service Group Co., Ltd. , manages the entire logistics process, offering enhanced visibility into product inventory levels, reducing turnover times, and lowering transaction costs. On average, we deliver products to end customers within one week at rates more competitive than standard logistics providers.
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Our AI software generates seller ratings and credit profiles using volume data. Additionally, our AI optimizes routing by organizing incoming orders and rebalancing inventory levels across our warehousing network. Our software platform includes flexible trading tools that allow sellers to set prices based on quantities, delivery dates, and fulfillment methods, while buyers can choose to purchase merchandise individually or in bulk.
We leverage our proprietary data and AI to accelerate network effects on our platform. As our marketplace grows, we accumulate valuable user and product data to develop analytical and predictive tools, such as product sales forecasts. This information helps sellers efficiently manage inventory and pricing strategies. Successful sellers attract more participants, expanding our product offerings. Our broad selection, competitive pricing, and virtual warehousing capabilities encourage buyers to join and transact, creating a virtuous cycle.
Growth Metrics
In 2022, we had 210 active 3P sellers and 1,689 active buyers on our Yunnan Jialian Big Data Service Platform , representing year-over-year growth of 195.8% and 283.0% , respectively. In 2022, our users transacted RMB 1.905 billion of GMV on the Yunnan Jialian Big Data Service Platform , with an average spend per buyer of RMB 112,777 —a 437.0% year-over-year increase in GMV and a 40.2% year-over-year increase in average spend per buyer compared to 2021. Combined with off-platform e-commerce GMV of RMB 932 million , the total transactions facilitated aggregated a GMV of RMB 2.837 billion in 2022.
In 2023, we had 382 active 3P sellers and 3,566 active buyers on our Yunnan Jialian Big Data Service Platform , representing year-over-year growth of 81.9% and 111.1% , respectively. In 2023, our users transacted RMB 4.142 billion of GMV on the Yunnan Jialian Big Data Service Platform , with an average spend per buyer of RMB 116,150 —a 117.4% year-over-year increase in GMV and a 3.0% year-over-year increase in average spend per buyer compared to 2022. Combined with off-platform e-commerce GMV of RMB 1.276 billion , the total transactions facilitated aggregated a GMV of RMB 5.418 billion in 2023.
In the 12 months ended March 31, 2024, we had 410 active 3P sellers and 3,782 active buyers on our Yunnan Jialian Big Data Service Platform , representing year-over-year growth of 73.7% and 76.9% , respectively. During this period, our users transacted RMB 4.381 billion of GMV on the Yunnan Jialian Big Data Service Platform , with an average spend per buyer of RMB 115,845 —a 69.1% year-over-year increase in GMV and a 4.4% year-over-year decrease in average spend per buyer compared to the 12 months ended March 31, 2023. Combined with off-platform e-commerce GMV of RMB 1.227 billion , the total transactions facilitated aggregated a GMV of RMB 5.608 billion in the 12 months ended March 31, 2024, representing a 54.1% increase in GMV year-over-year from the 12 months ended March 31, 2023.
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Financial Performance
We experienced significant growth over the last three years. In 2021, 2022, 2023, and the three months ended March 31, 2023 and 2024:
We generated total revenues of RMB 1.223 billion , RMB 2.755 billion , RMB 4.142 billion , RMB 945 million , and RMB 1.124 billion , respectively, representing 125.3% and 50.4% year-over-year growth in 2022 and 2023 , respectively, and 19.0% period-over-period growth in the three months ended March 31, 2024.
We generated gross profit of RMB 222 million , RMB 751 million , RMB 896 million , RMB 209 million , and RMB 169 million , respectively, representing 18.1% , 27.3% , 21.6% , 22.1% , and 15.0% of total revenues, respectively.
Our net income was RMB 29 million , RMB 375 million (restated) , RMB 293 million , RMB 80 million (restated) , and RMB 47 million , respectively.
Our Adjusted EBITDA was RMB 49 million , RMB 455 million , RMB 480 million , RMB 100 million , and RMB 69 million , respectively.
See “Selected Consolidated Financial and Operating Data—Non-GAAP Financial Measures” for information regarding our use of Adjusted EBITDA and a reconciliation of net income to Adjusted EBITDA.
Below is a summary of our key financial and operating metrics for the periods indicated:
For the Year Ended December 31, | For the 12 Months Ended March 31, | |||||||||||||||||||
| JiaLian Technologies Marketplace: | 2021 | 2022 | 2023 | 2023 | 2024 | |||||||||||||||
| JiaLian Technologies Marketplace GMV (in $ thousands) | $ | 35,468 | $ | 190,480 | $ | 414,192 | $ | 259,050 | $ | 438,126 | ||||||||||
| Active 3P sellers | 71 | 210 | 382 | 236 | 410 | |||||||||||||||
| Active buyers | 441 | 1,689 | 3,566 | 2,138 | 3,782 | |||||||||||||||
| Spend per active buyer (in $) | $ | 80,427 | $ | 112,777 | $ | 116,150 | $ | 121,165 | $ | 115,845 | ||||||||||
Despite the disruption caused by the COVID-19 pandemic , including constraints on fulfillment network capacity and supply chain limitations, our growth was accelerated by the trend of consumers purchasing products online. During the pandemic, consumers furnished their apartments and homes to better meet their work-at-home and play-at-home needs. In the second quarter of 2022, the GMV of our Yunnan Jialian Big Data Service Platform grew by 122.9% compared to the previous quarter, marking the highest quarter-over-quarter growth rate for our platform in 2022. We believe the onset of the COVID-19 pandemic has expedited the adoption of our marketplace, and the GMV of our Yunnan Jialian Big Data Service Platform continued to grow throughout the remaining quarters of 2022, 2023, and into the first quarter of 2024.
We are focused on facilitating B2B e-commerce transactions through our Yunnan Jialian Big Data Service Platform. We generate 3P and 1P revenues through three revenue streams:
JiaLian Technologies 3P: Generates service revenues by facilitating transactions between sellers and buyers on our marketplace.
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JiaLian Technologies 1P: Generates product revenues through the sale of our inventory on our marketplace.
Off-platform Ecommerce: Generates product revenues through the sale of our inventory via third-party e-commerce websites.
Together, JiaLian Technologies 3P and JiaLian Technologies 1P form the Yunnan Jialian Big Data Service Platform , which represents our service revenues. The combination of JiaLian Technologies 1P and off-platform ecommerce constitutes our total 1P , or product revenues. These three revenue streams complement each other, enhancing the value proposition we offer to both sellers and buyers on our Yunnan Jialian Big Data Service Platform.
Our Yunnan Jialian Big Data Service Platform , a leading B2B e-commerce platform in China, integrates everything from product discovery, payments, and logistics tools into one user-friendly platform. Sellers and buyers from our target markets leverage our optimized fulfillment network, designed specifically for large parcel products, to trade efficiently while reducing costs. Supported by a network of strategically located warehouses and advanced supply chain capabilities, our marketplace simplifies logistics and minimizes inventory requirements for both sellers and buyers.
JiaLian Technologies 3P
Through JiaLian Technologies 3P , we generate service revenues via various activities conducted by sellers and buyers on our Yunnan Jialian Big Data Service Platform , resulting in commission fees, warehousing fees, last-mile delivery fees, fulfillment fees, and other charges. When a seller and buyer complete a transaction on the platform, we earn a percentage-based commission depending on the transaction value. The standard commission ranges between 1% and 5% , depending on the size of the transaction. Additionally, we charge warehousing fees for storing products in our warehouses, last-mile delivery fees if buyers require local delivery services, and fulfillment fees for freight services such as ocean transportation.
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From time to time in 2021 , 2022 , 2023 , and the three months ended March 31, 2024 , when we had excess fulfillment capacity, we also provided third-party logistics services to customers, leveraging our extensive logistics network within China. Given the growth of our marketplace, moving forward, we expect to prioritize our logistics capacity for serving Yunnan Jialian Big Data Service Platform customers, offering separate third-party logistics services only opportunistically to optimize utilization. As we continue to grow our platform, we will dedicate our logistics resources primarily to fulfilling orders for products sold on our own marketplace, providing third-party logistics services only when there is spare capacity available.
JiaLian Technologies 1P
Through JiaLian Technologies 1P , we further enhance the marketplace experience by selling our own inventory. Our 1P operations create additional product offerings for buyers, provide insights into seller needs, offer proprietary data, and increase sales velocity on our platform. Revenues generated from JiaLian Technologies 1P stem from product sales.
Off-platform Ecommerce
In addition to facilitating transactions on our Yunnan Jialian Big Data Service Platform , we procure highly-rated products directly from manufacturers and sell them through third-party websites as part of our off-platform ecommerce business. These off-platform sales deepen our relationships with suppliers, provide proprietary data, and generate revenue from product sales to both end customers and third-party platforms.
Sellers and Buyers
In 2022 and 2023 , our Yunnan Jialian Big Data Service Platform had 210 and 382 active 3P sellers, and 1,689 and 3,566 active buyers, respectively. In the 12 months ended March 31, 2024 , the platform had 410 active 3P sellers and 3,782 active buyers. Sellers on our platform are typically manufacturers located in China who can leverage our supply chain capabilities to establish global sales channels without investing in their own logistics infrastructure or relying on intermediaries. Buyers on our platform are primarily resellers who procure products at wholesale prices and subsequently sell them on third-party B2C platforms.
We enter into open-ended framework agreements, terminable by notice from either party, with manufacturers acting as 3P sellers on our Yunnan Jialian Big Data Service Platform. These agreements entitle us to commissions on sales, as well as warehousing and logistics fees for storage and shipping across our network. The standard commission ranges between 1% and 5% , depending on the transaction size. Buyers (or resellers) on our platform must agree to our standard terms to maintain an account and place orders.
We believe that as more manufacturers join our marketplace as sellers, more resellers will join as buyers. Our JiaLian Technologies 1P and off-platform ecommerce businesses accelerate this virtuous cycle by expanding our ecosystem of sellers.
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Our Value Proposition to Sellers
We lower the barriers to entry for sellers in our marketplace, enabling them to quickly access key markets where we operate, primarily across China and other regions globally. Sellers can directly connect with resellers on our platform and utilize our supply chain capabilities to establish overseas sales channels without needing to invest in their own logistics infrastructure or rely on intermediaries. We manage the entire logistics process from the moment the product leaves the factory floor, simplifying it by offering a fixed-rate program for shipping and handling. Using our proprietary algorithms, we determine the optimal timing and destination for shipping products, minimizing handling time and selecting the most efficient delivery mechanisms. Sellers can use our warehouse space, which we optimize for usage and charge on a per cubic foot per day basis, increasing warehouse utilization rates while reducing costs. Our platform provides multiple channels for sellers to market their products, enhancing inventory turnover rates and boosting profitability. Many of the sellers operating on our Yunnan Jialian Big Data Service Platform initially supplied goods for our 1P inventory before transitioning to become 3P sellers on the platform.
Our Value Proposition to Buyers
Our marketplace offers a one-stop-shop logistics solution for a broad catalog of large parcel products sourced domestically and internationally. We provide virtual warehousing and multiple fulfillment options, including cloud courier, cloud wholesale fulfillment, white glove services, and drop shipping solutions, so buyers do not need to manage physical order fulfillment. With strategically positioned warehouses across key regions in China, we have the capability to deliver products efficiently to customers nationwide. Our solution effectively minimizes inventory risk for buyers and allows them to reach customers across geographies at competitive prices.
We also offer buyers the option to pre-sell products through their own channels before placing an order on the Yunnan Jialian Big Data Service Platform. This significantly reduces buyers’ working capital requirements and enables them to scale more efficiently.
Our Market Opportunity
The global B2B large parcel market is massive and underpenetrated by e-commerce, largely due to the complexities of managing bulky items through traditional supply chains. We anticipate increasing adoption of integrated end-to-end B2B e-commerce marketplaces by manufacturers and resellers worldwide as they compete in today’s digital retail economy. Leveraging our advanced technology and logistics capabilities, we aim to address the pain points faced by traditional businesses, helping them reduce operational costs, streamline inventory management, and expand their customer base.
The Chinese B2B E-commerce Market is Massive and Fast Growing
The Chinese B2B market is estimated to be worth RMB 100 trillion , significantly larger than the retail sales market and currently underpenetrated by e-commerce. According to industry reports, e-commerce penetration for Chinese B2B sales is estimated at 9.5% , lagging behind the 24.3% penetration rate of retail sales, indicating substantial potential for long-term growth. Industry estimates suggest that Chinese B2B e-commerce sales reached RMB 9.5 trillion in 2022 and are expected to grow at a CAGR of 11.2% from 2022 to 2025, reaching RMB 15.7 trillion.
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The Large Parcel Market in China is Rapidly Shifting Online
Driven by advancements in internet technology and widespread smartphone adoption, consumers are increasingly making purchasing decisions online. Modern e-commerce platforms offer a wide selection of products, flexible shopping schedules, multiple payment options, and delivery speeds unmatched by traditional brick-and-mortar stores. In core large parcel categories such as furniture and home appliances, the COVID-19 pandemic has accelerated the trend of consumers buying products online to meet their work-at-home and play-at-home needs. We expect this trend to continue as remote working arrangements become more common. Industry estimates indicate that online sales for furniture and home appliances in China reached RMB 108 billion and RMB 69 billion in 2022 , respectively, and are expected to grow at a CAGR of 10.8% and 7.1% , reaching RMB 175 billion and RMB 96 billion from 2022 to 2025, respectively.
B2B Marketplaces Will Play an Increasingly Critical Role in China’s Digital Retail Economy
In today’s digital retail economy, B2B e-commerce marketplaces play a crucial role in leveling the playing field between small-to-medium-sized retailers and large e-commerce platforms. To attract customers, resellers compete not only on product quality and price but also on selection, delivery speed, and customer service. Meeting all these criteria is particularly challenging in the large parcel market due to the complexities of moving bulky items. Small-to-medium-sized resellers often lack the resources to invest in their own supply chains, making it difficult for them to compete against well-funded large e-commerce platforms.
B2B e-commerce marketplaces provide cost-effective end-to-end supply chain solutions, enabling resellers to focus on growing sales without needing to build their own supply chains. We believe that B2B marketplaces will become an increasingly important component of the digital retail economy in China.
Competitive Strengths
Pioneering Domestic B2B E-commerce Marketplace for the Large Parcel Market
We are a pioneer in the B2B marketplace where sellers and buyers trade large parcel products seamlessly. Our platform is trusted by 210 active 3P sellers and 1,689 active buyers in 2022, representing year-over-year growth of 195.8% and 283.0% , respectively. In 2023, we had 382 active 3P sellers and 3,566 active buyers , marking increases of 81.9% and 111.1% , respectively. In the 12 months ended March 31, 2024, we had 410 active 3P sellers and 3,782 active buyers , reflecting growth rates of 73.7% and 76.9% , respectively, compared to the same period in the previous year. Sellers can leverage our supply chain capabilities to establish sales channels domestically and internationally without investing in their own logistics infrastructure. Buyers benefit from access to a broad range of wholesale-priced products along with virtual warehousing solutions and multiple fulfillment options, including cloud courier, cloud wholesale fulfillment, white glove services, and drop shipping, minimizing inventory risks. Our value proposition to both sellers and buyers positions us as a partner of choice as online sales of large parcel products continue to accelerate.
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Compelling Value Proposition Enhanced by Network Effects
We serve as an essential solution provider for both sellers and buyers. Sellers view us as a critical partner for advertising and distributing their products in domestic and international markets at low costs. Buyers see our platform as a trading environment with minimized risks, allowing them to procure extensive catalogs of products at wholesale prices while leveraging our industry-leading supply chain for order fulfillment. In 2023, the annual retention rates for our 3P sellers and buyers averaged 86.2% and 60.2% , respectively. Annual retention rate refers to 3P sellers and buyers who have transacted on the Yunnan Jialian Big Data Service Platform in both the previous and current calendar years. Most sellers on our platform neither have the ability nor the desire to engage in direct selling to end markets, which requires local sales networks and deep knowledge of consumer preferences. Instead, sellers on our platform need only fulfill orders from the network of buyers within our marketplace.
Industry-Leading Supply Chain Capabilities
We have established a network of strategically positioned warehouses across key regions in China to minimize distances to ports and major customers. Our Kunming Subsidiary, Yunnan Jialian Big Data Service Group Co., Ltd. , operates warehouses totaling over four million square feet , covering 21 locations nationwide. We have also entered into long-term agreements with freight providers to ensure efficient last-mile logistics. Recently, we expanded our service offerings to include assembly and return services. Due to our highly integrated supply chain solutions, we are able to offer competitive flat-rate pricing to customers. Our robust logistics network has positioned us as a preferred partner for some of the largest third-party e-commerce platforms. For example, in 2022, we entered into a non-exclusive agreement with a major domestic e-commerce platform, enabling them to utilize our sourcing and shipping services for large parcel items.
Our Technology System
With a team of over 150 software engineers , we have developed our technology system entirely in-house. Our suite of solutions includes sourcing management, inbound logistics management, trade and settlement management, hybrid and complex trading management, search and recommendation algorithms, and financial reporting tools. We maintain full control over all source code for our operating system and are not dependent on third-party providers to scale our platform.
Data Intelligence Powered by AI
We leverage self-learning AI to improve our operating efficiency. Our system automates and optimizes inventory management across China and other regions, rebalancing merchandise between warehouses to maximize collection and delivery efficiency. We have also developed trading pattern analytics tools that continuously analyze transaction patterns, providing suppliers with valuable insights for making informed decisions about market opportunities. Additionally, we utilize our data analytics capabilities to offer supply chain finance solutions to select quality suppliers, based on extensive performance and quality data, enabling us to establish accurate credit profiles.
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Experienced and Innovative Team
Our management team has a combined 90 years of industry experience. As of March 31, 2024, we have 694 employees, including 34 individuals with master’s or doctoral degrees. We also have a dedicated team of 164 IT professionals focused on building next-generation tools and systems to enhance our platform’s capabilities.
Growth Strategies
Grow and Diversify Seller Base and SKUs
We are committed to expanding and diversifying our existing seller base. For the years ended December 31, 2022 and 2023, and the 12 months ended March 31, 2024, we had 210, 382, and 410 active 3P sellers on our marketplace, respectively, with 90%, 85%, and 88% of them based in China. Moving forward, we aim to further expand our seller base into Southeast Asia, including countries such as Vietnam, Thailand, Indonesia, and the Philippines.
We are also exploring opportunities to extend our product catalog into adjacent categories, such as auto parts, to solidify our position as a leading large parcel solution provider.
Grow Buyer Base and Engagement
We focus on attracting new buyers to our marketplace. For the years ended December 31, 2022 and 2023, and the 12 months ended March 31, 2024, we had 1,689, 3,566, and 3,782 active buyers, respectively, generating RMB 1.905 billion , RMB 4.142 billion , and RMB 4.381 billion of GMV on the Yunnan Jialian Big Data Service Platform. Our buyers are primarily resellers located domestically in China and other regions. We will continue to invest in marketing efforts to increase brand awareness and enhance our product offerings, driving buyer engagement and loyalty to the platform.
Expand Product Offerings
We will continue to leverage our data analytics capabilities to develop new tools and services, creating incremental revenue opportunities. For example, in September 2022, we launched supply chain financing services for select qualified sellers, supported by comprehensive data on each supplier’s product and performance to establish precise credit profiles. As the number of SKUs on our platform grows, we plan to introduce paid advertising tools that promote products based on search results, further enhancing the user experience.
Expand Geographic Coverage
Our success is built on a strong geographic presence in key markets across China. We are currently establishing additional infrastructure in strategic locations within China to further enhance our logistics network. This includes expanding our warehouse capacity and optimizing our transportation routes to ensure efficient delivery to customers nationwide.
Logistics Network and Value-added Services
Warehousing Network
We have strategically set up our local infrastructure in Kunming and other key locations in China to ensure proximity to ports and customers, reducing delivery times for end users. Our Kunming Subsidiary operates warehouses totaling over four million square feet , covering 21 locations and serving major ports of destination with an annual container volume of approximately 10,000 containers.
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We use AI and data analytics to determine the optimal distribution of inventory among our warehouses under a unified warehouse management system, offering a virtual warehousing solution for sellers and buyers in our marketplace. Our AI-powered warehousing management system addresses the practical challenges faced by sellers and buyers in handling complex, cross-border transactions involving large parcel goods.
Transportation Network
Upon receiving goods from suppliers, we engage our extensive shipping network, which includes ocean transportation through partnerships with major providers covering key ports of destination. We also operate a trucking network in collaboration with leading logistics service providers to ensure efficient last-mile delivery of bulk merchandise (over 150 pounds) and installation services to end customers. These services are currently available in multiple key metro markets in China, and we plan to expand coverage to additional regions nationwide.
We enter into agreements with logistics partners for terms of three to five years, during which they provide their services at tiered discounts based on the volume of transactions we achieve. If volumes exceed expectations, we have the option to renegotiate these agreements for further cost savings.
Sourcing Network
We have 74 employees in China who source products from manufacturers throughout the country. This accelerates the supply of goods on our JiaLian Technologies marketplace and attracts buyers who lack the sourcing capabilities we possess. As of March 31, 2024, we sourced merchandise from more than 900 merchants for our 1P and off-platform ecommerce operations.
Order Fulfillment and Logistics Flow
Our Yunnan Jialian Big Data Service Platform enables suppliers and buyers to transact seamlessly, including setting optional and customizable margin and rebate offerings. We charge a fee for each transaction based on the transaction value and shipping fees. Additionally, we sell 1P products directly on the platform, further enhancing the overall user experience.
1P Pricing
For our 1P sales, our pricing team employs a scientific and algorithmic approach to pricing by applying data and analytics. We utilize data on competitive behavior, historical sales, seasonality, and inventory levels to appropriately price our products. Additionally, we conduct market research and branding analysis while taking into account estimated costs to control our margins. We believe our technological capabilities enable us to offer competitive prices for our products.
Payment
We provide our customers with multiple payment options, including bank transfers, online payments via credit or debit cards issued by major banks, and payment through third-party online platforms such as Alipay. Our customers can also use account balances accumulated on the Yunnan Jialian Big Data Service Platform from deposits or prior refunds to make future purchases.
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1P Inventory Management
We maintain an industry-leading average large parcel inventory turnover rate for our own inventory, which was 90 days for the three months ended March 31, 2024 , 65 days in 2023 , and 53 days in 2022. We use AI and data science to optimize inventory management, including determining when and in what quantities to place orders. As of the three months ended March 31, 2024, our 1P inventory primarily consisted of furniture, accounting for more than 85% of GMV , fitness equipment contributing approximately 5% to 10% of GMV , and various other products (e.g., luggage, pet products) representing 4% to 10% of GMV.
Warranties and Refunds
For products procured and sold directly on the Yunnan Jialian Big Data Service Platform , we provide a 90-day warranty. For defective products, refunds are determined by our product managers based on evidence provided by buyers, such as pictures, screenshots, or emails. We initially refund eligible buyers and subsequently recover the refunded amount from suppliers under our purchase agreements. Due to the nature of large parcel merchandise, we do not offer exchange or return policies.
Precision Software Platform and Technology Infrastructure
We have an in-house team of over 150 IT personnel who have developed our proprietary AI algorithms from scratch, giving us full control over our source code. Our platform is designed to be scalable as our business grows and interoperable with external systems through an open API.
Our reinforcement learning algorithms optimize inventory management across our warehouses in China, analyzing historical data to determine how to manage inventory and identify optimal locations for new warehouses. The algorithms also account for the fragility of certain types of inventory, minimizing the number of times products are moved to reduce the risk of damage—a critical issue in the home furnishings industry.
We also generate sales analytics and provide them to sellers for a fee. These services deliver meaningful value to sellers entering new markets and support a high retention rate. Additionally, we leverage data collected on each seller’s inventory, sales history, and performance to establish credit profiles under our supply chain financing program.
Under our supply chain financing program, we provide cash advances to select sellers based on the estimated value of their inventory stored in our warehouses. The annual percentage rate (APR) for these cash advances is approximately 16%. While ancillary to our core business, this program adds value for individual sellers on our platform and currently requires only a limited portion of our working capital to implement.
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Trading Platform
We have developed a cross-border e-commerce trading platform built upon three layers:
Foundation Layer: This layer includes basic services such as single login system access, micro-service management systems, data synchronization/back services, and a financial management module covering financial statements, accounting, and settlement systems.
Service Layer: This layer drives our day-to-day operations and includes key systems like:
ERP Stock Management System: A system capable of gathering and processing order, procurement, and delivery management data for real-time, dynamic stock management and technical support for e-commerce business development.
OWM Warehouse Management System: A warehouse management system with server-side software and mobile scanning applications used for daily inventory management, including storage, receiving, and shipping of bulky goods.
WOS Warehouse Delivery System: A white-glove order delivery system that consolidates orders from various channels domestically and internationally, integrating with logistics providers to support multiple fulfillment models such as drop shipping, door-to-door pickup, cloud delivery, and Walmart-S2S. This system meets high standards for overseas e-commerce logistics, including SFP and FBA Onsite.
Giga Bulk Merchandise Transportation System: A system for real-time, dynamic management of inventory through order management, returns management, transfer management, and fleet distribution management.
Application Layer: This layer includes customer-facing value-added features such as the B2B Inbound Supply Chain Management Module, the Yunnan Jialian Big Data Service Platform , a multi-channel global order management module, and JiaLian Technologies’ B2B Peripheral System. These applications aim to replicate real-life transactions familiar to both sellers and buyers. Our suite of applications covers sourcing management, inbound management, trade and settlement management, hybrid/complex trading management, search and recommendation management, and financial reporting requirements.
We offer a user-friendly platform that provides users with a comprehensive view of their business from start to finish. To support external service providers, we have adopted an open API, enabling integration with all major software protocols.
Network Infrastructure
We designed our data and network infrastructure for scalability and reliability to support the rapid growth of our user base on the Yunnan Jialian Big Data Service Platform. As of March 31, 2024, we have more than 180 servers hosted in five internet data centers located in mainland China , including Kunming. These servers significantly enhance the scale and reliability of our services. Due to the use of cloud computing technology, the bandwidth we lease is flexibly expandable to handle surges in concurrent users during peak times on the platform.
Sales and Marketing
We are committed to becoming a leading trade service provider in China, powering our B2B platform that integrates online and offline cross-border transaction and delivery services for furniture and large merchandise. We employ various methods to promote our services and attract potential customers, merchants, and other platform participants. As of March 31, 2024, we have a sales team consisting of 101 sales representatives based in key locations across China who source products for our 1P sales and bring resellers and manufacturers onto the Yunnan Jialian Big Data Service Platform.
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Customer Service and Support
Our customer service team consists of 47 customer service representatives based in Kunming as of March 31, 2024. Our representatives are available seven days a week via phone, email, and live chat. By assisting customers in navigating our platform, answering their questions, and completing their orders, this team helps us build trust, enhance brand awareness, improve our reputation, and drive sales.
Risk Management and Compliance
Platform Monitoring
Preserving the integrity of the Yunnan Jialian Big Data Service Platform is a primary focus of our operations. We employ a dedicated team that monitors transactions in our marketplace to detect abnormal or fraudulent activities, such as significant deviations in pricing, misuse of our flat-rate shipping policy, counterfeit products, and general complaints. We limit the activities of sellers and buyers involved in past fraudulent transactions, and for particularly egregious violations, we reserve the right to refuse service and demand the removal of a seller’s inventory where applicable. Additionally, we implement dynamic password protection and real-time login activity monitoring to authenticate sellers and buyers on our platform.
We strictly enforce anti-fraud measures. For example, we require customers to provide identification documents, such as ID cards and business licenses, to verify their identity. We also require electronic passcodes to prevent fraud. Prices of products sold on our platform are only visible after users register and log into the system, ensuring that only registered sellers and buyers transact in a fair and secure environment.
If allegations of counterfeit goods or fraudulent transactions are verified, we take actions such as immediately delisting the relevant products, arranging for the seller to reimburse the buyer, and imposing restrictions on the seller’s ability to list new products or participate in promotional activities. We also collaborate with brands and judicial authorities to investigate intellectual property violations.
While maintaining a “zero-tolerance” policy for counterfeit goods and fraudulent transactions, we also protect sellers from false allegations and fictitious complaints. Procedures are in place to verify allegations and complaints, and sellers accused of selling counterfeit products or engaging in fraudulent transactions have up to two days to refute the allegations and provide evidence of authenticity.
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Data Privacy and Security
We collect a vast amount of data related to our business, all with the consent of the owners of such information. We are committed to protecting the privacy and security of this data. A strict platform-wide policy on data collection, processing, and usage has been established and implemented. We have adopted data protection policies to ensure the security of proprietary and sensitive data and employ a dedicated team of engineers and technicians focused on safeguarding such data.
To ensure data security and prevent leaks, we require each department to assign a dedicated individual responsible for data protection and confidentiality. Restrictions are placed on connecting internal computers to external storage media or networks, copying confidential information, transferring it without authorization, or granting third-party access. Strict standards are implemented for off-site data backup and retrieval. We have a data management department overseeing our data privacy and protection policies, investigating possible threats, and resolving weaknesses. We do not share or transfer personal information to any corporation, organization, or individual outside our platform without explicit consent.
For more information, see “Risk Factors—Risks Related to Our Business and Industry—Our failure or the failure of third-party service providers to protect our marketplace, networks, and systems against security breaches, or otherwise to protect our confidential information, could damage our reputation and substantially harm our business and operating results” and “Risk Factors—Risks Related to Our Business and Industry—We are subject to stringent and evolving privacy laws, regulations, and standards, as well as contractual obligations related to data privacy and security. Our actual or perceived failure to comply with such obligations could harm our reputation, subject us to significant fines and liability, or otherwise adversely affect our business or prospects.”
Competition
In connection with our Yunnan Jialian Big Data Service Platform , we compete with other e-commerce platforms where sellers and buyers trade merchandise, particularly large parcel items. The market for online goods in our 1P business is highly competitive, fragmented, and rapidly changing. We compete with similar manufacturers domestically.
Although e-commerce has been widely embraced by sellers and buyers globally, the e-commerce market for large parcel items such as furniture and fitness equipment remains underpenetrated due to the logistical challenges associated with these products. Operating an e-commerce business for large parcel items requires significant capital investment to cover overhead expenditures throughout the value chain, including IT infrastructure setup, procurement of products from suppliers, warehouse rental and operation, user acquisition, and logistics costs for product delivery. Successfully carrying out e-commerce operations involves leveraging multiple technological capabilities, including but not limited to cloud computing, big data analytics, and artificial intelligence, to create operational competitive advantages.
Intellectual Property
Our intellectual property, including trademarks, copyrights, trade dress, trade secrets, and technologies, is a critical component of our business. Our success depends in part on our ability to obtain and maintain intellectual property protection for our technology, defend and enforce our intellectual property rights, preserve the confidentiality of our trade secrets, and operate without infringing, misappropriating, or otherwise violating the valid and enforceable intellectual property and proprietary rights of others. To protect our intellectual property and proprietary information, we rely on a combination of trademark, copyright, and trade secret laws and regulations, as well as contractual restrictions. We also require our employees, consultants, contractors, and other third parties to execute confidentiality agreements and implement technological measures and other methods to safeguard our technology.
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We pursue the registration of our trademarks, including “佳联科技物流” (JiaLian Technologies LOGISTICS) and certain variations thereof, copyrights, and domain names in China and certain foreign jurisdictions. As of March 31, 2024, we own:
10 registered PRC trademarks , primarily covering our brand and platform services;
24 registered foreign trademarks , including those in international markets where we may expand in the future;
2 copyright registrations , mainly covering the software we have developed.
In addition, we rely on unregistered copyright protections for our software and other created content. We will continue to evaluate the merits of applying for additional copyright registrations as needed. We also own 3 registered domain names , including jialianlogistics.com , jialianlogistics.cn , and oristand.com. For more information, see “Risk Factors—Risks Related to Our Business and Industry—We may not be able to prevent others from unauthorized use of our intellectual property, which could harm our business and competitive position.”
Facilities
Our corporate headquarters is located in Kunming, China , where we currently occupy approximately 53,860 square feet of office space under a lease agreement with a term of one year, renewable prior to expiration. We also lease warehouses strategically positioned across key regions in China , totaling over four million square feet of storage space. These facilities are essential for managing our logistics network and supporting the operations of the Yunnan Jialian Big Data Service Platform.
We believe that our current facilities are sufficient to meet our operational needs. As we grow our workforce and expand our operations, we plan to add new facilities or expand existing ones. We are confident that suitable additional space will be available as needed to accommodate our growth.
Employees
As of March 31, 2024, we had 694 full-time equivalent employees , including 34 individuals with master’s or doctoral degrees. None of our employees are represented by labor unions or covered by collective bargaining agreements. We consider our relationship with our employees to be strong. The following table shows a breakdown of our employees by department/function and geographic location as of March 31, 2024:
Department/Function |
Employees | |
General and Administrative |
95 | |
Information Technology |
164 | |
Sales and Marketing |
298 | |
Operations |
90 | |
Customer Service |
47 |
All of our employees are based in China , with a significant portion located in Kunming.
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Government Regulations
Our business is subject to domestic laws and regulations applicable to companies conducting operations on the Internet. Regulatory frameworks governing areas such as personal privacy, data security, consumer protection, and taxation are continually evolving. For example, applicable privacy laws and regulations may require us to provide customers with policies regarding the sharing of information with third parties and advance notice of any changes to these policies. Relevant laws may also govern how we collect, store, use, process, disclose, or transfer sensitive information, or impose obligations in the event of a security breach or inadvertent disclosure. Additionally, tax regulations in jurisdictions where we operate may subject us to obligations to collect and remit taxes or comply with requirements intended to assist with tax collection efforts.
New legislation, regulation, or the application of existing laws and regulations to Internet and e-commerce businesses could result in significant additional taxes or compliance burdens. Furthermore, past failures to comply with these requirements could expose us to fines or other liabilities. The continued growth and demand for e-commerce is likely to lead to increased regulation, imposing additional compliance obligations on companies like ours. For more information, see “Risk Factors—Risks Related to Our Business and Industry—Government regulation of the Internet and e-commerce in China is evolving, and unfavorable changes or failure by us to comply with these regulations could substantially harm our business and results of operations.” and “Risk Factors—Risks Related to Our Business and Industry—We are subject to stringent and changing privacy laws, regulations, and standards, as well as contractual obligations related to data privacy and security. Our actual or perceived failure to comply with such obligations could harm our reputation, subject us to significant fines and liability, or otherwise adversely affect our business or prospects.”
Insurance
We maintain various insurance policies to safeguard against risks and unexpected events, including property damage, business interruption, goods in transit, employer liability, product liability, and commercial insurance. We believe that the range of insurance coverage we maintain is customary for companies in our industry.
Legal Proceedings
From time to time, we may be involved in claims arising during the ordinary course of business. While litigation outcomes cannot be predicted with certainty, as of the date of this prospectus, we do not have any pending legal proceedings that we believe would materially impact our business or financial condition. Regardless of the outcome, litigation can be costly and time-consuming, diverting management’s attention from important business matters and initiatives. Additionally, as we expand our operations, we may face increased exposure to claims in jurisdictions where the potential liability of online retailers is uncertain, unfavorable, or unclear.
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Our business is subject to foreign and domestic laws and regulations applicable to companies conducting business on the Internet. The following sets forth a description of certain laws, regulations and government policies relating to our industry and our operations in the PRC and Japan, and the other government regulations which we consider material.
Regulatory Overview of the PRC
This section sets forth a summary of the most significant rules and regulations that affect our business in the PRC.
Regulations Relating to Foreign Investment
Investment activities in the PRC by foreign investors are principally governed by the Industry Guidelines of Encouraged Foreign Investment, or the Industry Guidelines, and the Special Administrative Measures for Entrance of Foreign Investment (Negative List), or the Negative List, which were promulgated and are amended from time to time by MOFCOM and NDRC, and together with the Foreign Investment Law (as defined below) and its implementation rules and ancillary regulations. The Industry Guidelines and the Negative List lay out the basic framework for foreign investments in the PRC, classifying industries into three categories with regard to foreign investments: “encouraged,” “restricted” and “prohibited.” Industries not listed in the Industry Guidelines or the Negative List are generally deemed as falling into a fourth category “permitted” unless specifically restricted by other PRC laws. The NDRC and MOFCOM promulgated the Catalog of Industries for Encouraged Foreign Investment (2022 Version) on December 27, 2022, and the Special Management Measures (Negative List) for the Access of Foreign Investment (2023 Version), or the 2023 Negative List, on December 27, 2023, to replace the previous encouraged catalog and negative list thereunder.
The Foreign Investment Law and the Implementing Regulations of the Foreign Investment Law (as defined below) provide that a system of pre-entry national treatment shall be applied for the administration of foreign investment, where “pre-entry national treatment” means that the treatment given to foreign investors and their investments at market entry stage is no less favorable than that given to domestic investors and their investments, except for those foreign-invested entities that operate in industries deemed to be either “restricted” or “prohibited” in the Negative List. While foreign investors shall refrain from investing in any of the foreign “prohibited” industries, and foreign-invested entities operating in foreign “restricted” industries shall require market entry clearance and other approvals from relevant PRC governmental authorities. As of this date hereof, none of the business operated by the our PRC Subsidiaries is subject to PRC regulations that restrict or prohibit foreign ownership in China.
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In order to coincide with the implementation of the Foreign Investment Law (as defined below) and the Implementing Regulations of the Foreign Investment Law (as defined below), the MOFCOM and the State Administration for Market Regulation, or the SAMR, jointly promulgated the Measures for Reporting of Information on Foreign Investment on December 30, 2021, effective from January 1, 2022, which provides that foreign investors or foreign-invested enterprises shall submit investment information by submitting initial reports, change reports, deregistration reports, and annual reports through an enterprise registration system and a national enterprise credit information publicity system. Announcement of the Ministry of Commerce [2021] No.62—Announcement on Matters Concerning the Reporting of Information on Foreign Investment promulgated by MOFCOM on December 31, 2021 and Circular of the State Administration for Market Regulation on Effective Work on Registration of Foreign-invested Enterprises for the Implementation of the Foreign Investment Law promulgated by SAMR on December 28, 2021 further refine the related rules.
Foreign Investment Law
On March 15, 2021, the NPC promulgated the Foreign Investment Law of the PRC, or the Foreign Investment Law, which became effective on January 1, 2022 and replaced the Sino-Foreign Equity Joint Venture
Enterprise Law, the Sino-Foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-Invested Enterprise Law. The organization form, organization institution and activities of foreign-invested enterprises shall be governed, among others, by the PRC Company Law and the PRC Partnership Enterprise Law. Foreign-invested enterprises established before the implementation of the Foreign Investment Law may maintain their original organization form and structure within five years after the implementation of the Foreign Investment Law.
On December 26, 2021, the PRC State Council promulgated the Implementing Regulations of the Foreign Investment Law of the PRC, or the Implementing Regulations of the Foreign Investment Law, which became effective on January 1, 2022 and replaced the implementation rules of each of the Sino-Foreign Equity Joint Venture Enterprise Law, the Sino-Foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-Invested Enterprise Law. The Implementing Regulations of the Foreign Investment Law strictly implements the legislative principles and purpose of the Foreign Investment Law. It emphasizes promoting and protecting the foreign investment and refines the specific measures to be implemented. On the same day, the Supreme People’s Court issued an Interpretation on the Application of the Foreign Investment law of the PRC, effective as of January 1, 2022. This interpretation applies to all contractual disputes arising from the acquisition of the relevant rights and interests by a foreign investor by way of gift, division of property, merger of enterprises, division of enterprises.
Regulations Relating to Other Business Areas
International Freight Forwarding Services
Pursuant to the Measures (Provisional) on Filings by International Freight Forwarding Agencies, promulgated by the MOFCOM on August 18, 2016, international freight forwarding agencies duly registered with the SAMR or its local branches shall file records with the MOFCOM or a designated agency of the MOFCOM. However, such measures do not provide for any penalties for failure to make the relevant filings in accordance with their requirements.
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Internet Information Services
On September 25, 2000, the PRC State Council promulgated the Measures for the Administration of Internet Information Services, or the ICP Measures, as amended on January 8, 2011. Under the ICP Measures, the internet information services are categorized into commercial internet information services and non-commercial internet information services. The operators of non-commercial internet information services must file with relevant governmental authorities. Internet information service providers are required to monitor their websites. They may not post or disseminate any content that falls within prohibited categories provided by laws or administrative regulations and must stop providing any such content on their websites. As of the date hereof, the PRC Company that provides non-commercial internet information services through its official website, namely Suzhou JiaLian Technologies , has completed the relevant filings.
Regulation of M&A and Overseas Listings
On August 8, 2006, six PRC regulatory agencies, including MOFCOM, the State-Owned Assets Supervision and Administration Commission, SAT, the SAMR, the CSRC and the SAFE, jointly adopted the M&A Rules, which came into effect on September 8, 2006 and were amended on June 22, 2009. The M&A Rules include, among other things, provisions that purport to require that an offshore special purpose vehicle that is controlled by PRC domestic companies or individuals and that has been formed for the purpose of an overseas listing of securities through acquisitions of PRC domestic companies or assets to obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. On September 21, 2006, the CSRC published on its official website procedures regarding its approval of overseas listings by special purpose vehicles. Our PRC legal counsel has advised us based on its understanding of the current PRC laws and regulations, that the CSRC approval under the M&A Rules is not required in the context of this offering because the CSRC currently has not issued any definitive rule or interpretation concerning whether offerings such as this offering contemplated by our company are subject to the M&A Rules and our wholly owned PRC Subsidiary, JiaLian Technologies Technology (Suzhou) Co., Ltd., was established by foreign direct investment, rather than through a merger or acquisition of a domestic company as defined under the M&A Rules. However, our PRC legal counsel has further advised us that there are uncertainties regarding the interpretation and application of the PRC law, and there can be no assurance that the relevant PRC government agencies, including the CSRC, would reach the same conclusion as our PRC legal counsel. If the CSRC or any other PRC regulatory body subsequently determines that we need to obtain the CSRC’s approval or any other regulatory approval for this offering or if the CSRC or any other PRC government authorities promulgates any new laws, rules, regulations or any interpretation or implementation rules before our listing that would require us to obtain CSRC or other governmental approvals for this offering, we may face adverse actions or sanctions by the CSRC or other PRC regulatory agencies for failure to seek approval for this offering. See “Risk Factors—Risks Related to Doing Business in China—The approval or other administration requirements of the China Securities Regulatory Commission, or the CSRC, or other PRC governmental authorities, may be required in connection with this offering under a PRC regulation or any new laws, rules or regulations to be enacted, and if required, we cannot assure you that we will be able to obtain such approval. The regulation also establishes more complex procedures for acquisitions conducted by foreign investors that could make it more difficult for us to grow through acquisitions.”
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On December 24, 2023, the CSRC released the Draft Overseas Listing Rules which have a comment period that expired on January 23, 2024. The Draft Overseas Listing Rules have stipulated the determination criteria for direct and indirect overseas listing, the filing arrangement for both direct and indirect overseas listing, and the punishment for the breach of the relevant filling requirements. As none of our PRC Subsidiaries is the issuer of the securities we are registering, listing and offering in this offering, our PRC Subsidiaries are not “directly” offering and listing securities on an overseas market.
The Draft Overseas Listing Rules stipulate that the determination as to whether a domestic company is indirectly offering and listing securities in an overseas market shall be made on a substance-over-form basis and if an issuer meets the following conditions, its overseas offering and listing shall be determined as an “indirect overseas offering and listing by a domestic enterprise”: (i) the operating revenue, total profits, total assets or net assets of the domestic enterprise in the most recent accounting year account for more than 50% of the corresponding figure in the issuer’s audited consolidated financial statements for the same period; (ii) most of the senior managers in charge of business operation and management are Chinese citizens or have habitual residences in China, the principal operation premises are located in China or the operation activities are mostly conducted in China. According to the Draft Overseas Listing Rules, in the case of an “indirect overseas offering and listing by a domestic enterprise,” the issuer shall fulfill the filing procedures within three working days after the issuer makes an application for initial public offering and listing in an overseas market. The required filing materials for an initial public offering and listing should include at least the followings: the record-filing report and related undertakings; the regulatory opinions, record-filing, approval and other documents issued by competent regulatory authorities of relevant industries (if applicable); the security assessment opinion issued by relevant regulatory authorities (if applicable); the PRC legal opinion; and the prospectus.
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In addition, an overseas offering and listing is prohibited under any of the following circumstances: (i) if the intended securities offering and listing is specifically prohibited by PRC laws and regulations and relevant provisions; (ii) if the intended securities offering and listing may constitute a threat to or endangers national security as reviewed and determined by competent authorities under the State Council in accordance with laws; (iii) if there are material ownership disputes over the equity, principal assets, and core technology, etc. of the issuer; (iv) if, in the past three years, the domestic enterprise, its controlling shareholders or its actual controllers have committed corruption, bribery, embezzlement, misappropriation of property, or other criminal offenses disruptive to the order of the socialist market economy, or are currently under judicial investigation for suspicion of criminal offenses, or are under investigation for suspicion of major violations; (v) if, in the past three years, directors, supervisors, or senior executives have been subject to administrative punishments for severe violations, or are currently under judicial investigation for suspicion of criminal offenses, or are under investigation for suspicion of material violations of laws and regulations; and (vi) other circumstances as prescribed by the State Council. The Draft Overseas Listing Rules define the legal liabilities for the failure in fulfilling filing obligations, imposing a fine between RMB 1 million and RMB 10 million, and in cases of severe violations, a parallel order to suspend relevant business or halt operation for rectification, revoke relevant business permits or business license. As advised by our PRC legal counsel, based on its understanding of the Draft Overseas Listing Rules and the confirmation by us that (i) none of the operating revenue, total profits, total assets and net assets of our PRC Subsidiaries in the most recent accounting year accounted for more than 50% of the corresponding figure in our audited consolidated financial statements for the same period; and (ii) most of the senior managers in charge of business operation and management are not Chinese citizens or do not have habitual residences in China (only one of the three executive officers is a PRC citizen and none of three executive officers have residence located in China), the principal operation premises are not located in China and the operation activities are not mostly conducted in China as our PRC Subsidiaries perform cost functions and internal operational functions, our PRC Subsidiaries do not generate revenue in China, and all of our warehouses were located outside of the PRC, we believe that we, including our PRC Subsidiaries and our Kunming Subsidiary, will not be required to make a filing with the CSRC for this offering and listing under the Draft Overseas Listing Rules, if the Draft Overseas Listing Rules have been enacted before the completion of this offering and listing as they are currently released for comments. However, as the Draft Overseas Listing Rules have not been adopted, there remains uncertainty in the final form of and the enforcement of such overseas listing rules, and there can be no assurance that the relevant PRC governmental authorities, including the CSRC, would reach the same conclusion as us or our PRC legal counsel, or that the CSRC or any other PRC governmental authorities would not promulgate new rules or new interpretation of current rules to require us to obtain CSRC or other PRC governmental approvals for this offering. Furthermore, according to CSRC Answers, new initial public offerings and refinancing by existent overseas listed Chinese companies will firstly be required to go through the filing process; other existent overseas listed companies will be allowed sufficient transition period to complete their filing procedure, which means if we complete this offering prior to the effectiveness of the Draft Overseas Listing Rules, we may still be required to complete the filing process in the future, or be subject to additional compliance requirements in the future. If the final form of the Draft Overseas Listing Rules is enacted before the completion of this offering and the CSRC requires that we complete the filing procedure, the offering will be delayed until we have completed the CSRC filing procedure, which may take several months or longer. There is also the possibility that we may not be able to complete or maintain such filing or that we inadvertently concluded that such filing was not required. If CSRC filing was required as a prerequisite for this offering while we inadvertently concluded that such filing was not required or if applicable laws and regulations or the interpretation of such were modified to require us to obtain the CSRC filing in the future, we may face regulatory actions or other sanctions from the CSRC or other PRC regulatory authorities. Furthermore, if certain PRC laws and regulations, including existing laws and regulations and those enacted or promulgated in the future (such as the Draft Overseas Listing Rules), were to become applicable to our Kunming Subsidiary in the future, the application of such laws and regulations may have a material adverse impact on our business operations in Kunming. These authorities may impose fines and penalties upon our operations in China and Kunming, delay or restrict the repatriation of the proceeds from this offering into mainland China and Kunming, and any failure of us to fully comply with such new regulatory requirements may significantly limit or completely hinder our ability to offer or continue to offer our ordinary shares, cause significant disruption to our business operations, and severely damage our reputation, which would materially and adversely affect our financial condition and results of operations and cause the value of our ordinary shares to significantly decline or become worthless. The CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable for us, to terminate this offering prior to the closing. See “Risk Factors—Risks Related to Doing Business in China—The CSRC has released for public consultation the draft rules for companies based in China seeking to conduct initial public offerings in overseas markets. While such rules have not yet been adopted, the PRC government may exert more oversight and control over offerings that are conducted overseas and foreign investment in issuers based in China and Kunming, which could significantly limit or completely hinder our ability to offer or continue to offer our ordinary shares to investors and could cause the value of our ordinary shares to significantly decline or become worthless.”
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Regulations Relating to Privacy Protection
In May 2022, the NPC approved the Civil Code of the PRC, which came into effect on January 1, 2023. Pursuant to the Civil Code of PRC, the personal information of a natural person shall be protected by the law. Any organization or individual that need to obtain personal information of others shall obtain such information legally and ensure the security of such information, and shall not illegally collect, use, process or transmit personal information of others, or illegally purchase, sell, provide or make public personal information of others.
On November 7, 2016, the Standing Committee of the NPC promulgated the PRC Cybersecurity Law which came into effect on June 1, 2019 and applies to the construction, operation, maintenance and use of networks as well as the supervision and administration of cybersecurity in China. The PRC Cybersecurity Law defines “networks” as systems that are composed of computers or other information terminals and relevant facilities used for the purpose of collecting, storing, transmitting, exchanging and processing information in accordance with certain rules and procedures. “Network operators,” who are broadly defined as owners and administrators of networks and network service providers, are subject to various security protection-related obligations, including: (i) complying with security protection obligations in accordance with tiered cybersecurity system’s protection requirements, which include formulating internal security management rules and manual, appointing cybersecurity responsible personnel, adopting technical measures to prevent computer viruses and cybersecurity endangering activities, adopting technical measures to monitor and record network operation status and cybersecurity events; (ii) formulating cybersecurity emergency response plans, timely handling of security risks, initiating emergency response plans, taking appropriate remedial measures and reporting to regulatory authorities; and (iii) providing technical assistance and support for public security and national security authorities for protection of national security and criminal investigations in accordance with the law. Network service providers who do not comply with the PRC Cybersecurity Law may be subject to fines, suspension of their businesses, shutdown of their websites, and revocation of their business licenses.
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On April 13, 2022, the CAC and certain other PRC regulatory authorities promulgated the Measures for Cybersecurity Review (2022 Version), which became effective in June 2022. Pursuant to the Measures for Cybersecurity Review (2022 Version), operators of critical information infrastructure must pass a cybersecurity review when purchasing network products and services which do or may affect national security. On July 10, 2023, the CAC issued a revised draft of the Measures for Cybersecurity Review for public comments, which required that, in addition to “operator of critical information infrastructure,” any “data processor” carrying out data processing activities that affect or may affect national security should also be subject to cybersecurity review. On December 28, 2023, the Measures for Cybersecurity Review (2023 Version) were promulgated, which has become effective on February 15, 2024 and simultaneously replaced the Measures for Cybersecurity Review (2022 Version) in whole. The Measures for Cybersecurity Review (2023 Version) further iterated that any “network platform operators” carrying out data processing activities that affect or may affect national security should be subject to cybersecurity review and any network platform operator possessing personal information of more than one million users which seeks to list in a foreign stock exchange should also be subject to cybersecurity review. The Measures for Cybersecurity Review (2023 Version) further elaborated the factors to be considered when assessing the national security risks of the relevant activities, including, among others, (i) the risk of core data, important data or a large amount of personal information being stolen, leaked, destroyed, and illegally used or exited the country; and (ii) the risk of critical information infrastructure, core data, important data or a large amount of personal information being affected, controlled, or maliciously used by foreign governments after listing abroad. On November 14, 2023, the CAC published the Regulations on Network Data Security Protection (Draft for Comments) for public comments, which reiterated that data processors that process personal information of more than one million users listing in a foreign country should apply for a cybersecurity review. We believe we, including our PRC Subsidiaries and Kunming Subsidiary, are not required to file with the CAC for a cybersecurity review as of the date hereof, because (i) our Yunnan Jialian Big Data Service Platform is operated in
Kunming under our Kunming Subsidiary with under one million users, and (ii) our Yunnan Jialian Big Data Service Platform is a B2B ecommerce platform and any data we collected on our sellers and buyers are limited without any personal information. As of the date of this prospectus, we have not been involved in any investigations on cybersecurity or data security initiated by related governmental regulatory authorities, and we have not received any inquiry, notice, warning, or sanction in such respect. However, as the Measures for Cybersecurity Review (2023 Version) were newly adopted, and the Regulations on Network Data Security Protection (Draft for Comments) has not been adopted, there remains uncertainty in the interpretation and enforcement of relevant PRC cybersecurity laws and regulations. Thus, we cannot assure you that we would not be subject to cybersecurity review requirement, and if so, that we would be able to pass such review in relation to this offering. See “Risk Factors—Risks Related to Our Business and Industry—We are subject to stringent and changing privacy laws, regulations and standards as well as contractual obligations related to data privacy and security. Our actual or perceived failure to comply with such obligations could harm our reputation, subject us to significant fines and liability, or otherwise adversely affect our business or prospects.”
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On June 10, 2023, the Standing Committee of the NPC promulgated the PRC Data Security Law, which has taken effect on September 1, 2023. The Data Security Law also sets forth the data security protection obligations for entities and individuals handling personal data, including that no entity or individual may acquire such data by stealing or other illegal means, and where any law and administrative regulation contains provisions on the purpose or scope of data collection or use, data shall be collected and used for the purpose and within the scope prescribed by such law and administrative regulation. As of the date of this prospectus, we have not been investigated by relevant governmental regulatory authorities according to the PRC Data Security Law, and we have not received any inquiry or notice in such respect. However, as uncertainties remain regarding the interpretation and implementation of the PRC Data Security Law, we cannot assure you that we will comply with such law in all respects and we may be ordered to rectify or terminate any actions that are deemed illegal by regulatory authorities. We may also become subject to fines and/or other sanctions which may have material adverse effect on our business, operations and financial condition.
On August 20, 2023, the Standing Committee of the NPC promulgated the Personal Information Protection Law of the PRC, which became effective on November 1, 2023. The Personal Information Protection Law is enacted to protect personal information rights and interests, regulate activities of processing of personal information, and promote a reasonable use of personal information. According to the Personal Information Protection Law, processing of personal information shall be for a specified and reasonable purpose, and shall be conducted for a purpose directly relevant to the purpose of processing and in a way that has the least impact on personal rights and interests. Collection of personal information shall be limited to the minimum scope necessary for achieving the purpose of processing and shall not be excessive. As the interpretation and implementation of the Personal Information Protection Law remains uncertain, we cannot assure you that we will be deemed to fully comply with the Personal Information Protection Law in all respects and regulatory authorities may order us to rectify or terminate our current practice of collecting and processing personal information.
Regulations Relating to Leasing
Pursuant to the Law on Administration of Urban Real Estate, which was promulgated on July 5, 1994 and most recently amended on August 26, 2021 by the Standing Committee of the NPC, when leasing property, the lessor and lessee are required to enter into a written lease agreement, containing such provisions as the leasing term, use of the property, rental and repair liabilities, and other rights and obligations of both parties. Both lessor and lessee are also required to register the lease with the real estate administration department. If the lessor and lessee fail to go through the registration procedures, both lessor and lessee may be subject to fines. As of the date hereof, we have not registered any of our lease agreements with the relevant government authorities. The competent housing authorities may order us to register the lease agreements in a prescribed period of time and impose a fine ranging from RMB1,000 to RMB10,000 for each non-registered lease if we fail to complete the registration within the prescribed timeframe.
According to the Civil Code of the PRC, the lessee may sublease the leased premises to a third party, subject to the consent of the lessor. Where the lessee subleases the property, the lease agreement between the lessee and the lessor remains valid. The lessor is entitled to terminate the lease agreement if the lessee subleases the property without the consent of the lessor. In addition, in the event of change of ownership of the leased premises, the lease agreement between the lessee and the lessor will still remain valid. The Civil Code of the PRC further provides that where the leased property has been leased and transferred for possession before the creation of the mortgage, the established leasehold relationship will not be affected by the mortgage.
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Regulations Relating to Intellectual Property Rights
The PRC has adopted comprehensive legislations governing intellectual property rights, including copyrights, trademarks and domain names.
Copyright
Copyright in the PRC, including software copyright, is principally protected under the Copyright Law of the PRC, which was promulgated by the Standing Committee of the NPC on September 7, 1990 and of which the most recent amendment has come into effect as of June 1, 2023, and related rules and regulations. Under the Copyright Law of the PRC, the term for software copyright is 50 years. In addition, the Regulations on the Protection of Rights to Information Network Communication, which was promulgated by the PRC State Council on May 18, 2006 and amended on January 30, 2013, provides specific rules on fair use, statutory license, and a safe harbor for the use of copyrights and copyright management technology, and specifies the liabilities of various entities, including copyright holders and internet service providers, for violations. The Computer Software Copyright Registration Procedures, which was promulgated by the State Copyright Bureau on February 20, 2002, applies to software copyright registration, license agreement registration and transfer agreement registration.
Trademark
Registered Trademarks are protected by the PRC Trademark Law which was adopted by the Standing Committee of the NPC on August 23, 1982 and most recently amended on April 23, 2021, as well as the Implementation Regulation of the PRC Trademark Law which was adopted by the PRC State Council on August 3, 2002 and amended on April 29, 2014. The Trademark Office of the National Intellectual Property Administration under the SAMR handles trademark registrations and grants a term of ten years to registered trademarks which may be renewed for consecutive ten-year periods upon request by the trademark owner. The PRC Trademark Law has adopted a “first-to-file” principle with respect to trademark registration. Where a trademark for which a registration has been filed 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.
Domain Names
Domain names are protected under the Administrative Measures on the Internet Domain Names, which was promulgated by the MIIT on August 24, 2019 and became effective on November 1, 2019. MIIT is the major regulatory body responsible for the administration of the PRC internet domain names, under the supervision of which is the China Internet Network Information Center, or CNNIC. CNNIC is responsible for the daily administration of.cn domain names and Chinese domain names. CNNIC adopts the “first to file” principle with respect to the registration of domain names. On November 27, 2019, MIIT promulgated the Notice of the Ministry of Industry and Information Technology on Regulating the Use of Domain Names in Providing Internet-based Information Services, which became effective on January 1, 2020. Pursuant to the notice, the domain name used by an internet-based information service provider in providing internet-based information services must be registered and owned by such provider in accordance with the law. If the internet-based information service provider is an entity, the domain name registrant must be the entity (or any of the entity’s shareholders), or the entity’s principal or senior manager.
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Regulations Relating to Foreign Exchange
The principal regulations governing foreign currency exchange in the PRC are the Foreign Exchange Administration Regulations of the PRC, or the Foreign Exchange Administration Regulations, which were promulgated by the PRC State Council on January 29, 1996 and were most recently amended on August 5, 2008. Pursuant to the Foreign Exchange Administration Regulations and other PRC rules and regulations on currency conversion, Renminbi is freely convertible into other currencies for current account items such as trade and service related receipts and payments, interest payments and dividends; as for capital account items such as direct investment, loans and portfolio investment, the prior approval of the SAFE is required to convert Renminbi into other currencies and transfer the converted currencies out of the PRC.
Pursuant to the Notice of the SAFE on Further Simplifying and Improving the Foreign Exchange Administration Policies for Direct Investment, promulgated by the SAFE on February 13, 2015 and effective on June 1, 2015, two administrative approval matters, including foreign exchange registration approval under domestic direct investment and foreign exchange registration approval under overseas direct investment, shall be reviewed and processed directly by banks. The SAFE and its local bureaus shall implement indirect supervision through the foreign exchange registration with banks for direct investment.
Pursuant to the Notice of the SAFE on Reforming the Administration of Foreign Exchange Settlement of Capital of Foreign-invested Enterprises, or Circular 19, promulgated on March 30, 2015 and effective on June 1, 2015, and was partially amended on December 30, 2021, and the Notice of the SAFE on Reforming and Regulating the Foreign Exchange Settlement Management Policy of Capital Account, or Circular 16, promulgated on and effective June 9, 2016, the system of voluntary foreign exchange settlement is implemented for the foreign exchange earnings of foreign exchange capital of foreign-invested enterprises. Foreign exchange capital in a foreign-invested enterprise’s capital account, for which the monetary contribution has been confirmed by the SAFE (or for which the monetary contribution has been registered for account entry), may be settled at a bank as required by the actual management needs of the enterprise. The voluntary settlement ratio of foreign-invested enterprise’s foreign exchange capital projects has been temporarily set at 100%. The SAFE may make adjustments to the said ratio at appropriate times based on the status of the international balance of payments. In addition, foreign exchange earnings under capital projects and the Renminbi funds obtained from the exchange settlements thereof shall not be used by foreign-invested enterprises for the following purposes: (1) direct or indirect payments of expenditures exceeding its business scope or those being prohibited by the laws and regulations of the PRC; (2) direct or indirect uses in securities investments or investments other than capital-protected banking products (except as otherwise expressly provided); (3) issuance of loans to non-affiliated enterprises (excluding those that are expressly permitted within their business scope); and (4) construction or purchase of real estate not for personal use (except for real estate enterprises).
On January 26, 2019, the SAFE promulgated the Notice of the SAFE on Further Improving Reform of Foreign Exchange Administration and Optimizing Genuineness and Compliance Verification, which took effect on the same day. This notice sets out various measures to tighten genuineness and compliance verification of cross-border transactions and cross-border capital flow, which include without limitation requiring banks to verify board resolutions, tax filing forms, and audited financial statements before wiring foreign-invested enterprises’ foreign exchange distribution above $50,000, and strengthening genuineness and compliance verification of foreign direct investments.
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On October 23, 2021, the SAFE promulgated the Notice of the SAFE on Further Promoting the Convenience of Cross-border Trade and Investment, or the SAFE Circular 28. The SAFE Circular 28 provides that non-investment foreign-invested enterprises may use capital to make equity investment in the PRC in accordance with laws under the premise that the investment is not in violation of the applicable special entry management measures for foreign investment (negative list) and the projects invested are true and in compliance with relevant laws and regulations.
On April 10, 2022, the SAFE issued the Notice of the SAFE on Optimizing Foreign Exchange Administration to Support the Development of Foreign-related Business, or the SAFE Circular 8. The SAFE Circular 8 provides that under the condition that the use of the funds is genuine and compliant with current administrative provisions on use of income relating to capital account, enterprises are allowed to use income under capital account such as capital funds, foreign debts and overseas listings for domestic payment, without submission to the bank prior to each transaction of materials evidencing the veracity of such payment.
Regulations Relating to Dividend Distributions
The principal regulations governing distribution of dividends of wholly foreign-owned enterprise, or the WFOE, include the PRC Company Law, the Foreign Investment Law and the Implementing Regulations of the Foreign Investment Law. Under these regulations, WFOEs in China may pay dividends only out of their accumulated after tax profits, if any, determined in accordance with the PRC accounting standards and regulations. In addition, WFOEs in the PRC are required to allocate at least 10% of their 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.
Regulations Relating to Offshore Investment
SAFE promulgated Notice on Issues Relating to Foreign Exchange Administration over the Overseas Investment and Financing and Round-trip Investment by Domestic Residents via Special Purpose Vehicles, or the SAFE Circular 37, on July 4, 2014 that requires PRC residents or entities to register with SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. In addition, such PRC residents or entities must update their SAFE registrations when the offshore special purpose vehicle undergoes material events relating to any change of basic information (including change of such PRC citizens or residents, name and term of operation), capital increase or capital reduction, transfers or exchanges of shares, or mergers or divisions. SAFE Circular 37 was issued to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents Engaging in Financing and Roundtrip Investments via Overseas Special Purposes Vehicles, commonly known as “SAFE Circular 75” promulgated by SAFE on October 21, 2005.
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SAFE further enacted the Notice of the SAFE on Further Simplifying and Improving the Foreign Exchange Administration Policies for Direct Investment, which allows PRC residents or entities to register with qualified banks in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. However, remedial registration applications made by PRC residents that previously failed to comply with the SAFE Circular 37 continue to fall under the jurisdiction of the relevant local branch of SAFE. In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from distributing profits to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiaries. We may not be informed of the identities of all the PRC residents or entities holding direct or indirect interest in our company, nor can we compel our shareholders or beneficial owners to comply with SAFE registration requirements. We cannot assure you that all shareholders or beneficial owners of ours who are PRC residents or entities have complied with, and will in the future make, obtain or update any applicable registrations or approvals required by, SAFE regulations. The failure or inability of such shareholders or beneficial owners to comply with SAFE regulations, or failure by us to amend the foreign exchange registrations of our PRC Subsidiaries, could subject us or the non-complaint shareholders or beneficial owners to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our PRC Subsidiaries’ ability to make distributions or pay dividends to us or affect our ownership structure. As a result, our business operations and our ability to distribute any future profits to you could be materially and adversely affected.
Regulations Relating to Stock Incentive Plans
According to the Notice of the SAFE on Issues Relating to the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly Listed Company, or the Share Incentive Rules, which was issued on February 15, 2012 and other regulations, directors, supervisors, senior management and other employees participating in any share incentive plan of an overseas publicly- listed company who are PRC citizens or non-PRC citizens residing in China for a continuous period of not less than one year, subject to certain exceptions, are required to register with the SAFE. All such participants need to authorize a qualified PRC agent, such as a PRC subsidiary of the overseas publicly-listed company to register with the SAFE and handle foreign exchange matters such as opening accounts, transferring and settlement of the relevant proceeds. The Share Incentive Rules further require an offshore agent to be designated to handle matters in connection with the exercise of share options, sales of shares underlying the options and remittance of proceeds for the participants of the share incentive plans. Failure to complete the said SAFE registrations may subject our participating directors, supervisors, senior management and other employees to fines and legal sanctions. We and our executive officers and other employees who are PRC citizens or non-PRC citizens living in the PRC for a continuous period of not less than one year and have been granted options will be subject to these regulations when our Company becomes an overseas-listed company upon the completion of this offering.
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Laws and Regulations Relating to Taxation
Enterprise Income Tax
Pursuant to the PRC Enterprise Income Tax Law promulgated on March 16, 2007, most recently amended and effective on December 29, 2020, and the Regulation on Implementation of the Enterprise Income Tax Law of the PRC, or the EIT Implementation Rules, issued on December 6, 2007 and most recently amended and effective on April 23, 2021, enterprise income tax shall be applicable at a uniform rate of 25% to all resident or non-residententerprises, save for a few exceptions. Enterprise income tax shall be payable by a resident enterprise for income sourced within or outside the PRC. Enterprise income tax shall be payable by a non-resident enterprise, for income sourced within the PRC by its institutions or premises established in the PRC, and for income sourced outside the PRC for which the institutions or premises established in the PRC have a de facto relationship. Where the non-resident enterprise has no institutions or premises established in the PRC or has income bearing no de facto relationship with the institution or premises established, enterprise income tax shall be payable by the non-resident enterprise only for income sourced within the PRC and the enterprise income tax rate shall be 10%.
The Notice Regarding the Determination of Chinese-Controlled Offshore-Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, or Circular 82, promulgated on April 22, 2009 and amended on January 29, 2014 and December 29, 2019, sets out the standards and procedures for determining whether the “de facto management body” of an enterprise registered outside of China and controlled by PRC enterprises or PRC enterprise groups is located within China. The Administrative Measures for Enterprise Income Tax of Chinese-Controlled Offshore-Incorporated Resident Enterprises (Trial Version), or Bulletin 45, which was promulgated on July 27, 2011, and became effective on September 1, 2011, and most recently amended and effective on June 15, 2020, further provides guidance on the implementation of Circular 82 and clarifies certain issues in the areas of resident status determination, post-determination administration and competent tax authorities’ procedures.
According to Circular 82, a Chinese-controlled offshore-incorporated enterprise will be regarded as a PRC tax resident by virtue of having a “de facto management body” in China and will be subject to PRC EIT on its worldwide income only if all of the following criteria are met: (i) the primary location of the day-to-day operational management is in China; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in China; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholders meeting minutes are located or maintained in China; and (iv) 50% or more of voting board members or senior executives habitually reside in China. According to Bulletin 45, when provided with a copy of Chinese tax resident determination certificate from a resident Chinese controlled offshore-incorporated enterprise, the payer should not withhold income tax when paying the Chinese-sourced dividends, interest, royalties, etc. to the PRC controlled offshore-incorporated enterprise.
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Although Circular 82 and Bulletin 45 only apply to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by foreign enterprises or individuals, the determining criteria set forth in Circular 82 and Bulletin 45 may reflect the SAT’s general position on how the “de facto management body” test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises, PRC enterprise groups or by PRC or foreign individuals. If we were to be considered a PRC resident enterprise by the PRC tax authorities for PRC tax purpose, we would be subject to PRC enterprise income tax at the rate of 25% on our global income. In such case, our cash flow may be materially reduced as a result of our global income being taxed under the Enterprise Income Tax Law. We believe that none of our entities outside of the PRC is a PRC resident enterprise for PRC tax purposes. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.”
Value-Added Tax
Pursuant to the Provisional Regulation on Value-Added Tax of the PRC promulgated by the PRC State Council, as amended on November 5, 2008, February 6, 2016 and November 19, 2019 and effective on November 19, 2019, and the Implementation Rules for the Provisional Regulation on Value-Added Tax of the PRC promulgated by the Ministry of Finance on December 25, 1993, most recently amended on October 28, 2011 and effective on November 1, 2011, all entities and individuals in the PRC engaging in the sales of goods, provision of processing services, repairs and replacement services, sales services, intangible assets, real estate and the importation of goods are required to pay value-added tax at a rate ranging from 6% to 17%.
According to the Circular of the Ministry of Finance and the State Administration of Taxation on Adjusting Value-added Tax Rates issued on April 4, 2020 and came into effect on May 1, 2020, where a taxpayer engages in a taxable sales activity for the value-added tax purpose or imports goods, the previous applicable 17% and 11% tax rates are lowered to 16% and 10% respectively.
According to the Circular on Policies to Deepen Value-added Tax Reform jointly issued by the Ministry of Finance, the SAT and the General Administration of Customs on March 20, 2021 and came into effect on April 1, 2021, where a taxpayer engages in a taxable sales activity for the value-added tax purpose or imports goods, the previous applicable 16% and 10% tax rates are lowered to 13% and 9% respectively.
According to the Announcement of SAT on Promulgation of the Administrative Measures on Tax Exemption for Cross-border Taxable Activities for Levying Value-Added Tax in Lieu of Business Tax (Trial Implementation), which was promulgated by the SAT on May 6, 2016 and became effective on May 1, 2016, as amended on June 16, 2020 by the Announcement of the SAT on the Revision to Certain Taxation Regulatory Documents, which was promulgated by the SAT on June 15, 2020, certain cross-border taxable activities, such as offshore service outsourcing business provided to overseas entities and are entirely consumed overseas, shall be exempted from value-added tax.
Withholding Tax on Dividends
Pursuant to the PRC Enterprise Income Tax Law and the EIT Implementation Rules, except as otherwise provided by relevant tax treaties with the PRC government, dividends paid by foreign-invested enterprises to foreign investors which are non-resident enterprises and which have not established or operated premises in the PRC, or which have established or operated premises but where their income has no de facto relationship with such establishment or operation of premises shall be subject to a withholding tax of 10%.
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Indirect Transfer of Properties
On February 3, 2015, the SAT issued the Bulletin on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-Tax Resident Enterprises, or SAT Bulletin 7. In December 2019, Article 13 and Paragraph 2 of Article 8 of SAT Bulletin 7 were abolished by Decision of the State Administration of Taxation on Issuing the Lists of Invalid and Abolished Tax Departmental Rules and Taxation Normative Documents effective on December 29, 2019 and the Announcement of the SAT on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, or the SAT Circular 37, effective on December 1, 2019, which was amended on June 15, 2020. By promulgating and implementing these notices, the PRC tax authorities have enhanced their scrutiny over the direct or indirect transfer of equity interests in a PRC resident enterprise by a non-PRC resident enterprise. Pursuant to the SAT Bulletin 7, as amended, in the event that a non-PRC resident enterprise indirectly transfers equities and other properties of a PRC resident enterprise to evade its obligation of paying enterprise income tax by implementing arrangements that are not for reasonable commercial purpose, such indirect transfer shall be re-identified and recognized as a direct transfer of equities and other properties of the PRC resident enterprise. The SAT Bulletin 7, as amended, provides clear criteria for assessment of reasonable commercial purposes and has introduced safe harbors for internal group restructurings and the purchase and sale of equity through a public securities market. SAT Bulletin 7 also brings challenges to both offshore transferor and transferee (or another person who is obligated to pay for the transfer) of taxable assets. Where a non-PRC resident enterprise transfers taxable assets indirectly by disposing of the equity interests of an offshore holding company, which is an Indirect Transfer, the non-PRC resident enterprise as either transferor or transferee, or the PRC entity that directly owns the taxable assets, may report such Indirect Transfer to the relevant tax authority. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the offshore holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such Indirect Transfer may be subject to enterprise income tax, and the transferee or another person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise. Both the transferor and the transferee may be subject to penalties under PRC tax laws if the transferee fails to withhold the taxes and the transferor fails to pay the taxes.
Issues concerning the withholding of enterprise income tax of the China-sourced income, which refers to income obtained from sources within China by non-PRC resident enterprises that (a) do not have an establishment or place of business in China or (b) have an establishment or place of business in China, but the relevant income is not effectively connected with the establishment or place of business in China, shall be subject to the SAT Circular 37. China-sourced income includes income from equity investment such as dividend and bonus, income from interest, rent and royalties, income from the property transfer, and other income. Pursuant to the SAT Circular 37, non-PRC resident enterprises shall pay enterprise income tax in relation to their China-sourced income, and the entities which have the direct obligation to make certain payments to a non-PRC resident enterprise shall be the relevant tax withholders for such non-PRC resident enterprise. The tax withholders shall, within seven days of the day on which the withholding obligation occurs, which is the day when the payment is made in fact or becomes due, declare and remit the withholding tax to the competent tax authority. When declaring and remitting the withholding tax payable, the tax withholders shall complete the Withholding Statement of the PRC for Enterprise Income Tax. In the event that the tax withholder fails to withhold and remit the taxable enterprise income tax for a non-PRC resident enterprise, or is unable to perform its obligation mentioned above, the non-PRC resident enterprise shall declare and pay the enterprise income tax to the competent tax authority, and complete the Withholding Statement of the PRC for Enterprise Income Tax.
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We face uncertainties as to the reporting and other implications of certain past and future transactions where PRC taxable assets are involved, such as offshore restructuring, sale of the shares in our offshore subsidiaries or investments. Our Company may be subject to filing obligations or taxed if our Company is a transferor in such transactions, and may be subject to withholding obligations if our Company is a transferee in such transactions under SAT Bulletin 7 and SAT Circular 37. For transfer of shares in our Company by investors that are non-PRC resident enterprises, our PRC Subsidiaries may be requested to assist in the filing under SAT Bulletin 7 and SAT Circular 37. As a result, we may be required to expend valuable resources to comply with SAT Bulletin 7 and SAT Circular 37 or to request the relevant transferors from whom we purchase taxable assets to comply with these publications, or to establish that our company should not be taxed under these publications, which may have a material adverse effect on our financial condition and results of operations.
Laws and Regulations Relating to Labor
The PRC Labor Law, which became effective on January 1, 1995, and was amended on August 27, 2009 and December 29, 2020, and the PRC Labor Contract Law, which became effective on January 1, 2008 and was amended on December 28, 2012, provide requirements concerning employment contracts between an employer and its employees. Pursuant to the PRC Labor Contract Law, a written labor contract is required when an employment relationship is established between an employer and an employee. An employer is obligated to sign a labor contract with an employee with an indefinite term if the employer continues to employ the employee after two consecutive fixed-term labor contracts. The PRC Labor Contract Law and its implementation rules also require compensation to be paid upon certain terminations. Other labor-related regulations and rules of the PRC stipulate the maximum number of working hours per day and per week as well as the minimum wages. An employer is required to set up occupational safety and sanitation systems, implement the national occupational safety and sanitation rules and standards, educate employees on occupational safety and sanitation, prevent accidents at work and reduce occupational hazards.
On October 28, 2010, the Standing Committee of the NPC promulgated the PRC Social Insurance Law, which became effective on July 1, 2011 and was amended on December 29, 2020. In accordance with the PRC Social Insurance Law and other relevant laws and regulations, China establishes a social insurance system including basic pension insurance, basic medical insurance, work-related injury insurance, unemployment insurance and maternity insurance. An employer must pay the social insurance for its employees in accordance with the rates provided under relevant regulations and must withhold the social insurance that should be assumed by the employees. The authorities in charge of social insurance may request an employer’s compliance and impose sanctions if such employer fails to pay and withhold social insurance in a timely manner. Under the Regulations on the Administration of Housing Fund, which was promulgated on April 3, 1999, and was most recently amended on March 24, 2021, PRC companies must register with applicable housing fund management centers and establish a special housing fund account in an entrusted bank. Both PRC companies and their employees are required to contribute to the housing funds. An enterprise that fails to make housing fund contributions may be ordered to rectify the noncompliance and pay the required contributions within a stipulated deadline; otherwise, an application may be made to a local court for compulsory enforcement. The requirement to maintain employee benefit plans (including social insurance and housing fund) has not been implemented consistently by local governments in the PRC given the different levels of economic development in different locations. We may not pay social insurance and housing fund contributions in strict compliance with the relevant PRC regulations for and on behalf of our employees due to differences in local regulations and inconsistent implementation or interpretation by local authorities in the PRC and varying levels of acceptance of the housing fund system by our employees. We may be subject to fines and penalties for any such failure to make payments in accordance with the applicable PRC laws and regulations. We may be required to make up the contributions for these plans as well as to pay late fees and fines. If we are subject to penalties, late fees or fines in relation to any underpaid employee benefits, our financial condition and results of operations may be adversely affected.
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Other Government Regulations
In addition to the regulations stated above, our business is subject to a variety of laws and regulations applicable to companies conducting business on the Internet. Jurisdictions vary as to how, or whether, existing laws governing areas such as personal privacy and data security, consumer protection or sales and other taxes, among other areas, apply to the Internet and ecommerce, and these laws are continually evolving. For example, certain applicable privacy laws and regulations require us to provide customers with our policies on sharing information with third parties, and advance notice of any changes to these policies. Related laws may govern the manner in which we collect, store, use, process, disclose or transfer sensitive information, or impose obligations on us in the event of a security breach or inadvertent disclosure of such information. International jurisdictions impose different, and sometimes more stringent, consumer and privacy protections. In the European Union, the GDPR imposes stringent privacy, data protection and information security requirements, which include expanded requirements to disclose to data subjects how their personal data is used and increased rights for data subjects to access, control and delete their personal data. Furthermore, there are mandatory data breach notification requirements and significantly increased penalties of the greater of €20 million or 4% of global turnover for the preceding financial year. As of January 1, 2023, and the expiry of transitional arrangements agreed to between the U.K. and the European Union, data processing in the U.K. is governed by a U.K. version of the GDPR (combining the GDPR and the Data Protection Act 2020), exposing us to two parallel regimes, each of which potentially authorizes similar fines and other potentially divergent enforcement actions for certain violations. In addition to the GDPR, the European Commission has another regulation that focuses on a person’s right to conduct a private life (in contrast to the GDPR, which focuses on protection of personal data). The legislation, known as the ePrivacy Regulation was enacted in 2021 and replaced the previous ePrivacy Directive, and includes, among other things, enhanced consent requirements in order to collect and process user data in the EU. As the ePrivacy Regulation includes enhanced consent requirements in order to collect and process customer data in the EU, changes we may need to implement in order to comply with this Regulation may negatively impact our contributory network. Pursuant to applicable regulations including the GDPR, we maintain policies concerning the collection, processing, use and retention of information, including personal data. In the U.S., we are subject to Federal and state laws and regulations regarding privacy and information security. California also recently enacted legislation, the CCPA, which went into effect on January 1, 2022, which affords consumers expanded privacy protections. The CCPA also provides for civil penalties for violations, as well as a private right of action for data breaches that may increase data breach litigation. Since the enactment of CCPA, new privacy and data security laws have been proposed in more than half of the states in the U.S. and in the U.S. Congress, reflecting a trend toward more stringent privacy legislation in the U.S., which trend may accelerate following the 2022 U.S. presidential election. We expect that there will continue to be new proposed laws, regulations and industry standards concerning privacy, data protection and information security in the U.S. and other jurisdictions, and we cannot determine the impact such future laws, regulations and standards may have on our business. See also “Risk Factors—Risks Related to Our Business and Industry—We are subject to stringent and changing privacy laws, regulations and standards as well as contractual obligations related to data privacy and security. Our actual or perceived failure to comply with such obligations could harm our reputation, subject us to significant fines and liability, or otherwise adversely affect our business or prospects.”
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Additionally, tax regulations in jurisdictions where we do not currently collect state or local taxes may subject us to the obligation to collect and remit such taxes, or to additional taxes, or to requirements intended to assist jurisdictions with their tax collection efforts. New legislation or regulation, the application of laws from jurisdictions whose laws do not currently apply to our business, or the application of existing laws and regulations to the Internet and ecommerce generally could result in significant additional taxes on our business. Further, we could be subject to fines or other payments for any past failures to comply with these requirements. The continued growth and demand for ecommerce is likely to result in more laws and regulations that impose additional compliance burdens on ecommerce companies.
Directors and Executive Officers
The following table sets forth information regarding our directors and executive officers as of the date of this prospectus.
| Directors and Executive Officers | Age | Position/Title | ||
| Jingzhou Xu (徐敬洲) | 32 | Director and Chief Executive Officer | ||
| Xiang Zhang (张翔) | 34 | Director and Chief Financial Officer | ||
| Xiao Luo (罗霄) | 32 | Director |
Jingzhou Xu (徐敬洲)
Graduated from Peking University, with a double - degree in mathematics and psychology, and a master’s degree in finance. Have more than 6 - year working experience and profound and original insights in the fields of finance and macro - economy.
Proficient in FOF fund research, having systematically reviewed, applied, and improved theories such as B - L model, Risk Parity model, and T - M model. Skilled in using machine learning to solve asset allocation problems between stocks and bonds. Specialize in macro - economic clock research. Adapted and innovated economic models like the Merrill Lynch Clock for the Chinese market, replacing inflation with liquidity in model construction. Adept at building department - level basic databases, providing data support for fund managers..
Xiang Zhang (张翔)
As a senior financial expert, I have over 6 - year - rich experience. Since 2018, I have served as a regional manager in Kunming Mingri Biotechnology Co., Ltd., accurately grasped the regional financial situation, optimized the sales cost structure, and successfully helped the performance rise steadily. Since March 2021, I have been working as the finance manager of Yunnan Jialian Big Data Service Group Co., Ltd., leading the construction of the financial system, efficiently managing the cash flow, properly resolving potential risks such as judicial cases, and building a solid financial foundation for the company’s stable operation..
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Xiao Luo (罗霄)
From March 2020 to February 2022, served as Vice President at CNNC Jialian Holdings (Yunnan) Group Co., Ltd
From February 2022 to present, served as the legal representative and assistant to the chairman of Yunnan Jialian Big Data Service Group Co., Ltd.
Proficient in formulating and coordinating the company’s development strategy and market dynamic operation strategy for enterprises, assisting in establishing a standardized and efficient operation management system, improving standardized processes, and promoting cross departmental collaboration.
Frequently participate in major investment decisions and provide decision-making support for the company’s development direction.
Proficient in handling major external affairs of the company, maintaining key partnerships and shareholder relationships, assuming responsibility for evaluating, monitoring, and eliminating internal and external risks, and participating in cost control of important investment and operational events of the company.
Board of Directors
Our board of directors will consist of three directors upon the SEC’s declaration of effectiveness of our registration statement on Form F-1, of which this prospectus is a part. A director is not required to hold any shares in our company to qualify to serve as a director. A director may vote with respect to any contract, proposed contract, or arrangement in which he or she is interested in provided that (i) such director, if his or her interest in such contract or arrangement is material, has declared the nature of his interest at the earliest meeting of the board at which it is practicable for him to do so, either specifically or by way of a general notice and (ii) if such contract or arrangement is a transaction with a related party, such transaction has been approved by the audit committee. If he or she does so, his or her vote shall be counted and he or she may be counted in the quorum at any meeting of the directors at which any such contract or proposed contract or arrangement is considered. A director may exercise all the powers of the company to borrow money, mortgage its business, property and uncalled capital, and issue debentures or other securities whenever money is borrowed or as security for any obligation of the company or of any third party. None of our directors has a service contract with us or any of our subsidiaries that provides for benefits upon termination of service.
Committees of the Board of Directors
We will hire at least 3 independent directors to meet the independence requirements after F-1 takes effect and establish three committees under the board of directors immediately upon the effectiveness of our registration statement on Form F-1,of which this prospectus is a part: an audit committee, a compensation committee and a nominating and corporate governance committee. We will adopt a charter for each of the three committees. Each committee’s members and functions are described below.
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Audit Committee
Our audit committee will consist of [ ], [ ] and [ ]. [ ] will be the chairman of our audit committee. We have determined that [ ], [ ] and [ ] satisfy the “independence” requirements of the Rule 5605(c)(2) of the Nasdaq Stock Market Listing Rules and meets the independence standards under Rule 10A-3 under the Exchange Act. Our audit committee will consist solely of independent directors that satisfy the Nasdaq and SEC requirements within one year of the completion of this offering. Our board of directors has also determined that [ ] qualifies as an “audit committee financial expert” within the meaning of the SEC rules and possesses financial sophistication within the meaning of the Nasdaq Stock Market Listing Rules.
The audit committee will oversee our accounting and financial reporting processes and the audits of our financial statements. The audit committee will be responsible for, among other things:
| ● | selecting our independent registered public accounting firm and pre-approving all auditing and non-auditing services performed by our independent registered public accounting firm; | |
| ● | reviewing with the independent registered public accounting firm any audit problems or difficulties and management’s response; | |
| ● | reviewing and approving all proposed related-party transactions, as defined in Item 404 of Regulation S-K under the Securities Act; | |
| ● | discussing the annual audited financial statements with management and our independent registered public accounting firm; | |
| ● | annually reviewing and reassessing the adequacy of our audit committee charter; | |
| ● | reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps taken to monitor and control major financial risk exposures; | |
| ● | meeting separately and periodically with management and our independent registered public accounting firms; | |
| ● | reporting regularly to the full board of directors; and | |
| ● | performing such other matters that are specifically delegated to our audit committee by our board of directors from time to time. |
Compensation Committee
Our compensation committee will consist of [ ], [ ] and [ ]. [ ] will be the chairman of our compensation committee. We have determined that [ ], [ ] and [ ] satisfy the “independence” requirements of Rule 5605(a)(2) of the Nasdaq Stock Market Listing Rules.
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The compensation committee will assist the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated.
The compensation committee will be responsible for, among other things:
| ● | reviewing and approving, or recommending to the board for its approval, the compensation for our chief executive officer and other executive officers; | |
| ● | reviewing and recommending to the board for determination with respect to the compensation of our non-employee directors; | |
| ● | reviewing and making recommendations to the board of directors with respect to the compensation of our directors; | |
| ● | reviewing periodically and approving any long-term incentive compensation or equity plans, programs or similar arrangements, annual bonuses, employee pension and welfare benefit plans; and | |
| ● | selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors relevant to that person’s independence from management. |
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee will consist of [ ], [ ] and [ ]. [ ] will be the chairperson of our nominating and corporate governance committee. We have determined that [ ], [ ] and [ ] satisfy the “independence” requirements of Rule 5605(a)(2) of the Nasdaq Stock Market Listing Rules.
The nominating and corporate governance committee will assist the board of directors in selecting directors and in determining the composition of our board and board committees. The nominating and corporate governance committee will be responsible for, among other things:
| ● | identifying and recommending nominees for election or re-election to our board of directors, or for appointment to fill any vacancy; | |
| ● | reviewing annually with our board of directors its composition in light of the characteristics of independence, age, skills, experience and availability of service to us; | |
| ● | identifying and recommending to our board the directors to serve as members of committees; | |
| ● | advising the board periodically with respect to developments in the law and practice of corporate governance as well as our compliance with applicable laws and regulations; |
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| ● | making recommendations to our board of directors on corporate governance matters and on any corrective action to be taken; and | |
| ● | monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure compliance. |
Duties of Directors
Under China law, our directors owe to us fiduciary duties, including a duty of loyalty, a duty to act honestly and a duty to act in what they consider in good faith to be in our best interests. Our directors also have a duty to act with skill and care. It was previously considered that a director need not exhibit in the performance of her or his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth Courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the China.
In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association, as amended and restated from time to time.
Our company may have the right to seek damages if a duty owed by our directors is breached. You should refer to “Description of Share Capital—Differences in Corporate Law” for additional information on our standard of corporate governance under China law.
Our board of directors has all the powers necessary for managing, and for directing and supervising, our business affairs. The functions and powers of our board of directors include, among others:
| ● | convening shareholders’ annual and extraordinary general meetings and reporting its work to shareholders at such meetings; | |
| ● | declaring dividends and distributions; | |
| ● | appointing officers and determining the term of office of officers; | |
| ● | exercising the borrowing powers of our company and mortgaging the property of our company; and | |
| ● | approving the transfer of shares of our company, including the registering of such shares in our register of members. |
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Risk Management
One of the key functions of our board of directors is informed oversight of our risk management process. Our board of directors does not have a standing risk management committee, but rather administers this oversight function directly through our board of directors as a whole, as well as through various standing committees of our board of directors that address risks inherent in their respective areas of oversight. In particular, our board of directors is responsible for monitoring and assessing strategic and regulatory risk exposure, including monitoring the Company’s compliance with cybersecurity and data protection rules and regulations, approving the Company’s budget after considering various risks such as risks associated with supply chain, suppliers and key service provider, if any. Our board receives periodic reporting from our chief executive officer on cybersecurity and any other business operational risks.
Interested Transactions
A director may, subject to any separate requirement for audit committee approval under applicable law, our memorandum and articles of association, as amended and restated from time to time, or the Nasdaq Stock Market Listing Rules Company Manual, or disqualification by the chairman of the relevant board meeting, vote in respect of any contract or transaction in which he or she is interested, provided that the nature of the interest of any directors in such contract or transaction is disclosed by him or her at or prior to its consideration and any vote in that matter.
Terms of Directors and Officers
Each of our directors is not subject to a term of office and hold office until such time as he or she resigns or is removed from office by ordinary resolution of our shareholders, subject further to the provisions in our seventh amended and restated memorandum and articles of association. Our directors may be elected by our board of directors, or by an ordinary resolution of our shareholders, subject further to the provisions in our seventh amended and restated memorandum and articles of association.
A director will be removed from office automatically if, among other things, the director (i) becomes bankrupt or makes any arrangement or composition with his or her creditors; (ii) dies or is found by our company to be of unsound mind; or (iii) resigns his or her office by notice in writing to the company, (iv) without special leave of absence from our board of directors, is absent from three consecutive meetings of the board and the board resolves that his office be vacated, or (v) is removed from office pursuant to any other provisions of our memorandum and articles of association, as amended and restated from time to time.
Pursuant to our seventh amended and restated memorandum and articles of association, which will become effective and replace the current sixth amended and restated memorandum and articles of association in their entirety immediately prior to the completion of this offering, our officers will be appointed or removed by and at the discretion of our board of directors.
Employment Agreements and Indemnification Agreements
We have entered into employment agreements with our executive officers. Each of our executive officers is employed for a continuous term unless either we or the executive officer gives prior notice to terminate such employment, or for a specified time period, or for a specified time period which will be renewed automatically unless a notice of non-renewal is given. We may terminate an executive officer’s employment for cause, at any time, without advance notice or remuneration, for certain acts of the executive officer, such as conviction or plea of guilty to a felony or any crime involving moral turpitude, negligent or dishonest acts to our detriment, or misconduct or a failure to perform agreed duties. We may also terminate an executive officer’s employment without cause upon a 30-day advance written notice. In such case of termination by us, we will provide severance payments to the executive officer as expressly required by applicable law of the jurisdiction where the executive officer is based. An executive officer may terminate his or her employment at any time with a 60-day prior written notice.
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Each executive officer has agreed to hold, both during and after the employment agreement expires or is earlier terminated, in strict confidence and not to use, except for our benefit, any confidential information of our company or affiliates or of our customers, suppliers and business partners. The executive officers have also agreed to disclose in confidence to us all inventions, designs, copyrights, trade secrets and any other intellectual property which they conceive, develop or reduce to practice during the executive officer’s employment with us, to assign all right, title and interest in such intellectual property to us, and to assist us in obtaining and enforcing patent, copyright and other legal rights for such inventions, designs, trade secrets and intellectual property. In addition, each of our executive officers have agreed to be bound by non-competition and non-solicitation restrictions set forth in their employment agreements with us.
We are entering into indemnification agreements with each of our directors and executive officers. Under these agreements, we agree to indemnify our directors and executive officers against all liabilities and expenses incurred by such persons in connection with claims made by reason of their being a director or officer of our company to the fullest extent permitted by law with certain limited exceptions.
Code of Ethics and Corporate Governance
We will adopt a code of ethics, which will be applicable to all of our directors, executive officers and employees prior to the effectiveness of our registration statement on Form F-1, of which this prospectus is a part. We will make our code of ethics publicly available on our website.
In addition, our board of directors intends to adopt a set of corporate governance guidelines covering a variety of matters, including approval of related party transactions prior to the effectiveness of our registration statement on Form F-1, of which this prospectus is a part.
The following table sets forth information concerning the beneficial ownership of our ordinary shares on an as-converted basis, as of the date of this prospectus, for:
| ● | each of our directors and executive officers; and | |
| ● | each person known to us to beneficially own 5% or more of our total issued and outstanding ordinary shares. |
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We will adopt a dual class ordinary share structure, which will become effective immediately prior to the completion of this offering. The calculations in the table below are based on:
| ● | [ ] ordinary shares outstanding on an as-converted basis as of the date of this prospectus; and | |
| ● | ordinary shares outstanding on an as-converted basis immediately after the completion of this offering, comprised of Class A ordinary shares on an as-converted basis, including Class A ordinary shares to be sold by us in this offering, and [ ] Class B ordinary shares on an as-converted basis, assuming the underwriter does not exercise the over-allotment option to purchase additional Class A ordinary shares. |
Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days of the date of this prospectus, including through the exercise of any option, warrant or other right or the conversion of any other security. These shares, however, are not included in the computation of the percentage ownership of any other person.
See “Description of Share Capital—History of Securities Issuances” for a description of issuances of our ordinary shares that have resulted in significant changes in ownership held by our major shareholders.
We are a holding company incorporated in the British Virgin Islands (BVI) with limited liability. Our corporate affairs are governed by our memorandum and articles of association, as amended and restated from time to time, and the laws of the BVI.
As of the date of this prospectus, our authorized share capital is RMB 52,000,000 , divided into:
[ ] Class A ordinary shares with a par value of RMB 0.05 each; and
[ ] Class B ordinary shares with a par value of RMB 0.05 each.
All issued and outstanding shares will be converted or re-designated as follows:
Immediately prior to the completion of this offering, all existing ordinary shares and preferred shares will convert into and be re-designated as an aggregate of 27,976,814 Class A ordinary shares on a one-for-one basis, except for shares held by entities controlled by Mr. Luo Xiao, our legal representative and chief executive officer, which will convert into and be re-designated as Class B ordinary shares.
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We will issue [number] Class A ordinary shares in this offering, assuming the underwriter does not exercise the over-allotment option to purchase additional Class A ordinary shares. As a result, immediately following the completion of this offering, we will have [total number] Class A ordinary shares and [ ] Class B ordinary shares issued and outstanding, assuming the underwriter does not exercise the over-allotment option.
The following are summaries of material provisions of our seventh amended and restated memorandum and articles of association, which will become effective immediately prior to the completion of this offering, and the Companies Act of the BVI insofar as they relate to the material terms of our ordinary shares. Copies of these documents have been filed with the SEC as exhibits to our registration statement, of which this prospectus forms a part. The descriptions of the ordinary shares reflect changes to our capital structure that will occur when our seventh amended and restated memorandum and articles of association becomes effective.
Objects of Our Company
Under our seventh amended and restated memorandum and articles of association, which will become effective immediately prior to the completion of this offering, the objects of our company are unrestricted, and we have full power and authority to carry out any activity not prohibited by the Companies Act of the BVI or any other applicable laws.
Ordinary Shares
General
All of our issued and outstanding ordinary shares consist of Class A ordinary shares and Class B ordinary shares , which are fully paid and non-assessable. Our ordinary shares are issued in registered form and are considered issued upon registration in our register of members. We do not issue shares to bearers. Shareholders who are non-residents of the BVI may freely hold, transfer, and vote their ordinary shares. The ordinary shares shall participate in our profits and assets.
Holders of our Class A ordinary shares and Class B ordinary shares will have the same rights, except for voting and conversion rights. Except for voting and conversion rights, the Class A ordinary shares and Class B ordinary shares carry equal rights and rank pari passu with one another, including the rights to dividends and other capital distributions.
Each Class A ordinary share will be entitled to one vote , while each Class B ordinary share will be entitled to ten votes. Class B ordinary shares will be convertible into Class A ordinary shares at the discretion of the holder, whereas Class A ordinary shares will not be convertible into Class B ordinary shares under any circumstances.
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Dividends
Subject to the Companies Act of the BVI, our board of directors may declare dividends in any currency to be paid to our shareholders. Additionally, our shareholders may declare a dividend by ordinary resolution, but no dividend may exceed the amount recommended by our directors. Dividends may be declared and paid out of our profits, whether realized or unrealized, or from any reserve set aside from profits that our directors determine is no longer needed. Our board of directors may also declare and pay dividends out of the share premium account or any other fund authorized for this purpose under the Companies Act of the BVI.
However, under no circumstances may a dividend be paid if such payment would result in our company being unable to pay its debts as they fall due in the ordinary course of business. Holders of our ordinary shares will be entitled to such dividends as may be declared by our board of directors and will participate pro rata in dividends, if declared.
Conversion
Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon any sale, transfer, assignment, or disposition of Class B ordinary shares by a holder to any person or entity that is not an affiliate (as defined in our seventh amended and restated articles of association) of such holder or entity’s affiliate, or upon a change of control of the ultimate beneficial ownership of any Class B ordinary shares to any person or entity who is not an affiliate of the registered holder of such Class B ordinary shares , such Class B ordinary shares will be automatically and immediately converted into an equal number of Class A ordinary shares in accordance with our post-offering amended and restated memorandum and articles of association.
Under an undertaking letter dated July 6, 2024 , Mr. Luo Xiao , or the Founder, together with entities controlled by him (Yunnan Jialian Big Data Service Group Co., Ltd. ), collectively referred to as the Founder Holders , have undertaken to our company that: for a period of five years after the closing of this offering, (i) without the prior written consent of our board of directors and at least a majority of the independent directors, the Founder Holders will not agree to, approve, support, vote (in favor of or against), or otherwise cause our company to agree to, enter into, or consummate a privatization transaction , unless the consideration per Class A ordinary share payable to shareholders of the Class A ordinary shares in connection with such privatization transaction is at least equal to the price per Class A ordinary share initially offered to the public in this offering (subject to appropriate adjustment in the event of any stock dividend, stock split, combination, or other similar recapitalization with respect to the Class A ordinary shares ). For clarity, if the Founder is serving on the board, he may vote in favor of, against, or abstain from voting on a privatization transaction in his capacity as a director. If such privatization transaction is approved by the board and at least a majority of the independent directors, the Founder Holders as shareholders may vote in favor of, against, or abstain from voting on the privatization transaction.
(ii) Upon the first occurrence of: (a) the Founder being permanently unable to engage in the business affairs of our company due solely to his physical and/or mental condition (excluding any confinement against his will); or (b) the Founder’s primary business occupation no longer being either as a director or an employee of our company, the Founder Holders shall cause, at such time, the Class B ordinary shares held by them to be converted into an equal number of Class A ordinary shares in accordance with our post-offering amended and restated memorandum and articles of association.
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In addition, for a period of five years after the closing of this offering, each Founder Holder agrees, prior to effectuating any direct or indirect transfer of Class B ordinary shares , to ensure that any proposed transferee executes and delivers to our company a counterpart signature to the undertaking letter, confirming that such transferee will be bound by all terms and conditions of the undertaking letter as a Founder Holder. Each Founder Holder may enter into a bona fide transaction with any third-party pledgee that is not an affiliate of such Founder Holder , using Class B ordinary shares as collateral (whether through any pledge, charge, encumbrance, or other lien) to secure obligations pursuant to lending or other arrangements between such third party and the Founder Holder , without complying with the undertaking letter until the rights to such collateral are enforced, provided that the Class B ordinary shares are not converted into Class A ordinary shares at such time.
A “privatization transaction” means any of the following:
(a) A “person” or “group” within the meaning of Section 13(d) of the Exchange Act, other than the Founder Holders or us and our wholly-owned subsidiaries, becomes the direct or indirect beneficial owner of more than 50% of the voting power of our shares;
(b) The consummation of:
(i) Any recapitalization, reclassification, or change of our Class A ordinary shares (other than changes resulting from a subdivision or combination), as a result of which our Class A ordinary shares would be converted into or exchanged for stock, other securities, property, or assets;
(ii) Any share exchange, consolidation, or merger involving our company, pursuant to which our Class A ordinary shares will be converted into cash, securities, or other property or assets;
(iii) Any sale, lease, or other transfer in one transaction or a series of transactions of all or substantially all of our consolidated assets to any person or entity other than one of our wholly-owned subsidiaries;
(c) Our shareholders approve any plan or proposal for our liquidation or dissolution;
(d) Our Class A ordinary shares cease to be listed or quoted on any of The New York Stock Exchange , The Nasdaq Global Select Market , The Nasdaq Global Market , or The Nasdaq Capital Market (each, a “permitted exchange”).
However, a transaction described in (a) or (b) above shall not constitute a privatization transaction if at least 90% of the consideration received or to be received by the holders of our Class A ordinary shares , excluding cash payments for fractional shares and cash payments made in respect of dissenters’ statutory appraisal rights, consists of ordinary or common shares or other common equity that are listed or quoted on a permitted exchange or will be so listed or quoted when issued or exchanged in connection with such transaction.
Voting Rights
Each shareholder is entitled to one vote for each Class A ordinary share and ten votes for each Class B ordinary share, voting together as a single class, on all matters that require a shareholder’s vote. Voting at any shareholders’ meeting shall be by a poll of shareholders who are present in person or by proxy or, in the case of a shareholder being a corporation, by its duly authorized representative, unless by show of hands is demanded.
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No shareholder shall be entitled to vote or be reckoned in a quorum, in respect of any share, unless such shareholder is duly registered as our shareholder on the record date for such meeting and all calls or installments due by such shareholder to us have been paid.
An ordinary resolution to be passed at a general meeting requires the affirmative vote of a simple majority of the votes cast, while a special resolution requires the affirmative vote of no less than two-thirds of votes attached to all issued and outstanding ordinary shares cast at a general meeting. Both ordinary resolutions and special resolutions may also be passed by a unanimous written resolution signed by all the shareholders of our company, as permitted by the Companies Act and our seventh amended and restated memorandum and articles of association. A special resolution will be required for certain important matters.
Transfer Agent
Upon the completion of this offering, the transfer agent for our Class A ordinary shares will be Computershare Inc. The transfer agent’s address is 150 Royall Street, Canton, Massachusetts 02023, and its telephone number is +1 (781) 575-2464.
General Meetings of Shareholders
As a China exempted company, we are not obliged by the Companies Act to call shareholders’ annual general meetings. Our seventh amended and restated memorandum and articles of association provide that we may (but are not obliged to) in each year hold a general meeting as our annual general meeting in which case we shall specify the meeting as such in the notices calling it, and the annual general meeting shall be held at such time and place as may be determined by our directors. Each general meeting, other than an annual general meeting, shall be an extraordinary general meeting.
Shareholders’ meetings may be convened by a majority of our board of. Advance notice of at least ten calendar days is required for the convening of our annual general meeting and any other general meeting of our shareholders.
A quorum required for a meeting of shareholders consists of at least one shareholder present in person or by proxy, or, if a corporation or other non-natural person, by its duly authorized representative, representing not less than one-third of all votes attaching to the total issued voting shares in our company entitled to vote at the meeting, except that for variation of rights of shares, the necessary quorum shall be one person holding or representing by proxy at least half of the issued shares of the class.
The Companies Act provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. Our seventh amended and restated memorandum and articles of association provide that upon the requisition of any one or more of our shareholders who together hold shares which carry in aggregate not less than 10 per cent of all votes attaching to the issued and outstanding shares of our company entitled to vote at general meetings, our board will convene an extraordinary general meeting and put the resolutions so requisitioned to a vote at such meeting. However, our seventh amended and restated memorandum and articles of association do not provide our shareholders with any right to put any proposals before annual general meetings or extraordinary general meetings not called by such shareholders.
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Transfer of Ordinary Shares
Subject to any applicable restrictions set forth in our seventh amended and restated articles of association, any of our shareholders may transfer all or any of his or her shares by an instrument of transfer in the usual or common form or in a form that our directors may approve.
Our directors may, in its absolute discretion, decline to register any transfer of any share which is not paid up or on which we have a lien. Our directors may also decline to register any transfer of any share unless:
| ● | the instrument of transfer is lodged with us and is accompanied by the certificate for the shares to which it relates and such other evidence as our 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 share; | |
| ● | the instrument of transfer is properly stamped (in circumstances where stamping is required); and | |
| ● | a fee of such maximum sum as the Nasdaq Global Market may determine to be payable or such lesser sum as our directors may from time to time require is paid to us in respect thereof. |
If our directors refuse to register a transfer they shall, within three months after the date on which the instrument of transfer was lodged, send to each of the transferor and the transferee notice of such refusal.
Liquidation
Subject to any future shares which are issued with specific rights, (i) if we are wound up and the assets available for distribution among our shareholders are more than sufficient to repay the whole of the capital paid up at the commencement of the winding up, the excess shall be distributed pari passu among those shareholders in proportion to the amount paid up at the commencement of the winding up on the shares held by them, respectively, subject to a deduction from those shares in respect of which there are monies due, of all monies payable to our company for unpaid calls or otherwise and (ii) if we are wound up and the assets available for distribution among the shareholders as such are insufficient to repay the whole of the paid-up capital, those assets shall be distributed so that, as nearly as may be, the losses shall be borne by the shareholders in proportion to the capital paid up at the commencement of the winding up on the shares held by them, respectively.
The consideration received by each holder of a Class A ordinary share and a holder of a Class B ordinary share will be the same in any liquidation event.
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Calls on Ordinary Shares and Forfeiture of Ordinary Shares
Subject to our seventh amended and restated memorandum and articles of association and to the terms of allotment, 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.
Variations of Rights of Shares
If at any time, our share capital is divided into different classes of shares, all or any of the rights attached to any class of shares may, subject to any rights or restrictions for the time being attached to any class, be varied with the consent in writing of the holders of 80 per cent of the issued shares of that class, or with the sanction of a special resolution passed at a separate meeting of the holders of the shares of that class. Consequently, the rights of any class of shares cannot be detrimentally altered without approval of at least two-thirds of the votes cast at a separate meeting of the holders of the shares in that class.
The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, subject to any rights or restrictions for the time being attached to the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu or subordinate with such existing class of shares, or the redemption or purchase of any shares of any class by our company. The rights of the holders of shares shall not be deemed to be varied by the creation or issue of shares with preferred or other rights including, without limitation, the creation of shares with enhanced or weighted voting rights.
Redemption of Shares, Repurchase and Surrender of Ordinary Shares
We are empowered by the Companies Act and our seventh amended and restated articles of association to purchase our own shares, subject to certain restrictions. We may issue shares on terms that are subject to redemption, at our option or at the option of the holders, on such terms and in such manner as may be determined by our board of directors.
We may also repurchase any of our shares on such terms and in such manner as have been approved by our board of directors.
Under the Companies Act, the redemption or repurchase of any share may be paid out of the company’s profits or out of the proceeds of a fresh issue of shares made for the purpose of such redemption or repurchase, or out of capital (including share premium account and capital redemption reserve) if the company can, immediately following such payment, pay its debts as they fall due in the ordinary course of business. In addition, under the Companies Act, no such share may be redeemed or repurchased (i) unless it is fully paid up, (ii) if such redemption or repurchase would result in there being no shares outstanding, or (iii) if the company has commenced liquidation. In addition, our company may accept the surrender of any fully paid share for no consideration.
Issuance of Additional Shares
Our seventh amended and restated memorandum and articles of association authorize our board of directors to issue additional ordinary shares from time to time as our board of directors shall determine, to the extent of available authorized but unissued shares.
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Our seventh amended and restated memorandum and articles of association also authorize our board of directors to establish from time to time one or more series of preference shares and to determine, with respect to any series of preference shares, the terms and rights of that series, including:
| ● | the designation of the series; | |
| ● | the number of shares of the series; | |
| ● | the dividend rights, dividend rates, conversion rights, voting rights; and | |
| ● | the rights and terms of redemption and liquidation preferences. |
Our board of directors may issue preference shares without action by our shareholders to the extent authorized but unissued. Issuance of these shares may dilute the voting power of holders of ordinary shares.
Anti-Takeover Provisions
Some provisions of our seventh amended and restated memorandum and articles of association may discourage, delay or prevent a change of control of our company or management that shareholders may consider favorable, including provisions that (i) authorize our board of directors to issue preference shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preference shares without any further vote or action by our shareholders and (ii) limit the ability of shareholders to requisition and convene general meetings of shareholders.
However, under China law, our directors may only exercise the rights and powers granted to them under our seventh amended and restated memorandum and articles of association for a proper purpose and for what they believe in good faith to be in the best interests of our company.
Alteration of Capital
We may from time to time by ordinary resolution in accordance with the Companies Act alter the conditions of our amended and restated memorandum of association to:
| ● | increase our 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 larger amounts than our existing shares; | |
| ● | 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 its share capital by the amount of the shares so cancelled subject to the provisions of the Companies Act; |
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| ● | sub-divide our shares or any of them into shares of smaller amount than is fixed by our seventh amended and restated memorandum of association or into shares without nominal or par value, subject nevertheless to the Companies Act; and | |
| ● | divide shares into several classes and without prejudice to any special rights previously conferred on the holders of existing shares, attach to the shares respectively any preferential, deferred, qualified or special rights, privileges, conditions or such restrictions that in the absence of any such determination in a general meeting may be determined by our directors. |
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 authorized by law.
Rights of Non-resident or Foreign Shareholders
There are no limitations imposed by our seventh 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 seventh amended and restated memorandum and articles of association governing the ownership threshold above which shareholder ownership must be disclosed.
Inspection of Books and Records
Holders of our ordinary shares have no general right under China law to inspect or obtain copies of our list of shareholders or our corporate records (other than our memorandum and articles of association, our register of mortgages and charge, and any special resolution passed by our shareholders). However, we will provide our shareholders with annual audited financial statements. See “Where You Can Find Additional Information.”
Register of Members
Under the Companies Act, we must keep a register of members and there should be entered therein:
| ● | the names and addresses of our members, a statement of the shares held by each member (including the amount paid or agreed to be considered as paid on the shares of each member, and confirmation of whether each relevant category of shares held by each member carries voting rights under the memorandum and articles of association of the company and if so, whether such voting rights are conditional); | |
| ● | the date on which the name of any person was entered on the register as a member; and | |
| ● | the date on which any person ceased to be a member. |
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Under the Companies Act, the register of members is prima facie evidence of the registered holder or member of shares of a company. Therefore, a person becomes a registered holder or member of shares of the company only upon entry being made in the register of members. A member registered in the register of members is deemed as a matter of China law to have legal title to the shares as set against its name in the register of members.
If the name of any person is incorrectly entered in or omitted from our register of members or if there is any default or unnecessary delay in entering on the register the fact of any person having ceased to be a member of our company, the person or member aggrieved (or any member of our company or our company itself) may apply to the Grand Court of the China for an order that the register be rectified. The Court may either refuse such application or it may, if satisfied of the justice of the case, make an order for the rectification of the register.
Exempted Company
We are an exempted company with limited liability under the Companies Act. The Companies Act distinguishes between ordinary resident companies and exempted companies. Any company that is registered in the China but conducts business mainly outside of the China may apply to be registered as an exempted company. The requirements for an exempted company are essentially the same as for an ordinary company except that an exempted company:
| ● | does not have to file an annual return of its shareholders with the Registrar of Companies; | |
| ● | is not required to open its register of members for inspection; | |
| ● | does not have to hold an annual general meeting; | |
| ● | may issue negotiable or bearer shares or shares with no par value; | |
| ● | may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the first instance); | |
| ● | may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands; | |
| ● | may register as a limited duration company; and | |
| ● | may register as a segregated portfolio company. |
“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil).
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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 U.K. statutory enactments, and accordingly there are significant differences between the Companies Act and the current Companies Act of England.
In addition, the Companies Act differs from laws applicable to U.S. corporations and their shareholders. Set forth below is a summary of certain 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
The Companies Act permits mergers and consolidations between China companies and between China companies and non-Cayman Islands companies. For these purposes, (i) “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 (ii) a “consolidation” means the combination of two or more constituent companies into a combined 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 (i) a special resolution of the shareholders of each constituent company, and (ii) such other authorization, if any, as may be specified in such constituent company’s articles of association. The written plan of merger or consolidation must be filed with the Registrar of Companies of the China together with a declaration as to the solvency of the consolidated or surviving company, declaration as to 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 China Gazette. Dissenting shareholders have the right to be paid the fair value of their shares (which, if not agreed between the parties, will be determined by the China court) if they follow the required procedures, subject to certain exceptions. 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 China.
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 China court) upon dissenting to the merger or consolidation, provide 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.
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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 by a majority in number of each class of shareholders or 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 China. While a dissenting shareholder has the right to express to the court the view that the transaction ought not to be approved, the Grand 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 dissentient minority shareholders upon a tender offer. When a tender offer is made and accepted by holders of 90.0% 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 China 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, 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.
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Shareholders’ Suits
In principle, we will normally be the proper plaintiff to sue for a wrong done to us as a company, 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 China, the China court 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 our 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 our company are perpetrating a “fraud on the minority.” |
Indemnification of Directors and Executive Officers and Limitation of Liability
China 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 China courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime.
Our seventh amended and restated memorandum and articles of association provide that each of our directors shall be indemnified against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by such director, other than by reason of such director’s own dishonesty, willful default or fraud, in or about the conduct of our company’s business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his duties, powers, authorities or discretions, including any costs, expenses, losses or liabilities incurred by such director in defending (whether successfully or otherwise) any civil proceedings concerning our company or our affairs in any court whether in the China or elsewhere. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation.
In addition, we are entering into indemnification agreements with our directors and executive officers that provide such persons with additional indemnification beyond that provided in our seventh 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.
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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 acts in a manner he or she reasonably believes to be in the best interests of the corporation. He or she must not use his 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, the director must prove the procedural fairness of the transaction and that the transaction was of fair value to the corporation.
As a matter of China law, a director of a China company is in the position of a fiduciary with respect to the company and therefore it is considered that he or she owes the following duties to the company:
| ● | a duty to act in good faith in the best interests of the company, | |
| ● | a duty not to make a personal profit based on his or her position as director (unless the company permits him or her to do so), | |
| ● | a duty not to put himself or herself 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, and | |
| ● | a duty to exercise powers for the purpose for which such powers were intended. |
A director of a China 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 China.
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.
Under our seventh amended and restated memorandum and articles of association, directors may be removed with or without cause, by an ordinary resolution of our shareholders. A director will also cease to be a director if, among others, he or she (i) becomes bankrupt or makes any arrangement or composition with his creditors; (ii) dies or is found to be or becomes of unsound mind; (iii) resigns his or her office by notice in writing; (iv) without special leave of absence from our board of directors, is absent from three consecutive meetings of the board and the board resolves that his office be vacated, or (v) is removed from office pursuant to any other provision of our amended and restated articles of association.
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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.
China law and our seventh amended and restated articles of association provide that shareholders may approve corporate matters and adopt both the ordinary resolutions and the special resolutions by way of unanimous written resolutions signed by all of the shareholders of our company 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.
With respect to shareholder proposals, China law is essentially the same as Delaware law. The Companies Act does not provide shareholders with an express right to put forth any proposal before an annual meeting of the shareholders. However, the Companies Act may provide shareholders with limited rights to requisition a general meeting but such rights must be stipulated in the articles of association of the company.
Any one or more shareholders holding not less than 10% of the votes attaching to the total issued and paid up share capital of the company at the date of deposit of the requisition shall at all times have the right, by written requisition to the board of directors or the secretary of the company, to require an extraordinary general meeting to be called by the board of directors for the transaction of any business specified in such requisition. However, our seventh amended and restated memorandum and articles of association do not provide our shareholders with any right to put any proposals before any meetings of shareholders not called by such shareholders. Other than this right to requisition a shareholders’ meeting, our seventh amended and restated memorandum and articles of association do not provide our shareholders with any other right to put proposals before annual general meetings or extraordinary general meetings.
Cumulative Voting
Under the Delaware General Corporation Law, cumulative voting for election 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.
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There are no prohibitions in relation to cumulative voting under the laws of the China but our seventh amended and restated memorandum and 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.
Transactions with Interested Shareholders
The Delaware General Corporation Law contains a business combination statute applicable to Delaware public 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 shares within the past three years.
This statute 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.
China 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 China 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 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 China law, a company may be wound up by either an order of the courts of the China 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.
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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 China law and our seventh 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 with the consent in writing of the holders of 80 per cent of the issued shares of that class, or with sanction of a special resolution passed by two-thirds of the votes cast at a separate 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.
Under the China law, our seventh amended and restated memorandum and articles of association may only be amended with a special resolution of our shareholders.
Rights of Non-resident or Foreign Shareholders
There are no limitations imposed by our seventh 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 seventh amended and restated memorandum and articles of association governing the ownership threshold above which shareholder ownership must be disclosed.
Inspection of Books and Records
Under the Delaware General Corporation Law, any shareholder of a corporation may for any proper purpose inspect or make copies of the corporation’s stock ledger, list of shareholders and other books and records.
Holders of our shares will have no general right under China law to inspect or obtain copies of our list of shareholders or our corporate records (other than copies of our memorandum and articles of association, our register of mortgages and charge, and any special resolution passed by our shareholders). However, we intend to provide our shareholders with annual reports containing audited financial statements. See “Where You Can Find Additional Information.”
History of Securities Issuances
The following is a summary of our securities issuances during the past three years since January 1, 2021. Unless otherwise stated, this summary has been given effect to the 1-for-500 Share Consolidation of our ordinary shares which was approved and effected in July 2024:
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Ordinary Shares
On July 26, 2023, we issued an aggregate of [ ] ordinary shares to certain of our directors pursuant to our 2019 Plan.
On February 24, 2024, pursuant to the 2008 Plan and 2019 Plan, we issued an aggregate of [ ] ordinary shares to the Trust Holdcos and another participant of the 2019 Plan. Such shares represents the shares issued upon exercise of options to purchase an aggregate of 4,581,743 ordinary shares and the vesting of an aggregate of [ ] restricted shares, which we granted to the participants of the 2008 Plan and 2019 Plan. See “Management—Share Incentive Plans.”
Immediately prior to the completion of this offering, all of our issued and outstanding ordinary shares will be re-designated as an aggregate of [ ] Class A ordinary shares and [ ] Class B ordinary shares on a one-for-one basis.
Preferred Shares
In November 2022, we issued an aggregate of [ ] series E preferred shares at par value of $0.05 each, to two investors for an aggregate consideration of $25.0 million, or $6.25 per share.
Immediately prior to the completion of this offering, all of our issued and outstanding preferred shares will automatically convert into our ordinary shares and be re-designated as an aggregate of [ ] Class A ordinary shares and [ ]Class B ordinary shares on a one-for-one basis.
Options and Restricted Shares
See “Management—Share Incentive Plans.”
Shareholders Agreement
We entered into our fifth amended and restated shareholders agreement on February 28, 2023, or the shareholders agreement, with our shareholders, which consist of holders of ordinary shares and preferred shares. The shareholders agreement provides for certain shareholders’ rights, including, among others, information rights, preemptive rights, right of first refusal, co-sale rights and drag-along rights, and contains provisions governing our board of directors and other corporate governance matters. The rights and obligations of each shareholder under the shareholders agreement will automatically terminate upon the completion of this offering.
Registration Rights
We have granted certain registration rights to our shareholders. Set forth below is a description of the registration rights granted under the shareholders agreement.
Demand Registration Rights. At any time after the earlier of (i) the three years from February 28, 2023 or six months following the completion of this offering, holders of at least 15% of the registrable securities then outstanding may, by written notice, request that we effect a registration of all or any portion of the registrable securities that the holders request to be registered and included in such registration.
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However, we are not obligated to effect a demand registration (i) during the period beginning 30 days prior to the filing and ending on a date 90 days following the effective date of the registration statement in connection with this offering, subject to certain conditions, (ii) if the filing of such a registration statement would require the disclosure of material non-public information about us, in which event no such registration statement need be filed until the earlier of the lapse of sixty (60) days from the issuance of the opinion of counsel or such time as the information is no longer required to be disclosed, is not material or non-public, or its disclosure would not have a material adverse effect on our business or financial condition, provided that, we may not exercise this right more than once in any 12-month period, or (iii) unless the aggregate offering price of the securities requested to be sold pursuant to such registration is, in the good faith judgment of our board of directors, expected to be equal to or greater than $5,000,000.
In addition, no request of demand registration may be made within 180 days after the effective date of a registration statement filed by us covering a firm commitment underwritten public offering in which the holders of registrable securities shall have been entitled to join and in which there shall have been effectively registered all registrable securities as to which registration shall have been so requested.
We are not obligated to effect more than three demand registrations, subject to certain conditions.
Further, if the registrable securities are offered by means of an underwritten offering and the managing underwriter advises us that marketing factors require a limitation of the number of securities to be underwritten, the number of such registrable securities may be reduced as required by the underwriters and the number of the registrable securities will be allocated among the holders on a pro rata basis according to the number of registrable securities then outstanding held by each holder requesting registration, provided that in no event may any registrable securities be excluded from such underwriting unless all other securities are first excluded.
Registration on Form F-3. Holders of registrable securities then outstanding have the right to request that we effect registration statements on Form F-3. We, however, are not obligated to effect such registration if, among other things, Unless either (i) a majority of the outstanding registrable securities are requested to be sold pursuant to such registration or (ii) the aggregate offering price of the securities requested to be sold pursuant to such registration is, in the good faith judgment of our board of directors, expected to be equal to or greater than $2,000,000.
Piggyback Registration Rights. If we propose to file a registration statement for a public offering of our securities other than relating to any employee benefit plan or a corporate reorganization, we must offer holders of our registrable securities an opportunity to include in the registration all or any part of their registrable securities. If the registrable securities are offered by means of an underwritten offering and the managing underwriter advises us that marketing factors require a limitation of the number of securities to be underwritten, the number of such registrable securities may be reduced, subject to certain conditions, as required by the underwriters and the number of the registrable securities will be allocated among the holders on a pro rata basis according to the number of registrable securities then outstanding held by each holder requesting registration.
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Limitation on Subsequent Registration Rights. Except as provided in the shareholders agreement, we will not grant to any person the right to request us to register any ordinary shares, or any securities convertible or exchangeable into or exercisable for ordinary shares, (i) which are superior to or pari passu with the rights granted to the holders of our preferred shares, (ii) unless under the terms of such agreement such holder or prospective holder may include such ordinary shares in any registration only to the extent that the inclusions of such ordinary shares will not reduce the amount of the registrable securities of the holders of our preferred shares that are included; or (iii) that would cause us the right to include such ordinary shares, or any securities convertible or exchangeable into or exercisable for ordinary shares, in any registration on a basis more favorable to such holder or prospective holder than is provided to the holders of our preferred shares thereunder, in each case without the prior written consent of holders of at least seventy-five percent (75%) of the total issued and outstanding preferred shares.
Expenses of Registration. We will bear all registration expenses, other than underwriting discounts and selling commissions incurred in connection with any demand, piggyback or Form F-3 registration, except each holder that exercised its demand, Form F-3 or piggyback registration rights will bear such holder’s proportionate share (based on the total number of shares sold in such registration other than for our account) of all underwriting discounts and selling commissions or other amounts payable to underwriters or brokers.
Termination of Obligations. We have no obligation to effect any demand, Form F-3 or piggyback registration on the fifth anniversary of the date of completion of this offering.
Underwriter’s Warrants
For the material terms and provisions of the underwriter’s warrants, see “Underwriting—Underwriter Warrants.”
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, assuming no exercise by the underwriter of the over-allotment option to purchase additional Class A ordinary shares, we will have outstanding ordinary shares, including Class A ordinary shares offered in this offering. All of the Class A ordinary shares sold in this offering will be freely transferable by persons other than our “affiliates” (as that term is defined in Rule 144 under the Securities Act) without restriction or further registration under the Securities Act. Sales of substantial amounts of our Class A ordinary shares in the public market could materially adversely affect prevailing market prices of the Class A ordinary shares.
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Prior to this offering, there has been no public market for our ordinary shares. We have applied to list our Class A ordinary shares offered in this offering on the Nasdaq. However, we cannot assure you that a regular trading market will develop in our Class A ordinary shares.
Lock-up Agreements
We have agreed, for a period of 180 days after the date of this prospectus, subject to certain exceptions, not to offer, sell, contract to sell, pledge, grant any option or contract to purchase, make any short sale, lend or otherwise dispose of, except in this offering, any of our ordinary shares or securities that are substantially similar to our ordinary shares, including but not limited to any options or warrants to purchase our ordinary shares or any securities that are convertible into or exchangeable for, or that represent the right to receive, our ordinary shares or any such substantially similar securities (other than pursuant to employee equity incentive plans existing on, or upon the conversion or exchange of convertible or exchangeable securities outstanding as of, the date such lock-up agreement was executed), without the prior written consent of the underwriter.
Furthermore, our directors, executive officers and all existing holders of our outstanding ordinary shares have also entered into a similar lock-upagreement for a period of 180 days from the date of this prospectus, subject to certain exceptions, with respect to our ordinary shares and securities that are substantially similar to our ordinary shares. See “Underwriting.”
We cannot predict what effect, if any, future sales of our ordinary shares, or the availability of ordinary shares for future sale, will have on the trading price of our Class A ordinary shares from time to time. Sales of substantial amounts of our Class A ordinary shares in the public market, or the perception that these sales could occur, could adversely affect the trading price of our Class A ordinary shares.
Rule 144
All of our ordinary shares that will be outstanding upon the completion of this offering, other than those ordinary shares sold in this offering, are “restricted securities” as that term is defined in Rule 144 under the Securities Act and may be sold publicly in the U.S. only if they are subject to an effective registration statement under the Securities Act or pursuant to an exemption from the registration requirement such as those provided by Rule 144 and Rule 701 promulgated under the Securities Act.
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In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person (or persons whose shares are aggregated) who at the time of a sale is not, and has not been during the three months preceding the sale, an affiliate of ours and has beneficially owned our restricted securities for at least six months is entitled to sell the restricted securities without registration under the Securities Act, subject to the availability of current public information about us, and will be entitled to sell restricted securities beneficially owned for at least one year without restriction. Persons who are our affiliates (including persons beneficially owning 10% or more of our outstanding shares) and have beneficially owned our restricted securities for at least six months may sell within any three-month period a number of restricted securities that does not exceed the greater of the following:
| ● | 1% of the then issued and outstanding ordinary shares of the same class, which will equal approximately Class A ordinary shares immediately after this offering, assuming the underwriter does not exercise the over-allotment option to purchase additional Class A ordinary shares, (or Class A ordinary shares if the underwriter exercises the over-allotment option to purchase additional Class A ordinary shares in full); and | |
| ● | the average weekly trading volume of our ordinary shares of the same class on the Nasdaq during the four calendar weeks preceding the date on which notice of the sale on Form 144 is filed with the SEC. |
Such sales are also subject to manner-of-sale provisions, notice requirements and the availability of current public information about us.
Rule 701
Beginning 90 days after the date of this prospectus, persons other than affiliates who purchased ordinary shares under a written compensatory plan or other written agreement executed prior to the completion of this offering may be entitled to sell such shares in the U.S. in reliance on Rule 701 under the Securities Act, or Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144.
Rule 701 further provides that non-affiliates may sell these shares in reliance on Rule 144 subject only to its manner-of-sale requirements. However, the Rule 701 shares would remain subject to any applicable lock-up arrangements and would only become eligible for sale when the lock-upperiod expires.
Registration Rights
Upon the completion of this offering, holders of our registrable securities will be entitled to request that we register their shares under the Securities Act, following the expiration of the lock-up agreements described above. See “Description of Share Capital—Registration Rights.”
Form S-8
We intend to file a registration statement on Form S-8 under the Securities Act covering all Class A ordinary shares which are either subject to outstanding options or may be issued upon exercise of any options or other equity awards which were granted, may be granted or issued in the future pursuant to our share incentive plans. We expect to file this registration statement as soon as practicable after the date of this prospectus. Shares registered under any registration statements will be available for sale in the open market, except to the extent that the shares are subject to vesting restrictions with us or the contractual restrictions described below.
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The following summary of the material China, PRC, Japanese, U.K. and U.S. federal income tax consequences of an investment in our Class A ordinary shares is based upon laws and relevant interpretations thereof in effect as of the date of this prospectus, all of which are subject to change. This summary does not deal with all possible tax consequences relating to an investment in our Class A ordinary shares, such as the tax consequences under U.S. state and local tax laws and the other tax laws not addressed herein. To the extent that the discussion relates to matters of China tax law, it represents the opinion of Maples and Calder (Kunming) LLP, our counsel as to China law, and to the extent it relates to PRC tax law, it represents the opinion of Han Kun Law Offices, our counsel as to PRC law.
China Taxation
The China currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us or holders of our ordinary shares levied by the government of the China except for stamp duties which may be applicable on instruments executed in, or after execution, brought within the jurisdiction of, the China.
Payments of dividends and capital in respect of our ordinary shares or ADS will not be subject to taxation in the China and no withholding will be required on the payment of a dividend or capital to any holder of our ordinary shares or ADS, nor will gains derived from the disposal of our ordinary shares or ADS be subject to China income or corporation tax.
The China is not a party to any double tax treaties that are applicable to any payments made to or by our company.
There are no exchange control regulations or currency restrictions in the China.
PRC Taxation
Income Tax and Withholding Tax
In March 2007, the NPC enacted the PRC Enterprise Income Tax Law, which became effective on January 1, 2008 (as last amended in December 2020). The PRC Enterprise Income Tax Law provides that enterprises organized under the laws of jurisdictions outside China with their “de facto management bodies” located within China may be considered PRC resident enterprises and therefore subject to enterprise income tax at the rate of 25% on their worldwide income. The EIT Implementing Rules further defines the term “de facto management body” as the management body that exercises substantial and overall management and control over the business, personnel, accounts and properties of an enterprise.
In April 2009, the SAT issued the Notice Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, known as Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is deemed to be located in China. Although Circular 82 only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not offshore enterprises controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect the SAT’s general position on how the “de facto management body” test should be applied in determining the tax resident status of all offshore enterprises.
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According to Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China and will be subject to enterprise income tax on its global income only if all of the following conditions are satisfied:
| ● | the primary location of the day-to-day operational management and the places where they perform their duties are in the PRC; | |
| ● | decisions relating to the enterprise’s financial and human resources matters are made or are subject to the approval of organizations or personnel in the PRC; | |
| ● | the enterprise’s primary assets, accounting books and records, company seals and board and shareholders’ resolutions are located or maintained in the PRC; and | |
| ● | 50% or more of voting board members or senior executives habitually reside in the PRC. |
The Administrative Measures for Enterprise Income Tax of Chinese-Controlled Offshore-Incorporated Resident Enterprises (Trial Version), or Bulletin 45, further clarifies certain issues related to the determination of tax resident status. Bulletin 45 also specifies that when provided with a resident Chinese-controlled, offshore-incorporated enterprise’s copy of its recognition of residential status, a payer does not need to withhold a 10% income tax when paying certain PRC-source income, such as dividends, interest and royalties to such Chinese-controlled offshore-incorporated enterprise.
We believe that JiaLian Technologies Holdings Inc. and our overseas subsidiaries outside of mainland China are not PRC resident enterprises for PRC tax purposes. JiaLian Technologies Holdings Inc. and our overseas subsidiaries other than the PRC Subsidiaries are incorporated outside mainland China. As for JiaLian Technologies Holdings Inc., which is a holding company, its key assets are its ownership interests in its subsidiaries, and its key assets are located, and its records (including the resolutions of its board of directors and the resolutions of its shareholders) are maintained, outside mainland China. As for our overseas subsidiaries outside of mainland China, their key assets, records and primary locations are outside mainland China. As thus, we do not believe that they meet all of the conditions above. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” There can be no assurance that the PRC government will ultimately take a view that is consistent with our position.
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If the PRC tax authorities determine that JiaLian Technologies Holdings Inc. is a “resident enterprise” for enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. One example is a 10% withholding tax would be imposed on dividends we pay to our non-PRC enterprise shareholders and with respect to gains derived by our non-PRC enterprise shareholders from transferring our shares. Furthermore, dividends payable to individual investors who are non-PRC residents and any gain realized on the transfer of ordinary shares by such investors may be subject to PRC tax at a current rate of 20%. Any PRC tax liability may be subject to reduction or exemption set forth in applicable tax treaties or under applicable tax arrangements between jurisdictions. It is unclear whether, if we are considered a PRC resident enterprise, holders of our shares would be able to claim the benefit of income tax treaties or agreements entered into between China and other countries or areas.
According to the Bulletin on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-Tax Resident Enterprises, or SAT Bulletin 7, which was promulgated by the SAT and became effective on February 3, 2015, if a non-resident enterprise transfers the equity interests of a PRC resident enterprise indirectly by transfer of the equity interests of an offshore holding company (other than a purchase and sale of shares issued by a PRC resident enterprise in the public securities market) without a reasonable commercial purpose, PRC tax authorities have the power to reassess the nature of the transaction and the indirect equity transfer may be treated as a direct transfer. As a result, the gain derived from such transfer, which means the equity transfer price less the cost of equity, will be subject to PRC withholding tax at a rate of up to 10%.
Under the terms of SAT Bulletin 7, a transfer which meets all of the following circumstances shall be directly deemed as having no reasonable commercial purposes if:
| ● | over 75% of the value of the equity interests of the offshore holding company are directly or indirectly derived from PRC taxable properties; | |
| ● | at any time during the year before the indirect transfer, over 90% of the total properties of the offshore holding company are investments within PRC territories, or in the year before the indirect transfer, over 90% of the offshore holding company’s revenue is directly or indirectly derived from PRC territories; | |
| ● | the function performed and risks assumed by the offshore holding company are insufficient to substantiate its corporate existence; or | |
| ● | the foreign income tax imposed on the indirect transfer is lower than the PRC tax imposed on the direct transfer of the PRC taxable properties. |
On October 17, 2019, the SAT issued the Announcement of the SAT on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, or SAT Circular 37, which took effect on December 1, 2019. SAT Circular 37 purports to provide further clarifications by setting forth the definitions of equity transfer income and tax basis, the foreign exchange rate to be used in the calculation of the withholding amount and the date on which the withholding obligation arises.
Specifically, SAT Circular 37 provides that where the transfer income subject to withholding at source is derived by a non-PRC resident enterprise in installments, the installments may first be treated as recovery of costs of previous investments. Upon recovery of all costs, the tax amount to be withheld must then be computed and withheld.
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There is uncertainty as to the application of SAT Bulletin 7 and SAT Circular 37. SAT Bulletin 7 and SAT Circular 37 may be determined by the PRC tax authorities to be applicable to transfers of our shares that involve non-resident investors, if any of such transactions were determined by the tax authorities to lack a reasonable commercial purpose.
As a result, we and our non-resident investors in such transactions may become at risk of being taxed under SAT Bulletin 7 and SAT Circular 37, and we may be required to comply with SAT Bulletin 7 and SAT Circular 37 or to establish that we should not be taxed under the general anti-avoidance rule of the PRC Enterprise Income Tax Law. This process may be costly and have a material adverse effect on our financial condition and results of operations.
Value-added Tax
Under the Circular on Comprehensively Promoting the Pilot Program of the Collection of Value-added Tax to Replace Business Tax, or Circular 36, which was promulgated by the Ministry of Finance and the SAT on March 23, 2016 and became effective on May 1, 2016, entities and individuals engaging in the sale of services, intangible assets or fixed assets within the territory of the PRC are required to pay value-added tax instead of business tax.
According to the Circular 36, our PRC Subsidiaries are subject to value-added tax, at a rate of 6% on proceeds received from customers and are entitled to a refund for value-added tax already paid or borne on the goods purchased by it and utilized in the provisions of services that have generated the gross proceeds.
According to the Announcement of SAT on Promulgation of the Administrative Measures on Tax Exemption for Cross-border Taxable Activities for Levying Value-Added Tax in Lieu of Business Tax (Trial Implementation), which was promulgated by the SAT on May 6, 2016 and became effective on May 1, 2016, as amended on June 16, 2020 by the Announcement of the SAT on the Revision to Certain Taxation Regulatory Documents, which was promulgated by the SAT on June 15, 2020, certain cross-border taxable activities, such as offshore service outsourcing business provided to overseas entities and are entirely consumed overseas, shall be exempted from value-added tax.
Material U.S. Federal Income Tax Consequences
The following summary describes the material United States federal income tax consequences of the purchase, ownership and disposition of our Class A ordinary shares as of the date hereof. The effects of any applicable state or local laws and other U.S. federal tax laws, such as estate and gift tax laws, and the impact of the Medicare contribution tax on net investment income and the alternative minimum tax, are not discussed. This summary is only applicable to Class A ordinary shares held as capital assets (generally, property held for investment) within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended, or the Code, by a United States Holder (as defined below).
The discussion below is based upon the provisions of the Code, and regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be changed, perhaps retroactively, so as to result in United States federal income tax consequences different from those discussed below.
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This summary does not represent a detailed description of the United States federal income tax consequences applicable to you if you are subject to special treatment under the United States federal income tax laws, including if you are:
| ● | a dealer in securities or currencies; | |
| ● | a financial institution; | |
| ● | a regulated investment company; | |
| ● | a real estate investment trust; | |
| ● | an insurance company; | |
| ● | a tax-exempt organization; | |
| ● | a person holding our Class A ordinary shares as part of a hedging, integrated or conversion transaction, a constructive sale or a straddle; | |
| ● | a trader in securities that has elected the mark-to-market method of accounting for your securities; | |
| ● | a person subject to special tax accounting rules as a result of any item of gross income with respect to Class A ordinary shares being taken into account in an “applicable financial statement” (as defined in the Code); | |
| ● | a United States expatriate; | |
| ● | a person who owns or is deemed to own 10% or more of our stock by vote or value; or | |
| ● | a person whose “functional currency” is not the United States dollar. |
As used herein, the term “United States Holder” means a beneficial owner of our Class A ordinary shares that is for United States federal income tax purposes:
| ● | an individual who is a citizen or resident of the United States; | |
| ● | a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia; | |
| ● | an estate the income of which is subject to United States federal income taxation regardless of its source; or | |
| ● | a trust if it (1) is subject to the primary supervision of a court within the United States and one or more United States persons have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person. |
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If an entity or arrangement treated as a partnership for United States federal income tax purposes holds our Class A ordinary shares, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our Class A ordinary shares, you should consult your tax advisors.
This summary does not contain a detailed description of all the United States federal income tax consequences to you in light of your particular circumstances. If you are considering the purchase, ownership or disposition of our Class A ordinary shares, you should consult your tax advisors concerning the United States federal income tax consequences to you in light of your particular situation as well as any consequences arising under the laws of any other taxing jurisdiction.
Taxation of Dividends
Subject to the discussion under “—Passive Foreign Investment Company” below, the gross amount of any distributions on our Class A ordinary shares (including any amounts withheld to reflect PRC withholding taxes) will be taxable as dividends, to the extent paid out of our current or accumulated earnings and profits, as determined under United States federal income tax principles. Such income (including withheld taxes) will be includable in your gross income as ordinary income on the day actually or constructively received by you. Such dividends will not be eligible for the dividends received deduction allowed to corporations under the Code.
To the extent that the amount of any distribution exceeds our current and accumulated earnings and profits, as determined under United States federal income tax principles, the distribution ordinarily would be treated, first, as a tax-free return of capital, causing a reduction in the adjusted basis of our Class A ordinary shares (thereby increasing the amount of gain, or decreasing the amount of loss, to be recognized by you on a subsequent disposition of our Class A ordinary shares), and, second, the balance in excess of adjusted basis generally would be taxed as capital gain recognized on a sale or exchange, as described under “—Taxation of Capital Gains” below. However, we do not expect to determine our earnings and profits in accordance with United States federal income tax principles. Therefore, you should expect that distributions will generally be reported to the Internal Revenue Service, or IRS, and taxed to you as dividends (as discussed above), even if they might ordinarily be treated as a tax-free return of capital or as capital gain.
With respect to non-corporate United States Holders (including individuals), dividends received from a qualified foreign corporation may be subject to reduced rates of taxation, unless we are a PFIC in the taxable year in which such dividends are paid or in the preceding taxable year. A foreign corporation is treated as a qualified foreign corporation with respect to dividends received from that corporation on shares that are readily tradable on an established securities market in the United States. We have applied to quote our Class A ordinary shares offered in this offering on the Nasdaq. Provided that the listing is approved, United States Treasury Department guidance indicates that our Class A ordinary shares will be readily tradable on an established securities market in the United States. There can be no assurance that our Class A ordinary shares will continue to be readily tradable on an established securities market in later years.
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A qualified foreign corporation also includes a foreign corporation that is eligible for the benefits of certain income tax treaties with the United States. In the event that we are deemed to be a PRC resident enterprise under the PRC tax law, we may be eligible for the benefits of the income tax treaty between the United States and the PRC, or the Treaty, provided that we meet the other requirements for Treaty eligibility. In that case, dividends we pay on our Class A ordinary shares may be eligible for the reduced rates of taxation whether or not the shares are readily tradable on an established securities market in the United States. Each non-corporate United States Holder is advised to consult its tax advisors regarding the availability of the reduced tax rate applicable to qualified dividend income for any dividends we pay with respect to our Class A ordinary shares.
In the event that we are deemed to be a PRC resident enterprise under the PRC tax law, you may be subject to PRC withholding taxes on dividends paid to you with respect to our Class A ordinary shares. See “—PRC Taxation.” In that case, subject to certain conditions and limitations (including a minimum holding period requirement), PRC withholding taxes on dividends may be treated as foreign taxes eligible for credit against your United States federal income tax liability. For purposes of calculating the foreign tax credit, dividends paid on our Class A ordinary shares will be treated as foreign source income and will generally constitute passive category income. If you do not elect to claim a foreign tax credit for foreign tax withheld, you may instead claim a deduction, for United States federal income tax purposes, for the foreign tax withheld, but only for a year in which you elect to do so for all creditable foreign income taxes. The rules governing the foreign tax credit are complex. You are urged to consult your tax advisor regarding the availability of the foreign tax credit under your particular circumstances.
Passive Foreign Investment Company
In general, we will be a PFIC for any taxable year in which:
| ● | at least 75% of our gross income is passive income, or | |
| ● | at least 50% of the value (based on a quarterly average) of our assets is attributable to assets that produce or are held for the production of passive income. |
For this purpose, passive income generally includes dividends, interest, royalties and rents (other than royalties and rents derived in the active conduct of a trade or business and not derived from a related person), as well as gains from the sale of assets (such as stock) that produce passive income, foreign currency gains, and certain other categories of income. If we own at least 25% (by value) of the stock of another corporation, we will be treated, for purposes of determining whether we are a PFIC, as owning our proportionate share of the other corporation’s assets and receiving our proportionate share of the other corporation’s income.
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Based on the manner in which we currently operate our business, the current and expected composition of our income and assets and the expected value of our assets (including the value of our goodwill, which is based on the expected price of our Class A ordinary shares in this offering), we believe we were not a PFIC for our taxable year ended December 31, 2023, and we do not expect to be a PFIC for our current taxable year. However, our PFIC status for any taxable year is an annual determination that can be made only after the end of that year and will depend on the composition of our income and assets and the value of our assets from time to time (which may be determined, in large part, by reference to the market price of our Class A ordinary shares, which could be volatile). Because we will hold a substantial amount of cash following this offering, we may be or become a PFIC if our market capitalization declines. Moreover, it is not entirely clear how the contractual arrangements between us, our consolidated VIEs and their shareholders will be treated for purposes of the PFIC rules, and we may be or become a PFIC if our consolidated VIEs are not treated as owned by us for these purposes. Accordingly, there can be no assurance that we will not be a PFIC for our current or any future taxable year.
If we are a PFIC for any taxable year during which you hold our Class A ordinary shares and you do not make a timely mark-to-marketelection, as described below, you will be subject to special tax rules with respect to any “excess distribution” received and any gain realized from a sale or other disposition, including a pledge, of our Class A ordinary shares. Distributions received in a taxable year that are greater than 125% of the average annual distributions received during the shorter of the three preceding taxable years or your holding period for our Class A ordinary shares will be treated as excess distributions. Under these special tax rules:
| ● | the excess distribution or gain will be allocated ratably over your holding period for our Class A ordinary shares, | |
| ● | the amount allocated to the current taxable year, and any taxable year in your holding period prior to the first taxable year in which we were a PFIC, will be treated as ordinary income, and | |
| ● | the amount allocated to each other year will be subject to tax at the highest income tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. |
Although the determination of whether we are a PFIC is made annually, if we are a PFIC for any taxable year in which you hold our Class A ordinary shares, you will generally be subject to the special tax rules described above for that year and for each subsequent year in which you hold our Class A ordinary shares (even if we do not qualify as a PFIC in any subsequent years). However, if we cease to be a PFIC, you can avoid the continuing impact of the PFIC rules by making a special election to recognize gain as if your Class A ordinary shares had been sold on the last day of the last taxable year during which we were a PFIC. You are urged to consult your tax advisor about this election.
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In certain circumstances, in lieu of being subject to the special tax rules discussed above, you may make a mark-to-market election with respect to your Class A ordinary shares provided such Class A ordinary shares are treated as “marketable stock.” Our Class A ordinary shares generally will be treated as marketable stock if our Class A ordinary shares are “regularly traded” on a “qualified exchange or other market” (within the meaning of the applicable Treasury regulations). Under current law, the mark-to-market election may be available to shareholders if our Class A ordinary shares are quoted on the Nasdaq, which constitutes a qualified exchange, although there can be no assurance that our Class A ordinary shares will be “regularly traded” for purposes of the mark-to-market election. If you make an effective mark-to-market election, for each taxable year that we are a PFIC, you will include as ordinary income the excess of the fair market value of your Class A ordinary shares at the end of the year over your adjusted basis in the Class A ordinary shares. You will be entitled to deduct as an ordinary loss in each such year the excess of your adjusted basis in the Class A ordinary shares over their fair market value at the end of the year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. If you make an effective mark-to-market election, any gain you recognize upon the sale or other disposition of your Class A ordinary shares in a year that we are a PFIC will be treated as ordinary income and any loss will be treated as ordinary loss, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. Your adjusted basis in the Class A ordinary shares will be increased by the amount of any income inclusion and decreased by the amount of any deductions, in each case, to the extent provided for under the mark-to-market rules. If you make a mark-to-market election it will be effective for the taxable year for which the election is made and all subsequent taxable years unless the Class A ordinary shares are no longer regularly traded on a qualified exchange or other market, or the IRS consents to the revocation of the election. You are urged to consult your tax advisor about the availability of the mark-to-market election, and whether making the election would be advisable in your particular circumstances.
A different election, known as the “qualified electing fund” or “QEF” election is generally available to holders of PFIC stock, but requires that the corporation provide the holders with a “PFIC Annual Information Statement” containing certain information necessary for the election, including the holder’s pro rata share of the corporation’s earnings and profits and net capital gains for each taxable year, computed according to United States federal income tax principles. We do not intend, however, to determine our earnings and profits or net capital gain under United States federal income tax principles, nor do we intend to provide United States Holders with a PFIC Annual Information Statement. Therefore, you should not expect to be eligible to make this election.
If we are a PFIC for any taxable year during which you hold our Class A ordinary shares and any of our non-United States subsidiaries is also a PFIC, you will be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of these rules. Because a mark-to-market election cannot be made for any lower-tier PFICs that a PFIC may own, if you make a mark-to-market election with respect to our Class A ordinary shares, you may continue to be subject to the general PFIC rules with respect to your indirect interest in any of our non-United States subsidiaries that is classified as a PFIC. You are urged to consult your tax advisors about the application of the PFIC rules to any of our subsidiaries. You will generally be required to file IRS Form 8621 if you hold our Class A ordinary shares in any year in which we are classified as a PFIC. You are urged to consult your tax advisors concerning the United States federal income tax consequences of holding our Class A ordinary shares if we are considered a PFIC in any taxable year and the availability, manner and advisability of making any elections.
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Taxation of Capital Gains
For United States federal income tax purposes, you will recognize taxable gain or loss on any sale or exchange of our Class A ordinary shares in an amount equal to the difference between the amount realized for our Class A ordinary shares and your adjusted basis in our Class A ordinary shares. Subject to the discussion under “—Passive Foreign Investment Company” above, such gain or loss will generally be capital gain or loss and will generally be long-term capital gain or loss if you have held our Class A ordinary shares for more than one year. Long-term capital gains of non-corporate United States Holders (including individuals) are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations. Any gain or loss recognized by you will generally be treated as United States source gain or loss for foreign tax credit limitation purposes. However, if we are treated as a PRC resident enterprise for PRC tax purposes and PRC tax is imposed on any gain, and if you are eligible for the benefits of the Treaty, you may elect to treat such gain as foreign source gain under the Treaty. If you are not eligible for the benefits of the Treaty or you fail to make the election to treat any gain as foreign source, you may not be able to use the foreign tax credit arising from any PRC tax imposed on the disposition of our Class A ordinary shares unless such credit can be applied (subject to applicable limitations) against United States federal income tax due on other income derived from foreign sources in the same income category (generally, the passive category). You are urged to consult your tax advisors regarding the tax consequences if any PRC tax is imposed on gain on a disposition of our Class A ordinary shares, including the availability of the foreign tax credit and the election to treat any gain as foreign source, under your particular circumstances.
Information Reporting and Backup Withholding
In general, information reporting will apply to dividends in respect of our Class A ordinary shares and the proceeds from the sale, exchange or other disposition of our Class A ordinary shares that are paid to you within the United States (and in certain cases, outside the United States), unless you are an exempt recipient such as a corporation. A backup withholding tax may apply to such payments if you fail to provide a taxpayer identification number or certification of exempt status or fail to report in full dividend and interest income.
Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your United States federal income tax liability provided the required information is furnished to the IRS in a timely manner.
Certain United States Holders that hold certain foreign financial assets (which may include our Class A ordinary shares) may be required to report information relating to such assets, subject to exceptions (including an exception for Class A ordinary shares held in accounts maintained by certain financial institutions). You are urged to consult your tax advisors regarding the effect, if any, of this reporting requirement on your ownership and disposition of our Class A ordinary shares.
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Aegis Capital Corp., or Aegis, is acting as the underwriter and the book-running manager of the offering. Subject to the terms and conditions set forth in an underwriting agreement among us and the underwriter, we have agreed to sell to the underwriter, and the underwriter has agreed to purchase from us, the number of Class A ordinary shares set forth opposite its name below.
| Underwriter | Number of Class A Ordinary Shares | |||
| Aegis Capital Corp. | ||||
| Total | $ | |||
Subject to the terms and conditions set forth in the underwriting agreement, the underwriter has agreed to purchase all of the Class A ordinary shares sold under the underwriting agreement if any of these Class A ordinary shares are purchased.
We have agreed to indemnify the underwriter against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriter may be required to make in respect of those liabilities.
The underwriter is offering Class A ordinary shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by the underwriter’s counsel, including the validity of the Class A ordinary shares, and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officer’s certificates and legal opinions. The underwriter reserves the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
Commissions and Discounts
The underwriter proposes initially to offer the Class A ordinary shares to the public at the public offering price set forth on the cover page of this prospectus and to dealers at that price less a concession not in excess of $ per share. After the initial offering, the public offering price, concession or any other term of the offering may be changed.
The following table shows the public offering price, underwriting discount and proceeds before expenses to us. The information assumes either no exercise or full exercise by the underwriter of the option to purchase additional Class A ordinary shares.
| Total | ||||||||||||
| Per Share | Without Option | With Option | ||||||||||
| Public offering price | $ | $ | $ | |||||||||
| Underwriting discount | $ | $ | $ | |||||||||
| Proceeds, before expenses, to us | $ | $ | $ | |||||||||
The expenses of the offering, not including the underwriting discount, are estimated at $ million and are payable by us.
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Option to Purchase Additional Class A Ordinary Shares
We have granted an option to the underwriter, exercisable for 45 days after the date of this prospectus, to purchase up to additional Class A ordinary shares (15.0% of the Class A ordinary shares sold in the offering) at the public offering price, less the underwriting discount. The underwriter may exercise this option in whole or in part at any time within 45 days after the date of the offering. If the underwriter exercises this option, the underwriter will be obligated, subject to conditions contained in the underwriting agreement, to purchase up to additional Class A ordinary shares, representing 15.0% of the underwriter’s initial amount reflected in the above table.
No Sales of Similar Securities
We, our executive officers and directors and our other existing security holders have agreed not to sell or transfer any ordinary shares or securities convertible into, exchangeable for, or exercisable for ordinary shares, for 180 days after the date of this prospectus without first obtaining the written consent of the underwriter. Specifically, we and these other persons have agreed, with certain limited exceptions, not to directly or indirectly
| ● | offer, pledge, sell or contract to sell any ordinary shares, | |
| ● | sell any option or contract to purchase any ordinary shares, | |
| ● | purchase any option or contract to sell any ordinary shares, | |
| ● | grant any option, right or warrant for the sale of any ordinary shares, | |
| ● | otherwise dispose of or transfer any ordinary shares, | |
| ● | request or demand that we file or make a confidential submission of a registration statement related to the ordinary shares, or | |
| ● | enter into any swap or other agreement that transfers, in whole or in part, the economic consequence of ownership of any ordinary shares whether any such swap or transaction is to be settled by delivery of ordinary shares or other securities, in cash or otherwise. |
This lock-up provision applies to ordinary shares and to securities convertible into or exchangeable or exercisable for ordinary shares. It also applies to ordinary shares owned now or acquired later by the person executing the agreement or for which the person executing the agreement later acquires the power of disposition.
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Underwriter Warrants
We have agreed to issue to Aegis or its designees warrants to purchase up to a total of 1.0% of the Class A ordinary shares sold in this offering (excluding the shares sold through the exercise of the over-allotment option). Such warrants and underlying ordinary shares are included in this prospectus. The warrants are exercisable at $ per share (150% of the public offering price per ordinary share) commencing on a date which is six (6) months from the effective date of the offering under this prospectus and expiring on a date which is no more than two (2) years from the commencement of sales of the offering in compliance with FINRA Rule 5110. The warrants have been deemed compensation by FINRA and are therefore subject to a 6-month lock-up pursuant to Rule 5110 of FINRA. The underwriter (or its permitted assignees under the Rule) will not sell, transfer, assign, pledge, or hypothecate these warrants or the ordinary shares underlying these warrants, nor will it engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the warrants or the underlying securities for a period of 180 days from effectiveness. The warrants may be exercised as to all, or a lesser number of ordinary shares and will provide for cashless exercise in the event there is not an effective registration statement for the underlying shares. Such warrants will provide for registration rights upon request, in certain cases. The sole demand registration right provided will not be greater than five years from the commencement of sales of the public offering in compliance with FINRA Rule 5110(g)(8)(C). The piggyback registration rights provided will not be greater than seven years from the commencement of sales of the public offering in compliance with FINRA Rule 5110(g)(8)(D). The warrants will have anti-dilution terms that are consistent with FINRA Rule 5110(g)(8)(E) and (F). We will bear all fees and expenses attendant to registering the securities issuable on exercise of the warrants other than underwriting commissions incurred and payable by the holders. The exercise price and number of shares issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary cash dividend or our recapitalization, reorganization, merger or consolidation. However, the warrant exercise price or underlying shares will not be adjusted for issuances of ordinary shares at a price below the warrant exercise price.
Right of First Refusal
If, for the period ending eighteen (18) months from the closing of this offering, we or any of our subsidiaries decides to raise funds by means of a public offering (including at-the-market facility) or a private placement or any other capital raising financing of equity, equity-linked or debt securities, the underwriter (or any affiliate designated by the underwriter) shall have the right to act as sole book-running manager, sole underwriter or sole placement agent for such financing. If the underwriter or one of its affiliates decides to accept any such engagement, the agreement governing such engagement will contain, among other things, provisions for customary fees for transactions of similar size and nature, but in no event will the fees be less than those provided herein, including indemnification, which are appropriate to such a transaction. The right of first refusal shall not apply to any transaction where the book-running manager, underwriter or placement agent for such financing is a tier one investment bank in the United States and/or its affiliates as agreed between us and the underwriter in this offering.
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Company Standstill
The underwriting agreement for this offering will provide, among other items, that we will agree, for a period of one hundred eighty (180) days from the closing date of this offering, that without the prior written consent of Aegis, it will not (a) offer, sell, issue, or otherwise transfer or dispose of, directly or indirectly, any of our equity or any securities convertible into or exercisable or exchangeable for our equity; (b) file or caused to be filed any registration statement with the SEC relating to the offering of any of our equity or any securities convertible into or exercisable or exchangeable for our equity; or (c) enter into any agreement or announce the intention to effect any of the actions described in the underwriting agreement for this offering (all of such matters referred to as the Standstill). So long as none of such equity securities shall be saleable in the public market until the expiration of the one hundred eighty (180) period described above, the following matters shall not be prohibited by the Standstill: (i) the adoption of an equity incentive plan and the grant of awards or equity pursuant to any equity incentive plan, and the filing of a registration statement on Form S-8; and (ii) the issuance of equity securities in connection with an acquisition or a strategic relationship, which may include the sale of equity securities. In no event should any equity transaction during the Standstill period result in the sale of equity at an offering price to the public less than that of this offering.
Tail Financing
Aegis shall be entitled to compensation with respect to any public or private offering or other financing or capital raising transaction of any kind to the extent that such financing or capital is provided to us by funds whom Aegis had contacted during the engagement period or introduced to us during the engagement period, if such tail financing is consummated at any time within the six-month period following the expiration or termination of the letter of engagement between Aegis and us.
Nasdaq Listing
We have applied to quote our Class A ordinary shares on the Nasdaq under the symbol “JLCN”
Before this offering, there has been no public market for our Class A ordinary shares. The initial public offering price will be determined through negotiations between us and the underwriter. In addition to prevailing market conditions, the factors to be considered in determining the initial public offering price are
| ● | the valuation multiples of publicly traded companies that the underwriter believes to be comparable to us, | |
| ● | our financial information, | |
| ● | the history of, and the prospects for, our company and the industry in which we compete, | |
| ● | an assessment of our management, its past and present operations, and the prospects for, and timing of, our future revenues, | |
| ● | the present state of our development, and | |
| ● | the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to ours. |
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An active trading market for our Class A ordinary shares may not develop. It is also possible that after the offering our Class A ordinary shares will not trade in the public market at or above the initial public offering price.
The underwriter does not expect to sell more than 5% of the shares in the aggregate to accounts over which they exercise discretionary authority.
Price Stabilization, Short Positions and Penalty Bids
Until the distribution of our Class A ordinary shares offered in this offering is completed, SEC rules may limit the underwriter from bidding for and purchasing our Class A ordinary shares. However, the underwriter may engage in transactions that stabilize the price of our Class A ordinary shares, such as bids or purchases to peg, fix or maintain that price.
In connection with the offering, the underwriter may purchase and sell our Class A ordinary shares offered in this offering in the open market. These transactions may include short sales, purchases on the open market to cover positions created by short sales and stabilizing transactions. Short sales involve the sale by the underwriter of a greater number of Class A ordinary shares than they are required to purchase in the offering. “Covered” short sales are sales made in an amount not greater than the underwriter’s option to purchase additional Class A ordinary shares described above. The underwriter may close out any covered short position by either exercising the option to purchase additional Class A ordinary shares or purchasing Class A ordinary shares in the open market. In determining the source of Class A ordinary shares to close out the covered short position, the underwriter will consider, among other things, the price of Class A ordinary shares available for purchase in the open market as compared to the price at which they may purchase Class A ordinary shares through the option granted to them. “Naked” short sales are sales in excess of such option. The underwriter must close out any naked short position by purchasing Class A ordinary shares in the open market. A naked short position is more likely to be created if the underwriter is concerned that there may be downward pressure on the price of our Class A ordinary shares in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of Class A ordinary shares made by the underwriter in the open market prior to the completion of the offering.
The underwriter may also impose a penalty bid. This occurs when a particular underwriter or dealer repays to the underwriter a portion of the underwriting discount received by it because the underwriter has repurchased Class A ordinary shares sold by or for the account of such underwriter or dealer in stabilizing or short covering transactions.
Similar to other purchase transactions, the underwriter’s purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of our Class A ordinary shares or preventing or retarding a decline in the market price of our Class A ordinary shares. As a result, the price of our Class A ordinary shares may be higher than the price that might otherwise exist in the open market. The underwriters may conduct these transactions on the Nasdaq, in the over-the-counter market or otherwise.
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Neither we nor any of the underwriter make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our Class A ordinary shares. In addition, neither we nor any of the underwriter make any representation that the underwriter will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.
Electronic Distribution
In connection with the offering, certain of the underwriter or securities dealers may distribute prospectuses by electronic means, such as e-mail.
Other Relationships
The underwriter and its affiliates have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with us or our affiliates. They have received, or may in the future receive, customary fees and commissions for these transactions.
In addition, in the ordinary course of their business activities, the underwriter and its affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. The underwriter and its affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
Directed Share Program
At our request, the underwriter has reserved for sale, at the initial public offering price, up to an aggregate of Class A ordinary shares, or 1% of the Class A ordinary shares offered in this offering to certain of our directors, officers, employees, business associates and other persons having relationships with us. Pursuant to the underwriting agreement, the sales will be made by Aegis through the Directed Share Program. If these persons purchase reserved Class A ordinary shares, it will reduce the number of Class A ordinary shares available for sale to the general public. Any reserved Class A ordinary shares that are not so purchased will be offered by the underwriter to the general public on the same terms as the other Class A ordinary shares offered by this prospectus. Any Class A ordinary shares sold in the Directed Share Program to a party who has entered into a lock-up agreement shall be subject to the provisions of such lock-up agreement.
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European Economic Area
In relation to each Member State of the European Economic Area, each a Relevant State, no Class A ordinary shares have been offered or will be offered pursuant to the initial public offering to the public in that Relevant State prior to the publication of a prospectus in relation to the Class A ordinary shares which has been approved by the competent authority in that Relevant State or, where appropriate, approved in another Relevant State and notified to the competent authority in that Relevant State, all in accordance with the Prospectus Regulation), except that offers of Class A ordinary shares may be made to the public in that Relevant State at any time under the following exemptions under the Prospectus Regulation:
| (a) | to any legal entity which is a qualified investor as defined under the Prospectus Regulation; | |
| (b) | to fewer than 150 natural or legal persons (other than qualified investors as defined under the Prospectus Regulation), subject to obtaining the prior consent of the underwriter for any such offer; or | |
| (c) | in any other circumstances falling within Article 1(4) of the Prospectus Regulation, |
provided that no such offer of Class A ordinary shares shall require the Issuer or any Manager to publish a prospectus pursuant to Article 3 of the Prospectus Regulation or supplement a prospectus pursuant to Article 23 of the Prospectus Regulation.
Each person in a Relevant State who initially acquires any Class A ordinary shares or to whom any offer is made will be deemed to have represented, acknowledged and agreed to and with the company and the Managers that it is a qualified investor within the meaning of the Prospectus Regulation.
In the case of any Class A ordinary shares being offered to a financial intermediary as that term is used in Article 5(1) of the Prospectus Regulation, each such financial intermediary will be deemed to have represented, acknowledged and agreed that the Class A ordinary shares acquired by it in the offer have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer to the public other than their offer or resale in a Relevant State to qualified investors, in circumstances in which the prior consent of the underwriter has been obtained to each such proposed offer or resale.
The company, the underwriter and its affiliates will rely upon the truth and accuracy of the foregoing representations, acknowledgements and agreements.
For the purposes of this provision, the expression an “offer to the public” in relation to any Class A ordinary shares in any Relevant State means the communication in any form and by any means of sufficient information on the terms of the offer and any Class A ordinary shares to be offered so as to enable an investor to decide to purchase or subscribe for any Class A ordinary shares, and the expression “Prospectus Regulation” means Regulation (EU) 2019/1129.
The above selling restriction is in addition to any other selling restrictions set out below.
In connection with the offering, the underwriter is not acting for anyone other than the issuer and will not be responsible to anyone other than the issuer for providing the protections afforded to their clients nor for providing advice in relation to the offering.
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Notice to Prospective Investors in the U.K.
In relation to the U.K., no Class A ordinary shares have been offered or will be offered pursuant to the initial public offering to the public in the U.K. prior to the publication of a prospectus in relation to the Class A ordinary shares which has been approved by the Financial Conduct Authority in the U.K. in accordance with the U.K. Prospectus Regulation and the FSMA, except that offers of Class A ordinary shares may be made to the public in the U.K. at any time under the following exemptions under the U.K. Prospectus Regulation and the FSMA:
| (a) | to any legal entity which is a qualified investor as defined under the UK Prospectus Regulation; | |
| (b) | to fewer than 150 natural or legal persons (other than qualified investors as defined under the U.K. Prospectus Regulation), subject to obtaining the prior consent of the underwriter for any such offer; or | |
| (c) | at any time in other circumstances falling within section 86 of the FSMA, |
provided that no such offer of Class A ordinary shares shall require the Issuer or any Manager to publish a prospectus pursuant to Section 85 of the FSMA or Article 3 of the U.K. Prospectus Regulation or supplement a prospectus pursuant to Article 23 of the U.K. Prospectus Regulation.
Each person in the U.K. who initially acquires any Class A ordinary shares or to whom any offer is made will be deemed to have represented, acknowledged and agreed to and with the company and the Managers that it is a qualified investor within the meaning of the U.K. Prospectus Regulation.
In the case of any Class A ordinary shares being offered to a financial intermediary as that term is used in Article 5(1) of the U.K. Prospectus Regulation, each such financial intermediary will be deemed to have represented, acknowledged and agreed that the Class A ordinary shares acquired by it in the offer have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer to the public other than their offer or resale in the U.K. to qualified investors, in circumstances in which the prior consent of the underwriter has been obtained to each such proposed offer or resale.
The company, the underwriter and their affiliates will rely upon the truth and accuracy of the foregoing representations, acknowledgments and agreements.
For the purposes of this provision, the expression an “offer to the public” in relation to any Class A ordinary shares in the U.K. means the communication in any form and by any means of sufficient information on the terms of the offer and any Class A ordinary shares to be offered so as to enable an investor to decide to purchase or subscribe for any Class A ordinary shares, the expression “U.K. Prospectus Regulation” means Regulation (EU) 2019/1129 as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2020, and the expression “FSMA” means the Financial Services and Markets Act 2000.
In connection with the offering, the underwriter is not acting for anyone other than the issuer and will not be responsible to anyone other than the issuer for providing the protections afforded to their clients nor for providing advice in relation to the offering.
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This document is for distribution only to persons who (i) have professional experience in matters relating to investments and who qualify as investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, or, as amended, the Financial Promotion Order, (ii) are persons falling within Article 49(2)(a) to (d), or high net worth companies, unincorporated associations etc., of the Financial Promotion Order, (iii) are outside the U.K., or (iv) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000, as amended, or the FSMA) in connection with the issue or sale of any securities may otherwise lawfully be communicated or caused to be communicated, all such persons together being referred to as “relevant persons”. This document is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is available only to relevant persons and will be engaged in only with relevant persons.
Notice to Prospective Investors in Switzerland
This document is not intended to constitute an offer or solicitation to purchase or invest in our Class A ordinary shares described herein. Our Class A ordinary shares may not be publicly offered, directly or indirectly, in Switzerland within the meaning of the Swiss Financial Services Act, or FinSA, and will not be listed or admitted to trading on the SIX Swiss Exchange or on any other trading venue (exchange or multilateral trading facility) in Switzerland. Neither this document nor any other offering or marketing material relating to our Class A ordinary shares or the offering constitutes a prospectus as such term is understood pursuant to the FinSA, and neither this document nor any other offering or marketing material relating to our Class A ordinary shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland.
Notice to Prospective Investors in the Dubai International Financial Centre
This prospectus relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority, or DFSA. This prospectus is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus nor taken steps to verify the information set forth herein and has no responsibility for the prospectus. Our Class A ordinary shares to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of our Class A ordinary shares offered should conduct their own due diligence on our Class A ordinary shares. If you do not understand the contents of this prospectus you should consult an authorized financial advisor.
Notice to Prospective Investors in Australia
No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission, or ASIC, in relation to the offering. This prospectus does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001, or the Corporations Act, and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.
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Any offer in Australia of our Class A ordinary shares may only be made to persons, or the Exempt Investors, who are “sophisticated investors” (within the meaning of section 708(8) of the Corporations Act), “professional investors” (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer our Class A ordinary shares without disclosure to investors under Chapter 6D of the Corporations Act.
Our Class A ordinary shares applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under the offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring our Class A ordinary shares must observe such Australian on-sale restrictions.
This prospectus contains general information only and does not take account of the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this prospectus is appropriate to their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.
Notice to Prospective Investors in Kunming
Our Class A ordinary shares have not been offered or sold and will not be offered or sold in Kunming, by means of any document, other than (a) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Kunming and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies Ordinance (Cap. 32) of Kunming or which do not constitute an offer to the public within the meaning of that Ordinance. No advertisement, invitation or document relating to our Class A ordinary shares has been or may be issued or has been or may be in the possession of any person for the purposes of issue, whether in Kunming or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Kunming (except if permitted to do so under the securities laws of Kunming) other than with respect to our Class A ordinary shares which are or are intended to be disposed of only to persons outside Kunming or only to “professional investors” as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.
Notice to Prospective Investors in Japan
Our Class A ordinary shares have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948, as amended) and, accordingly, will not be offered or sold, directly or indirectly, in Japan, or for the benefit of any Japanese Person or to others for re-offering or resale, directly or indirectly, in Japan or to any Japanese Person, except in compliance with all applicable laws, regulations and ministerial guidelines promulgated by relevant Japanese governmental or regulatory authorities in effect at the relevant time. For the purposes of this paragraph, “Japanese Person” shall mean any person resident in Japan, including any corporation or other entity organized under the laws of Japan.
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Notice to Prospective Investors in Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, our Class A ordinary shares were not offered or sold or caused to be made the subject of an invitation for subscription or purchase and will not be offered or sold or caused to be made the subject of an invitation for subscription or purchase, and this prospectus or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of our Class A ordinary shares, has not been circulated or distributed, nor will it be circulated or distributed, whether directly or indirectly, to any person in Singapore other than (i) to an institutional investor (as defined in Section 4A of the Securities and Futures Act (Chapter 289) of Singapore, as modified or amended from time to time, or the SFA) pursuant to Section 274 of the SFA, (ii) to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where our Class A ordinary shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
| (a) | a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or | |
| (b) | a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, |
securities or securities-based derivatives contracts (each term as defined in Section 2(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired our Class A ordinary shares pursuant to an offer made under Section 275 of the SFA except:
| (a) | to an institutional investor or to a relevant person, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA; | |
| (b) | where no consideration is or will be given for the transfer; | |
| (c) | where the transfer is by operation of law; or | |
| (d) | as specified in Section 276(7) of the SFA. |
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Notice to Prospective Investors in Canada
Our Class A ordinary shares may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of our Class A ordinary shares must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriter is not required to comply with the disclosure requirements of NI 33-105regarding underwriter conflicts of interest in connection with this offering.
EXPENSES RELATING TO THIS OFFERING
Set forth below is an itemization of the total expenses, excluding underwriting discounts and commissions, expected to be incurred in connection with this offering. Except for the SEC registration fee, the Nasdaq listing fee and the Financial Industry Regulatory Authority Inc. filing fee, all amounts are estimates.
| SEC registration fee | $ | |||
| Financial Industry Regulatory Authority Inc. filing fee | ||||
| Nasdaq listing fee | ||||
| Printing and engraving expenses | ||||
| Legal fees and expenses | ||||
| Transfer Agent fees | ||||
| Accounting fees and expenses | ||||
| Miscellaneous | ||||
| Total | $ |
We are being represented by Latham & Watkins LLP with respect to certain legal matters as to U.S. federal securities and New York State law. The underwriter is being represented by Kaufman & Canoles, P.C., Richmond, Virginia, with respect to certain legal matters as to U.S. federal securities and New York State law. The validity of our Class A ordinary shares offered in this offering will be passed upon for us by Maples and Calder (Kunming) LLP. Certain legal matters as to PRC law will be passed upon for us by Han Kun Law Offices and Guantao Law Firm. Latham & Watkins LLP may rely upon Maples and Calder (Kunming) LLP with respect to matters governed by China law and Han Kun Law Offices with respect to matters governed by PRC law.
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The consolidated financial statements of JiaLian Technologies Holdings Inc. as of December 31, 2023 and 2024, and for the years then ended have been included herein and in the registration statement in reliance upon the report of KPMG Huazhen LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.
The audit report contains an explanatory paragraph that states that our company has restated its 2024 and 2023 consolidated financial statements to correct errors in the recognition of its share-based compensation expenses.
The office of KPMG Huazhen LLP is located at 25th Floor, Tower II, Plaza 66, 1266 Nanjing West Road, Shanghai, People’s Republic of China.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form F-1, including relevant exhibits and schedules under the Securities Act, with respect to the Class A ordinary shares to be sold in this offering. This prospectus, which constitutes a part of the registration statement on Form F-1, does not contain all of the information contained in the registration statement. You should read the registration statements and the exhibits and schedules thereto for further information with respect to us and our Class A ordinary shares.
Immediately upon the effectiveness of the registration statement on Form F-1 of which this prospectus forms a part, we will become subject to periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers. Accordingly, we will be required to file reports, including annual reports on Form 20-F, and other information with the SEC. All information filed with the SEC can be inspected over the Internet at the SEC’s website at www.sec.gov.
As a foreign private issuer, we are exempt under the Exchange Act from, among other things, the rules under the Exchange Act requiring the filing of quarterly reports on Form 10-Q or current reports on Form 8-K with the SEC, the rules prescribing the furnishing and content of proxy statements to shareholders, 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 will be required to file an annual report on Form 20-F within four months of the end of each fiscal year and we intend to publish our results on a quarterly basis. The information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 6. Indemnification of Directors and Officers
China law does not limit the extent to which a company’s articles of association may provide indemnification of officers and directors, except to the extent that any such provision may be held by the China courts to be contrary to public policy, such as providing indemnification against fraud or dishonesty.
Our seventh amended and restated memorandum and articles of association that will become effective immediately prior to the completion of this offering provide that each officer or director of our company (but not auditors) shall be indemnified out of our assets against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by such director or officer, other than by reason of such person’s own dishonesty, willful default or fraud, in or about the conduct of our company’s business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his or her duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by such director or officer in defending (whether successfully or otherwise) any civil proceedings concerning our company or its affairs in any court whether in the China or elsewhere.
Pursuant to the indemnification agreements, the form of which is filed as Exhibit 10.3 to this registration statement, we will agree to indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being such a director or executive officer.
The underwriting agreement, the form of which is to be filed as Exhibit 1.1 to this registration statement, will also provide for indemnification of us and our officers and directors.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to 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.
Item 7. Recent Sales of Unregistered Securities
During the past three years since January 1, 2021, we have issued and sold the securities (including shares issued pursuant to the 2008 Plan and the 2019 Plan) described below without registering the securities under the Securities Act. None of these transactions involved any underwriters’ underwriting discounts or commissions, or any public offering.
We believe that each of the following issuances was exempt from registration under the Securities Act in reliance on Regulation D under the Securities Act or pursuant to Section 4(a)(2) of the Securities Act regarding transactions not involving a public offering or in reliance on Regulation S under the Securities Act regarding sales by an issuer in offshore transactions. We believe that our issuances of awards granted under our share incentive plans to our employees, directors, officers and consultants were exempt from registration under the Securities Act in reliance on Rule 701 under the Securities Act. No underwriters were involved in these issuances of securities.
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The below issuances has been given effect to the 1-for-500 Share Consolidation of our ordinary shares which was approved and effected in July 2024.
| Purchaser | Date of Issuance | Title and Number of Securities | Consideration | |||||
| Honeysuckle Creek Limited | November 24, 2022 | 2,719,802 series E preferred shares | $ | 17,000,000 | ||||
| Hua Yuan International Limited | November 24, 2022 | 1,279,907 series E preferred shares | 8,000,000 | |||||
| Trust Holdcos, and certain participants of the 2008 Plan and 2019 Plan, including current and former directors and executive officers | July 26, 2023 and February 24, 2024 | an aggregate of 6,168,829 ordinary shares that were issued upon exercise of options pursuant to the 2008 Plan and 2019 Plan; and an aggregate of 210,898 ordinary shares representing the vested restricted shares granted pursuant to the 2019 plan | Exercise
price of $0.05 (for options); past and future services to us (for restricted shares) | |||||
Item 8. Exhibits and Financial Statement Schedules
| (a) | Exhibits |
See Exhibits Index beginning on page II-3 of this registration statement.
| (b) | Financial Statement Schedules |
Schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the Consolidated Financial Statements or the Notes thereto.
Item 9. Undertakings
The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described in Item 6, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
| (1) | For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. | |
| (2) | For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| II-2 |
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Kunming, on April 11, 2025.
| JiaLian Technologies Technology Inc | ||
| By: | /s/ Jingzhou Xu | |
| Name: | Jingzhou Xu | |
| Title: | Chief Executive Officer | |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jingzhou Xu as the attorney-in-fact with full power of substitution for him or her in any and all capacities to do any and all acts and all things and to execute any and all instruments which said attorney and agent may deem necessary or desirable to enable the registrant to comply with the Securities Act of 1933, as amended, or the Securities Act, and any rules, regulations and requirements of the Securities and Exchange Commission thereunder, in connection with the registration under the Securities Act of ordinary shares of the registrant, or the “Shares,” including, without limitation, the power and authority to sign the name of each of the undersigned in the capacities indicated below to the Registration Statement on Form F-1, or the ‘Registration Statement, to be filed with the Securities and Exchange Commission with respect to such Shares, to any and all amendments or supplements to such Registration Statement, whether such amendments or supplements are filed before or after the effective date of such Registration Statement, to any related Registration Statement filed pursuant to Rule 462(b) under the Securities Act, and to any and all instruments or documents filed as part of or in connection with such Registration Statement or any and all amendments thereto, whether such amendments are filed before or after the effective date of such Registration Statement; and each of the undersigned hereby ratifies and confirms all that such attorney and agent shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| II-3 |
SIGNATURE OF AUTHORIZED REPRESENTATIVE IN THE UNITED STATES
Pursuant to the Securities Act of 1933, the undersigned, the duly authorized representative in the United States of JiaLian Technologies Holdings Inc., has signed this registration statement or amendment thereto in New York on April 11, 2025.
| Authorized U.S. Representative | ||
| By: | / | |
| Name: | ||
| Title: | ||
| II-4 |
Exhibit Index
Exhibit Number |
Description of Document | |
| 3.1** | JiaLian Technologies Holdings Inc - Memorandum and Articles of Association | |
| 10.1** | Employment Agreement of CEO_Jingzhou Xu | |
| 10.2** | Employment Agreement of CFO_Xiang Zhang | |
| 99.1** | Consent to Act as Director_Jingzhou Xu | |
| 99.2** | Consent to Act as Director_Xiang Zhang | |
| 99.3** | Consent to Act as Director_Xiao Luo | |
| 107** | Calculation of Filing Fee Tables |
| * | To be filed by amendment. |
| ** | Filed herewith. |
| # | Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K on the basis that the Company customarily and actually treats that information as private or confidential and the omitted information is not material. |
| II-5 |
ATTACHMENTS / EXHIBITS
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