As filed with the Securities and Exchange Commission on March 21, 2024.

Registration Statement No. 333-273166

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

AMENDMENT NO. 3

TO

FORM F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Autozi Internet Technology (Global) Ltd.

(Exact name of Registrant as specified in its charter)

 

 

Not Applicable

(Translation of Registrant’s name into English)

 

 

Cayman Islands		7500		Not Applicable
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

Block A, Building No. 16,

Yonyou Software Park, No. 68 Beiqing Road,

Haidian District, Beijing, China

+86 13810709967

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

 

Cogency Global Inc.

122 East 42nd Street, 18th Floor

New York, NY 10168

+1 (800) 221-0102

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

 

 

Copies to:

 

Yang Ge, Esq. DLA Piper UK LLP 20th Floor, South Tower, Kerry Center No.1 Guanghua Road, Chaoyang District Beijing, China 100020 Tel: +86-10-8520-0616		Fang Liu, Esq. VCL Law LLP 1945 Old Gallows Road, Suite 630 Vienna, VA 22182 Tel: +1 703-919-7285

 

 

Approximate date of commencement of proposed sale to the public: as soon as practicable after the effective date of this registration statement.

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

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

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

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

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

Emerging growth company ☒

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

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

 

 

 

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 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

 

PRELIMINARY PROSPECTUS (Subject to Completion)

Dated March 21, 2024

Autozi Internet Technology (Global) Ltd.

2,500,000 Class A Ordinary Shares

 

 

This is an initial public offering of 2,500,000 Class A ordinary shares, par value US$0.000002 per share, by Autozi Internet Technology (Global) Ltd. We currently anticipate the initial public offering price of our Class A ordinary shares to be between US$8.00 and US$10.00 per Class A ordinary share.

Prior to the offering, there is only one class of ordinary shares issued and outstanding. Upon the completion of this offering, we will have a dual-class structure and our issued share capital will consist of Class A ordinary shares and Class B ordinary shares. Prior to this offering, there has been no public market for our ordinary shares. We have applied to list our Class A ordinary shares on the Nasdaq Global Market under the symbol “AZI.” This offering is contingent upon the listing of our Class A ordinary shares on the Nasdaq Global Market. At this time, the Nasdaq Global Market has not yet approved our application to list our Class A ordinary shares. We cannot assure you that our application will be approved; however, if it is not approved, this offering would not be completed.

Upon the completion of this offering, our issued and outstanding share capital will consist of 36,443,050 Class A ordinary shares and 17,297,550 Class B ordinary shares, assuming the underwriters do not exercise their option to purchase additional Class A ordinary shares. Holders of Class A ordinary shares and Class B ordinary shares have the same rights except for voting and conversion rights. Each Class A ordinary share will be entitled to one (1) vote on all matters subject to a vote at general meetings of our Company, and each Class B ordinary share shall be entitled to twenty (20) votes on all matters subject to a vote at general meetings of our Company. Each Class B ordinary share shall be convertible into one (1) Class A ordinary share at any time at the option of the holder thereof. Class A ordinary shares shall not be convertible into Class B ordinary shares under any circumstances. For more detailed description of risks related to the dual-class structure, please see “Risk Factors—Risks Relating to Our Class A Ordinary Shares and This Offering—The dual-class structure of our ordinary shares has the effect of concentrating voting power with our existing shareholders prior to the consummation of this offering, which will limit your ability to influence the outcome of important transactions, including a change in control.”

Additionally, upon the completion of this offering, we will be a “controlled company” as defined under corporate governance rules of Nasdaq Stock Market, because our founder and chief executive officer, Dr. Houqi Zhang, will beneficially own all of our then-issued and outstanding Class B ordinary shares and will be able to exercise approximately 90.5% of the total voting power of our issued and outstanding Class B ordinary shares immediately after the consummation of this offering, assuming the underwriters do not exercise its option to purchase additional Class A ordinary shares. Dr. Houqi Zhang will have the ability to control or significantly influence the outcome of most (or all, as applicable) matters requiring approval by shareholders after the offering. We do not currently plan to utilize the exemptions from certain corporate governance rules available for controlled companies after we complete this offering. For further information, see “Principal Shareholders.” For more detailed description of risks related to being a “controlled company,” see “Risk Factors—Risks Relating to Our Business and Industry—We will be a ‘controlled company’ within the meaning of the Nasdaq Stock Market Rules and, as a result, may rely on exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.”

We are an “emerging growth company” and a “foreign private issuer” under applicable U.S. federal securities laws, and, as such are eligible for certain reduced public company reporting requirements for this prospectus and future filings. See the section titled “Prospectus Summary—Implications of Being an Emerging Growth Company” and “Prospectus Summary—Implications of Being a Foreign Private Issuer” for additional information.

We are not a Chinese operating company but a Cayman Islands holding company with operations conducted by our subsidiaries based in China. Investors in our securities are purchasing equity interest in Autozi Internet Technology (Global) Ltd., a holding company incorporated in the Cayman Islands with business operations in China and therefore, investors may never hold equity interests in our Chinese operating entities. The “Company” or “our Company” refers to Autozi Internet Technology (Global) Ltd., a Cayman Islands exempted company. “We,” “us,” and “our” refer to

Autozi Internet Technology (Global) Ltd. and its subsidiaries. We currently conduct our business through Autozi Internet Technology Co., Ltd., an indirect substantially owned subsidiary of the Company, and five first-level operating subsidiaries owned by Autozi Internet Technology Co., Ltd. All of these six operating subsidiaries are established under the laws of the PRC. This operating structure may involve unique risks to investors. Under relevant PRC laws and regulations, foreign investors are permitted to own 100% of the equity interests in a PRC-incorporated company engaged in the business of automotive services. However, the PRC government may implement changes to the existing laws and regulations in the future, which may result in the prohibition or restriction of foreign investors from owning equity interests in our PRC operating subsidiaries. There are significant legal and operational risks associated with being based in or having the majority of operations in China. Any of such risks and uncertainties could result in material changes in our operations and/or the value of our Class A ordinary shares or could significantly limit or completely hinder our ability to offer or continue to offer Class A ordinary shares and/or other securities to investors and cause the value of such securities to significantly decline or be worthless. The PRC government has significant authority to exert influence on the ability of a company with operations in China to conduct business. The PRC government has initiated a series of regulatory actions and has made a number of public statements on the regulation of business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas, adopting new measures to extend the scope of cybersecurity reviews, and expanding efforts in anti-monopoly enforcement and data privacy protection. As of the date of this prospectus, we do not believe that we are subject to: (i) the cybersecurity review with the Cyberspace Administration of China, or CAC, as our products and services are not offered to individual users but to our institutional customers, we do not possess a large amount of personal information in our business operations, and our business does not involve the collection of data that affects or may affect national security, implicates cybersecurity, or involves any type of restricted industry; or (ii) merger control review by China’s anti-monopoly enforcement agency due to the fact that we do not engage in monopolistic behaviors that are subject to these statements or regulatory actions. However, since these statements and regulatory actions are new, it is highly uncertain how soon legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, and, if any, the potential impact such modified or new laws and regulations will have on our daily business operation, ability to accept foreign investments and listing of our securities on a U.S. or other foreign exchange. In order to obtain clear instructions from the authority, we are actively communicating with CAC to confirm the conclusion that we are not required to apply for cybersecurity review. As of the date of this prospectus, except for the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial Measures”) newly promulgated by the China Securities Regulatory Commission, or the CSRC, which became effective on March 31, 2023, no other relevant laws or regulations in the PRC explicitly require us to seek approval from the CSRC, or any other PRC governmental authorities for our overseas listing plan, nor have we received any inquiry, notice, warning or sanctions regarding our planned overseas listing from the CSRC or any other PRC governmental authorities. Our offering will be contingent upon the completion of the filing procedures. We have completed the filing with the CSRC in connection with this offering and our listing on the Nasdaq Global Market, and the CSRC published the notification of its approval of our completion of the required filing procedures on January 2, 2024. In accordance with the CSRC notification, we are required to report the offering and listing status to the CSRC within 15 business days from our completion of our offering. If we fail to complete this offering within 12 months from the issuance date of notification, and the offering is still under progress, we are required to update the filing materials with the CSRC. If the filing procedure with the CSRC under the Trial Measures is required for any future offerings or any other capital raising activities, we cannot assure you that we will be able to complete such filings in a timely manner, or even at all. Any failure by us to comply with such filing requirements under the Trial Measures may result in an order to rectify, warnings and fines against us and could materially hinder our ability to offer or to continue to offer our securities. In addition, changes in the legal, political and economic policies of the Chinese government, the relations between China and the United States, or Chinese or U.S. regulations may materially and adversely affect our business, financial condition and results of operations. Any such changes could significantly limit or completely hinder our ability to offer or continue to offer our securities to investors, and could cause the value of our securities to significantly decline or become worthless. For more details, see “Risk Factors—Risks Relating to Doing Business in China” from pages 55 to 79 of this prospectus.

The PRC government has significant oversight and discretion over the conduct of our business and may intervene with or influence our operations as the government deems appropriate to further regulatory, political and societal goals. The PRC government has recently published new policies that significantly affected certain industries such as the education and internet industries, and we cannot rule out the possibility that it will in the future release regulations or policies regarding our industry that could adversely affect our business, financial condition and results of operations. Furthermore, the PRC government has recently indicated an intent to exert more oversight and control over overseas securities offerings and other capital markets activities and foreign investment in China-based companies like us. Any

such action, 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 such securities to significantly decline or in extreme cases, become worthless. For additional information, see “Risk Factors—Risks Relating to Doing Business in China—Uncertainties with respect to the PRC legal system, including uncertainties regarding the interpretation and enforcement of laws, and sudden or unexpected changes of PRC laws and regulations with little advance notice could adversely affect us and limit the legal protections available to you and us, and the Chinese government may exert more oversight and control over offerings that are conducted overseas, which changes could materially hinder our ability to offer or continue to offer our securities, and cause the value of our securities to significantly decline or become worthless” on page 56 of this prospectus.

As of the date of this prospectus, we have one subsidiary in Hong Kong, Autozi Internet Technology (HK) Limited. Hong Kong is currently a separate jurisdiction from mainland China. The Basic Law of the Hong Kong Special Administrative Region, or the Basic Law, is a national law of the PRC and the constitutional document for Hong Kong, national laws and regulations of the PRC shall not apply to Hong Kong except for those listed in Annex III of the Basic Law, which is limited to laws relating to defense and foreign affairs, as well as other matters outside the autonomy of Hong Kong. As such, the legal and operational risks associated with our operations in the PRC apply to its operations in Hong Kong only to the extent applicable. We believe, without reliance on the opinion of Hong Kong legal counsel, that any regulatory actions related to data security or anti-monopoly concerns in Hong Kong may have very minimal impact or, if not none, on the Company’s ability to conduct its business, accept foreign investments, or list on a U.S. or foreign exchange because we currently do not and do not plan to have any substantive operations, including any data-related operations, in Hong Kong and Autozi Internet Technology (HK) Limited, our only subsidiary in Hong Kong, currently has no substantive operations and is expected to have the sole function of transferring funds within the corporate group in the future without playing any other roles in Hong Kong.

Furthermore, on May 20, 2020, the U.S. Senate passed the Holding Foreign Companies Accountable Act, or the HFCA Act, requiring a foreign company to certify it is not owned or controlled by a foreign government if the Public Company Accounting Oversight Board (United States), or the PCAOB, is unable to audit specified reports because the company uses a foreign auditor not subject to PCAOB inspection. On March 28, 2021, the SEC issued interim measures implementing the HFCA Act which became effective on May 5, 2021. On December 2, 2021, the SEC adopted final amendments implementing the submission and disclosure requirements outlined in the HFCA Act, which went into effect on January 10, 2022. On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, or Accelerating HFCA Act, which, if passed by the U.S. House of Representatives and signed into law, would decrease the number of non-inspection years for foreign companies to comply with PCAOB audits from three to two, thus reducing the time period before their securities may be prohibited from trading or delisted. On December 16, 2021, the PCAOB issued a report on its determinations that it is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong because of positions taken by PRC authorities in those jurisdictions. In August 2022, the PCAOB, the CSRC, and the Ministry of Finance of the PRC signed a Statement of Protocol (the “Statement of Protocol”), which establishes a specific and accountable framework for the PCAOB to conduct inspections and investigations of PCAOB-governed accounting firms in mainland China and Hong Kong. On December 15, 2022, the PCAOB announced that it was able to secure complete access to inspect and investigate PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong completely in 2022. The PCAOB Board vacated its previous 2021 determinations that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong. However, whether the PCAOB will continue to be able to satisfactorily conduct inspections of PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong is subject to uncertainties and depends on a number of factors out of our and our auditor’s control. The PCAOB continues to demand complete access in mainland China and Hong Kong moving forward and is making plans to resume regular inspections in early 2023 and beyond, as well as to continue pursuing ongoing investigations and initiate new investigations as needed. The PCAOB has also indicated that it will act immediately to consider the need to issue new determinations with the HFCA Act, if needed. On February 24, 2023, the CSRC, the Ministry of Finance, the State Secrecy Administration, and the State Archives Bureau jointly issued the Provisions on Strengthening Confidentiality and Archives Administration in Respect of Overseas Issuance and Listing of Securities by Domestic Enterprises, or the Provisions, which aim to standardize confidentiality and archives administration in respect of direct or indirect overseas issuance of securities by domestic enterprises of the PRC and came into effect on March 31, 2023. Given that the Statement of Protocol and the Provisions have just been issued and that official guidance and related implementation rules of the Provisions have not been issued and the Provisions may be subject to further clarifications during subsequent implementation, should PRC authorities obstruct or otherwise fail to facilitate the PCAOB’s access in the future, the PCAOB may consider the need to issue a new determination. On December 29, 2022, the

Accelerating HFCA Act was signed into law, which amended the HFCA Act by requiring the SEC to prohibit an issuer’ securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three. Our auditor, Marcum Asia CPAs LLP, which is based in New York, is currently subject to inspection by the PCAOB on a regular basis. Therefore, it is not subject to the determinations announced by the PCAOB on December 16, 2021 as it is not on the list published by the PCAOB. However, our auditor’s China affiliate is located in, and organized under the laws of the PRC. Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong and we continue to use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the SEC, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year. There can be no assurance that we would not be identified as a Commission-Identified Issuer for any future fiscal year, and if we were so identified for two consecutive years, we would become subject to the prohibition on trading under the HFCA Act. Furthermore, whether the PCAOB will continue to conduct inspections and investigations completely to its satisfaction of PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong is subject to uncertainty and depends on a number of factors out of our, and our auditor’s, control, including positions taken by authorities of the PRC or any other foreign jurisdiction. If authorities in the PRC or another foreign jurisdiction were to take a position at any time in the future that would prevent the PCAOB from continuing to inspect or investigate completely registered public accounting firms headquartered in mainland China or Hong Kong, and if such lack of inspection were to extend for the requisite period of time under the HFCA Act, our securities will be prohibited from being traded on U.S. markets and an exchange may determine to delist our securities. Should our Class A ordinary shares become not listed or tradeable in the United States, the value of the Class A ordinary shares could be materially affected. See “Risk Factors—Risks Relating to Doing Business in China” from pages 55 to 79 of this prospectus for a detailed discussion.

Autozi Internet Technology (Global) Ltd. holds all of the equity interests in its PRC subsidiaries through subsidiaries incorporated in BVI and Hong Kong. As we have a direct equity ownership structure, we do not have any agreement or contract between our Company and any of its subsidiaries that are typically seen in a variable interest entity structure. Within our direct equity ownership structure, funds from foreign investors can be directly transferred to our PRC subsidiaries by way of capital injection or in the form of a shareholder loan from Autozi Internet Technology (Global) Ltd. following this offering. To transfer cash from our Hong Kong subsidiary to our PRC operating subsidiaries, our Hong Kong subsidiary may make capital injection to directly increase its registered capital in the PRC operating subsidiaries in which it holds equity interests, which requires a registration with the local administration for market regulation, a report with the local commerce department (which can be submitted along with the registration with administration for market regulation), and registration with a local bank authorized by the State Administration of Foreign Exchange, or SAFE. Our Hong Kong subsidiary may also provide a shareholder loan to our PRC operating subsidiaries, which requires a foreign loan registration with the SAFE or its local bureau. Aside from the aforesaid reports, filings or registrations to the relevant authorities, there is no other restriction or limitations on such cash transfer from our Hong Kong subsidiary to our PRC operating subsidiaries. If the Company plans to distribute dividends to its shareholders, our PRC operating subsidiaries will transfer the funds to the Company through our subsidiaries incorporated in Hong Kong, and the Company will then distribute dividends to all shareholders in proportion to the shares they hold, regardless of the citizenship or domicile of the shareholders. As entities incorporated in China, our PRC operating subsidiaries are subject to PRC regulations relating to foreign exchange, which may subject PRC resident beneficial owners of our PRC subsidiaries to liability or penalties, limit our ability to inject capital into these subsidiaries, limit the PRC subsidiaries’ ability to increase their registered capital or distribute profits to the Company, or may otherwise adversely affect us. Current PRC regulations permit a PRC subsidiary to pay dividends to its offshore parent only out of its accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, a PRC subsidiary is required to set aside at least 10% of its accumulated profits each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of its registered capital. A PRC subsidiary may also allocate a portion of its after-tax profits based on PRC accounting standards to employee welfare and bonus funds at their discretion. These reserves are not distributable as cash dividends. Furthermore, if a PRC subsidiary incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments to its offshore parent. Any limitation on the ability of a PRC subsidiary to distribute dividends or to make payments to its offshore parent may restrict our Company’s ability to satisfy our or its liquidity requirements. In addition, to the extent cash or assets in our business is in the PRC or Hong Kong or a PRC or Hong Kong entity, such cash or assets may not be available to fund operations or for other use outside of the PRC or Hong Kong due to interventions in, or the impositions of restrictions and limitation on the ability of our holding company, or our PRC subsidiaries by the PRC government to transfer cash or

assets. As of the date of this prospectus, (1) no cash transfers have occurred between our holding company and its subsidiaries, (2) none of our subsidiaries have made any dividend payment or distribution to the holding company and; (3) neither the Company nor any of its subsidiaries has made any dividends or distributions to the investors. See “Corporate History and Structure” for additional details. We and our subsidiaries maintain cash management policies that dictate the purpose, amount, appropriate internal control procedures on the handling, depositing, receiving, transferring, safeguarding, and documentation and recording of cash transfers. Such policies are internal written policies established and adopted by our financial department, following the instructions of our management. Subject to the amounts of cash transfer and the nature of the use of funds, requisite internal approval shall be obtained prior to each cash transfer. Specifically, all transactions require the approval of the financial manager. When the transaction amount is relatively large, the Chief Financial Officer and Chief Executive Officer are required to conduct regular review and approval. See “Prospectus Summary—Holding Company Structure,” “Prospectus Summary—Our Challenges—Risks Relating to Doing Business in China—We may rely on dividends and other distributions on equity paid by our PRC and Hong Kong subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC and Hong Kong subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business,” and “Risk Factors—Risks Relating to Doing Business in China—We may rely on dividends and other distributions on equity paid by our PRC and Hong Kong subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC and Hong Kong subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business.”

See “Risk Factors” beginning on page 24 to read about factors you should consider before buying our Class A ordinary shares. 

 

		Per Class A Ordinary Shares				Total
Public offering price		US$				US$
Underwriting discounts and commissions(1)(2)		US$				US$
Proceeds, before expenses, to us		US$				US$

 

(1)	For a description of compensation payable to the underwriters, see “Underwriting.”

(2)	Represents underwriting discounts up to     percent (   %) (or $     per Class A ordinary share), of gross proceeds of this offering. Does not include a non-accountable expense allowance. See “Underwriting” for all compensation to be paid to the underwriters.

The underwriters have a 45-day option to purchase up to an additional 375,000 Class A ordinary shares from us at the initial public offering price less the underwriting discounts and commissions.

The Securities and Exchange Commission and state securities regulators have not approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the Class A ordinary shares against payment in U.S. dollars in New York, NY on     , 2024.

 

 

US Tiger Securities, Inc.

 

 

The date of this prospectus is      , 2024

TABLE OF CONTENTS

 

PROSPECTUS SUMMARY			1
THE OFFERING			22
RISK FACTORS			24
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA			89
USE OF PROCEEDS			90
DIVIDEND POLICY			91
CAPITALIZATION			92
DILUTION			94
ENFORCEMENT OF CIVIL LIABILITIES			96
CORPORATE HISTORY AND STRUCTURE			99
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			101
INDUSTRY OVERVIEW			120
BUSINESS			133
REGULATIONS			158
MANAGEMENT			186
PRINCIPAL SHAREHOLDERS			192
RELATED PARTY TRANSACTIONS			194
DESCRIPTION OF SHARE CAPITAL			196
SHARES ELIGIBLE FOR FUTURE SALE			206
TAXATION			209
UNDERWRITING			215
EXPENSES RELATED TO THIS OFFERING			222
LEGAL MATTERS			223
EXPERTS			224
WHERE YOU CAN FIND ADDITIONAL INFORMATION			225
INDEX TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS			F-1

No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the Class A ordinary shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the Class A ordinary shares.

Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus or any filed free writing prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus or any filed free writing prospectus must inform themselves about, and observe any restrictions relating to, the offering of the Class A ordinary shares and the distribution of this prospectus or any filed free writing prospectus outside of the United States.

Until      , 2024 (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 obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

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RISK FACTORS

Investing in the Class A ordinary shares involves a high degree of risk. You should carefully consider the following risks, as well as other information contained in this prospectus, before making an investment in our Company. The risks discussed below could materially and adversely affect our business, prospects, financial condition, results of operations, cash flows, ability to pay dividends and the trading price of our Class A ordinary shares. 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, that 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, financial condition, results of operations and ability to pay dividends. In such case, the market prices of the Class A ordinary shares could decline and you may lose part or all of your investment.

RISKS RELATING TO OUR BUSINESS AND INDUSTRY

We have a limited operating history under our current platforms and business model, which makes it difficult to evaluate our business and prospects and increases the risks associated with your investment, and any future changes to our business model could materially and adversely affect our business.

Although we started our business in 2010 as an automotive aftermarket service company, we upgraded our business model in 2018 to provide high-quality, affordable and professional one-stop automotive products and services through online and offline channels countrywide. During the past four years, we launched our platforms, which connect us with our manufacturers and MBS store managers and allow us to deliver auto parts, auto accessories and automotive insurance related services seamlessly and cost-efficiently. As a result, we have only limited experience with our current business model, which makes it difficult to evaluate our business and future prospects and to plan for and model future growth. Our historical revenue growth should not be considered indicative of our future performance. We have encountered, and will continue to encounter, risks and difficulties frequently experienced by growing companies in rapidly changing industries, including difficulties in our ability to achieve market acceptance of our platforms, as well as increasing competition and increasing expenses as we continue to grow our business. As a result, we may from time to time decide to make further changes to our business model due to a variety of factors, including changes in the market for our platforms and competitors introducing new services. We may not be successful in addressing these and other challenges we may face in the future and changes to our business model.

Our business model may be replicated by automotive platforms, internet companies, and traditional offline automotive service companies and manufacturers aiming to engage in online and offline integrated automotive business.

Our business model may be replicated by other automotive platforms. Given that cars, auto parts, auto accessories, and automotive insurance related services we offer are relatively transparent, our competitors can copy and launch similar car models, auto parts, auto accessories, and automotive insurance related services, possibly at lower prices than what we offer. If we fail to continue to optimize car selling strategies or upgrade our offerings that meet market demand quickly, we may not be able to keep our edge in the competition, and our business and results of operations will be negatively affected. Moreover, the leading Chinese internet companies have experienced the fastmoving internet development in China in past decades and have demonstrated their strong capacities in client-centric and efficiency driven business development and innovation. Given the large amount of data and strong capacity of technological development the leading Chinese internet companies have, we believe it is possible that these companies have the ability to develop their automotive platforms to compete with us in a short period of time. In addition, we have seen certain traditional offline automotive service companies and manufacturers establish the online platforms in order to take advantage of the soaring opportunities emerged from online and offline integrated ecosystems. Considering these internet companies’

 

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strong abilities in promoting their cars, auto parts, auto accessories and automotive insurance related services through their existing abundant online channels, and the potential of traditional offline automotive service companies and manufacturers to convert their offline resources and clients online, we may face severe competition in the near future from these potential competitors.

We face intense competition and may fail to maintain our market share.

The lifecycle automotive service market in China is highly competitive. Our current or potential competitors primarily include (i) authorized dealership stores, (ii) e-commerce platforms tapping into automotive service market, (iii) traditional automotive manufacturers, and (iv) franchised independent repair shops. New competitors may emerge at any time. Our competitors may be well-established and be able to devote greater resources to the development, promotion and sale of cars, auto parts, auto accessories and automotive insurance related services and offer lower prices than we do, which could adversely affect our results of operations. If we cannot equip ourselves with necessary resources, we may fail to maintain market share as competition increases. Moreover, certain competitors may have greater brand recognition, which may give them competitive advantages.

Our current and potential competitors may also establish cooperative or strategic relationships amongst themselves or with third parties that may further enhance their resources and offerings. If we are unable to anticipate or react to these competitive challenges, our competitive position could weaken or fail to improve, and we could experience a decline in growth that could adversely affect our business, financial condition and results of operations.

Further, certain new players in the automotive sector, such as the new energy vehicle manufacturers, may build or further develop their own retailing and service network to gain control of customer touchpoints and to create synergies with their businesses. We may fail to compete effectively with them to provide popular car models, auto parts and auto accessories, or automotive insurance related services to consumers.

Any failure to remain competitive in the lifecycle automotive service market and maintain our market share may adversely affect our business operation, financial condition and results of operations.

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

The global macroeconomic environment has been facing numerous challenges and the growth rate of the global economy had already been slowing. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies which had been adopted by the central banks and financial authorities of some of the world’s leading economies, including the U.S. and China. The war in Ukraine and the imposition of broad economic sanctions on Russia raised energy prices and disrupted global markets. Unrest, terrorist threats and the potential for war in the Middle East and elsewhere may increase market volatility across the globe. There have also been concerns about the relationship between China and other countries, including the surrounding Asian countries, which may potentially have economic effects. In particular, there is significant uncertainty about the future relationship between the U.S. and China with respect to trade policies, treaties, government regulations and tariffs. Economic conditions in China are sensitive to global economic conditions, as well as changes in domestic economic and political policies and the expected or perceived overall economic growth rate in China. Any severe or prolonged slowdown in the global or Chinese economy may materially and adversely affect our business, results of operations and financial condition.

 

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Our business and growth are affected by changes in customer demand and spending for lifecycle automotive service in China.

Our business and growth are dependent on the customer demand and spending for automotive service in China, which could be affected by many factors beyond our control, including:

 

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The number and age of cars in the car parc, as cars of a certain age (typically older than three years) may no longer be under the original equipment manufacturer’s warranties and tend to need more maintenance and repairs than newer cars.

 

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Advances and changes in automotive technology and parts design, including, but not limited to, changes in engines and powertrains to hybrid and electric technology, and increased prevalence of autonomous driving cars and shared mobility, may reduce collisions and needs for repairs and maintenance.

 

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Economic downturns, as declining economic conditions may cause customers to defer car maintenance, repairs, oil changes or other services. In addition, economic weaknesses and uncertainty may cause changes in customer preferences, and if such economic conditions persist for an extended period of time, this may result in customers making long-lasting changes to their spending behaviors in the automotive aftermarket markets.

 

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Changes in commute patterns, which may cause customers to rely more heavily on public transportation or to travel by car less frequently.

 

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Changes in governmental regulations in the automotive sector, including pollution prevention laws, which may affect our automotive value-added maintenance services and claim and repair services and increase our costs in unknown ways.

Any of the factors described above may change the customer demand and spending for our products and services, which, in turn, may have adverse impact on our business, financial condition or results of operations.

Our new car sales business will be harmed if overall consumer demand suffers from a severe or sustained economic downturn or if there is an oversupply in the Chinese market.

Our business is heavily dependent on consumer demand and preferences in China. Our revenues will be materially and adversely affected if there is a severe or sustained downturn in overall levels of consumer spending in China. New car sales are cyclical and historically have experienced periodic downturns characterized by oversupply and weak demand. These cycles are often dependent on general economic conditions, consumer confidence and governmental incentive programs, as well as the level of disposable personal income and credit availability. In addition, consumers’ demand for automotives is also subject to other factors that are outside of our control. Meanwhile, if the overall capacity of automotive industry outgrows the demand of consumers, the oversupply of automotives may occur, and we may face increased competition and experience increased pricing pressure. As a result, our business and profitability could be materially and adversely affected.

Our new car sales, financial condition and results of operations may be materially adversely affected by changes in costs or availability of consumer financing.

Reductions in available consumer credit or increased costs of that credit may result in a decline in our NEV sales, which would have a material adverse effect on our financial condition and results of operations.

Lenders that have historically provided financing to those buyers who, for various reasons, do not have access to traditional financing, including those buyers who have a poor credit history or lack the down payment necessary to purchase a car, are often referred to as subprime lenders. If market conditions cause subprime lenders to tighten credit standards, or if interest rates increase, the ability to obtain financing from subprime lenders for these consumers to purchase cars could become limited, resulting in a decline in our new car sales, which in turn, could have a material adverse effect on our financial condition and results of operations.

 

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We have not been profitable and have incurred negative cash flows in operating activities, both of which may continue in the future.

We incurred net losses of US$6.2 million and US$10.5 million for the fiscal years ended September 30, 2022 and 2023, respectively and may continue to incur net loss in the foreseeable future. In addition, we incurred negative cash flows in operating activities for the approximate amount of US$4.9 million and US$7.3 million for the fiscal years ended September 30, 2022 and 2023, respectively. Our operating loss were US$4.7 million and US$7.3 million for the same periods and may continue to incur operating losses in the foreseeable future. In light of the foregoing circumstances, we have concluded that there is substantial doubt about our ability to continue as a going concern for a period of one year from the date that our consolidated financial statements for the fiscal year ended September 30, 2023 were issued. We expect to continue the development and expansion of our business, particularly to invest significantly in business acquisition, research and development and the expansion of MBS store network, and these investments may not result in an increase in revenue or positive cash flow on a timely basis, or at all. We anticipate additional costs in connection with legal, accounting and other administrative expenses related to operating as a public company.

We may not generate sufficient revenues or we may incur substantial losses for a number of reasons, including lack of demand for our automotive and automotive services, increasing competition, as well as other risks discussed herein, and we may incur unforeseen expenses, or encounter difficulties, complications and delays in generating revenue or achieving profitability. If we are unable to achieve profitability, we may have to reduce the scale of our operations, which may impact our business growth and adversely affect our financial condition and results of operations.

Disruptions in the production and delivery of new cars due to the lack of availability of auto parts and key components from suppliers, such as semiconductor chips and other component parts and supplies, could have an adverse effect on our business, results of operations, financial condition and cash flows.

Historically, we have generated a significant portion of our revenues through new car sales. Our primary sources for new cars include automotive manufacturers, parallel importers, and automotive dealers. As a result, our profitability is dependent on various aspects of automotive manufacturers’ operations and timely delivery of new cars. Certain car manufacturers have suspended or slowed production of new cars, parts and other supplies due to significant shortages of semiconductors, parts and other key components. These production delays may negatively impact our new car sales, with such shortages in turn adversely impacting our service and collision repair and maintenance business. Any prolonged severe shortages or unavailability of new cars could have a material adverse effect on our business, results of operations, financial condition, and cash flows. In addition, the abatement of the global supply chain issues relating to semiconductor chips, parts and other key components may lead to a decrease in the supply of new cars, which could have a material adverse effect on the levels of profitability on our cars sales business. We cannot predict with any certainty how long the automotive retail industry will continue to be subject to these shortages or when normalized production will resume at these manufacturers.

Our new car sales business mainly involves the sale of parallel import cars. Therefore, we may be subject to legal disputes with respect to import, taxation and product quality, which may materially and adversely affect our business, financial condition, results of operations and prospects.

For the fiscal years ended September 30, 2022 and 2023, our revenues from new car sales amounted to US$73.0 million and US$73.7 million, representing approximately 60.6% and 65.0% of our total revenues for the same periods, respectively. Among our revenues from new car sales, 97.0% and 98.6% were generated from the sales of parallel import cars for the same periods, respectively. China started to pilot the parallel import plan in its Shanghai free trade zone in 2015 and later extended it to other free trade zones, including but not limited to Guangdong, Tianjin and Fujian. Unlike traditional imports, the parallel import scheme allows local auto dealers to directly purchase cars from foreign market, and price for parallel import cars, most of which are premium

 

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ones, are usually more than ten percent lower than dealers authorized by automakers. We may be subject to the risk of vehicle recalls and be responsible for guaranteeing the repair, replacement and return, or the Three Warranties, of the parallel import car. See “—Risks Relating to Vehicle recalls could have a negative impact on our operation of business, financial condition and growth prospects.” However, when our customers purchase parallel import cars from us, they may buy commercial insurance in relation to the Three Warranties for automobiles. If any quality problem arises and needs to be repaired, the relevant expense will be borne by the insurance company within the insurance policy scope. In addition, if the parallel import cars we purchased from the importers are imported in violation of laws or fail to comply with the PRC standards for safe and technical and environmental protection emission, or the PRC government imposes limits on the parallel import of cars in the future, our business, financial condition, results of operations and growth prospects may be adversely affected.

Vehicle recalls could have a negative impact on our operation of business, financial condition and growth prospects.

Automotive manufacturers conduct recalls from time to time to remedy defects or other problems with their products. Under PRC laws and regulations, automotive manufacturers shall bear the expenses for elimination of defects and necessary expenses for transporting defective auto products in connection with the recalls. However, motor vehicle recalls could have a material adverse effect on customers’ confidence in the quality and safety of the affected vehicle brands. As a result, recalls may lead to the cancellation of orders placed by our customers and a decline in demand for particular vehicle brands or models that we sell, which in turn may reduce our sales and result in higher level of inventories of their spare parts. We may incur costs associated with holding excess inventories or reduce our selling price. We cannot assure you that there will be no future vehicle recalls will not have a material adverse effect on our business, financial condition, results of operations and growth prospects.

In addition, according to the Provisions on the Liability for Repair, Replacement and Return of Household Automotive Products which were promulgated on July 22, 2021 and became effective on January 1, 2022 (the “3R Provisions”), the sellers are responsible for guaranteeing the Three Warranties, but are entitled to compensations from the automotive manufacturers or other dealers if the liabilities are attributable to the automotive manufacturers or other dealers. As we are entitled to compensation from our automotive manufacturers or other dealers, if the defects in the products subject to the Three Warranties occurred within the valid period of the Three Warranties and are attributable to our automotive manufacturers or other dealers, and our costs for carrying out the Three Warranties as a result of defects in the automotives have historically been reimbursed by the automotive manufacturers or other dealers. To the extent that the 3R Provisions lead to an increase in Three Warranties claims against us by our customers and these claims are not reimbursed by the relevant automotive manufacturers or other dealers in a timely manner or at all, our business, financial condition, results of operations and growth prospects may be affected.

Limits on new car purchase imposed by the Chinese government could have an adverse effect on our business and results of operations.

In order to ease the traffic congestion in the PRC, the Chinese government adopted limit on the new car purchase by way of limiting the number of new license plates to be issued each year. As of September 30, 2023, the Chinese government imposed limits on new car purchase in the Hainan Province and seven cities in the PRC namely, Beijing, Shanghai, Guangzhou, Tianjin, Hangzhou, Shijiazhuang and Shenzhen. As we currently conduct new car sales business in those cities, such limit may affect the demand for passenger cars and it could have an adverse effect on our business and results of operations.

 

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We are dependent upon our relationships with the manufacturers of NEVs that we sell and are subject to restrictions imposed by, and significant influence from, these NEV manufacturers. Any of these restrictions or any changes or deterioration of these relationships could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We are dependent on our relationships with the manufacturers of the NEVs we sell, which have the ability to exercise a great deal of influence over our day-to-day operations, as a result of the terms of our dealer, framework and related agreements. We may obtain new NEVs from manufacturers, sell new NEVs and display NEV manufacturers’ trademarks only to the extent permitted under these agreements. The terms of these agreements may conflict with our interests and objectives and may impose limitations on key aspects of our operations, including acquisition strategy and capital spending.

In addition, there can be no assurances that we will be able to renew our dealer and framework agreements on a timely basis, on acceptable terms, or at all. Our business, financial condition and results of operations may be materially adversely affected to the extent that our rights become compromised, or our operations are restricted due to the terms of our dealer or framework agreements or failure to renew such agreements.

The unavailability, reduction or elimination of government and economic incentives or government policies that are favorable for NEVs and domestically manufactured cars could adversely affect our profits generated from new car sales and may further harm our business, financial condition and results of operations.

For the fiscal years ended September 30, 2022 and 2023, our revenues from new car sales amounted to US$73.0 million and US$73.7 million, among which 3.0% and 1.4% were generated from the sales of NEVs for the same periods, respectively. Our business has benefited from government subsidies, economic incentives and government policies that support the growth of NEVs. However, on December 31, 2021, the Ministry of Finance of the PRC, together with several other PRC government departments, issued the Circular on Improving the Fiscal Subsidy Policies for the Promotion and Application of New Energy Vehicles in 2022, pursuant to which certain subsidies on NEV purchases were terminated on December 31, 2022. Even though the purchase subsidies have been terminated, there are other government policies that are favorable to NEVs. For example, in certain cities, quotas that limit the purchase of internal combustion engine vehicles, or “ICE vehicles,” do not apply to NEVs, thereby incentivizing customers to purchase NEVs. On September 18, 2022, the Ministry of Finance of the PRC, together with several other PRC government departments, issued the Announcement on Extending Exemption of Vehicle Purchase Tax for New Energy Vehicle, which extended tax exemptions on NEV purchases to December 31, 2023. China’s central government also provides certain local governments with funds and subsidies to support the roll out of a charging infrastructure. These policies are subject to certain limits as well as changes that are beyond our control, and we cannot assure you that future changes, if any, would be favorable to our business.

We primarily conduct our NEV sales business and automotive insurance related services through MBS stores while we primarily conduct auto parts and auto accessories sales to our auto part dealers, and we may not be able to attract or retain partner store operators.

Our success depends in part on our ability to attract new partner store operators to our platforms and to maintain relationships with existing partner store operators. We must continue to help partner store operators increase sales, and provide them with infrastructure support, traffic, commercial and technology support and operational insights. If we fail to provide support comparable or superior to those of our competitors, we may fail to attract new partner store operators to our MBS store network, or to maintain relationships with existing partner store operators. Partner store operators may also choose our competitors if they charge lower service fees or other fees, or if our competitors provide more types of or more effective empowering services, or the partner store operators may be acquired by or merged into our competitors or form strategic alliance with our competitors.

 

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Further, as we continue to expand into new geographic areas, we also rely on the expansion of our existing partner store operators to lower-tier cities and counties in China. If we fail to satisfy the needs of existing partner store operators, our expansion plan could be adversely affected, and our business and results of operations could be adversely affected.

Stores in our network may experience difficulty hiring and retaining qualified personnel.

The operation of our stores requires skilled service personnel and the trained and experienced automotive field personnel may be in high demand and short supply at competitive compensation levels in some areas, which may result in increases in labor costs. From time to time, MBS stores may experience difficulty in hiring and retaining such qualified personnel. Any such future difficulties could materially and adversely affect our revenues, results of operations, business, and financial condition.

If our MBS store operators do not comply with MBS store agreements, our business could be harmed and if MBS store agreements are identified as franchising contracts, our business and the results of operations would be adversely affected.

MBS store operators are independent third parties who own, operate, and oversee the daily operations of their stores. As a result, the ultimate success and quality of any MBS store rest in part with the store operator. They may provide substandard services or receive through the supply chain defective products, which may adversely impact the goodwill of our brands. In addition, MBS store operators may fail to obtain, renew, or retain licenses, permits or approvals required by laws and regulations, or fulfil any regulatory requirement, which may lead to penalties from the governmental authorities, such as fines and temporary suspension of business. Such penalties may adversely affect the business of MBS stores, which in turn may adversely affect our ability to sell automotives or provide automotive insurance related services to customers through our offline MBS store network. MBS store operators may also breach the standards set forth in their respective MBS store agreements. We may be unable to successfully implement our business model, standard operating procedure, company policies, or brand development strategies if our partner store operators do not actively participate in such implementation. The failure of our MBS store operators to participate in such implementation, even if such failures do not rise to the level of breaching the MBS store agreements, could materially and adversely affect our business and results of operations. Moreover, if MBS store operators do not successfully operate stores for the contractual terms and in a manner consistent with required standards, their profit could be adversely impacted, which in turn could impact payments under the MBS store agreements and affect our revenues, results of operations, business and financial condition.

According to the Administrative Regulations on Commercial Franchising promulgated on February 06, 2007 and effective on May 01, 2007, commercial franchise operation means the business activities where an enterprise that possesses the registered trademarks, enterprise logos, patents, proprietary technology or any other business resources (the “franchisor”) allows such business resources to be used by another business operator ( the “franchisee”) through contract and the franchisee follows the uniform business model to conducts business and pays franchising fees according to the contract. Within 15 days of first franchising contract signing, franchisors shall carry out franchising filing with the competent commerce authority, and where a franchisor failed to do so, it may be ordered to make filing within a specified time, and be imposed a fine of between RMB10,000 and RMB50,000. If filing does not occur before the deadline, a fine of RMB50,000 to RMB100,000 shall be imposed. In addition, a franchisor conducts franchise operations shall own, as a minimum, two self-owned stores that have been operating for more than one year when engaging in franchise operations. Otherwise, it may be ordered to make rectification, be subject to confiscation of the illegal income, and be imposed a fine ranging from RMB100,000 to RMB500,000. Some of our MBS store operators may use our trademarks in their store signboards and pay us relevant fees, but we did not require such MBS store operators to follow our uniform business model to conduct their business. As of the date of this prospectus, we have not made any franchising filing and we believe we are not subject to such requirements as the MBS store operators are not required by us to follow any uniform business model. However, we cannot assure you that relevant PRC governmental

 

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authorities would reach the same conclusion as we do. If the MBS store agreements between MBS store operators and us are identified as franchising contracts by Ministry of Commerce or its competent local authority, we may be imposed a fine and be subject to confiscation of the illegal income, which would adversely affect our business and the results of operations.

Accidents, injuries or other harm suffered in MBS stores or our warehousing facilities may adversely affect our reputation, subject us to liability and cause us to incur substantial expenses.

We could be held liable for accidents that occur in MBS stores or our warehousing facilities. In the event of personal injuries, fires or other accidents suffered by anyone working at or visiting our stores or warehouses, our stores or warehouses may be perceived to be unsafe, and people may be discouraged from visiting or working in MBS stores or our warehousing facilities. We could also face claims alleging that we should be liable for accidents or injuries caused by our employees or other service personnel due to negligence in supervision. Any material liability claims against us or any of our employees or other service personnel could adversely affect our reputation, create unfavorable publicity, cause us to incur substantial expenses and divert the time and attention of our management.

MBS store network expansion may not be implemented effectively.

We had a total of 252 MBS stores within our network as of September 30, 2023. Our MBS store network expansion involves substantial risks, including the selection of suitable locations, the availability of suitable locations and competition for suitable development sites, the selection of appropriate partner store candidates, the ability of partner store operators to fulfil their commitments to build new locations and the time frames specified in their development agreements, the negotiation of acceptable lease terms for new locations, costs of construction, permit issuance and regulatory compliance, the ability to meet construction schedules, the availability of financing and other capabilities of partner store operators. We cannot assure you that partner store operators planning the opening of new MBS stores will have the ability or sufficient access to financial resources necessary to open and operate such stores. The partner store operators’ development and construction of new MBS stores may not be completed in a timely manner or at all. We cannot assure you that present or future development plans will perform in accordance with expectations. It cannot be assured that partner store operators will successfully participate in our strategic initiatives or operate locations in a manner consistent with our standards. Moreover, newly opened MBS stores may not achieve desired revenue or cash flow levels.

MBS stores in our network are subject to certain environmental laws and regulations.

Certain activities of our MBS stores involve the handling, storage, transportation, recycling, or disposing of various new and used products, which may generate solid and hazardous wastes. These business activities are subject to stringent laws and regulations governing the storage and disposal of these products and wastes, the release of materials into the environment or otherwise relating to environmental protection. These laws and regulations may impose numerous obligations upon our MBS stores’ operations, including the acquisition of permits to conduct regulated activities, the imposition of restrictions on where or how to store and handle new products and to manage or dispose of used products and wastes, the incurrence of capital expenditures to limit or prevent release of such material, the imposition of substantial liabilities for pollution resulting from our MBS stores’ operations, and costs associated with health claims from service personnel.

In addition, environmental laws and regulations have generally imposed further restrictions on our operations, which may result in significant additional costs to our business. Failure to comply with these laws, regulations, and permits may result in the assessment of administrative, civil, and criminal penalties, the imposition of remedial and corrective action obligations, and the issuance of orders limiting or preventing operation of our stores. For instance, according to the Law of the PRC on the Prevention and Control of Environmental Pollution by Solid Waste, it is prohibited to provide or entrust hazardous waste to units or other

 

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producers and business operators with no licenses for the collection, storage, utilization and disposal of the hazardous wastes. We have cooperated with local operators to dispose of the hazardous wastes, however, we cannot assure you that all such operators can obtain hazardous waste operation permits in a timely manner or at all. If such operators fail to do so, governmental authorities may ask us to make corrections within a specified time, levy fines, confiscate our income, and under serious circumstances, order us to cease operation or suspend our relevant business. Further, MBS stores that engage in car wash business are required to obtain or update the permit of discharging sewage into urban drainage networks. Stores without such permit may be ordered to stop the relevant activities, take rectification measures, and pay a fine of up to RMB500,000 for each instance. Any adverse environmental impact on our MBS stores, including, without limitation, the imposition of a penalty or order, could materially and adversely affect our business and results of operations.

Our business may be affected by advances in automotive technology, such as NEVs, autonomous driving and shared mobility.

The demand for our auto parts, auto accessories and automotive insurance related services may be adversely affected by continuing developments in automotive technology, including NEVs, autonomous driving and shared mobility. Advances in automotive technology may increase the useful life of those parts and therefore reduce the demand for our products and services, adversely affecting our sales. Increased prevalence of sensors and back-up cameras, and increased prevalence of autonomous driving vehicles and shared mobility, may reduce collisions, which may result in reduced needs for repairs and maintenance. NEVs, generally require less repairs and maintenance, and when they do, may require more specialized service. For instance, traditional maintenance services such as oil and filter change, and maintenance of ignition related parts are not required as NEVs are not equipped with internal combustion engine and exhaust system. We are actively exploring opportunities to provide dedicated automotive sales and services addressing the NEV market, such as searching for merger and acquisition opportunities, expanding and optimizing our product and service offerings, expanding and deepening our strategic cooperation with leading NEV brands, and accelerating the transformation and upgrading of our offline stores to be able to service NEVs. However, currently, our new car sales, auto parts and auto accessories sales, and automotive insurance related services are primarily focus on fuel cars. Our NEV new initiatives may not be well accepted by our customers and may not achieve expected results. Some new car models require us to incur additional costs to update diagnostic capabilities and technical training programs or may make providing such training programs more difficult.

If we are unable to provide high-quality services, our reputation and business may be materially and adversely affected.

Our continued success in maintaining and enhancing our brands depends, to a large extent, on our ability to provide consistent and high-quality services. Our ability to provide high-quality services depends on factors such as our ability to provide a reliable and smooth service procedures for our customers, our ability to further improve and streamline our service process, and our ability to continue to offer available cars, auto part, auto accessories and automotive insurance related services at competitively low costs. If our customers are not satisfied with our services, or if our system is severely interrupted or otherwise fails to meet their demand, our reputation could be adversely affected, and we could fail to maintain customer loyalty. Moreover, if the technicians at MBS stores do not follow the recommended operation procedures or provide otherwise defective services to customers, which may subject us to various liabilities and harm our brand image and reputation. In addition, any negative publicity or poor feedback regarding our customer service may harm our brands and reputation and in turn cause us to lose customers and market share.

Furthermore, for our business segment of auto parts and auto accessories sales, we primarily rely on our customer service hotlines and third-party sellers to provide certain shipping and after-sale services to our customers. If our customer service representatives or third-party sellers fail to provide satisfactory services, or if the waiting time is too long due to the high volume of calls from customers, our brands and customer loyalty may be adversely affected. In addition, any negative publicity or poor feedback regarding our customer service may harm our brands and reputation and in turn cause us to lose customers and market share.

 

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Any harm to our brands or reputation may materially and adversely affect our business, market share and results of operations.

We believe that building a strong brand and reputation as a platform offering genuine products, standardized services and reliable after-sale services is critical to our business and competitiveness. The brand recognition and reputation of our “Autozi” brand, and the successful maintenance and enhancement of our brand and reputation have contributed and will continue to contribute significantly to our success and growth. Any negative perception and publicity, whether or not justified, such as complaints and accidents in relation to customer experience, products and services offered through our platform, and our brand awareness and recognition, and actual or perceived deterioration of our product and service quality could tarnish our reputation and reduce the value of our brand, which may result in loss of customers. Further, our competitors may fabricate complaints or negative publicity about us, our employees, our stores, and service personnel at our stores for the purpose of vicious competition. With the increased use of social media, adverse publicity can be disseminated quickly and broadly, making it increasingly difficult for us to respond and mitigate effectively.

In addition, if we are unable to maintain and enhance our brand reputation or fail to execute our brand strategy, not only our sales and services may decline, our new car sales, auto parts and auto accessories sales and automotive insurance related service offerings may not be widely accepted by customers either, which would adversely affect our business and the results of operations.

Misconducts, including illegal, fraudulent, or collusive activities, by our employees, MBS store operators, suppliers, manufacturers, cooperators and any third-party service providers, may harm our brands and reputation and adversely affect our business and results of operations.

Misconducts, including illegal, fraudulent or collusive activities, unauthorized business conducts and behaviors, or misuse of corporate authorization by our employees, MBS store operators, suppliers and manufacturers and other business partners could subject us to liability and negative publicity. They may conduct fraudulent activities, such as accepting payments from or making payments to other third parties in order to bypass our internal system and to complete shadow transactions and/or transactions outside our internal system, disclosing users’ information to competitors or other third parties for personal gains, using or providing counterfeit or inferior products, or applying for fake reimbursement. They may conduct activities in violation of Anti-unfair Competition Law, which may expose us to unfair competition allegations and risks. It is not always possible to identify and deter such misconduct, and the precautions we take to detect and prevent these activities may not be effective. We have historically received certain immaterial administrative penalties for such misconduct. Such misconduct could also damage our brands and reputation, which could adversely affect our business and results of operations.

In the event that we become subject to claims caused by actions taken by our employees, MBS store operators, suppliers, manufacturers and cooperators, we may attempt to seek compensation from the relevant employees, MBS store operators, suppliers, manufacturers and cooperators. However, such compensation may be limited, and we may be required to bear such losses and compensation at our own costs. This could have a material and adverse effect on our business, financial condition and results of operations.

From time to time, we may evaluate and potentially consummate necessary or desirable strategic alliance, acquisition, or investment, which could require significant management attention, disrupt our business and adversely affect our financial results.

We may pursue selected strategic alliances and potential strategic acquisitions that are supplemental to our business and operations, including opportunities that can help us further expand our offline MBS store network, optimize our product and service offerings and improve our technology system. See “Business—Our Strategies” for details. However, strategic alliances with third parties could subject us to a number of risks, including risks associated with sharing proprietary information, non-performance or default by counterparties, and increased

 

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expenses in establishing these new alliances, any of which may materially and adversely affect our business. In addition, we may have limited ability to control or monitor the actions of our strategic partners. To the extent a strategic partner suffers any negative publicity as a result of its business operations, our reputation may be negatively affected by virtue of our association with such party.

The costs of identifying and consummating strategic acquisitions may be significant and subsequent integrations of newly acquired companies, businesses, assets and technologies would require significant managerial and financial resources and could result in a diversion of resources from our existing business, which in turn could have an adverse effect on our growth and business operations. In addition, investments and acquisitions could result in the use of substantial amounts of cash, potentially dilutive issuances of equity securities and exposure to potential unknown liabilities of the acquired business. The acquired businesses or assets may not generate the financial results we expect and may incur losses. The cost and duration of integrating newly acquired businesses could also materially exceed our expectations. In addition, the PRC laws and regulations may make it difficult for us to conduct acquisitions in the future. See “—Risks Relating to Doing Business in China—The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors and certain other PRC regulations may make it more difficult for us to pursue growth through acquisitions.”

We may not successfully expand into new car models, auto parts, auto accessories and service categories, or maintain existing car models and upgrade existing auto parts, auto accessories and automotive insurance related services.

We may expand into new car models, auto parts, auto accessories and service categories, put efforts to maintain existing car models, and upgrade our existing auto parts, auto accessories and automotive insurance related services to meet our customers’ evolving preferences. It is difficult to predict the preferences of our customers or a specific segment of customers. Changes of car models we sell and upgrades to our existing auto parts, auto accessories and automotive insurance related services may not be well accepted by our customers, and newly introduced car models, auto parts, auto accessories and service categories may not achieve expected results. The efforts to expand into new car models, auto parts, auto accessories and service categories, or the efforts to maintain exiting car models and upgrade existing auto parts, auto accessories and automotive insurance related services may also require substantial investments of additional human capital and financial resources. If we fail to improve our existing car models, auto parts, auto accessories, and automotive insurance related services or fail to introduce new ones in a timely or cost-effective manner, our ability to attract and retain customers may be impaired, and our results of operations and prospects may be adversely affected. For example, we cater to the specific needs of our customers based on our data and business insights. We cannot assure you that the existing car models, auto parts, auto accessories and automotive insurance related services that we offer will cater to the needs of potential or existing customers, sustain their popularity for a period of time that we expect them to, or be welcomed or well accepted by the market as we expect.

We may be subject to product defects or other quality issues and product liability exposure.

We and our MBS stores may receive defective products or products of substandard quality. Defects in products could result in personal injury and property damage and may give rise to claims against us or our MBS stores for losses and expose us and our stores to claims for damages. There can be no assurance that the insurance held by our MBS stores or us will be adequate to cover the associated risks of the sale and use of defective products. In the event that product liability arises, sales of such products could expose us to product liability claims relating to personal injury or property damage and may require product recalls or other actions. Third parties subject to such injury or damage may bring claims or legal proceedings against us as the retailer of the product or a platform service provider. Although we would have legal recourse against the manufacturers of such products under PRC law, attempts to enforce our rights against the manufacturers may be expensive, time-consuming and ultimately futile. In addition, if we fail to provide the real names, addresses and valid contact details of the products provider, the customers may also claim damages from us, or if we know or should have known that MBS store operators on our platform use our platform to infringe upon the legitimate rights and

 

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interests of customers but we fail to take necessary measures, we shall bear joint and several liability with the MBS store operators. To the extent such liability is either not covered by our insurance, the MBS store operators’ insurance or exceeds the policy limits, the aggrieved parties may seek to recover their losses from us, whether or not they are legally or contractually entitled to do so, which could increase litigation costs or result in liability for us. Additionally, if we or our MBS stores deliver any defective products, or if there is a perception that our products are of substandard quality, we may incur substantial costs associated with product recall, product returns and replacements, our credibility and market reputation could be harmed, and our results of operations and market share may be adversely affected. As of the date of this prospectus, we have not been subject to any material product defects related litigations, incidents, penalties, or product recall.

The wide variety of payment methods that we adopt may subject us to risks related to third-party payment processing.

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

We are also subject to various rules, regulations and requirements governing electronic funds transfers, both in China and globally, which could change or be reinterpreted to make it difficult or impossible for us to comply with. In addition, the commercial banks and third-party online payment service providers that we work with are subject to the supervision of the People’s Bank of China, or the PBOC. The PBOC may publish rules, guidelines and interpretations from time to time regulating the operation of financial institutions and payment service providers that may in turn affect the business arrangements between such entities and us. For example, in November 2017, the PBOC published a notice, or the PBOC Notice, on the investigation and administration of illegal offering of settlement services by financial institutions and third-party payment service providers to unlicensed entities. The PBOC Notice intended to prevent unlicensed entities from using licensed payment service providers as a conduit for conducting the unlicensed payment settlement services, so as to safeguard the fund security and information security. As the laws and regulations in this area are still evolving and subject to interpretation, we cannot assure you that the PBOC or other governmental authorities will find our current or planned new settlement mechanisms to be in compliance with the PBOC Notice. As of the date of this prospectus, we have entered into third-party payment service agreements with licensed entities and such business arrangements were confirmed by or filed with PBOC by such licensed entities. The licensed entities are reputable commercial banks. However, if the PBOC or other relevant governmental authorities consider our current or planned new settlement mechanisms not fully compliant with the PRC regulations, we may need to adjust our business and cooperation model with the commercial banks and third-party payment service providers, and be subject to penalties and orders to rectify, which may result in higher payment processing cost, and any of these events may materially and adversely affect our growth potential, business and results of operations.

Failure to comply with the fire safety filing requirements for some of our warehouses and offices may subject us to administrative penalties, which could cause our operations and financial conditions to be materially adversely affected.

PRC laws and rules provide various requirements with respect to fire safety in China. Detailed measures and requirements vary materially among various regions and are still evolving, and the application of such measures is subject to significant uncertainties in various cities. As of the date of this prospectus, some of our warehouses and offices had not completed required fire safety filings. We cannot assure you that we will be able to obtain or complete such filings or to timely respond to changes in the public security or fire safety standards issued by the governmental authorities from time to time. In light of our failure to timely complete all fire safety filings, we may be subject to administrative fines up to RMB5,000 for each self-operated workshop. Even if the premises

 

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have completed the fire safety filings, they may be randomly inspected by the relevant governmental authorities and if they fail to pass the random inspections after the fire safety filings, the premises may be closed down, which could materially and adversely affect our financial results. As of the date of this prospectus, none of our warehouses and offices that failed to complete the fire safety filings has been subject to any fines or other penalties due to lack of fire safety filings.

Failure to obtain insurance agency business permits for our insurance intermediation services may affect our ability to conduct our business, which could cause our operations and financial conditions to be materially adversely affected.

For the fiscal years ended September 30, 2022 and 2023, our revenues from insurance intermediation services amounted to US$0.01 million and nil, respectively. Pursuant to the Regulatory Provisions on Insurance Agents promulgated on November 12, 2020 and became effective on January 1, 2021, engaging in insurance agency business in the PRC shall obtain the relevant insurance agency business permit. Persons who engage in insurance agency business illegally without a permit shall be banned by the insurance authority, and illegal income shall be confiscated and a fine ranging from one to five times the amount of illegal income shall be imposed on them; where there is no illegal income or the amount of illegal income is less than RMB50,000, a fine ranging from RMB50,000 to RMB300,000 shall be imposed on them. As advised by our PRC legal counsel, Han Kun Law Offices, we may be required to obtain insurance agency business permits for insurance intermediation services. As of the date of this prospectus, we have not obtained any insurance agency business permits or other permits for our insurance intermediation services. If any of the relevant insurance authorities determine that our activities of providing insurance intermediation services to insurance companies in exchange for commissions fall within the scope of engaging in insurance agency business, our PRC subsidiaries engaging in such activities may be banned and subject to a fine, and our income from such business may be confiscated, which may materially and adversely affect our business, financial condition and results of operations.

Quantum Factoring and Quantum Data may be subject to administrative penalties or may be required to obtain approval or license for our loan facilitation services and factoring services.

One of our PRC subsidiaries, Quantum Jinfu Commercial Factoring (Shenzhen) Co., Ltd. (“Quantum Factoring”), a factoring company, have been engaged in loan facilitation business ever since 2017, via the service provider “QT Loantech” developed by other PRC Subsidiary Quantum Jinfu Data Technology (Beijing) Co., Ltd. (“Quantum Data”). Notwithstanding the foregoing, services provided by Quantum Data and Quantum Factoring have generated very limited income. Such income will continue to decrease since such services are only provided for existing users and there have been no increments in customers and income ever since 2020.

The promulgation of the Notice on Regulating and Rectifying “Cash Loan” Business, or Circular 141, issued by the Special Rectification of Internet Financial Risks Working Group and the P2P Credit Risks Rectification Working Group on December 1, 2017, introduces the regulating guidance on cash loan businesses, including online micro-lending companies, P2P platforms and banking financial institutions. On the basis of Circular 141, the Interim Measures for Administration of Internet Loans Issued by Commercial Banks, or the Internet Loans Interim Measures, provides for more comprehensive and specific provisions on the cooperation between a banking financial institution and a loan facilitation operator.

Currently, we believe Quantum Data, as a data service provider, only provides technical services for the banks to source the target borrowers and facilitate the users to apply for loan; Quantum Factoring, as a service provider, has been providing factoring services as a factoring company, and we do not believe that we have provided any services which is in violation of the Circular 141, the Internet Loans Interim Measures, or other related regulations. However, we cannot assure you that the governmental authorities will find our services to be in strict compliance with the Circular 141, the Internet Loans Interim Measures, or other related regulations, and we may be required to cease or rectify any such services to comply with the foregoing laws and regulations.

 

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Furthermore, The State Council promulgated the Regulations on the Supervision and Administration of Financing Guarantee Companies, or Financing Guarantee Rules, on August 2, 2017, which became effective on October 1, 2017. On October 9, 2019, nine government authorities including the China Banking and Insurance Regulatory Commission, or the CBIRC, the National Development and Reform Commission, or the NDRC and the Ministry of Industry and Information Technology, or the MIIT promulgated the Supplementary Provisions on the Supervision and Administration of Financing Guarantee Companies or the Supplementary Financing Guarantee Provisions, which for the first time, explicitly requires that institutions providing services such as borrower recommendation and credit assessment for various lending institutions shall not provide, directly or in a disguised form, financing guarantee services without prior approval. For the companies without the relevant financing guarantee license but actually engaging in financing guarantee business, the regulatory authorities shall cease such operations and cause these companies to properly settle the existing business contracts. As of the date of this prospectus, neither Quantum Data nor Quantum Factoring, has obtained financing guarantee license. Since we neither collected guarantee fees from the bank, nor took providing guarantees as our main operating business through Quantum Data or Quantum Factoring, we do not believe that our loan facilitation services and factoring services will be considered as financing guarantee services. However, we cannot rule out the possibility that government authorities could deem factoring services provided by Quantum Factoring, which involves paying cash deposit to the banks to secure repayment by the borrowers, as financing guarantee services. Given the evolving regulatory environment of the financing guarantee business, we cannot assure you that we will not be subject to any fines, penalties or other liabilities, or be required in the future by the relevant governmental authorities to obtain approval or license for financing guarantee business to continue our factoring business provided by Quantum Factoring. Notwithstanding the foregoing, services provided by Quantum Data and Quantum Factoring have generated very limited income. Such income will continue to decrease since such services are only provided for existing users and there have been no increments in customers and income ever since 2020. While we are closely monitoring the regulatory development, as of the date of this prospectus, we have not been informed by any regulatory authorities to cease or modify any of our current services due to violation of any rules with respect to loan facilitations or financing guarantee business under the Circular 141, the Internet Loans Interim Measures, or other related regulations.

On September 27, 2021, the PBOC promulgated the Administrative Measures for Credit Reporting Services, or the Credit Reporting Measures, which took effect on January 1, 2022. The Credit Reporting Measures define “credit information” to include “basic information, borrowing and lending information and other relevant information collected pursuant to the law to provide services for financial and other activities for identifying and judging the credit standing of businesses and individuals, as well as analysis and evaluation formed based on the aforesaid information.” In our current cooperation with financial institutions, one of our PRC subsidiaries, Quantum Data, although will not obtain or provide lending information of our users, would directly provide financial institutions with the enterprise information or personal information of our users on the “QT Loantech”, including basic user information (such as the name, age, identity information of individuals and the basic information of enterprise users etc.) and loan application related information (such as loan purpose and loan amount, information and data analyzed and evaluated information formed based on the historical transaction and order information in our e-commerce platform of such users, bank account information, etc.) , which may be deemed as credit information under the Credit Reporting Measures. As of the date of this prospectus, Quantum Data has not obtained any permit or filings record for credit information services, and our direct provision of such users’ personal information or enterprise information to financial institutions may not be permitted. Notwithstanding the foregoing, services provided by Quantum Data have generated very limited income and such income will continue to decrease. Meanwhile, as the Credit Reporting Measures is newly issued and there are no specific implementation rules with this regard, we are not sure how it will be interpreted and implemented and whether it will have an adverse impact on our business.

 

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If we fail to obtain VATS license for the operation of our online supply chain cloud management systems and SaaS systems in the future, our business, financial condition and results of operations may be adversely affected.

According to the telecommunications regulations of the PRC, the value-added telecommunications services, or the VATS, refer to telecommunications and information services provided through public network infrastructures and the Classification Catalog of Telecommunication Services (2015 Edition) further divides the VATS into several detailed categories. PRC governments impose sanctions for engaging in the VATS without having obtained the VATS licenses for relevant categories. We believe we are not required to obtain VATS license for the operation of our online supply chain cloud management systems and SaaS systems, based on the facts that (i) our systems are software systems in nature, providing management services such as store managements, supply chain managements and insurance managements to several categories of users including automotive manufacturers, auto parts manufactures, insurance companies and MBS stores; and (ii) our systems do not operate as a platform for multiple sellers and users to match or procure their transactions as deal agent, such as Amazon. Thus, we are not directly involved in the provision of any type of value-added telecommunications services under the Classification Catalog of Telecommunication Services (2015 Edition). However, given that the interpretation of the regulations related to VATS and PRC regulatory authorities’ enforcement of such regulations are evolving and remain uncertain, and our business model is also evolving, it is unclear whether we will be required to obtain VATS licenses in the future. In the case that we are required to obtain any VATS licenses, we cannot assure you that we can obtain them in a timely manner or at all. If we are not able to comply with all applicable legal requirements, we may be subject to fines, confiscation of the gains derived from our non-compliant operations or suspension of our non-compliant operations, any of which may materially and adversely affect our business, financial condition and results of operations.

The approval, filing, or other procedures of the CSRC will be required in connection with our offshore offerings in the future under PRC laws and our future offering will be contingent upon the completion of such filing procedures.

On February 17, 2023, the CSRC promulgated the Trial Measures and five supporting guidelines, which became effective on March 31, 2023. According to the Trial Measures, among other requirements, any domestic companies that seek to offer or list securities overseas, including those indirect overseas offering and listing which meet certain conditions, should fulfil the filing procedures with the CSRC within three business days after the submission of the overseas offering and listing application, and subsequent securities offerings of a domestic company in the same overseas market where it has previously offered and listed securities shall be filed with the CSRC within three business days after the offering is completed. On the same day, the CSRC also held a press conference for the release of the Trial Measures and issued the Notice on Administration for the Filing of Overseas Offering and Listing by Domestic Companies, which clarifies that on or prior to the effective date of the Trial Measures, domestic companies that have already submitted valid applications for overseas offering and listing but have not obtained approval from overseas regulatory authorities or stock exchanges may reasonably arrange the timing for submitting their filing applications with the CSRC, and must complete the filing before the completion of their overseas offering and listing.

Based on the facts that (i) the total assets, net assets, revenues and profits of our PRC operating entities accounts for more than 50% of our corresponding figures in the most recent accounting year; (ii) our major operational activities are carried out in China, we believe that, as advised by our PRC legal counsel, Han Kun Law Offices, we will be required to file with the CSRC in accordance with the Trial Measures with respect to the offering and must complete the filing before the completion of our overseas offering and listing.

As of the date of this prospectus, we have not received any formal inquiry, notice, warning, sanction, or any regulatory objection from the CSRC with respect to this offering. Our offering will be contingent upon the completion of the filing procedures. We have completed our filing with the CSRC in connection with this offering and our listing on the Nasdaq Global Market, and the CSRC published the notification of its approval of

 

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our completion of the required filing procedures on January 2, 2024. In accordance with the CSRC notification, we are required to report the offering and listing status to the CSRC within 15 business days from our completion of our offering. If we fail to complete this offering within 12 months from the issuance date of notification, and the offering is still under progress, we are required to update the filing materials with the CSRC. If the filing procedure with the CSRC under the Trial Measures is required for any future offerings or any other capital raising activities, we cannot assure you that we will be able to complete such filings in a timely manner, or even at all. Any failure by us to comply with such filing requirements under the Trial Measures may result in an order to rectify, warnings and fines against us and could materially hinder our ability to offer or to continue to offer our securities.

Our business is subject to various government regulations and regulatory interference in China. If we do not receive, complete, or maintain necessary approvals or filings, or we inadvertently conclude that such approvals or filings are not required, or there is a change in the applicable laws, regulations, or interpretations such that we need to make filings or obtain approvals in the future, it may have a material adverse effect on our business and results of operations, significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or become worthless.

Our business is subject to various government regulations and regulatory interference in China. As of the date of this prospectus, as advised by our PRC counsel, Han Kun Law Offices, except as disclosed in this prospectus, we have obtained all permissions and approvals which we are required to obtain from PRC authorities to operate our business and to offer the securities being registered to foreign investors.

If we do not receive, complete or maintain necessary approvals or filings, or we inadvertently conclude that such approvals or filings are not required, or there is a change in the applicable laws, regulations, or interpretations such that we need to make filings or obtain approvals in the future, we may be subject to (i) investigations by competent regulatory authorities, (ii) fines or penalties, (iii) orders to suspend our operations and to rectify any non-compliance, or (iv) prohibitions from engaging in relevant businesses and even securities offerings.

However, given the uncertainties of interpretation and implementation of relevant laws and regulations and the enforcement practices by relevant governmental authorities, if the relevant governmental authorities consider that we were operating without proper approvals, licenses or permits, or if the relevant governmental authorities promulgate new laws and regulations that require additional approvals or licenses or impose additional restrictions on the operation of any part of our business and we are not able to obtain such approvals, licenses or permits or adjust our business model in a timely manner or at all, they have the power, among other things, to levy fines, confiscate our income, revoke our business licenses, and require us to discontinue our relevant business. Any of these actions by the relevant governmental authorities may have a material adverse effect on our business and results of operations, significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or become worthless.

Any disruption to our technology systems and resulting interruptions in the availability of our websites, applications, platforms, or services could adversely affect our business and results of operations.

The satisfactory performance, reliability and availability of our technology systems are critical to our success. We rely on our scalable technology infrastructure and corresponding online interfaces to connect our network with those of our various platform users. These integrated systems support the smooth performance of certain key functions of our business. However, our technology systems or infrastructure may not function properly at all times. We may be unable to monitor and ensure high-quality maintenance and upgrade of our technology systems and infrastructure, and users may experience service outages and delays in accessing and using our platforms as we seek to source additional capacity. In addition, we may experience surges in online traffic and orders associated with promotional activities and generally as we scale, which can put additional

 

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demand on our platform at specific times. As of the date of this prospectus, we have not experienced any material incident on our technology systems. However, any disruption to our technology systems and resulting interruptions in the availability of our website, applications, platform or services could adversely affect our business and results of operations, significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or become worthless.

Our technology systems may also experience telecommunications failures, computer viruses, failures during the process of upgrading or replacing software, databases or components, power outages, hardware failures, user errors, or other attempts to harm our technology systems, which may result in the unavailability or slowdown of our platform or certain functions, delays or errors in transaction processing, loss of data, inability to accept and fulfil orders, reduced order volume and the attractiveness of our platform. Further, hackers, acting individually or in coordinated groups, may also launch distributed denial of service attacks or other coordinated attacks that may cause service outages or other interruptions in our business. Any of such occurrences could cause severe disruption to our daily operations. If we cannot successfully execute system maintenance and repair, our business and results of operations could be adversely affected, and we could be subject to liability claims.

If we fail to keep up with the technological developments and implementation of advanced technologies, our business, results of operations and prospects may be materially and adversely affected.

We apply technology to serve our customers and MBS stores more efficiently and bring them better customer experience. Our success will in part depends on our ability to keep up with the changes in technology and the continued successful implementation of advanced technology, including AI, 5G, cloud computing, distributed architecture and big data analytics. If we fail to adapt our platforms and services to changes in technological development in an effective and timely manner, our business operations may suffer. Changes in technologies may require substantial expenditures in research and development as well as in modification of our services. Technical hurdles in implementing technological advances may result in our services becoming less attractive to customers and corporate clients, which, in turn, may materially and adversely affect our business, results of operations and prospects.

Our business has been and may continue to be adversely affected by the COVID-19 pandemic.

The COVID-19 pandemic adversely affected our business. In early 2020, in response to intensifying efforts to contain the spread of COVID-19, the Chinese government took a number of actions, which included, among others, extending the Chinese New Year holiday, travel restrictions, quarantines, remote working, cancellation of public events, and recommendations against travel for leisure. COVID-19 caused temporary closures of stores in our network and our offices in early 2020. While such restrictive measures have been largely lifted, our business has been and could continue to be adversely impacted by the effects of the COVID-19 pandemic. Since the beginning of 2021, a few waves of COVID-19 infections emerged in various regions of China, resulting in varying levels of travel restrictions and encouragement of reduced travel. These previous travel restrictions reduced customers’ travel and the demand for automotive sales and services in past a few years. Meanwhile, we have experienced and may continue to experience impacts caused by business disruptions to certain of our suppliers as a result of the COVID-19 pandemic. As we have a nationwide network of suppliers, such disruptions do not have a material adverse impact on our business, financial condition, results of operations and cash flows. The COVID-19 resurgence caused by the Omicron variants since late March 2022 adversely affected our operations in certain cities in China. In particular, in the first half of 2022, our cooperating stores in certain cities also went through temporary closures due to lock-downs caused by COVID-19, among which, 71 cooperating stores in Shandong Province were temporarily closed for approximately three months due to the relevant lock-down policies, and 51 cooperating stores in Beijing also experienced temporary closures for approximately two months due to the city-wide lock-down.

Although the Chinese government optimized its COVID-19 control policies and lifted some restrictions in a ten-point notice released on December 7, 2022, we cannot guarantee that the COVID-19 pandemic will not

 

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further escalate or have a material adverse effect on our results of operations, financial position or prospects. The extent to which the pandemic impacts our results of operations going forward will depend on future developments which are uncertain and unpredictable, including the frequency, duration and extent of outbreaks of COVID-19, the emergence of new variants, the effectiveness of efforts to contain or treat cases, and future actions that may be taken in response to these developments. China’s macro economic environment may deteriorate, which may impact our business in a negative way. Future developments related to COVID-19 may also limit the ability of our customers to continue to operate as normal and thereby decrease our revenues, lead to disruption in our supply chain, or cause other unpredictable events. Consequently, the COVID-19 pandemic may continue to adversely affect our business, financial condition and results of operations in the current and future years.

Pandemics and epidemics, natural disasters, terrorist activities, political unrest, and other outbreaks may disrupt our operations, which could materially and adversely affect our business, financial condition, results of operations and prospects.

In recent years, there have been outbreaks of epidemics globally. In addition to the impact of COVID-19 as described above, our business could be materially and adversely affected by natural disasters, such as snowstorms, earthquakes, fires or floods, the outbreak of other widespread health epidemic, such as swine flu, avian influenza, severe acute respiratory syndrome, Ebola, or Zika or other events, such as wars, acts of terrorism, environmental accidents, power shortage or communication interruptions. The occurrence of such a disaster or prolonged outbreak of an epidemic illness or other adverse public health developments in the countries and regions we operate in could materially disrupt our business and operations. Such events could also significantly affect our industry and cause a temporary closure of the facilities we use for our operations, which would severely disrupt our operations and have a material adverse effect on our business, financial condition, results of operations and prospects. Our operations could be disrupted if any of our employees were suspected of having any of the epidemic illnesses, since this could require us to quarantine some or all of such employees or disinfect the facilities used for our operations. In addition, our revenues and profitability could be materially reduced to the extent that a natural disaster, health epidemic or other outbreak harms the Chinese or global economy in general. Our operations could also be severely disrupted if our clients, customers or other participants were affected by such natural disasters, health epidemics or other outbreaks.

We may be subject to social and natural catastrophic events that are beyond our control, such as natural disasters, health epidemics, riots, political and military upheavals and other outbreaks in the country or region where we have our operations or where a portion of our customers are located. Such events could significantly disrupt our operations and negatively impact our business, financial condition, results of operations and prospects.

Any failure of any of our key suppliers to deliver new cars, auto parts or auto accessories could negatively influence our ordinary business operations.

We procure new cars, auto parts and auto accessories from both domestic and global suppliers. For the fiscal years ended September 30, 2022 and 2023, expenses incurred in relation to our five largest suppliers in terms of contract amount accounted for 12.8% and 17.2% of our total expenses for the same periods, respectively. We attempt to mitigate our supply chain risk by qualifying and obtaining cars, auto parts and auto accessories from multiple sources where practicable and maintaining safety stock for certain key car models, auto parts and auto accessories with lengthy procurement lead times. However, we may still experience shortages or the available auto parts and accessories may not meet our specifications or quality needs. See “—Our business has been and may continue to be adversely affected by the COVID-19 pandemic.” Furthermore, qualifying alternative suppliers may be time consuming and costly. Any disruption in the supply of new cars, auto parts and auto accessories could temporarily disrupt our daily business operations, until an alternative supplier is fully qualified by us or we are able to procure the relevant car models, auto parts or auto accessories in sufficient quantities from other existing suppliers. See “—Supply chain shortages and interruptions, fluctuations in prices and our relationship with suppliers could adversely affect our results of operations.” With the development and expansion of our business, we will need to more accurately forecast, purchase, warehouse and transport new cars, auto parts

 

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and auto accessories to customers and MBS stores. If we fail to match the timing and quantities of procurement to our actual needs, we may incur unexpected business disruption, storage and write-off costs, which could have a material adverse effect on our financial and operating results.

Supply chain shortages and interruptions, fluctuations in prices and our relationship with suppliers could adversely affect our results of operations.

We and MBS stores are dependent upon frequent deliveries of automotive parts and accessories that meet our quality specifications. Shortages or interruptions in the supply caused by unanticipated demand, problems in production or distribution, acts of terrorism, financial or other difficulties of suppliers, labor actions, inclement weather, natural disasters such as floods, drought and hurricanes, outbreak of disease, including COVID-19 and other pandemics, or other conditions could adversely affect the availability, quality and cost of supplies for such products, which could lower our revenues, increase operating costs, damage brand reputation or otherwise harm our business. Such shortages or interruptions could also reduce our profit margins which may in turn materially and adversely affect our business and results of operations.

Our business also depends on developing and maintaining close relationships with our suppliers and on our suppliers’ ability or willingness to sell quality products to us at favorable prices and terms. Many factors beyond our control may harm these relationships and the ability or willingness of these suppliers to sell us products on favorable terms. In addition, the consolidation among auto parts and accessories suppliers, distributors, or wholesalers may disrupt or end our relationship with some suppliers and could lead to less competition and result in higher prices.

We are subject to risks relating to the warehousing and logistics of our products.

Some of the inventories kept in our warehouses may involve hazardous chemicals and we may transport those hazardous chemicals by ourselves or through third parties from time to time. The storage and transportation of chemicals involve inherent safety risks. We may face challenges with respect to the storage, transportation, handling, protection and examination of these chemicals by the governmental authorities. We cannot assure you that our risk management system will eliminate all possibilities of hazardous chemical diffusions, combustions, and other types of hazardous chemical accidents. For instance, we might be held liable for hazardous chemical accidents that happen on the premises of our leased properties. In the event that our use of leased properties is determined to be in violation of applicable requirements, such as the requirements for storage of hazardous chemicals, we may be subject to fines and forced to relocate the affected operations. We can provide no assurance that we will be able to find suitable replacement sites on terms acceptable to us on a timely basis, or at all, or that we will not be subject to material liability resulting from third parties’ challenges on our use of such properties.

We transport auto parts and accessories to customers and MBS stores primarily via third-party logistics services. We are not able to control or predict the actions of these service providers. Logistics may be disrupted for a number of reasons that may be beyond our control or the control of our logistics service providers, including, without limitation, epidemics, adverse weather condition, natural disasters, transportation interruptions or labor unrest or shortage. Further, cars and personnel of third-party logistics service providers may be involved in transportation accidents, and the products carried by them may be lost, damaged, destroyed, or may cause safety accidents, and we may be subject to various levels of liabilities associated with personal injuries or property damages if such accidents happen. In addition, we cannot assure you that all such logistics providers have obtained the required permits for dealing with hazardous chemicals. If any of such logistics service providers fails to obtain the required permits in a timely manner or at all, we may be penalized by the governmental authorities for engaging such service providers. Such interruptions to or failures in such third-party logistics service providers’ operations may obstruct the timely or successful delivery of our products. If products are not delivered on time, the normal operation of stores may be adversely affected and our customers may wait longer time to have their cars serviced, which may harm our brand image and reputation. If the products are delivered in a damaged state, our customers may return the products and may claim refund from us and their confidence in us may be impaired. If any of our logistics service providers’ operations or services are disrupted

 

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or terminated, we may not be able to find alternative qualified service providers on commercial terms to our satisfaction in a timely and reliable manner, or at all. As a result, our business, reputation, financial condition and results of operations may be materially and adversely affected.

Moreover, natural disasters or other unanticipated catastrophic events, including power interruptions, water shortage, storms, fires, earthquakes, cybersecurity attacks, terrorist attacks and wars, as well as changes in governmental planning for the land underlying the warehousing facilities, may also result in the closure of one or more of our facilities, or may adversely affect our ability to deliver inventory to our stores in a timely manner. Any interruptions or delays in our supply chain service, whether as a result of third-party error, our error, natural disasters or security breaches, whether accidental or willful, could affect our ability to timely provide products to our customers, resulting in lost sales or a potential loss of customer loyalty, any of which could significantly impair our business, financial condition and results of operations.

We may need additional capital to pursue business objectives and respond to business opportunities, challenges or unforeseen circumstances, and financing may not be available on terms acceptable to us, or at all.

Since inception, we raised capital through bank loans, equity financing, and bond issuance to support the growth of our business. As we intend to continue to make investments to support the growth of our business, we may need additional capital to make continued investments in facilities, hardware, software, technological systems and to retain talents to remain competitive. Due to the unpredictable nature of the capital markets and our industry, we cannot assure you that we will be able to raise additional capital on terms acceptable to us, or at all, if and when required, especially if we experience disappointing operating results. Repayment of the indebtedness may divert a substantial portion of cash flow to repay principal and service interest, which would reduce the funds available for expenses, capital expenditures, acquisitions and other general corporate purposes; and we may suffer default and foreclosure on our assets if our operating cash flow is insufficient to fulfill our obligations, which could in turn result in acceleration of obligations to repay the indebtedness and limit our sources of financing.

Volatility in the credit markets may also have an adverse effect on our ability to obtain debt financing. If we raise additional funds through further issuances of equity or convertible debt securities, our existing shareholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our Class A ordinary shares. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to pursue our business objectives and to respond to business opportunities, challenges or unforeseen circumstances could be significantly limited, and our business, financial condition, results of operations and prospects could be adversely affected.

Our cash flows, financial conditions and business operations may be negatively affected due to the guarantees we provide to third parties.

Previously in 2019, we sold auto parts and accessories through our online platform, we used to cooperate with commercial banks to offer credits to large customers, primarily business entities in China. Under such older business model, we, as the main seller on the platform, purchased auto parts and accessories from upstream manufacturers and sold them to downstream customers. Those large customers could use their credits to buy auto parts and accessories on our platform and then paid back to the banks when the bill was due. So, in addition to the proceeds of the sale of auto parts and accessories, we would also be able to take a certain amount of service fees from these funds as revenue. Due to the credit deterioration of some customers, they could not repay on time and thus we had to undertake a certain amount of debt to commercial banks. As a result of negotiations and payment rescheduling, those commercial banks extended these customers’ repayment term and allowed them to repay by installment, but we should be the guarantor for such payments. In recent years, the competent authorities of China have begun to conduct a special campaign against internet financial risks. Due to the Notice on Regulating and Rectifying “Cash Loan” Business, or the Circular 141, we were unable to operate under such a business model. According to Circular 141, activities offering cash loans, which are characterized by the lack of specific consumption scenarios, designated purposes, targeted users or mortgages, are subject to inspections and rectifications to prohibit excessive borrowing and granting credits repeatedly to individual borrowers, collecting

 

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interests at abnormally high interest rates and violating privacy. Circular 141 clarifies that no organization or individual shall start a loan business without the required qualifications and approved licenses. Therefore, since 2020, we no longer provide credit lines to our new customers in the auto part and accessories sales business as such services may be defined as loan business, nor hold a large inventory of auto parts and accessories. If any of the third parties benefiting from our guarantees defaults on its payments, the banks may exercise its right under the guarantee to demand repayment from us. As a result, our cash flows, financial conditions and business operations may be negatively affected.

Our business is subject to a certain level of seasonality.

Seasonal changes may impact the demand for our new car sales, automotive insurance related services, and auto parts and auto accessories, which is generally common for our industry. We have historically recorded lower revenues in the first quarter of each year. During the first quarter, stores are temporarily closed as technicians return home for the Chinese New Year holidays and there is relatively low level of road travel activity during the winter and the Chinese New Year holiday period. We have historically recorded higher revenues in the second half of each year. Our car sales are generally higher in the second half of the year, especially in the fourth quarter. Accordingly, more car owners perform maintenance on their cars in the second half of the year given that maintenance schedules are often on an annual basis (if not based on mileage). In addition, we also typically experience a seasonal surge in volume of auto parts and accessories sales during the third and fourth quarters of each year when we launch special promotional campaigns like other major online e-commerce platforms, for example, around China’s new online shopping festivals on June 18 and November 11 each year. We may experience capacity and resource shortages in fulfilling orders during the period of such seasonal surge in our business, which could materially and adversely affect our business and results of operations.

Failure to manage inventory at optimal levels could adversely affect our business, financial condition, and results of operations.

We are required to manage a certain volume of inventory for our business. We depend on demand forecasts for cars, auto parts and auto accessories to make procurement plans and manage our inventory. Our forecast for demands, however, may not accurately reflect the actual market demands, which depends on a number of factors including, without limitation, launches of new products, changes in product lifecycles and pricing, product defects, changes in customer spending patterns, manufacturer backlogs and other suppliers/manufacturers-related issues, as well as the volatile economic environment in China. We cannot assure you that we will be able to maintain proper inventory levels for our business at all times, and any such failure may have a material and adverse effect on our business, financial condition and results of operations.

Inventory levels in excess of demand may result in inventory write-downs, inventory overstock, or a decrease in inventory sales prices and a potential negative effect on our liquidity. If we fail to manage our inventory effectively, we may be subject to heightened risk of inventory obsolescence, a decline in inventory values, and significant inventory write-downs or write-offs. In addition, we may be required to lower sale prices in order to reduce inventory level, which may lead to lower gross margins. High inventory levels may also require us to commit substantial capital resources, preventing us from using that capital for other important purposes. Any of the above may materially and adversely affect our results of operations and financial condition.

Conversely, if we underestimate the demand or if we experience faster-than-expected growth, or if our suppliers fail to provide auto parts and accessories to us in a timely manner, we may experience inventory shortages, which may, in turn, require us to procure auto parts and accessories at higher costs, result in unfulfilled user orders, leading to a negative impact on our financial condition and our relationships with partner store operators.

Additionally, we also rely extensively on our artificial intelligence algorithms to manage inventory levels at a specific warehouse, smart warehouse or smart cabinet, and such inventory levels might not accurately correspond to actual market demands and could lead to under-stocking or over-stocking in the warehouses, smart warehouses or smart cabinets. Therefore, although we try to monitor inventory levels in these warehouses or

 

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stores to the extent we can, we cannot assure you that there will not be under-stocking or overstocking in these warehouses, smart warehouses or smart cabinets.

Increases in labor costs in the PRC and noncompliance with labor laws and regulations may materially and adversely affect our business and our margin profile.

China’s overall economy and the average wage have increased in recent years and are expected to continue to grow. The average wage level for our employees has also increased in recent years. We expect that our labor costs, including wages and employee benefits, will continue to increase. Unless we are able to pass on these increased labor costs to our customers who pay for our products and services, our margin profile and results of operations may be materially and adversely affected. Further, pursuant to the PRC Labor Law, as amended, or the Labor Contract law, and its implementation rules, employers are subject to various requirements in terms of signing labor contracts, minimum wages, paying remuneration, determining the term of employees’ probation and unilaterally terminating labor contracts. In the event that we decide to terminate some of our employees or otherwise change our employment or labor practices, the Labor Contract Law and its implementation rules may limit our ability to affect those changes in a desirable or cost-effective manner, which could adversely affect our business and results of operations.

In addition, under the PRC Social Insurance Law and the Administrative Measures on Housing Provident Fund, employees are required to participate in pension insurance, work-related injury insurance, medical insurance, unemployment insurance, maternity insurance, and housing provident funds, and employers are required, together with their employees or separately, to promptly pay the contributions to social insurance and housing provident funds for their employees in full amount and make timely registration with the relevant social insurance or housing provident fund authorities. As of the date of this prospectus, we have not made social insurance contributions in full or made any housing provident funds contributions for all of our employees, and certain of our PRC subsidiaries have not made timely contribution registration of housing provident fund with the relevant housing provident fund authorities in accordance with the relevant PRC laws and regulations. Under the PRC Social Insurance Law, orders to make full contributions within a prescribed time may be imposed on an employer for not making full social insurance contributions for employees in a timely manner. If any of the relevant social insurance authorities is of the view that the social insurance contributions we made for our employees do not comply with the requirements under the relevant PRC laws and regulations, it may order us to pay the outstanding balance within a prescribed time period plus a late fee of 0.05% of the total outstanding balance per day. If we fail to do so, we may be subject to a fine ranging between one to three times of the total outstanding balance. Under the Administrative Measures on Housing Provident Fund, orders to make full contributions within a prescribed time may be imposed on us for not making housing provident funds contributions for employees in a timely manner. If we fail to do so, the relevant housing provident fund authorities may apply to a PRC court for an order of mandatory payment. Besides, the relevant housing provident fund authorities may order certain of our PRC subsidiaries to make contribution registration of housing provident fund within a prescribed time limit. If we fail to do so, we may be subject to a fine ranging from RMB10,000 to RMB50,000. In addition, certain of our employees engage third-party human resources agencies to make social insurance and housing provident fund contributions for the employees, and we cannot assure you that such third-party agencies make such contributions in full in a timely manner, or at all, and even if they do, regulators may deem such practice to be noncompliant with the relevant labor laws and bring enforcement actions against us. If the relevant PRC authorities determine that we shall make up for social insurance and housing provident fund contributions or that we are subject to fines and legal sanctions in relation to our failure to make social insurance and housing provident fund contributions in full for our employees and make timely contribution registration of housing provident fund with the relevant housing provident fund authorities, our business, financial condition and results of operations may be adversely affected.

However, we cannot assure you that our employment practices will be deemed to be in compliance with labor-related laws and regulations in China due to interpretation and implementation uncertainties related to the evolving labor laws and regulations, which may subject us to labor disputes or government investigations. If we

 

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are deemed to have violated relevant labor laws and regulations, we could be required to provide additional compensation to our employees and our business, financial condition and results of operations could be materially and adversely affected.

We are subject to risks relating to our leased properties.

We lease certain real properties in China from third parties primarily as office space and operation facilities. As of the date of this prospectus, for some of our leased office spaces and warehouses, we have not been provided by the lessors with the applicable certificates, approvals or any other documentation proving their right to lease those properties to us or the actual use of such premises is not consistent with the designated use of premises as stated in the relevant ownership certificate. If our lessors are not the owners of the properties and they have not obtained consents from the owners or their lessors or permits from the relevant governmental authorities, our leases could be invalidated. If this occurs, we may have to renegotiate the leases with the owners or other parties who have the right to lease the properties, and the terms of the new leases may be less favorable to us. In addition, in the event that our use of properties is successfully challenged, we may be forced to relocate. Moreover, we may become involved in disputes with the property owners or third parties who otherwise have rights to or interests in our leased properties. We can provide no assurance that we will be able to find suitable replacement sites on terms acceptable to us on a timely basis, or at all, or that we will not be subject to material liability resulting from third parties’ challenges on our use of such properties. As a result, our business, financial condition and results of operations may be materially and adversely affected. In addition, if our partner store operators were not able to find replacement premises for their stores due to any lease deficiencies, the daily operations of such stores may be negatively affected.

Furthermore, we have not registered any of our leasehold interests with the relevant Chinese governmental authorities as required by PRC law, which may expose us to potential fines if we fail to remediate after receiving any notice from the relevant Chinese governmental authorities. Failure to complete the lease registration will not affect the legal effectiveness of the lease agreements according to PRC law, but the real estate administrative authorities may require the parties to the lease agreements to complete lease registration within a prescribed period of time, and failure to do so may subject the parties to fines from RMB1,000 to RMB10,000 for each of such lease agreements. See “—Risks Relating to Our Business and Industry—We may be subject to penalties for failure to register our lease with the PRC real estate administration department.”

As of the date of this prospectus, we had not been subject to any actions, claims or investigations threatened against us or our lessors with respect to the defects in our leasehold interests which may have a material adverse impact on our business, financial condition and results of operation. However, if any of our leases is terminated as a result of challenges by third parties or governmental authorities for lack of title certificates or proof of authorization to lease, we do not expect to be subject to any fines or penalties, but we may be forced to relocate the affected offices, stores or warehouses and incur additional expenses relating to such relocation. We cannot guarantee that suitable alternative locations are readily available on commercially reasonable terms, or at all, and if we fail to relocate our operations in a timely manner, our operations may be interrupted.

Failure to renew our current leases or locate desirable alternatives for our facilities could materially and adversely affect our business.

We lease properties to operate a majority of our warehouses and offices, and some of MBS store owners lease properties to operate their stores. We and our MBS store operators may not be able to successfully extend or renew such leases upon expiration, on commercially reasonable terms or at all, and may be forced to relocate the affected operations. Such relocation may disrupt our operations and result in significant relocation expenses, which could adversely affect our business, financial condition and results of operations. We may not be able to locate desirable alternative sites for our facilities as our business continues to grow and failure in relocating our operations when required could adversely affect our business and operations. In addition, we compete with other businesses for premises at certain locations or of desirable sizes. Even if we or our partner store operators are

 

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able to extend or renew the respective leases, rental payments may significantly increase as a result of the high demand for the leased properties.

We may not be able to prevent others from unauthorized use of our intellectual property, which could harm our business and competitive position.

We regard our trademarks, copyrights, patents, domain names, know-how, proprietary technologies, and similar intellectual property (which we have ownership or legal rights to use) as critical to our success, and we rely on a combination of intellectual property laws and contractual arrangements, including confidentiality, invention assignment and non-compete arrangements with our employees and others, to protect our proprietary rights. Despite these measures, any of our intellectual property rights could be challenged, invalidated, circumvented or misappropriated, or such intellectual property may not be sufficient to provide us with competitive advantages. In addition, there can be no assurance that our patent applications will be approved, that any issued patents will adequately protect our intellectual property, or that such patents will not be challenged by third parties or found by a judicial authority to be invalid or unenforceable. Further, because of the rapid pace of technological change in our industry, parts of our business rely on technologies developed or licensed by third parties, and we may not be able to obtain or continue to obtain licenses and technologies from these third parties on reasonable terms, or at all.

It is often difficult to register, maintain and enforce intellectual property rights in China. Statutory laws and regulations are subject to judicial interpretation and enforcement and may not be applied consistently due to the lack of clear guidance on statutory interpretation. Confidentiality, invention assignment and non-compete agreements may be breached by counterparties, and there may not be adequate remedies available to us for any such breach. Accordingly, we may not be able to effectively protect our intellectual property rights or to enforce our contractual rights in China. Policing any unauthorized use of our intellectual property is difficult and costly and the steps we take may be inadequate to prevent the infringement or misappropriation of our intellectual property. In the event that we resort to litigation to enforce our intellectual property rights, such litigation could result in substantial costs and a diversion of our managerial and financial resources, and could put our intellectual property at risk of being invalidated or narrowed in scope. We cannot assure you that we will prevail in such litigation, and even if we do prevail, we may not obtain a meaningful recovery. In addition, our trade secrets may be leaked or otherwise become available to, or be independently discovered by, our competitors. Any failure in maintaining, protecting or enforcing our intellectual property rights could have a material adverse effect on our business, financial condition and results of operations. As of the date of this prospectus, the registration application of two of our trademarks currently used by one of our PRC entities, Quantum Data, has been rejected by the Trademark Office of China National Intellectual Property Administration. Thus, we cannot guarantee that we are able to register and maintain the intellectual property right of such trademark. If our use of such trademark is found to have infringed the intellectual property rights of others, we may be subject to liability for our infringement activities or may be prohibited from using such trademark.

We may be subject to intellectual property infringement claims, which may be expensive to defend and may disrupt our business and operations.

We cannot be certain that our operations or any aspects of our business do not or will not infringe upon or otherwise violate patents, copyrights or other intellectual property rights held by third parties. We have been, and from time to time in the future may be, subject to legal proceedings and claims relating to the intellectual property rights of others. In addition, there may be other third-party intellectual property that is infringed by our solutions or services, the solutions or services provided by third-party merchants on our marketplace, or other aspects of our business. There could also be existing patents of which we are not aware that our solutions or services may inadvertently infringe. We cannot assure you that holders of patents purportedly relating to some aspects of our technology platform or business, if any such holders exist, would not seek to enforce such patents against us in China, the U.S. or any other jurisdictions. Further, the application and interpretation of China’s patent laws and the procedures and standards for granting patents in China are still evolving and are uncertain,

 

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and we cannot assure you that PRC courts or regulatory authorities would agree with our analysis. If we are found to have violated the intellectual property rights of others, we may be subject to liability for our infringement activities or may be prohibited from using such intellectual property, and we may incur licensing fees or be forced to develop alternatives of our own. In addition, we may incur significant expenses, and may be forced to divert management’s time and other resources from our business and operations to defend against these third-party infringement claims, regardless of their merits. Successful infringement or licensing claims made against us may result in significant monetary liabilities and may materially disrupt our business and operations by restricting or prohibiting our use of the intellectual property in question. Finally, we use open-source software in connection with our solutions and services. Companies that incorporate open-source software into their solutions and services have, from time to time, faced claims challenging the ownership of open-source software and compliance with open-source license terms. As a result, we could be subject to suits by parties claiming ownership of what we believe to be open-source software or noncompliance with open-source licensing terms. Some open-source software licenses may require customers who distribute open-source software as part of their software to publicly disclose all or part of the source code to such software and make available any derivative works of the open-source code on unfavorable terms or at no cost. Any requirement to disclose our source code or pay damages for breach of contract could be harmful to our business, results of operations and financial condition.

Regulatory actions, legal proceedings, and customer complaints against us or our constituents could harm our reputation and have a material adverse effect on our business, results of operations, financial condition and prospects.

We were involved in litigations and other disputes in the ordinary course of our business, which include lawsuits, arbitration, regulatory proceedings, and other disputes relating to our business. Along with the growth and expansion of our business, we or our constituents may be involved in litigations, regulatory proceedings, and other disputes arising outside the ordinary course of our business. Such proceedings, investigations, claims, and complaints could be initiated or asserted under or on the basis of a variety of laws in different jurisdictions, including data protection and privacy laws, labor and employment laws, anti-monopoly or competition laws, transportation laws, advertising laws, intellectual property laws, securities laws, tort laws, contract laws, and property laws. They may also cause a diversion of our management’s attention, result in reputational damage to us and our management, and lead to legal proceedings against our directors, officers, or employees. Given the uncertainty, complexity, and scope of many of these litigation matters, their outcome generally cannot be predicted with any reasonable degree of certainty. There is no guarantee that we will be successful in defending ourselves in legal and administrative actions or in asserting our rights under various laws. If we fail to defend ourselves in these actions, we may be subject to restrictions, freezing of our assets, negative publicity, substantial monetary damages, legal defense costs, injunctive relief, and criminal and civil fines and penalties, including but not limited to suspension or revocation of licenses to conduct business. Even if we are successful in our attempt to defend ourselves in legal and regulatory actions or to assert our rights under various laws and regulations, the process of communicating with relevant regulators, defending ourselves, and enforcing our rights against the various parties involved may be expensive and time-consuming.

Our PRC subsidiary, Autozi Internet Technology Co., Ltd. (“Autozi Internet Tech”), historically entered into financing agreements with different investors who are currently its shareholders. Upon certain conditions, if these investors require Autozi Internet Tech to redeem their shares, our cash flows may be influenced and we may face legal proceedings in China, which would materially and negatively affect our reputation, financial conditions and business operations.

Historically, our PRC subsidiary, Autozi Internet Technology Co., Ltd., had entered into several equity financing agreements with investors (the “Historical Equity Financing Agreements”), in order to raise capital for business development. Some of the Historical Equity Financing Agreements provided that, if Autozi Internet Tech failed to complete a qualified public offering as agreed within a certain period of time, the investors, currently the shareholders of Autozi Internet Tech, should have the right to request Autozi Internet Tech, the then

 

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shareholders of Autozi Internet Tech, and/or Dr. Houqi Zhang, the founder of Autozi Internet Tech to redeem such shares at an agreed price. As of the date of this prospectus, we are actively negotiating with the investors who own such rights. However, there can be no assurance that we could reach an agreement with them, or even if an agreement can be reached, the terms may not be favorable to us. In case if any disputes arise, we may face lawsuits in China. The potential duties of Autozi Internet Tech to redeem shares as well as potential legal proceedings, may materially and negatively affect our reputation, financial conditions and business operations.

Autozi Internet Tech’s shareholder, Shenzhen Jinfeng Chuangfu Holding Group Co., Ltd. (“Shenzhen Jinfeng”), based on its financing agreement with Auto Internet Tech, submitted an arbitration application to Beijing Arbitration Commission in January 2019, requesting our founder, Dr. Houqi Zhang, to redeem all of its equity interest in Autozi Internet Tech with a total payment of approximately RMB50.0 million plus interests. In August 2019, Beijing Arbitration Commission issued an arbitration award and held that Dr. Zhang shall bear the repurchase amount of RMB50.0 million, and related expenses such as unpaid interest and liquidated damages (the “Arbitration Award”). Subsequently, Dr. Zhang entered into a settlement agreement in January 2020 with Shenzhen Jinfeng, and entered into a Supplement Agreement I in March 2020 and a Supplement Agreement II in November 2020, respectively (together the “Settlement Agreements”). Based on the Settlement Agreements, in May 2020, Dr. Zhang pledged 5.0% equity interest in Autozi Internet Tech to Shenzhen Jinfeng and there is still approximately RMB17.0 million outstanding as of the date of this prospectus. Moreover, according to Supplement Agreement II, since the mutually agreed deadline for our initial public offering has already lapsed, Shenzhen Jinfeng would have a right to resume enforcement under the Arbitration Award, including applying for direct enforcement of the pledged equity interest of Dr. Zhang, which may impose a negative impact on our corporate structure and Dr. Zhang’s shareholding percentage in Autozi Internet Tech. From September 2022 to December 2023, Dr. Zhang received five demand letters from Shenzhen Jinfeng (the “Demand Letter”), all of which requested Dr. Zhang to pay back RMB17.0 million and the relevant interests incurred within ten days upon receipt of such Demand Letter. If Dr. Zhang fails to fully pay back Shenzhen Jinfeng on the relevant amounts, Shenzhen Jinfeng reiterated that it may take further actions including but not limited to resuming enforcement under the Arbitration Award, or filing another lawsuit at competent court against Dr. Zhang. In addition, in connection with the financing agreements by and among Dr. Zhang, Auto Internet Tech and its three shareholders, Shenzhen Innovation Investment Group Co. Ltd (the “Shenzhen Innovation”), Jincheng Hongtu Venture Capital Co., Ltd. (the “Jincheng Hongtu”) and Shanxi Hongtu Innovation Venture Capital Co., Ltd. (the “Shanxi Hongtu”), certain arbitration applications were filed by said shareholders with the Beijing Arbitration Commission regarding the redemption of their equity interests in Auto Internet Tech and later in June 2022, relevant parties settled these arbitrations by agreements under which Dr. Zhang shall bear the repurchase amount of approximately RMB81.5 million in total and related expenses such as arbitration fees. As of the date of this prospectus, we are actively negotiating with Shenzhen Jinfeng, Shenzhen Innovation, Jincheng Hongtu and Shanxi Hongtu to wait for Dr. Zhang’s payment of remaining outstanding amounts and cooperate to terminate the equity pledge of Dr. Zhang’s 5.0% equity interest in Autozi Internet Tech. See “Business—Legal Proceedings—Shenzhen Jinfeng Dispute.”

In addition, in June 2023, Hunan Tianhuan Economic Development Co., Ltd. (“Hunan Tianhuan”), one of the shareholders of Autozi Internet Tech, based on the financing agreement with Autozi Internet Tech dated June 22, 2020, requested Autozi Internet Tech and our founder, Dr. Houqi Zhang, to (i) redeem all of its equity interest in Autozi Internet Tech and (ii) pay the accrued penalties of deferred settlement and attorney fee. The Changsha Intermediate People’s Court held two hearings on November 1, 2023 and January 9, 2024, respectively. As of the date of this prospectus, the Changsha Intermediate People’s Court has not entered a judgement and we are actively negotiating with Hunan Tianhuan for a smooth settlement for this dispute. As of September 30, 2023, we have fully accrued the interest of deferred settlement and attorney fee of RMB10.3 million (US$1.4 million) as accrued expenses and other current liabilities. In addition, we reclassified the mezzanine equity to liability on the date of event when the repurchase of Hunan Tianhuan’s equity interest became a confirmative obligation. Such liability included principal amount of RMB79.2 million (US$10.9 million) and accrued interest of RMB29.5 million (US$4.0 million). For details, please see “Note 14 Accrued expenses and other current liabilities” and “Note 16 Mezzanine equity” of our combined and consolidated financial statements included in this prospectus and “Business—Legal Proceedings—Hunan Tianhuan Dispute.”

 

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We may, in the future, be subject to allegations, claims and legal actions arising in the ordinary course of our business, which may include claims by shareholders and claims by third parties. If any of these proceedings is determined adversely against us, or results in judgments, fines or settlements involving a payment of a material sum of money, it could materially and adversely affect our business, financial condition, and results of operations. In addition, negative publicity could adversely affect the reputation and brand of the operating entities. Even the successful defense of these proceedings may cause the operating entities to incur substantial legal costs and may divert management’s attention and resources.

Our insurance coverage may not be adequate, which could expose us to significant costs and business disruptions.

We provide social security insurance including pension insurance, unemployment insurance, work-related injury insurance, maternity insurance and medical insurance for most of our employees. However, as of the date of this prospectus, we had not made sufficient social insurance and housing provident fund contributions for all of our employees in full in accordance with the relevant PRC laws and regulations. For detailed descriptions of associated risks, see “—Increases in labor costs in the PRC and noncompliance with labor laws and regulations may materially and adversely affect our business and our margin profile.” We do not maintain any commercial insurance in relation to our business operations. We consider our insurance coverage to be sufficient for our business operations in China. However, we cannot assure you that our insurance coverage is sufficient to prevent us from any loss or that we will be able to successfully claim our losses under our current insurance policy on a timely basis, or at all. If we incur any loss that is not covered by our insurance policies, or the compensated amount is significantly less than our actual loss, our business, financial condition and results of operations could be materially and adversely affected.

We are subject to anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws, and non-compliance with such laws can subject us to administrative, civil and criminal fines and penalties, collateral consequences, remedial measures and legal expenses, all of which could adversely affect our business, results of operations, financial condition and reputation.

We are subject to anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws and regulations in various jurisdictions in which we conduct activities, including the U.S. Foreign Corrupt Practices Act, or FCPA, and other anti-corruption laws and regulations. The FCPA prohibits us and our officers, directors, employees and business partners acting on our behalf, including agents, from corruptly offering, promising, authorizing or providing anything of value to a “foreign official” for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment. The FCPA also requires companies to make and keep books, records and accounts that accurately reflect transactions and dispositions of assets and to maintain a system of adequate internal accounting controls.

We have direct or indirect interactions with officials and employees of government agencies and state- owned affiliated entities in the ordinary course of business. These interactions subject us to an increased level of compliance-related concerns. We are in the process of implementing policies and procedures designed to ensure compliance by us and our directors, officers, employees, representatives, consultants, agents and business partners with applicable anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws and regulations. However, our policies and procedures may not be sufficient and our directors, officers, employees, representatives, consultants, agents, and business partners could engage in improper conduct for which we may be held responsible.

Non-compliance with anti-corruption, anti-bribery, anti-money laundering or financial and economic sanctions laws could subject us to whistleblower complaints, adverse media coverage, investigations, and severe administrative, civil and criminal sanctions, collateral consequences, remedial measures and legal expenses, all of which could materially and adversely affect our business, results of operations, financial condition and reputation. In addition, changes in economic sanctions laws in the future could adversely impact our business and investments in our shares.

 

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If we are unable to protect our customers’ personal information, we could be exposed to data loss, litigation, and liability, and our reputation could be significantly harmed.

In the ordinary course of our business, we collect certain personal information provided by our customers, which is stored in our own server. Privacy protection is increasingly demanding, and the use of electronic payment methods and collection of certain personal information expose us to increased risk of privacy and/or security breaches as well as other risks. We may experience or be affected by security breaches in which our customers’ personal information is stolen. Also, security and information systems that we use or rely on may be compromised as a result of data corruption or loss, cyberattack or a network security incident or we may fail to comply with applicable laws and regulations. Although private networks are used to transmit confidential information, third parties may have the technology or know-how to breach the security of the customer information transmitted, and the security measures employed may not effectively prohibit others from obtaining improper access to this information. The techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and are often difficult to detect for long periods of time, which may cause a breach to go undetected for an extensive period of time. Advances in computer and software capabilities, new tools, and other developments may increase the risk of such a breach. If a person is able to circumvent our security measures or those of third parties, he or she could destroy or steal valuable information or disrupt our operations. We may become subject to claims for purportedly fraudulent transactions arising out of the unlawful access or exfiltration of personal data, and we may also be subject to lawsuits, administrative fines or other proceedings relating to these types of incidents. Any such claim or proceeding could cause us to incur significant unplanned expenses, which could have an adverse impact on our business, financial condition and results of operations. Further, adverse publicity resulting from such claims or proceedings could significantly harm our reputation which, in turn, may have an adverse effect on our business, financial condition and results of operations. See also “—Risks Relating to Doing Business in China—We are subject to a variety of laws and regulations regarding cybersecurity and data protection, and any failure to comply with applicable laws and regulations, including improper use or appropriation of personal information provided directly or indirectly by our customers or end customers, could have a material adverse effect on our business, financial condition and results of operations.”

Changes in laws and regulations related to the internet and fixed telecommunications or changes in the internet infrastructure and fixed telecommunications networks itself may diminish the demand for our products and services, and could have a negative impact on our business.

The future success of our business depends upon the continued use of the internet as a primary medium for commerce, communication and business solutions. Access to the internet is maintained through state-owned telecommunication operators under the administrative control and regulatory supervision of the MIIT. We rely on this infrastructure to provide data communications primarily through local telecommunication lines and wireless telecommunication networks. In addition, the national networks in China are connected to the internet through international gateways. These international gateways are the only channels through which a domestic customer can connect to the internet and may not sufficiently support the continually growing demand for internet usage. With the expansion of our business, we may be required to upgrade our technology and infrastructure to keep up with the increasing traffic on our platforms. We cannot assure you that the internet infrastructure and the fixed telecommunications networks in China can support the demands associated with the continued growth in internet usage. If we cannot increase our capacity to deliver our online services, we may not be able to accommodate the increases in traffic we anticipate from our expanding customer base and the adoption or acceptance of our offerings may be hindered, which could adversely impact our business and profitability. In the event of disruptions, failures or other problems with internet infrastructure, we or our customers may not have access to alternative networks on a timely basis, if at all. Additionally, we have no control over the costs of the services provided by telecommunication service providers. If the prices we pay for telecommunications and internet services rise significantly, our results of operations may be materially and adversely affected. Furthermore, if internet access fees or other charges to internet customers increase, some customers may be prevented from accessing the mobile internet and thus cause the growth of mobile internet customers to decelerate. Such deceleration may adversely affect our ability to continue expanding our customer base.

 

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Our technology infrastructure may encounter disruptions or other outages caused by problems or defects in our technologies and systems, such as malfunctions in software or network overload. Incidents of serious network overload may cause laggings for some of our customers for a period of several hours each time, and may negatively affect our customer experience. Our growing operations will place increasing pressure on our server and bandwidth capacities as we further expand our customer base and develop more features and functions. We may encounter problems when upgrading our systems or services and there may be undetected programing errors, which could adversely affect the performance of our operating systems and customer experience. Furthermore, our infrastructure is also vulnerable to damages from fires, floods, earthquakes, power loss and telecommunication failures.

Government bodies or agencies in jurisdictions where we have operations have in the past adopted, and may in the future adopt, laws or regulations affecting the use of the internet as a commercial medium. Changes to these laws or regulations could require us to modify our solutions in order to comply with these changes. In addition, government agencies or private organizations may begin to impose taxes, fees or other charges for accessing the internet or commerce conducted via the internet. These laws or charges could limit the growth of internet-related commerce or communications generally, result in reductions in the demand for internet-based services such as ours.

In addition, the use of the internet as a business tool could be adversely affected due to delays in the development or adoption of new standards and protocols to handle increased demands of internet activity, security, reliability, cost, ease of use, accessibility, and quality of service. The performance of the internet and its acceptance as a business tool has been adversely affected by “viruses”, “worms” and other malicious programs and the internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure. Any network interruption or inadequacy that causes interruptions to our platforms, or failure to maintain the network and server or solve such problems in a timely manner, could reduce our customer satisfaction, which in turn, could adversely affect our reputation, customer base and our business, financial condition, results of operations and prospects.

Our business depends on the continued efforts of our senior management, particularly our founder, chairman and chief executive officer Dr. Houqi Zhang. If Dr. Zhang, or one or more other of our key executives and employees, were unable or unwilling to continue in their present positions, our business may be severely disrupted.

Our business operations depend on the continuing services of our senior management, particularly Dr. Zhang, our founder, chairman and chief executive officer, and our other executive officers named in this prospectus. While we have provided different incentives to our management, we cannot assure you that we can continue to retain their services. If one or more of our key executives were unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all, our future growth may be constrained, our business may be severely disrupted and our financial condition and results of operations may be materially and adversely affected, and we may incur additional expenses to recruit, train and retain qualified personnel. In addition, although we have entered into confidentiality and non-competition agreements with our key executives of our subsidiaries in China, there is no assurance that any member of our management team will not join our competitors or form a competing business. Moreover, it is possible that our key employees, upon their departure, will join our competitors or start their own competing businesses, and may solicit certain of our current customers, which may adversely affect our business, financial results and daily operations. If any dispute arises between us and our current or former officers, we may have to incur substantial costs and expenses in order to enforce such agreements in China or we may be unable to enforce them at all.

 

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We will be a “controlled company” within the meaning of the Nasdaq Stock Market Rules and, as a result, may rely on exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.

We will be a “controlled company” as defined under the Nasdaq Stock Market Rules because our founder, Dr. Houqi Zhang, will beneficially own more than 50% of our total voting power immediately after the completion of this offering. Pursuant to our post-offering memorandum and articles of association, an ordinary resolution to be passed at a shareholders’ meeting requires the affirmative vote of a simple majority of the votes attaching to the ordinary shares cast at a meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes cast attaching to the outstanding and issued ordinary shares cast at a meeting. A special resolution will be required for important matters such as making changes to our post-offering memorandum and articles of association. As a result, Dr. Houqi Zhang will have the ability to control or significantly influence the outcome of most (or all, as applicable) matters requiring approval by shareholders. In addition, for so long as we remain a controlled company under that definition, we are permitted to elect to rely on, and may rely on, certain exemptions from corporate governance rules, including an exemption from the rule that a majority of our board of directors must be independent directors and the requirements regarding compensation and nominating committees. We do not currently plan to utilize the exemptions available for controlled companies after we complete this offering, but instead, we plan to rely on the exemption available for foreign private issuers to follow our home country governance practices. If we cease to be a foreign private issuer or if we cannot rely on the home country governance practice exemptions for any reason, we may decide to invoke the exemptions available for a controlled company as long as we remain a controlled company. As a result, you will not have the same protection afforded to shareholders of companies that are subject to these corporate governance requirements.

We have no experience operating as a public company.

We have no experience conducting our operations as a public company. After we become a public company, we may face enhanced administrative and compliance requirements, which may result in substantial costs. The majority of our directors and executive officers have no experience in operating a U.S. public company, which makes our ability to comply with applicable laws, rules and regulations uncertain. Our failure to comply with all laws, rules and regulations applicable to U.S. public companies could subject us or our management to regulatory scrutiny or sanction, which could harm our reputation and share price.

We will be subject to changing laws, rules and regulations in the U.S. regarding regulatory matters, corporate governance and public disclosure that will increase both our costs and the risks associated with non-compliance.

Following this offering, we will be subject to rules and regulations by various governing bodies and self- regulatory organizations, including, for example, the SEC and The Nasdaq Stock Market, which are charged with the protection of investors and the oversight of companies whose securities are publicly traded, and to new and evolving regulatory measures under applicable law. Our efforts to comply with new and changing laws and regulations have resulted in and are likely to continue to result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.

Moreover, because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices. If we fail to address and comply with these regulations and any subsequent changes, we may be subject to penalty and our business may be harmed.

 

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If we fail to implement and maintain an effective system of internal controls, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud, and investor confidence and the market price of our shares may be materially and adversely affected.

We are subject to the reporting requirements of the Exchange Act of 1934, or Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of the Nasdaq Stock Market. Our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting, as we are not required to provide a report of management’s assessment on our internal control over financial reporting due to a transition period established by the rules of the SEC for newly public companies. However, in the course of auditing our combined financial statements for the financial statements included elsewhere in this prospectus, we and our independent registered public accounting firm identified three material weaknesses in our internal control over financial reporting as of September 30, 2023. As defined in standards established by the PCAOB, a “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness identified relates to (i) lack of accounting staff and resources with appropriate knowledge of U.S. GAAP and SEC reporting and compliance requirements, including but not limited to, the procedures over identifying related party transactions and the disclosure controls; (ii) lack of independent directors and an audit committee; and (iii) lack of internal file management procedures.

In response to the material weaknesses identified prior to this offering, we are in the process of implementing a number of measures to address the material weakness identified, including but not limited to, (i) hiring more qualified accounting personnel, engaging financial advisor with relevant U.S. GAAP and SEC reporting experience and qualifications to strengthen the financial reporting function and setting up a financial and system control framework; (ii) hiring independent directors, establishing an audit committee and strengthening corporate governance; and (iii) establishing internal document management policies and continuing our efforts to implement necessary review and controls at relevant levels on all important documents.

However, we cannot assure you that we will not identify additional material weaknesses or significant deficiencies in the future. In addition, if we are unable to meet the requirements of Section 404 of the Sarbanes- Oxley Act, our Class A ordinary shares may not be able to remain listed on the Nasdaq Global Market.

Section 404 of the Sarbanes-Oxley Act of 2002 requires that we include a report of management on our internal control over financial reporting in our annual report on Form 20-F beginning with our annual report beginning with our second annual report on Form 20-F after becoming a public company. In addition, once we cease to be an “emerging growth company” as such term is defined under the JOBS Act, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, as we are a public company, our reporting obligations may place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation.

During the course of documenting and testing our internal control procedures, in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, we may identify other weaknesses and deficiencies in our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting. If we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause

 

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investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations and lead to a decline in the trading price of our shares. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements from prior periods.

Our results of operations may be adversely impacted in the event of a sustained period of increased inflation.

The global economy has experienced rising inflation since 2021, which may persist in 2023. In particular, China’s overall economy and the average wage have increased in recent years and are expected to continue to grow. If inflation continues to increase or stays above levels seen in recent years, we could face further increases in labor costs and supply costs, which could adversely affect our business and results of operations if we are not able to pass on the increased costs to our customers, or successfully implement other mitigating actions.

Although inflation has not had a material impact on our results of operations, we can provide no assurance that we will not be affected in the future by higher rates of inflation in mainland China. Sustained or rising inflation may result in increased supply costs and labor costs. As a result, our results of operations may be adversely impacted.

RISKS RELATING TO DOING BUSINESS IN CHINA

Change in China’s economic, political or social conditions, laws, regulations or governmental policies could have a material adverse effect on our business, financial conditions and results of operations.

We conduct all of our operations in China and all of our revenues are sourced from China. Accordingly, our results of operations, financial condition and prospects are influenced by economic, political and legal developments in China. Economic reforms began in the late 1970s have resulted in significant economic growth. However, any economic reform policies or measures in China may from time to time be modified or revised. The economy of China differs from the economies of most developed counties in many respects, including with respect to the amount of government involvement, level of development, growth rate control of foreign exchange, and allocation of resources. Although the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. The Chinese government exercises significant control over China’s economic growth through allocation resources and providing preferential treatment to particular industries or companies. The Chinese government also has significant authority to exert influence on the ability of a China-based company, such as us, to conduct its business.

While the PRC economy has experienced significant growth in the past 30 years, growth has been uneven across different regions and among different economic sectors. The Chinese government has implemented measures to encourage economic growth and guide the allocation of the resources. Some of these measures may benefit the overall Chinese economy but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations.

Although the PRC economy has grown significantly in the past decade, that growth may not continue, as evidenced by the slowing of the growth of the PRC economy since 2012. Any adverse changes in economic conditions in China, in the policies of the Chinese government or in the laws and regulations in China could have

 

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a material adverse effect on a specific industry including our operating companies in China. Such developments could adversely affect our business and operating results, lead to reduction in demand for our services and adversely affect our competitive position.

The current tension in international trade, particularly with regard to U.S. and China trade policies, may adversely impact our business, financial condition, and results of operations.

Although cross-border business may not be an area of our focus, if we plan to expand our business internationally in the future, any unfavorable government policies on international trade, such as capital controls or tariffs, may affect the demand for our services, impact our competitive position, or prevent us from being able to conduct business in certain countries. If any new tariffs, legislation, or regulations are implemented, or if existing trade agreements are renegotiated, such changes could adversely affect our business, financial condition, and results of operations. Recently, there have been heightened tensions in international economic relations, such as the one between the United States and China, but also as a result of the war in Ukraine and sanctions on Russia. The U.S. government has recently imposed, and has recently proposed to impose additional, new, or higher tariffs on certain products imported from China to penalize China for what it characterizes as unfair trade practices. China has responded by imposing, and proposing to impose additional, new, or higher tariffs on certain products imported from the United States. Following mutual retaliatory actions for months, on January 15, 2020, the United States and China entered into the Economic and Trade Agreement Between the United States of America and the People’s Republic of China as a phase one trade deal, effective on February 14, 2020.

Although the direct impact of the current international trade tension, and any escalation of such tension, on the industries in which we operate is uncertain, the negative impact on general, economic, political and social conditions may have the effect of restricting our ability to transact or otherwise do business with entities within or outside of China and may cause investors to lose confidence in Chinese companies and counterparties, including us. If we were unable to conduct our business as it is currently conducted as a result of such regulatory changes, our business, financial condition and results of operations.

Uncertainties with respect to the PRC legal system, including uncertainties regarding the interpretation and enforcement of laws, and sudden or unexpected changes of PRC laws and regulations with little advance notice could adversely affect us and limit the legal protections available to you and us, and the Chinese government may exert more oversight and control over offerings that are conducted overseas, which changes could materially hinder our ability to offer or continue to offer our securities, and cause the value of our securities to significantly decline or become worthless.

Our operating subsidiaries are incorporated under and governed by the laws of 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 Chinese government began to promulgate a comprehensive system of laws and regulations governing economic matters in general, such as foreign investment, corporate organization and governance, commerce, taxation and trade. As a significant part of our business is conducted in China, our operations are principally governed by PRC laws and regulations. However, since the PRC legal system continues to evolve rapidly, rules and regulations in China can change quickly with little advance notice. The interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws and regulations involve uncertainties, which may limit legal protections available to us. Uncertainties due to evolving laws and regulations could also impede the ability of a China-based company like us, to obtain or maintain permits or licenses required to conduct business in China. In the absence of required permits or licenses, governmental authorities could impose material sanctions or penalties on us. In addition, some regulatory requirements issued by certain Chinese government authorities may not be consistently applied by other Chinese government authorities (including local government authorities), thus making strict compliance with all regulatory requirements impractical, or in some circumstances impossible. For example, we may have to resort to

 

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administrative and court proceedings to enforce the legal protection that we enjoy either by law or contract. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate or predict the outcome of administrative and court proceedings and the level of legal protection available to you and us than in more developed legal systems.

In addition, the PRC legal system is a law system based on written statutes. Unlike the common law system, prior court decisions in the PRC may be cited for reference but have limited precedential value.

Furthermore, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all, and which may have a retroactive effect. As a result, we may not be aware of our violation of any of these policies and rules until sometime after the violation. Such uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual property) and procedural rights, and any failure to respond to changes in the regulatory environment in China could materially and adversely affect our business and impede our ability to continue our operations.

On February 17, 2023, the CSRC promulgated the Trial Measures and five supporting guidelines, which became effective on March 31, 2023. According to the Trial Measures, among other requirements, any domestic companies that seek to offer or list securities overseas, including those indirect overseas offering and listing which meet certain conditions, should fulfil the filing procedures with the CSRC within three business days after the submission of the overseas offering and listing application. On the same day, the CSRC also held a press conference for the release of the Trial Measures and issued the Notice on Administration for the Filing of Overseas Offering and Listing by Domestic Companies, which clarifies that on or prior to the effective date of the Trial Measures, domestic companies that have already submitted valid applications for overseas offering and listing but have not obtained approval from overseas regulatory authorities or stock exchanges may reasonably arrange the timing for submitting their filing applications with the CSRC, and must complete the filing before the completion of their overseas offering and listing. However, since the Trial Measures were newly promulgated, the interpretation, application and enforcement of Trial Measures remain unclear. However, as the Trial Measures were newly published, there are substantial uncertainties as to the implementation and interpretation, and how they will affect any future financing or other capital raising activities. If the filing procedure with the CSRC under the Trial Measures is required for any future offerings or any other capital raising activities, it is uncertain whether it would be possible for us to complete the filing, or how long it will take us to do so. Any failure by us to comply with such filing requirements under the Trial Measures may result in an order to rectify, warnings and fines against us and could materially hinder our ability to offer or to continue to offer our securities. Any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas could materially and adversely hinder our ability to offer or continue to offer our securities, and cause the value of our securities to significantly decline or become worthless.

The Chinese government has substantial oversight and influence over the manner in which we must conduct our business and may intervene or influence our operations at any time, which actions could impact our operations materially and adversely, and 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 be worthless.

The Chinese government has significant oversight and discretion over the conduct of our business and may intervene or influence our operations at any time as the government deems appropriate to further regulatory, political and societal goals. For instance, the Chinese government has recently published new policies that significantly affected certain industries such as the education and internet industries. The Chinese government has exercised, and continues to exercise, substantial control over virtually every sector of the Chinese economy through regulation and state ownership, which could materially and adversely impact the results of our operations and future prospects.

Our ability to operate in the PRC may be further harmed by changes in its laws and regulations. The central or local governments of the PRC may impose new, stricter regulations or interpretations of existing regulations

 

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that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in the PRC or particular regions thereof. We cannot rule out the possibility that it will in the future release regulations or policies regarding our industry that could adversely affect our business, financial condition, results of operations and the value of our Class A ordinary shares.

Our business is also subject to various government and regulatory interference. We could be subject to regulation by various political and regulatory entities, including various local and municipal agencies and government sub-divisions. The Company may incur increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply. Our operations could be adversely affected, directly or indirectly, by existing or future laws and regulations relating to our business or industry, which could result in further material changes in our operations and adversely impact the value of our securities.

The recent joint statement by the SEC and PCAOB, proposed rule changes submitted by Nasdaq, and the HFCA Act all call for additional and more stringent criteria to be applied to emerging market companies, including companies based in China, upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB.

On April 21, 2020, SEC Chairman Jay Clayton and PCAOB Chairman William D. Duhnke III, along with other senior SEC staff, released a joint statement highlighting the risks associated with investing in companies based in or have substantial operations in emerging markets including China. The joint statement emphasized the risks associated with lack of access for the PCAOB to inspect auditors and audit work papers in China and higher risks of fraud in emerging markets.

On May 18, 2020, Nasdaq filed three proposals with the SEC to (i) apply minimum offering size requirement for companies primarily operating in “Restrictive Market”, (ii) adopt a new requirement relating to the qualification of management or board of director for Restrictive Market companies, and (iii) apply additional and more stringent criteria to an applicant or listed company based on the qualifications of the company’s auditors.

On May 20, 2020, the U.S. Senate passed the HFCA Act requiring a foreign company to certify it is not owned or controlled by a foreign government if the PCAOB is unable to audit specified reports because the company uses a foreign auditor not subject to PCAOB inspection. On December 2, 2020, the U.S. House of Representatives approved the HFCA Act. On December 18, 2020, the HFCA Act was signed into law. On March 28, 2021, the SEC issued interim measures implementing the HFCA Act which became effective on May 5, 2021. On December 2, 2021, the SEC adopted final amendments implementing congressionally mandated submission and disclosure requirements of the HFCA Act, which went into effect on January 10, 2022. On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, or the Accelerating HFCA Act. The bill, if enacted, would shorten the three-consecutive-year compliance period under the HFCA Act to two consecutive years. On December 29, 2022, the Accelerating HFCA Act was signed into law, which amended the HFCA Act by requiring the SEC to prohibit an issuer’ securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three. Our auditor, Marcum Asia CPAs LLP, which is based in New York, is currently subject to inspection by the PCAOB on a regular basis. As a result, the time period before our Class A ordinary shares may be prohibited from trading or delisted was reduced.

The lack of access to the PCAOB inspection in China prevents the PCAOB from fully evaluating audits and quality control procedures of the auditors based in China. As a result, the investors may be deprived of the benefits of such PCAOB inspections. On August 26, 2022, the PCAOB signed a Statement of Protocol with the CSRC and the PRC Ministry of Finance, which was only the first step toward opening access for the PCAOB to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong

 

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completely, consistent with U.S. Law. On December 15, 2022, the PCAOB determined that it was able to secure complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and vacated its previous determinations to the contrary. On February 24, 2023, the CSRC, the Ministry of Finance, the State Secrecy Administration, and the State Archives Bureau jointly issued the Provisions on Strengthening Confidentiality and Archives Administration in Respect of Overseas Issuance and Listing of Securities by Domestic Enterprises, or the Provisions, which aim to standardize confidentiality and archives administration in respect of direct or indirect overseas issuance of securities by domestic enterprises of the PRC and came into effect on March 31, 2023. The Provisions provide the following requirements: (a) working papers formed within the territory of China by the securities firms and securities service agencies that provide corresponding services for the overseas issuance and listing of domestic enterprises shall be stored within the territory of China. Those that need to transmit working papers outbound shall go through examination and approval formalities in accordance with the relevant provisions of the State, and (b) the relevant domestic enterprise, securities firms and securities service agencies shall obtain the consent of the CSRC or the relevant administrative authorities prior to cooperating in the inspection or investigation carried out by the overseas securities regulator or relevant administrative authorities or providing documents and materials for cooperating in the inspection or investigation. The Provisions further provide that, where the overseas securities regulator and the relevant competent authorities request to conduct inspection or investigation to collect evidence from a domestic enterprise and the domestic securities firms and securities service agencies providing corresponding services regarding the overseas offering and listing activities of the domestic enterprise, the inspection or investigation shall be carried out under the cross-border regulatory cooperation mechanism, and the CSRC or the relevant authorities shall provide the requisite assistance pursuant to the bilateral and multilateral cooperation mechanism. Given that the Statement of Protocol and the Provisions have just been issued and that official guidance and related implementation rules of the Provisions have not been issued and the Provisions may be subject to further clarifications during subsequent implementation, should PRC authorities obstruct or otherwise fail to facilitate the PCAOB’s access in the future, the PCAOB may consider the need to issue a new determination. However, should PRC authorities obstruct or otherwise fail to facilitate the PCAOB’s access in the future, the PCAOB may consider the need to issue a new determination.

Our auditor, Marcum Asia CPAs LLP, the independent registered public accounting firm that issues the audit report included elsewhere in this report, as an auditor of companies that are traded publicly in the U.S. and a firm registered with the PCAOB, is subject to laws in the U.S. pursuant to which the PCAOB conducts regular inspections to assess our auditor’s compliance with the applicable professional standards. Our auditor is headquartered in Manhattan, New York, and has been inspected by the PCAOB on a regular basis. Therefore, it is not subject to the determinations announced by the PCAOB on December 16, 2021, as it is not on the list published by the PCAOB. However, in the event the PRC authorities would further strengthen regulations over auditing work of Chinese companies listed on the U.S. stock exchanges, which would prohibit our current auditor to perform work in China, then we would need to change our auditor and the audit workpapers prepared by our new auditor may not be inspected by the PCAOB without the approval of the PRC authorities, in which case the PCAOB may not be able to fully evaluate the audit or the auditors’ quality control procedures. Furthermore, due to the recent developments in connection with the implementation of the HFCA Act, we cannot assure you whether the SEC, Nasdaq or other regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as it relates to the audit of our financial statements. The requirement in the Accelerating HFCA Act that the PCAOB be permitted to inspect the issuer’s public accounting firm within two consecutive years, may result in our delisting in the future if the PCAOB is unable to inspect our accounting firm at such future time.

As of April 12, 2022, 23 China-based companies have been identified by SEC and were given 15 business days to submit opinion. The identification occurred after these companies have filed their annual reports to the SEC and subsequently, share prices of them plunged. As such, it is possible that we will be identified by SEC and the value of our Class A ordinary shares may be materially adversely affected.

 

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The approval, filing, or other procedures of the CSRC or other Chinese government authorities may be required in connection with our future offshore offerings under PRC law, and, if required, we cannot predict whether or for how long we will be able to obtain such approval or complete such filing.

Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies on September 8, 2006 and amended on June 22, 2009, require that offshore special purpose vehicles that are controlled by PRC companies or individuals and that have been formed for overseas listing purposes through acquisitions of PRC domestic interest held by such PRC companies or individuals, to obtain the approval of CSRC prior to publicly listing their securities on an overseas stock exchange. Under the current PRC laws and regulations, and as advised by our PRC counsel, Han Kun Law Offices, based on its understanding of the current PRC laws and regulations, as the CSRC currently has not issued any definitive rule or interpretation concerning whether offerings such as this offering contemplated by us are subject to the M&A Rules, we do not expect that this offering will trigger MOFCOM pre-notification under the above-mentioned circumstances or any review by other PRC government authorities under the M&A Rules. However, the interpretation and application of the regulations remain unclear. If the CSRC approval under the M&A Rules is required, it is uncertain whether we can or how long it will take us to obtain the approval and, even if we obtain such CSRC approval in due course, the approval could be rescinded. Any failure to obtain or delay in obtaining the CSRC approval for any of our offshore offerings, or a rescission of such approval if obtained, would subject us to sanctions imposed by the CSRC or other PRC regulatory authorities, which could include fines and penalties on our operations in China, restrictions or limitations on our ability to pay dividends outside of China, and other forms of sanctions that may materially and adversely affect our business, financial condition, and results of operations.

On July 6, 2021, the relevant Chinese government authorities issued Opinions on Strictly Cracking Down Illegal Securities Activities in Accordance with the Law. These opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies and proposed to take effective measures, such as promoting the construction of relevant regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies.

On February 17, 2023, the CSRC promulgated the Trial Measures and five supporting guidelines, which became effective on March 31, 2023. According to the Trial Measures, among other requirements, (1) domestic companies that seek to offer or list securities overseas, both directly and indirectly, should fulfil the filing procedures with the CSRC; if a domestic company fails to complete the filing procedure, such domestic company may be subject to administrative penalties; (2) if the issuer meets both of the following conditions, the overseas offering and listing shall be determined as an indirect overseas offering and listing by a domestic company: (i) any of the total assets, net assets, revenues or profits of the domestic operating entities of the issuer in the most recent accounting year accounts for more than 50% of the corresponding figure in the issuer’s audited combined financial statements for the same period; (ii) its major operational activities are carried out in China or its main places of business are located in China, or the senior managers in charge of operation and management of the issuer are mostly Chinese citizens or are domiciled in China; and (3) where a domestic company seeks to indirectly offer and list securities in an overseas market, the issuer shall designate a major domestic operating entity responsible for all filing procedures with the CSRC, such filings shall be submitted to the CSRC within three business days after the submission of the overseas offering and listing application, and subsequent securities offerings of a domestic company in the same overseas market where it has previously offered and listed securities shall be filed with the CSRC within three business days after the offering is completed.

On the same day, the CSRC also held a press conference for the release of the Trial Measures and issued the Notice on Administration for the Filing of Overseas Offering and Listing by Domestic Companies, which clarifies that (1) on or prior to the effective date of the Trial Measures, domestic companies that have already submitted valid applications for overseas offering and listing but have not obtained approval from overseas regulatory authorities or stock exchanges may reasonably arrange the timing for submitting their filing applications with the CSRC, and must complete the filing before the completion of their overseas offering and listing; and (2) a six-

 

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month transition period will be granted to domestic companies which, prior to the effective date of the Trial Measures, have already obtained the approval from overseas regulatory authorities or stock exchanges, but have not completed the indirect overseas listing; if domestic companies fail to complete the overseas listing within such six-month transition period, they shall file with the CSRC according to the requirements. As advised by our PRC legal counsel, Han Kun Law Offices, we will be required to file with the CSRC in accordance with the Trial Measures with respect to the offering and must complete the filing before the completion of our overseas offering and listing. We have completed the filing with the CSRC in connection with this offering and our listing on the Nasdaq Global Market, and the CSRC published the notification of its approval of our completion of the required filing procedures on January 2, 2024. In accordance with the CSRC notification, we are required to report the offering and listing status to the CSRC within 15 business days from our completion of our offering. If we fail to complete this offering within 12 months from the issuance date of notification, and the offering is still under progress, we are required to update the filing materials with the CSRC. If the filing procedure with the CSRC under the Trial Measures is required for any future offerings or any other capital raising activities, we cannot assure you that we will be able to complete such filings in a timely manner, or even at all. Any failure by us to comply with such filing requirements under the Trial Measures may result in an order to rectify, warnings and fines against us and could materially hinder our ability to offer or to continue to offer our securities.

On February 24, 2023, the CSRC, Ministry of Finance of the PRC, National Administration of State Secrets Protection and National Archives Administration of China promulgated the Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies, or the Archives Rules, which took effect on March 31, 2023. Pursuant to the Archives Rules, domestic companies that seek for overseas offering and listing shall strictly abide by applicable laws and regulations of the PRC and the Archives Rules, enhance legal awareness of keeping state secrets and strengthening archives administration, institute a sound confidentiality and archives administration system, and take necessary measures to fulfill confidentiality and archives administration obligations. Such domestic companies shall not leak any state secret and working secret of government agencies, or harm national security and public interest. Furthermore, a domestic company that plans to, either directly or through its overseas listed entity, publicly disclose or provide to relevant individuals or entities including securities companies, securities service providers and overseas regulators, any document and materials that contain state secrets or working secrets of government agencies, shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level. Moreover, a domestic company that plans to, either directly or through its overseas listed entity, publicly disclose or provide to relevant individuals and entities including securities companies, securities service providers and overseas regulators, any other documents and materials that, if leaked, will be detrimental to national security or public interest, shall strictly fulfill relevant procedures stipulated by applicable national regulations. The Archives Rules also stipulate that a domestic company that provides accounting archives or copies of accounting archives to any entities including securities companies, securities service providers and overseas regulators and individuals shall fulfill due procedures in compliance with applicable national regulations. As we do not plan to leak any state secret and working secret of government agencies, or harm national security or public interest in connection with provision of documents, materials and accounting archives, we believe we may not be required to obtain relevant approval or file with the secrecy administrative department in accordance with the Archives Rules with respect to the offering. However, as the Archives Rules was newly published, there are substantial uncertainties as to the implementation and interpretation, and if we are required to perform additional procedures in connection with the provision of accounting archives or other documents, we cannot assure you that we will be able to fulfill such procedures in a timely manner, or even at all. Any failure by us to comply with the Archives Rules may materially adversely affect our ability to offer securities to investors.

On December 27, 2021, the NDRC and the Ministry of Commerce jointly issued the Special Administrative Measures (Negative List) for Foreign Investment Access (2021 Version), or the 2021 Negative List, which became effective on January 1, 2022. Pursuant to the Special Administrative Measures, if a PRC company engaging in the prohibited business stipulated in the 2021 Negative List seeks an overseas offering and listing, it

 

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shall obtain the approval from the competent governmental authorities. Besides, the foreign investors of the issuer shall not be involved in the company’s operation and management, and their shareholding percentages shall be subject, mutatis mutandis, to the relevant regulations on the domestic securities investments by foreign investors. As advised by our PRC counsel, Han Kun Law Offices, to their best knowledge of our operations, we are not involved in the prohibited business as stipulated in the 2021 Negative List. However, we cannot assure you how the scope of prohibited business will be interpreted or implemented in the context of an overseas offering, which is subject to the NDRC and the Ministry of Commerce’s new rules and regulations or detailed implementations and interpretations. As there remain substantial uncertainties as to the interpretation and implementation of these requirements, and it is unclear as to whether and to what extent we will be subject to these requirements. As of the date of the prospectus, we have not received any formal inquiry, notice, warning, sanction, or any regulatory objection with respect to this offering. If we are required to comply with these requirements and fail to do so on a timely basis, if at all, our business operation, financial conditions and business prospect may be adversely and materially affected.

In addition, we cannot assure you that any new rules or regulations promulgated in the future will not impose additional requirements on us. Any failure to obtain or delay in obtaining such approval or completing such filing procedures for our offshore offerings, or a rescission of any such approval or filing if obtained by us, would subject us to sanctions by the PRC regulatory authorities for failure to seek approval or filing or other government authorization for our offshore offerings. These regulatory authorities may impose fines and penalties on our operations in China, limit our ability to pay dividends outside of China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds from our offshore offerings into China or take other actions that could materially and adversely affect our business, financial condition, results of operations, and prospects, as well as the trading price of our listed securities. The PRC regulatory authorities also may take actions requiring us, or making it advisable for us, to halt our offshore offerings before settlement and delivery of the shares offered. Consequently, if investors engage in market trading or other activities in anticipation of and prior to settlement and delivery, they do so at the risk that settlement and delivery may not occur. Any uncertainties or negative publicity regarding such requirement could materially and adversely affect our business, prospects, financial condition, reputation, and the trading price of our listed securities.

We may be adversely affected by the complexity, uncertainties and changes in PRC regulations governing automotive services and internet-related services in the PRC.

Our business is subject to a variety of laws and regulations in the PRC governing the automotive service and internet-related services. The application and interpretation as to certain of these laws and regulations involve uncertainties, and may be interpreted and administered inconsistently among different governmental authorities and local bureaus. As of the date of this prospectus, we have not been subject to any material fines or other penalties due to any material violations of applicable PRC laws or regulations. However, if the Chinese government tightens regulatory framework for the automotive service and internet service in the future, and subject industry participants such as our Company to new or specific requirements, such as licensing requirements, our business, financial condition and prospects would be materially and adversely affected.

The Chinese government extensively regulates the internet industry, including foreign ownership of, and the licensing and permit requirements pertaining to, companies operating in the internet industry. Moreover, the evolving PRC regulatory system for the internet industry may lead to the establishment of new regulatory agencies. For example, in May 2011, the State Council announced the establishment of the State Internet Information Office (with the involvement of the State Council Information Office, MIIT, and the Ministry of Public Security). The primary role of the State Internet Information Office is to facilitate the policy-making and legislative development in this field, to direct and coordinate with the relevant departments in connection with online content administration and to deal with cross-ministry regulatory matters in relation to the internet industry. These internet-related laws and regulations are relatively new and evolving, and their interpretation and enforcement involve significant uncertainties. As a result, in certain circumstances, it may be difficult to determine what actions or omissions may be deemed to be in violation of applicable laws and regulations.

 

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The interpretation and application of existing PRC laws, regulations and policies and possible new laws, regulations or policies relating to the internet industry have created substantial uncertainties regarding the legality of existing and future foreign investments in, and the businesses and activities of, internet businesses in China, including our business. We cannot assure you that we have obtained all the permits or licenses required for conducting our business in China or will be able to maintain our existing licenses or obtain new ones.

We are subject to a variety of laws and regulations regarding cybersecurity and data protection, and any failure to comply with applicable laws and regulations, including improper use or appropriation of personal information provided directly or indirectly by our customers or end customers, could have a material adverse effect on our business, financial condition and results of operations.

We may become subject to a variety of laws and regulations in the PRC regarding privacy, data security, cybersecurity, and data protection with emphasis of personal information and privacy protection. These laws and regulations are continuously evolving and developing. The scope and interpretation of the laws that are or may be applicable to us are often uncertain and may be conflicting, particularly with respect to foreign laws. In particular, there are numerous laws and regulations regarding privacy and the collection, sharing, use, processing, disclosure, and protection of personal information and other customer data. Such laws and regulations often vary in scope, may be subject to differing interpretations, and may be inconsistent among different jurisdictions.

The integrity and protection of our customers, employees and company data is critical to our business. Our customers and employees expect that we will adequately protect their personal information. We are required by applicable laws to keep this personal information strictly confidential and to take adequate security measures to safeguard such information.

PRC regulators, including the CAC, the MIIT, and the Ministry of Public Security, have been increasingly focused on regulation in areas of data security and data protection. The PRC regulatory requirements regarding cybersecurity are constantly evolving. For instance, various PRC regulatory bodies, including the CAC, the Ministry of Public Security and the State Administration for Market Regulation, or the SAMR, have enforced data privacy and protection laws and regulations with varying and evolving standards and interpretations. In addition, certain internet platforms in mainland China have reportedly been subject to heightened regulatory scrutiny in relation to cybersecurity matters.

On December 28, 2021, the Chinese government promulgated amended Cybersecurity Review Measures (the “2022 Cybersecurity Review Measures”), which came into effect on February 15, 2022. According to the 2022 Cybersecurity Review Measures, (i) critical information infrastructure operators that purchase network products and services and internet platform operators that conduct data processing activities shall be subject to cybersecurity review in accordance with the 2022 Cybersecurity Review Measures if such activities affect or may affect national security; and (ii) internet platform operators holding personal information of more than one million customers and seeking to have their securities list on a stock exchange in a foreign country shall file for cybersecurity review with the Cybersecurity Review Office. As of the date of this prospectus, neither we nor any of our PRC subsidiaries has been informed by any Chinese governmental authority that we or any of our PRC subsidiaries is a “critical information infrastructure operator.” We believe that neither we nor any of our PRC subsidiaries qualifies as a critical information infrastructure operator. As of the date of this prospectus, as an internet platform operator, we have not conducted any data processing activities that affected or may affect national security, nor do we hold personal information of more than one million customers.

On November 14, 2021, the CAC released the draft Administrative Regulation on Network Data Security for public comments through December 13, 2021 (the “Draft Regulation on Network Data Security”). Under the Draft Regulation on Network Data Security, (i) data processors, i.e., individuals and organizations who can decide on the purpose and method of their data processing activities at their own discretion, that process personal information of more than one million individuals shall apply for cybersecurity review before listing in a foreign country; (ii) foreign-listed data processors shall carry out annual data security evaluation and submit the

 

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evaluation report to the municipal cyberspace administration authority; and (iii) where the data processor undergoes merger, reorganization and subdivision that involves important data and personal information of more than one million individuals, the recipient of the data shall report the transaction to the in-charge authority at the municipal level.

As of the date of this prospectus, neither we nor any of our PRC subsidiaries has been required by any Chinese governmental authority to apply for cybersecurity review, nor have we or any of our PRC subsidiaries received any inquiry, notice, warning, sanction in such respect or been denied permission from any PRC regulatory authority to list on U.S. exchanges. As of the date of this prospectus, based on the facts that (i) we possess personal information of less than 1 million users in the PRC, and do not qualify as a critical information infrastructure operator or possess any core data or important data of the PRC or any information, which affects or may affect national security of the PRC; and (ii) we have not been informed by any governmental authority of mainland China of any requirement to file for a cybersecurity review, we believe that, as advised by our PRC legal counsel, Han Kun Law Offices, neither us nor any of our PRC subsidiaries is subject to the cybersecurity review with respect to the offering of our securities or the business operations of our PRC subsidiaries by the CAC under the 2022 Cybersecurity Review Measures. However, our PRC legal counsel has further advised us that there are substantial uncertainties as to how the 2022 Cybersecurity Review Measures will be interpreted or implemented, and its opinions summarized above are subject to any new laws, rules and regulations or detailed implementations and interpretations in any form relating to the 2022 Cybersecurity Review Measures and the Draft Regulation on Network Data Security, and our PRC legal counsel cannot exclude the possibility that the Chinese governmental authorities might, from time to time, further clarify or interpret 2022 Cybersecurity Review Measures in writing or orally and require the cybersecurity review for the offering. As Chinese governmental authorities have significant discretion in interpreting and implementing statutory provisions and there remains significant uncertainty in the interpretation and enforcement of relevant PRC cybersecurity laws and regulations, we cannot assure you that relevant Chinese governmental authorities would reach the same conclusion as our PRC legal counsel does. Thus, to obtain clear instructions from the governmental authority, we are actively communicating with CAC to confirm the conclusion that we are not required to apply for the cybersecurity review. We cannot assure you that we or any of our PRC subsidiaries will not be deemed to be subject to PRC cybersecurity review requirements under the 2022 Cybersecurity Review Measures or the Draft Regulation on Network Data Security (if enacted) as a critical information infrastructure operator or an internet platform operator that is engaged in data processing activities that affect or may affect national security or holds personal information of more than one million customers, nor can we assure you that we or our PRC subsidiaries would be able to pass such review. Furthermore, if we or any of our PRC subsidiaries fails to receive any requisite permission or approval from the CAC for the business operations of our PRC subsidiaries, or the waiver for such permission or approval, in a timely manner, or at all, or inadvertently concludes that such permission or approval is not required, or if applicable laws, regulations or interpretations change and obligate us to obtain such permission or approvals in the future, we or our PRC subsidiaries may be subject to fines, suspension of business, website closure, revocation of business licenses or other penalties, as well as reputational damage or legal proceedings or actions against us, which may have a material adverse effect on our business, financial condition or results of operations. In addition, we could become subject to enhanced cybersecurity review or investigations launched by PRC regulators in the future pursuant to new laws, regulations or policies. Any failure or delay in the completion of the cybersecurity review procedures or any other non-compliance with applicable laws and regulations may result in fines, suspension of business, website closure, revocation of business licenses or other penalties, as well as reputational damage or legal proceedings or actions against us, which may have a material adverse effect on our business, financial condition or results of operations.

On June 10, 2021, the Standing Committee of the National People’s Congress of the PRC, promulgated the PRC Data Security Law, which became effective in September 2021. The PRC Data Security Law imposes data security and privacy obligations on entities and individuals carrying out data activities, and introduces a data classification and hierarchical protection system based on the importance of data in economic and social development and the degree of harm it will cause to national security, public interests or the rights and interests of individuals or organizations when such data is tampered with, destroyed, leaked or illegally acquired or used.

 

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The PRC Data Security Law also provides for a national security review procedure for data activities that may affect national security and imposes export restrictions on certain data and information. On August 20, 2021, the Standing Committee of the National People’s Congress promulgated the Personal Information Protection Law, effective November 1, 2021. The Personal Information Protection Law clarifies the definition of personal information, which excludes information that has been anonymized, and the required procedures for personal information processing, the obligations of personal information processors, and individuals’ personal information rights and interests. The Personal Information Protection Law provides that, among other things, (i) the processing of personal information is only permissible under certain circumstances, such as prior consent from the subject individual, fulfillment of contractual and legal obligations, furtherance of public interests or other circumstances prescribed by laws and regulations; (ii) the collection of personal information should be conducted in a disciplined manner with as little impact on individuals’ rights and interests as possible; and (iii) excessive collection of personal information is prohibited. In particular, the Personal Information Protection Law provides that personal information processors should ensure the transparency and fairness of automated decision-making based on personal information, refrain from offering unreasonably differentiated transaction terms to different individuals and, when sending commercial promotions or information updates to individuals selected through automated decision-making, simultaneously offer such individuals an option not based on such individuals’ specific characteristics or a more convenient way for such individuals to turn off such promotions.

On July 7, 2022, the CAC promulgated the Measures for the Security Assessment of Outbound Data Transfer, or the Data Transfer Measures, which became effective on September 1, 2022, pursuant to which, to provide data abroad under any of the following circumstances, a data processor shall apply to the national cyberspace administration for the security assessment of the outbound data transfer through the local provincial cyberspace administration. As of the date of this prospectus, the data collected and generated in our business does not have a bearing on national security, economic operation, social stability, public health and security, among others, and thus may not be classified as important data by the authorities, and, neither we nor any of our PRC subsidiaries have ever provided any personal information collected and generated in the operations within the territory of the PRC to overseas recipients. Given the abovementioned facts, we do not believe that we or any of our PRC subsidiaries is engaged in any activity that is subject to security assessment as outlined in the Data Transfer Measures. However, as Chinese governmental authorities have significant discretion in interpreting and implementing statutory provisions and there remains significant uncertainty in the interpretation and enforcement of relevant PRC data security laws and regulations if the PRC regulatory authorities take a position contrary to ours, we cannot assure you that the activities we or any of our PRC subsidiaries engaging in will not be deemed to be subject to PRC security assessment as stipulated in the Data Transfer Measures in the future, nor can we assure you that we or our PRC subsidiaries would be able to pass such assessment. The promulgation of the above-mentioned laws and regulations indicates heightened regulatory scrutiny from PRC regulatory authorities in areas such as data security and personal information protection.

As uncertainties remain regarding the interpretation and implementation of these laws and regulations, we cannot assure you that we or our PRC subsidiaries will be able to comply with such regulations in all respects, and we or our PRC subsidiaries may be ordered to rectify or terminate any actions that are deemed illegal by regulatory authorities. In addition, while our PRC subsidiaries take various measures to comply with all applicable data privacy and protection laws and regulations, there is no guarantee that our current security measures, operation and those of our third-party service providers may always be adequate for the protection of our customers, employee or company data against security breaches, cyberattacks or other unauthorized access, which could result in loss or misuse of such data, interruptions to our service system, diminished customer experience, loss of customer confidence and trust and impairment of our technology infrastructure and harm our reputation and business, resulting in fines, penalties and potential lawsuits.

As of the date of this prospectus, our Hong Kong subsidiary has not collected, stored, or managed any personal data and remains as a shareholding vehicle which does not conduct any actual business operation in Hong Kong. Therefore, we concluded that currently we do not expect that laws and regulations in mainland China on data security, data protection, or cybersecurity to be applied to our Hong Kong subsidiary or that the

 

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oversight of the CAC will be extended to its operations outside of mainland China. In Hong Kong, the Personal Data (Privacy) Ordinance (Chapter 486, Laws of Hong Kong), or the PDPO, applies to data users who control the collection, holding, processing or use of personal data in Hong Kong. These data users shall not do any act, or engage in a practice, that contravenes any of the data protection principles, or DPP, set out in Schedule 1 to the PDPO. DPP set out that (1) personal data must be collected in a lawful and fair way, for a purpose directly related to a function or activity of the data user. Data subjects must be notified of the purpose for which the data is to be used for and the classes of persons to whom the data may be transferred. Data collected should be adequate but not excessive; (2) personal data must be accurate and should not be kept for a period longer than necessary for the fulfilment of the purpose for which the data is or is to be used; (3) personal data must be used for the purpose for which the data is collected or for a directly related purpose unless voluntary and explicit consent with a new purpose is obtained from the data subject; (4) a data user shall take practicable steps to safeguard any personal data held against unauthorized or accidental access, processing, erasure, loss or use; (5) a data user shall take practicable steps to ensure that its policies and practices in relation to personal data, the kind of personal data it holds and the main purposes for which the personal data is or is to be used for are made known to the public; and (6) a data shall be entitled to request access to personal data and must be allowed to correct the personal data if it is inaccurate. PDPO or DPP have minimal impact, if not none, to us currently given that we do not collect, hold, process or use personal data in Hong Kong. In case our future business operations involve these activities, our Hong Kong subsidiary will be subject to the general requirements under the PDPO including the need to obtain the prescribed consent of the data subject and to take all practicable steps to protect the personal data held by data users against unauthorized or accidental access, loss or use. Breaches of the PDPO may lead to a variety of civil and criminal sanctions including fines. In addition, data subjects have a right to bring proceedings in court to seek compensation for damage. Our Hong Kong subsidiary has not received any notice, warning, sanction, or any regulatory objection for any breach of data security laws and regulations in Hong Kong. However, 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.

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

We are an exempted company incorporated under the laws of the Cayman Islands. However, we conduct substantially all of our operations in China and substantially all of our assets are located in China. In addition, most of our management members reside within China for a significant portion of the time and many of them are PRC nationals. As a result, it may be difficult for you to effect service of process upon us or our management named in the prospectus inside mainland China. It may also be difficult for you to enforce in U.S. courts of the judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors as none of them currently resides in the U.S. or has substantial assets located in the U.S. In addition, there is uncertainty as to whether the courts of the Cayman Islands or the PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the U.S. or any state.

The recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law and other applicable laws, regulations and interpretations based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. In addition, according to the PRC Civil Procedures Law, the PRC courts will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC laws or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the U.S. Furthermore, class action lawsuits, which are available in the U.S. for investors to seek remedies, are generally uncommon in China.

 

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You may incur additional costs and procedural obstacles in effecting service of legal process, enforcing foreign judgments or bringing actions in Hong Kong against us or our management named in this prospectus based on Hong Kong laws.

We only have one wholly owned subsidiary in Hong Kong, Autozi Internet Technology (HK) Limited, which beneficially owns 100% of the equity interest in Autozi Investment management (Anhui) Co., Ltd. You may incur additional costs and procedural obstacles in effecting service of legal process, enforcing foreign judgments or bringing actions in Hong Kong against us or our management named in the prospectus, as judgments entered in the U.S. can be enforced in Hong Kong only at common law. If you want to enforce a judgment of the U.S. in Hong Kong, it must be a final judgment conclusive upon the merits of the claim, 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, and the enforcement of the judgment is not contrary to public policy of Hong Kong. Such a judgment must be for a fixed sum and must also come from a “competent” court as determined by the private international law rules applied by the Hong Kong courts.

Furthermore, foreign judgments of the U.S. courts will not be directly enforced in Hong Kong as there are currently no treaties or other arrangements providing for reciprocal enforcement of foreign judgments between Hong Kong and the U.S. However, the common law permits an action to be brought upon a foreign judgment. That is to say, a foreign judgment itself may form the basis of a cause of action since the judgment may be regarded as creating a debt between the parties to it. In a common law action for enforcement of a foreign judgment in Hong Kong, the enforcement is subject to various conditions, including but not limited to, that the foreign judgment is a final judgment conclusive upon the merits of the claim, the judgment is for a liquidated amount in 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, and the enforcement of the judgment is not contrary to public policy of Hong Kong. Such a judgment must be for a fixed sum and must also come from a “competent” court as determined by the private international law rules applied by the Hong Kong courts. The defenses that are available to a defendant in a common law action brought on the basis of a foreign judgment include lack of jurisdiction, breach of natural justice, fraud, and contrary to public policy. However, a separate legal action for debt must be commenced in Hong Kong in order to recover such debt from the judgment debtor. As a result, subject to the conditions with regard to enforcement of judgments of United States courts being met, including but not limited to the above, a foreign judgment of United States of civil liabilities predicated solely upon the federal securities laws of the U.S. or the securities laws of any State or territory within the U.S. could be enforceable in Hong Kong.

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

Shareholder claims or regulatory investigation that are common in the U.S. generally are difficult to pursue as a matter of law or practicality in China. For example, in China, there are significant legal and other obstacles to providing information needed for regulatory investigations or litigation initiated outside China. Although the authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such cooperation with the securities regulatory authorities in the Unities States may not be efficient in the absence of mutual and practical cooperation mechanism.

Furthermore, according to Article 177 of the PRC Securities Law, which became effective in March 2020 (“Article 177”), no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. In addition, entities or individuals are prohibited from providing documents and information in connection with any securities business activities to any organizations and/or persons aboard without the prior consent of the securities regulatory authority of the State Council and the competent departments of the State Council. Article 26 of the Trial Measures, or the Article 26, which was issued by the CSRC on February 17, 2023 and has come into effect on March 31, 2023, sets out that where an overseas securities regulatory agency intends to conduct investigation and evidence collection regarding overseas offering

 

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and listing activities by a domestic company, and request assistance of the CSRC under relevant cross-border securities regulatory cooperation mechanisms, the CSRC may provide necessary assistance in accordance with law. Any domestic entity or individual providing documents and materials requested by an overseas securities regulatory agency out of investigative or evidence collection purposes shall not provide such information without prior approval from the CSRC and competent authorities under the State Council. In addition, Article 11 of the Provisions on Strengthening Confidentiality and Archives Administration in Respect of Overseas Issuance and Listing of Securities by Domestic Enterprises, or the Article 11, which was jointly issued by the CSRC, the Ministry of Finance, the State Secrecy Administration and the State Archives Bureau on February 24, 2023 and came into effect on March 31, 2023, specifies that, (a) where the overseas securities regulator and the relevant competent authorities request to conduct inspections or investigations to collect evidence from a domestic enterprise and the domestic securities firms and securities service agencies providing corresponding services regarding the overseas offering and listing activities of the domestic enterprise, the inspection or investigation shall be carried out under the cross-border regulatory cooperation mechanism, and the CSRC or the relevant authorities shall provide the requisite assistance pursuant to the bilateral and multilateral cooperation mechanism, and (b) relevant domestic companies, securities firms and securities service agencies shall obtain the consent of the CSRC or the relevant administrative authorities prior to cooperating in the inspection or investigation carried out by the overseas securities regulator or relevant administrative authorities or providing documents and materials for cooperating in the inspection or investigation. While detailed interpretation of or implementation rules under Article 177, Article 26 and Article 11 have yet to be promulgated, the inability for an overseas securities regulator to directly conduct investigation or evidence collection activities within China may further increase difficulties faced by you in protecting your interests. See also “—Risks Relating to Our Class A Ordinary Shares and This Offering—You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law” for risks associated with investing in us as a Cayman Islands company.”

It may be difficult for overseas shareholders and/or regulators to conduct investigations or collect evidence within Hong Kong.

The Securities and Futures Commission of Hong Kong (“SFC”) is a signatory to the International Organization of Securities Commissions Multilateral Memorandum of Understanding (“MMOU”), which provides for mutual investigatory and other assistance and exchange of information between securities regulators around the world, including the SEC. This is also reflected in section 186 of the Securities and Futures Ordinance (“SFO”) which empowers the SFC to exercise its investigatory powers to obtain information and documents requested by non-Hong Kong regulators, and section 378 of the SFO which allows the SFC to share confidential information and documents in its possession with such regulators. However, there is no assurance that such cooperation will materialize, or if it does, whether it will adequately address any efforts to investigate or collect evidence to the extent that may be sought by the U.S. regulators.

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

Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with “de facto management body” within China is considered a “resident enterprise” and will be subject to the enterprise income tax on its global income at the rate of 25%. The implementation rules define the term “de facto management body” as the body that exercises full and substantial control and overall management over the business, productions, personnel, accounts and properties of an enterprise. The Notice Regarding the Determination of Chinese-Controlled Offshore-Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, which was issued by the State Administration of Taxation on April 22, 2009 and further amended on December 29, 2017, or Circular 82, provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although Circular 82 only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth

 

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in the circular may reflect the State Administration of Taxation’s general position on how the “de facto management body” text should be applied in determining the tax resident status of all offshore enterprises. According to Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China and will be subject to PRC enterprise income tax on its global income only if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in the PRC; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder resolutions, are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually reside in the PRC.

We believe none of our entities outside of China is a PRC resident enterprise for PRC tax purposes. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” If the PRC tax authorities determine that we are a PRC resident enterprise for enterprise income tax purposes, we could be subject to PRC tax at a rate of 25% on our worldwide income, subject to any reduction set forth in applicable tax treaties. Furthermore, if we are deemed a PRC resident enterprise, dividends payable to our non-PRC individual shareholders and any gain realized on the transfer of Class A ordinary shares by such shareholders may be subject to PRC tax at a rate of 10% in the case of non-PRC resident enterprises or a rate of 20% in the case of non-PRC individuals unless a reduced rate is available under an applicable tax treaty. It is unclear whether non-PRC shareholders of our Company would be able to claim the benefits of any tax treaties between their country or area of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce the returns on your investment in the Class A ordinary shares.

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

We may face uncertainties regarding the reporting on and consequences of private equity financing transactions involving the transfer and exchange of shares in our Company by non-resident investors in the future. In February 2015, the State Administration of Taxation issued the Bulletin on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident Enterprises, or Bulletin 7. Pursuant to Bulletin 7, an “indirect transfer” of PRC assets, including a transfer of equity interests in an unlisted non-PRC holding company of a PRC resident enterprise, by non-PRC resident enterprises may be re-characterized and treated as a direct transfer of the underlying PRC assets, if such arrangement does not have a reasonable commercial purpose and was established for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise.

On October 17, 2017, the State Administration of Taxation issued the Announcement of the State Administration of Taxation on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, or Bulletin 37, which came into effect on December 1, 2017 and was most-recently amended on June 15, 2018. Bulletin 37 further clarifies the practice and procedure of the withholding of non-resident enterprise income tax. We face uncertainties on the reporting and consequences of potential future private equity financing transactions, share exchanges or other transactions involving the transfer of shares in our Company by investors that are non-PRC resident enterprises. The PRC tax authorities may pursue such non-resident enterprises with respect to a filing or the transferees with respect to withholding obligation, and request our PRC subsidiaries to assist in the filing. As a result, we and non-resident enterprises in such transactions may become at risk of being subject to filing obligations or being taxed under Bulletin 7 and Bulletin 37, and may be required to expend valuable resources to comply with them or to establish that we and our non-resident enterprises should not be taxed under these regulations, which may have a material adverse effect on our financial condition and results of operations.

 

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The PRC tax authorities have the discretion under Bulletin 7 to make adjustments to the taxable capital gains based on the difference between the fair value of the taxable assets transferred and the cost of investment. If the PRC tax authorities make adjustments to the taxable income of the transactions under Bulletin 7, our income tax costs associated with such transactions will be increased, which may have an adverse effect on our financial condition and results of operations. We cannot assure you that the PRC tax authorities will not, at their discretion, adjust any capital gains and impose tax return filing obligations on us or require us to provide assistance to them for the investigation of any transactions we were involved in. Heightened scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in the future.

If our preferential tax treatments are revoked or become unavailable or if the calculation of our tax liability is successfully challenged by the PRC tax authorities, we may be required to pay tax, interest and penalties in excess of our tax provisions.

The Chinese government has provided various tax incentives to our PRC subsidiaries, primarily in the form of reduced enterprise income tax rates. For example, under the Enterprise Income Tax Law and its implementation rules, the statutory enterprise income tax rate is 25%. However, the income tax of an enterprise that has been determined to be a small low-profit enterprise can be reduced to a preferential rate of 20% on 12.5% of its taxable income with respect to the portion of the annual taxable income that does not exceed RMB1.0 million. In addition, certain of our PRC subsidiaries enjoy preferential tax treatment. Any increase in the enterprise income tax rate applicable to our PRC subsidiaries in China, or any discontinuation, retroactive or future reduction or refund of any of the preferential tax treatments and local government subsidies currently enjoyed by our PRC subsidiaries in China, could adversely affect our business, financial condition and results of operations.

Further, in the ordinary course of our business, we are subject to complex income tax and other tax regulations, and significant judgment is required in the determination of a provision for income taxes. Although we believe our tax provisions are reasonable, if the PRC tax authorities successfully challenge our position and we are required to pay tax, interest and penalties in excess of our tax provisions, our financial condition and results of operations would be materially and adversely affected.

Failure to make adequate contributions to various employee benefit plans as required by PRC regulations or comply with laws and regulations on other employment practices may subject us to penalties.

Companies operating in China are required to participate in various government sponsored employee benefit plans, including certain social insurance, housing provident funds and other welfare-oriented payment obligations, and contribute to the plans in amounts equal to certain percentages of salaries, including bonuses and allowances, of our employees up to a maximum amount specified by the local government from time to time at locations where we operate our businesses. The requirement of employee benefit plans has not been implemented consistently by the local governments in China given the different levels of economic development in different locations. Currently, our PRC subsidiaries are making contributions to the plans based on the minimum standards as required by law for most employees. With respect to the underpaid or unpaid employee benefits, we may be required to complete registrations, make up the contributions for these plans as well as to pay late fees and fines. If we are subject to late fees or fines in relation to the underpaid or unpaid employee benefits, our financial condition and results of operations may be adversely affected. We may also be subject to regulatory investigations and other penalties if our other employment practices are deemed to be in violation of relevant PRC laws and regulations.

The enforcement of the PRC Labor Contract Law and other labor-related regulations in the PRC may subject us to penalties or liabilities.

The PRC Labor Contract Law, which was enacted in 2008 and amended in 2012, introduced specific provisions related to fixed-term employment contracts, part-time employment, probationary periods, consultation

 

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with labor unions and employee assemblies, employment without a written contract, dismissal of employees, severance, and collective bargaining to enhance previous PRC labor laws. Under the Labor Contract Law, an employer is obligated to sign a non-fixed term labor contract with any employee who has worked for the employer for ten consecutive years. Further, if an employee requests or agrees to renew a fixed-term labor contract that has already been entered into twice consecutively, the resulting contract, with certain exceptions, must have non-fixed term. With certain exceptions, an employer must pay severance to an employee where a labor contract is terminated or expires. In addition, the Chinese governmental authorities have continued to introduce various new labor-related regulations since the effectiveness of the Labor Contract Law.

These laws and regulations designed to enhance labor protection tend to increase our labor costs. In addition, as the interpretation and implementation of these regulations are still evolving, our employment practices may not be at all times deemed in compliance with the regulations. As a result, we could be subject to penalties or incur significant liabilities in connection with labor disputes or investigations.

The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors and certain other PRC regulations may make it more difficult for us to pursue growth through acquisitions.

The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in 2006 and amended in 2009, and some other regulations and rules concerning mergers and acquisitions established complex procedures and requirements for acquisition of Chinese companies by foreign investors, including requirements in some instances that the Ministry of Commerce of the PRC be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. Moreover, the Anti-Monopoly Law promulgated by the Standing Committee of the National People’s Congress, which became effective in 2008 and was most recently amended in June 2022, requires that transactions which are deemed concentrations and involve parties with specified turnover thresholds must be cleared by the Ministry of Commerce before they can be completed. In addition, the Rules on Implementation of Security Review System for the Merger and Acquisitions of Domestic Enterprises by Foreign Investors issued by the Ministry of Commerce and became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by the Ministry of Commerce, and the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement.

In the future, we may pursue potential strategic acquisitions that are complementary to our business and operations. Complying with the requirements of the above-mentioned regulations and other rules to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval or clearance from the Ministry of Commerce, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share. Furthermore, according to the M&A Rules, if a PRC entity or individual plans to merge or acquire its related PRC entity through an overseas company legitimately incorporated or controlled by such entity or individual, such a merger and acquisition will be subject to examination and approval by the Ministry of Commerce. The application and interpretations of M&A Rules are still uncertain, and there is possibility that the PRC regulators may promulgate new rules or explanations requiring that we obtain approval of the Ministry of Commerce for our completed or ongoing mergers and acquisitions. There is no assurance that we can obtain such approval from the Ministry of Commerce for our mergers and acquisitions, and if we fail to obtain those approvals, we may be required to suspend our acquisition and be subject to penalties. Any uncertainties regarding such approval requirements could have a material adverse effect on our business, results of operations and corporate structure.

 

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PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries’ ability to change their registered capital or distribute profits to us or otherwise expose us or our PRC resident beneficial owners to liability and penalties under PRC laws. In addition, any failure to comply with PRC regulations with respect to registration requirements for offshore financing may subject us to legal or administrative sanctions.

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

Under these foreign exchange regulations, PRC residents who make, or have previously made, prior to the implementation of these foreign exchange regulations, direct or indirect investments in offshore companies are required to register those investments. In addition, any PRC resident who is a direct or indirect shareholder of an offshore company is required to update its previously filed SAFE registration, to reflect any material change involving its round-trip investment. If any PRC shareholder fails to make the required registration or update the previously filed registration, the PRC subsidiary of that offshore parent company may be restricted from distributing their profits and the proceeds from any reduction in capital, share transfer or liquidation to their offshore parent company, and the offshore parent company may also be restricted from injecting additional capital into its PRC subsidiary. Moreover, failure to comply with the various foreign exchange registration requirements described above could result in liability under PRC laws for evasion of applicable foreign exchange restrictions, including (i) the requirement by SAFE to return the foreign exchange remitted overseas or into the PRC within a period of time specified by SAFE, with a fine of up to 30% of the total amount of foreign exchange remitted overseas or into PRC and deemed to have been evasive or illegal and (ii) in circumstances involving serious violations, a fine of no less than 30% of and up to the total amount of remitted foreign exchange deemed evasive or illegal.

We are committed to complying with and to ensuring that our shareholders who are subject to these regulations will comply with the SAFE rules and regulations. However, due to the inherent uncertainty in the implementation of the regulatory requirements by the PRC authorities, such registration might not be always practically available in all circumstances as prescribed in those regulations. In addition, we may not always be able to compel them to comply with SAFE Circular 37 or other related regulations. We cannot assure you that SAFE or its local branches will not release explicit requirements or interpret the PRC laws and regulations otherwise. We may not be fully informed of the identities of all our shareholders or beneficial owners who are PRC residents, and we cannot provide any assurance that all of our shareholders and beneficial owners who are PRC residents will comply with our request to make, obtain or update any applicable registrations or comply with other requirements under SAFE Circular 37 or other related rules in a timely manner.

Because there is uncertainty concerning the reconciliation of these foreign exchange regulations with other approval requirements, it is unclear how these regulations, and any future regulation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the governmental authorities. We cannot predict how these regulations will affect our business operations or future strategy. For example, we may be subject to a more stringent review and approval process with respect to our foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings, which may adversely affect our results of operations and financial condition. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.

 

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In addition, our offshore financing activities, such as the issuance of foreign debt, are also subject to PRC laws and regulations. In accordance with such laws and regulations, we may be required to complete filing and registration with the NDRC, prior to such activities. Failure to comply with the requirements may result in administrative meeting, warning, notification and other regulatory penalties and sanctions.

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

On December 26, 2017, the NDRC promulgated the Administrative Measures on Overseas Investments by Enterprises, which took effect as of March 1, 2018. According to this regulation, non-sensitive overseas investment projects are subject to record-filing requirements with the local branch of the NDRC. On September 6, 2014, the Ministry of Commerce promulgated the Administrative Measures on Overseas Investments, which took effect as of October 6, 2014. According to this regulation, overseas investments of PRC enterprises that involve non-sensitive countries and regions and non-sensitive industries are subject to record-filing requirements with a local branch Ministry of Commerce. According to the Circular of the State Administration of Foreign Exchange on Issuing the Regulations on Foreign Exchange Administration of the Overseas Direct Investment of Domestic Institutions, which was promulgated by the State Administration of Foreign Exchange, or SAFE, on July 13, 2009 and took effect on August 1, 2009, and Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment, which was promulgated by the SAFE on February 13, 2015 and took effect on June 1, 2015, PRC enterprises must register for overseas direct investment with a local SAFE branch or its authorized banks.

As of the date of this prospectus, certain of our current PRC corporate shareholders with a total shareholding of approximately 55.4% have completed the necessary filings or registrations with the NDRC or its branch, and the Ministry of Commerce or its branch for overseas direct investment. However, we may not be fully informed of the identities of all our shareholders or beneficial owners who are PRC entities, and we cannot provide any assurance that all of our shareholders and beneficial owners who are PRC entities will comply with our request to complete the overseas direct investment procedures under the aforementioned regulations or other related rules in a timely manner, or at all. If they fail to complete the filings or registrations required by the overseas direct investment regulations, the authorities may order them to suspend or cease the implementation of such investment and make corrections within a specified time, which may adversely affect our business, financial condition and results of operations.

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

We are a Cayman Islands holding company and we rely principally on dividends and other distributions on equity from our PRC and Hong Kong subsidiaries for our cash requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders for services of any debt we may incur. If our PRC and Hong Kong subsidiaries incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. Under PRC laws and regulations, our PRC subsidiaries, which are foreign-owned enterprises, may pay dividends only out of its respective accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, a foreign-owned enterprise, according to the PRC corporate laws, is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund a certain statutory reserve fund, until the aggregate amount of such fund reaches 50% of its registered capital. Such reserve funds cannot be distributed to us as dividends.

To the extent cash or assets in our business is in the PRC or Hong Kong or a PRC or Hong Kong entity, such cash or assets may not be available to fund operations or for other use outside of the PRC or Hong Kong due to interventions in, or the imposition of restrictions and limitations on, the ability of our holding company, or our PRC subsidiaries by the PRC government to transfer cash or assets.

 

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

The Chinese government may continue to strengthen its capital controls, and more restrictions and substantial vetting process may be put forward by SAFE for cross-border transactions falling under both the current account and the capital account. Any limitation on the ability of our PRC subsidiaries to pay dividends or make other kinds of payments to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.

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

You may be subject to PRC income tax on dividends from us or on any gain realized on the transfer of our Class A ordinary shares.

Under the Enterprise Income Tax Law and its implementation rules, PRC withholding tax at a rate of 10% is generally applicable to dividends from PRC sources paid to investors that are resident enterprises outside of China and that do not have an establishment or place of business in China, or that have an establishment or place of business in China if the income is not effectively connected with the establishment or place of business. Any gain realized on the transfer of shares by such investors is subject to 10% PRC income tax if the gain is regarded as income derived from sources within China. Under the PRC Individual Income Tax Law and its implementation rules, dividends regarded as income derived from sources within China and paid to foreign individual investors who are not PRC residents are generally subject to a PRC withholding tax at a rate of 20% and gains from PRC sources realized by these investors on the transfer of shares are generally subject to 20% PRC income tax. Any such PRC tax liability may be reduced by the provisions of an applicable tax treaty. Although substantially all of our business operations are in China, it is unclear whether the dividends we pay with respect to our Class A ordinary shares, or the gains realized from the transfer of our Class A ordinary shares, would be treated as income derived from sources within China and as a result be subject to PRC income tax if we are considered a PRC resident enterprise. If PRC income tax is imposed on gains realized through the transfer of our Class A ordinary shares or on dividends paid to our non-resident investors, the value of your investment in our Class A ordinary shares may be materially and adversely affected. Furthermore, our shareholders whose jurisdictions of residence have tax treaties or arrangements with China may not qualify for benefits under these tax treaties or arrangements.

In addition, pursuant to the Double Tax Avoidance Arrangement between the Mainland of China and the Hong Kong and China, if a Hong Kong resident enterprise owns more than 25% of the equity interest of a PRC company at all times during the twelve-month period immediately prior to obtaining a dividend from such company, the 10% withholding tax on the dividend is reduced to 5%, provided that certain other conditions and requirements are satisfied at the discretion of the PRC tax authority. However, based on the Notice on Certain Issues with Respect to the Enforcement of Dividend Provisions in Tax Treaties, issued in 2009 by the State Administration of Taxation, if the PRC tax authorities determine, at their discretion, that a company benefits from the reduced income tax rate due to a structure or arrangement that is primarily tax-driven, the PRC tax authorities may adjust the preferential tax treatment. If our Hong Kong subsidiary were determined by Chinese government authorities as receiving benefits from reduced income tax rates due to a structure or arrangement that is primarily tax-driven, the dividends paid by our PRC subsidiaries to our Hong Kong subsidiary will be taxed at a higher rate, which will have a material adverse effect on our financial performance.

 

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

We are an offshore holding company conducting our operations in China through our PRC subsidiaries. We may make loans to our PRC subsidiaries, or we may make additional capital contributions to our PRC subsidiaries, or we may establish new PRC subsidiaries and make capital contributions to these new PRC subsidiaries, or we may acquire offshore entities with business operations in China in an offshore transaction.

Most of these ways are subject to PRC regulations and approvals or registration. For example, loans by us to our PRC subsidiaries to finance its activities cannot exceed statutory limits and must be registered with the local counterpart of SAFE. If we decide to finance our PRC subsidiaries by means of capital contributions, these capital contributions are subject to registration with the State Administration for Market Regulation or its local branch, reporting of foreign investment information with the PRC Ministry of Commerce, or registration with other governmental authorities in China.

SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming the Administration of Foreign Exchange Settlement of Capital of Foreign-invested Enterprises, or SAFE Circular 19, effective June 2015, in replacement of the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, the Notice from the State Administration of Foreign Exchange on Relevant Issues Concerning Strengthening the Administration of Foreign Exchange Businesses, and the Circular on Further Clarification and Regulation of the Issues Concerning the Administration of Certain Capital Account Foreign Exchange Businesses. According to SAFE Circular 19, the flow and use of the RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company is regulated such that RMB capital may not be used for the issuance of RMB entrusted loans, the repayment of inter-enterprise loans or the repayment of banks loans that have been transferred to a third party. Although SAFE Circular 19 allows RMB capital converted from foreign currency-denominated registered capital of a foreign-invested enterprise to be used for equity investments within China, it also reiterates the principle that RMB converted from the foreign currency-denominated capital of a foreign-invested company may not be directly or indirectly used for purposes beyond its business scope. Thus, it is unclear whether SAFE will permit such capital to be used for equity investments in China in actual practice. SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of Capital Account, or SAFE Circular 16, effective on June 9, 2016, which reiterates some of the rules set forth in SAFE Circular 19, but changes the prohibition against using RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company to issue RMB entrusted loans to a prohibition against using such capital to issue loans to non-associated enterprises. Violations of SAFE Circular 19 and SAFE Circular 16 could result in administrative penalties. SAFE Circular 19 and SAFE Circular 16 may significantly limit our ability to transfer any foreign currency we hold, including the net proceeds from this offering, to our PRC subsidiary, which may adversely affect our liquidity and our ability to fund and expand our business in China. On October 23, 2019, the SAFE promulgated the Notice for Further Advancing the Facilitation of Cross-border Trade and Investment, or the SAFE Circular 28, which, among other things, allows all foreign-invested companies to use Renminbi converted from foreign currency-denominated capital for equity investments in China, as long as the equity investment is genuine, does not violate applicable laws, and complies with the negative list on foreign investment. However, since the SAFE Circular 28 is newly promulgated, it is unclear how SAFE and competent banks will carry this out in practice.

In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, or at all, with respect to future loans to our PRC subsidiaries or future capital contributions by us to our PRC subsidiaries. As a result,

 

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uncertainties exist as to our ability to provide prompt financial support to our PRC subsidiaries when needed. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds we expect to receive from this offering and to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

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

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

In addition, our business is conducted in China, and our books and records are maintained in Renminbi. The financial statements that we file with the SEC and provide to our shareholders are presented in U.S. dollars. Changes in the exchange rates between Renminbi and U.S. dollars affect the value of our assets and the results of our operations, when presented in U.S. dollars. The value of Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions and perceived changes in the economy of Taiwan and the United States. Any significant revaluation of Renminbi may materially and adversely affect our cash flows, revenue, and financial condition. Further, our ordinary shares offered by this prospectus are offered in U.S. dollars, we will need to convert the net proceeds we receive into Renminbi or other currencies in order to use the funds for our business. Changes in the conversion rate among the U.S. dollar, Renminbi and other currencies will affect the amount of proceeds we will have available for our business.

Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. As of the date of this prospectus, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited, and we may not be able to hedge our exposure adequately or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into foreign currency. See “—Governmental control of currency conversion may limit our ability to utilize our income effectively and affect the value of your investment.”

Governmental oversight upon currency conversion may limit our ability to utilize our income effectively and affect the value of your investment.

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

 

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to pay any debts they may incur in a currency other than Renminbi owed to entities outside China, or to make other capital expenditure payments outside China in a currency other than Renminbi.

In addition, if any of our shareholders who is subject to SAFE regulations fails to satisfy the applicable overseas direct investment filing or approval requirement, the Chinese government may restrict our access to foreign currencies for current account transactions. If we are prevented from obtaining sufficient foreign currency to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders.

If the chops of our PRC subsidiaries are not kept safely, are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised.

In China, a company chop or seal serves as the legal representation of the company towards third parties even when unaccompanied by a signature. Each legally registered company in China is required to maintain a company chop, which must be registered with the local Public Security Bureau. In addition to this mandatory company chop, companies may have several other chops which can be used for specific purposes. The chops of our PRC subsidiaries are generally held securely by personnel designated or approved by us in accordance with our internal control procedures. To the extent those chops are not kept safely, are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised and those corporate entities may be bound to abide by the terms of any documents so chopped, even if they were chopped by an individual who lacked the requisite power and authority to do so.

Our PRC subsidiaries conducting new car sales business may be subject to administrative penalties for failure to file with the competent authorities in a timely manner.

According to the Measures on the Administration of Automotive Sales, suppliers and dealers shall, within 90 days of the date of obtaining business licenses, undergo the recordation formalities for the basic information through the National Automotive Circulation Information Management System. Certain of our PRC subsidiaries that conduct new car sales business failed to undergo such recordation formalities within 90 days of the date of obtaining business licenses. Therefore, the local competent commerce department may give us a warning or make a fine up to RMB10,000. Even if each of them has taken remedial measure and has completed such recordation formalities as of the date of this prospectus, we cannot assure that we will not be penalized by competent authorities for historical compliance deficiencies.

We may be subject to penalties for failure to register our lease with the PRC real estate administration department.

Pursuant to the Law on Administration of Urban Real Estate which took effect in January 1995 with the latest amendment in August 2019 and the Administrative Measures on Leasing of Commodity Housing which was promulgated by Ministry of Housing and Urban-Rural Development on December 1, 2010 and took effect on February 1, 2011, lessors and lessees are required to enter into a written lease contract and to register the lease with the real estate administration department, and failure to comply with the registration requirement may result in a fine ranging from RMB1,000 to RMB10,000. We have not registered any of our leasehold interests with the relevant Chinese governmental authorities as required by PRC law. With respect to the unregistered lease, we may be required to complete such registration within a prescribed time or subject to a fine ranging from RMB1,000 to RMB10,000.

We may be subject to penalties for some of our PRC subsidiaries’ actual business places inconsistent with their domicile business places.

Pursuant to the Administrative Regulation of the People’s Republic of China on the Registration of Market Entities which took effect on March 1, 2022, where a market entity changes its domicile business place it shall, before relocating to the new domicile business place, apply for registration of change with the registration

 

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authority, otherwise, the registration authority may order it to make corrections; if it refuses to do so, it may be subject to a fine of more than RMB10,000 but less than RMB100,000; in case of serious circumstances, its business license shall be revoked. Pursuant to the Interim Measures for the Administration of Enterprises with Abnormal Operation which took effect on October 1, 2014, where the registration authority is unable to contact an enterprise at its domicile business place in the course of performance of duties pursuant to the law, it may decide to include the enterprise into the list of abnormal business operation. As of the date of this prospectus, some of our PRC subsidiaries’ actual business places are inconsistent with their domicile business places and they haven’t applied for registration of change with the relevant registration authorities. With respect to that, such PRC subsidiaries may be ordered to make corrections or may be subject to a fine and they may be included into the list of abnormal business operation if the registration authorities are unable to contact them.

There are some political risks associated with conducting business in Hong Kong.

We have one subsidiary in Hong Kong, Autozi Internet Technology (HK) Limited. Accordingly, its business operations and financial conditions will be affected by the political and legal developments in Hong Kong. Any adverse economic, social and/or political conditions, material social unrest, strike, riot, civil disturbance or disobedience, as well as significant natural disasters, may affect the market and may adversely affect the business operations of our Hong Kong subsidiary. Hong Kong is a special administrative region of the PRC and the basic policies of the PRC regarding Hong Kong are reflected in the Basic Law, namely, Hong Kong’s constitutional document, which provides Hong Kong with a high degree of autonomy and executive, legislative and independent judicial powers, including that of final adjudication under the principle of “one country, two systems”. However, there is no assurance that there will not be any changes in the economic, political and legal environment in Hong Kong in the future. Any change of such political arrangements may pose an immediate threat to the stability of the economy in Hong Kong, thereby directly and adversely affecting our results of operations and financial positions.

The Hong Kong protests that began in 2019 are ongoing and were triggered by the introduction of the Fugitive Offenders amendment bill by the Hong Kong government. If enacted, the bill would have allowed the extradition of criminal fugitives who are wanted in territories with which Hong Kong does not currently have extradition agreements, including mainland China. This led to concerns that the bill would subject Hong Kong residents and visitors to the jurisdiction and legal system of mainland China, thereby undermining the region’s autonomy and people’s civil liberties. Various sectors of the Hong Kong economy have been adversely affected as the protests turned increasingly violent. Most notably, the airline, retail, and real estate sectors have seen their sales decline.

Under the Basic Law of the Hong Kong Special Administrative Region of the People’s Republic of China, Hong Kong is exclusively in charge of its internal affairs and external relations, while the government of the PRC is responsible for its foreign affairs and defense. As a separate customs territory, Hong Kong maintains and develops relations with foreign states and regions. Based on certain recent development including the Law of the People’s Republic of China on Safeguarding National Security in the Hong Kong Special Administrative Region issued by the Standing Committee of the PRC National People’s Congress in June 2020, the U.S. State Department has indicated that the United States no longer considers Hong Kong to have significant autonomy from China and President Trump signed an executive order and Hong Kong Autonomy Act, or HKAA, to remove Hong Kong’s preferential trade status and to authorize the U.S. administration to impose blocking sanctions against individuals and entities who are determined to have materially contributed to the erosion of Hong Kong’s autonomy. The United States may impose the same tariffs and other trade restrictions on exports from Hong Kong that it places on goods from mainland China. These and other recent actions may represent an escalation in political and trade tensions involving the U.S., China and Hong Kong, which could potentially harm our business.

Our revenue is susceptible to the ongoing incidents or factors which affect the stability of the social, economic and political conditions in Hong Kong. Any drastic events may adversely affect our Hong Kong

 

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subsidiary’s business operations. Such adverse events may include changes in economic conditions and regulatory environment, social and/or political conditions, civil disturbance or disobedience, as well as significant natural disasters. Given the relatively small geographical size of Hong Kong, any of such incidents may have a widespread effect on our Hong Kong subsidiary’s business operations, which could in turn adversely and materially affect our business, results of operations and financial condition. It is difficult to predict the full impact of the HKAA on Hong Kong and companies with operations in Hong Kong like us. Furthermore, legislative or administrative actions in respect of China-U.S. relations could cause investor uncertainty for affected issuers, including us, and the market price of our ordinary shares could be adversely affected.

RISKS RELATING TO OUR CLASS A ORDINARY SHARES AND THIS OFFERING

Our offering would not be completed if our listing application is not approved by Nasdaq. Further, an active trading market for our Class A ordinary shares may not develop and the trading price for our Class A ordinary shares may fluctuate significantly.

We have applied to list our Class A ordinary shares on the Nasdaq. At this time, Nasdaq has not yet approved our application to list our ordinary shares. There is no assurance that such application will be approved, and if our application is not approved by Nasdaq, this offering would not be completed. Prior to the completion of this offering, there has been no public market for our ordinary shares, and we cannot assure you that a liquid public market for our Class A ordinary shares will develop. If an active public market for our Class A ordinary shares does not develop following the completion of this offering, the market price and liquidity of our Class A ordinary shares may be materially and adversely affected. The initial public offering price for our Class A ordinary shares will be determined by negotiation between us and the underwriters based upon several factors, and we can provide no assurance that the trading price of our Class A ordinary shares after this offering will not decline below the initial public offering price. As a result, investors in our securities may experience a significant decrease in the value of their investment.

The trading price of our Class A ordinary shares is likely to be volatile, which could result in substantial losses to investors.

Recently, there have been instances of extreme stock price run-ups followed by rapid price declines and strong stock price volatility with a number of recent initial public offerings, especially among companies with relatively smaller public floats. As a relatively small-capitalization company with relatively small public float, we may experience greater stock price volatility, extreme price run-ups, lower trading volume and less liquidity than large-capitalization companies. Such volatility, including any stock-run up, may be unrelated to our actual or expected operating performance, financial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our Class A ordinary shares.

Moreover, the volatility and fluctuation of the trading price of our Class A ordinary shares may happen because of broad market and industry factors, like the performance and fluctuation of the market prices of other companies with business operations located mainly in China that have listed their securities in the U.S. A number of Chinese companies have listed or are in the process of listing their securities on U.S. stock markets. The securities of some of these companies have experienced significant volatility, including price declines in connection with their initial public offerings. The trading performances of these Chinese companies’ securities after their offerings may affect the attitudes of investors toward Chinese companies listed in the U.S. in general and consequently may impact the trading performance of our Class A ordinary shares, regardless of our actual operating performance.

In addition to market and industry factors, the price and trading volume for our Class A ordinary shares may be highly volatile for factors specific to our own operations, including the following:

 

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variations in our income, earnings and cash flow;

 

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

 

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

 

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changes in financial estimates by securities analysts;

 

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detrimental adverse publicity about us, our services or our industry;

 

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additions or departures of key personnel;

 

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release of lock-up or other transfer restrictions on our outstanding equity securities or sales of additional equity securities; and

 

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potential litigation or regulatory investigations.

Any of these factors may result in large and sudden changes in the volume and price at which our Class A ordinary shares will trade. Furthermore, the stock market in general experiences price and volume fluctuations that are often unrelated or disproportionate to the operating performance of companies like us. These broad market and industry fluctuations may adversely affect the market price of our Class A ordinary shares.

In addition, if the trading volumes of our Class A ordinary shares are low, persons buying or selling in relatively small quantities may easily influence prices of our Class A ordinary shares. This low volume of trades could also cause the price of our Class A ordinary shares to fluctuate greatly, with large percentage changes in price occurring in any trading day session. Holders of our Class A ordinary shares may also not be able to readily liquidate their investment or may be forced to sell at depressed prices due to low volume trading. If high spreads between the bid and ask prices of our Class A ordinary shares exist at the time of a purchase, the stock would have to appreciate substantially on a relative percentage basis for an investor to recoup their investment. Broad market fluctuations and general economic and political conditions may also adversely affect the market price of our Class A ordinary shares. As a result of this volatility, investors may experience losses on their investment in our Class A ordinary shares. A decline in the market price of our Class A ordinary shares also could adversely affect our ability to issue additional Class A ordinary shares or other of our securities and our ability to obtain additional financing in the future. No assurance can be given that an active market in our Class A ordinary shares will develop or be sustained. If an active market does not develop, holders of our Class A ordinary shares may be unable to readily sell the shares they hold or may not be able to sell their shares at all.

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

The dual-class structure of our ordinary shares has the effect of concentrating voting power with our existing shareholders prior to the consummation of this offering, which will limit your ability to influence the outcome of important transactions, including a change in control.

Each Class B ordinary share shall entitle the holder thereof to twenty (20) votes on all matters subject to vote at general meetings of our Company, and each Class A ordinary share shall entitle the holder thereof to one (1) vote on all matters subject to vote at general meetings of our Company. Upon the completion of this offering, our issued and outstanding share capital will consist of 36,443,050 Class A ordinary shares and 17,297,550 Class B ordinary shares, assuming the underwriters do not exercise their option to purchase additional Class A ordinary shares. Immediately after this offering, our founder and chief executive officer, Dr. Houqi Zhang will

 

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beneficially own all of our then issued and outstanding 17,297,550 Class B ordinary shares, assuming all of the proposed share transfers among certain of our investors are completed prior to this offering. Upon the closing of this offering, Dr. Houqi Zhang, will beneficially own more than 50% of the aggregate voting power of our total issued and outstanding shares. See “Principal Shareholders” and “—Risks Relating to Our Business and Industry—We will be a ‘controlled company’ within the meaning of the Nasdaq Stock Market Rules and, as a result, may rely on exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.” Upon the closing of this offering, our existing shareholders prior to the consummation of this offering will beneficially own approximately 99.2% of the aggregate voting power of our total issued and outstanding shares, assuming the full exercise of the over-allotment option by the underwriters. As a result of the dual-class share structure and the concentration of ownership, our existing shareholders will have considerable influence over matters such as decisions regarding mergers and consolidations, election of directors and other significant corporate actions. Our existing shareholders prior to the consummation of this offering, including Dr. Houqi Zhang, individually or together, may vote in a way with which you disagree and which may be adverse to your interests. This concentrated voting power may have the ultimate effect of delaying, preventing or deterring a change in control of our Company, could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our Company and might ultimately materially and adversely affect the market price of our Class A ordinary shares. Future transfers by the holder of Class B ordinary shares may result in those shares converting into Class A ordinary shares. Each Class B ordinary share is convertible into one Class A ordinary share at any time at the option of the holder, but Class A ordinary shares shall not be convertible into Class B ordinary shares under any circumstances. However, following this offering, as long as at least 2,580,000 Class B ordinary shares remain issued and outstanding, and without giving effect to any future issuances, the holder of our Class B ordinary shares will hold a majority of the issued and outstanding voting power and will continue to control the outcome of matters submitted to shareholders approval. Our post-offering memorandum and articles of association generally does not prohibit us from issuing additional Class B ordinary shares, and any future issuances of Class B ordinary shares may be dilutive to holders of Class A ordinary shares. For more information about our dual-class structure, see “Description of Share Capital.”

In addition, the conversion of Class B ordinary shares might have impact on holders of Class A ordinary shares, including dilution and reduction in the aggregate voting power of holders of Class A ordinary shares, as well as the potential increase in the relative voting power if any holder of Class B ordinary shares retains its shares.

The dual-class structure of our ordinary shares may adversely affect the trading market for our Class A ordinary shares.

We cannot predict whether our dual-class structure will result in a lower or more volatile market price of our Class A ordinary shares or in adverse publicity or other adverse consequences. For example, certain index providers have announced restrictions on companies with dual-class or multi-class share structures in their indices. In July 2017, S&P Dow Jones and FTSE Russell announced changes to their eligibility criteria for the inclusion of shares of public companies on certain indices, including the Russell 2000, the S&P 500, the S&P MidCap 400 and the S&P SmallCap 600, to exclude companies with multiple classes of shares from being added to these indices. Beginning in 2017, MSCI, a leading stock index provider, opened public consultations on their treatment of no-vote and multi-class structures and temporarily barred new multi-class listings from certain of its indices; however, in October 2018, MSCI announced its decision to include equity securities “with unequal voting structures” in its indices and to launch a new index that specifically includes voting rights in its eligibility criteria. As a result, our dual-class structure would make us ineligible for inclusion in any of these indices, and mutual funds, exchange-traded funds and other investment vehicles that attempt to passively track these indices will not be investing in our Class A ordinary shares. These policies are still relatively new and it is as of yet unclear what effect, if any, they will have on the valuations of publicly traded companies excluded from the indices, but it is possible that they may depress these valuations compared to those of other similar companies that are included. Furthermore, we cannot assure you that other stock indices will not take a similar approach to S&P Dow Jones or FTSE Russell in the future. Exclusion from indices could make our Class A ordinary shares

 

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less attractive to investors and, as a result, the market price of our Class A ordinary shares could be adversely affected.

Our founder and chief executive officer, Dr. Houqi Zhang, has significant voting power and may take actions that may not be in the best interests of our other shareholders.

Upon the completion of this offering, our founder and chief executive officer, Dr. Houqi Zhang will beneficially own all of our then-issued and outstanding Class B ordinary shares, representing 90.5% of our total voting power, assuming that the underwriters do not exercise their option to purchase additional Class A ordinary shares, or 32.0% of our total issued and outstanding ordinary shares, representing 90.4% of our total voting power, assuming that the option to purchase additional Class A ordinary shares is exercised by the underwriters in full. As a result, Dr. Houqi Zhang will be able to control the business and affairs of our Company and will have considerable influence over matters such as decisions regarding mergers and consolidations, election of directors and other significant corporate actions. The interests of Dr. Zhang may not be the same as or may even conflict with your interests. For example, Dr. Zhang may attempt to delay or prevent a change in control of our Company, even if such change in control would benefit our other shareholders, which could have the effect of depriving our shareholders of an opportunity to receive a premium for their Class A ordinary shares as part of a sale of our Company, and might affect the prevailing market price of our Class A ordinary shares due to investors’ perceptions that conflicts of interest may exist or arise. As a result, this concentration of ownership will limit your ability to influence corporate matters and could discourage others from pursuing any potential merger, takeover or other change of control transactions that holders of Class A ordinary shares may view as beneficial.

If securities or industry analysts do not publish research or reports about our business, or if they adversely change their recommendations regarding our Class A ordinary shares, the market price for our Class A ordinary shares and trading volume could decline.

The trading market for our Class A ordinary shares will be influenced by research or reports that industry or securities analysts publish about our business. If one or more analysts who cover us downgrade our Class A ordinary shares, the market price for our Class A ordinary shares would likely decline. If one or more of these analysts cease to cover us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the market price or trading volume for our Class A ordinary shares to decline.

We have broad discretion to determine how to use the net proceeds from this offering and may use them in ways that may not enhance our results of operations or the price of the Class A ordinary shares.

Although we currently intend to use the net proceeds from this offering in the manner described in the section titled “Use of proceeds” in this prospectus supplement, our management will have broad discretion over the use of net proceeds from this offering, and we could spend the net proceeds from this offering in ways the holders of the Class A ordinary shares may not agree with or that do not yield a favorable return. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, our use of these proceeds may differ substantially from our current plans. The failure by our management to apply these funds effectively could have a material adverse effect on our business, financial condition and results of operation. You will not have the opportunity, as part of your investment decision, to assess whether the net proceeds from this offering are being used appropriately. You must rely on the judgment of our management regarding the application of the net proceeds of this offering.

The sale or availability for sale of substantial amounts of our Class A ordinary shares could adversely affect their market price.

Sales of substantial amounts of our Class A ordinary shares in the public market after the completion of this offering, or the perception that these sales could occur, could adversely affect the market price of our Class A

 

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ordinary shares and could materially impair our ability to raise capital through equity offerings in the future. The Class A ordinary shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, or the Securities Act, and shares held by our existing shareholders may also be sold in the public market in the future subject to the restrictions in Rule 144 and Rule 701 under the Securities Act and the applicable lock-up agreements. There will be 36,443,050 Class A ordinary shares outstanding immediately after this offering, or 36,818,050 Class A ordinary shares assuming the full exercise of the over-allotment option by the underwriters. In connection with this offering, we and any successors of us, our directors, officers, and holders of our outstanding shares as of the effective date of this registration statement will enter into customary “lock-up” agreements in favor of the underwriters, subject to certain exceptions, not to (a) offer, sell, or otherwise transfer or dispose of, directly or indirectly, any capital shares or any securities convertible into or exercisable or exchangeable for capital shares; or (b) file or caused to be filed any registration statement with the SEC relating to the offering of any capital shares or any securities convertible into or exercisable or exchangeable for capital shares for a period of three months, with respects to us and any successors of us, and six months, with respect to our directors, officers, and holders of our outstanding shares, from the date of commencement of sales of this offering. However, the underwriters may release these securities from these restrictions at any time, subject to applicable regulations of the Financial Industry Regulatory Authority, Inc. We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of our Class A ordinary shares. See “Underwriting” and “Shares Eligible for Future Sale” for a more detailed description of the restrictions on selling our securities after this offering.

Techniques employed by short sellers may drive down the market price of the Class A ordinary shares.

Short selling is the practice of selling securities that the seller does not own but rather has borrowed from a third party with the intention of buying identical securities back at a later date to return to the lender. The short seller hopes to profit from a decline in the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less in that purchase than it received in the sale. As it is in the short seller’s interest for the price of the security to decline, many short sellers publish, or arrange for the publication of, negative opinions regarding the relevant issuer and its business prospects in order to create negative market momentum and generate profits for themselves after selling a security short. These short attacks have, in the past, led to selling of shares in the market.

Public companies that have substantially all of their operations in China have been the subject of short selling. Much of the scrutiny and negative publicity have centered on allegations of a lack of effective internal control over financial reporting resulting in financial and accounting irregularities and mistakes, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result, many of these companies are now conducting internal and external investigations into the allegations and, in the interim, are subject to shareholder lawsuits and/or SEC enforcement actions.

It is not clear what effect such negative publicity could have on us. If we were to become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we could have to expend a significant amount of resources to investigate such allegations and/or defend ourselves. While we would strongly defend against any such short seller attacks, we may be constrained in the manner in which we can proceed against the relevant short seller by principles of freedom of speech, applicable state law or issues of commercial confidentiality. Such a situation could be costly and time-consuming, and could distract our management from growing our business. Even if such allegations are ultimately proven to be groundless, allegations against us could severely impact our business operations, and any investment in the Class A ordinary shares could be greatly reduced or even rendered worthless.

 

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Because we do not expect to pay dividends in the foreseeable future after this offering, you must rely on price appreciation of our Class A ordinary shares for return on your investment.

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

Our board of directors has complete discretion as to whether to distribute dividends. 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, among other things, our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiary, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in our Class A ordinary shares will likely depend entirely upon 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 the Class A ordinary shares. You may not realize a return on your investment in our Class A ordinary shares and you may even lose your entire investment in our Class A ordinary shares.

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

If you purchase Class A ordinary shares in this offering, you will pay more for each ordinary share than the corresponding amount paid by existing shareholders for their Class A ordinary shares. As a result, you will experience immediate and substantial dilution of approximately US$9.22 per ordinary share. This number represents the difference between (1) our pro forma net tangible book value per ordinary share of negative US$0.22, after giving effect to this offering and (2) the assumed initial public offering price of US$9.00 per ordinary share, the midpoint of the estimated initial public offering price range set forth on the front cover of this prospectus. See “Dilution” for a more complete description of how the value of your investment in our Class A ordinary shares will be diluted upon the completion of this offering.

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

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

There can be no assurance that we will not be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for any taxable year, which could subject U.S. investors in our Class A ordinary shares to significant adverse U.S. federal income tax consequences.

We will be classified as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for any taxable year if either (a) 75% or more of our gross income for such year consists of certain types of “passive” income or (b) 50% or more of the value of our assets (generally determined on the basis of a quarterly average) during such year produce or are held for the production of passive income (the “asset test”). We will be treated as owning our proportionate share of the assets and earnings of any other corporation or partnership (or entity which is treated or elects to be treated as a partnership for U.S. federal income tax

 

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purposes) in which we own, directly or indirectly, more than 25% (by value) of the stock or interests. Based upon our current and expected income and assets, including goodwill and other unbooked intangibles not reflected on our balance sheet (taking into account the expected proceeds from this offering) and projections as to the market price of our Class A ordinary shares immediately following the offering, we do not expect to be classified as a PFIC for the current taxable year or the foreseeable future.

While we do not expect to be classified as a PFIC, because the value of our assets for purposes of the asset test may be determined by reference to the market price of our Class A ordinary shares, fluctuations in the market price of our Class A ordinary shares may cause us to be classified as a PFIC for the current or subsequent taxable years. The determination of whether we will be classified as a PFIC will also depend, in part, on the composition of our income and assets. In addition, the composition of our income and assets will also be affected by how, and how quickly, we use our liquid assets and the cash raised in this offering. If we determine not to deploy significant amounts of cash for active purposes, our risk of being a PFIC may substantially increase. It is also possible that the U.S. Internal Revenue Service, or the IRS, could challenge our classification of certain income and assets as non-passive, which could result in our Company being or becoming a PFIC for the current or future taxable years. Because PFIC status is a factual determination made annually after the close of each taxable year, there can be no assurance that we will not be a PFIC for the current taxable year or any future taxable year.

If we are a PFIC in any taxable year, a U.S. Holder (as defined in “Taxation—United States Federal Income Tax Considerations”) may incur significantly increased U.S. income tax on gain recognized on the sale or other disposition of the Class A ordinary shares and on the receipt of distributions on the Class A ordinary shares to the extent such distribution is treated as an “excess distribution” under the U.S. federal income tax rules, and such U.S. Holder may be subject to burdensome reporting requirements. Further, if we are a PFIC for any year during which a U.S. Holder holds our Class A ordinary shares, we generally will continue to be treated as a PFIC for all succeeding years during which such U.S. Holder holds our Class A ordinary shares, unless we were to cease to be a PFIC and the U.S. Holder were to make a “deemed sale” election with respect to the Class A ordinary shares. For more information see “Taxation—U.S. Federal Income Tax Considerations— PFIC Rules.”

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

We will adopt a post-offering memorandum and articles of association that will become effective immediately prior to the completion of this offering. Our post-offering memorandum and articles of association contain provisions to limit the ability of others to acquire control of our Company or cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our Company in a tender offer or similar transaction. Our board of directors has the authority, without further action by our shareholders, to issue preferred shares in one or more series and to fix their designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our Class A ordinary shares. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our Company or make removal of management more difficult. If our board of directors decides to issue preferred shares, the price of our Class A ordinary shares may fall and the voting and other rights of the holders of our Class A ordinary shares may be materially and adversely affected.

 

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Our post-offering memorandum and articles of association provide that the United States District Court for the Southern District of New York (or, if the Southern District of New York lacks subject matter jurisdiction over a particular dispute, the state courts of New York County, New York) shall be the exclusive forum within the U.S. for the resolution of any complaint asserting a cause of action arising out of or relating in any way to the federal securities laws of the U.S., regardless of whether such legal suit, action, or proceeding also involves parties other than us. This could limit the ability of holders of our Class A ordinary shares or other securities to obtain a favorable judicial forum for disputes with us, our directors and officers, and potentially others.

Our post-offering memorandum and articles of association provide that the United States District Court for the Southern District of New York (or, if the Southern District of New York lacks subject matter jurisdiction over a particular dispute, the state courts of New York County, New York) shall be the exclusive forum within the U.S. for the resolution of any complaint asserting a cause of action arising out of or relating in any way to the federal securities laws of the U.S., regardless of whether such legal suit, action, or proceeding also involves parties other than us. However, the enforceability of similar choice of forum provisions in other companies’ organizational documents has been challenged in legal proceedings in the U.S., and it is possible that a court could find this type of provision to be inapplicable, unenforceable, or inconsistent with other documents that are relevant to the filing of such lawsuits. If a court were to find the choice of forum provision contained in our post-offering memorandum and articles of association to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions. If upheld, the forum selection clause in our post-offering memorandum and articles of association may limit a security-holder’s ability to bring a claim against us, our directors and officers, and potentially others in his or her preferred judicial forum, and this limitation may discourage such lawsuits.

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

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

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

 

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Certain corporate governance practices in the Cayman Islands, which is our home country, differ significantly from requirements for companies incorporated in other jurisdictions such as the U.S. Currently, we do not plan to rely on home country practice with respect to any corporate governance matter. However, if we choose to follow home country practice in the future, our shareholders may be afforded less protection than they otherwise would under rules and regulations applicable to U.S. domestic issuers.

As a result of all of the above, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the U. S. For a discussion of significant differences between the provisions of the Companies Act and the laws applicable to companies incorporated in the U.S. and their shareholders, see “Description of Share Capital—Differences in Corporate Law.”

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

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

We will incur increased costs as a result of being a public company.

Upon completion of this offering, we will become a public company and expect to incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and the Nasdaq, impose various requirements on the corporate governance practices of public companies. We expect these rules and regulations to increase our legal and financial compliance costs and to make some corporate activities more time-consuming and costly. For example, we expect that operating as a public company will make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. In addition, we will incur additional costs associated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs.

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

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

 

•

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

 

•

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

 

•

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

 

87

We will be required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish our results on a quarterly basis through press releases, distributed pursuant to

the rules and regulations of the Nasdaq. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely than that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information that would be made available to you were you investing in a U.S. domestic issuer.

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 such five-year period, including if we become a “large accelerated filer,” our annual gross revenues exceed $1.235 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period. For so 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. We have taken advantage of reduced reporting burdens in this prospectus. In particular, in this prospectus, we have provided only two years of audited combined 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 attractive 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.

In addition, the JOBS Act provides that 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.

 

88

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

AND INDUSTRY DATA

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

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

 

•

our goals and strategies;

 

•

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

 

•

the expected growth of the lifecycle automotive service industry in China;

 

•

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

 

•

our expectations regarding our bases of customers;

 

•

our plans to invest in our products and services;

 

•

competition in our industry; and

 

•

relevant government policies and regulations relating to our industry.

These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. The forward-looking statements made in this prospectus relate only to events or information as of the date on which the statements are made in this prospectus. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should thoroughly read this prospectus and the documents that we refer to herein with the understanding that our actual future results may be materially different from and worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements.

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

 

89

USE OF PROCEEDS

We estimate that we will receive net proceeds from this offering of approximately US$18.4 million, or approximately US$20.7 million if the underwriters exercise their over-allotment option in full, after deducting underwriting discounts and the estimated offering expenses payable by us. These estimates are based upon an assumed initial public offering price of US$9.00 per Class A ordinary share, the midpoint of the price range shown on the front cover page of this prospectus. A US$1.00 increase (decrease) in the assumed initial public offering price of US$9.00 per Class A ordinary share would increase (decrease) the net proceeds to us from this offering by US$2.3 million, assuming the underwriters do not exercise their over-allotment option to purchase additional Class A ordinary shares and the number of Class A ordinary shares offered by us, as set forth on the cover page 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 finance the daily operations of onshore and offshore subsidiaries. We plan to use the net proceeds from this offering as follows:

 

•

approximately 50% for enhancing our supply chain management capabilities, expanding and optimizing our warehouse coverage, integrating supply chain resources of automotive and auto parts;

 

•

approximately 30% for expanding the size and coverage of our MBS stores network, conducting marketing activities to enhance brand awareness and expanding our operating and supporting team;

 

•

approximately 10% for investment in technology innovations to continue upgrading our proprietary and self-developed online supply chain cloud management platform and SaaS platforms; and

 

•

approximately 10% for general corporate purposes, which may include strategic investments and acquisitions, although we have not identified any specific investments or acquisition opportunities at this time.

Accordingly, our management will have flexibility and discretion in the application of net proceeds from this offering, and investors will be relying on the judgment of our management regarding the use of these net proceeds.

In using the proceeds of this offering, we are permitted under PRC laws and regulations as an offshore holding company to provide funding to our PRC subsidiaries only through loans or capital contributions. Subject to satisfaction of applicable government registration and approval requirements, we may extend inter-company loans to our PRC subsidiaries or make additional capital contributions to our PRC subsidiaries to fund its capital expenditures or working capital. We cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, if at all, which may delay or prevent us from providing the proceeds of this offering to our PRC subsidiaries. See “Risk Factors—Risks Relating to Doing Business in China—PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our PRC subsidiaries in China, which could materially and adversely affect our liquidity and our ability to fund and expand our business.”

 

90

DIVIDEND POLICY

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

We have never declared or paid cash dividends on our shares. We do not have any present plan to pay any cash dividends on our ordinary shares in the foreseeable future after this offering. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and grow our business.

We are a holding company incorporated in the Cayman Islands. We may rely on dividends from our subsidiaries in China for our cash requirements, including any payment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC subsidiaries to pay dividends to us. 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 satisfaction of necessary registrations with government authorities and required governmental approvals, we may extend inter-company loans or make additional capital contributions to our PRC Subsidiaries. We cannot assure you that we will be able to make such registrations or obtain such approvals in a timely manner, or at all. See “Risk Factors—Risks Relating to Doing Business in China—PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our PRC subsidiaries in China, which could materially and adversely affect our liquidity and our ability to fund and expand our business.”

 

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CAPITALIZATION

The following table sets forth our capitalization, as of September 30, 2023 as follows:

 

•

on an actual basis;

 

•

on a pro forma basis to reflect (i) the designation of 51,240,600 ordinary shares in aggregate upon the completion of this offering into 33,943,050 Class A ordinary shares and 17,297,550 Class B ordinary shares, and (ii) the automatic conversion of all of our redeemable principal interests into additional paid-in capital as permanent equity upon the completion of this offering, as a result of the forfeiture of redemption right of the redeemable interests on the date of our shares being public and effectively traded, and the holders of our redeemable principal interests were the original shareholders of Autozi Internet Technology Co., Ltd. attending our reorganization with issued and designated as 14,450,350 Class A ordinary shares included in the 33,943,050 Class A ordinary shares mentioned above.

 

•

on an adjusted basis to reflect the issuance and sale of 2,500,000 Class A ordinary shares in the form of Class A ordinary shares by us in this offering at an initial public offering price of US$9.00 per Class A ordinary share, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, assuming the underwriters do not exercise the over-allotment option.

You should read this table together with the combined and consolidated financial statements and related notes, and the sections titled “Selected Combined and Consolidated Financial and Operating Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are included in this prospectus.

 

		As of September 30, 2023
		Actual				Pro Forma(2)				Pro Forma As Adjusted(3)
		(US$ in thousands)
Mezzanine equity
Redeemable principal interests(1) (US$0.000002 par value; 14,450,350 ordinary shares issued and outstanding, actual; no shares issued and outstanding, pro forma; and no shares issued and outstanding, pro forma as adjusted)		$	118,860			$	—			$	—
Redeemable non-controlling interests			—				—				—
Total mezzanine equity			118,860				—				—
Shareholder’s deficit
Ordinary shares(1)(4) (US$0.000002 par value; 250,000,000,000 shares authorized, 36,790,250 shares issued and outstanding, actual; no shares issued and outstanding, pro forma; and no shares issued and outstanding, pro forma as adjusted)			—				—				—
Class A ordinary shares(1) (US$0.000002 par value; 240,000,000,000 shares authorized, no shares issued and outstanding, actual; 33,943,050 shares issued and outstanding, pro forma; and 36,443,050 shares issued and outstanding, pro forma as adjusted)			—				—				—
Class B ordinary shares(1) (US$0.000002 par value; 240,000,000,000 shares authorized, no shares issued and outstanding, actual; 17,297,550 shares issued and outstanding, pro forma; and 17,297,550 shares issued and outstanding, pro forma as adjusted)			—				—				—
Shareholder subscription			—				—				—
Additional paid-in capital			4,579				123,439				141,816
Accumulated deficit			(166,020	)			(166,020	)			(166,020	)
Accumulated other comprehensive income			14,699				14,699				14,699
Total Autozi shareholders’ deficit			(146,742	)			(27,882	)			(9,505	)
Non-controlling interests			(529	)			(529	)			(529	)
Total shareholders’ deficit			(147,271	)			(28,411	)			(10,034	)
Total Capitalization		$	(28,411	)		$	(28,411	)		$	(10,034	)

 

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(1)	As of September 30, 2023, there were 51,240,600 issued and outstanding ordinary shares, including 14,450,350 ordinary shares issued to holders of our redeemable principal interests and 36,790,250 ordinary shares issued to our principal shareholders.

Upon the completion of this offering, 51,240,600 ordinary shares in aggregate would be designated into 33,943,050 Class A ordinary shares and 17,297,550 Class B ordinary shares as pro forma.

Upon this offering, there will be 2,500,000 Class A ordinary shares to be newly issued to reflect the sale of ordinary shares in this offering to a total of 36,443,050 Class A ordinary shares upon the completion of this offering.

(2)

The pro forma information discussed above is illustrative only, reflecting (i) the designation of 51,240,600 ordinary shares into 33,943,050 Class A ordinary shares and 17,297,550 Class B ordinary shares upon the completion of this offering, and (ii) the automatic conversion of all of our redeemable principal interests into additional paid-in capital as permanent equity upon the completion of this offering, together with issued and designated 14,450,350 Class A ordinary shares included in the 33,943,050 Class A ordinary shares above. The holders of our redeemable principal interests held ordinary shares in legal form but with redemption right upon the triggering of certain events and to receive investment considerations plus interest varying from 8% to 12% per annum. Such redeemable principal interests were classified as mezzanine equity due to the redemption upon the occurrence of an event that is not solely within our control. The holders of our redeemable principal interests also agreed on the forfeiture of redemption right of the redeemable interests on the date of our shares being public and effectively traded. Therefore, upon the completion of this offering, the redemption right forfeited and the mezzanine equity converted to the permanent equity automatically, with no more consideration (See “Note 16 Mezzanine equity” to our combined and consolidated financial statements included in this prospectus).

(3)

Reflects the sale of ordinary shares in this offering at an assumed initial public offering price of US$9.00 per Class A ordinary share, and after deducting the estimated underwriting discounts and estimated offering expenses payable by us, assuming that the option to purchase additional ordinary shares has not been exercised. The pro forma as adjusted information is for illustrative purposes only, and we will adjust this information based on the actual initial public offering price and other terms of this offering determined at pricing. Additional paid-in capital includes the aggregate amount of issued and paid-in capital of the entities now comprising our corporate group less consideration paid to acquire the relevant interest, if any. We estimate that net proceeds will be approximately US$18.4 million, assuming no exercise of the option to purchase additional ordinary shares. The net proceeds of US$18.4 million is calculated as follows:

US$22.5 million gross offering proceeds, less underwriting discounts and commissions of US$1.8 million and estimated offering expenses of US$2.3 million. The pro forma as adjusted total shareholders’ deficit is the sum of the net proceeds of US$18.4 million and the pro forma shareholders’ deficit of US$28.4 million.

 

(4)	Prior to the offering, there is only one class of ordinary shares issued and outstanding.

 

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DILUTION

Prior to the offering, there is only one class of ordinary shares issued and outstanding. Upon the completion of this offering, we will have a dual-class structure and our issued share capital will consist of Class A ordinary shares and Class B ordinary shares. 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 Class A ordinary share and our net tangible book value per Class A and Class B ordinary share after this offering. Dilution results from the fact that the initial public offering price per ordinary share is substantially in excess of the book value per both Class A and Class B ordinary share attributable to the existing shareholders for our presently issued and outstanding ordinary shares.

Our net tangible book value as of September 30, 2023 was approximately negative US$149.1 million, or negative US$2.91 per ordinary share as of that date. Net tangible book value represents the amount of our total consolidated tangible assets, less the amount of our total consolidated liabilities. Pro forma dilution is determined by subtracting net tangible book value per both Class A and Class B ordinary share, after giving effect to the additional proceeds we will receive from this offering, from the assumed initial public offering price of US$9.00 per Class A ordinary share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Because the Class A ordinary shares and Class B ordinary shares have the same dividend and other rights, except for voting and conversion rights, the dilution is presented based on all issued and outstanding ordinary shares, including Class A ordinary shares and Class B ordinary shares.

Without taking into account any other changes in net tangible book value after September 30, 2023, other than to give effect to the sale of 2,500,000 Class A ordinary shares offered in this offering at the assumed initial public offering price of US$9.00 per Class A ordinary share, the midpoint of the estimated range of the offering price, after deduction of the underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of September 30, 2023 would have been approximately negative US$11.80 million, or negative US$0.22 per outstanding ordinary share. This represents an immediate increase in net tangible book value of US$2.69 per ordinary share to the existing shareholders and an immediate dilution in net tangible book value of US$9.22 per Class A ordinary share to investors purchasing Class A ordinary shares in this offering. The following table illustrates calculations on the pro forma net tangible book value per ordinary share and such dilution:

 

		As of September 30, 2023				Pro Forma As Adjusted
			(US$ in thousands, except for share and per share data)
Numerator:
Consolidated asset		$	19,035			$	19,035
Less: consolidated intangible assets			(247	)			(247	)
consolidated liabilities			(47,446	)			(47,446	)
Mezzanine equity			(118,860	)			—
deferred offering cost			(1,555	)			(1,555	)
Add: net proceeds from IPO			—				18,377
Net tangible book value		$	(149,073	)		$	(11,836	)
Denominator:
Ordinary shares*			51,240,600				53,740,600
Net tangible book value per ordinary share			(2.91	)			(0.22	)

 

*

Ordinary shares issued and outstanding as of September 30, 2023 derived from (i) 14,450,350 redeemable ordinary shares issued and outstanding included in mezzanine equity, (ii) 36,790,250 ordinary shares issued and outstanding included in permanent equity. Shares pro forma as adjusted consisted of (i) 51,240,600 ordinary shares issued and outstanding as of September 30, 2023, (ii) the sale of 2,500,000 ordinary shares offered in this offering.

 

94

		Pro Forma As Adjusted (Assuming No Exercise of Over-Allotment Option)
		(US$)
Assumed Initial public offering price per Class A ordinary share			9.00
Net tangible book value per ordinary share as of September 30, 2023			(2.91	)
Adjusted net tangible book value per ordinary share attributable to payments by new investors			2.69
Pro forma as adjusted net tangible book value per ordinary share immediately after this offering			(0.22	)
Amount of dilution in net tangible book value per ordinary share to new investors in the offering			9.22

A US$1.00 change in the assumed public offering price of US$9.00 per Class A ordinary share would increase (decrease), in the case of an increase (decrease), our pro forma as adjusted net tangible book value after giving effect to this offering by approximately US$2.3 million, the pro forma as adjusted net tangible book value per both Class A and Class B ordinary share after giving effect to this offering by US$0.04 per Class A ordinary share and Class B ordinary share, and the dilution in pro forma as adjusted net tangible book value per ordinary share to new investors in this offering by US$0.96 per both Class A and Class B ordinary share, assuming no change to the number of Class A ordinary shares offered by us as set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and other offering expenses.

The following table summarizes, on a pro forma as adjusted basis as of September 30, 2023, the differences between existing shareholders and the new investors with respect to the number of ordinary shares purchased from us in this offering, the total consideration paid and the average price per ordinary share paid before deducting the underwriting discounts and commissions and estimated offering expenses. The total number of ordinary shares does not include ordinary shares underlying the Class A ordinary shares upon the exercise of the over-allotment option granted to the underwriters.

 

		Ordinary Shares Purchased								Total Consideration								Average Price Per Ordinary Share (in US$)
		Number				Percent (%)				Amount (in US$ thousands)				Percent (%)
Existing shareholders			51,240,600				95.3				99,362				81.5				1.94
New investors			2,500,000				4.7				22,500				18.5				9.00
Total			53,740,600				100.0				121,862				100.0

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

 

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ENFORCEMENT OF CIVIL LIABILITIES

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

 

•

political and economic stability;

 

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an effective judicial system;

 

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a favorable tax system;

 

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the absence of exchange control or currency restrictions; and

 

•

the availability of professional and support services.

However, certain disadvantages accompany incorporation in the Cayman Islands. These disadvantages include, but are not limited to:

 

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the Cayman Islands has a less developed body of securities laws as compared to the United States and these securities laws provide significantly less protection to investors as compared to the United States; and

 

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Cayman Islands companies may not have standing to sue before the federal courts of the United States.

Substantially all of our operations are conducted in China, and substantially all of our assets are located in China. Some of our directors and executive officers are nationals or residents of jurisdictions other than the United States and some of their assets are located outside the United States. In particular, Dr. Houqi Zhang, Jun Wang, Hui Zhang and Haifeng Li are PRC residents. As a result, it may be difficult for a shareholder to effect service of process within the United States upon these persons, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.

We have appointed Cogency Global Inc. as our agent upon whom process may be served in any action brought against us under the securities laws of the United States.

Han Kun Law Offices, our legal counsel as to PRC law, has advised us that there is uncertainty as to whether the courts of China, would:

 

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

 

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

We have been advised by Harney Westwood & Riegels that although there is no statutory enforcement in the Cayman Islands of judgments obtained in the federal or state courts of the United States (and the Cayman Islands are not a party to any treaties for the reciprocal enforcement or recognition of such judgments), the Cayman Islands Grand Court will at common law enforce final and conclusive in personam judgments of state and/or federal courts of the United States of America (the Foreign Court) of a debt or definite sum of money against the Company (other than a sum of money payable in respect of taxes or other charges of a like nature, a fine or other penalty (which may include a multiple damages judgment in an anti-trust action) or where enforcement would be contrary to public policy). The Grand Court of the Cayman Islands will also at common law enforce final and conclusive in personam judgments of the Foreign Court that are non-monetary against the

 

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Company, for example, declaratory judgments ruling upon the true legal owner of shares in a Cayman Islands company. The Grand Court will exercise its discretion in the enforcement of non-money judgments by having regard to the circumstances, such as considering whether the principles of comity apply. To be treated as final and conclusive, any relevant judgment must be regarded as res judicata by the Foreign Court. A debt claim on a foreign judgment must be brought within six years of the date of the judgment, and arrears of interest on a judgment debt cannot be recovered after six years from the date on which the interest was due. The Cayman Islands courts are unlikely to enforce a judgment obtained from the Foreign Court under civil liability provisions of U.S. federal securities law if such a judgment is found by the courts of the Cayman Islands to give rise to obligations to make payments that are penal or punitive in nature. Such a determination has not yet been made by the Grand Court of the Cayman Islands. A Cayman Islands court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere. A judgment entered in default of appearance by a defendant who has had notice of the Foreign Court’s intention to proceed may be final and conclusive notwithstanding that the Foreign Court has power to set aside its own judgment and despite the fact that it may be subject to an appeal the time-limit for which has not yet expired. The Grand Court may safeguard the defendant’s rights by granting a stay of execution pending any such appeal and may also grant interim injunctive relief as appropriate for the purpose of enforcement.

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

In addition, our investors may incur additional costs and procedural obstacles in effecting service of legal process, enforcing foreign judgments or bringing actions in Hong Kong against us or our management named in the prospectus, as judgments entered in the U.S. can be enforced in Hong Kong only at common law. If you want to enforce a judgment of the U.S. in Hong Kong, it must be a final judgment conclusive upon the merits of the claim, 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, and the enforcement of the judgment is not contrary to public policy of Hong Kong. Such a judgment must be for a fixed sum and must also come from a “competent” court as determined by the private international law rules applied by the Hong Kong courts.

Furthermore, foreign judgments of United States courts will not be directly enforced in Hong Kong as there are currently no treaties or other arrangements providing for reciprocal enforcement of foreign judgments between Hong Kong and the U.S. However, the common law permits an action to be brought upon a foreign judgment. That is to say, a foreign judgment itself may form the basis of a cause of action since the judgment may be regarded as creating a debt between the parties to it. In a common law action for enforcement of a foreign judgment in Hong Kong, the enforcement is subject to various conditions, including but not limited to, that the foreign judgment is a final judgment conclusive upon the merits of the claim, the judgment is for a liquidated amount in 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, and the enforcement of the judgment is not

 

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contrary to public policy of Hong Kong. Such a judgment must be for a fixed sum and must also come from a “competent” court as determined by the private international law rules applied by the Hong Kong courts. The defenses that are available to a defendant in a common law action brought on the basis of a foreign judgment include lack of jurisdiction, breach of natural justice, fraud, and contrary to public policy. However, a separate legal action for debt must be commenced in Hong Kong in order to recover such debt from the judgment debtor. As a result, subject to the conditions with regard to enforcement of judgments of United States courts being met, including but not limited to the above, a foreign judgment of United States of civil liabilities predicated solely upon the federal securities laws of the United States or the securities laws of any State or territory within the U.S. could be enforceable in Hong Kong.

 

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CORPORATE HISTORY AND STRUCTURE

OUR CORPORATE HISTORY

We are a Cayman Islands holding company and primarily conduct our operations in China through our PRC subsidiaries. On July 15, 2021, we incorporated Autozi Internet Technology (Global) Ltd. under the laws of the Cayman Islands as our offshore holding company to facilitate offshore financing. On June 2, 2010, we established Autozi Internet Technology Co., Ltd. and commenced our commercial operations. Although we started our business in 2010 as an automotive aftermarket company, we upgraded our business model in 2018 to provide high-quality, affordable and professional one-stop automotive products and services through online and offline channels countrywide. Please also see “Business — Our Supply Chain Cloud and SaaS Platforms — Our Business Model Innovation.”

On November 15, 2021, we established Autozi Internet Technology (BVI) Ltd., our wholly owned BVI subsidiary, with no substantial operations in BVI. On June 17, 2022, we established Autozi Internet Technology (HK) Limited, our wholly owned Hong Kong subsidiary, as a holding company with no substantial operations in Hong Kong.

As part of our reorganization for the purpose of this offering and listing on Nasdaq, in December 2022 and January and August 2023, shareholders of Autozi Internet Technology Co., Ltd. obtained ordinary shares or warrants to purchase ordinary shares of Autozi Internet Technology (Global) Ltd. in proportion to the shares they held in Autozi Internet Technology Co., Ltd.

On December 30, 2022, we established Autozi Investment Management (Anhui) Co., Limited, or the WFOE, as part of our reorganization. On January 5, 2023, Autozi Investment Management (Anhui) Limited acquired 95% of the equity interests of Autozi Internet Technology Co., Ltd. through the subscription of increased registered capital issued by Autozi Internet Technology Co., Ltd. and indirectly holds the equity interests of its PRC subsidiaries. Autozi Internet Technology (Global) Ltd. holds the equity interests in its PRC subsidiaries through the direct equity ownership of the subsidiaries incorporated in BVI and Hong Kong. As we have a direct equity ownership structure, we do not have any agreement or contract between our Company and any of its subsidiaries that are typically seen in a variable interest entity structure.

Under PRC laws and regulations, our PRC subsidiary may pay cash dividends to us of its respective accumulated profits. However, the ability of our PRC subsidiary to make such distribution to us is subject to various PRC laws and regulations, including the requirement to fund certain statutory funds, as well as potential restriction on currency exchange and capital controls imposed by the PRC government. For more details, see “Risk Factors — Risks Relating to Doing Business in China” and “Regulations — Regulations Relating to Dividend Distributions.”

 

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OUR CORPORATE STRUCTURE

From July 2021 to January 2023, in anticipation of the proposed initial public offering, we completed a series of reorganizational steps. The following diagram illustrates our corporate structure and identifies our significant subsidiaries prior to the initial public offering.

 

 

Note:

the English names of our PRC business entities are directly translated from Chinese and may be different from their names shown on their respective records filed with relevant PRC authorities.

(1)	Dr. Houqi Zhang, five other natural persons and 26 entities hold 5% shareholding of Autozi Internet Technology Co., Ltd..

(2)	Beijing Autozi Chifu Management and Consulting Center (Limited Partner) holds 20% shareholding of Autozi Chifu Auto Services (Beijing) Co., Ltd..

(3)	Wuhan Dianliang Venture Capital Fund Partnership (Limited Partner) and Chengdu Dianliang Shuguang Venture Capital Fund Partnership (Limited Partner) hold 5% and 4% shareholding of Quantum Data Technology (Beijing) Co., Ltd., respectively.

(4)	Liming Zhao and Zhengzhou Shunyi Chefu Information Technology Partnership (Limited Partner) holds 44% and 5% shareholding of Baicheng Auto Services (Henan) Co., Ltd., respectively.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

The following management discussion and analysis of financial condition and results of operations contains forward-looking statements which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under “Risk Factors” and elsewhere in this prospectus. We assume no obligation to update forward-looking statements or the risk factors. You should read the following discussion in conjunction with our combined and consolidated financial statements and related notes included elsewhere in this prospectus.

Overview

We are one of the leading and fast-growing lifecycle automotive service providers in China. Founded in 2010, we provide high-quality, affordable and professional one-stop automotive products and services through online and offline channels countrywide. We primarily engage in the sales of new cars, auto parts and auto accessories, as well as automotive insurance related services in PRC. As a comprehensive automobile service provider, we have established an ecosystem of lifecycle automotive services covering the full life cycle of automotives by connecting automotive manufacturers, auto parts manufactures, and insurance companies with MBS stores and various automotive owners, forming a complete loop of “new car sales—insurance issuance—reservation maintenance—claim settlement and repair—parts supply.”

In December 2022, the Chinese government announced the overall cancellation of risk control measures of COVID-19 pandemic including quarantines, travel restrictions, and the temporary closure of stores and facilities in China. For the one month prior to the removal of control measures, COVID-19 outbroke and spread severely in many regions of China, the majority of our employees were required to be home-quarantined and some of our offices were temporarily closed for certain periods. After the removal of control measures of COVID-19 since December 2022, almost all our staffs gradually got infected with the COVID-19 coronavirus and suspended their work for some days. As a result, our business operation and financial results were adversely affected by the COVID-19 for the first half of the fiscal year 2023. Our revenues suffered a decrease of 5.7% from US$120.3 million for the fiscal year ended September 30, 2022 to US$113.5 million for the fiscal year ended September 30, 2023. Meanwhile, for the fiscal year ended September 30, 2022, our new car sales, auto parts and auto accessories sales and automotive insurance related services accounted for 60.6%, 32.4% and 7.0% of our total revenues, respectively. For the fiscal year ended September 30, 2023, our new car sales, auto parts and auto accessories sales and automotive insurance related services accounted for 65.0%, 32.4% and 2.6% of our total revenues, respectively.

Key Factors Affecting Our Results

We believe the key general factors affecting our financial performance and results of operations include:

Market demand and supply

Our revenues are significantly affected by the demand for new cars in China. Market demand for automotives is driven by various factors including, among others, the growth of individual and family disposable income, continued urbanization and improvement in China’s road networks and other infrastructure. The rapid growth of China’s economy has led to an increase in living standards and per capita disposable income as well as accelerated urbanization. These factors helped drive the significant growth in automotive retail sales in China in recent years. However, the automotive industry in China has historically been cyclical and is affected by general economic conditions, consumer confidence and other factors such as manufacturers’ respective production capacities. Retail sales could slow down or decrease if growth in the Chinese economy slows or if the expanded production capacity of automotive manufacturers leads to an over-supply of new cars, and our revenues may be negatively affected as a result.

 

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Our ability to stand out from the fierce market competition

We face fierce competition in China and our results of operations may be affected not only by competition among automotive manufacturers in terms of vehicle quality, model variety, price and delivery time, but also by competition from other dealerships in the same region who sell the same brands and models of automotives as we do. Our financial condition and results of operations may be adversely affected if we fail to successfully compete against such dealerships in terms of price, location, quality of customer service and the ability to attract repeat business.

Government policies

Our results of operations may be affected by government policies and regulations relating to the automotive industry in China, such as PRC governmental policies on foreign investment in the automotive retail business as well as any policies or regulations affecting industry practices and market demand. Historically, our importation of parallel import cars had been suspended upon the implementation of Limits and Measurements Methods for Emissions from Light-Duty Vehicles (CHINA 6) in July 2020, and the adverse impact was removed upon the fulfillment of prototype emission test of parallel import cars in May 2021 that reopened the importation of parallel import cars business. Any additional government policies favorable or unfavorable to the automotive retail industry could impact our revenues and results of operations in the future.

Our results of operations in any given period may also be affected by company-specific factors, including:

Our ability to attract and retain customers

The growing number of customers is one of the most important drivers of our business growth. Therefore, our results of operations will depend in large part on our continued ability to attract customers, retain them, and serve them over the long term. We seek to attract new customers and retain existing customers by offering superior customer services through highly-motivated, technically proficient store personnel, competitive pricing, robust SaaS platforms integrated with our proprietary product and services catalog, and online ordering function. We intend to continue to drive customer acquisition by relying on our strong brand recognition, expanding online and offline presence, and implementing effective marketing strategies. Providing outstanding customer services is our highest priority and is the key for us to establish a large and loyal customer base.

Our ability to optimize business mix

Our results of operations, and in particular, our profitability, are also affected by our business mix. We offer a diversified and expanding portfolio of products and services, such as parallel import cars, NEVs, auto parts and auto accessories, and automotive insurance related services. The different categories we offer have different margins and growth outlooks. As we introduce and promote new offerings, our overall profitability may vary from period to period as a result of changes in products and services category mix and their respective margin profiles. Our diversified and expanding offerings of products and services also enable us to provide a one-stop automotive service experience catering to the various needs of car owners, driving customer acquisition and retention and increasing cross-selling activities.

Pricing of our products and services

Our revenues are directly affected by the price of our products and services. The average selling price is calculated by dividing the total revenues generated through new car sales by the total number of new cars sold by us during the relevant fiscal year. We expect the price of new cars to decrease in the long run in China primarily due to the lowering of tariffs on imported cars and increased competition. However, our average selling price of new cars may fluctuate period over period depending on the mix of automotives we sell during a particular period that consists of different models in different price ranges.

 

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Our ability to continue to expand the size and scope of our MBS store network

We have built direct cooperative relationships with our cooperating MBS stores to conduct new car sales business as well as continuously expanded our MBS store network to conduct auto parts and auto accessories sales and provide automotive insurance related services. The number of MBS stores we have opened was 121 during the fiscal year ended September 30, 2022, and the number we have closed was 27 during the fiscal year ended September 30, 2023. Most of the MBS stores carry our brand names, “Autozi” which have a strong brand awareness in the market we serve. MBS stores are an integral part of conducting new car sales business and auto parts and auto accessories sales business as well as providing comprehensive automotive insurance related services to our customers. Expansion of network of MBS stores fulfills the lifecycle automotive service needs of passenger vehicle owners. Our results of operations will be directly affected by the number and geographic coverage of MBS stores in the future.

Results of Operations

The following table sets forth a summary of our combined and consolidated results of operations, in absolute amount and as a percentage of our revenues for the fiscal years ended September 30, 2022 and 2023. This information should be read together with our combined and consolidated financial statements and related notes included elsewhere in this prospectus.

The results of operations in any period are not necessarily indicative of the results that may be expected for any future period.

 

		For the fiscal year ended September 30,
		2022								2023								Variance
		US$’000				%				US$’000				%				US$’000				%
Revenues			120,348				100.0				113,541				100.0				(6,807	)			(5.7	)
Cost of revenues			(119,632	)			(99.4	)			(113,045	)			(99.6	)			6,587				(5.5	)
Gross profit			716				0.6				496				0.4				(220	)			(30.7	)
Operating expenses
Selling and marketing expenses			(1,445	)			(1.2	)			(1,137	)			(1.0	)			308				(21.3	)
General and administrative expenses			(2,882	)			(2.4	)			(5,370	)			(4.7	)			(2,488	)			86.3
Research and development expenses			(1,049	)			(0.9	)			(1,314	)			(1.2	)			(265	)			25.3
Total operating expenses			(5,376	)			(4.5	)			(7,821	)			(6.9	)			(2,445	)			45.5
Operating loss			(4,660	)			(3.9	)			(7,325	)			(6.5	)			(2,665	)			57.2
Other expense
Financial expenses, net			(1,657	)			(1.4	)			(2,060	)			(1.8	)			(403	)			24.3
Other income, net			142				0.1				(1,242	)			(1.1	)			(1,384	)			(974.6	)
Investment income			10				—				78				0.1				68				680.0
Total other expenses, net			(1,505	)			(1.3	)			(3,224	)			(2.8	)			(1,719	)			114.2
Loss before income tax expenses			(6,165	)			(5.2	)			(10,549	)			(9.3	)			(4,384	)			71.1
Income tax expenses			—				—				—				—
Net loss			(6,165	)			(5.2	)			(10,549	)			(9.3	)			(4,384	)			71.1

Key Components of Results of Operations

Revenues

We generate revenues primarily from (i) new cars sales, (ii) auto parts and auto accessories sales, and (iii) automotive insurance related services. For the fiscal years ended September 30, 2022 and 2023, our revenues amounted to US$120.3 million and US$113.5 million, respectively. For our new cars sales, we provide

 

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customers with parallel import cars and new energy vehicles. Auto parts and auto accessories sales consist of sales of lubricating oils, tires, accumulators and other accessories. We also provide a variety of automotive insurance related services including value-added maintenance service, claim and repair services, and insurance intermediation service.

Cost of revenues

Cost of revenues primarily consists of (i) cost of new cars, (ii) cost of auto parts and auto accessories, and (iii) cost of automotive insurance related services.

Selling and marketing expenses

Our selling and marketing expenses primarily consist of advertising costs and market promotion expenses, staff cost, rental and depreciation related to selling and marketing functions and other miscellaneous expenses, etc.

General and administrative expenses

Our general and administrative expenses primarily consist of staff cost, rental and depreciation related to general and administrative personnel, professional service fees, bad debt expenses and other corporate expenses.

Research and development expenses

Our research and development expenses primarily consist of staff cost and related expenses for research and development professionals, platform development fees, and others.

Taxation

Cayman Islands

We are incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, we are not subject to income or capital gains taxes. In addition, dividend payments are not subject to withholdings tax in the Cayman Islands.

British Virgin Islands

Our subsidiary, Autozi Internet Technology (BVI) Ltd. is incorporated in the British Virgin Islands. Under the current laws of the British Virgin Islands, Autozi Internet Technology (BVI) Ltd. is not subject to tax on income or capital gains. In addition, dividend payments are not subject to withholdings tax in the British Virgin Islands.

Hong Kong

Our subsidiary, Autozi Internet Technology (HK) Co., Ltd. is incorporated in Hong Kong and are subject to Hong Kong profits tax rate. Under the two-tiered profits tax rates regime, the first 2,000,000 Hong Kong Dollar (“HKD”) of profits of the qualifying group entity will be taxed at 8.25%, and profits above HKD2,000,000 will be taxed at 16.5%. In addition, dividend payments are not subject to withholdings tax in Hong Kong. Our subsidiary Autozi Internet Technology (HK) Co., Ltd. was not subject to Hong Kong profit tax for any period presented as it did not have assessable profit during the periods presented.

PRC

Generally, our WFOE and subsidiaries, which are considered PRC resident enterprises under PRC Enterprise Income Tax Law (the “EIT Law”), are subject to enterprise income tax on their worldwide taxable

 

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income as determined under EIT Law and accounting standards at a rate of 25%. EIT Law grants preferential tax treatment to High and New Technology Enterprises (“HNTEs”) at a rate of 15%, subject to a requirement that they re-apply for HNTE status every three years. Our subsidiaries, Autozi Internet Technology (“Autozi China”) and Quantum Jinfu Data Technology (Beijing) Co., LTD (“Beijing Quantum”) were approved as a HNTE and are entitled to a reduced income tax rate of 15% beginning from 2020 and 2019, respectively. The certificate is valid for three years. Beijing Quantum did not apply for renewal as it did not expect to be profitable in the near future. Therefore, Beijing Quantum is subject to an income tax rate of 25% as of September 30, 2022 and 2023.

According to relevant laws and regulations promulgated by the State Administration of Tax of the PRC effective from October 1, 2022 onwards, enterprises engaging in research and development activities are entitled to claim 200% of their qualified research and development expenses so incurred as tax deductible expenses when determining their assessable profits for the year. The additional deduction of 100% of qualified research and development expenses can be directly claimed in the annual EIT filling.

Comparison of Fiscal Years Ended September 30, 2022 and 2023

Revenues

Our revenues decreased by 5.7% or US$6.8 million from US$120.3 million for the fiscal year ended September 30, 2022 to US$113.5 million for the fiscal year ended September 30, 2023. The following table sets forth a breakdown of our revenues, each expressed in the absolute amount and as a percentage of our total revenues, for the periods indicated.

 

		For the fiscal year ended September 30,
		2022								2023								Variance
		USD’000				%				USD’000				%				USD’000				%
Revenues
New Car Sales			72,963				60.6				73,697				65.0				734				1.0
- Parallel-import cars sales			70,789				58.8				72,648				64.1				1,859				2.6
- New energy vehicles sales			2,174				1.8				1,049				0.9				(1,125	)			(51.7	)
Auto Parts and Auto Accessories Sales			39,031				32.4				36,847				32.4				(2,184	)			(5.6	)
- Lubricating oils			35,286				29.3				33,465				29.5				(1,821	)			(5.2	)
- Tires			1,185				1.0				1,521				1.3				336				28.4
- Accumulators			2,132				1.8				1,710				1.5				(422	)			(19.8	)
- Others			428				0.3				151				0.1				(277	)			(64.7	)
Automotive Insurance Related Services			8,354				7.0				2,997				2.6				(5,357	)			(64.1	)
- Value-added maintenance services			6,219				5.2				2,381				2.1				(3,838	)			(61.7	)
- Claim and repair services			2,127				1.8				615				0.5				(1,512	)			(71.1	)
- Insurance intermediation service			8				0.0				1				0.0				(7	)			(87.5	)
Total revenues			120,348				100.0				113,541				100.0				(6,807	)			(5.7	)

Our revenues from new car sales slightly increased by 1.0% or US$0.7 million from US$73.0 million for the fiscal year ended September 30, 2022 to US$73.7 million for the fiscal year ended September 30, 2023, including (i) an increase of US$1.9 million from parallel import car sales attributable to the higher-priced parallel import cars we sold. Due to the price competition of considerable mid-low priced domestic new energy vehicles in the vehicles industry for the year ended September 30, 2023, more of our customers’ demands were focused on luxury parallel import cars for the year ended September 30, 2023, and partially offset by the decrease of sales volume for the year ended September 30, 2023, and (ii) a decrease of US$1.1 million from new energy vehicles sales as this business stream has been temporarily suspended due to the tight cash flow in the second half of the fiscal year 2023. The sales volume of parallel import cars decreased by 42 units from 628 units for the fiscal year ended September 30, 2022 to 586 units for the fiscal year ended September 30, 2023. The sales volume of NEVs decreased by 128 units from 201 units for the fiscal year ended September 30, 2022 to 73 units for the fiscal year ended September 30, 2023.

 

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Our revenues from auto parts and auto accessories sales slightly decreased by 5.6% or US$2.2 million from US$39.0 million for the fiscal year ended September 30, 2022 to US$36.8 million for the fiscal year ended September 30, 2023, primary attributable to (i) the decrease of US$1.8 million in lubricating oils sales due to the unfavorable fluctuations in the exchange rate of the U.S. dollars from the fiscal year ended September 30, 2022 to the fiscal year ended September 30, 2023 and partially offset by the increase in sales volume and (ii) the decrease of US$0.4 million in accumulators sales as a result of expiration of cooperation with some customers in the second half of the fiscal year 2023; and partially offset by the increase of US$0.3 million from tires sales.

Our revenues from automotive insurance related services significantly decreased by 64.1% or US$5.4 million from US$8.4 million for the fiscal year ended September 30, 2022 to US$3.0 million for the fiscal year ended September 30, 2023, including the decrease of US$3.8 million from insurance value-added maintenance services attributable to the shrinking business volume as only one of our subsidiaries has won the bid in the fiscal year 2023 compared with two subsidiaries in the fiscal year 2022. In addition, the limited value added tax (“VAT”) invoice quantum from the local tax bureau due to lockdown policy affected by COVID-19 pandemic in the first half of the fiscal year 2023 contributed to the decrease in sales volume since VAT invoice is timely required by our customers for their purchase of services. Besides, our revenue from claim and repair services decreased by US$1.5 million as a result of (i) the regional lockdown of repair shops we cooperated in Henan Province for a few months in the first half of the fiscal year 2023 due to the COVID-19 pandemic, (ii) the termination of claim and repair services in Luoyang and Kaifeng due to the turnover of key business personnel and (iii) the Company ceased cooperation with certain insurance companies who provided some negative policies to us in the second half of the fiscal year 2023.

Cost of revenues

Our cost of revenues decreased by 5.5% or US$6.6 million from US$119.6 million for the fiscal year ended September 30, 2022 to US$113.0 million for the fiscal year ended September 30, 2023. The following table sets forth a breakdown of our cost of revenues by revenue streams, expressed as an absolute amount and as a percentage of the total cost of revenues, for the period indicated.

 

		For the fiscal year ended September 30,
		2022								2023								Variance
		USD’000				%				USD’000				%				USD’000				%
Cost
New Car Sales			72,878				60.9				73,693				65.2				815				1.1
- Parallel-import cars sales			70,748				59.1				72,619				64.2				1,871				2.6
- New energy vehicles sales			2,130				1.8				1,074				1.0				(1,056	)			(49.6	)
Auto Parts and Auto Accessories Sales			38,790				32.5				36,480				32.2				(2,310	)			(6.0	)
- Lubricating oils			35,210				29.4				33,150				29.3				(2,060	)			(5.9	)
- Tires			1,069				0.9				1,497				1.3				428				40.0
- Accumulators			2,103				1.8				1,694				1.5				(409	)			(19.4	)
- Others			408				0.4				139				0.1				(269	)			(65.9	)
Automotive Insurance Related Services			7,964				6.6				2,872				2.6				(5,092	)			(63.9	)
- Value-added maintenance services			6,161				5.1				2,357				2.1				(3,804	)			(61.7	)
- Claim and repair services			1,803				1.5				515				0.5				(1,288	)			(71.4	)
- Insurance intermediation service			—				—				—				—				—				—
Total cost of revenues			119,632				100.0				113,045				100.0				(6,587	)			(5.5	)

Our cost of revenues for new cars sales increased by 1.1% or US$0.8 million from US$72.9 million for the fiscal year ended September 30, 2022 to US$73.7 million for the fiscal year ended September 30, 2023. Our cost of revenues for auto parts and auto accessories sales decreased by 6.0% or US$2.3 million from US$38.8 million for the fiscal year ended September 30, 2022 to US$36.5 million for the fiscal year ended September 30, 2023.

 

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