As filed with the Securities and Exchange Commission on October 28, 2021.

Registration No. 333-260138

 

 

 

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

 

 

DELIMOBIL HOLDING S.A.

(Exact name of Registrant as specified in its charter)

 

Grand Duchy of Luxembourg		7389		Not Applicable
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification No.)

10, rue C.M. Spoo

L-2546, Luxembourg

Grand Duchy of Luxembourg

+352 26 97 63 04

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

 

 

C T Corporation System

28 Liberty Street

New York,

New York 10005

(212) 894-8940

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

With copies to:

 

David I. Gottlieb, Esq. Cleary Gottlieb Steen & Hamilton LLP 2 London Wall Place London EC2Y 5AU United Kingdom +44 20 7614 2200		Yulia A. Solomakhina Cleary Gottlieb Steen & Hamilton LLC Paveletskaya Square 2/3 Moscow, Russia, 115054 +7 495 660 8500		Claire-Marie Darnand Stibbe Avocats 6, rue Jean Monnet 2180 Luxembourg Luxembourg +352 26 61 81 00		Pranav L. Trivedi, Esq. Skadden, Arps, Slate, Meagher & Flom (UK) LLP 40 Bank Street, Canary Wharf London E14 5DS United Kingdom +44 20 7519 7000		Ryan J. Dzierniejko Skadden, Arps, Slate, Meagher & Flom LLP One Manhattan West New York, NY 10001 United States +1 (212) 735-3000

 

 

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.

 

 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of Securities to be Registered(1)		Amount to be Registered(2)		Proposed Maximum Offering Price per Share(3)		Proposed Maximum Aggregate Offering Price(2)(3)		Amount of Registration Fee(4)
Ordinary shares, par value of €0.01		46,000,000		$6		$276,000,000		$25,585.20

(1)	American depositary shares, or ADSs, issuable upon deposit of the ordinary shares registered hereby will be registered under a separate registration statement on Form F-6 (Registration No. 333-260509). Each ADS represents two ordinary shares.

(2)

Includes ordinary shares represented by ADSs that may be purchased by the underwriters pursuant to an option to purchase additional ADSs. Also includes ordinary shares represented by ADSs that are to be offered outside the United States but that may be resold from time to time in the United States while a registration statement is required to be in effect or a prospectus is required to be delivered.

(3)	Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(a) of the Securities Act of 1933, as amended.

(4)	Previously paid in connection with prior filings of this registration statement.

 

 

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 U.S. Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

 

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

SUBJECT TO COMPLETION, DATED OCTOBER 28, 2021

PRELIMINARY PROSPECTUS

DELIMOBIL HOLDING S.A.

20,000,000 American Depositary Shares

Representing 40,000,000 Ordinary Shares

$                per ADS

This is the initial public offering of American Depositary Shares, or ADSs, representing ordinary shares of Delimobil Holding S.A., a public limited liability company (société anonyme) incorporated under the laws of Luxembourg. Each ADS will represent two ordinary shares. We are offering 20,000,000 ADSs.

Prior to this offering, there has been no public market for the ADSs. The estimated initial public offering price per ADS will be between $10 and $12. We intend to apply to have the ADSs listed on the New York Stock Exchange (“NYSE”) in the United States under the symbol “DMOB.”

We are and may continue to be a “controlled company” within the meaning of the NYSE corporate governance rules due to the fact that upon completion of this offering our controlling shareholder, Mikro Kapital Group SARL, as well as (i) all its direct and indirect subsidiaries, (ii) special purpose vehicles managed by such direct and indirect subsidiaries and (iii) equity investments of such special purpose vehicles (together “Mikro Kapital Group”), will control approximately 50.3% of the voting power of our ordinary shares if the underwriters do not exercise their option to purchase additional ADSs in full. As a “controlled company”, we are and would be permitted to elect to rely on certain exemptions from corporate governance rules. See “Management—Controlled Company Exemption.” If the underwriters do exercise their option to purchase additional ADSs in full, Mikro Kapital Group will control approximately 48.4% of the voting power of our ordinary shares and we will no longer be a “controlled company” within the meaning of the NYSE corporate governance rules.

Upon completion of this offering, our directors, officers and principal shareholders will hold 73.69% of our ordinary shares (not including any ADSs that may be purchased in the offering as described below) if the underwriters do not exercise their option to purchase additional ADSs. If the underwriters do exercise their option to purchase additional shares in full, our directors, officers and principal shareholders will hold 70.89% of our ordinary shares (not including any ADSs that may be purchased in the offering).

We are both an “emerging growth company” and a “foreign private issuer” as defined under the U.S. federal securities laws and, as such, may elect to comply with certain reduced public company reporting requirements. See “Prospectus Summary—Implications of Being an Emerging Growth Company and a Foreign Private Issuer.”

Investing in the ADSs involves risks. See “Risk Factors” beginning on page 26.

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

 

		Per ADS				Total
Initial public offering price		$				$
Underwriting discounts and commissions(1)		$				$
Proceeds to us (before expenses)		$				$

 

(1)	We have agreed to reimburse the underwriters for certain expenses in connection with this offering. See “Underwriting.”

The underwriters have a 30-day option to purchase up to an aggregate of 3,000,000 additional ADSs from us at the initial public offering price, less the underwriting discounts and commissions.

Certain affiliates and other persons and entities associated with Mikro Kapital Group and certain of our directors and officers have indicated interests in purchasing an aggregate amount not to exceed 2% of the ADSs being offered in this offering at the initial public offering price and on the same terms as the other ADSs being offered. Such indications of interests are not binding agreements or obligations to purchase, and we and the underwriters are under no obligations to sell any ADSs to such persons.

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

 

 

 

BofA Securities		Citigroup		VTB Capital

Banco Santander		RenCap		SberCIB		Tinkoff

 

 

Prospectus dated                 , 2021

TABLE OF CONTENTS

 

PRESENTATION OF FINANCIAL AND OTHER INFORMATION			iv
MARKET AND INDUSTRY DATA			vii
TRADEMARKS			viii
PROSPECTUS SUMMARY			1
THE OFFERING			19
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA			21
RISK FACTORS			26
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS			80
USE OF PROCEEDS			82
DIVIDEND POLICY			83
CAPITALIZATION			84
DILUTION			85
SELECTED COMBINED AND CONSOLIDATED FINANCIAL AND OPERATING DATA			87
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			92
INDUSTRY			129
BUSINESS			146
REGULATION			177
MANAGEMENT			184
PRINCIPAL SHAREHOLDERS			195
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS			197
DESCRIPTION OF SHARE CAPITAL AND ARTICLES OF ASSOCIATION			201
DESCRIPTION OF AMERICAN DEPOSITARY SHARES			218
SHARES AND AMERICAN DEPOSITARY SHARES ELIGIBLE FOR FUTURE SALE			227
TAX CONSIDERATIONS			229
UNDERWRITING			248
EXPENSES OF THE OFFERING			257
LEGAL MATTERS			258
EXPERTS			259
ENFORCEABILITY OF CIVIL LIABILITIES			260
WHERE YOU CAN FIND ADDITIONAL INFORMATION			263

 

 

Neither we nor the underwriters have authorized anyone to provide you with any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared, and neither we nor the underwriters take responsibility for, or can provide any assurance as to the reliability of, any other information others may give you. We and the underwriters are not making an offer to sell, or seeking offers to buy, these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than its date, regardless of the time of delivery of this prospectus or of any sale of the ADSs.

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

We are incorporated in Luxembourg, and a majority of our outstanding securities are owned by non-U.S. residents. Under the rules of the United States Securities and Exchange Commission, or the SEC, we

 

i

are currently eligible for treatment as a “foreign private issuer.” As a foreign private issuer, we will not be required to file periodic reports and financial statements with the SEC as frequently or as promptly as domestic registrants whose securities are registered under the Securities Exchange Act of 1934, as amended.

 

ii

ABOUT THIS PROSPECTUS

Except where the context otherwise requires or where otherwise indicated, all references in this prospectus to “Delimobil Holding” or the “issuer” are to Delimobil Holding S.A., a Luxembourg public limited liability company (société anonyme) registered with the Luxembourg Register of Commerce and Companies under number B 250892; and to “Delimobil,” the “Company,” “we,” “us,” “our” or similar terms refer to Delimobil Holding together with its consolidated subsidiaries as a consolidated entity.

All references in this prospectus to the “Companies” are to Carsharing Russia LLC, Anytime LLC and Smart Mobility Management LLC (“SMM LLC”), our consolidated subsidiaries, all of which are Russian limited liability companies ; and to the “Group” are to Delimobil Holding and the Companies on a combined and consolidated basis.

All references in this prospectus to “Russia” are to the Russian Federation; to “Luxembourg” are to the Grand Duchy of Luxembourg; and to the “EU” are to the European Union.

All references in this prospectus to “RUB,” “rubles” or “P” are to Russian rubles, the official currency of Russia; to “USD,” “dollar” or “$” are to U.S. dollars; and to “EUR,” “euro” or “€” are to the currency introduced at the start of the third stage of European economic and monetary union pursuant to the treaty establishing the European Community, as amended.

All references in this prospectus to the “Commission” or to the “SEC” are to the United States Securities and Exchange Commission; to the “Exchange Act” are to the U.S. Securities Exchange Act of 1934, as amended; and to the “Securities Act” are to the U.S. Securities Act of 1933, as amended.

 

iii

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

Financial Information

Our audited combined and consolidated financial statements for the years ended December 31, 2020 and 2019 are included in this prospectus, and reflect the combined and consolidated financial information of the Companies, our Russian subsidiaries through which our business is operated. Our audited combined and consolidated financial statements were prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”), and audited in accordance with the standards established by Public Company Accounting Oversight Board (“PCAOB”). Our unaudited interim condensed combined and consolidated financial statements for the six months ended June 30, 2021 and 2020 have been prepared in accordance with IAS 34, “Interim Financial Reporting,” as issued by the IASB. None of our financial statements were prepared in accordance with generally accepted accounting principles of the United States (“U.S. GAAP”). References in this prospectus to “our financial statements” are to our audited combined and consolidated financial statements for the years ended December 31, 2020 and 2019, and the related notes thereto, and to our unaudited interim condensed combined and consolidated financial statements for the six months ended June 30, 2021 and 2020, and the related notes thereto, included elsewhere in this prospectus.

Delimobil Holding, the company offering the ADSs in this prospectus, was incorporated on January 18, 2021, as a public limited liability company (société anonyme) under the laws of Luxembourg. Its subsidiary, Carsharing Russia LLC, through which the principal business of Delimobil Holding is conducted, has operated since 2015. Until the contribution of the equity interests in the Companies, Delimobil Holding had not commenced operations. Following this offering, Delimobil Holding will begin reporting consolidated financial information to shareholders. Our fiscal year ends on December 31 of each year. References to 2020 are to the fiscal year ended December 31, 2020, and references to 2019 are to the fiscal year ended December 31, 2019.

The financial information presented in this prospectus should be read in conjunction with our financial statements, including the related notes, and the section of this prospectus titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Use of Non-IFRS Financial Measures

Certain parts of this prospectus contain non-IFRS financial measures, specifically (i) Adjusted Gross Profit/(Loss), (ii) Adjusted Gross Profit/(Loss) Margin, (iii) Adjusted EBITDA and (iv) Adjusted EBITDA Margin. The most directly comparable IFRS measure for Adjusted Gross Profit/(Loss) is gross profit/(loss) and for Adjusted Gross Profit/(Loss) Margin is gross profit/(loss) margin. The most directly comparable IFRS measure for Adjusted EBITDA is loss for the period and for Adjusted EBITDA Margin is loss for the period margin. We define:

 

•

Adjusted Gross Profit/(Loss) as gross profit/(loss) adjusted for: (i) compulsory civil liability insurance proceeds, (ii) expected credit losses of trade receivables and (iii) following the adoption of our phantom share plan (the “Phantom Share Plan”), share-based remuneration;

 

•

Adjusted Gross Profit/(Loss) Margin as Adjusted Gross Profit/(Loss) divided by revenue expressed as a percentage;

 

•

Adjusted EBITDA as loss for the period adjusted for: (i) income tax benefit, (ii) finance costs, (iii) finance income, (iv) impairment of a right-of-use asset, (v) VAT write-off, (vi) loss on lease terminations, (vii) impairment of property, plant and equipment, (viii) (gain)/loss on disposal of property, plant and equipment, net, (ix) reversal of an impairment loss on a right-of-use asset, (x) subsidies received, (xi) insurance compensation received for damage of vehicles, (xii) reversal of impairment loss on property, plant and equipment, (xiii) depreciation of property, plant and equipment, (xiv) amortization of intangible assets, (xv) depreciation of right-of-use assets and (xvi) following the adoption of our Phantom Share Plan, share-based remuneration; and

 

•

Adjusted EBITDA Margin as Adjusted EBITDA divided by revenue expressed as a percentage.

 

iv

The non-IFRS financial measures included in this prospectus are unaudited supplementary measures that are not required by or presented in accordance with IFRS or any other generally accepted accounting principles. See “Selected Combined and Consolidated Financial and Operating Data” for a reconciliation of these non-IFRS measures to the most directly comparable IFRS measures as set forth in the combined and consolidated financial statements.

Prospective investors should not consider them as: (a) an alternative to gross profit/(loss), operating profit or net profit as determined in accordance with IFRS or other generally accepted accounting principles, or as measures of operating performance; or (b) an alternative to any other measures of performance under IFRS or other generally accepted accounting principles.

These measures are used by our management to monitor the underlying performance of the business and our operations. However, not all companies calculate these measures in an identical manner and, therefore, our presentation may not be comparable with similar measures used by other companies. As a result, prospective investors should not place undue reliance on this data.

Rounding

Certain figures and some percentages included in this prospectus have been subject to rounding adjustments. Accordingly, the totals included in certain tables contained in this prospectus may not correspond to the arithmetic aggregation of the figures or percentages that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.

Key Operating and Financial Metrics

Throughout this prospectus, we provide a number of key operating and financial metrics used by our management and often used by competitors in our industry. We use different key operating and financial metrics for our two different operating segments, Delimobil and Anytime Prime. These and other key performance indicators are discussed in more detail in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Financial and Operating Metrics.” We define certain terms used in this prospectus as follows:

Delimobil Segment

 

•

EoP Fleet means the total number of vehicles in our car sharing fleet at the end of a given period.

 

•

Weighted Average Fleet represents the average number of vehicles that constituted our car sharing fleet in a given period, calculated as the sum of the number of days each vehicle was part of our fleet divided by the number of calendar days in the given period.

 

•

Total Trips is the total number of trips completed by customers using our car sharing fleet in a given period. A trip lasts from the moment a customer books a vehicle until the moment the customer signals the completion of their journey on the Delimobil app.

 

•

Monthly Active Users (MAU) is the total number of unique customers who completed at least one trip per month using our car sharing fleet calculated as an average over the reporting period.

 

•

Total Minutes Sold is the total number of minutes that customers were charged for using our car sharing service in a given period.

 

•

Revenue for Car Sharing is the total amount of revenue generated from our car sharing service in a given period, in line with Note 32 to our audited combined and consolidated financial statements and with Note 30 to our unaudited interim condensed combined and consolidated financial statements.

 

v

•

Revenue per Weighted Average Fleet is revenue generated from our car sharing service divided by Weighted Average Fleet in a given period.

 

•

Revenue per Minute is revenue generated from our car sharing service divided by Total Minutes Sold in a given period.

Anytime Prime Segment

 

•

EoP Fleet means the total number of vehicles in our long-term rental fleet at the end of a given period.

 

•

Weighted Average Fleet represents the average number of vehicles that constituted our long-term rental fleet in a given period, calculated as the sum of the number of days each vehicle was part of our fleet divided by the number of calendar days in the given period.

 

•

Total Rental Days is the total number of rental days completed by customers for use of a vehicle in our long-term rental fleet in a given period. A rental day lasts from the moment a customer books the vehicle until the moment the customer signals the completion of their journey on the Anytime Prime app. As we only began to collect data on rental days from April 2019 as part of our strategic decision to focus on long-term rentals in the Anytime Prime segment, for the year ended December 31, 2019, Total Rental Days relates only to the period from April to December 2019.

 

•

Revenue for Long-Term Rentals is the total amount of revenue generated from our long-term rental service in a given period, in line with Note 32 to our audited combined and consolidated financial statements and with Note 30 to our unaudited interim condensed combined and consolidated financial statements. Revenue for Long-Term Rentals does not include any car sharing revenue recorded in the Anytime Prime segment for the year ended December 31, 2019.

 

•

Revenue per Rental Day is revenue generated from our long-term rental service divided by Total Rental Days in a given period.

 

vi

MARKET AND INDUSTRY DATA

The industry, market and competitive position data included in this prospectus is derived from our own internal estimates and research, our management’s understanding of our business and the market in which we operate, as well as from publicly available information, including information of the Russian Federal State Statistics Service (“Rosstat”), the Moscow Department of Transport, the International Monetary Fund (“IMF”), industry and general publications and research, surveys and studies conducted by third parties, such as Tiburon Brand Health Research and Frost & Sullivan Ltd. (“Frost & Sullivan”).

There are a number of studies that address either specific market segments, or regional markets, within our industry. However, given the rapid changes in our industry and the markets in which we operate, no industry research that is generally available covers some of the car sharing market trends we view as key to understanding our industry and our place in it worldwide and, in particular, in Russia. We believe that it is important that we maintain as broad a view on industry developments as possible. To assist us in formulating our business plan and in anticipation of this offering, we commissioned Frost & Sullivan in 2021 to provide an independent view of the car sharing landscape in Russia including an overview of macroeconomic indicators of Russia, the evolution of Russia’s public and private transportation markets size, shared mobility and car sharing markets size and an analysis of its underlying trends over time, relevant demographics, peer countries benchmarks, COVID-19 impact and potential growth factors, as well as an assessment of key competitors and evaluation of their and our market position. Frost & Sullivan produced a research report titled “Industry Report on the Russian Car Sharing Market” dated July 15, 2021. In connection with the preparation of Frost & Sullivan’s report, we furnished to Frost & Sullivan certain of our historical information and market competitive data. In preparation of the report, Frost & Sullivan conducted research including a customer survey, a study of a broad range of secondary sources including other market reports, association and trade press publications, other databases and other sources. We use the data contained in Frost & Sullivan’s report to assist us in describing the nature of our industry and our position in it. Such information is included in this prospectus in reliance on Frost & Sullivan’s authority as an expert in such matters. See “Experts.”

Due to the evolving nature of our industry and competitors, we believe that it is difficult for any market participant, including us, to provide precise data on the market or our industry. Industry publications and forecasts generally state that the information they contain has been obtained from sources believed to be reliable. We have not independently verified the accuracy or completeness of the data contained in these industry publications and reports. Although we are not aware of any misstatements regarding the industry data that we present in this prospectus, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus.

Some market data and statistical information contained in this prospectus are also based on management’s estimates and calculations, which are derived from our review and interpretation of the independent sources, our internal market and brand research and our knowledge of our industry. Information that is based on estimates, forecasts, projections or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. The forward-looking information obtained from these sources is subject to the same qualifications and uncertainties as other forward looking statements in this prospectus.

 

vii

TRADEMARKS

We have proprietary rights to certain trademarks used in this prospectus that are important to our business, many of which are registered under applicable intellectual property laws.

Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the “^®” or “^™” symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent possible under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. Except where expressly indicated, we do not intend our use or display of other companies’ trademarks, trade names or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies. Each trademark, trade name or service mark of any other company appearing in this prospectus is the property of its respective owner.

 

viii

 

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25

RISK FACTORS

An investment in the ADSs involves a high degree of risk. You should carefully consider the risks and uncertainty described below, together with all of the other information in this prospectus, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements, and the related notes thereto, before deciding to invest in the ADSs. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations. Our business, financial condition or results of operations could be materially and adversely affected by any of these risks. The trading price and value of the ADSs could decline due to any of these risks, and you may lose all or part of your investment.

Risks Relating to our Business

The novel coronavirus, or COVID-19, pandemic and the impact of actions to mitigate the pandemic have materially adversely impacted and could continue to materially adversely impact our business, financial condition and results of operations.

In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. In an attempt to limit the spread of the virus, various countries, including Russia, implemented governmental restrictions, such as declarations of states of emergency, school and business closings, quarantines, “shelter at home” orders, restrictions on travel, limitations on social or public gatherings, and other social distancing measures which have, and may continue to have, a material adverse impact on our business and operations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Key Factors Affecting Our Performance—Impact of COVID-19 Pandemic.” In particular, for the year ended December 31, 2020, we experienced a number of negative impacts as a result of the COVID-19 pandemic, including the following:

 

•

Demand: during the second quarter of 2020, and to a lesser extent the remainder of 2020, there was reduced demand for our shared mobility offerings, particularly in the Moscow and St. Petersburg regions of Russia. A significant amount of the demand in large metropolitan areas for our shared mobility offerings is derived from workers’ commute, which was severely impacted due to shelter at home orders and remote working. See “—Our business is subject to geographical risks and if our operations in large metropolitan areas are negatively affected, our operating results would be adversely impacted.”

 

•

Regulation: from April 13, 2020 to June 10, 2020, car sharing services were prohibited in Moscow, St. Petersburg and several other Russian cities in which we operate, which adversely impacted our ability to generate revenue. In the Krasnodar region, COVID-19 restrictions on short-term car rentals (the “Krasnodar Regulations”) have not been lifted as of the date of this prospectus. As such, we have adapted our operations to comply with the Krasnodar Regulations by increasing our minimum car rental term to 24 hours or longer. The possibility of further COVID-19 restrictions in the Krasnodar region, as well as the possibility that the Russian Federal Service for Surveillance on Consumer Rights Protection and Human Wellbeing (“Rospotrebnadzor”) in the Krasnodar region will enforce the Krasnodar Regulations differently, remains. Additionally, if the effects of the COVID-19 pandemic worsen, there is a possibility of a prohibition on car sharing services similar to the prohibition from April 13, 2020 to June 10, 2020. Further, as a result of the COVID-19 pandemic, we asked that all employees who are able to do so work remotely, and while we have since re-opened certain offices, it is possible that continued widespread remote work arrangements could have a negative impact on our operations. In particular, our ability to conduct necessary maintenance and repairs of our fleet of cars could be impacted, as it is not possible for our workers to carry out such maintenance and repair remotely. If a natural disaster, power outage, connectivity issue, or other event occurred that impacted our employees’ ability to work remotely, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of

 

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time. The increase in remote working may also result in privacy, cybersecurity and fraud risks. Additionally, there is the potential of further regulations on car sharing services as a result of the ongoing COVID-19 pandemic, which could adversely impact our ability to generate revenue in the future.

In response to the economic challenges and uncertainty resulting from the COVID-19 pandemic and its impact on our business, we implemented a 20% salary reduction from May to June 2020, and a 10% salary reduction from July to September 2020, for all employees. By implementing salary reductions, we were able to avoid any major reduction in our workforce. However, no assurance can be given that we will be able to avoid workforce reductions as a result of the COVID-19 pandemic in the future. We have responded to the COVID-19 pandemic by launching new, or expanding or amending existing, services and features, such as extended rental periods and daily promotion prices to meet the adjusted needs of our customers and expanded rental zones to encourage domestic tourism; by implementing certain changes to the pricing models of our offerings such as a general increase in our pricing plan rates; by launching delivery services to help food and tech retailers meet increased demand for home deliveries; and by offering 70% discounts for our customers when they use our services to travel to vaccination centers. We have also introduced additional health and safety measures on an expedited basis, such as enhanced sanitation and disinfection of our fleet. We have also undertaken a number of measures aimed at optimizing costs by, among other things, restructuring terms of repayment of certain lease liabilities. We may not be able to keep pace with shifting trends as we respond to unpredictable changes in the evolution of the pandemic and the measures taken to reduce the spread of the virus. Our understanding of applicable privacy, consumer protection and other legal and regulatory requirements, as well as the latest guidance from regulatory authorities in connection with the COVID-19 pandemic may be subject to legal or regulatory challenge, particularly as regulatory guidance evolves in response to future developments. For example, in the region of Nizhny Novgorod in April 2020, regulatory authorities unexpectedly banned the use of car sharing services from April 17, 2020 to May 11, 2020 and subsequently introduced measures limiting our services to daily leases, thus impacting our operations, until August 5, 2020, at which point we relaunched our regular pricing plan options. In addition, our launch of new, or expansion of existing, services, features, or health and safety requirements in response to COVID-19 may heighten other risks described in this “Risk Factors” section. These challenges could result in fines or other enforcement measures that could adversely impact our financial results or operations.

The COVID-19 pandemic has materially adversely affected our financial results for 2020 and may materially adversely impact our financial results for subsequent periods, which has required and may continue to require significant actions in response, including, but not limited to, the ones described above, all in an effort to mitigate such impacts. While restrictions on car sharing services have been lifted, with the exception of the Krasnodar region, there is no assurance that they will not be reintroduced in one or more of the markets in which we operate. COVID-19 has had and continues to have repercussions across regional and global economies and financial markets, including Russia. To address a surge in COVID-19 cases in the spring and summer of 2021, Russian authorities introduced additional restrictive measures to combat the spread of the virus. For example, at restaurants and cafes in Moscow, customers were required to scan a QR code to prove they had been fully vaccinated, had obtained a negative PCR test in the previous 72 hours or had recovered from COVID-19, in order to dine. This restrictive measure temporarily decreased demand for our shared mobility offerings. While these restrictions were lifted in July 2021, if they were to return or if the QR code system were to be extended to car sharing services, it could lead to a significant decrease in bookings and a corresponding decrease in revenue, which would have a material adverse effect on our business.

In light of the evolving nature of COVID-19 and the uncertainty it has produced around the world, we do not believe it is possible to predict with precision the pandemic’s cumulative and ultimate impact on our future business operations, liquidity, financial condition, and results of operations. While demand for our shared mobility offerings has fully rebounded to pre-COVID-19 levels in 2021, we cannot predict the extent of the impact of the pandemic on our business and financial results, which will depend largely on future developments, including the duration of the spread of the outbreak and any future “waves” or resurgences of the outbreak or variants of the virus, both globally and within Russia, the impact on capital and financial markets, foreign

 

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currency exchange and governmental or regulatory orders that impact our business, all of which are highly uncertain and cannot be predicted. Although the Russian Ministry of Health has already approved three vaccines for COVID-19 as of the date of this prospectus and other countries have also approved vaccines, we cannot currently predict the timing of widespread adoption of vaccines against COVID-19 in Russia or internationally, nor their potential impact on our lines of business.

In addition, we cannot predict the impact the COVID-19 pandemic will have on our business partners, and we may be materially adversely impacted as a result of the adverse impact our business partners suffer. For example, there is a worldwide shortage of semiconductors, exacerbated by the COVID-19 pandemic, which may cause our business partners to have difficulty providing us with vehicles in the future. Additionally, concerns over the economic impact of the COVID-19 pandemic have caused extreme volatility in financial markets, which may adversely impact the price of the ADSs and our ability to access capital markets. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section. Any of the foregoing factors, or other cascading effects of the pandemic that are not currently foreseeable, could materially adversely impact our business, financial performance and condition, and results of operations.

The mobility industry is highly competitive, with well-established and low-cost alternatives that have been available for decades, low switching costs, and well-capitalized competitors in nearly every major geographic region. If we are not able to compete effectively in this industry, our business and results of operation could be materially adversely impacted.

Our platform provides offerings in the mobility industry, and the market in which we compete is highly fragmented. We face significant competition in the mobility industry from existing, well-established and low-cost alternatives, and in the future we expect to face competition from new market entrants. In addition, within each of these markets, the cost to switch between products is low. Customers have a propensity to shift to the lowest-cost or highest-quality provider. Our shared mobility offerings compete with personal vehicle ownership and usage, which accounts for the majority of passenger kilometers in the markets that we serve, based on “Industry Report on the Russian Car Sharing Market,” Frost & Sullivan’s research report, and traditional transportation services, including taxicab companies, taxi-hailing services, car rental services and other car services. In addition, public transportation can be a superior substitute to our shared mobility offerings and, in many cases, in particular in large metropolitan areas, offers a faster and lower-cost travel option. We also compete with ride-hailing companies, including Yandex.Taxi, CityMobil and Gett Taxi, as well as regional ride-hailing companies, other car sharing companies, including Yandex.Drive, BelkaCar and CityDrive, and with existing long-term car subscription services, such as KiaMobility and Hyundai Mobility. We may also face new competitors given the increasing use of car sharing, such as, but not limited to, original equipment manufacturers if they elect to launch their own mobility programs or car subscription programs launched in the future by companies that currently have leasing programs, such as Sber and VTB Bank. As international competitors continue to expand, in the future they may compete with us both in markets in which we currently operate and markets into which we expand our services.

To differentiate ourselves from our competitors and continue to retain and attract customers to our platform, we continually invest in the development of new products, offerings and features that add value for customers. For example, we are continually improving our dynamic pricing model and tweaking our subscription options to meet customers preferences, as well as introducing an option for customers to participate in the car selection process to be made available in the near-future. Developing and delivering these new or upgraded products, offerings and features is costly, and the success of such new products, offerings and features depends on several factors, including the timely completion, introduction and market acceptance of such products, offerings and features. Moreover, any such new or upgraded products, offerings or features may not work as intended or may not provide intended value to customers. If we are unable to continue to develop new or upgraded products, offerings and features, or if customers do not perceive value in such new or upgraded products, offerings or features, customers may choose not to use our platform, and our business, financial condition and results of operations could be materially adversely affected.

 

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As we and our competitors introduce new products and offerings, and as existing products evolve, we expect to become subject to additional competition. In addition, our competitors may adopt certain of our product features, or may adopt innovations that customers value more highly than ours, which would render our products less attractive or reduce our ability to differentiate our products. Increased competition could result in, among other things, a reduction of the revenue we generate from the use of our services, the number of customers, the frequency of use of our services, and our margins.

Many of our competitors are well-capitalized and offer discounted services, incentives, and promotions, innovative products and offerings, and alternative pricing models, which may be more attractive to customers than those that we offer. Further, some of our current or potential competitors have, and may in the future continue to have, greater resources and access to larger customer bases in the geographic markets in which we operate. In addition, our competitors in other Russian regions in which we operate may enjoy substantial competitive advantages such as greater brand recognition, longer operating histories, larger eco-systems of products and services, larger marketing budgets and more supportive regulatory regimes. As a result, such competitors may be able to respond more quickly and effectively than us to new or changing opportunities, technologies, customer preferences, regulations or standards, which may render our products or offerings less attractive. In addition, future competitors may share in the effective benefit of any regulatory or governmental approvals and litigation victories we may achieve without having to incur the costs we have incurred to obtain such benefits.

For all of these reasons, we may not be able to compete successfully against our current and future competitors. Our inability to compete effectively would have an adverse effect on, or otherwise harm, our business, financial condition and operating results.

The car sharing market is still in relatively early stages of growth, and if our growth slows more significantly than we currently expect, we may not be able to achieve profitability and our financial results would be adversely affected.

The car sharing market has grown rapidly, but it is still relatively new, and it is uncertain to what extent market acceptance will continue to grow. Our success will depend to a substantial extent on the willingness of people to widely adopt our car sharing offerings, or any of our future offerings, as well as on our ability to continuously improve our product offering and develop the underlying technology and platform. Our revenue growth rates may slow in the future. We believe that our growth depends on a number of factors, including the duration and severity of the COVID-19 pandemic, and our ability to:

 

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grow supply of our shared mobility offerings and services;

 

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increase existing customer activity on our platform and acquire additional customers;

 

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maintain the offerings currently available to our customers and obtain and subsequently maintain a sufficient number of parking locations in new markets as we expand our offerings;

 

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continue to introduce our shared mobility offerings and services to new markets and to select suitable markets, penetrate suburban areas and increase the number of rides taken on our platform outside metropolitan areas;

 

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expand our business and increase our market share and category position;

 

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compete with the products and offerings of, and pricing and incentives offered by, our competitors;

 

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develop new products, offerings and technologies;

 

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reduce the costs of our car sharing and long-term rental offerings to better compete with personal vehicle ownership and usage and other low-cost alternatives like public transportation, which in many cases can be faster or cheaper than any other form of transportation;

 

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cooperate with the authorities to maintain and enhance existing local regulations in key markets where we operate; and

 

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begin operations in key Russian regions in which we could be limited by local regulations.

We may not successfully accomplish any of these objectives. A softening of customer demand, whether caused by changes in the preferences of customers, failure to maintain our brand, changes in global economies, competition or other factors, may result in decreased revenue or growth and our financial results would be adversely impacted.

Our business may not continue to grow at historical levels and may suffer if we do not successfully manage our current and potential future growth.

We have grown significantly and rapidly in recent years, and we intend to continue to expand the scope and geographic reach of our platform. Our revenue grew from RUB 2,245 million for the six months ended June 30, 2020 to RUB 4,930 million for the six months ended June 30, 2021, and from RUB 5,012 million for the year ended December 31, 2019 to RUB 6,449 million for the year ended December 31, 2020. Our business may not continue to grow at historical levels, which could adversely affect its prospects. Our significant and rapid growth has placed, and we expect it to continue to place, significant demands on our management, human resources department and our administrative, operational and financial infrastructure.

Our success in managing our growth will depend, to a significant degree, on the ability of our executive officers and other members of senior management to run our business effectively. In particular, our key personnel will be required to manage any potential rapid fleet expansion and guide the launch and expansion of our services in new cities, all while fulfilling their duty to manage day to day operations of the business across the various Russian regions in which we currently operate. If our executive officers and other members of senior management do not have the propensity to simultaneously manage both our current and potential future growth, there may be a material adverse effect on our financial condition and results of operations.

Additionally, our success in managing our growth will depend, to a significant degree, upon our ability to both hire and maintain an adequate number of qualified information technology workers, engineers, marketing specialists and other specialized workers. Workers with the requisite skill sets that we require in conjunction with our expansion are in high demand and short supply in Russia. If we are not able to attract and retain a sufficient number of such employees, there may be a material adverse effect on our financial condition and results of operations.

Our success also depends on our ability to improve and develop our financial, operational and management information systems, controls and procedures, our ability to obtain a sufficient car fleet on favorable terms to meet customer demand and our ability to borrow adequate funds to finance rapid growth, all of which are important factors in successfully managing current and potential future growth. Certain of our offerings, such as our Anytime Prime subscription service and our B2B delivery services, may experience faster growth than others, which could make our overall operational growth more difficult to manage. In addition, in order to manage our future growth we will need to successfully adapt our existing systems and introduce new systems, expand, train and manage our employees and improve and expand our marketing capabilities.

In order to successfully manage our current and potential future growth, we will need to maintain our current level of service to customers while rapidly hiring and training new employees to work in call centers, car maintenance service locations and other locations necessary to our operations. We also will need to rapidly acquire or lease appropriate premises in appropriate locations in order to continue scaling up our operations, which may be challenging in certain of our markets such as Moscow and St. Petersburg. If we are not able to hire and effectively train enough employees and acquire or lease additional operation centers, there may be a material adverse effect on our financial condition and results of operations.

 

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If we are unable to properly and prudently manage our operations as they grow, or if the quality of our platform or support deteriorates due to mismanagement, our brand name and reputation could be severely harmed. Our inability to manage our future growth as a result of any of the factors described above could materially adversely affect our business, financial condition and results of operations.

We have incurred significant losses since inception and are likely to continue to incur losses in the near term as we continue to invest in order to grow, and it is possible we may not achieve profitability.

We have incurred significant losses since inception. We incurred total cumulative loss of RUB 2,296 million and RUB 1,070 million for the six months ended June 30, 2020 and 2021, respectively, and RUB 3,573 million and RUB 3,056 million for the years ended December 31, 2019 and 2020, respectively. We will need to generate and sustain increased revenue levels and decrease the proportionate amount of expenses in future periods to achieve profitability in Russia and in future markets in which we may operate, and even if we do, we may not be able to maintain or increase profitability. We anticipate that we will continue to incur losses in the near term as a result of expected increases in our operating expenses, as we continue to invest in order to increase our fleet and the number of customers using our platform through incentives, discounts and promotions; expand within existing or into new markets; increase our research and development expenses; expand marketing channels and operations; hire additional employees; and add new products and offerings to our platform, as well as in connection with legal, accounting and other administrative expenses related to operating as a public company. These efforts may prove more expensive than we anticipate, and we may not succeed in increasing our revenue sufficiently to offset these expenses. Our revenue growth may slow down or our revenue may decline for a number of other reasons, including reduced demand for our services, increased competition, a decrease in the growth or size of the car sharing market or any failure to capitalize on growth opportunities.

Many of our efforts to generate revenue are new and unproven, and any failure to adequately increase revenue or contain the related costs could prevent us from attaining or increasing profitability or otherwise result in suboptimal economics for us. As we expand our offerings to additional cities, our offerings in these cities may be less profitable than the markets in which we currently operate. As such, we may not be able to achieve or maintain profitability in the near term, in accordance with our expectations, or at all.

We currently rely on a small number of third-party service providers to host a significant portion of our platform, and any interruptions or delays in services from these third parties or our inability to obtain or maintain third-party technology could impair the delivery of our offerings and harm our business.

We use a combination of third-party cloud computing services and one data center in Moscow. We do not control the physical operation of our third-party service providers. These third-party operations and our data center may experience break-ins, computer viruses, denial-of-service attacks, sabotage, acts of vandalism and other misconduct. These facilities may also be vulnerable to damage or interruption from power loss, telecommunications failures, fires, floods, earthquakes, hurricanes, tornadoes and similar events. Our systems do not provide complete redundancy of data storage or processing, and as a result, the occurrence of any such event or other unanticipated problems may result in our inability to serve data reliably or require us to migrate our data to either a new on-premise data center or cloud computing service. This could be time consuming and costly and may result in the loss of data, which could significantly interrupt the provision of our products and offerings and harm our reputation and brand. We may not be able to easily switch to another cloud computing service or data center provider in the event of any disruptions or interference to the services we use, and even if we do, other cloud and data center providers are subject to the same risks. Interruptions in the delivery of our offerings may reduce our revenue and reduce use of our platform by customers. Our business and operating results may be harmed if current and potential customers believe our platform is unreliable. In addition, if we are unable to scale our data storage and computational capacity sufficiently or on commercially reasonable terms, our ability to innovate and introduce new products on our platform may be delayed or compromised, which could have a material adverse effect on our business, financial condition and results of operations.

In addition, we incorporate technology from third parties into our platform. We cannot be certain that our licensors are not infringing the intellectual property rights of others or that the suppliers and licensors have

 

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sufficient rights to the technology in Russia. Some of our license agreements may be terminated by our licensors with prior contractually agreed notice. If we are unable to obtain or maintain rights to any of this technology because of intellectual property infringement claims brought by third parties against our suppliers and licensors or against us, or if we are unable to continue to obtain the technology or enter into new agreements on commercially reasonable terms, our ability to develop our platform containing that technology could be severely limited and our business could be harmed. Additionally, if we are unable to obtain necessary technology from third parties, we may be forced to acquire or develop alternate technology, which may require significant time and effort and may be of lower quality or performance standards. This would limit and delay our ability to provide new or competitive offerings and increase our costs. If alternate technology cannot be obtained or developed, we may not be able to offer certain functionality as part of our offerings, which could adversely affect our business, financial condition and results of operations.

Our platform is dependent upon technology, and any undetected errors could adversely affect our business.

Our platform is a complex system composed of many interoperating components and incorporates software that is highly complex. Our business is dependent upon our ability to prevent system interruption on our platform. Our software, including open source software that is incorporated into our code, may now or in the future contain undetected errors, bugs or vulnerabilities. Some errors in our software code may only be discovered after the code has been released. Bugs in our software, third-party software including open source software that is incorporated into our code, misconfigurations of our systems and unintended interactions between systems could result in our failure to comply with certain reporting obligations, or could cause downtime that would impact the availability of our service to customers. We have from time to time found defects or errors in our system and may discover additional defects in the future that could result in platform unavailability or system disruption. In addition, we have experienced outages on our platform due to circumstances within our control, such as outages due to software limitations. Our release of new software in the past has inadvertently caused, and may in the future cause, interruptions in the availability or functionality of our platform. Any errors, bugs or vulnerabilities discovered in our code or systems after release could result in an interruption in the availability of our platform or a negative experience for customers and could also result in negative publicity and unfavorable media coverage, damage to our reputation, loss of customers, loss of revenue or liability for damages, regulatory inquiries or other proceedings, any of which could adversely affect our business and financial results.

Our business depends heavily on insurance coverage for our fleet and on other types of insurance for additional risks related to our business. If insurance carriers change the terms of such insurance in a manner not favorable to us, if we are required to purchase additional insurance for other aspects of our business, or if we fail to comply with regulations governing insurance coverage, our business could be harmed.

We use third-party liability insurance for our car sharing services, meaning damages to third parties are covered when our customer is at fault, which includes coverage for automobile collisions of up to RUB 400,000 and bodily injury of up to RUB 500,000. Any costs above this amount will be passed on to our at-fault customer. Customers have an option when booking with us to choose a fractionally more expensive pricing plan which provides full coverage to the customer in the event of an accident if the customer is not at fault and the third party’s insurance provider is not seeking payment exceeding RUB 400,000. We bear the costs resulting from damage to our own cars, with the exception of theft and total loss of the car, which are fully insured.

We rely on a limited number of insurance providers, and should such providers discontinue or increase the cost of coverage, we cannot guarantee that we would be able to secure replacement coverage on reasonable terms or at all. In addition to insurance related to our products to cover automotive risks described above, we maintain voluntary health insurance coverage for our employees. If our insurance carriers change the terms of our policies in a manner unfavorable to us or our customers, our insurance costs could increase. Further, if the insurance coverage we maintain is not adequate to cover losses that occur, we could be liable for significant additional costs.

 

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Our cars may be damaged or stolen while they are being used by customers, and an increase of theft losses covered by insurance could result in increasing insurance premiums. We may be subject to claims of significant liability based on traffic accidents, personal injuries, deaths, property damages or other incidents that are claimed to have been caused by customers who use our car sharing services through our platform. As we expand to include more offerings on our platform, our insurance needs will likely extend to those additional offerings. As a result, our automobile liability and general liability insurance policies and insurance contracted by customers may not cover all potential claims related to traffic accidents, personal injuries, deaths, property damages or other incidents that are claimed to have been caused by customers, and may not be adequate to indemnify us for all liability that we could face. Even if these claims do not result in liability, we could incur significant costs in investigating and defending against them. If insurers become insolvent, they may not be able to pay otherwise valid claims in a timely manner or at all. If we are subject to claims of liability relating to the acts of customers using our platform, we may be subject to negative publicity and incur additional expenses, which could harm our business, financial condition and operating results.

In addition, we are subject to local laws, rules and regulations relating to insurance coverage which could result in proceedings or actions against us by governmental entities or others. Any failure, or perceived failure, by us to comply with local laws, rules and regulations or contractual obligations relating to insurance coverage could result in proceedings or actions against us by governmental entities or others. These lawsuits, proceedings, or actions may subject us to significant penalties and negative publicity, require us to increase our insurance coverage, require us to amend our insurance policy disclosure, increase our costs and disrupt our business.

We cannot assure you that we will not be exposed to uninsured liability at levels in excess of our historical levels resulting from multiple payouts or otherwise, that liabilities in respect of existing or future claims will not exceed the level of our insurance or reserves, that we will have sufficient capital available to pay any uninsured claims or that insurance with unaffiliated carriers will continue to be available to us on economically reasonable terms or at all. We also may choose not to insure against all risks we face. Therefore, should an uninsured loss or a loss in excess of our insured limits occur, we would lose the capital invested in, and the anticipated revenue from, the affected assets, which could have a material adverse effect on our business, financial condition and results of operations.

We do not have and may be unable to obtain sufficient insurance to protect ourselves from business risks.

The insurance industry in Russia relative to that in other jurisdictions is not as mature, and accessibility to many forms of insurance coverage common in other jurisdictions is limited. We currently maintain insurance coverage for automobile collisions, physical damage and uninsured and underinsured drivers, but do not maintain insurance coverage for our servers or business interruption risks. Until we obtain adequate insurance coverage for our servers or business interruption risks, there is a risk of irrecoverable loss or destruction of certain assets, and our business, prospects, financial condition and results of operations could be materially and adversely affected.

Negative publicity could affect our business.

Negative publicity in which we or our shareholders are named may adversely affect our reputation, irrespective of its truth or otherwise or its connection with our current operations or business. There is a tendency among the local and international press to generate, from time to time, speculative reports that contain allegations of criminal conduct or corruption on the part of Russian companies, their shareholders or individuals within Russian companies, irrespective of whether those allegations have any basis in fact. In addition, the Russian press and other media have been, from time to time, suspected of publishing biased articles and reports in return for payment. Any negative publicity, even if not directly related to us or our shareholders, may affect our reputation, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

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If we are unable to attract or maintain a critical mass of customers, whether as a result of competition or other factors, our financial condition and results of operation would be materially adversely impacted.

Our success in each geographic market depends on our ability to maintain or increase our network scale in that geographic market by attracting customers to our platform. The number of customers on our platform could materially decline or fluctuate as a result of a number of factors, including, among other things, the low switching costs between competitor platforms or services, dissatisfaction with our brand, reputation, operation of our platform, selection of our fleet of cars, pricing model (including potential reductions in incentives or other aspects of our pricing strategy), technical problems experienced by relevant third parties such as our main customer promotional channels, advertising offices or traffic police, public preference for other forms of transportation, passage or enforcement of local laws limiting our products and offerings and dissatisfaction with our services and offerings in general. In particular, if we are unable to provide high-quality support to customers or respond to reported incidents, including safety incidents, in a timely and acceptable manner, our ability to attract and retain customers could be adversely affected.

Our business benefits from strong brands. Failure to maintain and enhance our brands, or to maintain effective customer service, may result in customer complaints and materially adversely affect our business, financial condition and result of operations.

We believe that the brand identity that we have developed through the strength of our technology, our customer focus, our independence from political considerations and our ability to deliver mobility solutions has significantly contributed to the success of our business. We also believe that maintaining and enhancing the Delimobil and Anytime Prime brands, including through continued significant marketing efforts, is critical to expanding our base of customers and other business partners. Despite conducting a number of brand promotion and recognition activities from time to time, we cannot assure you that these activities will be successful in the future or that we will be able to achieve the brand promotion effects that we expect. In addition, our competitors may increase the intensity of their marketing campaigns, which may force us to increase our advertising spend to maintain our brand awareness. If our brand is harmed or we are forced to increase our marketing expenses, our business, financial condition and results of operations could be materially adversely affected.

In the event that our brand is subject to persistent and material negative publicity, complaints from customers, or exposure as a result of our own actions or as a result of events outside of our control, such as our inability to attract customers, to protect private information of our customers against security breaches, any undetected errors, defects or bugs in software underlying our products and services or disruption in our IT systems, the value of our brand and our customer traffic could decline.

To maintain good customer relations, we need prompt and reliable customer service to resolve irregularities and disputes. Effective customer service requires significant personnel expense and investment in developing programs and technology infrastructure to help customer service representatives carry out their functions. These expenses, if not managed properly, could significantly impact our ability to achieve and maintain profitability. Failure to manage or train our customer service representatives properly could compromise our ability to handle customer complaints effectively. If we do not handle customer complaints effectively, our reputation may suffer and we may lose our customers’ confidence.

Further, as our car fleet includes a number of international brand names, we rely on their reputation and brand image, and any harm to the reputation and brand image of these brand names may also have a material adverse effect on our business, results of operations and financial condition.

Our marketing efforts to help grow our business may not be effective.

Promoting awareness of our offerings is important to our ability to grow our business and to attract new customers and can be costly. We believe that much of the growth in our customer base is attributable to our paid

 

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marketing initiatives. Our marketing efforts currently include referrals, affiliate programs, free or discount trials, partnerships, display advertising, in-app traffic campaigns, television, billboards, radio, video, content, direct mail, social media, email, hiring and classified advertisement websites, mobile “push” communications, search engine optimization and keyword search campaigns. Our marketing initiatives may become increasingly expensive and generating a meaningful return on those initiatives may be difficult. Even if we successfully increase revenue as a result of our paid marketing efforts, it may not offset the additional marketing expenses we incur.

If our marketing efforts are not successful in promoting awareness of our offerings or attracting new customers, or if we are not able to cost-effectively manage our advertising and marketing expenses, our results of operations could be adversely affected. If our marketing efforts are successful in increasing awareness of our offerings, this could also lead to increased public scrutiny of our business and increase the likelihood of third parties bringing legal proceedings against us. Any of the foregoing risks could harm our business, financial condition and results of operations.

In addition, from time to time in the past we have executed, and may in the future execute, advertisement contracts with celebrities to promote our sites and brands in marketing campaigns. Harm to those celebrities’ reputations, even if not associated with our brands, could also harm our brand image and result in a material decrease in our revenue, which could have a material adverse effect on our business, results of operations and financial condition.

We have in the past lowered, and may continue to lower in less established markets, booking fees or service fees, and we have in the past offered, and may continue to offer in less established markets, significant customer incentives, discounts and promotions, which may materially adversely affect our financial performance.

To remain competitive in certain markets and generate network scale and liquidity, we have in the past lowered, and may in the future continue to lower in less established markets, booking fees or service fees, and we have offered, and expect to continue to offer in less established markets, significant customer incentives, discounts and promotions. In larger markets in which we have been operating for several years, such as Moscow and St. Petersburg, we do not currently anticipate continued implementation of material price reductions and significant customer incentives, discounts and promotions. However, in other regions, particularly in cities to which we have recently expanded our services, we face particularly intense competition, and may not have a leading market position, which may result in us choosing to provide additional customer incentives, discounts and promotions that we offer in those geographic markets and regions. Additionally, we may offer customer incentives, discounts or promotions in order to penetrate new markets or in conjunction with the trials of new services we are considering expanding to additional markets. We rely on our advanced pricing prediction technology in allocating our investments in customer incentives, discounts and promotions, and we monitor the results of our offerings daily in order to react quickly to market conditions. However, we cannot assure you that offering such incentives, discounts and promotions will be successful. Customer incentives, discounts, promotions and reductions in booking fees and our service fees have affected, and will continue to affect, our financial performance.

Additionally, as part of our dynamic pricing strategy, we rely on a pricing model to calculate individual rates that customers pay per booking, based on customer usage, penalties (such as traffic violations) and driving score, and we may in the future modify our pricing model and strategies. Our dynamic pricing model may result in lower or higher rates for customers, depending on the various factors described above. As our pricing model continues to develop, we may change our approach to using incentives, discounts and promotions. We cannot assure you that our pricing model or strategies will be successful in attracting customers or otherwise generate expected bookings, and incentives, discounts and promotions may be a permanent part of our pricing model. If our pricing model or strategy is not effective, our business, financial condition and results of operations would be materially adversely affected.

 

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The loss of any of our board members, management team or key personnel, or a failure to attract, retain and motivate qualified personnel, may have a material adverse effect on our business, financial condition and results of operations.

Our success depends in large part upon the continued service of our board members and management team, many of whom have a level of experience and local knowledge that would be difficult to replace. The unexpected departure of any of them from our group could have a material adverse effect on our business, financial condition and results of operations, and there can be no assurance that we will be able to attract or retain suitable replacements for such personnel in a timely manner or at all.

As discussed in “Management – Legal Investigations Related to our Board of Directors,” one of our directors, Matteo Renzi, is currently the subject of ongoing investigations by the offices of the public prosecutor of the cities of Florence and Rome. In the event of an adverse outcome to these investigations, Mr. Renzi could be required to step down from his position as a board member of Delimobil Holding S.A. Further, any negative public opinion relating to the allegations forming the basis of these investigations, or regarding of any future legal outcome, may affect our brand and reputation and therefore may have an adverse impact on our business in the future. For more information, see “Management – Legal Investigations Related to our Board of Directors.”

Our success also depends upon the continued service of our technical personnel, as well as our continued ability to attract, retain and motivate operational managers and other highly qualified engineering, programming, technical, marketing, customer support, financial and managerial personnel. Although we attempt to structure employee compensation packages in a manner consistent with the evolving standards of the markets in which we operate and to provide incentives, including equity-based awards under our recently introduced employee incentive plans, to remain with our company, we cannot guarantee that we will be able to retain our key employees. Additionally, as a result of COVID-19, we implemented a 20% salary reduction from May to June 2020 and a 10% salary reduction from July to September 2020 for all employees. While we do not currently anticipate the need for another salary reduction, there can be no assurance that another salary reduction or similar measure taken in the future will not result in the loss of key employees. If any member of our senior management team or other key personnel should leave our group, our ability to successfully operate our business and execute our business strategy could be impaired. We may also have to incur significant costs in identifying, hiring, training and retaining replacements for departing employees. In particular, the competition for software engineers and qualified personnel who are familiar with the internet industry in Russia is intense, both from within Russia and from competitors abroad hiring software engineers and qualified personnel to relocate to other markets. We may encounter difficulty in hiring and/or retaining highly talented software engineers to develop and maintain our services. Similarly, we may encounter difficulty in hiring and/or retaining highly talented operational and marketing managers who are knowledgeable in our industry and are capable of adapting to the rapidly developing car sharing industry in Russia. There is also significant competition for personnel who are knowledgeable about the accounting and legal requirements related to a NYSE listing, and we may encounter difficulty in hiring and/or retaining appropriate financial staff needed to enable us to continue to comply with the internal control requirements under the Sarbanes-Oxley Act and related regulations.

Any inability to successfully retain key employees and manage our personnel needs may have a material adverse effect on our business, financial condition and results of operations.

Our business requires intensive long-term capital to finance renewal of our fleet and implement our growth strategy; if we are unable to accurately estimate future levels of demand and adjust the number, location and mix of vehicles used in our fleet accordingly, our results of operations, financial condition, liquidity and cash flows could suffer.

Both the implementation of our growth strategy and our competitiveness depend on our ability to make investments, renew and expand our fleet. Our ability to finance fleet replacement depends, in turn, on our operating performance and our ability to obtain funding. We are unable to predict whether we will be able to

 

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obtain sufficient financing to fund our capital expenditure and to finance our expansion strategy at acceptable costs, as a result either of adverse macroeconomic conditions, our performance or other external factors, which could in turn adversely affect our growth strategy. Failure to renew our fleet may cause our business to become less competitive.

As fleet growth is key to our business and future development, any factors affecting our ability to acquire additional vehicles could have a negative impact on our results. For example, the current global shortage of semi-conductors, which are critical to the manufacturing of new vehicles, has postponed the production of some new vehicles both in Russia and worldwide. This postponement in production could impede our ability to grow our fleet at scale, which could in turn adversely affect our revenue. While we believe that OEMs, by including their vehicles in our fleet, generally benefit from exposure to our large customer base and would need to overcome a large number of barriers to enter the car sharing market, there is the possibility that OEMs could elect to invest in their own mobility operations and therefore decide not supply us with vehicles on as favorable terms and volume.

Our vehicle purchase strategies can be affected by commercial, economic, market and other conditions. For example, certain vehicle manufacturers have occasionally utilized strategies to reduce sales to the vehicle rental industry, which can negatively affect our ability to obtain vehicles on competitive terms and conditions. Ruble depreciation may also result in vehicle price increases. Consequently, there is no guarantee that we can purchase a sufficient number of vehicles at competitive prices and on competitive terms and conditions. Manufacturers of vehicles are also facing a shortage of microprocessors and other digital devices used to control engines and transmissions as a result of the recent global semiconductor chip shortage, which may affect the availability of vehicles being produced. If we are unable to obtain a sufficient supply of vehicles, or if we obtain less favorable pricing and other terms during the acquisition of vehicles and are unable to recover from the increased costs, our results of operations, financial condition, liquidity and cash flows may be materially adversely affected.

Vehicle costs represent our largest expense. Accordingly, our business is dependent upon the ability of our management to accurately estimate future levels of rental activity and customer preferences with respect to the mix of vehicles used in our car sharing operations and the location of those vehicles. In addition, the timely delivery of the cars with no delays is critical to efficient fleet management. If we are unable to purchase a sufficient number of vehicles, or the right types of vehicles, or if vehicles are not delivered to us on a timely basis, to meet customer demand, we may lose revenue or market share to our competitors. If we purchase too many vehicles, our vehicle utilization could be adversely affected and we may not be able to dispose of excess vehicles in a timely and cost-effective manner. For example, in early 2020, due to the COVID-19 pandemic, we experienced significant excess in our vehicle supply due to the lockdown of our business activity and subsequent reduced demand. Our failure to utilize a flexible and systematic process for fleet management that accurately estimates future levels of rental activity and determines the appropriate mix of vehicles used in our rental operations may result in obsolescence and excessive aging of our fleet, the inability to sell fleet at adequate prices, sub-optimal fleet utilization, increased fleet costs, lower customer satisfaction, sub-optimal fleet sizing, lost or missing fleet assets, reduced margins and cash flows and other unfavorable consequences, which may materially adversely affect our results of operations, financial condition, liquidity and cash flows.

The successful operation of our business depends upon the performance and reliability of internet, mobile and other infrastructures that are not under our control.

Our business depends on the availability, performance and reliability of internet, mobile and other infrastructures that are not under our control. This includes maintenance of a reliable network backbone with the necessary speed, data capacity and security for providing reliable internet services. Disruptions in internet access, infrastructure, GPS or GLONASS signals or the failure of telecommunications network operators to provide us with the bandwidth we need to provide our products and offerings have interfered, and could continue to interfere, with the speed and availability of our platform, functionality of maps and our ability to process

 

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customer payments. If our platform is unavailable when customers attempt to access it, or if our platform does not load as quickly as customers expect, those customers may not return to our platform as often in the future, or at all, and may use our competitors’ products or offerings more often. In addition, we have no control over the costs of the services provided by national telecommunications operators. If mobile internet access fees or other charges to internet users increase, customer traffic may decrease, which may in turn cause our revenue to significantly decrease.

As our data centers and all of our backup centers are located in Moscow, we are heavily reliant on Russia’s internet infrastructure to operate our business. Since these centers are located, along with the office of our key operating subsidiary, in Moscow, our operations may also be negatively impacted by disruptions to the power grid, telecommunication failures, sabotage, vandalism, terrorist attacks, extreme weather as a result of climate change, natural disasters, such as fires or floods, or other events affecting the Moscow region. The occurrence of an unanticipated problem, such as a power outage, telecommunications delay or failure, security breaches, computer viruses or any other issues with the infrastructure in Russia more generally could result in delays or interruptions to our products, offerings and platform, as well as business interruptions for us and customers.

Furthermore, we depend on hardware and software suppliers for prompt delivery, installation and service of servers and other equipment to deliver our services. Public health concerns or epidemics, such as the COVID-19 pandemic, may affect the production capabilities of our suppliers, and resulting quarantines or closures could further disrupt our supply chain.

In 2019, the Federal Law No. 90-FZ dated May 1, 2019 (the “Sovereign Internet Law”) was adopted. The Sovereign Internet Law introduced tighter regulation of Russian internet providers. In particular, it requires internet providers to install Russian-origin equipment for countering certain cybersecurity threats, to take part in practical trainings arranged by Russian authorities and to provide necessary assistance to the Russian investigative authorities. While the Sovereign Internet Law is not directly applicable to us, it could reduce the speed of data transfer, which could result in interruptions and delays of our online services and thereby affect our operations.

If we experience security or privacy breaches or other unauthorized or improper access to, use of, disclosure of, alteration of or destruction of our proprietary or confidential data, employee data or platform user data, we may face loss of revenue, harm to our brand, business disruption and significant liabilities.

We collect, use and process a variety of personal data, such as email addresses, mobile phone numbers, profile photos, location information, drivers’ license numbers, passport details of customers, sensitive personal data entrusted to us by customers, employees and job candidates, as well as route/destination information. In addition, we collect data regarding a customer’s age, immigration status, driving styles and convictions to inform our pricing algorithms and permit access to our vehicles. As such, we may be a target of data security attacks by third parties. Any failure to prevent or mitigate security breaches or improper access to, or use, acquisition, disclosure, alteration or destruction of, any such data could result in significant liability and a material loss of revenue resulting from the adverse impact on our reputation and brand, a diminished ability to retain or attract new customers, and disruption to our business. We rely on third-party service providers to host or otherwise process some of our data and that of our customers, as well as to provide data that is used in determining our pricing algorithms, and any failure by such third parties to prevent or mitigate security breaches or improper access to, or use, acquisition, disclosure, alteration or destruction of, such information could have similar adverse consequences for us.

Because the techniques used to obtain unauthorized access to, disable or degrade services or sabotage systems change frequently and are often unrecognizable until launched against a target (for example, ransomware software), we may be unable to anticipate these techniques and implement adequate preventative measures. Our servers and platform may be vulnerable to computer viruses or physical or electronic break-ins that our security measures may not detect. Individuals able to circumvent our security measures may misappropriate confidential, proprietary or personal information held by or on behalf of us, disrupt our operations, damage our computers or

 

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otherwise damage our business. In addition, we may need to expend significant resources to protect against security breaches or mitigate the impact of any such breaches, including potential liability that may not be limited to the amounts covered by our insurance.

Security breaches could also expose us to liability under Russian (as well as other jurisdictions’) laws and regulations and increase the risk of litigation and governmental investigation. Therefore, our results of operations and financial condition may be materially adversely affected if we suffer a security breach.

Our results may be affected by errors in determining the residual value of our fleet because of failures in the calculations of estimated effective depreciation in our fleet.

The pricing of our car sharing offerings takes into consideration the estimated value of future sales of our vehicles in the used car market and, accordingly, the effective depreciation (i.e., the cost of acquisition of each vehicle minus the price at which we can potentially sell the vehicle after six years, or the liquidation value) of our fleet. If the liquidation value determined by us at the time of the sale of the car is not accurate, or the resale car market shifts in a way that we do not anticipate, there could be a material adverse effect on our financial condition. Additionally, overestimating the effective depreciation of our vehicles may cause us to increase prices above those of our competitors in order to ensure that we are able to recover effective depreciation costs, which may reduce our competitiveness. Alternatively, underestimating the effective depreciation of our cars may lead us to reduce our prices, which may cause a reduction in our operating margin upon the sale of cars in the used car market. In either case, our businesses, financial condition and results of operations may be negatively affected by inaccurate estimates of effective depreciation. This risk is heightened by the ongoing COVID-19 pandemic, which already led to factory shutdowns of manufacturers worldwide, and makes it more difficult to make a reasonable plan for our fleet needs and to predict availability of vehicles.

Our customer growth and engagement on mobile devices depend upon effective operation with mobile operating systems, networks and standards that we do not control.

Mobile devices are increasingly used to access the internet and mobility offerings. Our customers access our platform through mobile devices. Tailoring our products and services to such devices requires particular expertise and the expenditure of significant resources. There is no guarantee that popular mobile devices will continue to support our platform or that mobile device users will use our platform rather than competing products. Our ability to deliver a high-quality mobile user experience is dependent on the interoperability of our platform with popular mobile operating systems, technologies, networks and standards that we do not control, such as Android and iOS, and any changes in such systems, technologies, networks and standards that degrade the functionality or availability of our apps or give preferential treatment to competitors could adversely affect our platform’s usage on mobile devices. If mobile device producers intentionally or inadvertently limit access to information we use to operate our platform, our ability to track the usage of such information and to run marketing campaigns in a cost effective manner may be adversely affected. We may not be successful in developing relationships with key participants in the mobile industry or in developing features that operate effectively with these technologies, systems, networks or standards. In the event that it is more difficult for our customers to access and use our platform on their mobile devices, customers find our mobile offering does not effectively meet their needs, algorithms developed by mobile operating systems or our competitors prioritize the offerings of our competitors, our competitors develop products and services that are perceived to operate more effectively on mobile devices, or our customers choose not to access or use our platform on their mobile devices or use mobile products that do not offer access to our platform, our customer growth and customer engagement could be adversely impacted.

Mikro Kapital Group, our controlling shareholder, has the ability to exert significant influence over us, and its interests conflict with those of the holders of the ADSs.

Mikro Kapital Group will continue to hold a substantial interest in Delimobil. Accordingly, Mikro Kapital Group will be able to exercise significant influence over matters relating to us, including, but not limited to, decisions on amendment of the charters, proposed substantial sale of assets or other major corporate transactions, election of the members of our board of directors, appointment of our executive officers, declaration

 

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of dividends and the determination of our corporate policies. The interests of Mikro Kapital Group may also differ from the interests of other holders of the ADSs, and Mikro Kapital Group may take actions that its public shareholders, including holders of the ADSs, do not view as beneficial or as maximizing value for them, including actions such as:

 

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delaying, defending or preventing a change of control, even at a per-share price that is in excess of the then-current price of the ADSs;

 

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impeding a merger, consolidation, takeover or other business combination involving us, even at a per-share price that is in excess of the then-current price of the ADSs;

 

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forcing a merger, consolidation, takeover or other business combination involving us that increase the amount of indebtedness or outstanding ordinary shares, or the sale of revenue-generating assets;

 

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discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, even at a per-share price that is in excess of the then-current price of the ADSs; or

 

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causing us to enter into other transactions or agreements that are not in the best interests of all shareholders, including holders of the ADSs.

On the other hand, a loss of voting control by Mikro Kapital Group could materially affect the direction of our company. In either case, as a result, the market price of our ADSs may be adversely affected.

We have engaged in and will continue to engage in ordinary course commercial dealings with our controlling shareholder.

In the ordinary course of business, we have commercial dealings with companies controlled by Mikro Kapital Group. Our commercial dealings with such related parties are conducted on an arm’s length basis. Notwithstanding the foregoing, transactions with related parties pose the risk of Delimobil entering into transactions on terms less favorable than could be obtained in arm’s length transactions with unrelated parties. If any such risk materializes, it could have a material adverse effect on our business, financial condition, results of operations, prospects and the trading price of the ADSs. See “Certain Relationships and Related Party Transactions” for more information on our commercial dealings with Mikro Kapital Group.

We may not be able to sell our vehicles at their actual residual value upon completion of their respective holding periods, which could materially adversely affect our results of operations, financial condition, liquidity and cash flows.

Our average holding period for a vehicle is six years. When holding periods for vehicles end, our policy is to sell our used vehicles through various sales channels in the used vehicle market, including auctions, dealer direct sales, wholesale lots, retail lots and, in the future, possibly on our own platform. When we sell our used vehicles, we may oversaturate the market, particularly beginning in the third quarter of 2024 when we will begin selling used vehicles in large monthly lots due to the completion of our first significant six year cycle of vehicle leases we signed in 2018. Doing so could result in driving down the selling price and cause the estimated net amount realized upon disposition of a vehicle to be less than its residual value at such time. Any decrease in the sale price of our used vehicles could result in a substantial loss on the sale of such vehicles, which could materially adversely affect our results of operations, financial condition, liquidity and cash flows (see “—Our results may be affected by errors in pricing because of failures in the calculations of estimated effective depreciation in our fleet”). We diversify our portfolio of vehicle models to avoid a significant concentration and subsequent sale of any one model of vehicle, and also seek to distribute our vehicle models in a geographically proportional manner to minimize the possibility of oversaturating any one local market. The market for used vehicles is subject to economic factors, such as demand, customer interests, pricing of new car models, fuel costs and other general economic conditions and may not produce stable vehicle prices in the future.

We are subject to payment-related risks.

We accept payments using a variety of methods, including credit card, debit card and customer invoicing for B2B clients. For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating costs.

 

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We rely on third parties to provide certain payment methods and payment processing services, including the processing of credit cards and debit cards. In each case, our business could be disrupted if these third parties become unwilling or unable to provide these services to us, or if the services are offered on less favorable terms in the future.

In the past, we have experienced fraudulent payment activities on our platform, such as linking customer accounts to payment cards or bank accounts that do not contain funds. While to date these activities have not had a material effect on our business, we may continue to experience these fraudulent activities in the future. Although we have implemented various measures to detect and reduce the occurrence of fraudulent payment activities on our platform, there can be no assurance that such measures will be effective in combating fraudulent transactions or improving overall satisfaction among customers.

We could also be subject to payment card association operating rules, such as the Payment Card Industry Data Security Standard, which includes data security rules, certification requirements and rules governing electronic funds transfers, which could change or be reinterpreted to make it costly, difficult or impossible for us to comply. Failure to comply with these rules or requirements, as well as any breach, compromise or failure to otherwise detect or prevent fraudulent activity involving our data security systems, could result in us being liable for banks’ costs for issuing cards, subject to fines and higher transaction fees and the loss of the ability to accept credit and debit card payments from our customers or facilitate other types of online payments, and our business and results of operations could be materially adversely affected.

We may use open source code in a manner that could be harmful to our business.

We use open source code, which is subject to licensing, in connection with our technology and services. Original developers of open source code do not provide warranties for the use of their source code. The use of such open source code may ultimately require us to replace certain code used in our platform, pay a royalty to use certain open source code, discontinue certain features of our platform or share our code infected with open source software freely pursuant to the terms of an open source software license. As a result, the use of open source code could have a material adverse effect on our business, prospects, financial condition and results of operations.

To continue our operations and continue using open source code, we may need to run open source software audits. Such audits may be expensive and may unveil vulnerabilities in our software code or our approach to using open source software.

Cybersecurity attacks, computer malware, viruses, spamming and phishing attacks could harm our reputation, business and operating results.

We rely heavily on information technology systems across our operations. Our information technology systems, including mobile and online platforms and mobile payment systems, administrative functions such as human resources, payroll, accounting, and internal and external communications, and the information technology systems of our third-party business partners and service providers contain proprietary or confidential information related to business and personal data, such as email addresses, mobile phone numbers, profile photos, location information, drivers’ license numbers, passport details of customers, route/destination information and other sensitive personal data entrusted to us by customers, employees and job candidates. Cybersecurity attacks, computer malware, viruses, spamming and phishing attacks have become more prevalent, have occurred on our systems in the past and may occur on our systems in the future. While we apply a number of security measures to prevent and minimize possible damage, cybersecurity threats are constantly evolving and employing more sophisticated attack techniques. Our detection capabilities may not be sufficient to prevent or detect a sophisticated cybersecurity attacker, such as a nation state using a zero day exploit or unknown malware. Breaches of our facilities, network, or data security could disrupt the security of our systems and platforms; impair our ability to protect data; compromise confidential or technical business information, harming our reputation or competitive position; result in theft or misuse of our intellectual property or other assets; require us to allocate more resources to improve technologies; or otherwise adversely affect our reputation, business and operating results.

 

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Various other factors may also cause system failures, including power outages, catastrophic events, inadequate or ineffective redundancy, issues with upgrading or creating new systems or platforms, flaws in third-party software or services, errors by our employees or third-party service providers or breaches in the security of these systems or platforms. For example, third parties may attempt to fraudulently induce employees or customers to disclose information to gain access to our data or the data of customers. If our incident response, disaster recovery, and business continuity plans do not resolve these issues in an effective manner, they could result in adverse impacts to our business operations and our financial results. Although we have developed, and continue to develop, systems and processes that are designed to protect our data and that of customers, and to prevent data loss, undesirable activities on our platform and security breaches, we cannot guarantee that such measures will provide absolute security. Our efforts on this front may be unsuccessful as a result of, for example, software bugs or other technical malfunctions; employee, contractor, or vendor error or malfeasance; government surveillance; or other threats that evolve, and we may incur significant costs in protecting against or remediating cybersecurity attacks. Any actual or perceived failure to maintain the performance, reliability, security and availability of our products, offerings and technical infrastructure to the satisfaction of customers and certain regulators would likely harm our reputation and result in loss of revenue from the adverse impact to our reputation and brand, disruption to our business and our decreased ability to attract and retain customers.

If customers engage in, or are subject to, criminal, violent, inappropriate or dangerous activity that results in major safety incidents, our ability to attract and retain customers may be harmed, which could have an adverse impact on our reputation, business, financial condition and operating results.

Though we employ a number of security techniques, such as automatic customer identification, verification, monitoring, scoring and analysis, we are not able to control or predict the actions of customers and third parties, either during their use of our platform or otherwise, and we may be unable to protect or provide a safe environment for customers or third parties as a result of certain actions by customers or third parties. Such actions may result in injuries, property damage or loss of life for customers and third parties, or business interruption, brand and reputational damage or significant liabilities for us. Although we administer certain qualification processes for our customers, including a process to check the validity of customers’ identification and drivers’ licenses and a mandatory quiz within the app that certain customers, as determined by an algorithm, must pass for bookings between 11:00 pm and 5:00 am designed to test for intoxication and fatigue in order to start the engine of their vehicle, these qualification processes may not expose all potentially relevant information or intoxication. In addition, we do not independently test customers’ driving skills. Consequently, we may receive complaints from third parties, as well as actual or threatened legal action against us related to customer conduct.

In addition, if customers, or individuals from organized criminal groups impersonating our standard customers, engage in criminal activity, misconduct or inappropriate conduct or use our platform or our vehicles as a conduit for criminal activity, we may receive negative press coverage or be hampered by the relevant authorities, which would adversely impact our brand, reputation and business. If other criminal, inappropriate or other negative incidents occur due to the conduct of customers or third parties, our ability to attract customers may be harmed, and our business and financial results could be adversely affected.

Public reports of safety information, including information about safety incidents reportedly occurring on or related to our platform generated by third parties such as media or regulators, may adversely impact our business and financial results. Further, we may be subject to claims of significant liability based on traffic accidents, deaths, injuries or other incidents that are caused by customers while using our platform. We depend on our customers to inspect vehicles prior to driving in order to identify any potential damage or safety concern with the vehicle, and our auto liability and general liability insurance policies may not cover all potential claims to which we are exposed and may not be adequate to indemnify us for all liability. As we expand our products and offerings, this insurance risk will grow (see “—Our business depends heavily on insurance coverage for our fleet and on other types of insurance for additional risks related to our business. If insurance carriers change the terms of such insurance in a manner not favorable to us, if we are required to purchase additional insurance for other aspects of our business, or if we fail to comply with regulations governing insurance coverage, our

 

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business could be harmed”). These incidents may subject us to liability and negative publicity, which would increase our operating costs and adversely affect our business and operating results. Even if these claims do not result in liability, we will incur significant costs in investigating and defending against them.

We have substantial debt and may incur additional debt, which could adversely affect our financial condition, our ability to service our debt, our ability to obtain financing in the future and our ability to react to changes in our business.

As at June 30, 2021, we had an aggregate amount of debt outstanding of approximately RUB 22,058 million, which is primarily composed of vehicle lease liabilities of Carsharing Russia LLC and Anytime LLC with several third parties, borrowings received from related parties and a private placement of convertible preferred and ordinary shares to Nevsky Property Finance Ltd. (“Nevsky Property”), an affiliate of VTB Capital plc (“VTB”), which for accounting purposes is treated as a financial liability of RUB 5,428 million. Following the closing of the offering, the only remaining financial liability associated with the private placement to Nevsky Property pertains to the provisions providing for a certain minimum return to Nevsky Property in certain cases, which survives the closing. In particular, these provisions require us to pay Nevsky Property the difference between its actual return on investment and the Minimum Return (as defined below) if, following a lock-up period, Nevsky Property still owns our shares and Nevsky Property’s investment does not generate an annual return of at least 12% (IRR) on the value of the private placement transaction (the “Minimum Return”) based on the weighted average price of our shares at the time of valuation. The fair value of the liability associated with the other terms of the private placement will be reclassified as equity. For further information on the accounting treatment of this transaction, see “Certain Relationships and Related Party Transactions—Pre-IPO Shareholders’ Agreement” and Note 20, Equity and Loss per Share, to the interim condensed combined and consolidated financial statements. Our substantial debt could have certain adverse consequences to us. For example, it could:

 

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make it more difficult for us to satisfy our obligations to the lease companies acting as lenders, resulting in possible defaults on and acceleration of such indebtedness;

 

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require us to dedicate a substantial portion of our cash flows from operations to make payments on our debt, which would reduce the availability of our cash flows from operations to fund working capital, capital expenditures or other general corporate purposes;

 

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increase our vulnerability to general adverse economic and industry conditions, including interest rate fluctuations, because some of our lessors have the right to change amounts payable under the lease agreements and payment schedules in the event of, among other occurrences, a change in the interest rate of the Central Bank of the Russian Federation;

 

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place us at a competitive disadvantage to our competitors with proportionately less debt or comparable debt at more favorable interest rates;

 

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limit our ability to refinance our existing indebtedness or borrow additional funds in the future;

 

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limit our flexibility in planning for, or reacting to, changing conditions in our business; and

 

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limit our ability to react to competitive pressures, or make it difficult for us to carry out capital spending that is necessary or important to our growth strategy.

Additionally, with the exception of certain vehicle lease agreements in 2021, related parties guarantee our obligations under our vehicle lease agreements which allows us to secure more favorable leasing terms. If our related parties do not guarantee our obligations in the future, we may not be able to continue to obtain leasing terms comparable to or more favorable than our existing leasing terms. Any of the foregoing impacts of our substantial indebtedness could have a material adverse effect on our business, financial condition and results of operations. Upon the completion of this offering, we intend to repay all outstanding debt to related parties.

Further, we rely significantly on asset-based financing to purchase vehicles. If we are unable to refinance or replace our existing asset-based financing or continue to finance new vehicle acquisitions through

 

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asset-based financing on favorable terms, on a timely basis, or at all, then our costs of financing could increase significantly and have a material adverse effect on our liquidity, interest costs, financial condition, cash flows and results of operations.

Our asset-based financing capacity could be decreased, our financing costs and interest rates could be increased, or our future access to the financial markets could be limited, as a result of risks and contingencies, many of which are beyond our control, including: (i) the acceptance by credit markets of the structures and structural risks associated with our asset-backed and asset-based financing arrangements; (ii) third parties requiring changes in the terms and structure of our asset-backed or asset-based financing arrangements, including increased credit enhancement or required cash collateral and/or other liquid reserves; (iii) growth of the key rate of the Central Bank of the Russian Federation; (iv) the insolvency or deterioration of the financial condition of one or more of our principal vehicle manufacturers; or (v) changes in laws or regulations that negatively affect any of our asset-backed or asset-based financing arrangements.

Any reduction in the value of certain revenue earning vehicles could effectively increase our vehicle costs, adversely affect our ability to achieve and maintain profitability and potentially lead to decreased borrowing base availability in certain of our asset-based vehicle financing facilities due to the credit enhancement requirements for such facilities, which could increase if market values for vehicles decrease below net book values for those vehicles.

Certain events, including defaults by us in the performance of covenants set forth in the agreements governing certain vehicle debt, could result in the occurrence of a liquidation event with the passage of time or immediately pursuant to which the creditors of the affected asset-based financing arrangement would be permitted to require the sale of the assets collateralizing that debt. Failure by us to have proper financing and debt management processes may result in cash shortfalls and liquidity problems, emergency financing at high interest rates, violations of debt covenants, and an inability to execute strategic initiatives, which may affect our liquidity and our ability to maintain sufficient levels of revenue earning vehicles to meet customer demands and could trigger cross-defaults under certain of our other financing arrangements.

Our ability to make scheduled payments on our indebtedness or to refinance or renew our obligations under our debt agreements will depend on our financial and operating performance, which, in turn, will be subject to prevailing economic and competitive conditions and to the financial and business risk factors we face as described in this section, many of which may be beyond our control. We may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures or planned vehicle leasing or acquisitions, sell vehicles or other assets, seek to obtain additional equity capital or restructure our indebtedness. In the future, our cash flows and capital resources may not be sufficient for payments of interest on and principal of our debt, and such alternative measures may not be successful and may not permit us to meet scheduled debt service obligations. In the absence of such operating results and resources, we may be required to dispose of material assets to meet our debt service obligations, including our vehicles. We may not be able to consummate those sales, or, if we do, we will not control the timing of the sales or whether the proceeds that we realize will be adequate to meet debt service obligations when due.

We will require additional capital to support the growth of our business, and this capital might not be available on reasonable terms or at all.

To continue to effectively compete, we will require additional funds to support the growth of our business and allow us to invest in new products, offerings and markets. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders may suffer significant dilution, and any new equity securities we issue may have rights, preferences and privileges superior to those of existing stockholders. Any debt financing we secure in the future could contain restrictive covenants relating to our ability to incur additional indebtedness and other financial and operational matters that make it more difficult for us to obtain additional capital with which to pursue business opportunities. Additionally, because we are

 

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currently a loss-making company and have significant debt, we are unlikely to be able to obtain bank loans at market rates, and we may not be able to obtain additional financing on favorable terms, if at all.

Currently, we are dependent upon financing from our controlling shareholder, Mikro Kapital Group, for our capital needs required to grow our business. We also currently lease office space, warehouses and other facilities from Mikro Kapital Group, and we may initially continue to be dependent upon Mikro Kapital Group as we transition to operating as a public company. If we are unable to obtain adequate financing or financing on terms satisfactory to us when required, or to replace these transition services, our ability to continue to support our business growth and to respond to business challenges and competition may be significantly limited.

We may pursue strategic acquisitions, which could result in operational challenges, and the failure of an acquisition or investment to produce the anticipated results or the inability to fully integrate an acquired company could have an adverse impact on our business, results of operation and financial condition.

Historically, we have primarily grown organically but also through strategic acquisitions. We may decide to enter into strategic partnerships or to acquire complementary businesses or technologies in order to expand our operations, products and services and to adjust our business portfolio in response to changing market conditions. The success of acquisitions or investments is based on our ability to make accurate assumptions regarding the valuation of these operations, growth potential, integration and other factors related to the respective businesses. We cannot assure you that our acquisitions or investments will produce the results that we expect at the time we enter into or complete a given transaction. Such acquisitions and investments can be time-consuming and costly, could create unforeseen operational challenges and expenditures or may not meet our expectations. Furthermore, we may not be able to successfully integrate operations that we acquire, including their personnel, financial systems, distribution or operating procedures. In addition, challenges that we may face in the integration of the acquired businesses include diverting significant management attention and financial resources from our other operations and disrupting our ongoing business, unforeseen or undisclosed liabilities and integration costs, retaining key senior management and key sales and marketing personnel of the acquired operations and entry into unfamiliar markets. As part of our growth strategy, we may consider expanding our operations outside of Russia. For example, we have entered into call option agreements with D-Mobility Worldwide A.s., which is part of the Mikro Kapital Group, that will provide us with the option, subject to approval by our board of directors, to purchase in 2023 all or substantially all the shares in car sharing companies operating in the Czech Republic, Belarus and Kazakhstan. However, there is no assurance that we will be able to exercise these call options or succeed in developing our operations in these or other markets outside of Russia due to limited knowledge of operating and regulatory environments, as well as customer preferences in these markets. In addition, our success in expanding outside of Russia will depend on political, economic and social stability in the relevant markets. Our inability to adapt to the particularities of such markets could result in higher costs and affect profitability in these markets. If we fail to successfully integrate acquisitions, our business, results of operation and financial condition could suffer. In addition, the integration of any acquired business and its financial results may adversely affect our business, operating results and financial condition.

Risks Relating to our Industry

Increases in fuel, vehicle, leasing, maintenance or other costs, or significant delay or sustained interruption in vehicle supply, have adversely affected, and could continue to adversely affect our business, financial condition and operating results.

Factors such as inflation, foreign exchange rate fluctuations, increased fuel prices, and increased vehicle purchase price, leasing or maintenance costs may increase the costs incurred by us when building our fleet and providing car sharing services on our platform. We manage these factors by requiring suppliers to provide competitive bids against one another to supply services, fuel and other goods to us and, through our subsidiary Prolive+, purchasing fuel from multiple sources with a view of obtaining low prices. However, many of the factors affecting these costs, such as border closures or logistical delays, are beyond our control, and we may not

 

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always be able to pass on any increases in such costs on to our customers to remain competitive in the markets in which we operate. A significant increase in these costs could have a material adverse effect on our business, financial condition and results of operations.

In addition, disruptions in the production of vehicles and parts or microelectronics used in our fleet have caused and may continue to cause a reduction in supply, and an increase in the cost, of vehicles or parts. Substantial increases in the costs, or a significant delay or sustained interruption in, the supply of fleet vehicles or vehicle parts could adversely affect our ability to maintain our vehicle fleet, negatively affecting our revenue and increasing our operating expenses. For example, based on our revenue for the six months ended June 30, 2021, we estimate that we could lose up to RUB 44 thousand in revenue per month for every vehicle not added to our fleet due to supply delays or interruptions. Further, if we cannot acquire vehicles or parts from previous suppliers, this could result in additional operating expenses as we may not be able to enter into agreements with new suppliers on as favorable terms as is currently the case.

We may experience significant fluctuations in our operating results.

Our operating results may vary significantly and are not necessarily an indication of future performance. These fluctuations may be a result of a variety of factors, some of which are beyond our control. In particular, we experience seasonal fluctuations in our financial results. For car sharing, we typically generate higher revenue in our second and third quarters compared to other quarters due in part to the summer season encouraging increased travel. We then typically experience a gradual decline in usage of our platform until experiencing an uptick in December associated with the holiday season, particularly New Year’s Eve. We typically generate lower revenue in our first quarter compared to other quarters, due in part to a decrease in demand driven by adverse weather conditions that deter customers from leaving their homes. Our first quarter is particularly susceptible to variance in revenue due to the practical effects of adverse weather conditions such as snow and extreme cold in the event of a heavier winter season. We have typically experienced lower quarter-over-quarter growth in car sharing in the first quarter.

Our growth has made, and may in the future make, seasonal fluctuations difficult to detect. We expect these seasonal trends to become more pronounced over time as our growth slows. Other seasonal trends may develop or these existing seasonal trends may become more extreme, which could contribute to fluctuations in our operating results. In addition to seasonality, our operating results may fluctuate as a result of factors including our ability to attract and retain new customers, increased competition in the markets in which we operate, our ability to expand our operations in new and existing markets, our ability to maintain an adequate growth rate and effectively manage that growth, our ability to keep pace with technological changes in the industries in which we operate, changes in governmental or other regulations affecting our business, harm to our brand or reputation and other risks described elsewhere in these risk factors. As such, we may not accurately forecast our operating results. We base our expense levels and investment plans on estimates. A portion of our expenses and investments are fixed, and we may not be able to adjust our spending quickly enough if our revenue is less than expected, resulting in losses that exceed our expectations. If we are unable to achieve profits, the price of the ADSs could be adversely affected, and investors may lose some or all of the value of their investment.

Our business is subject to geographical risks and if our operations in large metropolitan areas are negatively affected, our operating results would be adversely impacted.

We experience greater competition in large metropolitan areas than we do in other markets in which we operate, which has led us to offer significant customer incentives, discounts and promotions in these large metropolitan areas. As a result of our geographic concentration, our business and financial results are susceptible to economic, social, weather and regulatory conditions or other circumstances in each of these large metropolitan areas. Outbreaks of contagious diseases or other viruses, such as COVID-19, could lead to a sustained decline in the desirability of living, working and congregating in metropolitan areas in which we operate. Any short-term or long-term shifts in the travel patterns of customers away from metropolitan areas, due to health concerns

 

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regarding epidemics or pandemics such as COVID-19, could have an adverse impact on our Gross Bookings from these areas. An economic downturn, increased competition or regulatory obstacles in any of these key metropolitan areas would adversely affect our business, financial condition and results of operations to a much greater degree than would the occurrence of such events in other areas. In addition, any changes to local laws or regulations within these key metropolitan areas that affect our ability to operate or increase our operating expenses in these markets could have an adverse effect on our business. For example, we currently benefit from the car sharing incentives introduced by regulations issued by the Moscow, Kazan and Tula municipal authorities, which allow our cars to be parked by customers at designated parking locations across Moscow, Kazan and Tula, with up to a 90% discount to parking fees charged to us, provided our cars comply with certain requirements (see “Regulation”). Although we do not currently anticipate any change to these incentives, as there have been recent statements from local transportation authorities acknowledging the value of car sharing as an improvement over private car use in the context of better parking space management, and we believe we have the ability to relocate our vehicles to other regions in order to manage the adverse effect of any such change to local laws and regulations if the local authorities change their stated policy in relation to car sharing, and if these parking regulations were to be revoked, we may have to increase our prices, our fleet may not be utilized as effectively and our business and results of operation may be adversely impacted.

We expect that we will continue to face challenges in penetrating lower-density localities and suburban areas adjacent to cities in which we operate, where our network is smaller and less developed, the cost of personal vehicle ownership is lower and personal vehicle ownership is more convenient. If we are not successful in penetrating lower-density localities and suburban areas adjacent to cities in which we operate, generating profits from providing our services there, or if we are unable to operate in certain key metropolitan areas in the future due to a change in the level of support from local authorities or approach to parking permits in the context of car sharing, our ability to serve what we consider to be our total addressable market would be limited, and our business, financial condition and results of operations would be materially adversely affected.

We are making substantial investments in new offerings and improving technologies and expect to increase such investments in the future. We may not ever realize any expected benefits from our investments or improve our technology infrastructures, which could materially adversely affect our business, results of operation and financial condition.

We have made substantial investments to develop new offerings and technologies, and we intend to continue investing significant resources to develop new technologies, tools, features, services, products and offerings. We are continually upgrading our technology to provide improved performance, increased scale and better integration among our shared mobility offerings and value-added services. For example, we have invested and are continuing to invest significant resources into the development of our platform in order to ensure and provide a seamless customer experience, deep data capabilities, dynamic smart pricing, instant Know Your Customer (“KYC”) processes in terms of registration and verification and customer scoring. We are also investing in the creation of a private cloud server, and we expect to continue investing resources to develop these and other offerings. If we do not spend our development budget efficiently or effectively on commercially successful and innovative technologies, we may not realize the expected benefits of our strategy. Our initiatives may not perform as expected, which could reduce the return on our investments in this area. If we are unable to efficiently develop new technologies or offerings, or if we do so at a slower pace or at a higher cost, or if our technology is less capable relative to our competitors, our business, financial condition and results of operations could be materially adversely affected.

Additionally, the automotive industry is increasingly focused on the development of advanced driver assistance technologies, with the goal of developing and introducing a commercially-viable, fully automated driving experience. The high development cost of active safety and autonomous driving technologies may result in a higher risk of exposure to the success of new or disruptive technologies different than those being deployed by us. Adopting new technologies, upgrading our mobile app and website infrastructure and maintaining and improving our technology infrastructure require significant investments of time and resources, including adding

 

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new hardware, updating software, recruiting and training new engineering personnel and maintaining existing engineering personnel in a competitive market for their skillset. Adverse consequences for the failure to do so may include unanticipated system disruptions, security breaches, computer virus attacks, slower response times, impaired quality of experiences for our customers and delays in reporting accurate operating and financial information. If we experience problems with the functionality and effectiveness of our software or platforms, or are unable to maintain and improve our technology infrastructure to handle our business needs and ensure a consistent and acceptable level of service for our customers, our business, financial condition and results of operations, as well as our reputation, could be materially adversely affected.

Because our new initiatives also have a high degree of risk, as each involves nascent industries and unproven business strategies and technologies with which we have limited or no prior development or operating experience, they may involve claims and liabilities, expenses, regulatory challenges and other risks, some of which we cannot currently anticipate. There can be no assurance that customer demand for such initiatives will exist or be sustained at the levels that we anticipate, or that any of these initiatives will gain sufficient traction or market acceptance to generate sufficient revenue to offset any new expenses or liabilities associated with these new investments. It is also possible that products and offerings developed by others will render our products and offerings noncompetitive or obsolete. Further, our development efforts with respect to new products, offerings and technologies could distract management from current operations, and will divert capital and other resources from our more established offerings and technologies. Even if we are successful in developing new offerings or technologies, regulatory authorities may subject us to new rules or restrictions in response to our innovations that could increase our expenses or prevent us from successfully commercializing new products, offerings or technologies.

The impact of economic conditions, including the resulting effect on discretionary customer spending, may harm our business and operating results.

Our performance is subject to economic conditions and their impact on levels of discretionary customer spending. Some of the factors that have an impact on discretionary customer spending include general economic conditions, unemployment, customer debt, reductions in net worth, residential real estate and mortgage markets, taxation, energy prices, interest rates, customer confidence and other macroeconomic factors. Customer preferences tend to shift to lower-cost alternatives during recessionary periods and other periods in which disposable income is adversely affected. In such circumstances, although some customers may turn to our offerings more frequently to avoid more expensive mobility options such as taxis or private car ownership, others may choose to forego our offerings for public transportation alternatives or may reduce total kilometers traveled as economic activity decreases. Additionally, during such periods, we may need to offer additional discounts or promotions to stimulate customer spending and remain competitive. Such shifts in customer behavior or price may harm our business, financial condition and results of operations.

Risks Relating to our Intellectual Property

We may not be able to prevent others from unauthorized use of our intellectual property rights, which may adversely affect our competitive position, our business, financial condition and results of operations.

Our intellectual property includes the content of our website, mobile applications, domain names, software (including proprietary software), firmware, registered, applied-for and unregistered trademarks, service marks, trade dress, trade names, trademark applications, registered and applied-for copyrights and unregistered copyrights, know-how, processes and inventions (whether or not patentable). We believe that our intellectual property is essential to our business and affords us a competitive advantage in the markets in which we operate. If we do not adequately protect our intellectual property, our brand and reputation may be harmed, our offerings may be devalued and our ability to compete effectively may be impaired.

To protect our intellectual property, we rely on a combination of copyright, trademark and trade secret laws, contractual provisions, end-user policies and disclosure restrictions. Upon discovery of potential infringement of our intellectual property, we promptly take action to protect our rights as appropriate. We also

 

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enter into confidentiality agreements and invention assignment agreements with our employees and consultants and seek to control access to, and distribution of, our proprietary information in a commercially prudent manner. The protection and enforcement of intellectual property rights in Russia and other markets in which we operate, however, may not be as effective as that in the United States or Western Europe, and the efforts we have taken to protect our intellectual property may not be sufficient or effective. For example, effective intellectual property protection may not be available in every country in which we currently or in the future will operate, or third parties may already have pre-existing competing registrations or applications.

In addition, it may be possible for other parties to copy or reverse-engineer our products and offerings or obtain and use the content of our websites without authorization. Further, we may be unable to prevent competitors from acquiring domain names, trademarks or service marks that are similar to, infringe upon or diminish the value of our domain names, trademarks, service marks or other proprietary rights. Moreover, our trade secrets may be compromised by third parties or our employees, which could cause us to lose the competitive advantage derived from the compromised trade secrets. Further, we may be unable to detect infringement of our intellectual property rights, and even if we detect such violations and decide to enforce our intellectual property rights, we may not be successful, and may incur significant expenses in connection with such efforts. In addition, any such enforcement efforts may be time consuming and may divert management’s attention. In some situations, we may decide to bring intellectual property actions outside of Russia or other countries in which we operate, in which case we could be subject to additional risk as to the result of the proceedings, the amount of damages that we could be awarded and/or collect, as well as potential currency risk. Further, any enforcement efforts may result in a ruling that our intellectual property rights are unenforceable or invalid.

Any failure to protect or any loss of our intellectual property may have an adverse effect on our ability to compete and may adversely affect our business, financial condition and results of operations.

We may be subject to intellectual property infringement claims, which are costly to defend, could result in significant damage awards, and could limit our ability to operate or to provide certain content or use certain technologies in the future.

Companies in the internet and technology industries, and other patent and trademark holders, including “non-practicing entities,” seeking to profit from royalties in connection with grants of licenses or seeking to obtain injunctions, own large numbers of patents and other intellectual property, and frequently enter into litigation based on allegations of infringement or other violations of intellectual property. We may in the future receive notices that claim we have misappropriated, misused or infringed upon other parties’ intellectual property rights.

Furthermore, a number of internet, technology, media and patent-holding companies own or are actively developing patents covering internet-related technologies that are similar to the ones we use, as well as a variety of online business models and methods. We believe that these parties will continue to take steps to protect these technologies, including, but not limited to, seeking patent protection in certain jurisdictions. As a result, disputes regarding the ownership of technologies and rights associated with online activities are likely to arise in the future. In addition, use of open-source software is often subject to compliance with certain license terms, which we may inadvertently breach.

Any intellectual property claim against us, regardless of merit, could be time consuming and expensive to settle or litigate, could divert our management’s attention and other resources, and could hurt goodwill associated with our brand. Our efforts to defend these claims may be unsuccessful. These claims may also subject us to significant liability for damages and may result in us not being able to use technology, content, branding, or business methods found to be in violation of another party’s rights. We may have to seek a license for the technology, which may not be available on commercially reasonable terms or at all, and may significantly increase our operating expenses. We may be required to develop an alternative non-infringing technology, which may require significant effort, expense and time to develop. Further, certain adverse outcomes of such proceedings could adversely affect our ability to offer certain services or products or compete effectively in existing or future businesses.

 

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We may be subject to claims from our current or former employees, as well as contractors, for copyright, trade secret and patent-related matters, which are costly to defend and which could adversely affect our business, financial condition and results of operations.

The software, databases, algorithms, images, patentable intellectual property, trade secrets and know-how that we use for the operation of our services were generally developed, invented or created by our former or current employees or contractors during the course of their employment with us within the scope of their job functions or under the relevant contractor’s agreement, as the case may be. As a matter of Russian law, we are deemed to have acquired copyright and related rights, as well as rights to file patent applications with respect to such products, and have the intellectual property rights required for their further use and disposal subject to compliance with certain requirements set out in the Civil Code of Russia. We believe that we have appropriately followed such requirements, but they are defined in a broad and ambiguous manner and their precise application has never been definitively determined by the Russian courts. Therefore, former or current employees or contractors could claim the right to additional compensation for their works for hire and/or patentable results, in addition to their employment compensation, as well as challenge the transfer of intellectual property rights over the products developed by them or with their contribution. We may not prevail in any such action, and any successful claim, although unlikely to be material, could adversely affect our business and results of operations.

Risks Relating to Legal and Regulatory Matters

Changes to any existing car sharing regulations, or the enactment of regulations with more stringent requirements for the operation of car sharing services, could affect our business, financial condition and results of operations.

There are no car sharing regulations at the federal level in Russia. However, certain proposals to introduce a regulatory framework for the car sharing industry have been publicly announced by the State Duma members in recent years. Such proposals, if adopted, could significantly and materially harm our business, financial condition and results of operations by restricting or limiting how we operate our business, increasing our operating costs and decreasing our number of customers. We cannot predict whether or when such proposals may be adopted.

In larger cities, local governments have adopted and may adopt in the future regulations providing incentives for or regulating the operations of companies that develop shared mobility schemes, including companies of the car sharing industry. For example, the Moscow Government issued Decree No. 405-PP on August 31, 2011 (as amended on June 14, 2018) the (“Moscow Decree”) on urban support for taxi and car sharing services in the city of Moscow, which, among other incentives, allows car sharing companies to acquire preferential parking permits in the capital, provided certain requirements and service standards are met. Furthermore, under the Moscow Decree, the Moscow government may subsidize leasing or loan payments for companies that acquire passenger cars with the purpose of providing car sharing services by reimbursing part of the interest payment costs borne by such companies with resources from the city budget. In addition, if the Moscow Decree were to be revoked, or amended such that car sharing companies could no longer acquire preferential parking permits in the capital, there could be a material adverse impact on our business, financial condition and results of operations. The loss of preferential parking permits would impact all players in the Russian car sharing market in Moscow and all companies would likely increase prices to compensate. As a result of increased prices, we could lose customers and our fleet utilization could decrease. For further information, see “Regulation.”

Additionally, Moscow currently requires that all cars used for car sharing be no older than one year in order to obtain discounted parking privileges. Once parking privileges for a car are obtained, they are valid for three years. We navigate this requirement by deploying new vehicles to Moscow and redistributing cars to other regions when they become three years old. Any changes to Moscow’s existing car sharing regulations, or the

 

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enactment of similar requirements in other regions, could impact our car distribution cycle and have a material adverse effect on our business, financial condition and results of operations.

Failure to comply with existing laws and regulations or to obtain all approvals, authorizations and permits, or the findings of government inspections or increased governmental regulation of our operations, could result in a disruption in our business and substantial additional compliance costs and sanctions.

Our operations and properties are subject to regulation by various government entities and agencies in connection with obtaining and renewing authorizations, approvals and permits, as well as with ongoing compliance with existing laws, regulations and standards. Regulatory authorities exercise considerable discretion in matters of enforcement and interpretation of applicable laws, regulations and standards, the issuance and renewal of authorizations, approvals and permits and in monitoring licensees’ compliance with the terms thereof. Russian authorities have the right to, and frequently do, conduct periodic inspections of our operations and properties throughout the year. Any such future inspections may conclude that we or our subsidiaries have violated laws, decrees or regulations, and we may be unable to refute such conclusions or remedy the violations. For further information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Impact of the COVID-19 Pandemic.”

Our failure to comply with existing laws and regulations applicable to us or to obtain all approvals, authorizations and permits, or the findings of government inspections, including the data protection authorities and labor inspection services, may result in the imposition of civil and administrative fines or penalties or more severe sanctions, including the suspension, amendment or termination of our authorizations, approvals and permits, requirements that we cease certain of our business activities, or criminal and administrative penalties applicable to our officers. Moreover, an agreement or transaction entered into in violation of law may be invalidated and/or unwound by a court decision. Any such decisions, requirements or sanctions, or any increase in governmental regulation of our operations, could result in a disruption of our business and substantial additional compliance costs, and our business, financial condition and results of operations could be materially adversely affected.

We are subject to regulation regarding the processing and retention of personal and other data, which may impose additional obligations on us, limit our flexibility or harm our reputation with customers.

We collect, process, store and transmit large amounts of data, including confidential, sensitive, proprietary, business and personal information, in the course of our business. The effectiveness of our technology and our ability to offer our products and services to customers depends on the collection, storage and use of data concerning customer activity, including personally identifying or other sensitive data. Although we have developed systems and processes designed to protect customer and employee information and prevent and mitigate the impact of data breaches and other fraudulent activities (whether directly through us or indirectly through our customers), such measures cannot guarantee the security of such data and may be circumvented or fail to operate as intended.

For example, there are certain statutory requirements for collection and processing of biometric personal data that will enter into force on January 1, 2022, pursuant to Federal Law No. 479-FZ dated December 29, 2020, “On amendments to certain legislative acts of the Russian Federation,” as amended (“Federal Law No. 479-FZ”), and there are currently three draft governmental decrees implementing the statutory requirements in various stages of the legislative process. If passed into law in their current forms, the draft decrees collectively provide that car sharing operators may collect biometric data for the purpose of identifying drivers and creating their own commercial biometric systems (“CBSs”). However, in order for companies to process biometric data, they would be required to obtain accreditation and, at a minimum: have at least RUB 50 million or RUB 500 million (depending on the type of accreditation) in own funds; obtain a cryptographic license; maintain in-person collection of biometric personal data; transfer and store the biometric personal data in the Unified Biometric

 

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System (the “UBS”); and authenticate customers via their biometric identifiers only through the UBS or using own CBSs in permitted cases. It is currently unclear how these requirements would be applied to companies that process biometric personal data in which foreign ownership exceeds 49%.

We expect the three draft governmental decrees to undergo numerous amendments before they become law. However, if Federal Law No. 479-FZ, in conjunction with the implementing regulations, is construed to attribute the Company´s method of customer identification based on the technology of comparing geometric depersonalized models of faces as collecting and processing of biometric personal data, the new requirements could result in us having to undertake significant restructuring and adapt certain business processes to meet the new requirements. This could, in turn, create both one-time and ongoing administrative and operational expenses, including expenses for accreditation and creation of our own CBS, or charges for the use of the services of the UBS, which could have an adverse effect on our business. Currently, there are no specific sanctions for violation of the above requirements. However, liability may arise on a general basis for violation of the procedure for processing personal data (currently a fine of RUB 100,000 for the first occurrence of unlawful processing and RUB 300,000 for each subsequent violation). In the case of a violation of the established requirements by an accredited person, processing activities may be suspended by an order of the Russian authorities. However, no assurance can be given that currently effective sanctions will not be amended to provide for more severe liability following the adoption of the decrees. For further information, see “Regulation—Privacy and Personal Data Protection Regulation.”

In order to process an individual’s personal data, we must obtain the individual’s consent. This consent may be revoked at any time and, if revoked, the relevant personal data must be deleted. Subject to several exemptions, processors of personal data, including ourselves, must register as personal data operators with the Federal Service for Supervision of Communications, Information Technology and Mass Media, or Roskomnadzor, the Russian competent regulatory authority for data protection. Roskomnadzor, among its other functions, ensures compliance with the data protection legislation and conducts scheduled and unscheduled audits to ensure such compliance, maintains the registers of personal data operators, infringers of personal data processing requirements and blocked websites, and initiates legal proceedings in case of violations and if required, the imposition of fines or other penalties. The cross-border transfer of personal data is allowed pursuant to Russian law, subject to consent of the individual. However, with the growing concerns of governments around the world with data privacy and security, rules and regulations governing processing, use, transfer (including cross-border) and other handling of data may change as a result of changes in policies, for state security or other reasons. These changes may require us to handle data differently, which could result in additional costs to us, or otherwise materially adversely affect our operations. We will be subject to inspections by Roskomnadzor in the future, and if such inspections result in the determination that companies in our group fail to comply with the applicable data protection legislation, we could experience financial and reputational losses and could be restricted from providing certain types of services until we comply with the requirements.

Furthermore, we use cookies and other widespread technologies that assist us in improving the customer experience and personalization of our products and services that ultimately benefit both our customers and advertisers through behavioral targeting. There is no clarity as to whether our practices are compliant with the requirements of applicable data protection legislation in Russia and abroad, and such laws could be interpreted and applied in a manner that is not consistent with our current data protection practices.

Companies are also required to store all personal data of Russian customers in databases located inside Russia. Compliance with the requirements provided in this legislation may be practically difficult, require significant efforts and resources, lead to legal liability in other jurisdictions and limit functionality of our services. Compliance with these requirements may also limit our ability to compete with other companies located in other jurisdictions that do not require mandatory local storage of personal data related to their customers and that may elect not to comply with such requirements in Russia.

 

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Due to the nature of the services we offer, we may also be subject to data protection laws of other jurisdictions, especially laws regulating the cross-border transfer of personal data, which may require significant compliance efforts and could result in liability for violations in other jurisdictions. For example, the EU’s General Data Protection Regulation (“GDPR”) came into force in May 2018. As of the date of the prospectus, we have not yet completed our assessment of the extent of applicability of the GDPR to our operations. We have only modest operations in Luxembourg and therefore our exposure under the GDPR should be limited. However, if we fail to interpret all the requirements of the GDPR in accordance with the official interpretation, we may be held liable for noncompliance. The GDPR applies extraterritorially and imposes stringent requirements for controllers and processors of personal data. Such requirements include appropriate assessments of the risks relating to our personal data processing, appropriate technical and organizational measures to guard against security incidents, higher consent standards to process personal data, robust disclosures regarding the use of personal data, strengthened individual data rights, data breach requirements, limitations on data retention, strengthened requirements for special categories of personal data and pseudonymized (i.e., key-coded) data, and additional obligations for contracting with service providers that may process personal data. The GDPR further provides that EU member states may institute additional laws and regulations impacting the processing of personal data, including (i) special categories of personal data (e.g., racial or ethnic origin, political opinions, and religious or philosophical beliefs) and (ii) profiling of individuals and automated individual decision-making. Such additional laws and regulations could limit our ability to use and share personal or other data, thereby increasing our costs and harming our business and financial condition. Non-compliance with the GDPR (including any non-compliance by any acquired business) is subject to significant penalties and injunctions against the processing of personal data (including possible fines of up to the greater of 20 million euros and 4% of our global annual turnover for the preceding financial year for the most serious violations). In addition to the foregoing, a breach of the GDPR could result in regulatory investigations, reputational damage, orders to cease or change the way we are processing the personal data, enforcement notices, and/or assessment notices (for a compulsory audit).

Such data protection laws, rules and regulations are complex and their interpretation is rapidly evolving, making implementation and enforcement, and thus compliance requirements, ambiguous, uncertain and potentially inconsistent. There can be no guarantee that our current data protection practices will be deemed sufficient under applicable laws or remain sufficient due to new regulatory requirements or technological developments. Compliance with such laws may require changes to our data collection, use, transfer, disclosure and other processing and certain other related business practices and may thereby increase compliance costs. Additionally, any failure or perceived failure by us to comply with privacy and data protection policies, notices, laws, rules, orders and regulations could result in proceedings or actions against us by individuals, consumer rights groups, governmental entities or agencies or others. We could incur significant costs investigating and defending such claims and, if found liable, significant damages. Further, these proceedings and any subsequent adverse outcomes may subject us to significant penalties and negative publicity. If any of these events were to occur, our business could be significantly disrupted and our financial results could be materially adversely affected.

Adverse litigation judgments or settlements resulting from legal proceedings in which we may be involved could expose us to monetary damages or limit our ability to operate our business.

We have in the past been, are currently, and may in the future become involved in private actions, collective actions, investigations, and various other legal proceedings by consumers, employees, commercial partners, competitors or government agencies, among others. We are subject to litigation relating to various matters including taxes, antitrust, intellectual property infringement, privacy, unfair competition, safety practices, and employment and human resources practices. For example, we were recently involved in litigation relating to compliance with consumer protection legislation with Rospotrebnadzor, where Rospotrebnadzor of the Sverdlovsk region claimed that certain provisions in our agreements with customers allowing for direct debit of their bank accounts violate consumer protection laws by not allowing a customer to agree with our assessment of a direct debit in certain cases where a customer is required to pay a penalty or damages to us. The most recent decision by the Commercial (Arbitrazh) Court of the Sverdlovsk Region, which entered into force on October 12, 2021, confirmed the legitimacy of our approach. However, the decision has also resulted in the necessity of amending some of our other business processes. For example, as a result of the decision we are required to accept cash for our services

 

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as an alternative payment method, reduce repayment periods for erroneously debited amounts to customers from 30 days to 10 days and reduce certain possible contractual fines. This has resulted in adaptations to the terms and conditions of agreements with customers.

While we believe we have complied with all laws and should not be required to pay any fees or suffer other legal consequence, the results of any such litigation, investigations, and legal proceedings are inherently unpredictable and expensive. After we become a publicly listed company with a higher profile and in the future through any expansion of our cross-border business, we may face additional exposure to claims and lawsuits inside and outside Russia. Any claims against us, whether meritorious or not, could be time consuming, costly and harmful to our reputation, and could require significant amounts of management time and corporate resources. If any of these legal proceedings were to be determined adversely to us, or we were to enter into a settlement arrangement, we could be exposed to monetary damages or be forced to change the way in which we operate our business, which could have a material adverse effect on our business, financial condition and operating results.

When possible we include arbitration provisions in our terms of service with commercial entities or in agreements. These provisions are intended to streamline the litigation process for all parties involved, as arbitration can in some cases be faster and less costly than litigating disputes in court. However, arbitration may become more costly for us, or the volume of arbitrations may increase and become burdensome. To minimize these risks, we have in the past and may in the future voluntarily limit our use of arbitration provisions, or we may be required to do so, in any legal or regulatory proceeding, either of which could increase our litigation costs and exposure in respect of such proceedings.

Competition laws may result in certain limitations being imposed on our activities, which may affect our business.

Russian Federal Law No. 135-FZ “On Protection of Competition,” dated July 26, 2006, as amended (the “Competition Law”), generally prohibits any concerted action, agreement or coordination of business activity that results or may result in, among other matters: (i) establishing or maintaining pricing plans, discounts, extra charges and/or margins; (ii) coordination of auctions and tenders; (iii) division of a market by territory, volume of sales or purchases, types of goods, customers or suppliers; (iv) reduction or termination of goods production; or (v) refusal to enter into contracts with certain buyers, such as customers. In addition, concerted actions are prohibited if they result or may result in restriction of competition by way of, among others: (i) imposing unfavorable contractual terms upon a counterparty or not related to the subject matter of agreement, (ii) establishing different prices for the same goods without economical, technological or other justification or (iii) creating barriers to entering or exiting a market.

Courts inconsistently interpret these concepts of concerted actions or coordination of business activity. As a result, there is significant uncertainty as to what actions may be viewed as violations of the Competition Law. In a number of cases, Russian courts found concerted actions where market participants acted in a similar way within the same period of time, although, arguably, there were legitimate economic reasons for such behavior, and the behavior was not aimed at restricting competition. While we are not aware of any allegation that we have violated the Competition Law, there is a risk that we may be found to have violated the law if our market behavior towards our customers or suppliers is viewed as being similar to the behavior of our competitors and perceived by the Russian Federal Antimonopoly Service (“FAS”) as restricting competition. Such broad interpretations of the Competition Law may result in the FAS imposing substantial limitations on our activities, may limit our operational flexibility and may result in civil, administrative or criminal liability.

 

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The FAS, which has the power to investigate perceived violations of the Competition Law, has been reviewing the marketing, sales and supply strategies of major participants in the Russian retail industry in recent years and bringing charges against certain market participants alleging concerted actions in violation of the Competition Law. If our activities are found to have violated the Competition Law, we could be subject to penalties or ordered to change our business operations in a manner that increases costs or reduces revenue and profit margin. For example, to determine pricing for our car sharing service, we currently use smart algorithms that adjust prices charged to customers to account for the effects of supply and demand, resulting in an increase in prices charged during high-demand periods, such as during holidays or in harsh weather conditions. Given our substantial market share in the Russian car sharing market, if we were to be considered by the FAS to be holding a dominant market position, any pricing determined in such manner which significantly exceeds the cost of service or otherwise differs from pricing determined under normal market conditions could be recognized as violating anti-monopoly legislation. Additionally, we could be prohibited from entering into contracts with parties on unequal conditions or charged with refusing to enter into contracts without justification. Despite our best efforts to comply with the Competition Law, there can be no assurance that the FAS will not inspect our activities in the future and find us liable for breaches of the Competition Law. Should this happen, it could have a material adverse effect on our business and financial results.

Environmental laws and regulations and the costs of complying with them, or any liability or obligation imposed under them, could materially adversely affect our results of operations, financial condition, liquidity and cash flows.

We are subject to Russian environmental laws and regulations in connection with our operations, including with respect to the ownership and operation of tanks for the storage of petroleum products, such as gasoline, diesel fuel and motor and used oils. Compliance with existing or future environmental laws and regulations may require material expenditures by us or otherwise have a material adverse effect on our financial condition, results of operations, liquidity or cash flows.

Legislative and regulatory authorities in Russia have considered, and will likely continue to consider, numerous measures related to climate change and greenhouse gas emissions. Should rules establishing limitations on greenhouse gas emissions or rules imposing fees on entities deemed to be responsible for greenhouse gas emissions become effective, demand for our services could be affected, our vehicle and/or other costs could increase, and our business could be adversely affected.

Risks Relating to the Russian Federation

Investing in securities of issuers with assets in emerging markets, such as Russia, generally involves a higher degree of risk than investments in securities of issuers from more developed countries and carries risks that are not typically associated with investing in more mature markets.

Emerging markets such as Russia are subject to greater risks than more developed markets, including significant legal, economic, tax and political risks. Investors in emerging markets should be aware that these markets are subject to greater risk and should note that emerging economies such as the economies of Russia are subject to rapid change and that the information set out herein may become outdated relatively quickly.

Financial or economic crises, whether global or limited to a single large emerging market country, tend to adversely affect prices in equity markets of most or all emerging market countries, as investors move their money to more stable, developed markets. Over the past few years, the Russian equity markets have been highly volatile, principally due to the impact of the global economic slowdown resulting from various factors, including the European sovereign debt crisis, the slowdown in Chinese economic growth and the dramatic fall in oil prices, as well as deteriorating conditions of the Russian economy. As has happened in the past, financial problems such as significant ruble depreciation, capital outflows and a deterioration in other leading economic indicators or an increase in the perceived risks associated with investing in emerging economies due to, among other things,

 

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geopolitical disputes and imposition of certain trade and economic sanctions in connection therewith, could hinder foreign investment in Russia and adversely affect the Russian economy. In addition, during such times, businesses that operate in emerging markets can face severe liquidity constraints as funding sources are withdrawn. As we operate in emerging markets, we may be exposed to any one or a combination of these risks, and our business, financial condition and results of operations could be materially adversely affected.

Political risks could adversely affect the value of investments in Russia.

While the political situation in Russia has been relatively stable since 2000, future policy and regulation may be less predictable than in more stable markets. Any future political instability could result in a worsening overall economic situation, including capital flight and a slowdown of investment and business activity. In addition, any change in the Russian government or its programs or lack of consensus between the Russian president, the Russian government, the Russian Parliament and powerful political, social, religious, regional, economic or ethnic groups could lead to political instability and a deterioration in Russia’s investment climate that might limit our ability to obtain financing in the international capital markets, and our business, financial condition and results of operations could be materially adversely affected.

According to some commentators, politically motivated actions, including claims brought by the Russian authorities and state-owned companies against several major Russian companies, as well as cases of confiscation or renationalization of assets, have called into question the security and enforceability of property and contractual rights, progress of the free market and political reforms, the independence of the judiciary and the certainty of legislation. This has, in turn, resulted in significant fluctuations in the market price of Russian securities and has had a negative impact on foreign investments in the Russian economy, over and above the general market turmoil more recently. Any similar actions by the Russian authorities which result in a further negative effect on investor confidence in Russia’s business and legal environment could have a further material adverse effect on the Russian securities market and prices of Russian securities or securities issued or backed by Russian entities, including the ADSs. Russia is a federative state consisting of “subjects.” The Russian Constitution reserves some governmental powers for the Russian government, some for the subjects and some for areas of joint competence. In addition, eight “federal districts” (federal’nye okruga), which are overseen by a plenipotentiary representative of the Russian president, supplement the country’s federal system. The delineation of authority among and within the subjects is, in many instances, unclear and contested, particularly with respect to the division of tax revenues and authority over regulatory matters. Subjects have enacted conflicting laws in areas such as privatization, land ownership and licensing. For these reasons, the Russian political system is vulnerable to tension and conflict between federal, subject and local authorities. This tension creates uncertainties in the operating environment in Russia, which may prevent businesses from carrying out their strategy effectively.

In addition, ethnic, religious, historical and other divisions have on occasion given rise to tensions and, in certain cases, military conflict. Moreover, various acts of terrorism have been committed within Russia. The risks associated with these events or potential events could materially and adversely affect the investment environment and overall customer and entrepreneurial confidence in Russia, which could materially adversely affect our business, financial condition and results of operations.

Although no entity in the Company group is currently a sanctioned person, sanctions imposed by the United States, the European Union, the United Kingdom, and other states in relation to Russia may have a material adverse effect on the Company’s business, financial condition, results of operations and liquidity.

The United States, the European Union, the United Kingdom and certain other countries have imposed economic sanctions on certain Russian and Ukrainian persons and entities, as well as on the territory of Crimea and Sevastopol. In particular, the United States has imposed (i) sanctions that block the property of certain designated persons and entities, (ii) “sectoral sanctions” that prohibit certain types of transactions with specified companies operating in the Russian energy, financial and defense sectors and (iii) comprehensive sanctions that

 

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prohibit virtually all investments into, imports from, and exports to, the territory of Crimea and Sevastopol. Entities owned 50% or more (directly or indirectly), in the aggregate, by sanctioned persons or entities are also sanctioned. The United States has also imposed additional sanctions pursuant to a number of different pieces of legislation, including under the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991. These resulting prohibitions and restrictions generally apply to nationals of the countries imposing such sanctions and to nationals of other countries to the extent they act within the jurisdiction of the country imposing the sanctions and may, particularly in the case of U.S. sanctions, have extraterritorial effect. Most of the Company’s entities are neither U.S. persons nor EU persons, and therefore are subject to these sanctions prohibitions and restrictions only to the extent their dealings are subject to U.S. or EU jurisdiction. However, the Company does include some entities incorporated within the European Union, and the United States takes a broad view of its jurisdiction. Accordingly, there can be no assurance that compliance issues under U.S. and/or EU sanctions laws and regulations will not arise with respect to the Group or its personnel.

The U.S. law also authorizes the imposition of so-called “secondary” sanctions which involve the imposition of a range of sanctions against non-U.S. entities engaging in, among other activities, targeted activities involving Russia, certain sectors of the Russian economy or sanctioned persons outside of U.S. jurisdiction. While the actual imposition of U.S. secondary sanctions requires affirmative action by the U.S. administration and is thus in practice discretionary, potential sanctions can be as severe as designation for blocking sanctions, which involves the complete blocking of all transactions and property of the blocked person or entity within U.S. jurisdiction, including U.S. dollar and securities clearing transactions.

No individual or entity within the Company, its subsidiaries or affiliates is currently designated under U.S. or EU sanctions. However, U.S. sanctions authorize designation of or, in some cases, the imposition of secondary sanctions on, any person that engages in sanctionable conduct or materially assists, sponsors or provides financial, material or technological support for, or goods or services to or in support of, sanctioned persons as well as persons engaged in targeted activities. In the ordinary course of business, the Company, like many major Russian company groups, may enter into contracts, have commercial relationships or otherwise engage in activities with persons and entities that are or may become subject to U.S. and EU sanctions, including, for example, Russian financial institutions subject to U.S. sectoral sanctions. Although the Company does not believe that such activities would result in the imposition of sanctions on the Company, it can give no assurance that it, any of its subsidiaries, individuals holding positions in the Company and its direct and indirect shareholders and controlling persons will not be affected by future sanctions designations or secondary sanctions.

If the Company becomes subject to U.S. or EU sanctions, such sanctions will likely have a material adverse impact on its business, access to international financial markets, results of operations, financial condition and prospects. Moreover, investors subject to the jurisdiction of an applicable sanctions regime may become restricted in their ability to hold, deal in, or receive dividends with respect to, the ADSs subject to this offering, which could make the ADSs partially or completely illiquid and have a material adverse effect on their market value.

The future scope and application of U.S., EU and U.K. sanctions in relation to Russia is impossible to predict and may be materially affected by international and domestic political developments. U.S. sanctions, for example, may be materially affected by the adoption of new legislation requiring the imposition of additional sanctions on Russia. Similarly, EU sanctions on Russia (which are time-limited and subject to periodic renewal) may continue to be extended and could also change in scope or application as a result of political developments.

Geopolitical conflict and uncertainty in neighboring and other countries may have material adverse effects on the Company’s business, financial condition, results of operations or prospects.

Over the past several years, Russia has been involved in conflicts, both economic and military, involving neighboring and more distant countries. On several occasions, this has resulted in the deterioration of Russia’s relations with other members of the international community, including the United States, the United

 

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Kingdom and various countries in Europe. Many of these jurisdictions are home to financial institutions and corporations that are significant investors in Russia and whose investment strategies and decisions may be affected by such conflicts and by worsening relations between Russia and its immediate neighbors and other countries. Geopolitical conflict and uncertainty could have material adverse effects on the Company’s business, financial condition and results of operations.

Economic instability in Russia could adversely affect our business.

Since the dissolution of the Soviet Union in 1991, the economy of Russia has experienced periods of considerable instability and has been subject to abrupt downturns. From 2000 until the first half of 2008, Russia experienced rapid growth in its gross domestic product (“GDP”), higher tax collections and increased stability of the ruble, providing some degree of economic soundness. However, the Russian economy was adversely affected by the global economic crisis that began in the second half of 2008. While the international situation stabilized to a certain extent in the 2010s, the Russian economy began to experience a new slowdown in 2014 due to the introduction of sanctions against Russia and the decline of oil prices, which resulted in a decline in GDP of 2.0% in 2015. This led to a reduction in the disposable income of the general population, a crisis of bank liquidity and a significant depreciation of the Russian ruble against the U.S. dollar and euro.

As Russia produces and exports large quantities of crude oil, natural gas, metal products and other commodities, its economy is particularly vulnerable to fluctuations in the prices of commodities on the global market. In particular, the Brent crude oil price suffered a significant decrease during 2014 and 2015. The Brent crude oil price declined from $115.19 per barrel on June 19, 2014 to $36.80 per barrel on December 31, 2015. In recent years, the Brent crude oil price has continued to be volatile with $67.77 per barrel on December 31, 2019 and $51.22 per barrel on December 31, 2020, following a sharp fall to $19.64 per barrel on April 21, 2020, its lowest trading price in decades, mostly as a consequence of the steep decline in global petroleum demand in the first half of 2020 led by responses to the COVID-19 pandemic.

There is no assurance that a financial downturn or future economic downturn in Russia would not lead to decreased demand for our services and decreased revenue or negatively affect our liquidity and ability to finance our operations or would not otherwise materially adversely affect our business, financial condition and results of operations.

Inflation may increase our costs and exert downward pressure on our operating margins.

The Russian economy has generally been characterized by high rates of inflation in recent years. According to Rosstat, the consumer price index (end of period, year-over-year) in Russia stood at 4.3%, 3.0% and 4.9% in 2018, 2019 and 2020, respectively. Because substantially all of our operations are in Russia, our costs are sensitive to increases in prices in Russia. We may not be able to offset the increase in such costs with an increase in prices for our services. An increase in our costs as a result of high rates of inflation could adversely impact our operating margin, and materially adversely affect our business, financial condition and results of operations.

Social instability could increase support for renewed centralized authority, nationalism or violence and could materially adversely affect our operations.

A decrease in the price of oil, as well as increased unemployment rates, the inability of the government and many private enterprises to pay full salaries on a regular basis and the inability of salaries and benefits generally to keep pace with the rapidly increasing cost of living have led in the past, and could lead in the future, to labor and social unrest in the markets in which we operate. Labor and social unrest may have political, social and economic consequences, such as increased support for a renewal of centralized authority, increased nationalism, including restrictions on foreign involvement in the Russian economy, increased risk of damage to our fleet and decreased demand as a result of potential protests, unrest and increased violence. An occurrence of

 

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any of the foregoing events could restrict our operations and lead to the loss of revenue, and our business, financial condition and results of operations could be materially and adversely affected.

Crime and corruption could disrupt our ability to conduct our business and thus, materially adversely affect our operations.

The political and economic changes in recent years in Russia have resulted in significant changes in governmental authority. In addition, the local and international media and international organizations have reported significant levels of corruption, including the bribing of officials for the purpose of initiating investigations by government agencies. Media reports have also described instances in which government officials engaged in selective actions to further the commercial interests of certain government officials or certain companies or individuals. Additionally, some members of the media have published disparaging articles in return for payment. We are also exposed to the potential depredations of organized or other crime.

We are exposed to the risk of inadvertently violating anti-corruption laws, anti-money laundering laws and other similar laws and regulations.

We are exposed to the risk of inadvertently violating anti-corruption laws, anti-money laundering laws and other similar laws and regulations. As of the closing of the offering, we will have updated policies and procedures designed to assist with compliance with applicable laws and regulations, and upon becoming a public company in the United States, we will be subject to the U.S. Foreign Corrupt Practices Act of 1977 (“FCPA”). The FCPA prohibits providing, offering, promising or authorizing, directly or indirectly, anything of value to government officials, political parties or political candidates for the purposes of obtaining or retaining business or securing any improper business advantage.

As of the closing of the offering, we will have and maintain updated internal compliance policies and procedures, but we cannot provide any assurance that these policies and procedures will be strictly followed at all times and that they will effectively detect and prevent all violations of the applicable laws and every instance of fraud, money laundering, bribery and corruption. We also cannot provide any assurance that potential violations of our internal compliance procedures will be uncovered through our procedures or that violations of the applicable anti-bribery or money laundering laws, including the FCPA, will not occur. We have internal audit, security and other procedures in place, which are designed to prevent instances of fraud, money laundering, bribery and corruption. However, despite these controls and procedures, there can be no assurance that through these and other procedures we use we will timely and effectively catch any violations of our internal compliance procedures or any violations of laws, including those related to fraud, money laundering, bribery and corruption.

Moreover, we will have updated our internal anti-money laundering and sanctions compliance policies only recently, and there can be no assurance that there were no violations prior to that or that our employees have sufficient experience to follow such policies properly. We are thus exposed to potential civil or criminal penalties or associated investigations under the relevant applicable laws which may, if not successfully avoided or defended, have an adverse impact on our business, prospects, financial condition or results of operations. Similarly, actual findings or mere allegations of such violations could negatively impact our reputation and limit our future business opportunities, which may cause our reputation, financial condition and results of operations to be materially and adversely affected.

 

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Weaknesses relating to the legal system and legislation in Russia create an uncertain environment for investment and business activity, which could have a material adverse effect on our business and the value of the ADSs.

Russia is still developing the legal framework required to support the market economy. The following risks relating to this legal system create uncertainties with respect to the legal and business decisions that we make, many of which do not exist in countries with more developed market economies:

 

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inconsistencies between and among the constitution, federal and regional laws and subordinate legislation (presidential decrees and governmental, ministerial and local orders, decisions and resolutions) and other acts;

 

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the limited judicial and administrative guidance on interpreting certain legislation as well as conflicting interpretations of supreme general jurisdiction and arbitrazh courts;

 

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the novelty of certain aspects of legislation;

 

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the possibility of undue influence on or manipulation of judges and the judicial system;

 

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a high degree of discretion on the part of governmental authorities, which could result in arbitrary actions such as suspension or termination of our business or operations;

 

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the possibility of rapid change in the current legislation, which could create ambiguities in interpretation and potential non-compliance; and

 

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bankruptcy and liquidation procedures that can be subject to potential abuse.

In addition, legislation in Russia often contemplates implementing regulations that have not yet been promulgated, leaving substantial gaps in the regulatory infrastructure. Any of these weaknesses could affect our ability to enforce our rights under our contracts, permits and other authorizations, or to defend ourselves against claims by others. Moreover, it is possible that regulators, judicial authorities or third parties may challenge our internal procedures and bylaws, as well as our compliance with applicable laws, decrees and regulations.

Selective or arbitrary government action could have a material adverse effect on our business, financial condition or results of operations.

Governmental authorities in Russia have a high degree of discretion and, at times, act selectively or arbitrarily, without hearing or prior notice, and sometimes in a manner that is inconsistent with legislation or influenced by political or commercial considerations.

Selective or arbitrary governmental actions have reportedly included the denial or withdrawal of licenses, sudden and unexpected tax audits and claims, criminal prosecutions and civil actions. Federal and local government entities have also used ordinary defects in matters surrounding share issuances and registration as pretexts for court claims and other demands to invalidate such issuances and registrations or to void transactions. Moreover, the government also has the power in certain circumstances, by regulation or government acts, to interfere with the performance of operations of private companies.

In addition, the Russian tax authorities have brought tax evasion claims relating to Russian companies’ use of tax-optimization schemes, and press reports have speculated that these enforcement actions have been selective. Selective or arbitrary government action could be directed at us, and our business, financial condition and results of operations could be materially adversely affected.

 

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Russian companies can be forced into liquidation on the basis of formal non-compliance with certain applicable legal requirements.

Certain provisions of Russian law may allow government authorities to seek a court order for the liquidation of a Russian legal entity on the basis of its formal non-compliance with certain requirements during formation, reorganization or operation. For example, under Russian corporate law, if the net assets of a Russian limited liability company calculated on the basis of Russian accounting standards are lower than its charter capital as at the end of its second or any subsequent financial year, the company must either decrease its charter capital or be placed in liquidation. If the company fails to comply with these requirements, governmental or local authorities can seek the involuntary liquidation of such company in court, and the company’s creditors will have the right to accelerate their claims or demand early performance of the company’s obligations as well as demand compensation of any damages.

For the year ended December 31, 2020, our Russian subsidiaries had negative net assets, which was primarily due to our intra-group funding cycle. The existence of negative assets may not accurately reflect the actual ability to pay debts as they fall due. Many Russian companies have negative net assets due to very low historical asset values reflected on their Russian accounting standards balance sheets; however, their solvency is not otherwise adversely affected by such negative net assets. Courts have, on rare occasions, ordered the involuntary liquidation of a company for having net assets less than the minimum charter capital required by law, even if the company had continued to fulfill its obligations and had net assets in excess of the minimum charter capital at the time of liquidation.

If involuntary liquidation were to occur in relation to our Russian subsidiaries, it could lead to significant negative consequences to our business and financial condition.

Shareholder liability under Russian corporate law could cause us to become liable for the obligations of our subsidiaries.

Russian law generally provides that shareholders in a Russian joint-stock company or participants in a limited liability company are not liable for that company’s obligations and risk only the loss of their investment. This may not be the case, however, when one legal entity is capable of determining decisions made by another entity. The legal entity capable of determining such decisions is called the effective parent entity (osnovnoye obshchestvo). The legal entity whose decisions are capable of being so determined is called the effective subsidiary entity (docherneye obshchestvo). The effective parent bears joint and several liability for transactions concluded by the effective subsidiary in carrying out business decisions if:

 

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the effective parent gives binding directions to the effective subsidiary or provides consent to the relevant transactions entered into by the subsidiary; and

 

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the right of the effective parent to give binding instructions is based on its share in the subsidiary’s capital, or is set out in a contract between such entities or stems from other circumstances.

In addition, under Russian law, an effective parent is secondarily liable for an effective subsidiary’s debts if an effective subsidiary becomes insolvent or bankrupt as a result of the action of an effective parent. In these instances, the other shareholders of the effective subsidiary may claim compensation for the effective subsidiary’s losses from the effective parent that causes the effective subsidiary to take action or fail to take action knowing that such action or failure to take action could result in losses. We could be found to be the effective parent of our subsidiaries, in which case we could become liable for their debts, and our business, financial condition and results of operations could be materially and adversely affected.

 

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Risks Relating to Tax Matters

The Russian taxation system is relatively underdeveloped.

The Russian Government is continually reforming the tax system by redrafting parts of the Tax Code of the Russian Federation (the “Russian Tax Code”). Since January 1, 2009, the corporate profits tax rate has been 20%. From January 1, 2021, personal income tax from most types of income earned by individuals who are tax residents of Russia is levied at progressive scale of rates. In particular, annual income up to RUB 5 million is subject to tax at the rate of 13% and annual income of more than RUB 5 million at 15%. Since January 1, 2019, the general rate of VAT has been 20%.

Russian tax laws, regulations and court practice are subject to frequent change, varying interpretations and inconsistent and selective enforcement. In accordance with the Constitution of the Russian Federation, laws that introduce new taxes or worsen a taxpayer’s position cannot be applied retrospectively. Nonetheless, there have been several instances when such laws have been introduced and applied retrospectively.

The Russian government regularly reforms portions of the Russian Tax Code, resulting in frequent changes to both the text of existing tax laws and the dominant interpretation of such tax laws. As a result, there can be no assurance that the current tax rates will not be increased, that new taxes will not be introduced and that additional sources of revenue, income or profit will not be subject to new taxes, charges or similar fees in the future. There can also be no assurance that the Russian Tax Code will not be changed in the future in a manner adverse to the stability and predictability of the tax system. These conditions complicate tax forecasting and related business decisions. The consequent uncertainties could also expose us to significant fines and penalties and potentially severe enforcement measures despite our best efforts at compliance, and could result in a greater than expected tax burden. This, in turn, could have a material adverse effect on our business, results of operations, financial condition and prospects.

In October 2006, the Plenum of the Supreme Arbitrazh Court of the Russian Federation issued a resolution concerning judicial practice with respect to unjustified tax benefits. The resolution provides that where the true economic intent of business operations is inconsistent with the manner in which it has been taken into account for tax purposes, a tax benefit may be deemed to be unjustified. As a result, a tax benefit cannot be regarded as a separate business objective. On the other hand, the fact that the same economic result might have been obtained with a lesser tax benefit accruing to the taxpayer does not constitute grounds for declaring a tax benefit to be unjustified. Moreover, there are no rules and little case law applicable to distinguishing between lawful tax optimization and tax avoidance or evasion. The above Arbitrazh Court approach was to a certain extent further implemented in Article 54.1 of the Russian Tax Code and became effective on August 19, 2017.

Under these provisions, a taxpayer is not able to reduce the tax base and/or the amount of tax payable by misrepresenting information regarding economic events or the objects of taxation which are required to be disclosed in a taxpayer’s tax and/or accounting records or tax statements. As a result of these rules, it is possible that despite our best efforts to comply with Russian tax laws and regulations, certain transactions and our activities that have not been challenged in the past may be challenged in the future, resulting in a greater than expected tax burden, exposure to significant fines and penalties and potentially severe enforcement measures for us.

Recent developments show that the Russian tax authorities are scrutinizing various tax planning and mitigation techniques used by taxpayers, including international tax planning. In particular, Russia introduced “controlled foreign companies” rules, the concept of “tax residency for an organization” and the concept of “beneficial ownership,” and it is increasingly engaged in the international exchange of tax and financial information, including through country-by-country reporting standards and common reporting standards developed and approved by the Organization for Economic Co-operation and Development (the “OECD”).

 

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In 2017, Russia signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“MLI”) implementing a series of tax treaty measures to update international tax rules and lessen the opportunity for tax avoidance. While Russia ratified the MLI on October 1, 2019, it will only come into effect after special conditions reflected in article 35 of the MLI are met. In particular, both Russia and the relevant double tax treaty (“DTT”) partner country are required to exchange notices and deliver a notice to the OECD, affirming completion of national MLI adoption legislative procedures. Russia notified the OECD on the completion of internal procedures for the entry into effect of the provisions of the MLI on November 26, 2020. The MLI became enforceable in Russia on January 1, 2021.

In December 2020, the President of Russia executed federal laws amending DTTs with Cyprus and Luxembourg. Amendments introduced by the protocols with Cyprus entered into force on January 1, 2021. On December 28, 2020, the draft law amending the DTT with Malta was registered with the lower house of the Russian Parliament. It is expected that the amendments to the DTT with Malta and Luxembourg will enter into force on January 1, 2022.

In accordance with the final versions of the above protocols, the 5% withholding tax rate on dividends will remain only for certain categories of income recipients, such as insurance companies and pension funds, some listed public companies, and governmental authorities.

The Russian Ministry of Finance is working to renegotiate provisions of certain other DTTs. The Russian Ministry of Finance has announced that DTTs with Hong Kong, Singapore and Switzerland could be revised, and, in September 2021, it announced that revisions to the DTT with Switzerland had been initiated. There is the possibility that additional DTTs will be renegotiated by the Russian Ministry of Finance in the future. Russia unilaterally terminated the DTT with the Netherlands and consequences of the denunciation should likely take effect not earlier than January 1, 2022.

Furthermore, Russian tax legislation is consistently becoming more sophisticated. It is possible that new revenue-raising measures could be introduced. Although it is unclear how any new measures would operate, the introduction of such measures may affect the overall tax efficiency and may result in significant additional taxes becoming payable. No assurance can be given that no additional tax exposures will arise for us.

All the aforesaid evolving tax conditions create tax risks in Russia that are greater than the tax risks typically found in countries with more developed taxation, legislative and judicial systems. These tax risks impose additional burdens and costs on our operations, including our management resources.

There can be no assurance that we would not be required to make substantially larger tax payments in the future and that certain our transactions and activities that have not been challenged in the past will not be challenged in the future, resulting in a greater than expected tax burden. These risks and uncertainties complicate tax planning as well as related business decisions, and could possibly expose our subsidiaries to significant fines, penalties and enforcement measures, despite our best efforts at compliance, and could result in a greater than expected tax burden.

Changes to the DTT between Russia and Luxembourg could increase our tax burden by creating difficulties in obtaining lower rates of Russian withholding tax on dividends distributed from our Russian subsidiaries.

In 2020, the Russian President announced significant changes to Russian tax laws, and the Russian Government was directed to revise Russian DTTs which are often used for tax planning so as to increase withholding tax rates up to 15% for Russian-sourced dividend and interest income or, if negotiations are unsuccessful, to terminate the treaties. Consequently, on November 6, 2020, Luxembourg and Russia signed a protocol amending the existing Russia-Luxembourg DTT to increase the maximum withholding tax rates in relation to (i) dividends, from 5% to 15% and (ii) interest, from 0% to 15%. The new rates will come into force on January 1, 2022.

According to the amended Russia-Luxembourg DTT, the reduced 5% rate of withholding tax applicable to dividends and interests may nevertheless apply if the recipient company simultaneously (i) is the beneficial

 

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owner; (ii) has its shares listed on a registered stock exchange with at least 15% of its voting shares are in free float; and (iii) directly holds (during at least 365 days including the day of dividend payment) more than 15% of the capital stock of the Russian company paying dividends. Furthermore, interests derived from Russian listed bonds or from listed Euro-bonds issued by a Russian company and paid to a Luxembourg entity (being the beneficial owner of such income) may still be exempted from a withholding tax in Russia.

Any further amendments to the Russia-Luxembourg DTT or its renunciation by Russia may adversely affect the taxation of dividend distributions from our Russian subsidiaries and, consequently, our business and financial condition.

According to unofficial clarifications of the Russian Ministry of Finance (No 03-08-05/36927 and No 03-08-05/36932 dated May 14, 2021) a “registered stock exchange” for the purposes of the DTT between Cyprus and Russia is any registered stock exchange established and regulated as such by the laws of any of the contracting states. A similar approach could be applied to the DTT between Luxembourg and Russia. Thus, in case the ADSs are at any point in time de-listed from the NYSE, no assurance can be given that any DTT benefits provided by the DTT between Luxembourg and Russia could be applied, which may adversely affect the taxation of dividend distributions from us.

Further, the Russian Tax Code explicitly requires that in order to enjoy the benefits under an applicable DTT, the person claiming such benefits must be the beneficial owner of the relevant income. In addition to a tax residence certificate, the Russian Tax Code requires confirmation from the recipient of the income that it is the beneficial owner of the income. Russian tax law provides neither the form of such confirmation nor a list of documents that can demonstrate the beneficial owner status of the recipient with respect to the received income. In recent years, the Russian tax authorities started to challenge structures involving the payments outside of Russia, and in most cases, Russian courts tend to support the tax authorities’ position. Thus, there can be no assurance that treaty relief at source will be available in practice, should the income recipient be unable to document its beneficial ownership status to the satisfaction of Russian authorities.

Payment of dividends (if any) on the ADSs may be subject to Russian tax

Payment of dividends by the Company to a Holder (as defined in “Tax Considerations—Russian Tax Considerations”) that is an individual or a legal entity is generally subject to tax in the jurisdiction where such Holder is a tax resident (see “Tax Considerations—Russian Tax Considerations”).

Holders should consult their own tax advisers with respect to the tax consequences of the receipt of dividend income in respect of the ADSs.

Capital gains from the sale of ADSs may be subject to Russian income tax

The capital gain of a Non-Resident Holder—Legal Entity (as defined in “Tax Considerations—Russian Tax Considerations”) from the sale or other disposal of the ADSs should not be subject to Russian withholding tax provided that (i) the ADSs qualify as securities traded on an organized securities market as defined in the Russian Tax Code or (ii) not more than 50% of the asset base of the Company directly or indirectly consists of immovable property located in Russia. While the Company believes this to be the case, there is a risk that a Russian tax withholding agent may not have sufficient information with respect to the Company’s asset base composition and may therefore seek to apply a 20% Russian withholding tax rate (or such other tax rate as may be effective at the time of such sale or other disposal) to the amount of consideration paid to, or capital gain realized by, a Non-Resident Holder – Legal Entity that sells or otherwise disposes of the ADSs.

Where the proceeds from the sale or other disposal of the ADSs are treated as received from a source within Russia by a Non-Resident Holder – Individual (as defined in “Tax Considerations —Russian Tax Considerations ”), Russian personal income tax at the rate of 30% (or such other tax rate as is effective at the time of such sale or other disposal) will apply to the gross amount of proceeds from the sale or other proceeds

 

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from the disposition of the ADSs less any available deduction of expenses incurred by the ADS holder (which includes the purchase price of the ADSs) subject to any available DTT relief.

The imposition or possibility of imposition of the above tax liabilities in Russia, as applicable, could adversely affect the value of the ADSs. In addition, while some ADS holders might be eligible for an exemption from or a reduction in Russian withholding tax under an applicable DTT, there is no assurance that such exemption or reduction will be available in practice.

Our Russian entities are subject to tax audits by the Russian tax authorities, which may result in additional tax liabilities.

Generally, taxpayers are subject to tax audits for a period of three calendar years immediately preceding the year in which the decision to carry out a tax audit was taken. In certain circumstances, repeated tax audits (i.e., audits with respect to the same taxes and periods) are possible. Generally, depending on the nature of the tax offense, the statute of limitations for a tax offense is either three years after the date on which the offense was committed or three years from the date following the end of the tax period during which the offense was committed. Nevertheless, according to the Russian Tax Code and based on current judicial interpretation, there may be cases where the statute of limitations for tax offences may extend beyond three years.

Tax audits or inspections may result in additional costs to us, in particular if the relevant tax authorities conclude that we did not satisfy its tax obligations in any given year. Tax audits may also impose additional burdens on us by diverting the attention of the management away from our business and operations.

We may be exposed to taxation in Russia if we are treated as having a Russian permanent establishment or as being Russian tax residents.

The Russian Tax Code contains the concept of a “permanent establishment,” whereby foreign legal entities that maintain a permanent establishment in Russia, (i.e., that carry on regular entrepreneurial activities in Russia beyond preparatory and auxiliary activities) are subject to Russian profits tax. Russia’s DTTs with a variety of other countries also contain a similar concept.

If a foreign company is treated as having a permanent establishment in Russia, it would be subject to Russian taxation in a manner broadly similar to the taxation of a Russian legal entity, but only to the extent of the amount of the foreign company’s income that is attributable to the permanent establishment in Russia. However, the practical application of the concept of a permanent establishment under Russian domestic law is relatively underdeveloped and even foreign companies with limited operations in Russia, which would not normally satisfy the conditions for creating a permanent establishment under foreign or DTT rules, may be at risk of being treated as having a permanent establishment in Russia and hence being exposed to Russian taxation. Furthermore, the Russian Tax Code contains attribution rules that are not sufficiently developed, creating a risk that Russian tax authorities might seek to assess Russian tax on the global income of a foreign company. Having a permanent establishment in Russia may also lead to other adverse tax implications, including the loss of a reduced withholding tax rate on dividends under an applicable DTT, the application of VAT and the imposition of property tax obligations. There is also a risk that penalties could be imposed by Russian tax authorities for failure to register a permanent establishment with the Russian tax authorities. Any such taxes or penalties could have a material adverse effect on our business, financial condition and results of operations.

Starting from January 1, 2015, tax residency rules for legal entities have been introduced in the Russian Tax Code. Based on the new rules, the following categories of legal entities should be viewed as Russian tax residents:

(a) Russian companies;

(b) foreign companies recognized as tax residents of Russia in accordance with DTTs, for the purposes of application of the treaty; and

 

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(c) foreign companies whose place of effective management is in Russia, unless provided otherwise by DTTs. Russia is recognized as a place of effective management of a company in the following cases:

i. its executive body conducts business in Russia on a regular basis, or

ii. its executive officers exercise the management of the company primarily from Russia (i.e., they are authorized to plan and control activities of the company, authorized to manage activities of the company and to be responsible for it).

If a foreign company is treated as a tax resident in Russia, it would be recognized as a taxpayer for Russian profits tax purposes.

Although the Company intends to conduct its affairs so that it is not treated as either having a permanent establishment or tax residence in Russia, no assurance can be given that it will not be treated either as having such permanent establishment in Russia or as being Russian tax resident for Russian tax purposes.

Russian transfer pricing rules may adversely affect the business of our Russian operations, financial condition and results of operations.

Certain transactions by the Company are subject to Russian transfer pricing rules. Russian transfer pricing legislation allows the Russian tax authorities to make transfer pricing adjustments and impose additional tax liabilities with respect to “controlled” transactions. The list of “controlled” transactions under the transfer pricing legislation includes transactions performed with related parties (excluding transactions between related parties that are located in Russia and apply the same corporate profits tax rate (i.e., 20%)) and certain types of cross-border transactions with unrelated parties. Legislation also shifts the burden of proving market prices from the Russian tax authorities to the taxpayer. Although Russian transfer pricing rules were modeled on the transfer pricing principles as developed by the OECD, there are some peculiarities as to how the OECD transfer pricing principles are reflected in the Russian rules. Special transfer pricing rules continue to apply to transactions with securities and derivatives.

Due to the uncertainties in the interpretation of the Russian transfer pricing legislation and undeveloped court practice, no assurance can be given that the Russian tax authorities will not challenge our transfer pricing transactions and/or require adjustments which could adversely affect our tax position. As a result, the Russian transfer pricing rules could have a material adverse effect on our business, results of operations, financial condition and prospects.

Russian thin capitalization rules and general interest deductibility rules allow for different interpretations, which may affect our business.

The Russian Tax Code provides for three main restrictions that limit the deductibility of expense for interest accruing on indebtedness: (i) that a loan is obtained, and indebtedness incurred, with proper economic reasoning (i.e., for a business purpose or justification); (ii) that the interest rate, if paid on controlled transactions, fits within certain interest rate ranges or “safe harbors,” unless third-party documentation is provided; and (iii) that the thin capitalization rules apply to “foreign controlled debt,” (i.e., indebtedness where a foreign direct or indirect shareholder or its affiliate act as a lender or a guarantor, and where a debtor’s debt-to-equity ratio exceeds 3:1, or 12.5:1 for banks and leasing companies). Interest on excess debt is non-deductible and treated as a dividend subject to withholding tax. The whole amount of non-deductible interest accrued on foreign controlled debt would be treated for tax purposes as a dividend if the balance-sheet equity or net asset value of the indebted taxpayer is negative. The statutorily defined scope of the foreign controlled debt was amended recently such that loans obtained from banks or Russian affiliates are, under certain conditions, excluded; at the same time, loans obtained from foreign affiliates are explicitly included unless they are directly linked to a listed bond issuance originating from the foreign affiliate itself.

 

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Our Russian intragroup operations may be affected by requalification of interest into a dividend, including by our inability to deduct interest, based on Russian thin capitalization rules if at any time the respective indebtedness qualifies as foreign controlled debt, or by the inability to deduct interest based on other reasons. See “Tax Considerations —Russian Tax Considerations” for further discussion of important Russian tax considerations.

Risks Relating to the ADSs and the Offering

The price of the ADSs may be volatile, and you may lose all or part of your investment.

The initial public offering price for the ADSs sold in this offering will be determined by negotiation between us and representatives of the underwriters. This price may not reflect the market price of the ADSs following this offering and the price of the ADSs may decline. In addition, the market price of the ADSs could be highly volatile and may fluctuate substantially as a result of many factors, including:

 

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macroeconomic and geopolitical developments, including those specific to technology and mobility businesses in Russia, as well as the impact of the COVID-19 pandemic;

 

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actual or anticipated fluctuations in our results of operations;

 

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variance in our financial performance from the expectations of market analysts;

 

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announcements by us or our competitors of significant business developments, acquisitions or expansion plans, changes in service provider relations;

 

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our involvement in litigation;

 

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market conditions in our industry;

 

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changes in key personnel;

 

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changes in the estimation of the future size and growth rate of our markets;

 

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our sale of ADSs or other securities in the future; and

 

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the trading volume of the ADSs.

In addition, the stock markets have experienced extreme price and volume fluctuations. Broad market and industry factors may materially harm the market price of the ADSs, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted against that company. If we were involved in any similar litigation, we could incur substantial costs and our management’s attention and resources could be diverted.

In addition, certain affiliates and other persons and entities associated with Mikro Kapital Group and certain of our directors and officers have indicated interests in purchasing an aggregate amount not to exceed 2% of the ADSs being offered in this offering at the initial public offering price and on the same terms as the other ADSs being offered. Such indications of interests are not binding agreements or obligations to purchase, and we and the underwriters are under no obligations to sell any ADSs to such persons. If one or more of the investors are allocated all or a portion of the ADSs in which they have indicated an interest in this offering or more, and purchase any such ADSs, such purchase could reduce the available public float for our ADSs if such affiliates and other persons and entities associated with Mikro Kapital Group or certain of our directors and officers hold such ADSs long term.

There has been no prior public market for the ADSs, and an active trading market may not develop.

Prior to this offering, there has been no public market for the ADSs. An active trading market may not develop following the closing of this offering or, if developed, may not be sustained. The lack of an active market may impair your ability to sell the ADSs at the time you wish to sell them or at a price that you consider reasonable. An inactive market may also impair our ability to raise capital by selling ADSs.

 

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If we do not meet the expectations of equity research analysts, if they do not publish research or reports about our business or if they issue unfavorable commentary or downgrade the ADSs, the price of the ADSs could decline.

The trading market for the ADSs will rely in part on the research and reports that equity research analysts publish about us and our business. The analysts’ estimates are based upon their own opinions and are often different from our estimates or expectations. If our results of operations are below the estimates or expectations of public market analysts and investors, the price of the ADSs could decline. Moreover, the price of the ADSs could decline if one or more securities analysts downgrade the ADSs or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business.

We are eligible to be treated as an emerging growth company, as defined in the Securities Act, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make the ADSs less attractive to investors because we may rely on these exemptions.

We are eligible to be treated as an emerging growth company, as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including presenting only limited selected financial data and not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act (“Section 404”). As a result, our shareholders may not have access to certain information that they may deem important. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including (i) if our total annual gross revenue exceeds $1.07 billion, (ii) if we issue more than $1 billion in non-convertible debt securities during any three-year period or (iii) if before that time we become a “large accelerated filer” under U.S. securities laws. We cannot predict if investors will find the ADSs less attractive because we may rely on these exemptions. If some investors find the ADSs less attractive as a result, there may be a less active trading market for the ADSs and our share price may be more volatile.

We will be a foreign private issuer and, as a result, we will not be subject to U.S. proxy rules and will be subject to Exchange Act reporting obligations that, to some extent, are more lenient and less frequent than those of a U.S. domestic public company.

Upon the closing of this offering, we will report under the Exchange Act as a non-U.S. company with foreign private issuer status. Because we qualify as a foreign private issuer under the Exchange Act and although we are subject to Luxembourg laws and regulations with regard to such matters, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including (i) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act, (ii) the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time and (iii) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information. In addition, foreign private issuers are not required to file their annual report on Form 20-F until 120 days after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year and U.S. domestic issuers that are large accelerated filers are required to file their annual report on Form 10-K within 60 days after the end of each fiscal year. Foreign private issuers are also exempt from Regulation FD, which is intended to prevent issuers from making selective disclosures of material information. As a result of all of the above, you may not have the same protections afforded to shareholders of a company that is not a foreign private issuer.

 

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