WUBA 58 com Inc

 

Exhibit 12.1

 

Certification by the Principal Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Jinbo Yao, certify that:

 

1.

I have reviewed this Annual Report on Form 20-F, as amended by Amendment No. 1 thereto, of 58.com Inc. (the “Company”);

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the period presented in this report;

 

4.

The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)

Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)

Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

 

5.

The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

 

Date: June 29, 2020

 

By:	/s/ Jinbo Yao
Name:	Jinbo Yao
Title:	Chief Executive Officer

 

  

Exhibit 12.2

 

Certification by the Principal Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Wei Ye, certify that:

 

1.

I have reviewed this Annual Report on Form 20-F, as amended by Amendment No. 1 thereto, of 58.com Inc. (the “Company”);

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the period presented in this report;

 

4.

The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)

Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)

Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

 

5.

The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

 

Date: June 29, 2020

 

By:	/s/ Wei Ye
Name:	Wei Ye
Title:	Chief Financial Officer

 

 

 

Exhibit 13.1

 

Certification by the Principal Executive Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

In connection with the Annual Report of 58.com Inc. (the “Company”) on Form 20-F for the fiscal year ended December 31, 2019 as filed with the Securities and Exchange Commission on April 29, 2020, as amended by Amendment No. 1 thereto (the “Report”), I, Jinbo Yao, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

 

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

June 29, 2020

 

By:	/s/ Jinbo Yao
Name:	Jinbo Yao
Title:	Chief Executive Officer

  

  

Exhibit 13.2

 

Certification by the Principal Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

In connection with the Annual Report of 58.com Inc. (the “Company”) on Form 20-F for the fiscal year ended December 31, 2019 as filed with the Securities and Exchange Commission on April 29, 2020, as amended by Amendment No. 1 thereto (the “Report”), I, Wei Ye, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

 

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

June 29, 2020

 

By:	/s/ Wei Ye
Name:	Wei Ye
Title:	Chief Financial Officer

 

  

Exhibit 15.3

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-194873, No. 333-205011 and No. 333-229098) of 58.com Inc. of our report dated June 29, 2018 relating to the financial statements of 58 Daojia Inc., which appears in this Amendment No. 1 to Form 20-F.

 

/s/ PricewaterhouseCoopers Zhong Tian LLP

Beijing, the People’s Republic of China

June 29, 2020

 

 

 

Exhibit 99.1

 

FINANCIAL STATEMENTS OF EQUITY METHOD INVESTEE

 

58 Daojia Inc.

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

Consolidated Financial Statements
Report of Independent Auditors		F-2
Consolidated Balance Sheets as of December 31, 2018 and 2019		F-4
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2017, 2018 and 2019		F-5
Consolidated Statements of Changes in Shareholders’ Deficit for the Years Ended December 31, 2017, 2018 and 2019		F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2018 and 2019		F-7
Notes to the Consolidated Financial Statements		F-8

 

 

Report of Independent Auditors

 

To the Board of Directors of 58 Daojia Inc.

 

We have audited the accompanying consolidated financial statements of 58 Daojia Inc. and its subsidiaries, which comprise the consolidated statements of comprehensive loss, of shareholders’ deficit and of cash flows for the year ended December 31, 2017.

 

Management's Responsibility for the Consolidated Financial Statements

 

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditors’ Responsibility

 

Our responsibility is to express an opinion on the consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of 58 Daojia Inc. and its subsidiaries’ operations and their cash flows for the year ended December 31, 2017 in accordance with accounting principles generally accepted in the United States of America.

 

 

Other Matter

 

The accompanying consolidated balance sheets of 58 Daojia Inc. and its subsidiaries as of December 31, 2018 and 2019, and the related consolidated statements of comprehensive loss, changes in shareholders’ deficit and cash flows for the years then ended are presented for purposes of complying with Rule 3-09 of SEC Regulation S-X; however, Rule 3-09 does not require the 2018 and 2019 financial statements to be audited and they are therefore not covered by this report.

 

/s/PricewaterhouseCoopers Zhong Tian LLP
Beijing, the People’s Republic of China
June 29, 2018

 

 

58 Daojia Inc. 

CONSOLIDATED BALANCE SHEETS

As of December 31, 2018* and 2019*

(In thousands, unless otherwise noted)

 

		As of December 31,
		2018*					2019*				2019*
		RMB					RMB				US$
											Note 2(c)
ASSETS
Current assets:
Cash and cash equivalents			378,411					554,721				79,516
Restricted cash			-					1,289				185
Term deposits			10,571					-				-
Accounts receivable (net of allowance for doubtful accounts of RMB46,597 and RMB57,218 as of December 31, 2018 and 2019, respectively)			75,880					72,334				10,369
Prepayments and other current assets			160,596					181,430				26,007
Total current assets			625,458					809,774				116,077
Non-current assets:
Property and equipment, net			52,513					91,127				13,063
Intangible assets, net			131,107					109,276				15,664
Long-term investments			52,650					61,180				8,770
Long-term prepayments			18,096					29,548				4,236
Deferred tax assets, net			7,464					4,222				605
Goodwill			1,017,474					1,017,474				145,849
Total non-current assets			1,279,304					1,312,827				188,187
Total assets			1,904,762					2,122,601				304,264
LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS’ DEFICIT
Current liabilities:
Accounts payable (including accounts payable of the consolidated variable interest entity (“VIEs”) without recourse to the Company of RMB100,169 and RMB40,879 as of December 31, 2018 and 2019, respectively)			174,326					93,163				13,354
Contract liabilities (including contract liabilities of the consolidated VIEs without recourse to the Company of nil and RMB16,093 as of December 31, 2018 and 2019, respectively)			-					24,440				3,503
Taxes payable (including taxes payable of the consolidated VIEs without recourse to the Company of RMB4,159 and RMB5,929 as of December 31, 2018 and 2019, respectively)			8,067					17,560				2,517
Salary and welfare payable (including salary and welfare payable of the consolidated VIEs without recourse to the Company of RMB27,597 and RMB 123,668 as of December 31, 2018 and 2019, respectively)			103,269					237,290				34,014
Accrued expenses and other current liabilities (including accrued expenses and other current liabilities of the consolidated VIEs without recourse to the Company of RMB403,071 and RMB525,440 as of December 31, 2018 and 2019, respectively)			974,635					1,056,169				151,396
Total current liabilities			1,260,297					1,428,622				204,784
Non-current liabilities:
Convertible notes			165,945					590,198				84,602
Deferred tax liabilities			27,589					22,920				3,285
Total liabilities			1,453,831					2,041,740				292,671
Commitments and contingencies (Note 20)
Mezzanine equity
Series A Preferred Shares			1,280,521					1,280,521				183,556
Mezzanine classified noncontrolling interests			1,472,517					2,201,818				315,619
Total mezzanine equity			2,753,038					3,482,339				499,175
Shareholders’ deficit:
58 Daojia Inc. shareholders’ deficit
Ordinary shares			6					6				1
Additional paid-in capital			1,410,083					1,286,223				184,373
Accumulated deficit			(3,780,994	)				(4,670,325	)			(669,465	)
Accumulated other comprehensive income			66,588					79,435				11,387
Total 58 Daojia Inc. shareholders’ deficit			(2,304,317	)				(3,304,661	)			(473,704	)
Noncontrolling interests			2,210					(96,817	)			(13,878	)
Total shareholders’ deficit			(2,302,107	)				(3,401,478	)			(487,582	)
Total liabilities, mezzanine equity and shareholders’ deficit			1,904,762					2,122,601				304,264

 

*Not covered by the auditor’s report

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

58 Daojia Inc. 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

For the Years Ended December 31, 2017, 2018* and 2019* 

(In thousands, unless otherwise noted)

 

		For the Year Ended December 31,
		2017				2018*					2019*				2019*
		RMB				RMB					RMB				US$
															Note 2 (c)
Revenues			484,952				950,803					1,241,516				177,965
Cost of revenues(1)			(178,745	)			(452,357	)				(520,208	)			(74,569	)
Gross profit			306,207				498,446					721,308				103,396
Operating expenses(1):
Sales and marketing expenses			(740,996	)			(1,126,467	)				(1,177,946	)			(168,852	)
General and administrative expenses			(171,671	)			(511,926	)				(368,494	)			(52,822	)
Research and development expenses			(157,589	)			(269,303	)				(287,209	)			(41,170	)
Total operating expenses			(1,070,256	)			(1,907,696	)				(1,833,649	)			(262,844	)
Loss from operations			(764,049	)			(1,409,250	)				(1,112,341	)			(159,448	)
Other income/(expenses):
Interest income			7,144				4,946					5,049				724
Investment income			10,277				77					582				83
Impairment of long-term investments			(19,040	)			-					-				-
Foreign currency exchange gain/(loss), net			642				553					(7,997	)			(1,146	)
Gain/(loss) on fair value change of financial instruments			-				(19,613	)				124,322				17,821
Others, net			(2,622	)			(3,878	)				21,863				3,134
Loss before income tax			(767,648	)			(1,427,165	)				(968,522	)			(138,832	)
Income tax benefit/(expenses)			(2,191	)			3,737					1,468				210
Net loss			(769,839	)			(1,423,428	)				(967,054	)			(138,622	)
Exclude: Net loss attributable to noncontrolling interests			34,187				195,712					77,723				11,141
Net loss attributable to 58 Daojia Inc.			(735,652	)			(1,227,716	)				(889,331	)			(127,481	)
Net loss			(769,839	)			(1,423,428	)				(967,054	)			(138,622	)
Other comprehensive income:
Foreign currency translation adjustment, net of nil tax			85,984				49,566					15,783				2,262
Total comprehensive loss			(683,855	)			(1,373,862	)				(951,271	)			(136,360	)

 

Note:
(1)	Share-based compensation expenses were allocated in cost of revenues and operating expenses as follows:

 

		For the Year Ended December 31,
		2017				2018*				2019*				2019*
		RMB				RMB				RMB				US$
														Note 2(c)
Cost of revenue			284				3,004				2,504				359
Sales and marketing expenses			398				754				548				79
Research and development expenses			55				31				31				4
General and administrative expenses			2,317				93,233				26,127				3,745

 

*Not covered by the auditor’s report

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

58 Daojia Inc. 

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT 

For the Years Ended December 31, 2017, 2018* and 2019* 

(In thousands, except share data, unless otherwise noted)

 

		Ordinary shares**								Additional paid-in				Accumulated				Accumulated other comprehensive				Noncontrolling				Total   shareholders’
		Shares				Amount				capital				deficit				(loss)/income				interest				deficit
						RMB				RMB				RMB				RMB				RMB				RMB
Balance as of December 31, 2016			363,920,000				6				834,096				(1,817,626	)			(68,659	)			-				(1,052,183	)
Share-based compensation			-				-				3,054				-				-				-				3,054
Change in 58 Daojia Inc.’s ownership interests in 58 Freight Inc. (Note 4)			-				-				888,975				-				-				-				888,975
Issuance of subsidiary shares for business combination (Note 4)			-				-				-				-				-				277,100				277,100
Net loss			-				-				-				(735,652	)			-				(34,187	)			(769,839	)
Foreign currency translation adjustment			-				-				-				-				86,634				(650	)			85,984
Balance as of December 31, 2017			363,920,000				6				1,726,125				(2,553,278	)			17,975				242,263				(566,909	)
Share-based compensation			-				-				97,022				-				-				-				97,022
Net loss			-				-				-				(1,227,716	)			-				(195,712	)			(1,423,428	)
Foreign currency translation adjustment			-				-				-				-				48,613				953				49,566
Preferred shares redemption value accretions			-				-				(117,819	)			-				-				(45,294	)			(163,113	)
Deemed dividends to Taobao China Holding Limited (“Taobao”) (Note 15)			-				-				(300,792	)			-				-				-				(300,792	)
Beneficial conversion feature			-				-				5,547				-				-				-				5,547
Balance as of December 31, 2018*			363,920,000				6				1,410,083				(3,780,994	)			66,588				2,210				(2,302,107	)
Share-based compensation			-				-				11,326				-				-				17,884				29,210
Net loss			-				-				-				(889,331	)			-				(77,723	)			(967,054	)
Foreign currency translation adjustment			-				-				-				-				12,847				2,936				15,783
Preferred shares redemption value accretions			-				-				(135,186	)			-				-				(42,124	)			(177,310	)
Balance as of December 31, 2019*			363,920,000				6				1,286,223				(4,670,325	)			79,435				(96,817	)			(3,401,478	)

 

	*	Not covered by the auditor’s report.
	**	Ordinary shares include Class A ordinary share, Class B ordinary share and Class C ordinary share. The number of ordinary shares is presented using the stock split basis, please refer to Note 16.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

58 Daojia Inc. 

CONSOLIDATED STATEMENTS OF CASH FLOWS 

For the Years Ended December 31, 2017, 2018* and 2019* 

(In thousands unless otherwise noted)

 

		For the Year Ended December 31,
		2017				2018*					2019*				2019
		RMB				RMB					RMB				US$
															Note 2(c)
Cash flows from operating activities:
Net loss			(769,839	)			(1,423,428	)				(967,054	)			(138,622	)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation expenses			3,054				97,022					29,210				4,187
Depreciation and amortization expenses			30,399				50,832					56,390				8,083
Investment income			(10,277	)			(77	)				(530	)			(76	)
Deferred tax benefit			-				(4,197	)				(1,468	)			(210	)
Impairment of long-term investments			19,040				-					-				-
Impairment of prepayments and other current assets and bad debt allowance for accounts receivable			24,320				68,555					10,107				1,449
Impairment of intangible assets			2,696				-					-				-
Foreign currency exchange loss/(gain), net			(642	)			(553	)				7,997				1,146
Loss/(gain) on fair value change of financial instruments			-				19,613					(124,322	)			(17,821	)
Loss on disposal of property and equipment			-				-					677				97
Changes in operating assets and liabilities:
Accounts receivable			9,591				(76,291	)				(7,075	)			(1,014	)
Prepayments and other assets			(139,367	)			34,328					(36,646	)			(5,253	)
Accounts payable			(1,400	)			136,629					(88,685	)			(12,713	)
Salary and welfare payable			16,209				39,689					134,021				19,211
Taxes payable			284				(2,151	)				9,493				1,361
Accrued expenses and other liabilities			288,285				243,365					220,697				31,636
Net cash used in operating activities			(527,647	)			(816,664	)				(757,188	)			(108,539	)
Cash flows from investing activities:
Purchase of property and equipment			(13,603	)			(48,714	)				(67,034	)			(9,609	)
Purchase of intangible assets			(339	)			-					(2	)			-
Cash received for disposal of property and equipment			289				-					2,604				373
Purchase of long-term investments			(2,500	)			(1,500	)				(8,000	)			(1,147	)
Purchase of term deposits			(718,439	)			(98,246	)				-				-
Proceeds from maturity of term deposits			1,163,888				219,157					10,571				1,515
Purchase of short-term investments			(2,344,000	)			(25,000	)				(8,240	)			(1,181	)
Proceeds from maturity of short-term investments			2,756,277				25,077					8,240				1,181
Cash received from acquisition of GoGoVan Business			9,246				-					-				-
Net cash provided by investing activities			850,819				70,774					(61,861	)			(8,868	)
Cash flows from financing activities:
Repurchase of ordinary shares			(477	)			-					-				-
Issuance cost of convertible notes			-				-					(4,742	)			(679	)
Repayment of convertible notes			-				-					(3,800	)			(545	)
Proceeds from convertible notes			-				159,400					426,587				61,149
Proceeds from issuance of Series A Preferred Shares of 58 Daojia Limited			-				-					365,131				52,340
Proceeds from issuance of Series B Preferred Shares and warrants of 58 Freight Inc.			-				475,293					206,807				29,645
Net cash (used in)/provided by financing activities			(477	)			634,693					989,983				141,910
Effect of exchange rate changes on cash, cash equivalents and restricted cash			(27,199	)			6,956					6,665				955
Net increase/(decrease) in cash, cash equivalents and restricted cash			295,496				(104,241	)				177,599				25,458
Cash, cash equivalents and restricted cash at the beginning of the year			187,156				482,652					378,411				54,243
Cash, cash equivalents and restricted cash at the end of the year			482,652				378,411					556,010				79,701
Supplemental disclosure of non-cash activities:
Property and equipment in accounts payable			913				246					9,051				1,297
Consideration payable for acquisition of GoGoVan Business			1,166,075				-					-				-
Conversion of Taobao’s Series A Preferred Shares of 58 Daojia Limited to 58 Freight Inc.			-				300,792					-				-
Deemed dividend to mezzanine classified noncontrolling interests			-				163,113					177,310				25,416

 

*Not covered by the auditor’s report

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017, 2018 (not covered by the auditor’s report) and 2019 (not covered by the auditor’s report)

(In thousands, unless otherwise noted)

 

1. Organization and principal activities

 

a. Background

 

58 Daojia Inc. (the “Company” or “58 Home”), through its consolidated subsidiaries, including wholly-foreign owned enterprises (“WFOEs”), VIEs and VIEs’ subsidiaries (collectively, the “Group”), operates a mobile-based closed-loop transactional platform for home services, which directly connects consumers and individual service providers for local services such as domestic services, ad-hoc delivery services and platform services provided at home.

 

b. History of the Group and basis of presentation

 

The Company was incorporated in British Virgin Islands (“BVI”) on January 26, 2015.

 

The Group began its operations in China in August 2014 through Tianjin 58 Daojia Life Services Co., Ltd. (“Tianjin 58 Home”), a limited liability company registered in the People’s Republic of China (“PRC”) and founded by Mr. Xiaohua Chen, the CEO of the Group, Mr. Jinbo Yao, the CEO of 58.com Inc. and 58 Co., Ltd.

 

In July 2015, the Company, through Beijing 58 Daojia Information Technology Co., Ltd (“Beijing 58 Home”), entered into a series of contractual agreements with Tianjin 58 Home whereby Tianjin 58 Home became the 100% consolidated VIE of the Company.

 

On November 27, 2015, the Company completed a Series A round of equity financing, with participation from Taobao, global investment firm KKR, and Ping An Group. Following the closing of the Series A round of equity financing of the Company, 58.com Inc. held 87.9% of the total outstanding ordinary shares of the Company and 61.7% of the total outstanding shares of the Company on an as-converted basis. On August 7, 2018, Taobao forfeited 54,211,111 Series A Preferred Shares of the Company for the subscription of 75,476,660 Series A Preferred Shares of 58 Freight Inc. (“58 Freight”), one of the Company’s subsidiaries undertaking ad-hoc delivery services. Following the closing of this conversion, 58.com Inc. held 68.8% of the total outstanding shares of the Company on an as-converted basis.

 

In August 2017, the Company, through Tianjin 58 Daojia Technology Limited Company (“Tianjin Technology”), entered into a series of contractual agreements with Tianjin 58 Daojia Freight Service Limited Company (“Tianjin Freight”). As of December 31, 2019, the Company holds 77.8% of the shares of Tianjin Technology, it effectively owns 77.8% equity interests of Tianjin Freight. (See Note d)

 

In July 2018, 58 Freight completed the initial closing of a Series B round of equity financing with participation from several investors. In January and July, 2019, 58 Freight completed additional closing of the Series B round of equity financing. As of December 31, 2019, the Company held 73.8% of the total outstanding ordinary shares of 58 Freight and 51.5% of the total outstanding shares of 58 Freight on fully diluted and as-converted basis.

 

In May 2018, 58 Daojia Limited (“58 Daojia”) was incorporated in the Cayman Islands to enable a group reorganization (“Reorganization”). The Company transfers its mobile-based platforms for home services such as cleaning services, nanny services, maternity nurse and infant nanny service and market place services, which directly connect end customers and individual service providers (collectively the “Daojia Business”) in the PRC to 58 Daojia. The Reorganization was approved by the Board of Directors and the shareholders of 58 Daojia Inc. in January 2019. Pursuant to a series of agreements between the Group and 58 Daojia entered into in January 2019, all key employees, contracts, operating assets and liabilities relating to Daojia Business started to transfer to 58 Daojia. As of the reporting date, the Reorganization is still in process.

 

In January 2019, 58 Daojia completed the initial closing of a Series A round of equity financing through issuance of Series A convertible and redeemable preferred shares (The “58 Daojia Series A Preferred Shares”) and convertible loans and warrants with the right to purchase 58 Daojia Series A Preferred Shares (“58 Daojia Series A Convertible Loans and Warrants) to investors. In November and December 2019, 58 Daojia issued additional 58 Daojia Series A Convertible Loans and Warrants 58 Daojia to two new investors. 58 Daojia collected aggregated purchase price of US$55,010 for 58 Daojia Series A Preferred Shares and RMB414,980 for 58 Daojia Series A Convertible Loans and Warrants, respectively. As of December 31, 2019, the Company held 100% of the total outstanding ordinary shares of 58 Daojia and 89.7% of the total outstanding shares of 58 Daojia on an as-converted basis.

 

58.com Inc. accounted for its investment in 58 Home using the equity method. As 58 Home is considered to be a significant equity method investee of 58.com Inc. for the fiscal year of 2017, its financial statements are included as an exhibit to the Annual Report of 58.com Inc. on Form 20-F in accordance with Securities and Exchange Commission (“SEC”) Rule 3-09 of Regulation S-X.

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017, 2018 (not covered by the auditor’s report) and 2019 (not covered by the auditor’s report)

(In thousands, unless otherwise noted)

  

c. Major subsidiaries and VIEs

 

The Company's major subsidiaries, VIEs and VIEs’ subsidiaries are as follows:

 

Name		Date of incorporation or acquisition		Place of incorporation		Percentage of direct or indirect economic ownership on as-converted basis as of December 31, 2019
Subsidiaries of the Company:
58 Daojia Holding Limited (“Daojia Holding”)		Incorporated on February 12, 2015		Hong Kong			100	%
58 Freight		Incorporated on June 8, 2017		Cayman Islands			56.4	%
58 Freight Holdings Limited (“Freight Hong Kong”)		Incorporated on June 26, 2017		Hong Kong			56.4	%
Tianjin Technology		Incorporated on July 26, 2017		The PRC			56.4	%
GoGo Energy Limited		Acquired on August 29, 2017		Hong Kong			56.4	%
GoGo Tech Limited		Acquired on August 29, 2017		Hong Kong			56.4	%
58 Daojia		Incorporated on May 16, 2018		Cayman Islands			89.7	%
58 Daojia Home Service Inc.		Incorporated on December 13, 2017		The Cayman Islands			89.7	%
58 Daojia Life Service Inc.		Incorporated on May 25, 2018		The Cayman Islands			89.7	%
Changsha Daojia Youxiang Network Technology Limited (“Changsha Daojia Youxiang”)		Incorporated on January 26, 2018		The PRC			89.7	%
Tianjin 58 Daojia Information Technology Limited (“Tianjin 58 Daojia”)		Incorporated on July 12, 2018		The PRC			89.7	%
Beijing 58 Home		Incorporated on July 10, 2015		The PRC			100	%
VIEs and VIEs’ subsidiaries:
Tianjin 58 Home		Incorporated on August 19, 2014		The PRC			100	%
Zhenjiang 58 Daojia Supply Chain Management Limited Company (“Zhenjiang Supply Chain”)		Incorporated on March 20, 2017		The PRC			56.4	%
Tianjin Freight		Incorporated on July 10, 2017		The PRC			56.4	%
Shanghai GoGo Information Technology Limited Company		Acquired on August 29, 2017		The PRC			56.4	%
58 Daojia Co., Ltd. (“Changsha 58 Home”)		Incorporated on August 13, 2015		The PRC			89.7	%
Changsha Daojia Youxiang Home Service Co., Ltd. (“Changsha Daojia Youxiang Home Service”)		Incorporated on January 2, 2018		The PRC			89.7	%
Tianjin Haodaojia Information Technology Co., Ltd. (“Tianjin Haodaojia”)		Incorporated on July 13, 2018		The PRC			89.7	%

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017, 2018 (not covered by the auditor’s report) and 2019 (not covered by the auditor’s report)

(In thousands, unless otherwise noted)

 

d. Contractual arrangements with the Company’s VIEs

 

(i)

Contractual Arrangements with Beijing 58 Home

 

The Company has through Beijing 58 Home entered into contractual arrangements with Tianjin 58 Home and its shareholders described below, which are referred to as the Tianjin 58 Home Agreements. Through the Tianjin 58 Home Agreements, Beijing 58 Home exercises control over the operations of Tianjin 58 Home and receives substantially all its economic benefits and residual returns. Through the exclusive business cooperation agreement between Beijing 58 Home and Tianjin 58 Home, Beijing 58 Home agrees to provide certain technical and business support and related consulting services to Tianjin 58 Home in exchange for service fees. In addition, pursuant to the exclusive option agreements, Tianjin 58 Home is prohibited from declaring and paying any dividends without Beijing 58 Home’s prior consent and Beijing 58 Home enjoys an irrevocable and exclusive option to purchase Tianjin 58 Home shareholders’ equity interests, to the extent permitted by applicable PRC laws, at a specified price equal to the loan amount provided by Beijing 58 Home to the shareholders. If the lowest price permitted under PRC law is higher than the above price, the lowest price permitted under PRC law shall apply. Through these arrangements, 58 Home can obtain all of the income and the residual interests of Tianjin 58 Home, such as undistributed earnings, either through dividend distributions or purchase of equity interests of Tianjin 58 Home from its existing shareholders. As a result of the contractual arrangements, 58 Home consolidates the financial results of Tianjin 58 Home in its consolidated financial statements. In July 2016, one shareholder of Tianjin 58 Home transferred his equity interest in Tianjin 58 Home to 58 Co., Ltd. As a result, Beijing 58 Home amended and restated its contractual arrangements with Tianjin 58 Home to reflect the change in shareholding of Tianjin 58 Home.

 

Exclusive Business Cooperation Agreement

 

Under the exclusive business cooperation agreement between Tianjin 58 Home and Beijing 58 Home, Beijing 58 Home has the exclusive right to provide, among other things, technical support and business support and related consulting services to Tianjin 58 Home and Tianjin 58 Home agrees to accept all the consultation and services provided by Beijing 58 Home. Without Beijing 58 Home’s prior written consent, Tianjin 58 Home is prohibited from engaging any third party to provide any of the services under this agreement. In addition, Beijing 58 Home exclusively owns all intellectual property rights arising out of or created during the performance of this agreement. Tianjin 58 Home agrees to pay a monthly service fee to Beijing 58 Home at an amount determined solely by Beijing 58 Home after taking into account factors including the complexity and difficulty of the services provided, the time consumed, the seniority of the Beijing 58 Home employees providing services to Tianjin 58 Home, the value of services provided, the market price of comparable services and the operating conditions of Tianjin 58 Home. This agreement will remain effective unless Beijing 58 Home terminates the agreement in writing or a competent governmental authority rejects the renewal applications by either Tianjin 58 Home or Beijing 58 Home to renew its respective business license upon expiration. Tianjin 58 Home is not permitted to terminate this agreement in any event unless required by applicable laws. Beijing 58 Home did not collect any service fee payments from Tianjin 58 Home in 2017, 2018 and 2019.

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017, 2018 (not covered by the auditor’s report) and 2019 (not covered by the auditor’s report)

(In thousands, unless otherwise noted)

 

Powers of Attorney

 

Pursuant to the powers of attorney, the shareholders of Tianjin 58 Home each irrevocably appointed Beijing 58 Home as the attorney-in-fact to act on their behalf on all matters pertaining to Tianjin 58 Home and to exercise all of their rights as a shareholder of Tianjin 58 Home, including but not limited to attend shareholders’ meetings, vote on their behalf on all matters of Tianjin 58 Home requiring shareholders’ approval under PRC laws and regulations and the articles of association of Tianjin 58 Home, designate and appoint directors and senior management members. Beijing 58 Home may authorize or assign its rights under this appointment to any other person or entity at its sole discretion without prior notice to the shareholders of Tianjin 58 Home. Each power of attorney will remain in force until the shareholder ceases to hold any equity interest in Tianjin 58 Home.

 

Equity Interest Pledge Agreements

 

Under the equity interest pledge agreements between Beijing 58 Home, Tianjin 58 Home and the shareholders of Tianjin 58 Home, the shareholders pledged all of their equity interests in Tianjin 58 Home to Beijing 58 Home to guarantee Tianjin 58 Home’s and Tianjin 58 Home’s shareholders’ performance of their obligations under the contractual arrangements including, but not limited to, the payments due to Beijing 58 Home for services provided. If Tianjin 58 Home or any of Tianjin 58 Home’s shareholders breaches its contractual obligations under the contractual arrangements, Beijing 58 Home, as the pledgee, will be entitled to certain rights and entitlements, including receiving proceeds from the auction or sale of whole or part of the pledged equity interests of Tianjin 58 Home in accordance with legal procedures. Beijing 58 Home has the right to receive dividends generated by the pledged equity interests during the term of the pledge. If any event of default as provided in the contractual arrangements occurs, Beijing 58 Home, as the pledgee, will be entitled to dispose of the pledged equity interests in accordance with PRC laws and regulations. The pledge will become effective on the date when the pledge of equity interests contemplated in these agreements are registered with the relevant local administration for industry and commerce and will remain binding until Tianjin 58 Home and its shareholders discharges all their obligations under the contractual arrangements. These equity interest pledge agreements are registered with the Tianjin Binhai New Area Market and Quality Supervision and Administration Bureau on September 8, 2015.

 

Exclusive Option Agreements

 

Under the exclusive option agreements among Beijing 58 Home, Tianjin 58 Home and each of the shareholders of Tianjin 58 Home, each of the shareholders irrevocably granted Beijing 58 Home or its designated representative(s) an exclusive option to purchase, to the extent permitted under PRC law, all or part of his, her or its equity interests in Tianjin 58 Home. In addition, Beijing 58 Home has the option to acquire all the equity interests held by the shareholders in Tianjin 58 Home at a specified price equal to the loan amount provided by Beijing 58 Home to the individual shareholders. At the moment, Beijing 58 Home cannot exercise the exclusive options to purchase the current shareholders’ equity interests in Tianjin 58 Home due to the PRC regulatory restrictions on foreign ownership in the value-added telecommunications services. Beijing 58 Home may exercise the options if PRC opens up these industries to foreign investment.

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017, 2018 (not covered by the auditor’s report) and 2019 (not covered by the auditor’s report)

(In thousands, unless otherwise noted)

 

Loan Agreements

 

Pursuant to the loan agreements between Beijing 58 Home and each individual shareholder of Tianjin 58 Home, Beijing 58 Home would provide interest-free loans with an aggregate amount of approximately RMB100 million to the individual shareholders of Beijing 58 Home for the sole purpose of funding the capital increase of Tianjin 58 Home. The loans can be repaid by transferring the individual shareholders’ equity interest in Tianjin 58 Home to Beijing 58 Home or its designated person pursuant to Exclusive Option Agreements. The term of each loan agreement is ten years from the date of the agreement expiring on August 25, 2025 and can be extended with the written consent of both parties before expiration.

 

Spousal Consent Letter

 

The spouse of each shareholder of Tianjin 58 Home has each signed a spousal consent letter. Under the spousal consent letter, the signing spouse unconditionally and irrevocably approved the execution by her spouse of the power of attorney, equity interest pledge agreement and exclusive option agreement, and that her spouse may perform, amend or terminate such agreements without her consent. The signing spouse confirms she will not assert any rights over the equity interests in Tianjin 58 Home held by her spouse. In addition, in the event that the spouse obtains any equity interest in Tianjin 58 Home held by her spouse for any reason, she agrees to be bound by and sign any legal documents substantially similar to the contractual arrangements entered into by her spouse, as may be amended from time to time.

 

(ii)

Contractual arrangements with Tianjin Technology

 

In August 2017, 58 Freight, through its PRC subsidiary, Tianjin Technology, has entered into contractual arrangements with Tianjin Freight and its shareholders with terms substantially similar to those under the Beijing 58 Home Agreements, which are referred to as the Tianjin Technology Agreements. Through the Tianjin Technology Agreements, 58 Freight exercises control over the operations of Tianjin Freight and receives all its economic benefits and residual returns substantially. Through the exclusive business cooperation agreement between Tianjin Technology and Tianjin Freight, Tianjin Technology agrees to provide certain technical and business support and related consulting services to Tianjin Freight in exchange for service fees. In addition, pursuant to the exclusive option agreements, Tianjin Freight is prohibited from declaring and paying any dividends without Tianjin Technology’s prior consent and Tianjin Technology enjoys an irrevocable and exclusive option to purchase Tianjin Freight shareholders’ equity interests, to the extent permitted by the applicable PRC laws, at a specified price equal to the loan amount provided by Tianjin Technology to the shareholders. If the lowest price permitted under PRC law is higher than the above price, the lowest price permitted under the PRC laws shall apply. Through these arrangements, 58 Freight can obtain all of the income and the interests of Tianjin Freight, such as undistributed earnings, either through dividend distributions or purchase of equity interests of Tianjin Freight from its existing shareholders. As a result of the contractual arrangements, the Company, through 58 Freight, consolidates the financial results of Tianjin Freight in its consolidated financial statements in accordance with U.S. GAAP.

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017, 2018 (not covered by the auditor’s report) and 2019 (not covered by the auditor’s report)

(In thousands, unless otherwise noted)

 

(iii)

Contractual arrangements with Changsha Daojia Youxiang and Tianjin 58 Daojia

 

In connection with the Reorganization in January 2019, contractual arrangements including exclusive business cooperation agreement, power of attorney, equity interest pledge agreements, exclusive option agreements, loan agreements and spousal consent letters, have been entered into among the Changsha Daojia Youxiang and Tianjin 58 Daojia (collectively, the “Daojia WFOEs”), Changsha 58 Home, Changsha Daojia Youxiang Home Service, Tianjin Haodaojia (collectively, the “Daojia VIEs”) and the respective nominee shareholders of Daojia VIEs with terms substantially similar to those under the Beijing 58 Home Agreements, which are referred to as the Daojia Agreements. Through the Daojia Agreements, 58 Daojia exercises control over the operations of the Daojia VIEs and receives all their economic benefits and residual returns substantially. Through the exclusive business cooperation agreement between Daojia WFOEs and Daojia VIEs, Daojia WFOEs agree to provide certain technical and business support and related consulting services to the Daojia VIEs in exchange for service fees. In addition, pursuant to the exclusive option agreements, the Daojia VIEs are prohibited from declaring and paying any dividends without Daojia WFOEs’ prior consent and Daojia WFOEs enjoy an irrevocable and exclusive option to purchase the Daojia VIEs shareholders’ equity interests, to the extent permitted by the applicable PRC laws, at a specified price equal to the loan amount provided by Daojia WFOEs to the shareholders of Daojia VIEs. If the lowest price permitted under PRC law is higher than the above price, the lowest price permitted under the PRC laws shall apply. Through these arrangements, 58 Daojia can obtain all of the income and the interests of the Daojia VIEs, such as undistributed earnings, either through dividend distributions or purchase of equity interests of Daojia VIEs from their existing shareholders. As a result of the contractual arrangements, the Company, through 58 Daojia, consolidates the financial results of Daojia VIEs in its consolidated financial statements in accordance with U.S. GAAP.

 

e. Risks in Relation to the VIE Structure

 

It is possible that the Company’s operation of certain of its businesses through the VIEs could be found by PRC authorities to be in violation of PRC law and regulations prohibiting or restricting foreign ownership of companies that engage in such operations and businesses. While the Company’s management considers the possibility of such a finding by PRC regulatory authorities under current PRC law and regulations to be remote. In March 2019, a new draft of Foreign Investment Law (the “New Draft FIE Law”) was submitted to the National People’s Congress for review and was approved on March 15, 2019, which came into effect from January 1, 2020. The approved Foreign Investment Law (the “FIE Law”) does not touch upon the relevant concepts and regulatory regimes that were historically suggested for the regulation of VIE structures, and thus this regulatory topic remains unclear under FIE Law. Since the FIE Law is new, there are substantial uncertainties that exist with respect to its implementation and interpretation and it is also possible that variable interest entities will be deemed as FIEs and be subject to restrictions in the future. Such restrictions may cause interruptions to the Group’s operations, products and services and may incur additional compliance cost, which may in turn materially and adversely affect the Group’s business, financial condition and results of operations.

 

In addition, if the legal structure and contractual arrangements were found to be in violation of any other existing PRC laws and regulations, the PRC government could:

 

•

revoke the Group’s business and operating licenses;

 

•

require the Group to discontinue or restrict operations;

 

•

restrict the Group’s right to collect revenues;

 

•

block the Group’s websites;

 

•

require the Group to restructure the operations in such a way as to compel the Group to establish a new enterprise, re-apply for the necessary licenses or relocate its businesses, staff and assets;

 

•

impose additional conditions or requirements with which the Group may not be able to comply; or

 

•

take other regulatory or enforcement actions against the Group that could be harmful to the Group’s business.

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017, 2018 (not covered by the auditor’s report) and 2019 (not covered by the auditor’s report)

(In thousands, unless otherwise noted)

 

The imposition of any of these penalties may result in a material and adverse effect on the Group’s ability to conduct the Group’s business. In addition, if the imposition of any of these penalties causes the Company to lose the right to direct the activities of any of the VIEs (through its equity interest in its subsidiaries) or the right to receive their economic benefits, the Company would no longer be able to consolidate the relevant VIEs and its subsidiaries, if any. In the opinion of management, the likelihood of loss in respect of the Company's current ownership structure or the contractual arrangements with its VIEs is remote.

 

There is no VIE for which the Company has variable interest but not the primary beneficiary.

 

As of December 31, 2019, the aggregate accumulated deficit of VIEs and VIEs’ subsidiaries were RMB2,951,921 which has been included in the consolidated financial statements.

 

The following financial statement amounts and balances of the Company's VIEs and VIEs’ subsidiaries were included in the accompanying consolidated financial statements as of December 31, 2018 and 2019 and for each of the three years ended December 31, 2017, 2018 and 2019. All intercompany transactions have been eliminated in consolidated financial statements.

 

		As of December 31,
		2018				2019
		RMB				RMB
Cash and cash equivalents			294,504				379,591
Accounts receivable, net			44,780				9,906
Inter-company receivables			484,353				741,075
Prepayments and other current assets			60,800				100,911
Property and equipment, net			12,319				56,934
Long-term investments			52,650				61,180
Intangible assets, net			70,492				57,888
Long-term prepayments			11,143				15,331
Total assets			1,031,041				1,422,816
Accounts payable			100,169				40,879
Contract liabilities			-				16,093
Taxes payable			4,159				5,929
Salary and welfare payable			27,597				123,668
Inter-company payables			1,245,575				2,264,481
Accrued expenses and other current liabilities			403,071				525,440
Deferred tax liabilities			17,623				14,474
Convertible notes			165,945				590,198
Total liabilities			1,964,139				3,581,162

 

		For the year ended December 31,
		2017				2018				2019
		RMB				RMB				RMB
Revenue			246,588				450,480				846,955
Net loss			(260,609	)			(484,546	)			(1,211,527	)
Net cash used in operating activities			(175,566	)			(84,298	)			(270,207	)
Net cash provided by/(used in) investing activities			345,298				(22,903	)			(67,493	)
Net cash provided by financing activities			126,686				160,400				422,787

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017, 2018 (not covered by the auditor’s report) and 2019 (not covered by the auditor’s report)

(In thousands, unless otherwise noted)

 

Under the contractual arrangements with the VIEs and through its respective equity interests in its subsidiaries, the Company has the power to direct activities of the VIEs and the VIEs’ subsidiaries and direct the transfer of assets out of the VIEs and the VIEs’ subsidiaries. Therefore, the Company considers that there is no asset of the VIEs and the VIEs’ subsidiaries that can be used only to settle their obligations. As the consolidated VIEs and VIEs’ subsidiaries are incorporated as limited liability companies under the PRC Company Law, the creditors do not have recourse to the general credit of the Company for the liabilities of the consolidated VIEs and the VIEs’ subsidiaries.

 

The Company believes that the contractual arrangements among VIEs, its respective shareholders and relevant WFOEs are in compliance with PRC law and are legally enforceable. However, uncertainties in the PRC legal system could limit the Company’s ability to enforce these contractual arrangements and if the shareholders of VIEs were to reduce their interest in the Company, their interests may diverge from that of the Company and that may potentially increase the risk that they would seek to act contrary to the contractual terms.

 

Through the design of the power of attorney agreements, the shareholders of the VIEs effectively assigned their full voting rights to WFOEs, which gives WFOEs the power to direct the activities of VIEs and VIEs’ subsidiaries. As noted above, the Company believes this power of attorney is legally enforceable but may not be as effective as direct equity ownership.

 

Currently there is no contractual arrangement that could require the Company to provide additional financial support to VIEs. As the Company is conducting its business mainly through VIEs, the Company may provide such support on a discretionary basis in the future, which could expose the Company to a loss.

 

The Company’s VIEs’ assets are comprised of recognized and unrecognized revenue-producing assets. The recognized revenue producing assets mainly include purchased servers, which were in the line of “Property and equipment, net” in the table above. The unrecognized revenue-producing assets mainly consist of the Internet Content Provider license (“ICP” license), trademarks, copyrights and registered patents, which have no recorded value.

 

The VIEs’ business operations rely in part on the technologies covered by the registered patents to generate revenues. Such technologies include (1) the data verification and processing technology used to verify and process local merchant information; (2) the data researching technology provided to end-users enable them to find the exact information they want in the shortest time; (3) the data publishing technology provided to merchants to help them to publish their service information more efficiently.

 

f. Liquidity

 

The Company's consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities during the normal course of operations. The Group incurred net loss of RMB769,839, RMB1,423,428 and RMB967,054 for each of the three years ended December 31, 2017, 2018 and 2019, respectively, and the net cash used in operating activities was RMB527,647, RMB816,664 and RMB757,188 for each of the three years ended December 31, 2017, 2018 and 2019, respectively. Accumulated deficit was RMB3,780,994 and RMB4,670,325 as of December 31, 2018 and 2019, respectively. As of December 31, 2019, the Group’s total current liabilities exceeded the current assets by RMB618,848. The Company regularly monitors current and expected liquidity requirements to ensure that it maintains sufficient cash balances to meet its liquidity requirements in the short and long term. The Company has adopted Accounting Standards Update (“ASU”) No. 2014-15 “Presentation of Financial Statements – Going Concern” which addresses management’s responsibility to evaluate whether there is a substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures if the substantial doubt exists.

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017, 2018 (not covered by the auditor’s report) and 2019 (not covered by the auditor’s report)

(In thousands, unless otherwise noted)

 

The liquidity of the Company is primarily dependent on its ability to generate adequate cash flows from operations and new financing events, including the issuance of preferred shares and convertible notes to investors of the Company or any of its major subsidiaries.

 

In February and March 2020, 58 Daojia executed the transaction documents for its Series B round of equity financing (the “58 Daojia Series B financing”) with total cash consideration of US$100,000 (approximately RMB697,620). Upon completion of 58 Daojia Series B financing, the Company lost its control over 58 Daojia and deconsolidated the financial results of 58 Daojia from its consolidated financing statements in accordance with Accounting Standard Codification (“ASC”) 810 “Consolidation”. All the cash consideration has been received by 58 Daojia as of the date of this report.

 

In February 2020, the Group borrowed a short-term loan from 58.com Inc. amounted to RMB104,652, which will be due within one-year from the date of borrowing.

 

Based on the Group’s working capital forecast, the management is of the opinion that, the Group’s available cash, term deposits and anticipated cash flow from operations and financing events provide sufficient funds to meet the working capital requirements to fund planned operations and other commitments for at least the next twelve months from the date the consolidated financial statements for the year ended December 31, 2019 are issued. As a result, the Company’s consolidated financial statements for the year ended December 31, 2019 have been prepared on a going concern basis.

 

2. Principal accounting policies

 

(a)

Principles of consolidation

 

The consolidated financial statements of the Company have been prepared in accordance with the generally accepted accounting principles in the United States (“U.S. GAAP”). The consolidated financial statements include the financial statements of the Company, its subsidiaries, the VIEs and VIEs’ subsidiaries for which the Company is the ultimate primary beneficiary.

 

Subsidiaries are those entities in which the Company, directly or indirectly, controls more than one half of the voting power; or has the power to govern the financial and operating policies, to appoint or remove the majority of the members of the board of directors, or to cast a majority of votes at the meeting of directors.

 

A VIE is an entity in which the Company or its subsidiary, through contractual arrangements, bears the risks of, and enjoys the rewards normally associated with, ownership of the entity, and therefore the Company or its subsidiary is the primary beneficiary of the entity.

 

All significant transactions and balances among the Company, its subsidiaries, the VIEs and VIEs’ subsidiaries have been eliminated upon consolidation.

 

(b)

Use of estimates

 

The preparation of the Company’s consolidated financial statements in conformity with the U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities. Actual results could differ materially from those estimates. Significant accounting estimates reflected in the Company’s consolidated financial statements mainly include the determination of the fair value of identifiable assets and liabilities acquired through business combination, the determination of the fair value of the financial instruments, the valuation allowance of deferred tax assets, the valuation and recognition of share-based compensation, impairment of long-term investments and other long-lived assets and the determination of the estimated useful lives of property and equipment and intangible assets.

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017, 2018 (not covered by the auditor’s report) and 2019 (not covered by the auditor’s report)

(In thousands, unless otherwise noted)

 

(c)

Functional currency and foreign currency translation

 

The functional currency of the Company and its subsidiaries incorporated outside of PRC is the United States dollar (“US$”), while the functional currency of the PRC entities in the Group is Chinese Renminbi ("RMB") as determined based on ASC 830, “Foreign Currency Matters”. Effective December 31, 2017, the Group changed its reporting currency from US$ to RMB. Assets and liabilities are translated at the exchange rates on the balance sheet date, equity amounts are translated at historical exchange rates, and revenues, expenses, gains and losses are translated using the average rate for the periods. Translation adjustments arising from these are reported as foreign currency translation adjustments and are shown as a component of other comprehensive loss in the consolidated statements of changes in shareholders’ deficit. Total foreign currency translation gain adjustments, net of nil tax was RMB85,984, RMB49,566 and RMB15,783 for the years ended December 31, 2017, 2018 and 2019, respectively.

 

Foreign currency transactions denominated in currencies other than the functional currency are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are included in the consolidated statements of comprehensive loss. Total foreign currency exchange gain was RMB642 and RMB553 for the year ended December 31, 2017 and 2018 respectively. Total foreign currency exchange loss was RMB7,997 for the year ended December 31, 2019.

 

Translations of amounts from RMB into US$ for the convenience of the reader were calculated at the exchange rate of RMB6.9762 per US$1.00, the middle rate on December 31, 2019, the last business day in fiscal year 2019, as published on the website of the State Administration of Foreign Exchange of the PRC. No representation is made that the RMB amounts could have been, or could be converted into U.S. dollars at such rate.

 

(d)

Fair value of financial instruments

 

Accounting guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

 

Accounting guidance establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Accounting guidance establishes three levels of inputs that may be used to measure fair value:

 

Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets

 

Level 2 - Include other inputs that are directly or indirectly observable in the marketplace

 

Level 3 - Unobservable inputs which are supported by little or no market activity

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017, 2018 (not covered by the auditor’s report) and 2019 (not covered by the auditor’s report)

(In thousands, unless otherwise noted)

 

The Group’s financial instruments mainly include term deposits, short-term investments, accounts receivable, other current assets, accounts payable, customer advances, accrued expenses, other current liabilities and convertible notes. The carrying value of the Company’s short-term financial instruments approximates their fair value because of their short maturities. The Company measures certain financial assets, including the investments under the cost method, intangible assets and fixed assets on other-than-temporary basis, which are marked to fair value when an impairment charge is recognized. Please see Note 13 for additional information.

 

(e)

Cash and cash equivalents

 

 Cash and cash equivalents represent cash on hand, demand deposits and highly liquid investments placed with banks or other financial institutions, which are unrestricted as to withdrawal or use, and which have original maturities of three months or less and are readily convertible to known amounts of cash. As of December 31, 2018 and 2019, majority of the Group’s cash and cash equivalents were held by major financial institutions located in the PRC and Hong Kong which management believes are of high credit quality.

 

(f)

Restricted cash

 

Cash that is legally restricted from withdrawal is reported separately on the face of the Group’s consolidated balance sheets. In accordance with ASU No. 2016-18, the amounts generally described as restricted cash are included in the total cash, cash equivalents and restricted cash balances in the consolidated statements of cash flows.

 

(g)

Term deposits

 

Term deposits represent time deposits placed with banks with original maturities of more than three months. Interest earned is recorded as interest income in the consolidated statements of comprehensive loss during the periods presented.

 

(h)

Accounts receivable, net

 

The carrying value of accounts receivable is reduced by an allowance that reflects the Company’s best estimate of the amounts that will not be collected. The Company makes estimations for the collectability of accounts receivable considering many factors including but not limited to reviewing accounts receivable balances, historical bad debt rates, accounts aging, repayment patterns, customer credit worthiness, financial conditions of the customers and industry trend analysis, resulting in their inability to make payments due to the Group. An accounts receivable is written off after all collection effort has ceased. The Company recognized RMB123, RMB46,597 and RMB57,218 allowance for doubtful accounts for the years ended December 31, 2017, 2018 and 2019, respectively.

 

(i)

Property and equipment, net

 

Property and equipment are stated at cost less accumulated depreciation and impairment. Property and equipment are depreciated over the estimated useful lives on a straight-line basis. The estimated useful lives are as follows:

 

Computers and equipment		3 years
Furniture and fixtures		5 years
Leasehold improvements		Over the shorter of lease terms or the estimated useful lives of assets
Software		3 years
Vehicles		4 years
Buildings		40 years

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017, 2018 (not covered by the auditor’s report) and 2019 (not covered by the auditor’s report)

(In thousands, unless otherwise noted)

 

Expenditures for maintenance and repairs are expensed as incurred. The gain or loss on the disposal of property and equipment is the difference between the net sales proceeds and the carrying amount of the relevant assets and is recognized under others, net in the consolidated statements of comprehensive loss.

 

(j)

Intangible assets, net

 

Intangible assets acquired through business acquisitions are recognized as assets separate from goodwill if they satisfy either the "contractual legal" or "separability" criterion. Intangible assets purchased are recognized and measured at fair value upon acquisition.

 

Intangible assets with finite lives are carried at cost less accumulated amortization. Separately identifiable intangible assets that have determinable lives continue to be amortized over their estimated useful lives using the straight-line method as follows:

 

Domain names			3 - 10 years
Software			3 years
Trademark			10 years
Customer relationship			6 years
License			15 years

 

Intangible assets with infinite lives are evaluated to determine the fair value annually. An impairment loss is recognized if the carrying amount exceeds the fair value. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of any impairment loss for identifiable intangible assets is based on the amount by which the carrying amount of the assets exceeds the fair value of the asset. Accordingly, the Company recognized RMB2,696, nil and nil impairment loss of intangible assets for the years ended December 31, 2017, 2018 and 2019, respectively.

 

(k)

Goodwill

 

Goodwill represents the excess of the purchase consideration over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed of the acquired entity as a result of the Company's acquisitions of interests in its subsidiaries and VIEs. Goodwill is not amortized but is tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that it might be impaired. The Company first assesses qualitative factors to determine whether it is necessary to perform the two step quantitative goodwill impairment test. In the qualitative assessment, the Company considers primary factors such as industry and market considerations, overall financial performance of the reporting unit, and other specific information related to the operations. Based on the qualitative assessment, if it is more likely than not that the fair value of each reporting unit is less than the carrying amount, the quantitative impairment test is performed.

 

In performing the two-step quantitative impairment test, the first step is to compare the fair values of each reporting unit to its carrying amount, including goodwill. If the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required. If the carrying amount of a reporting unit exceeds its fair value, the second step is to compare the implied fair value of goodwill to the carrying value of a reporting unit's goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a business combination with the allocation of the assessed fair value determined in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. This allocation process is only performed for the purposes of evaluating goodwill impairment and does not result in an entry to adjust the value of any assets or liabilities. Application of a goodwill impairment test requires significant management judgment, including the identification of reporting units, assigning assets, liabilities and goodwill to reporting units, and determining the fair value of each reporting unit.

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017, 2018 (not covered by the auditor’s report) and 2019 (not covered by the auditor’s report)

(In thousands, unless otherwise noted)

 

(l)

Long-term investments

 

(i)

Equity investments accounted for using the equity method

 

 In accordance with ASC 323 Investment-Equity Method and Joint Ventures, the Group applies the equity method of accounting to equity investments, in common stock or in-substance common stock, over which it has significant influence but does not own a majority equity interests or otherwise control. Under the equity method, the Group initially records its investment at cost. The Group subsequently adjusts the carrying amount of the investment to recognize the Group’s proportionate share of each equity investee’s net income or loss into consolidated statements of comprehensive loss after the date of acquisition.

 

An investment in in-substance common stock is an investment that has risk and reward characteristics that are substantially similar to that entity’s common stock. The Group considers subordination, risks and rewards of ownership and obligation to transfer value when determining whether an investment in an entity is substantially similar to one in that entity’s common stock.

 

The equity method investments are subject to periodic testing for other-than-temporary impairment, by considering factors including, but not limited to, current economic and market conditions, operating performance of the investees such as current earnings trends and undiscounted cash flows, and other company-specific information, such as recent financing rounds. The fair value determination, particularly for investments in privately-held companies whose revenue model is still evolving, requires significant judgment to determine appropriate estimates and assumptions. Changes in these estimates and assumptions could affect the calculation of the fair value of the investments and the determination of whether any identified impairment is other-than-temporary. If any impairment is considered other-than-temporary, the Group will write down the asset to its fair value and take the corresponding charge to the consolidated statements of comprehensive loss. The Group did not record any impairment charges for equity method investments for the years ended December 31, 2017, 2018 and 2019, respectively.

 

(ii)

Equity investments without readily determinable fair values

 

Based on ASU 2016-01, the Group will be able to elect to record equity investments without readily determinable fair values and not accounted for by the equity method either at fair value with changes in fair value recognized in net income or at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer (“measurement alternative”). An election to measure an equity security shall be made for each investment separately. If the Group elects to use this measurement alternative method, the Group should measure the equity security at fair value as of the date that observable transaction occurred and report changes in the carrying value of the equity investments in current earnings whenever there are observable price changes in orderly transactions for the identical or similar investment of the same issuer. The values were estimated based on valuation methods using the observable transaction price at the transaction date and other unobservable inputs including volatility, as well as rights and obligations of the securities that the Group holds.

 

For each reporting period, the Group would make a qualitative assessment considering impairment indicators to evaluate whether the equity investment without a readily determinable fair value is impaired. Impairment indicators that considered by the Group include, but are not limited to, 1) a significant deterioration in the earnings performance, credit rating, asset quality, or business prospects of the investee, 2) a significant adverse change in the regulatory, economic, or technological environment of the investee, 3) a significant adverse change in the general market condition of either the geographical area or the industry in which the investee operates, 4) a bona fide offer to purchase, an offer by the investee to sell, or a completed auction process for the same or similar investment for an amount less than the carrying amount of that investment, and 5) factors that raise significant concerns about the investee’s ability to continue as a going concern, such as negative cash flows from operations, working capital deficiencies, or noncompliance with statutory capital requirements or debt covenants.

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017, 2018 (not covered by the auditor’s report) and 2019 (not covered by the auditor’s report)

(In thousands, unless otherwise noted)

 

When indicators of impairment exist, the Group prepares quantitative assessments of the fair value of the equity investments. When the assessment indicates that an impairment exists, the Group will include an impairment loss in net income equal to the difference between the fair value of the investment and its carrying amount.

 

Because certain investees’ operation metrics and financial performance did not meet the expectations, the Group recorded RMB19,040 impairment loss for the cost method investments for the year ended December 31, 2017. The Group did not record any impairment loss for investments accounted for under the measurement alternative method for the year ended December 31, 2018 and 2019, respectively.

 

(m)

Impairment of other long-lived assets

 

The carrying amounts of long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of assets to future undiscounted net cash flows expected to be generated by the assets. Such assets are considered to be impaired if the sum of the expected undiscounted cash flow is less than the carrying amount of the assets. The impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets. No impairment of other long-lived assets was recognized for the years ended December 31, 2017, 2018 and 2019, respectively.

 

(n)

Revenue recognition

 

On January 1, 2018, the Company adopted ASC 606, applying the modified retrospective method to contracts that were not completed as of January 1, 2018. Adoption did not have a material impact on accumulated deficit as of January 1, 2018. Results for reporting periods beginning on or after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting under ASC 605. ASC 606 does not have a material impact on the Company’s consolidated financial statements.

 

Revenues have been subject to value added tax (“VAT”). Revenues are recorded net of VAT in accordance with the ASC 606. Judgment is required in determining whether the Group is the principal or agent in transactions with vehicle drivers, service providers and end customers. The Group evaluates the presentation of revenue on a gross or net basis based on whether it controls the service provided to the end customers and is the principal (i.e. “gross”), or the Group arranges for other parties to provide the service to the end customers and is an agent (i.e. “net”).

 

The following table presents the Group’s revenues disaggregated by products and services:

 

		Year Ended December 31, 2017 (in thousands)				Year Ended December 31, 2018 (in thousands)				Year Ended December 31, 2019 (in thousands)
Delivery services			233,175				498,918				540,332
Domestic services			236,042				401,346				611,321
Other revenues			15,735				50,539				89,863
Total			484,952				950,803				1,241,516

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017, 2018 (not covered by the auditor’s report) and 2019 (not covered by the auditor’s report)

(In thousands, unless otherwise noted)

 

As noted above, in accordance with the modified retrospective method upon adoption of ASC 606, prior period amounts have not been adjusted.

 

Delivery services revenues

 

Delivery services revenues include revenues from logistics services and logistics platform services.

 

Revenue from logistics services is recognized on gross basis considering the Group is the party contractually and primarily responsible for fulling the promise to provide logistics services to third party companies and has the full discretion in establishing the prices for the services provided. Revenue is recognized when the logistics service is rendered.

 

Revenue from logistics platform services is recognized on a net basis. Logistics platform services revenue is commission revenue earned from vehicle drivers for logistics services orders placed through the Group’s website and mobile platforms. Commission revenue is recognized upon the completion of successful matching between end customers and vehicle drivers. The commission is generally determined based on a certain percentage of service fees charged by vehicle drivers.

 

Domestic services revenues

 

Domestic services revenues mainly include revenues from household staffing services, on-demand dispatching services, market place services and training services.

 

Household staffing revenue is the commission revenue earned from matching of service providers of nanny service, maternity nurse and infant nanny service with end customers.

 

Revenue from matching of nanny service is recognized on net basis. The Group earns service fees from both nannies and end customers. Such fees are determined based on the contract period and the fees paid by the end customers to the nannies. The service fee from nannies is due upon matching and is not refundable. The service fees from the end customers are proportionally refundable if the end customers determine to early terminate the contract. The Group’s performance obligation to nanny is providing a one-time matching service, so service fees from nanny are recognized when the Group successfully helps nannies to match with end customers. The Group determined its arrangement with the end customer is a day-to-day contract and its performance obligation to end customers is providing a matching service over the contract period. Accordingly, service fees from end customers are recognized ratably over the contract period when services are provided.

 

Revenue from matching of maternity nurse and infant nanny service is recognized on net basis. The service fees from maternity nurse and infant nanny are proportionally refundable if the contract are early terminated. The Group determined its arrangement with maternity nurse and infant nanny is a day-to-day contract and its performance obligation to maternity nurse and infant nanny is providing matching service over the contract period. Accordingly, service fees from maternity nurse and infant nanny are recognized ratably over the contract period when services are provided.

 

The Group also cooperates with third-party partners to recommend them end customers’ orders and the Group has no responsibility to provide any additional service. The Group charges commission fees to third-party partners and recognizes such revenue at the time when the referral service is successfully completed. Commission fees are refundable if and when service provided to end customers by service providers is terminated and the service fee charged by the third-party partner returned to them. Such refund is considered as variable consideration. The Group considers the constraint on variable consideration and only recognizes revenue to the extent that it is probable that a significant reversal will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Variable considerations are estimated based on historical experience and the Group updates its assessment at the end of each reporting period. Such variable consideration is insignificant for all of the periods presented.

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017, 2018 (not covered by the auditor’s report) and 2019 (not covered by the auditor’s report)

(In thousands, unless otherwise noted)

 

On-demand dispatching revenue is commission revenue earned from service providers for cleaning services orders placed through the Group’s website and mobile platforms. Commission revenue is recognized upon the completion of successful matching between end customers and service providers. The commission is generally determined based on a certain percentage of service fees charged by service providers.

 

Revenue from market place service is recognized on a net basis. It mainly consists of providing a platform for on-demand domestic services and displaying merchants’ promotional links on the Group’s mobile application. The Group earns commission revenue from the merchants. Commission revenue is recognized upon the completion of the services and is generally determined based on certain percentage of service fees charged by merchants.

 

Revenue from training service is recognized on a gross basis. The Group designs various training programs to help service providers improve their skills and earn service revenue from it. The Group is responsible for fulfilling the promise to provide training to service providers until they pass the test prepared by the Group. The Group has discretion in establishing prices of the training programs. The revenues from providing training programs are recognized upon service providers passing the test.

 

Other revenues

 

Other revenues mainly consist of sales of fuel card arrangement service. Revenue from sales of fuel card and related costs are recognized on a gross basis as the Group acts as a principal. Revenue from fuel card sales are recognized when the customers accepted the goods and the related risks and rewards of ownership.

 

Contract Balances

 

Timing of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable represent amounts invoiced and revenue recognized prior to invoicing, when the Group has satisfied its performance obligations and has the unconditional right to payment. The allowance for doubtful accounts is estimated based upon the Company’s assessment of various factors, including historical experience, the age of the accounts receivable balances, current economic conditions and other factors that may affect the Group’s customers’ ability to pay. Contract assets as of December 31, 2019 were not material. The allowance for doubtful accounts was RMB46,597 and RMB57,218, respectively, as of December 31, 2018 and December 31, 2019.

 

As of December 31, 2018, there was no contract liabilities recorded in the Group’s consolidated financial statements and no transaction price allocated to the performance obligations that are unsatisfied or partially unsatisfied. As of December 31, 2019, contract liabilities mainly consisted of advances from market place services, training services and change of refund policy of nanny services. For the year ended December 31, 2019, revenue recognized in the current period from performance obligations related to prior periods was not material.

 

Practical Expedients

 

We have used the following practical expedients as allowed under ASC 606:

 

(i)

Payment terms and conditions vary by contract type, although terms generally include a requirement of prepayment or payment within one year or less. In instances where the timing of revenue recognition differs from the timing of invoicing, the management has determined that the contracts generally do not include a significant financing component.

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017, 2018 (not covered by the auditor’s report) and 2019 (not covered by the auditor’s report)

(In thousands, unless otherwise noted)

 

(ii)

The Company generally expense sales commissions when incurred, because the amortization period would be one year or less. These costs are recorded within sales and marketing expenses.

 

(o)

Cost of revenues

 

Cost of revenues mainly consist of commissions to drivers in the logistics services, costs associated with sales of fuel card arrangement service and costs associated with the operation and maintenance of websites and app, which include payroll-related expenses, equipment depreciation, fees paid to third parties for internet connection and services, etc.

 

(p)

Advertising expenses

 

Advertising expenses are generally prepaid to the third parties for television, internet and outdoor advertising services. Advertising expenses are expensed when the services are received. For the years ended December 31, 2017, 2018 and 2019, advertising expenses recognized under sales and marketing expenses in the consolidated statements of comprehensive loss were RMB195,807, RMB238,167 and RMB165,899, respectively.

 

(q)

Research and development expenses

 

Research and development expenses mainly consist of personnel, rent and depreciation expenses associated with the development of and enhancement to the Group’s platforms and expenses associated with research and development. The research and development expenses are expensed as incurred for all the periods presented.

 

Costs incurred for the preliminary project stage of internal use software are expensed in research and development expenses when incurred. Costs incurred during the application development stage are capitalized when certain criteria are met as stated in ASC 350-40. Costs incurred during the post-implementation-operation stage are also expensed as incurred. As the period qualified for capitalization has historically been very short and the development costs incurred during this period have been insignificant, development costs of internal use software to date have been expensed when incurred.

 

(r)

Operating leases

 

Leases where substantially all the rewards and risks of ownership of assets remain with the lessors are accounted for as operating leases. Payments made under operating leases are charged to the operating expenses in the consolidated statements of comprehensive loss on a straight-line basis over the terms of underlying lease.

 

(s)

Share-based compensation

 

The Group has incentive plans for the granting of share-based awards, including share options, restricted ordinary shares and restricted share units to its employees and directors. Share-based compensation expenses are recognized as costs and expenses on a graded vesting basis over the vesting period in the consolidated statements of comprehensive loss based on the fair value of the related share-based awards on their grant date, if no performance conditions are required. Under ASC 718, compensation cost should be accrued if it is probable that the performance condition will be achieved and should not be accrued if it is not probable that the performance condition will be achieved. As a result, the Group recognizes no compensation expense for share-based awards with performance conditions unless the performance conditions become probable of being achieved.

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017, 2018 (not covered by the auditor’s report) and 2019 (not covered by the auditor’s report)

(In thousands, unless otherwise noted)

 

 

The Company uses the binominal option pricing model to determine the fair value of share options and account for share-based compensation expenses using an estimated forfeiture rate at the time of grant and revising the rate, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. Share-based compensation expenses are recorded net of estimated forfeitures such that expenses are recorded only for those share-based awards that are expected to vest.

 

See Note 17 for further information regarding share-based compensation assumptions and expenses.

 

(t)

Income taxes

 

Current income taxes are provided on the basis of net income for financial reporting purposes, adjusted for income and expense items which are not assessable or deductible for income tax purposes, in accordance with the regulations of the relevant tax jurisdictions. Deferred income taxes are provided using the asset and liability method. Under this method, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes. The effect on deferred taxes of a change in tax rates is recognized under income tax expense in the consolidated statements of comprehensive loss in the period of change. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all of the deferred tax assets will not be realized.

 

Uncertain tax positions

 

The guidance prescribes a more likely than not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Guidance was also provided on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.

 

(u)

Employee benefits

 

Full-time employees of the Group in mainland China are entitled to staff welfare benefits including pension, work-related injury benefits, maternity insurance, medical insurance, unemployment benefit and housing fund plans through a PRC government-mandated defined contribution plan. Chinese labor regulation requires that the Group makes contributions to the government for these benefits based on certain percentage of the employees’ salaries, up to a maximum amount specified by the local government. Currently, the Group is paying contributions to the social insurance plan for all full-time employees and to the housing fund plans for some employees, but the amounts paid for these employees may not be sufficient as required by the PRC laws and regulations, for which the Company have made provision based on its best estimate. The Company has no legal obligation for the benefits beyond the required contributions.

 

The Company recorded employee benefit expenses of RMB96,210, RMB170,740 and RMB317,410 for the years ended December 31, 2017, 2018 and 2019, respectively.

 

(v)

Government grants

 

Grants from the government are recognized at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions.

 

Government grants relating to costs are deferred and recognized under others, net in the consolidated statements of comprehensive loss over the period necessary to match them with the costs that they are intended to compensate.

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Government grants relating to the property and equipment and other non-current assets are presented in the consolidated balance sheets by deducting the grants in arriving at the assets carrying amount and are credited to operating expenses in the consolidated statements of comprehensive loss on a straight-line basis over the expected lives of the related assets.

 

For the years ended December 31, 2017, 2018 and 2019, the Company recognized government grants of RMB10,860, RMB5,832 and RMB7,353, respectively, in others, net in the consolidated statements of comprehensive loss.

 

(w)

Ordinary shares

 

The Company accounts for repurchased ordinary shares under the cost method and includes such treasury stock as a component of the common shareholders’ equity. Cancellation of treasury stock is recorded as a reduction of ordinary shares, additional paid-in capital and retained earnings, as applicable. An excess of purchase price over par value is allocated to additional paid-in capital first with any remaining excess charged entirely to retained earnings.

 

(x)

Business combination and noncontrolling interests

 

The Company accounts for its business combinations using the acquisition method of accounting in accordance with ASC 805 “Business Combinations”. The cost of an acquisition is measured as the aggregate of the acquisition date fair values of the assets transferred and liabilities incurred by the Group to the sellers and equity instruments issued. Transaction costs directly attributable to the acquisition are expensed as incurred. Identifiable assets and liabilities acquired or assumed are measured separately at their fair values as of the acquisition date. The excess of (i) the total costs of acquisition, fair value of the noncontrolling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference will be recognized directly in the consolidated statements of comprehensive loss. During the measurement period, which can be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of comprehensive loss.

 

In a business combination achieved in stages, the Company re-measures the previously held equity interest in the acquiree immediately before obtaining control at its acquisition date fair value and the remeasurement gain or loss, if any, is recognized in the consolidated statements of comprehensive loss.

 

(y)

Statutory reserves

 

The Company’s PRC subsidiaries, the VIEs and VIEs’ subsidiaries in PRC are required to make appropriations to certain non-distributable reserve funds.

 

In accordance with China’s Company Laws, the Company’s PRC subsidiary, the VIEs and VIEs’ subsidiaries that are Chinese companies, must make appropriations from their after-tax profit as determined under the Accounting Standards for Business Enterprises as promulgated by the Ministry of Finance of the People’s Republic of China (“PRC GAAP”) to non-distributable reserve funds including (i) statutory surplus fund and (ii) discretionary surplus fund. The appropriation to the statutory surplus fund must be at least 10% of the after-tax profits calculated in accordance with PRC GAAP. Appropriation is not required if the statutory surplus fund has reached 50% of the registered capital of the respective company. Appropriation to the discretionary surplus fund is made at the discretion of the respective company.

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Pursuant to the laws applicable to China’s Foreign Investment Enterprises, the Company’s subsidiaries that are foreign investment enterprises in PRC have to make appropriations from their after-tax profit as determined under PRC GAAP to reserve funds including (i) general reserve fund, (ii) enterprise expansion fund and (iii) staff bonus and welfare fund. The appropriation to the general reserve fund must be at least 10% of the after tax profits calculated in accordance with PRC GAAP. Appropriation is not required if the reserve fund has reached 50% of the registered capital of the respective company. Appropriations to the other two reserve funds are at the respective company’s discretion. The use of the general reserve fund, statutory surplus fund and discretionary surplus fund are restricted to the offsetting of losses to increase the registered capital of the respective company. These reserves are not allowed to be transferred out as cash dividends, loans or advances, nor can they be distributed except under liquidation.

 

As of December 31, 2019, the Company’s PRC entities were in an accumulated deficit position and no statutory reserve was made accordingly.

 

(z)

Related parties

 

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or significant influence of the same party, such as a family member or relative, shareholder, or a related corporation.

 

(aa)

Comprehensive income

 

Comprehensive income is defined as the change in equity of the Group during a period arising from transactions and other events and circumstances excluding transactions resulting from investments by shareholders and distributions to shareholders. Comprehensive income is reported in the consolidated statements of comprehensive loss. Accumulated other comprehensive income, as presented on the accompanying consolidated balance sheets, consists of accumulated foreign currency translation adjustment.

 

(ab)

Recently issued accounting pronouncements

 

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which amends the existing accounting standards for lease accounting. For operating leases, ASU 2016-02 requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet with terms of more than twelve months. Lessees are permitted to make an accounting policy election to not recognize the asset and liability for leases with a term of twelve months or less. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. In addition, this standard requires both lessees and lessors to disclose certain key information about lease transactions. The standard is effective for the Group for annual periods beginning after December 15, 2019 and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted. Based on its preliminary assessment, the Group expects to record a right-of-use asset of approximately RMB190.6 million and a lease liability of approximately RMB179.5 million on its adoption date of January 1, 2020. The Group will use a modified retrospective approach under ASU 2018-11 and will not restate prior periods.

 

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326)”, which requires entities to measure all expected credit losses for financial assets held at the reporting date. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. The amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Group does not expect the adoption of this standard to have a material impact on its consolidated financial statements.

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”), which eliminates, adds and modifies certain disclosure requirements for fair value measurements. Under the guidance, public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The guidance is effective for all entities for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years, but entities are permitted to early adopt either the entire standard or only the provisions that eliminate or modify the requirements. The Group does not expect the adoption of this standard to have a significant impact on its consolidated financial statements.

 

In August 2018, the FASB issued ASU No. 2018-15, “Intangibles — Goodwill and Other—Internal-Used Software (Subtopic 350-40)” (“ASU 2018-15”). The guidance intended to align the requirements for capitalization of implementation costs incurred in a cloud computing arrangement that is a service contract with the existing guidance for internal-use software. Capitalized implementation costs should be amortized over the term of the hosting arrangement and recorded in the same financial statement line items as amounts for the hosting arrangement. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The guidance provides flexibility in adoption, allowing for either retrospective adjustment or prospective adjustment for all implementation costs incurred after the date of adoption. The Group does not expect the adoption of this standard to have a material impact on its consolidated financial statements.

 

3. Credit risks and concentration

 

(a)	Credit risk

 

The Group’s credit risk arises from cash, restricted cash, term deposits, as well as credit exposures to receivables due from its customers, equity investee and other parties.

 

The Company believes that there is no significant credit risk associated with cash and term deposits which were held by reputable financial institutions in the jurisdictions where the Company, its subsidiaries, the VIEs and VIEs’ subsidiaries are located.

 

The Group has no significant concentrations of credit risk with respect to its customers. The Company assesses the credit quality of and sets credit limits on its customers by taking into account their financial position, the availability of guarantees from third parties, their credit history and other factors such as current market conditions.

 

(b)	Major customers

 

There was no customer whose revenue represented over 10% of total revenues for the years ended December 31, 2017, 2018 and 2019, respectively.

 

The accounts receivable, net of allowance for doubtful accounts from two customers each represented 14% of total accounts receivable, net of allowance for doubtful accounts as of December 31, 2018. The accounts receivable, net of allowance for doubtful accounts from one customer represented 13% of total accounts receivable, net of allowance for doubtful accounts as of December 31, 2019.

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

(c)	Foreign currency risk

 

The Group’s operating transactions are mainly denominated in RMB. RMB is not freely convertible into foreign currencies. The value of the RMB is subject to changes by the central government policies and to international economic and political developments. In the PRC, certain foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (the “PBOC”). Remittances in currencies other than RMB by the Group in PRC must be processed through the PBOC or other PRC foreign exchange regulatory bodies which require certain supporting documentation in order to effect the remittance.

 

4. Acquisition of GoGo Tech Holdings Limited’s subsidiaries (“GoGoVan Business”)

 

In August, 2017, the Company and 58 Freight, entered into an agreement with GoGo Tech Holdings Limited (“GoGoVan Cayman”) where the Company issued 22.2% of its equity interests in 58 Freight to GoGoVan Cayman, and 58 Freight acquired 100% equity interests of GoGoVan Cayman’s wholly-owned subsidiaries and VIEs (collectively referred to as “GoGoVan”) through a series of planned and integrated transactions. The transactions were completed on August 29, 2017. This arrangement is intended to enable the Group to expand into overseas markets and business lines by combining the Group’s delivery service with GoGoVan’s platform. Total consideration for this acquisition was 88,888,888 newly issued ordinary shares of 58 Freight to GoGoVan Cayman. The Company owned 77.8% equity interest in 58 Freight, which owned 100% of equity interest in GoGoVan after the acquisition. The Company considered that it had a controlling financial interest over the equity interest of GoGoVan through 58 Freight under the voting interest model, and as a result consolidated GoGoVan since August 29, 2017.

 

The acquisition has been accounted for as a business acquisition and the results of operations of GoGoVan from the acquisition date have been included in the Company’s consolidated financial statements. The Company made estimates and judgments in determining the fair value of acquired assets and liabilities, with the assistance of an independent valuation firm and management’s experience with similar assets and liabilities. In performing the purchase price allocation, the Company considered the analyses of historical financial performance and estimates of future performance of GoGoVan.

 

The allocation of the purchase price is as follows:

 

		Amounts				Amortization Years
			RMB
Net assets acquired			14,108
Amortizable intangible assets:
Domain names and trademarks			96,100				10
Software			15,000				3
Customer relationship			47,600				6
Goodwill			1,017,474
Deferred tax assets			9,397
Deferred tax liabilities			(33,604	)
Total			1,166,075
Total purchase price
-Equity consideration			1,166,075
Total			1,166,075

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

The excess of purchase price over net tangible assets and identifiable intangible assets acquired were recorded as goodwill. Goodwill primarily represented the expected synergies from combining the Group’s delivery business with GoGoVan’s platform. The goodwill was not expected to be deductible for tax purposes. There is no impairment recognized for above goodwill in the years ended December 31, 2017, 2018 and 2019.

 

5. Accounts receivable, net

 

Accounts receivable consists of the following:

 

		As of December 31,
		2018				2019
		RMB				RMB
Accounts receivable			122,477				129,552
Allowance for doubtful accounts			(46,597	)			(57,218	)
Accounts receivable, net			75,880				72,334

 

 Movement of allowance for doubtful accounts is as follows:

 

		As of December 31,
		2017				2018				2019
		RMB				RMB				RMB
Balance at beginning of year			-				123				46,597
Provisions			123				46,474				10,621
Balance at end of year			123				46,597				57,218

 

The allowance for doubtful accounts as of December 31, 2019 mainly consists of one customer who is not capable of making the payment to the Group.

 

6. Prepayments and other current assets

 

The following is a summary of prepayments and other current assets:

 

		As of December 31,
		2018				2019
		RMB				RMB
Input value-added tax			19,618				37,494
Rental and other deposits			37,858				35,666
Receivables from online payment platforms			60,358				32,937
Prepaid advertising fees			3,161				16,402
Advances to suppliers			2,884				13,677
Consumables			7,403				8,337
Employee advances			783				5,229
Others			28,531				31,688
Total			160,596				181,430

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

7. Property and equipment, net

 

The following is a summary of property and equipment, net:

 

		As of December 31,
		2018				2019
		RMB				RMB
Leasehold improvements			65,646				104,761
Computers and equipment			44,764				44,460
Buildings			-				23,123
Software			5,804				6,500
Furniture and fixtures			3,336				6,278
Vehicles			641				-
Total			120,191				185,122
Less: Accumulated depreciation			(67,678	)			(93,995	)
Net book value			52,513				91,127

 

Depreciation expenses for the years ended December 31, 2017, 2018 and 2019 were RMB22,359, RMB28,226 and RMB32,904, respectively.

 

8. Intangible assets, net

 

The following is a summary of intangible assets, net:

 

		As of December 31,
		2018				2019
		RMB				RMB
Trademark			97,957				99,069
Customer relationship			48,213				48,582
Software			15,290				15,464
Domain names			4,736				4,736
License			295				295
Total			166,491				168,146
Less: Accumulated depreciation			(32,688	)			(56,174	)
Impairment of domain names			(2,696	)			(2,696	)
Net book value			131,107				109,276

 

Amortization expenses for the years ended December 31, 2017, 2018 and 2019 were RMB8,040, RMB22,606 and RMB23,486, respectively. The Company recorded RMB2,696, nil and nil impairment loss for intangible assets for the years ended December 31, 2017, 2018 and 2019, respectively.

 

The estimated aggregate amortization expenses for each of the five succeeding fiscal years and thereafter are as follows:

 

			Amounts
				RMB
For the year ended December 31, 2019
2020				21,460
2021				18,024
2022				18,024
2023				18,024
2024				18,024
Thereafter				15,720
Total				109,276

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

9. Long-term investments

 

The following is a summary of long-term investments:

 

		As of December 31,
		2018				2019
		RMB				RMB
Measurement alternative investments:
Investee A (a)			15,000				15,000
Investee B (b)			11,300				11,300
Investee C (c)			18,750				18,750
Others (d)			7,600				7,600
Total measurement alternative investments			52,650				52,650
Equity method investments:
Investee E (e)			-				8,530
Total equity method investments			-				8,530
Total long-term investments			52,650				61,180

 

(a) In 2015, the Company acquired shares of investee A for cash consideration of RMB12,000. In 2017, the Company acquired additional shares of investee A at total cash consideration of RMB3,000, among which RMB1,500 was paid in 2017 and remaining paid in 2018. Investee A is mainly engaged in the business of providing make-up services. The investment is accounted for under cost method, and measurement alternative after the Group adopted ASU 2016-01 since January 1, 2018 as the shares invested by the Company were not considered as in-substance common stock and the shares do not have readily determinable fair value.

 

(b) In 2015, the Company acquired shares of investee B for cash consideration of RMB11,300. Investee B is mainly engaged in the business of providing health-care services. The investment is accounted for under cost method, and measurement alternative after the Group adopted ASU 2016-01 since January 1, 2018 as the shares invested by the Company were not considered as in-substance common stock and the shares do not have readily determinable fair value.

 

(c) In 2016, the Company acquired shares of investee C for total consideration of RMB18,750. Investee C is mainly engaged in the business of providing management services for enterprises. The investment is accounted for under cost method, and measurement alternative after the Group adopted ASU 2016-01 since January 1, 2018 as the shares invested by the Company were not considered as in-substance common stock and the shares do not have readily determinable fair value.

 

(d) Others represent other cost method investments, the shares of which the Company invested were not considered as in-substance common stock and the shares do not have readily determinable fair value. As a result, the Company accounted for its investments in these investees using cost method, and measurement alternative after the Group adopted ASU 2016-01 since January 1, 2018.

 

(e) In 2019, the Company made an investment in investee E for cash consideration of RMB8,000. The investment is accounted for under equity method as the Group can exert significant influence over the investee. For the year ended December 31, 2019, the Group recorded RMB530 investment income in the consolidated statements of comprehensive loss.

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

10. Long-term prepayments

 

The following is a summary of long-term prepayments:

 

		As of December 31,
		2018				2019
		RMB				RMB
Rental deposits			4,519				12,910
Prepayments for leasehold improvements			13,209				9,186
Others			368				7,452
Total			18,096				29,548

 

11. Accounts payable

 

The following is a summary of accounts payable:

 

		As of December 31,
		2018				2019
		RMB				RMB
Payable for advertising fees			108,293				29,305
Payable to drivers			33,719				24,678
Payable for services fees			25,931				14,116
Payable for purchase of property and equipment			246				9,051
Others			6,137				16,013
Total			174,326				93,163

 

12. Accrued expenses and other current liabilities

 

The following is a summary of accrued expenses and other current liabilities:

 

		As of December 31,
		2018				2019
		RMB				RMB
Advance from end customers			417,590				516,376
Deposits from service providers			182,460				245,582
Payable to 58 Home service providers			186,349				219,960
Accrued office expenses			34,767				32,375
Warrants (Note 15)			113,190				3,210
Others			40,279				38,666
Total			974,635				1,056,169

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

13. Fair value measurements

 

Measured on recurring basis

 

The Company measured its financial assets including cash equivalents, restricted cash, term deposits, and financial liabilities including current liability and non-current liability at fair value on a recurring basis as of December 31, 2018 and 2019. The following table sets forth the financial instruments, measured at fair value on recurring basis, by level within the fair value hierarchy:

 

						As of December 31,
Financial instruments		Fair value hierarchy				2018				2019
						RMB				RMB
Cash equivalents			Level 2				94,055				144,086
Restricted cash			Level 2				-				1,289
Term deposits			Level 2				10,571				-
Warrants (Note 15)			Level 3				113,190				3,210
Convertible notes (Note 18)			Level 3				165,945				590,198

 

Cash equivalents, Restricted cash, Term deposits

 

The Group measures cash equivalents, restricted cash and term deposits at fair value based on the pervasive interest rates in the market, which are also the interest rates as stated in the contracts with the banks. The Group classifies the valuation techniques that use the pervasive interest rates input as Level 2 of fair value measurements. Generally, there are no quoted prices in active markets for identical time deposits at the reporting date. In order to determine the fair value, the Group must use the discounted cash flow method and observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Warrants

 

The Company classified the warrants to purchase preferred shares as current liability and measured warrants at fair value based on the fair value of 58 Freight. The Company classifies the valuation techniques that use fair value of the principle as Level 3 of fair value measurements. Generally, there are no quoted prices in active markets and other inputs that are directly or indirectly observable in the marketplace for the warrants issued during the period at the reporting date. In order to determine the fair value, the Company must use the discounted cash flow method, net asset of principle and earning forecast as unobservable inputs other than quoted prices in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Convertible notes

 

The Company classified the convertible notes as non-current liability and measured the convertible notes at fair value based on the fair value of 58 Freight and 58 Daojia. The Company classifies the valuation techniques that use fair value of the principle as Level 3 of fair value measurements. Generally, there are no quoted prices in active markets and other inputs that are directly or indirectly observable in the marketplace for the convertible notes issued during the period at the reporting date. In order to determine the fair value, the Company must use the discounted cash flow method, net asset of principle and earning forecast as unobservable inputs other than quoted prices in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

The following are other financial instruments not measured at fair value in the balance sheets but the fair value is estimated for disclosure purposes.

 

Short-term receivables and payables

 

Accounts receivable and other current assets are financial assets with carrying values that approximate fair value due to their short term nature. Accounts payable and other current liabilities are financial liabilities with carrying values that approximate fair value due to their short term nature. The Company estimates fair values of short-term receivables and payables and classifies the valuation technique as Level 3 of fair value measurement, as it uses estimated cash flow input which is unobservable in the market.

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Non-current assets

 

Non-current assets of receivables for rental deposits is a financial asset with carrying value that approximate to the fair value due to the impact of discounting is immaterial. The Company estimated fair values of non-current assets using the discounted cash flow method. The Company classifies the valuation technique as Level 3 of fair value measurement, as it uses estimated cash flow input which is unobservable in the market.

 

Measured on non-recurring basis

 

The Group’s non-financial assets, such as long-term investments, goodwill and intangible assets would be measured at fair value only if they were determined to be impaired.

 

Long-term investments

 

As of December 31, 2018, and 2019, the Group had RMB52,650 and RMB61,180, respectively, long-term investments in equity securities of privately-held companies. Such investments are reviewed periodically for impairment using fair value measurement which requires significant unobservable inputs (Level 3). Impairment loss of RMB19,040, RMB nil and RMB nil was recorded in the consolidated statements of comprehensive loss for the years ended December 31, 2017, 2018 and 2019, respectively.

 

14. Income taxes

 

BVI

 

The Company is exempted from income tax in the BVI on its foreign-derived income. There are no withholding taxes in the BVI.

 

Cayman Islands

 

Under the current laws of the Cayman Islands, subsidiaries incorporated in the Cayman Islands were not subject to tax on income or capital gains. Additionally, upon payments of dividends to our shareholders, no Cayman Islands withholding tax will be imposed.

 

Hong Kong

 

Subsidiaries in Hong Kong are subject to 16.5% income tax rate for 2017. Under the current Hong Kong Inland Revenue Ordinance, from the year of assessment 2018/2019 onwards, the subsidiaries in Hong Kong are subject to profits tax at the rate of 8.25% on assessable profits up to HK$2,000, and 16.5% on any part of assessable profits over HK$2,000. The payments of dividends by these companies to their shareholders are not subject to any Hong Kong withholding tax.

 

PRC

 

On March 16, 2007, the National People’s Congress of PRC enacted an Enterprise Income Tax Law (“EIT Law”), under which FIEs and domestic companies would be subject to EIT at a uniform rate of 25%. The EIT law became effective on January 1, 2008.

 

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Pursuant to the “Circular on Enterprise Income Tax Policy concerning Deductions for Equipment and Appliances” (Cai Shui [2018] 54) issued by the State Administration of Taxation, during the period from January 1, 2018 to December 31, 2020, the cost of newly purchased equipment with the original cost less than RMB5 million can be fully deducted against taxable profit in the next month after the asset is put into use, instead of being depreciated annually for tax filing.

 

According to a policy promulgated by the State Tax Bureau of the PRC and effective from 2008 onwards, enterprises engaging in research and development activities are entitled to claim 150% of the research and development expenses so incurred in a year as tax deductible expenses in determining its tax assessable profits for that year, or the Super Deduction. From January 1, 2018 to December 31, 2020, all Chinese resident enterprises will enjoy the Super Deduction of 175% in accordance with the updated policy promulgated by the Stated Tax Bureau of the PRC. Changsha 58 Home, Changsha Daojia Youxiang and Tianjin Technology had claimed such Super Deduction in ascertaining its tax assessable income for the year ended December 31, 2019.

 

The EIT Law also provides that an enterprise established under the laws of a foreign country or region but whose “de facto management body” is located in the PRC be treated as a resident enterprise for PRC tax purposes and consequently be subject to the PRC income tax at the rate of 25% for its global income. The Implementing Rules of the EIT Law merely define the location of the “de facto management body” as “the place where the exercising, in substance, of the overall management and control of the production and business operation, personnel, accounting, properties, etc., of a non-PRC company is located.” Based on a review of surrounding facts and circumstances, the Company does not believe that it is likely that its operations outside of the PRC should be considered a resident enterprise for PRC tax purposes.

 

The EIT Law also imposes a withholding income tax of 10% on dividends distributed by an FIE to its immediate holding company outside of PRC, if such immediate holding company is considered as a non-resident enterprise without any establishment or place within PRC or if the received dividends have no connection with the establishment or place of such immediate holding company within PRC, unless such immediate holding company’s jurisdiction of incorporation has a tax treaty with PRC that provides for a different withholding arrangement. The British Virgin Island, where the Company was incorporated, does not have such tax treaty with PRC. According to the arrangement between Mainland China and Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion in August 2006, dividends paid by an FIE in PRC to its immediate holding company in Hong Kong will be subject to withholding tax at a rate of no more than 5% (if the foreign investor owns directly at least 25% of the shares of the FIE). The Company’s subsidiaries and VIEs were in accumulated loss positions as of December 31, 2019. Accordingly, no deferred income tax was accrued as of December 31, 2019.

 

The provisions for income tax (expenses)/benefit are summarized as follows:

 

		For the year ended December 31,
		2017				2018				2019
		RMB				RMB				RMB
Current tax expense			(2,191	)			(460	)			-
Deferred tax benefit			-				4,197				1,468
Income tax (expense)/benefit			(2,191	)			3,737				1,468

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017, 2018 (not covered by the auditor’s report) and 2019 (not covered by the auditor’s report)

(In thousands, unless otherwise noted)

 

The following table sets forth reconciliation between the statutory EIT rate and the effective tax rate:

 

		For the year ended December 31,
		2017				2018				2019
Statutory income tax rates			25.0	%			25.0	%			25.0	%
Change in valuation allowance			(19.7)	%			(19.1)	%			(24.2)	%
Permanent book-tax differences			(5.0)	%			(2.8)	%			(2.4)	%
Effect of lower tax rates in other jurisdictions			(0.6)	%			(3.1)	%			1.6	%
Reversal of deferred tax			-				0.2	%			0.2	%
Effective tax rate			(0.3)	%			0.2	%			0.2	%

 

Deferred tax assets and liabilities

 

The following table sets forth the significant components of the aggregate deferred tax assets and liabilities:

 

		As of December 31,
		2018				2019
		RMB				RMB
Deferred tax assets
Accrued payroll and other expenses			5,276				6,792
Bad debt provision			17,368				19,907
Intangible assets impairment and disposal			674				674
Net operating losses carried forwards			680,242				924,878
Advertising expenses in excess of deduction limits			105,872				81,185
Total deferred tax assets			809,432				1,033,436
Less: valuation allowance			(801,968	)			(1,029,214	)
Total deferred tax assets, net			7,464				4,222
Deferred tax liabilities
Acquired intangible assets			27,589				22,920
Total deferred tax liabilities			27,589				22,920

 

A valuation allowance is provided against deferred tax assets when the Company determines that it is more likely than not that the deferred tax assets will not be utilized in the future. In making such determination, the Company evaluates a variety of factors including the Group’s operating history, accumulated deficit, existence of taxable temporary differences and reversal periods.

 

As of December 31, 2019, the net operating losses carried forward in overseas jurisdictions, subject to the tax laws enacted or substantially enacted in the countries where the Company’s subsidiaries operate and generate income, amounted to RMB608 million, are allowed to be carried forward to offset against future taxable profits. Such carry forward of tax losses of RMB505 million has no time limit, while the tax losses of RMB103 million will expire, if unused, in the years ending December 31, 2019 through 2027. As of December 31, 2019, the Group had net operating losses carried forward of subsidiaries incorporated in the PRC and subject to the agreement of the PRC tax authorities of RMB3.3 billion which will expire during the period between December 31, 2019 and December 31, 2024.

 

The Group has incurred net accumulated operating losses for income tax purposes since its inception. The Company believes that except for subsidiaries in Hong Kong, it is more likely than not that these net accumulated operating losses and other deferred tax assets will not be utilized in the future. Therefore, the Company had provided valuation allowances of RMB801,968 and RMB1,029,214 for the deferred tax assets as of December 31, 2018 and 2019, respectively.

 

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

 

Movement of valuation allowance

 

		For the year ended December31,
		2017				2018				2019
		RMB				RMB				RMB
Balance at beginning of the period			302,642				481,420				801,968
Provision			178,778				320,548				227,246
Balance at the end of the period			481,420				801,968				1,029,214

 

15. Preferred shares and warrants

 

Series A round equity financing of 58 Home and 58 Freight

 

On November 27, 2015, the Company completed its Series A round of equity financing, with participation from Taobao, global investment firm KKR, and Ping An Group. Following the closing of the Series A round of equity financing, 58.com Inc. holds 87.9% of the total outstanding ordinary shares of the Company and 61.7% of the total outstanding shares of the Company on an as-converted basis.

 

On July 8, 2016, a 4-for-1 stock split for all ordinary shares and Series A Preferred Shares was approved by the shareholders. While the stock split increased the number of shares for each shareholder, the percentage of their ownership in the Company was not affected. This share split has been retrospectively reflected for all periods presented.

 

On August 7, 2018, Taobao converted 54,211,111 Series A Preferred Shares of 58 Home to 75,476,660 Series A Preferred Shares of 58 Freight, with fair value of US$1.8134 per share in 58 Freight. Following the closing of the share conversion, 58.com Inc. holds 68.8% of the total outstanding shares of the Company on an as-converted basis. The difference between the fair value of converted Series A Preferred Shares of 58 Freight and the book value of the original Series A Preferred Shares of 58 Home was recognized as deemed dividend to Taobao in the consolidated financial statements.

 

As of December 31, 2019, the Company’s preferred shares comprised of the following:

 

Shares

Series

Date of Issuance

Issue Price Per Share

Authorized

Forfeited

Outstanding

US$

A

27-Nov-15

1.8382

163,200,000

54,211,111

108,988,889

 

Key terms of the Series A Preferred Shares are summarized as follows:

 

Dividend rights

 

The holders of the Series A Preferred Shares shall be entitled to noncumulative dividends in preference to any dividend on the ordinary shares at the rate of 5% per annum of Series A Preferred Shares issue price. After payment of all declared dividends on the Series A Preferred Shares has been paid or set aside for payment to the holders of Series A Preferred Shares in a calendar year, any additional dividends declared shall be distributed among all holders of ordinary shares. All shareholders shall also be entitled to receive any non-cash dividends declared by the board of directors pursuant to the foregoing distribution priority.

 

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Liquidation preference

 

In the event of a liquidation, each holder of the Series A Preferred Shares then outstanding shall be entitled to receive, prior to any distribution or payment to any holder of ordinary shares or any other shares, an amount per Series A Preferred Share equal to the greater of (i) the sum of (a) one hundred and twenty percent (120%) of Series A Preferred Share issue price, plus (b) any dividends declared and unpaid with respect to each Series A Preferred Share, and (ii) such amount per share as would have been payable had all funds and assets legally available for distribution to the shareholders been distributed pro rata among the holders of Series A Preferred Shares (on an as converted basis) and ordinary shares immediately following the liquidation. In the event that available assets are insufficient to permit payment of the Series A Preferred Share amount in full to all holders of Series A Preferred Shares, then the assets of the Company shall be distributed ratably to the Series A Preferred Shares holders based on their proportionate share ownership.

 

Redemption rights

 

There is no redemption right with respect to the Series A Preferred Share. However, if the Company grants any investor redemption rights in any future financing, each holder of Series A Preferred Shares shall have the same redemption rights automatically without further consideration.

 

Conversion rights

 

Each of the Series A Preferred Shares is convertible into the number of fully-paid ordinary shares as determined by dividing the original issue price applicable to such preferred shares by the conversion price in effect at that time. The initial conversion ratio for Series A Preferred Shares to Class A Ordinary Shares shall be 1:1 adjusted for share splits, share dividends, recapitalization and similar transactions.

 

The Series A Preferred Shares shall automatically be converted into ordinary shares at the conversion price in effect upon the closing of a qualified initial public offering (“Qualified IPO”).

 

Voting rights

 

Each Series A Preferred Share conveys the voting right of one vote for each Class A Ordinary Shares into which such Series A Preferred Shares can be converted.

 

Series B round equity financing of 58 Freight

 

In August, 2018, 58 Freight completed its Series B round of equity financing, with participation from Taobao, Cainiao Smart Logistics Network (Hong Kong) Limited (“Cainiao”), Vision Carnation Limited and other investors. In conjunction with the issuance of Series B Preferred Shares, 58 Freight granted the investors the warrants to purchase up to 57,988,166 Series B Preferred Shares of 58 Freight at a purchase price of US$1.3580 per share for Cainiao and US$1.8107 per share for other investors. These warrants were exercisable upon issuance with an exercise period of nine months and were not exercised then.

 

In January, 2019, 58 Freight completed subsequent closing of Series B round of equity financing and issued 8,511,496 Series B Preferred Shares at an issuance price of US$1.8107 per share for a total cash consideration of US$15,412.

 

In July 2019, 58 Freight completed additional subsequent closing of Series B round of equity financing from Mega Prime Development Limited (“Mega Prime”). 58 Freight issued 7,889,546 Series B Preferred Shares at an issuance price of US$1.90125 per share for a total cash consideration of US$15,000. In conjunction with the issuance of Series B Preferred Shares, 58 Freight granted warrants to Mega Prime to purchase up to 21,038,790 Series B Preferred Shares of 58 Freight with a purchase price of US$1.90125. The warrants were measured at fair value of RMB15,808 on the date of issuance with the assistance of an independent valuation firm. The original exercise period of the warrants was from the date of issuance to February 29, 2020 and was later extended to June 30, 2020 in amendment agreements with Mega Prime. Until the date of this report, the warrants are not exercised.

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

For the Series B Preferred shares with warrants, 58 Freight has allocated the gross proceeds of Series B Preferred Shares first to warrants based on their standalone fair value at issuance, and the residual proceeds to Series B Preferred Shares. For certain investors to whom 58 Freight issued a combination of Series B Preferred Shares, warrants and the convertible notes (Note 18), the residual proceeds equivalent to the total gross proceeds from Series B Preferred Shares and convertible notes minus the fair value of both warrants and convertible notes were allocated to Series B Preferred Shares. The warrants were initially recorded as a liability because they were exercisable to purchase Series B Preferred Shares which are redeemable upon the failure to consummate a Qualified IPO by 58 Freight on or prior to the fifth anniversary of the issuance date. The warrants were marked to market from the warrants issuance date until the date they were exercised or expired. The loss on fair value change of warrants was RMB13,068 for the year ended December 31, 2018 and the gain on fair value change of warrants was RMB125,788 for the year ended December 31, 2019.

 

Following the closing of the Series B financing of 58 Freight, the Company holds 73.8% of the total outstanding ordinary shares of 58 Freight and 51.5% of the total outstanding shares of 58 Freight on fully diluted and as-converted basis.

 

The preferred shares of 58 Freight were accounted for as Mezzanine classified non-controlling interest in the consolidated financial statements of the Company.

 

As of December 31, 2019, 58 Freight’s preferred shares comprised of the following:

 

Name		Issuance Date		Original Issuance Price per share		Number of Shares
Series A Preferred Shares		August 7, 2018		US$0.0000025		75,476,660
Series B Preferred Shares		August 7, 2018		US$1.8107		57,446,943
Series B Preferred Shares		January 31, 2019		US$1.8107		8,511,496
Series B Preferred Shares		July 26, 2019		US$1.90125		7,889,546

 

Key terms of 58 Freight’s Series B Preferred Shares are summarized as follows:

 

Liquidation preference

 

In the event of a liquidation, dissolution or winding up of 58 Freight, including deemed liquidation event, available assets of 58 Freight are first distributed to the holders of Series A and Series B Preferred Shares at their original issuance price per share multiplied by a simple annual interest of ten percent (10%) per preferred share, plus any declared but unpaid dividends adjusted for share splits, share dividends.

 

Redemption rights

 

If 58 Freight fails to consummate a Qualified IPO, nor has a trade sale of 58 Freight occurred, on or prior to the fifth anniversary of the issuance of Series A and Series B Preferred Shares, any holder of the Series A and Series B Preferred Shares may require 58 Freight to redeem up to all of the preferred shares held by such holder with 10% interest and all declared but not paid dividend.

 

The accretion to the redemption value commenced at the issuance date and continue until such time that the preferred shares are no longer redeemable. The Company recognized changes in the redemption value of the preferred shares, as if the reporting date is the redemption date of the preferred shares.

 

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Conversion rights

 

Each of the Series A and Series B Preferred Shares is convertible into the number of Class A Ordinary Shares as determined by dividing the original issue price applicable to such preferred shares by the conversion price in effect at that time. The initial conversion ratio for Series A and Series B Preferred Shares to Class A Ordinary Shares shall be 1:1 adjusted for share splits, share dividends, recapitalization and similar transactions.

 

The Series A and Series B Preferred Shares shall automatically be converted into Class A Ordinary Shares at the conversion price in effect upon the closing of a Qualified IPO.

 

Voting rights

 

Each Series A and Series B Preferred Share conveys the voting right of one vote for each Class A Ordinary Share into which such Series A and Series B Preferred Shares can be converted.

 

Series A round equity financing of 58 Daojia

 

In January 2019, 58 Daojia completed its Series A round of equity financing. 58 Daojia issued 22,004,000 Series A Preferred Shares to offshore investors at an issuance price of US$2.5 per share for a total cash consideration of US$55,010 (approximately RMB372,825). In conjunction with the issuance of Series A Preferred Shares, 58 Daojia issued loans to onshore investors in an aggregated principle amount of RMB259,899 and warrants to entitle them to purchase Series A Preferred Shares at then applicable purchase price.

 

As of December 31, 2019, 58 Daojia’s Series A Preferred Shares comprised of the following:

 

Name		Issuance Date		Original Issuance Price per share		Number of Shares
Series A Preferred Shares		January 21, 2019		US$2.5			22,004,000

 

The Series A Preferred Shares of 58 Daojia were accounted for as mezzanine classified non-controlling interest in the consolidated financial statements of the Company as they are contingently redeemable at the options of the holders. In addition, the Company records accretions of the Series A Preferred Shares of 58 Daojia to the redemption value from the issuance date to the earliest redemption date. The accretions using the effective interest method, are recorded against retained earnings, or in the absence of retained earnings, by charging against additional paid-in capital. Once additional paid-in capital has been exhausted, additional charges are recorded by increasing the accumulated deficit. Each issuance of the Series A Preferred Shares of 58 Daojia is recognized at the respective fair value at the date of issuance net of issuance costs. The issuance costs for Series A Preferred Shares were RMB7,694.

 

The Company has determined that there was no beneficial conversion feature attributable to the Series A Preferred Shares because the initial effective conversion prices of these Series A Preferred Shares were higher than the fair value of 58 Daojia’s common shares determined by the Company taking into account independent valuations.

 

Following the closing of the Series A financing of 58 Daojia, the Company holds 100% of the total outstanding ordinary shares of 58 Daojia and 89.7% of the total outstanding shares of 58 Daojia on fully diluted and as-converted basis.

 

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

The key terms of 58 Daojia’s Series A Preferred Shares are as follows:

 

Conversion right

 

Each holder of Series A Preferred Shares shall have the right, at such holder’s sole discretion, to convert all or any portion of the holder’s Series A Preferred Shares into Class A ordinary shares at any time at an initial conversion ratio of 1:1, which will be subject to adjustment to reflect share splits, share combinations, share dividends, recapitalization, merger and similar transactions.

 

The Series A Preferred Shares shall automatically be converted into Class A ordinary shares, at the then applicable Series A Preferred Shares conversion price, upon the consummation of a Qualified IPO. The initial conversion price will be the original issuance price (US$2.5), which will be subject to adjustment to reflect share splits, share combinations, share dividends, recapitalization, merger and similar transactions.

 

Redemption right

 

Series A Preferred Shares are redeemable at any time and from time to time on or after the earlier date of the occurrence of (i) 58 Daojia fails to consummate a Qualified IPO within five years, or (ii) the occurrence of certain deemed liquidation event on or prior to the fifth anniversary of the issuance of Series A Preferred Shares. Any holder of the Series A Preferred Shares may require 58 Daojia to redeem up to all of the Series A Preferred Shares held by such holder with a simple non-compounded interest rate of 10% per annum and all declared but not paid dividend thereon up to the date of redemption.

 

The accretion to the redemption value commenced at the issuance date and continue until such time that the Series A Preferred Shares are no longer redeemable. The Company recognized changes in the redemption value of the Series A Preferred Shares, as if the reporting date is the redemption date of the Series A Preferred Shares.

 

Voting Right

 

Each Series A Preferred Share conveys the voting right of one vote for each Class A ordinary share into which such Series A Preferred Shares can be converted.

 

Dividend

 

The Series A Preferred Shares shall be entitled to receive, pari passu with each other and out of any funds and assets legally available therefor, non-cumulative dividends at the rate of 5% per annum of the Series A Preferred Shares issuance price (“Series A Issuance Price”) per share prior to, and in preference to, any dividend on any other class or series of shares of 58 Daojia.

 

Liquidation rights

 

In the event of deemed liquidation events, the Series A Preferred Shares holder has preferential right than the holders of any ordinary shares of 58 Daojia to obtain the distribution or payment from 58 Daojia. The distribution amount is either i) on a per-share basis, an amount equal to the Series A Issuance Price plus a simple non-compounded interest of 10% per annum on the Series A Issuance Price and all declared but unpaid dividends relating to such preferred share; or ii) such holder’s pro rata share of the assets of 58 Daojia as of the date such holder receives all the amount due.

 

Deemed liquidation events include: i) a sale of all or substantially all of the assets of 58 Daojia; ii) any merger or consolidation of 58 Daojia with or into another entity; iii) a transfer in which more than fifty percent of the outstanding voting power of 58 Daojia is transferred; iv) a liquidation, dissolution or winding up of 58 Daojia.

 

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

16. Ordinary shares

 

The Company was incorporated in BVI in January 2015. The Company was authorized to issue a maximum of 640,800,000 shares with a par value of US$0.00001 per share. As of December 31, 2015, 83,100,000 Class A Ordinary Shares, 1,880,000 Class B Ordinary Shares and 6,000,000 Class C Ordinary Shares were issued.

 

Under the share repurchase agreement approved by the Company’s board of directors on July 4, 2016, the Company repurchased 3,100,000 Class A Ordinary Shares from a shareholder for total considerations of RMB10,000.

 

On July 8, 2016, a 4-for-1 stock split for all ordinary shares and Series A Preferred Shares was approved by the shareholders. While the stock split increased the number of shares for each shareholder, the percentage of their ownership in the Company was not affected. This share split has been retrospectively reflected for all periods presented. The authorized 640,800,000 shares were divided into 2,563,200,000 shares including 163,200,000 preferred shares in connection with the issuance of Series A Preferred Shares with a par value of US$0.0000025 per share.

 

In September 2016, the Company granted 12,400,000 fully vested restricted shares to a senior management member of the Company.

 

As of December 31, 2018 and 2019, 332,400,000 Class A Ordinary Shares, 7,520,000 Class B Ordinary Shares and 24,000,000 Class C Ordinary Shares were issued and outstanding.

 

17. Share-based compensation

 

Share options relating to ordinary shares of the Company

 

In February 2015, the Company adopted its 2015 Share Incentive Plan, or the 58 Home 2015 Plan. The maximum aggregate number of shares which may be issued pursuant to all awards under the 58 Home 2015 Plan is 80,000,000 ordinary shares of 58 Home. The 58 Home 2015 Plan permits the awards of options and restricted shares. Unless terminated earlier, the 58 Home 2015 Plan will terminate automatically in 2025. In connection with the Series A round of equity financing closed on November 27, 2015, the maximum aggregate number of shares which may be issued under the 58 Home 2015 Plan was increased by 8,000,000 ordinary shares of 58 Home.

 

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

A summary of the 58 Home’s share option activities for the year ended December 31, 2017, 2018 and 2019 is presented below:

 

		Number of Options				Weighted Average Exercise Price per share				Weighted Average Remaining Contractual Life				Aggregate Intrinsic Value
						US$				In years				US$
Outstanding as of December 31, 2017			30,543,500				0.43				7.76				66,344
Granted			-				-
Forfeited			(347,500	)			0.75
Outstanding as of December 31, 2018			30,196,000				0.40				6.70				63,632
Granted			-				-
Forfeited			(2,224,750	)			0.79
Outstanding as of December 31, 2019			27,971,250				0.37				5.63				58,495

 

In October 2017, the Company granted 3,356,000 share options to certain employees at the exercise price of US$0.92 per share and 1,538,000 share options to certain employees at the exercise price of US$1.31 per share, where 50% of the options shall be vested upon the second anniversary of grant date and remaining shall vest every six months thereafter in four equal installments. There is no grant of share options in 2018 and 2019.

 

The weighted average grant date fair value of options granted for the year ended December 31, 2017 was US$1.84. There was no new granted award for the years ended December 31, 2018 and 2019.

 

The Company estimated the fair value of share options using the binominal option-pricing model with the assistance from an independent valuation firm. The fair value of each option granted under the 58 Home 2015 Plan was estimated on the date of grant with the following assumptions:

 

		2017
Expected volatility			50.53	%
Risk-free interest rate (per annum)			2.33	%
Exercise multiple			2.2
Expected dividend yield			0.00	%
Expected term (in years)			10
Expected forfeiture rate (post-vesting)			0.00	%
Fair value per share of the underlying shares on the date of option grants (US$)			1.75-1.88

 

The Company estimated the risk free rate based on the yield to maturity of US treasury bonds denominated in US$ at the option valuation date. The exercise multiple is estimated as the ratio of fair value of underlying shares over the exercise price as at the time the option is exercised, based on a consideration of research study regarding exercise pattern based on historical statistical data. Expected term is the contract life of the option. The expected volatility at the date of grant date and each option valuation date was estimated based on the historical stock prices of comparable companies. The Company has never declared or paid any cash dividends on its capital stock, and the Company does not anticipate any dividend payments on its ordinary shares in the foreseeable future.

 

For the years ended December 31, 2017, 2018 and 2019, the Company recognized share-based compensation expenses of RMB527, RMB605 and RMB294 for share options granted under 58 Home 2015 Plan.

 

As of December 31, 2019, there were a total of RMB69,233 unrecognized compensation expenses, adjusted for estimated forfeitures, related to non-vested share-based compensation arrangement under 58 Home 2015 Plan. The expense is expected to be recognized over a weighted average period of 0.93 years. Total unrecognized compensation expenses may be adjusted for future changes in estimated forfeitures.

 

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Share-based awards relating to GogoVan Cayman

 

On March 24, 2015, GogoVan Cayman adopted a Share Incentive Plan (the “GogoVan Plan”) which provides share-based awards to employees and non-employees for their services. The maximum aggregate number of shares which may be issued pursuant to all awards under the GogoVan Plan is 14,901,508 of GogoVan Cayman’s ordinary shares. GogoVan Cayman became the principal shareholder of 58 Freight after it was acquired by newly issued ordinary shares of 58 Freight in August 2017, so the cost relating to such share-based awards is recognized by the Company as a contribution from principal shareholder in connection with the services provided.

 

The options granted vest over a period of three years and have a term of ten years. Upon the termination of an option holder’s employment, all unvested options will immediately terminate and vested options will remain exercisable for a period of 90 days after date of termination (one year in the case of death or disability), unless otherwise specified in an option holder’s employment or stock option agreement.

 

In April 2018, 8,957,602 of GogoVan Cayman’s share options were granted at the exercise price of US$0.0001 per share. The weighted average grant date fair value was US$1.90 per share. There is no grant of share options in 2019. The Company estimated the fair value of share options using the binominal option-pricing model with the assistance from an independent valuation firm.

 

For the years ended December 31, 2018 and 2019, the Company recognized share-based compensation of RMB96,417 and RMB11,032 under GogoVan Plan, respectively.

 

As of December 31, 2019, there were a total of RMB8,632 of unamortized compensation costs related to these outstanding share-based awards under GogoVan Plan granted by GogoVan Cayman, adjusted for estimated forfeitures. The expense is expected to be recognized over a weighted average period of 0.94 years.

 

Restricted Share Units (“RSUs”) awards of 58 Daojia

 

In connection with 58 Daojia’s issuance of Series A convertible redeemable preferred shares, 58 Daojia has granted 6,991,255 and 942,477 RSUs to key management in January and October 2019, respectively. The vesting of RSUs issued is subject to a market condition related to the fair value of 58 Daojia. Share-based compensation expense will be recognized in the requisite service period of 1.35 and 1.18 years respectively, which is the estimated period that it will take for the market condition to be achieved.

 

The fair value of the RSUs was calculated based on the fair value of ordinary shares of 58 Daojia with the assistance of an independent valuation firm. The fair value of the RSUs awards was estimated on the grant date with the following assumptions:

 

		January, 2019				October, 2019
Expected volatility			45.4	%			43.8	%
Risk-free interest rate (per annum)			2.60	%			1.70	%
Expected dividend yield			0.00	%			0.00	%
Expected term (in years)			3.0				2.2
Fair value per share of the underlying shares (USD)			1.87				1.92

 

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

The expected volatility was estimated based on the historical stock prices of comparable companies. 58 Daojia has never declared or paid any cash dividends on its capital stock, and 58 Daojia does not anticipate any dividend payments in the foreseeable future. Expected term is the contract life of the share-based awards. The Company estimated the risk-free interest rate based on the yield to maturity of U.S. treasury bonds denominated in USD at the option valuation date.

 

For the year ended December 31, 2019, the Company recognized RMB17,884 share-based compensation expenses associated with the RSUs. As of December 31, 2019, the total unrecognized compensation expenses related to the RSUs were RMB10,092. These amounts are expected to be recognized over a weighted average remaining derived service period of 0.53 years.

 

Concurrent with the foregoing RSUs issuance to key management, 58 Daojia has also granted 75,398,146 ordinary shares to 58 Home and 754,735 Series A Preferred Shares to Zhuhai Hengqin Ruilin Huaxin Investment Partnership (“Ruilin Huaxin”). 58 Home and Ruilin Huaxin can only receive the shares when a market condition related to the fair value of 58 Daojia is satisfied.

 

18. Convertible notes

 

Convertible notes of 58 Freight

 

On July 12, 2018, 58 Freight issued loans of RMB159,400, which is convertible into equity interests in Tianjin Freight, and warrants to purchase Series B Preferred Shares of 58 Freight (“Warrant Shares”) at a per-share price of US$1.8107 to Qianhai Equity Investment Fund (“Qianhai Fund”) and Zhuhai Hengqin Fortune Huaxin Investment Partnership (“Fortune Huaxin”).

 

On January 25, 2019, 58 Freight repaid RMB3,800 of the convertible note to Fortune Huaxin. Concurrently, 58 Freight issued loans of RMB11,607, which is convertible into equity interests in Tianjin Freight, and Warrant Shares at a per-share price of US$1.8107 to Zhuhai Hengqin Borui Huaxin Investment Partnership (“Borui Huaxin”).

 

The exercise of such warrants and repayment of the loan are in conjunction with each other, and conditional upon the approval by PRC government authority on converting loan of RMB into USD for the purchase of the Series B Preferred Shares of 58 Freight by exercise of warrants. The Company accounted for the combined instruments as convertible notes, which is convertible to Series B Preferred Shares of 58 Freight with a conversion price of US$ 1.8107, which equivalent to the original issuance price of Series B Preferred Shares of 58 Freight, and shall be subject to adjustment from time to time for any Share Dividends, Subdivisions, Combinations of Ordinary Shares, Distributions, Reorganization, or any other similar events. The exercise period of such convertible notes is 15.2 years.

 

The holders of such convertible notes are entitled to participate in the redemption and liquidation of 58 Freight with the equivalent rights as the holders of Series B Preferred Shares of 58 Freight. The Company elected the fair value option and recognized the convertible notes as financial liabilities measured with fair value at the end of each reporting period.

 

The Group engaged an independent valuation firm to assist the management in its assessment of fair value of convertible notes of 58 Freight as of December 31, 2018 and 2019. The loss in fair value of convertible notes of RMB6,545 was recognized for the year ended December 31, 2018 and the gain in fair value of convertible notes of RMB6,348 was recognized for the year ended December 31, 2019.

 

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

The fair value measurements of convertible notes are based on significant inputs not observable in the market, and thus represent Level 3 fair value measurements.

 

Convertible notes of 58 Daojia

 

In 2019, 58 Daojia issued loans and the warrants with the rights to purchase Series A Preferred Shares of 58 Daojia at a per-share price of US$2.5 to certain investors with an aggregated consideration of RMB414,980, respectively. The exercise of such warrants and repayment of the loans are in conjunction with each other, and conditional upon the approval by PRC government authority on converting loan of RMB into USD for the purchase of the Series A Preferred Shares of 58 Daojia by exercise of warrants. The Company accounted for the combined instruments as convertible notes, which is convertible into Series A Preferred Shares of 58 Daojia with a conversion price of US$2.5, which equivalent to the original issuance price of Series A Preferred Shares of 58 Daojia, and shall be subject to adjustment from time to time for any Share Dividends, Subdivisions, Combinations of Ordinary Shares, Distributions, Reorganization, or any other similar events. The exercise period of such convertible notes is 15.2 years.

 

The holders of such convertible notes are entitled to participate in the redemption and liquidation of 58 Daojia with the equivalent rights as the holders of Series A Preferred Shares. The Company elected the fair value option and recognized the convertible notes as financial liabilities measured with fair value at the end of each reporting period.

 

The Group engaged an independent valuation firm to assist the management in its assessment of fair value of convertible notes of 58 Daojia as of December 31, 2019, and the loss in fair value of convertible notes of RMB7,814 was recognized for the year ended December 31, 2019.

 

The fair value measurements of convertible notes are based on significant inputs not observable in the market, and thus represent Level 3 fair value measurements.

 

19. Related parties’ balances and transactions

 

Details of related party balances and transactions as of December 31, 2018 and 2019 are as follows:

 

(1)

Amounts due from related parties

 

As of December 31, 2018 and 2019, amounts due from related parties were RMB1,672 and RMB6,845, respectively, and details are as follows.

 

		As of December 31,
		2018				2019
		RMB				RMB
Company A (Note (a))			517				230
Company B (Note (b))			-				6,615
Cainiao (Note (c))			1,155				-
Total			1,672				6,845

 

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note:

 

(a)

Company A is an equity investee of the Group. The amount due from it was related to commission revenue from nursing services provided to it.

 

(b)

Company B is an equity investee of the Group. The amount due from it mainly included service fee from third party received by Company B on behalf of the Company.

 

(c)

The amount due from Cainiao was related to delivery revenue from logistics services provided to Cainiao.

 

(2)

Prepayment to a related party

 

Prepayment to a related party represented amounts prepaid to Company B for its services. As of December 31, 2018 and 2019, prepayment to Company B was nil and RMB7,740, respectively.

 

(3)

Amounts due to related parties

 

Amounts due to related parties represented amounts due to Cainiao for rental vehicles from it. As of December 31, 2018 and 2019, amounts due to Cainiao was RMB2,901 and RMB1,447, respectively.

 

(4)

Services provided to related parties

 

		For the year ended of December 31,
		2017				2018				2019
		RMB				RMB				RMB
Company A			3,432				1,238				1,234
58.com Inc.			-				-				409
Cainiao			-				1,074				-
Total			3,432				2,312				1,643

 

(5)

Services provided by related parties

 

		For the year ended of December 31,
		2017				2018				2019
		RMB				RMB				RMB
Cainiao			-				2,901				9,779
Company B			-				-				730
Total			-				2,901				10,509

 

20. Commitments and contingencies

 

(a)	Commitments

 

As of December 31, 2019, future minimum commitments under non-cancelable agreements were as follows:

 

		2020				2021				2022				2023				2024				Thereafter				Total
			RMB				RMB				RMB				RMB				RMB				RMB				RMB
Operating lease commitments			82,970				61,506				33,573				12,785				12,365				25,956				229,155

 

Other than those shown above, the Company does not have any significant capital or other commitments, long-term obligations, or guarantees as of December 31, 2019.

 

 

58 Daojia Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

(b)	Contingencies

 

The Group is not currently a party to, nor is aware of, any legal proceeding, investigation or claim which is likely to have a material adverse effect on the Group’s business, financial condition, results of operations, or cash flows. The Group did not record any legal contingencies as of December 31, 2019.

 

21. Subsequent events

 

In February and March 2020, 58 Daojia executed the transaction documents for the 58 Daojia Series B financing with total cash consideration of US$100,000 (approximately RMB697,620), for 7.4% of the total outstanding shares on fully diluted and as-converted basis. Upon completion of 58 Daojia Series B financing, the Company lost its control over 58 Daojia and deconsolidated the financial results of 58 Daojia from its consolidated financing statements in accordance with ASC 810 “Consolidation”. All the cash consideration has been received by 58 Daojia as of the date of this report.

 

In February 2020, the Group borrowed a short-term loan from 58.com Inc. amounted to RMB104,652, which will be due within one-year from the date of borrowing.

 

Since the outbreak of COVID-19, PRC government has implemented a series of strict measures, including travel restrictions, quarantines, and a temporary shutdown of businesses which resulted in a decrease in activity level between both service providers and end customers. In particular, both delivery service business and domestic service business require in-person meetings to conduct their business and have been adversely and materially affected by these interruptions and delayed business resumption. As the Group’s revenues are generated primarily from delivery service business and domestic service business, the outbreak of COVID-19 and subsequent prevention and control measures have adversely affected the Group’s business operations and financial conditions in the first half of 2020. The Group also scaled back certain expenses, particularly some discretionary advertising expenses to mitigate the adverse impact on its profit. During February 2020, a majority of the Group’s employees worked from home. As the service providers and end customers, part of whom are migrant workers, took longer to resume normal businesses due to these quarantine measures, the Group also delayed hiring for its sales and customer services teams. Since the end of February 2020, the number of daily new cases of COVID-19 in the PRC have been contained at a relatively low level, the quarantine measures have been gradually relaxed or lifted. Offline business activities have been recovering and the Group’s employees are going back to offices. Despite the recovering trend the Group has observed till the date of this report, there is still high uncertainty as to how the ongoing pandemic will develop and its impact on the Group’s business going forward. For example, authorities in Beijing have locked down certain residential communities in response to new confirmed COVID-19 cases in June 2020 and the health officials in PRC warned the risk of the outbreak worsening was “very high”. If the pandemic continues to impact economic activity subsequent to the date of this report, the Group’s business, financial condition and results of operations for the remainder of the fiscal year ending December 31, 2020 may continue to be adversely affected, the extent of which cannot be reasonably estimated at the current stage. The Group will regularly assess and adopt measures to offset any challenges created by the ongoing pandemic.

 

 

v3.20.2

Document and Entity Information	12 Months Ended
	Dec. 31, 2019 shares
Document Information [Line Items]
Document Type	20-F/A
Amendment Description	Amendment No. 1
Document Registration Statement	false
Document Annual Report	true
Document Period End Date	Dec. 31, 2019
Document Transition Report	false
Document Shell Company Report	false
Entity File Number	001-36140
Entity Registrant Name	58.com Inc.
Entity Incorporation, State or Country Code	E9
Entity Address, Address Line One	Building 105, 10 Jiuxianqiao North Road Jia
Entity Address, Address Line Two	Chaoyang District
Entity Address, City or Town	Beijing
Entity Address, Postal Zip Code	100015
Entity Address, Country	CN
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Emerging Growth Company	false
Document Accounting Standard	U.S. GAAP
Entity Shell Company	false
Entity Central Index Key	0001525494
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	FY
Amendment Flag	true
Business Contact
Document Information [Line Items]
Entity Address, Address Line One	Building 105, 10 Jiuxianqiao North Road Jia
Entity Address, Address Line Two	Chaoyang District
Entity Address, City or Town	Beijing
Entity Address, Postal Zip Code	100015
Entity Address, Country	CN
Contact Personnel Name	Wei Ye
City Area Code	+86
Local Phone Number	10 5956-5858
ADR
Document Information [Line Items]
Title of 12(b) Security	American depositary shares, each representing two Class A ordinary shares
Security Exchange Name	NYSE
Trading Symbol	WUBA
Class A Ordinary Shares
Document Information [Line Items]
Title of 12(b) Security	Class A ordinary shares, par value US$0.00001 per share*
Security Exchange Name	NYSE
Entity Common Stock, Shares Outstanding	254,045,293
Trading Symbol	WUBA
Ordinary shares
Document Information [Line Items]
Entity Common Stock, Shares Outstanding	299,277,413
Common Class B
Document Information [Line Items]
Entity Common Stock, Shares Outstanding	45,232,120